Consciousness of Sheep
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An absence of cleverness
Although mainstream, neoclassical economists deny that there is any objective, material source of value, it is remarkable how many tacitly accept David Ricardo’s labour theory of value. This is the – largely erroneous – belief that it is human labour which generates value within the economy. As tidied-up, first by Adam Smith and later by Karl Marx, the theory states that there is a socially necessary quantity of labour time required to produce any good or service, and it is this which determines its value… the currency we use merely being a convenient and socially accepted approximation of the labour time involved.
Belief in this theory – whether explicit or tacit – has an impact on contemporary employment policy. For example, in the UK there is a widely-held belief that there is a labour shortage. It follows that – for better or worse – government must make decisions which are opposed by a large majority of the population in order to maintain economic growth. For example, there is growing pressure to coerce indigenous Britons back into the workplace even where their presence would be a liability. It is here that Delphine Strauss at the Financial Times reports growing official concern about the high and growing number of working age Britons who are economically inactive due to ill-health:
“Bank of England officials do not usually pore over the details of NHS waiting lists. But, in recent months, the health of the UK workforce has become an urgent question for monetary policymakers.
“Britain avoided big job losses at the height of the pandemic but, since Covid-19 lockdowns lifted, it has seen an exodus of older workers from the labour force. The number of people of working age who are economically inactive — neither working nor looking for a job — has risen by more than 630,000 since 2019. And, in contrast with other countries, there has been no sign of them returning — even as inflation puts new strains on household finances.”
According to the labour theory of value, if all of these people could be returned to the workplace, this would result in a big increase in the value generated, thereby returning the economy to growth. But is this true? Age and ill-health discrimination are not covered by equalities legislation and were widespread long before the pandemic. Older workers who became unwell during two years of lockdown are likely being realistic in accepting that they have little chance of finding employment and so, must accept a low-income early retirement as the only viable alternative. It is notable in this respect that many of the vacancies in the economy are in occupations traditionally carried out by younger and physically fit workers, such as airport baggage handling, agricultural labour and various hospitality roles… occupations that only the most desperate of employers would attempt to fill with an arthritic 60+ year old.
It is worth reflecting at this point that, following the economic vandalism of the early 1980s, Britain had a similar problem with redundant older workers… except that in those days the figures were less fiddled, and so these workers appeared in the unemployment data. To resolve this – and to make it appear that unemployment was falling – the government broadened access to Incapacity Benefit – which was some 50 percent higher than unemployment benefit – to make it a de facto means of allowing the over-50s to take early retirement.
The obvious question this gives rise to is why economic inactivity among the over-50s is such a problem today, when it was not only not a problem, but in some ways was actually a solution to the economic problems four decades ago? This can be answered with just three letters: O I L. By the mid-1980s, Britain had emerged as a major exporter of oil – pumping more than Kuwait for a few years. And the export income from that oil was used in two ways – first to fund and massage the large unemployment hangover from the deindustrialisation of the early 1980s, and second, to provide the seed capital for the revolution in computing and telecommunications – remember that prior to privatisation, Britons had to beg the General Post Office for permission to rent a telephone – many of us, even in the early 1980s relying on public call boxes and the kindness of neighbours to make calls to the outside world.
The energy theory of value frames the problem entirely differently. Unlike conventional economics, its starting point is that energy or, more precisely exergy – the proportion of energy available for work – is the source of value. Since labour power – amounting to around 1,000 Calories per day – is a very, very weak source of energy it can generate some value. Nevertheless, it is dwarfed by the energy provided by fossil fuels, nuclear power and even non-renewable renewable energy-harvesting technologies (NRREHTs). The sheer power of that portion of the fossil fuels coming from the North Sea that were consumed within Britain was sufficient to allow a large part of the population to leave the workplace entirely. Even so, there was still sufficient energy to power the growth of the computing and communications sector of the economy – likely the final spurt of industrial growth prior to the process of decline that we are now well into.
Value, however, is not solely the product of raw energy. Productivity – essentially the art of doing more for less – involves utilising technology – in the broadest sense of the word – to maximise the exergy available for production, while minimising the energy lost as waste heat. The problem is that all productivity gains follow an “S” curve:
Eventually, the cost of further improvement is greater than the value it returns. And while states may subsidise further gains for a short period – as, for example, Britain and France did with supersonic commercial flight – eventually the financial drag on the broader economy becomes too great.
From an energy theory of value perspective then, the reason economic inactivity was not a problem in the mid-1980s was because Britain has surplus energy – oil and gas – and was making productivity gains – computerisation and telecommunications. It follows that the crisis today ought not to concern the surplus of older and infirm economically inactive people so much as the lack of energy and technological innovation to automate those roles for which workers can no longer be found.
Energy has, of course, been a growing problem in the UK for decades. Britain became a net importer of oil and gas by 2005 and has been dependent upon dwindling and increasingly expensive imports ever since. Nor is there much left to be had in the way of productivity gains – without cheap and abundant energy, the best we can achieve amounts to minor gains at enormous cost. Nevertheless, despite knowing an energy crisis was coming, governments of all colours ducked the issue – perhaps hoping that clever people in the future would plug the growing energy gap. Well dear reader, we are those future people… and cleverness is nowhere to be found.
It’s only cheap if…
The fabled “net zero” is predicated on the simple idea that the cost of NRREHTs will continue to fall. And for some time, this appeared to be borne out, as economies of scale and productivity gains pushed prices down. But ultimately there is a thermodynamic limit beyond which we cannot go – the point when the energy cost of further improvement is greater than the energy harvested in return. This is mirrored to some extent in the financial economy as the point at which the price of improvement is greater than the profits returned.
It is only in the last three or four years though, that we seem to have passed a tipping point beyond which the energy cost of energy has risen to an extent that it actually cancels out earlier gains. And this, of course, has been amplified in Europe, where two years of lockdown followed by insane energy self-sanctioning threatens to deindustrialise an entire continent. The response from the technocracy is that NRREHTs – together, in some versions, with new nuclear – will ride to the rescue.
Surplus energy economics though, says otherwise. We have already witnessed the wholesale dismantling of Europe’s wind turbine industry. And now industrialists are calling time on Europe’s attempt to create its own battery industry… thereby making electric cars far more expensive. As Automotive News Europe reports:
“Investment in German and EU industrial projects such as battery-cell factories will be unfeasible if the region’s policy makers fail to control ballooning energy prices in the long-term, the head of Volkswagen Group’s namesake brand, Thomas Schäfer, said. ‘Unless we manage to reduce energy prices in Germany and Europe quickly and reliably, investments in energy-intensive production or new battery cell factories in Germany and the EU will be practically unviable,’ VW Schaefer wrote Monday on LinkedIn. ‘The value creation in this area will take place elsewhere.’”
There is a certain – albeit partly self-imposed – symmetry insofar as, having been the first place to industrialise, Europe looks set to lead the way to deindustrialisation. Because where Europe is leading, the rest of the world will follow soon enough as net energy declines to the point that a whole raft of things that we used to be able to do become too energy-expensive.
Too poor to buy cheap energy
The idea that the rich pay a lot less than the poor has been documented for decades, and is perhaps best summed up by author Terry Pratchett:
“Take boots, for example… A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars…
“But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.”
Domestic energy, too, results in the same issue. Following privatisation, the Tory government attempted to turn a natural monopoly into a quasi-market. But for this to work, households had to be prepared to switch energy supplier to grab the cheapest deal. For a long time, this didn’t work because, first, energy companies only offered cheap introductory deals to customers who paid by direct debits, and second, because energy companies made it impossible to move the direct debit to the new supplier. Law changes and the development of comparison websites made the process easier. Nevertheless, more than half of British households refuse to switch… and for the poorest, for good reason.
Paying by direct debit always benefits the supply companies at the expense of their customers. Not least because of the supply companies’ practice of jacking up direct debits far above the amount customers actually owe – a scandal that the BBC reported on just this week:
“The government has warned energy firms not to hike direct debit payments for customers who are making ‘huge efforts’ to cut usage…
“Direct debit is the lowest cost method of paying energy bills, but can lead to overcharging, because suppliers calculate bills according to a customer’s previous consumption and spread charges for higher winter use over the year.”
People with sufficient discretionary income – a shrinking class these days – can afford to take the direct debit hit while they haggle with the energy company to get their money back and to reduce their payments. But this is not an option for the poorest households, who need to pay only for the electricity and gas that they actually consume… even though this means accepting higher unit charges.
To add insult to injury, the current pricing structures offer the biggest unit cost savings to those who use the most energy. Meanwhile, those who seek to save energy are charged the highest rates. And on top of this, the flat rate standing charge – just for the privilege of being connected to the grid – disproportionately favours those who can afford to consume the most energy.
It is probably too much to hope for that, at a time when conserving energy is taking precedence over the pretence of market competition, that government and opposition parties might regulate to reward those who seek to use less energy rather than maintaining a system in which the lowest users end up paying the most. Nevertheless, with no end to the energy crisis in sight, pressure for change may be forced on them anyway.
The real political extremism
In the autumn of 1939, the British government activated its plan for evacuating children from London and the other big cities of England to rural and suburban reception areas away from likely air raid targets. It is difficult to over-estimate the cultural shock that this resulted in. Because – at least in part – the plan resulted in classes which had been separate from, and largely unknown to each other since the eighteenth century, learning first-hand how the other half lived. Newsreel footage of the period – carefully staged to show urban middle class children dressed in smart school uniforms – failed to convey the true state of much of the urban poor who turned up in the reception areas:
“It appeared they were unbathed for months… Condition of their boots and shoes – there was hardly a child with a whole pair and most of the children were walking on the ground – no soles, and just uppers hanging together… Many of the mothers and children were bed-wetters and were not in the habit of doing anything else… The appalling apathy of the mothers was terrible to see.”
Stories of reception centres having to be fumigated abounded:
“One billetor reported about how when one six year old boy went to the toilet in the front room his mother shouted: ‘You dirty thing, messing up the lady’s carpet. Go and do it in the corner.’ Another report suggested: ‘The state of the children was such that the school had to be fumigated after the reception. Except for a small number the children were filthy, and in this district we have never seen so many verminous children lacking any knowledge of clean and hygienic habits.’”
Echoed in today’s treatment of Ukrainian refugees, in practice wealthy people evaded their responsibility throughout the war, with the working class taking in more than its share of evacuees. Moreover, the cultural shock amplified early questions about the purpose of the war (the full details of Nazi atrocities would only emerge years later) and raised memories of the failure to create the promised “land fit for heroes” in the aftermath of the previous war. Indeed, coinciding with the evacuations, the Chamberlain government had published – and swifty withdrawn – a general war preparation leaflet titled “Your sacrifice will bring us victory,” which many people – perhaps correctly – interpreted as working class sacrifice to provide the ruling classes with the spoils of war.
Nevertheless, coming face-to-face with the realities of the plight of the urban poor did result in liberal soul searching, most notably in the best-selling publication of the Second World War – Social Insurance and Allied Services, better known as the Beveridge report after its author, Liberal politician Sir William Beveridge. The report examined and proposed reforms to combat the “five evils” – Want, Disease, Ignorance, Squalor and Idleness – forming the basis of the Labour reforms after 1945 and the post-war consensus which lasted through to the mid-1970s.
As L.P. Hartley wrote in The Go-Between, “The past is a foreign country; they do things differently there.” It is half a century since the Callaghan government laid the ground for Thatcher to dismantle the reforms which, while they had not vanquished those five evils had at least held them at bay. In the new, neoliberal consensus – cemented in place by Blair’s iteration of the Labour Party – the classes separated once more. What, under Thatcher, had been a “north-south divide” morphed into the 80:20 society of the early twenty-first century, with an affluent metropolitan middle-class 20 percent enjoying the proceeds of the digital global economy, while an increasingly impoverished 80 percent struggled to maintain living standards in the wastelands beyond.
Ex-industrial Britain had been in steep decline since the early 1980s. But after the 2008 crash, rundown seaside and small-town rural Britain were also plunged into decline as prosperity retreated into a handful of affluent districts adjacent to the top-tier universities in the metropolises. So that, by the end of the New Labour years, the classes were as isolated from one another as they had been through the depression of the 1930s. While the salaried, managerial class retreated behind the security cameras of their gated communities, a growing precariat attempted to eke out a living in an increasingly hostile system of low-paying and insecure work and hyper-exploitative housing.
Like the affluent classes in the autumn of 1939, today’s metropolitan liberal class experienced the first rumblings of a culture shock when a large majority of the electorate of England and Wales voted to leave the European Union – the overall vote was only narrow (52-48 percent) because of the increasingly divergent politics of Scotland and Northern Ireland. Nevertheless, the establishment media along with much of the metropolitan liberal class, refused to except the result as evidence of the very different life experiences between the classes… preferring instead to blame Russian bots, racism, and even plain stupidity. But the shocks continued anyway. The almost complete wipeout of Labour’s “red wall” in the 2019 general election – while perversely favouring a Tory Party which is even more hostile to the precariat than Labour had become – was an expression of a neglected minority no longer content to vote for the lesser of two evils, and no longer to be taken for granted.
The one – at least partial – saving grace prior to 2020 was that the decline in living standards for the majority was gradual. With each passing year, the median income – the halfway point on the income ladder – fell in real terms by a couple of hundred pounds… little more than the cost of a meal in one of London’s swankier restaurants, but the difference between eating or going hungry for those at the bottom of the heap. And to a considerable extent, decline was mitigated by the flood of cheap imports resulting from global supply chains and an over-valued pound… then came the economic vandalism of lockdown policies which destroyed much of the precarious employment which kept ex-industrial, rundown seaside and small-town Britain afloat. Broken supply chains and global energy shortages sent prices spiralling up even as incomes plummeted… the job vacancies that remained being mainly in those parts of the country – especially central London – where housing costs are too high for the pay on offer.
Even before the European technocracy decided that sanctioning their way to a new dark age was the quickest way of getting to net zero, the 2021 UK Census was recording yet another collapse in prosperity for the majority, with those at the very bottom living lifestyles that would have been recognisable to the urban poor of 1939. Of particular concern, the rates of poverty which, throughout the neoliberal years had been most pronounced in ex-industrial regions has spread like black mould through an unheated house, to infest the poorer districts of the top-tier university metropolises themselves. In an article for BBC Wales, for example, Sarah Dickins and Steve Duffy report that Cardiff – an affluent city with three universities – contains six of the ten most deprived communities in Wales:
“The latest Census results suggest that as a whole, Wales has seen an improvement in deprivation in the last 10 years.
“But more than half of households (54.1%) still fall into one of the categories used to measure it, either through being out of a job or long-term sick, having poor health or a disability, low level of education or living in an overcrowded or poorly heated home.
“When you drill down further into Census figures for local neighbourhoods, we can see those places with most households falling into all four categories.
“They are dominated by urban communities – with six of the top 10 in Wales in Cardiff.”
Among the human-interest stories used to illustrate the piece were residents of the most deprived community – Trowbridge and Rumney – reduced to eating pet food and attempting to warm food on a radiator. Nor are the impoverished districts of Cardiff unique in this respect. In another BBC Wales article from the other end of Wales, Nicola Bryan tells the story of a vicar from Holywell in Flintshire (part of Labour’s red wall as it happens) whose church provides free meals to people struggling to make ends meet:
“St Peter’s in Holywell, Flintshire, hosts free meals every Monday and will feed about 80 on Christmas Day.
“’It’s heartbreaking,’ said its vicar Father Dominic Cawdell. ‘I spend most Monday evenings in tears and I’m not a particularly soppy person.’
On Monday his church fed 196 people.
“’Lots were saying to me it was their only hot meal this week,’ he said. ‘We had some horrendous stories of people, especially people with children, saying [the children] get the hot food and I get what’s left. It’s just heartbreaking to imagine that there are people in our town who just can’t afford what you imagine to be the very basic level of what they need.’”
Remember that these were reports of events during one of the warmest autumns on record, and as higher energy prices are only beginning to bite. With the weather turning colder, and with government help with energy bills ending in February, things are going to get a lot worse. Not least because there is no end in sight to rising food and energy prices despite the economy already tipping into recession, and much of the discretionary economy already experiencing deflation.
Following October’s technocratic coup, which resulted in a Prime Minister being voted into office on less than 200 votes, the establishment media claims that the adults are back in charge. But nothing in the revised budget set out by the rhyming slang Chancellor, still less the policy announcements of the puppet Prime Minister, suggests even the inkling of a plan to bridge the growing chasm between the classes in modern Britain. Indeed, the new Cabinet seem as determined as the unelected technocrats on the other side of the Channel to deindustrialise what remains of the UK economy as rapidly as possible. And that’s the irony… in worsening the plight of the majority, the people the media call “moderates” are surely the greatest political extremists of all.
Polishing an economic turd
The UK establishment has clearly sent out instructions to its propaganda outlets to put a positive spin on economic news now that Jeremy rhyming slang has been installed as our de facto Prime Minister. So it was that within minutes of the shops opening on Black Friday, the establishment media put out stories claiming a massive increase in year-on-year spending. The BBC, for example, repeating the – now scaled back – claim that sales were up 3.2 percent on 2021… conveniently forgetting to mention that sales were still lower than in 2020.
Dig behind the glossy headlines and a somewhat different picture emerges. First, as even the BBC admit, one driver of sales is the extremely high cost of energy this winter, with a big boost in the sale of energy-saving items. This points to a population resigned to using less energy. Something which will hit energy company bottom lines and, ultimately, result in even higher energy prices when the costs are passed on. It is also worth noting that, unlike in the USA, Black Friday is a relatively new sales gimmick in the UK. And coming so close to Christmas, any increases in sales last weekend may simply reflect people doing Christmas shopping early, resulting in a fall in sales over the next fortnight or so.
Most worrying though, is the way in which people paid – or rather didn’t pay – for their Black Friday bargains. According to Benedict Smith at the Telegraph:
“Cash-strapped shoppers have turned to credit cards to pay for Black Friday deals as they battle the cost of living crisis.
“Banks and major retailers said shoppers were spending more on credit than usual. Barclays said it had seen a 4.9pc increase in credit card transactions compared to Black Friday 2019, the last year before the pandemic.
“Nationwide building society said a third of purchases this year were made using a credit card or a “buy now, pay later” company. Last year this figure was 8pc…”
With credit card debt already spiralling upward, this will fuel fears that people are taking on more debt than they can afford as a result of the social pressures at this time of year. Certainly, with interest rates above 60 percent on most credit cards at present, additional debt-based spending now points to a big financial hangover when 2023 rolls around.
The additional risk is that Bank of England economists view the additional spending in the same way as the BBC reported it – with the obvious conclusion that interest rate rises thus far have failed to dent our collective appetite for credit. This could result in further rate rises into an already collapsing UK economy. After all, as Smith notes:
“Although consumer spending increased, there were few signs of a revival for bricks-and-mortar retail, with footfall well down on pre-pandemic levels, according to data company Springboard.
“High streets and shopping centres proved the worst affected, with both having lost around a quarter of their customers since 2019.”
At times like this, the folk of Versailles on Thames – economists, politicians and establishment journalists – risk presenting – and acting on – a dangerously optimistic picture of an economy in decline. Even though a growing number of we less-elevated people can see for ourselves just how bad things are getting. As the old saying goes, the establishment can polish this turd as hard as they want… but when they’ve finished it’ll still be a turd.
As you made it to the end…
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