#74. An Age of Unreason


Whilst I have no intention of adding to the mountain of commentary about “Brexit”, the British decision to leave the European Union (EU) is an extreme example of broader and more important trends developing throughout the Western world. Essentially, governing elites are not just ignoring the unpopularity of their policies, but seem blind to the spectacular failures of those policies as well. Is this simply arrogance and idiocy – or is something more fundamental happening?

This question matters, because this is no time to leave the lunatics in charge of the asylum. The global economy has stagnated, the financial system is stretched, and political and social tensions are growing, yet all too many of those entrusted with the levers of power seem sublimely detached from what is going on.

Remarkably, they seem wholly unaware that their favoured doctrine of economic neoliberalism has been holed below the waterline, and that continuing to cling to it can only mean sinking with it.

A troubled world

As regular readers will know, the surplus energy approach to economics leads to a conclusion that the global economy has reached a plateau, after which a steady decline is to be anticipated. Meanwhile, the financial system has become a gigantic bubble, along Ponzi lines, because the system of money and credit has been allowed to expand far too much in comparison with the underlying economy.

Thus far, a financial crash has been averted – or at least delayed – only by the use of increasingly surreal monetary expedients. Money newly created for the purpose has manipulated yields down to near-zero levels in line with policy interest rates, and bonds worth more than $11 trillion now trade at negative rates. The main calming effect of ZIRP (zero interest rate policies) has been to ease the pressure of servicing gigantic global debts, whilst repayment, too, can be rolled over in an environment of unprecedentedly loose monetary policies.

Even so, areas of tension are multiplying throughout the system, exacerbated by the virtual disappearance of growth in an environment dubbed “secular stagnation”. Tranquilisers may calm nerves, but they aren’t exactly conducive to the taking of effective action.

These disturbing economic and financial patterns have political corollaries, a recent example being the popular revolt against the establishment which was sufficient to swing the British electorate against continued membership of the EU. Of course, with its governing Conservatives leaderless whilst the opposition Labour party tears itself apart, the British political situation is more chaotic than most. But tensions are increasing across much of the Western developed world, with many emerging market economies (EMEs) in deep political trouble as well.

What is abundantly clear is that the backlash against the elites is closely tied to the troubled state of the economy. One of the main reasons for this is that many Western countries have pursued an economic philosophy variously known as “neoliberalism”, “the Washington consensus” and “the Anglo-American model”.

Whatever name is used, this philosophy is turning out to have been a disaster, not just in economic terms but politically and socially as well. The choice facing the ruling elites lies between, on the one hand, abandoning neoliberalism and, on the other, sticking with it and being swept from power.

A very British shambles

Because of its dysfunctional, insufficiently-democratic system and the abject inadequacy of its political class, the United Kingdom is obviously somewhat exceptional, but it is an instructive example nonetheless. In essence, and under successive governments, Britain has pursued policies which have undermined the economy whilst driving a wedge between governing and governed.

A glaring example of this is that, whilst affluent bankers were rescued from the consequences of their own folly, no such help has been given to workers in industries such as steel-making and retail, whilst savers (including those investing in pensions) feel they have been sacrificed in the rescue of the feckless. This seems unfair – and is.

No ruling elite which treats the public with such arrogant disdain can expect to retain popular legitimacy, which is one reason why dire official forecasts for the economic consequences of “Brexit” failed to convince voters to remain in the EU.

Yet neither of the major parties shows the slightest sign of having learned from this experience. Many Conservative MPs want to choose as their leader Theresa May, another “moderniser” in the Cameron mould who, like him, who opposed “Brexit”. Meanwhile, Labour MPs keep insisting that they know better than the party membership which elected Jeremy Corbyn as leader. They might succeed in getting rid of Mr Corbyn or, with the help of the members, he might get rid of many of them. Either way, Labour is crippled.

Neither party seems remotely conscious of the need for fundamental reform. Worse still, many of those who opposed “Brexit” still seem to be in denial. As well as asserting that the millions of people who disagreed with them are xenophobic idiots, some have advocated ignoring the popular decision, holding a second referendum, or hoping that the Scots (9% of the British population) can somehow stymie departure from the EU. Any of these expedients would cause a crescendo of anger, and rightly so. The voters have decided, the “metropolitan elite” has lost, and the only adult response is to accept the fact, and respond accordingly.

European unreality

The leaders of the EU have grounds for resenting British action, but it is at the behaviour of the British government, rather at than the decision of the electorate, that they should vent their spleen. At a time when the economy and migration needed to top the EU agenda, David Cameron instead made a series of spectacularly ill-judged gambles. Having first wasted EU leaders’ time with demands for “reforms” which he failed to get, he then called a referendum for no very obvious reason, and duly lost it.

But the EU should not dismiss this as “a little local idiocy”. For a start, dissatisfaction with the status quo is by no means confined to the United Kingdom. A popular backlash against the elites is particularly visible in France, the Netherlands, Austria, Spain, Italy, Greece and Poland, whilst even Germany is witnessing the rise of the radical AfD, partly in response to Angela Merkel’s advocacy of an “open doors” policy on immigration.

Part of the EU’s problem is the euro, an economically-illiterate attempt to combine a single currency with a multiplicity of budget processes. The only way to resolve this problem would be fiscal union, but any such idea has a zero chance of popular acceptance. It seems wildly implausible that the EU will ever contemplate reverting to national currencies, despite the imperative need of many Eurozone members for devaluation. Because conventional devaluation is denied them, weaker Eurozone economies have instead had to opt for “internal devaluation”, which means pursuing greater competitiveness by driving labour costs down. As well as fanning unpopularity, this hasn’t worked, because an obvious by-product of this “austerity” route to competitiveness has been the undermining of demand.

At the same time, weaknesses seem to be emerging across much of the Eurozone’s banking system, with a huge flight of capital out of banks apparently contributing to upwards pressure on the prices of such “safe havens” as German government bonds. The sharp fall in the prices of bank shares is instructive, and started long before the British decision to leave the EU.

Global paralysis

More broadly, the capital created by ultra-loose monetary policies is swirling around the globe in pursuit of (relative) safety, and worried investors are now prepared to pay “safe” borrowers for the privilege of lending to them. Of course, the “safety” offered by lending to blue-chip borrowers provides no guarantee against losses of value through inflation, a material consideration, particularly where long-dated bonds are concerned. At the moment, the dominant price pressure is deflationary, reflecting a moribund economy, but ultra-loose monetary policy is obviously capable, under certain conditions, of triggering an inflationary spike.

In any normal world, borrowers pay lenders for the use of their money, whilst investors expect to earn positive returns. One reason why this is not happening is the apparent paucity of investment opportunities. Though ultra-cheap money is available in abundance, big companies prefer to buy back their own stock rather than invest in new ventures. This judgment may be logical, particularly in a world with massive capacity surpluses (most obviously in China), but it underlines quite how weak the economy has become.

Obviously, if the economy is moribund, and the generality of the population is suffering hardship, the rich should not expect to keep getting ever richer. Their opponents are not simply articulating “the politics of envy”, though this is certainly an influence. The real problem is that the lives of millions of working people are plagued by uncertainty, with many corporate bosses treating employees as expendable, and companies as counters in a crap-shoot. Further enriching the already rich has the politically and socially dangerous by-product of creating a “precariat”, a risk to which ruling elites seem oblivious.

It may be human nature to pursue ever greater wealth, but what is remarkable is the willingness of governments to assist. The way in which QE (quantitative easing) has been enacted typifies this. Since using newly-created money to drive up asset prices is bound to be a hand-out to those already asset-rich, logic surely suggests accompanying QE with higher taxation of capital gains – yet no government has done this. Many governments still treat capital gains as the reward of effort, even where they are self-evidently the result of speculation or good luck.

At the same, and whilst the rescue of banks may have been necessary, the rescue of bankers clearly was not. Despite the obvious social strains and inefficiencies (not to mention the risks) that arise from inflated property prices, no government has sought to prevent this bubble, or even to impose higher taxes on its beneficiaries in order to compensate its victims.

The investment playing-field has been tilted decisively in favour of speculation and against entrepreneurship, yet governments profess themselves baffled by deteriorating productivity.

No-one is as blind as someone who refuses to see.

Why persist?

Many theories might account for the continued adherence of governing elites to failed nostrums, and their inability or unwillingness to look facts in the face. One of these is a long-standing failure to block the “revolving doors” between government service and corporate wealth. Another, probably more important influence is a simple reluctance to admit to failure, a reluctance bolstered by the arrogance always engendered by the trappings of power.

The irony is that, before Western leadership cadres embraced the destructive theories of neoliberalism, we already had most of the tools necessary for the effective management of the economy. Adam Smith revealed the critical importance of competition, and the damage that is inflicted where monopoly and oligopoly are allowed to prevent its effective operation. John Maynard Keynes explained how to manage macroeconomic flows, whilst long experience should have taught us the dangers of excess, and of allowing speculation to trump innovation.

What neoliberalism brought to the party was a new emphasis on immediate gratification, together with an intellectually-spurious justification for inequality. This was typified by the mishandling of globalisation through an approach which relied on cheap and abundant credit to bridge the gap between ever-rising consumption and the haemorrhaging of well-paid jobs. This in turn led seamlessly into reckless deregulation of financial services.

All of this has rendered the elites incapable of facing up to the facts. Even if they cannot grasp the theory of the eroding energy basis of the economy, or understand the implications either of climate change or of demographic shifts, they should have become aware by now that the economy has ceased to deliver reliable growth.

The established business model – which involves pushing ever-greater consumption as a route to ever-expanding sales and ever-growing profitability – is heading for extinction. No amount of speculative finance, or of monetary manipulation, is going to revalidate this failed philosophy.

What is really frightening about this state of denial is that it has contributed to a dramatic weakening in our ability to provide security in old age. Pension investment has been ravaged by the deterioration of growth, and by the undermining of longer-term thinking. It is implicit in a philosophy of immediate gratification that it undermines preparedness to provide for the future. When the public comes to realise that the future security of the many has been sacrificed on the altar of immediate enrichment for the few, their fury will know no bounds.

An astute response would involve rebalancing, checking speculative excess, re-emphasising equity, and building bridges between governing and governed. Tsar Nicholas II was too half-witted to realise this, just as King Louis XVI was too closeted in Versailles to know what was really going on.

Today’s elites are exhibiting the characteristics of both.


36 thoughts on “#74. An Age of Unreason

  1. Always good to see truth spoken to power. Daniel Kahneman, in his book Thinking Fast and Slow Thinking makes the point that one of our greatest traps is overconfidence. I wonder if the elites can’t help feeling they must be in the right and also have the right to make decisions that affect everyone, because they find themselves in powerful positions, obviously , to themselves anyway, because they must deserve to be in those positions. The divine right of kings has outgrown feudalism and migrated to capitalism. This does tend to blind one from the truth

  2. I’m very much in agreement with everything you say here, Tim. I might add that the “youth”, who think Brexit was a mistake, should not blame the elders – as they are doing, but understand that the “elders” remember a more equitable time before the toxin of neoliberalism took hold. So the youth should get on board and stop being so selfish. We elders know something they don’t.

    Writing from Australia we see an election going the way of showing a dissatisfaction with our politicians also. Add to Trump’s appeal to the US precariat and we have a new phenomenon dawning. For this reason, I favour Trump in the election.

    We just hope the politicians wake up and stop being slaves to wealthy vested interests. Because if they don’t the problem will not stay civil for much longer. We demand they represent us, the average voter and family. The status quo is no more.

    • Thank you – I won’t pretend to understand the Australian political system, as I have been baffled by it since Kevin Rudd was overthrown!

    • Kevin Rudd was tossed aside because the government was becoming unmanageable due to his, basically, incompetent way of running the show. He drove everyone in cabinet mad with his behaviour and only Julia Gillard held the show together until she too acted.

    • This reminds me that oiutsiders usually mis-judge other countries’ affairs! From here, Rudd looked like a statesman and Gillard, er…didn’t. Australia does seem to have embraced perpetual change of leaders.

    • Yes, it does seem like a revolving door, even to us. But it’s a political system not adapting to change that is behind all this Argy-bargy. The current incumbent, Malcolm Turnbull is in the hot sea now as he didn’t deliver a clear majority, so rolling him is on the cards.

      IMO, the Age of Unreason you write about is just a manifestation of dysfunction in traditional political parties, ossified and tone deaf. Brexit was the most dramatic example, but with Trump in The USA and possibly a hung parliament here in Oz, there are signs the political establishment ought to be taking notice of, but not so far apparently.

      Even the population has not noticed apart from the “precariat” who have gotten the rough end of the pineapple. I saw laments from the “young” who said their opinion was ignored and they blame us oldies for the vote. Here’s my take on that sent to the NYT. It’s in my own name, as WordPress won’t accept it.


  3. What troubles me is that Mrs May is the continuity Cameron candidate – essentially the ‘elites’, in my view , are showing that all too common rubber like characteristic of so many large organisations of resistance to change and group-think mentality.

    I would be interested to know how much of the fall in the value of the pound and stock market post the Brexit vote was the result of Mr Carney and Mr Osborne talking down confidence in the economy?. What better way to turn public opinion away from Brexit than reducing the buying power of the pound in a voters pocket. Nothing would surprise me.

    I’m convinced that our economic woes go hand in hand with the broader neoliberal ‘modernising agenda’.
    Anthony Brown wrote an excellent book for civitas titled’ The retreat of Reason’ in which he detailed how the factually correct truth was being displaced by the politically correct truth.
    It’s this agenda that elevates presentation and the need to ‘virtue signal’ above all else that has brought us to this position. Making arbitrary judgements of ‘what is the right thing to do’ to court short term popularity is what governs Britain today .
    There is a severe shortage of long term thinking.
    The Eu with it’s gulag of political correctness is a natural bedfellow of the Blairites and Conservative Modernisers…they will have to be dragged away from it by their fingernails…

    • What we are seeing is the “carry on regardless” arrogance which seeks to ignore the public whenever it disagrees with the elite. I wouldn’t support Theresa May anyway – she would be bottom of my list – but that isn’t the point. The party’s membership has supported Brexit, and doesn’t seem to want modernisers. I have even heard it suggested that the Tories might not bother to consult their members, but may simply have a coronation of whoever MPs prefer. I hope that rumour isn’t true.

      If you recall, the first of my (very few) articles on “Brexit” warned of the dangers of a government talking down its own economy…….

      People like Blair keeping chipping in comments. Either they, or those who ask them to comment, seem oblivious that the public simply isn’t interested in anything they have to say. Tory “modernisers” and Labour “Blairites” just don’t seem to realise that times have passed them by.

  4. Hello Dr Tim. Just picking up on your oblique reference to climate change. I came across this very interesting paper that appears to identifies the root causes of ice ages and inter-glacial warm periods. And CO2 only plays a bit part in the explanation. http://bit.ly/29cXIY5

    We have all seen the impact of the green agenda on our energy intensive industries and associated communities. Perhaps it was all for nought?

    • This thesis has a parallel in an old [1980’s] documentary I watched some time ago. It also involved the boreal forests advancing and retreating as influential events, explained by John Hamaker;

    • I tend not to comment on climate change, because it is outside my field of knowledge. I am, on the whole, convinced by the experts, but this isn’t the same as applauding every policy choice! I also note that pollution kills – 750,000 people annually in China alone – and that, if the public knew the facts about air quality in some of our cities, they would panic.

      There is here, from an economics point of view, a choice of two theories. Either we are spending big sums because the expert consensus is right – or we are spending big sums despite the expert consensus being wrong. Either way, it is exerting significant restrictions on what else we can invest in.

  5. Hi Tim

    Very interesting article again.

    The thing that strikes me about this situation is that there are far more potential triggers for disaster than in the past. We’ve had problems in Asia, Latin America and, in 2008, the US and Europe but in a sense these have seemed relatively localised issues.

    But now we seem to have a veritable feast of possibilities. There’s Brexit, which I believe is a sideshow and in fact not all that important; a canary in the coal mine yes but not the actual spark for the explosion. I think we’re far more likely to get trouble in the EZ than through Brexit with the Italian banks as perhaps prime candidates here, but not exclusively so (DB collapse?).

    Abenomics is bound to fail and this will cause ructions.

    China is perhaps the stealth destroyer of worlds because the steady devaluation of the Yuan will export deflation east and this will worsen debt dynamics in the west, perhaps terminally.

    The US is not at all in a good place and things here are slowly going downhill.

    And then you have the generalised malignant influence of ZIRP and now NIRP, gradually undermining the financial structure from within.

    On top of this we have the structural challenges of demography and automation and climate change and it’s difficult to see how we will get out of this this side of Armageddon.

    I believe the only way will be to manufacture a crisis which will then call upon the masses to make appropriate sacrifices to preserve “our way of life” aka the privileges of the top 1%.

    A very high risk gamble.

    • Yes, Bob, I think you summarise very well.

      China is suffering an internal credit-squeeze, with businesses finding it increasingly difficult to get paid. The European bank problem is sure to come to the fore sooner rather than later.

      I think the logic (such as it is) runs like this – “debt is only a problem when you cannot pay the interest, or have to repay it. ZIRP deals with the interest, and ultra-loose monetary policy makes it easy to roll over debt due for repayment”. If this is how the thinking really runs, then we must surely be in the calm before the storm – the number of potential triggers is multiplying.

      If the elites do try to “justify” crisis responses to defend the privileges of the 1%, I don’t give much for their chances of pulling it off……

    • Hi Tim – fantastic article once again, thank you.

      As to the elites “justifying” crisis responses to defend their privileges, I think they may well be able to pull it off unfortunately.

      The vast majority of people, even the highly educated, have absolutely no idea how the world works. And the elite are highly skilled at misleading and redirecting attention and formenting anger.

      Someone else will take the hit in place of the elite – foreigners, people with different colour skin or religion, the young / old, civil servants or small business owners etc…

    • Thank you, Dan.

      I fear you may be right on the blame-deflection. One thing that I’ve noticed in the UK in recent years is a decline in respect for others who differ, even if only in opinions. There seems to be a lot of pent-up anger, as though people are on a hair-trigger and willing to succumb to anger at the slightest provocation, real or imagined. I’m not into psycho-labels, but I’ve read it described as “passive-aggressive”. It’s a sort of “social road-rage”. The best description I can come up with is this – it’s like a fear that “the other guy will put one over on me unless I am always hyper-vigilant”.

      This of course may be a mistaken exception on my part, but I felt it, and found it unpleasant. I’ve noticed something similar with British tourists in Spain. I watched one couple storm out of a restaurant in a huff, cursing the rather baffled waiters, just because they were asked to wait a few minutes while a big party was served. Again, it was not so much impatience as a perception of a (non-existant) slight.

      As an advocate of free speech, I’m instinctively opposed to laws which criminalise causing offence – but I have to admit myself baffled by some of the venom vented at seemingly innocuous people, often on the most trivial of pretexts.

      I have wondered whether this relates to “affluenza”, an ailment which Oliver James describes as a reaction to the Anglo-American economic paradigm of immediate gratification. It may simply be conditioned by a reaction to the intolerance to which people are subjected – for instance, being fined for doing 31mph in a 30mph zone, or for being just 1 minute over an a parking regulation.

      What I’m getting at is that people who succumb to this kind of aggression could easily have their anger mis-directed onto more “convenient” targets.

    • Don’t blame China, they have for many years now propped up the US and the West with affordable goods and huge levels of investments in our economies and stock markets. It is petty and poor economic understanding to blame an evil China for being efficient in the lower-tiers of production – they are playing to their strengths and we should play to ours. Trade is mutually beneficial do not fall into the trap of listening to Trump bang on about “Chiiiina this and Chiiiina that.” This is not to say China is in any way perfect, they are not and far from it – but the worry that they will export deflation is simply hidden protectionism if you don’t take into account that China actually holds a huge amount of western debt and has given the world’s economy a massive net benefit.

    • Alexander

      I don’t blame China at all; they are just acting in their national interests but there’s no doubt in my mind that we’ll be affected by the devaluation of the Yuan.

      I think the problem with the “trade is mutually beneficial” argument is that, whilst one can understand and appreciate and agree the Ricardian Theory of Comparative Advantge as being a “win win” situation, in the real world it is increasing seen as a winners and losers equation. Trump says the manufacturing jobs have gone to China and in this he’s right; the fact that tat costs less at Walmart doesn’t weigh quite so much when you’ve lost your job.

      The problem with Trump is that, rabble rouser he undoubtedly is, his arguments do contain rather an uncomfortably large grain of truth which echoes with his constituency.

    • I do not blame China for this. But China does have some very serious problems – China has indeed been the main engine of growth in the world economy, but this is what makes her current problems serious. There is no point in ignoring them – but noticing them is not the same as blame.

      Based on the best figures I can get – and using nominal amounts, ignoring inflation because it is on both sides of the equation – Chinese GDP has grown by $2.43 trn over five years. Over the same five years, debt has grown by $15 trn, or $3.52 for each $1 of growth. That is a very low efficiency ratio – and, ten years ago, it was only $1.08 per growth dollar.

      China does not have a solvency problem – yet, anyway – and total debt to GDP is 255%, far lower than many Western countries. This ratio is growing rapidly – ten years ago it was 152%. But there is increasing evidence of a liquidity squeeze. Chinese businesses are finding it increasingly difficult to get paid. The liquidity issue may be more serious, and is certainly more immediate, than the issue of solvency. The “shadow banking” sector is growing rapidly, we know this even if exact data is hard to get.

      Then there is debt recycling – at least 40% of all new borrowing seems to be for the purpose of rolling over earlier debt. This is not a good sign.

      There are big capital outflows – close to $600bn last year, most of it in the latter part of the year. This is the “fault” of Western speculators, who thought they could borrow to benefit from (a) higher growth rates in China and other EMEs than in the US, and (b) a weakening dollar. Known as the “dollar carry trade”, this has come spectacularly unstuck. The total sum involved has been estimated at $7 trn. The problem in this for China is capital flowing out.

      Then there is overcapacity. This has driven down margins, and returns on assets. In many sectors, ROA is below 2% – and the cost of servicing debt for many state-related entities is still about 6%.

      An attempt has been made to convert the debt of many troubled enterprises into equity – but this attempt has failed.

      So China has very big problems. This is not criticism of China – but we need to be aware of the risks, not ignore them.

  6. Just quickly with respect to government bailouts of banks vs not bailing out the steel industry…this is a classic case of misunderstanding effects. By suring up banks, the government was not seeking to line the pockets of bankers, rather it was working to prevent a collapse in credit that would otherwise be contagious in so far as it would affect many, if not all, other industries that are reliant on funding. It is important to understand that this is not some huge ponzi scheme held to screw we, the people, rather it is a crucial cog in our financial system. The real mistake for instance in 2008, given this is when we are talking about, was made in the preceding years in which the government implicitly asked banks to lend as much as possible so that people could afford housing and cheap credit – in the US for instance you had, and I hold no contempt against them, prostitutes with 14 credit cards and 3 houses and the like…clearly unaffordable and irresponsible. But the government loved cheap credit, people can afford more, they get addicted to spending beyond their means, and in turn they are happy with the government. By telling banks to give these loans out they naturally adjusted their risk profiles – people they used to red stamp and not loan to they now considered, dredging the “depths” of the credit bucket. Given the implicit impetus from the government they, as it turns out rightly, assumed the government would be willing to cover some of the risk. Banks let me remind you are not moral creatures and, frankly, ought not to be judged as such. Instead, they are rational ones. When risk parameters change a previous investment once thought too risky may now be “worth” it. In fact many banks were aware of what was happening in the subprime market and, at least in the US, had attempted to tell the government about the impending problem. Bankers are greedy yes, but no more so than the rest of us. To scapegoat them doesn’t fundamentally solve anything except misdirect ire. What we need is to pay regulators and the government competitive salaries so that the smartest people don’t all end up in the private sector and consequently two steps ahead of those that regulate them. Now the steel industry, on the other hand, is a little like our past coal industry – sadly massively inefficient on a global scale (enough so that Tata is threatening to pull out of the last of our steel). We are no longer competitive on that front in an ever more global market and we cannot compete on wage nor expertise. The world has changed, to ignore it is far more damaging than to take the pill, bitter as it is. Propping up inefficient markets will come to the detriment of our efficient ones and will threaten the success of the country as a whole. We, as a country, are now largely a services and high-end manufacturing nation and to return to low-end production of a commodity would be patently stupid. Now with respect to QE and ZIRP and their ilk, I agree to some extent they are causing distortions in the market but central banks aren’t just doing it for some spurious reason. They are, arguably errantly, trying to boost the deployment of credit and liquidity to keep the machine that is now a global economy rolling. What they really are trying to do is inspire “confidence,” a key, if rarely talked about, part of our economy. Confidence comes from many things, one of which is stability and less uncertainty. The more confident people are the more they will deploy capital and the more risk they will take and, at least historically, the more productive we become creating a positive feedback cycle. Brexit in this respect introduces greater uncertainty to an already fairly uncertain environment, it is akin to to lighting another spark near a small kindling fire surrounded by a dense dry forest – fear and panic can be phenomenally quick to spread. So my question fundamentally is this, why stoke the fire now? We retain the right to leave the EU whenever we wish, why not do it when some stability has returned? We have, following this advisory referendum, only introduced further political risk and, sadly, it is people who feel they are already worse off who will only suffer further. The wealthy will be damaged but will find some way to avoid the worst of it, it is the poor on the other hand who will be disproportionately affected and this deeply worries me. We have forgotten as a country that even the worst off can still get worse – look beyond our borders and you quickly realise the many things we take for granted: heating, running water, social welfare, etc. Even when things look bleak do not be fooled into thinking things can’t be worse.

    • A lot for me to assimilate, but let me give you just a couple of comments for now.

      If a “normal” business goes under, the owners and directors lose, and are sometimes wiped out. Banks are different, because letting them go under can cause systemic damage to the economy, necessitating a rescue. This has not shielded shareholders from losses, but the implications for decision-makers at the top were not what they would have been had bankruptcy been possible.

      What was needed was some form of “quasi-bankruptcy”, where the institution itself is rescued but those responsible are not, but are exposed to the equivalent of a “normal” bankrupcty. This could have been done using the “newco” route – “Bank plc” is replaced by “NewBank plc”, which takes over all assets and liabilities of “Bank” with the exception of all senior employee contracts, options, pensions, accumulated bonuses and so on.

      This is not a matter of pandering to public anger (though that anger did have a lot of justification). It is more a matter of moral hazard – basically, “be prudent in what you do, because, if your decisions wipe out a bank, you get wiped out as well – and the fact that, being a bank, it gets rescued by taxpayers, gives you no special protection“.

      The general public did borrow way too much. Partly this is sheer idiocy, but partly (though not an excuse) it is a consequence of consumerist conditioning by the neoliberalist system. I heard advertising slogans such as “you deserve it”, and “because you are worth it”, which we simply fatuous, but a consequence of idiocy as we redesigned the system on the basis of immediate self-gratification.

  7. Good article and contains forward thinking unfortunately with no suggested “cure” . As one of “them” put it , “We’re all in the same boat” ! Some are on the upper deck sipping champagne and others are below decks sweating over the oars !! We all know where the majority are .

    • Thank you. Solutions are deceptively difficult, I find. When one starts thinking them through, one soon reaches the point where the solutions would have to be imposed on a reluctant or angry public. Thus, solutions, because they have to be pretty drastic, can result in authoritarian imposition.

      I’m coming to the reluctant conclusion that we need a combination of modest corrective action, combined with changing the public mindset, away from immediate gratification and towards greater responsibility, and putting a greater emphasis on obligations rather than rights. Unfortunately, the widespread mindset in many countries seems to have been rendered infantile – and I’m not sure how that can be tackled.

  8. Dear Tim
    Once again wise words spoken to those who listen. How do we get those who are “deaf” to take notice. Theresa May’s stated matter of urgent debate is Trident. Does she not realise that the population has an urgent and pressing need to be housed. Just an example of the disconnect between the electorate and the political elite.

    • Thank you Paul.

      A commentator (in the FT, if memory serves) likened Britain with Trident to a man in threadbare clothes flashing a Rolex. Back in the 70s, when the UK was much poorer, it still had a worldwide presence, with something like 60-70 frigates and destroyers, and maybe 20 submarines. Now it is down to 17 of the one and (Trident excluded) 6 of the latter. I’m not anti-nuclear, but I fail to see what threats Trident might deter. I just do not believe any PM would devastate, say, Murmansk, in the certain knowledge that, say, Manchester would be obliterated in return.

      So it looks to me like an unaffordable weapon that could never be used, and wouldn’t deter anyone. Nuclear-armed cruise missiles would seem a cheaper and more believable deterrent.

      I suspect that Trident might be more about ego than defence…………

      My own view is that Theresa May would be the worst choice. She is another “moderniser”, like Cameron, and is pro-Remain, which, I think, most Tory supporters are not. If I’m right, Tory supporters won’t trust another moderniser and, above all, won’t trust a “Remain” supporter.

      MPs might choose May, then, but party members probably won’t – always assuming they are given the choice.

      Both Labour and the Conservatives seem to have a lot of MPs who don’t trust the party rank-and-file – a feeling that is very probably mutual…………

  9. Your original analysis begins with the point that the neoliberal agenda is obviously not working, yet the government will not, or cannot abandon it and you ask why. I would ask whether it is a mindset problem. Having come up with what they think is an excellent idea, people cannot bring themselves to abandon it.
    I first came across this phenomenon many years ago when studying the work of Thomas Yates, a watchmaker in Preston during the 19th century (I am very interested in antique watches). Watches of the time beat 4 1/2 to the second and Thomas Yates came up with the idea that a watch beating 1 or 2 to the second would have such a heavy balance wheel that it would resist derangement and keep better time. He therefore designed and made a batch of such watches and found that, whilst they kept excellent time on the bench they were worse timekeepers than 4 1/2 beat watches in wear. However, instead of making a batch of 8 or 10 beats to the second watches and testing them, he could not bring himself to abandon his original idea and spent the next 30 years altering aspects of the watches trying to get them to keep better time. I suspect something similar is working in the minds of our rulers.

    • Alan

      This is a very good point and an interesting illustration. Most politicians’ minds run on tram-lines, I think. If something made sense before, it must continue to do so, even if circumstances are different.

      For instance, Mrs Thatcher privatised industries, that arguably never belonged in government hands in the first place, like Jaguar and British Airways – but then others thought the same would work for public services, which I don’t think it does. In the UK instance, and others too, the continuity provided by the civil service might reinforce this tram-line mentality. This said, civil servants complain that their functions have been usurped by political appointees, such as “special advisors”.

      On the question of neoliberalism, though, I don’t think this is a complete explanation. These doctrines serve a wealthy minority – and that’s what they are for. History abounds with attempts to devise “ideologies” which appear to be to the general benefit but actually serve the interests of a minority. We had such drivel as “trickle-down” economics before we had neoiliberalism. In any case, there was no need to reinvent Adam Smith…………

    • Spot on Tim.

      As linguist Teun Van Dijk tells us when defining ideology (social representations), one major determinant of these social representations will be “the material and symbolic interests of the group and power over other groups function as a major condition and purpose for the development of ideologies”.

      In short, a dominant economic ideology will be financially profitable, for the dominating social group. The game, if I may put it that way, is to naturalise and continually naturalise the dominant ideology as common-sense. Alternative ideologies to a dominant ideology ubiquitous in thought and language will, I believe, struggle to convince of their usefulness, or be considered at all until the current game comes to an end. After that, who knows, perhaps at some point a saner world will emerge.

      Thanks for you work.


    • Dan

      Thank you, and you are most welcome. I doubt if this sort of thing is much considered, discussed or understood, but I am encouraged by the contributions that readers make here.

  10. Updates

    A number of things to mention that might be of interest.

    First, Life After Growth is being issued in paperback, the official publication date being 3rd October but some early copies are now available from the Harriman House website:


    Second, I’ve just read an article by Kyle Bass, saying much the same as I believe about China, well worth reading as he has an impressive track-record for prediction:


    There is also an interesting article on European banks at risk here:


  11. Dr Tim,

    Thank you for another great post.
    As you rightly point out the elites are probably incapable of facing up to the facts, and they will probably persist in their erroneous ways until the bitter end.

    What Brexit and the populist surge across the West may reveal, even beyond the end of economic growth, is that we might have entered a ‘crisis of complexity’, caused by rising biophysical constraints and characterized by diminishing returns of investments in societal complexity. Industrial societies might in fact have reached the point, identified and analysed by American anthropologist and historian Joseph Tainter, where our standard way of solving the problems we face – i.e. investing in organisational and technical complexity – is yielding diminishing returns. As a consequence, more and more of our complex economic, technical, political and social systems are showings signs of stress, or even early signs of failure. As our capacity to invest in further complexity continues to get eroded by energy-related and other biophysical constraints, we should expect more stress to develop across the board, potentially leading to some sort of systemic breakdown and forced simplification. The growing popular revolts against globalisation, the EU, or multiculturalism are signs that Western societies are already struggling to uphold their level of complexity and are subject to strong forces that are pulling towards a break down to a lower complexity level (i.e. localised economies, national governance, homogeneous societies, etc.).

    More on this here:

    • Thank you, you make some good points, as indeed does your blog.

      Complexity breakdown is a fascinating if complicated issue, and I would add that our systems are designed to run at or very near full capacity, making any kind of retreat (or even prolonged stagnation) very hard to cope with.

      In the British instance, the possibility of systemic breakdown is underestimated, I think.

      The UK depends on critical imports, and also depends on foreign creditors for 7% of GDP. Both require overseas trust in sterling – willingness to trade, lend and buy UK assets.

      Add this to impending electricity shortfalls – and dire political leadership – and scope exists for a systemic breakdown. I hesitate to suggest that the UK could grind to a halt, but if systems are going to break down somewhere, sooner or later, the UK could be the place.

      Greece escaped this fate because (a) it has the euro, (b) it has ECB bail-outs, and (c) it is small enough for rescue.

  12. Tim, another excellent and thought provoking piece, as evidenced by the promoting of a range of interesting comments from other posters.

    I wonder if I may chip-in with my ‘two-penneth’? I apologise beforehand for the poor expression of my thoughts, which in many ways represent ideas in motion as I seek to make some sort of sense of the world around me.

    It seems to me that we’ve slid into an era of ‘hyper-consumersim’ and one of the downsides is that consumerism has a tendency to elevate self-worth while simultaneously infantilising people. These are not traits that one associates readily with either wisdom or compromise. Furthermore, I would argue that consumerism has leeched into politics, which has resulted in citizenship being supplanted by the ‘consumerised-citizen’. Consumerised citizenry presents many dangers.

    When one adds to this potent brew a dash of ‘grandiosity’ – as set out by Professor Mats Alvesson in his book The Triumph of Emptiness – or ‘gilding the lily’ – then I think we have another piece of the jig-saw that assists in offering some sort of explanation for the widespread dissatisfaction with the body politic among the citizenry at large. Of course there has always been a tendency for politicians to over-promise and under-deliver, but the magnitude between promise and delivery has now reached a level that is positively harmful to societal well-being. The worry here is that the governors and the governed seem incapable of disengaging from this mutually destructive embrace.

    Sadly our difficulties are compounded by the modern media and the internet. The 24-hour news culture has a tendency towards sound-bite, simplistic narratives and manufacturing ‘crises’ by way of making mountains out of mole-hills. Politics is a process that needs time and space in order to be able to work. In a world that is focused on the instant this is the one very feature that politicians are denied.

    My final thought relates to the internet. I’m mid-way through reading The Filter Bubble by Eli Pariser. The book is a polemic, but none the worse for that. Pariser’s argument boils down to the technology supporting the net is evolving towards personalising by filtering material to people that confirms their existing view of the world, and therein lays great danger. We are creating self-reinforcement on scale that is truly terrifying. I believe that this may help explain the increasing polarisation and aggression that one now finds in public discourse.

    I’m sorry for my rather inarticulate rambling, but I think that what I’m trying to say is that we now have big problems in the processes for solving our big difficulties; and that’s a thought that I prefer not to dwell on.

    • Thank you, Kevin. Your comments are very far from inarticulate, and you raise some very interesting points.

      It seems to me that you are right about this, and it helps explain a lot, particularly the simple shallowness that is observable. A while back I overheard a teenager telling his parents, with figures to prove it, how well off he would be when one of his grandmothers, preferably both, passed away. His parents did not reprimand him, which I found pretty staggering.

      I wondered later whether this was his chat-up spiel with girls, and what kind of relationship results when a marriage or permanent relationship is founded on this kind of thinking. I also remembered Eagles’ Don Henley doing a song, “Busy being fabulous”, which was about exactly this.

      I commiserated with the distress of an acquaintance over their mother’s death, only to find that the distress was not grief, but anger over a sibling who had got in first to snaffle the mother’s most desirable possessions. I remember many people, over 1,000 I think, queueing for seven days and nights on the streets of a wet and wintery London just to get the new iFad before anyone else. And so on.

      Of course, Roman Emperors used tournaments for the same purpose, dumbing down the public with “beer and circuses”, so in that sense the endeavour of promoting popular thought-processes to the point of mindless vacuuity has precedents. But the global advertising industry, spending about $500bn annually, does not merely promote one car or soap powder over another, but also promotes the hollow ideology of “happiness through spending”.

      Lastly – I’m the one rambling here! – this does seem more pronounced in countries following the neoliberal, “Washington” or “Anglo-American” model. Oliver James’ point is that “affluenza” is not a product of prosperity, but of attitudes to it. There is a Bible quotation often, indeed usually, mis-quoted as “money is the root of all evil”. The correct version is “the love of money is the root of all evil”.

      Thank you very much for your most valuable input.

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