#97: While time allows – part one

BRITAIN AND THE PRICE OF INSTITUTIONALIZED FOLLY

As was explained in the previous article, the outcome of the British general election was eminently predictable. Yet the Prime Minister, her advisors, her colleagues and the “experts” – that is to say, supposedly the “finest minds” in government and politics – did fail to predict it.

They seem genuinely to have been gobsmacked by a result which any intelligent observer should have seen coming.

This debacle cannot be blamed entirely on Theresa May, tempting though that must be to those who share responsibility. To be sure, her plan to stay in office with the help of the DUP (the Ulster Unionists) does make her look detached from the real world. But the decision to call an unnecessary election was not taken by her alone. We can assume that ministers and advisors concurred with her assessment that triggering a vote would deliver a greatly increased majority. Professional analysts and commentators, collectively known as “the experts”, clearly thought so, too.

This, then, was an extreme case of shared folly. An impartial observer might well wonder whether these people are fit to run a whelk-stall.

Unfortunately, international capital markets may now be starting to wonder much the same thing.

We need to understand this collective loss of wits, and not just because the British public deserve better. There is every likelihood that political farce could, within months, turn into economic tragedy.

From crass to crisis?

The dangerous nature of the British predicament needs to be spelled out. The economy runs an entrenched (and worsening) current account deficit, which last year was £85bn, or 4.4% of GDP. This gap must be filled by matching inflows of capital. Debt and equity injections from abroad have ceased to be a choice, or a luxury. In effect, they have become a necessity, a subsidy and a lifeline.

Even before this fiasco, there were plenty of reasons why foreign investors might have considered pulling the plug. Those reasons can only have become more persuasive since Thursday’s vote.

This, it must be stressed, is not a purely academic argument, of interest only to economists. Stasis in the capital or “financial” account is not the norm. So, if the inflow of capital ceases, then in all probability it will turn into an outflow.

Accordingly, the biggest danger now is a “Sterling crisis”, with capital flight taking hold. If you think that a currency, or an investment, might collapse, your natural and logical response is to pull your money out before it happens. We can expect a lot of other adverse economic consequences but, short-term, a currency crisis has become the risk that dwarfs all others.

In this event, a slump in the pound could turn into self-fulfilling panic. If this were to happen, Sterling would tumble, inflation would spike, and interest rates would soar, something that a country with Britain’s amount of debt simply cannot afford. Property prices, which already look wobbly, could be expected to slump if rates rose, putting part, at least, of the banking system into jeopardy. The Sterling value of debt denominated in other currencies would escalate, quite possibly beyond levels of sustainability.

The reality, then, is that an economic crisis could threaten the United Kingdom within a very short time. Averting this requires policies, and it requires a government capable of implementing them.

The barest minimum required now is a demonstration to the markets that somebody competent is in charge. That “somebody”, pretty obviously, isn’t Theresa May. But neither is it the charismatic Boris Johnson, or the cool-headed Phillip Hammond, or anyone else within the collective failure-machine that the government high command has become. And neither, before anyone asks, is it Jeremy Corbyn.

Institutionalized thinking

What, then, is the mind-set that led to this mess? By far the likeliest answer is “institutionalized thinking”. This needs to be explained.

The collapse of the Soviet Union provides a textbook example of institutionalized thinking. To any objective observer, the failure of Soviet-style command economics was very obvious indeed, many years before 1989. Unfortunately, though, the USSR was not being run by objective observers. It was being run by men whose whole political lives had been lived within the confines of a collectivist orthodoxy. That the system might actually fail was not thought about, because it had become – quite literally – unthinkable to those within the institutionalized bubble.

This is not simply a case of people ‘believing what they want to believe’. It is more fundamental than that. It is group-think, within tramlines created by orthodoxy, and imposed by practice.

The same kind of institutionalized thinking which blind-sided the Soviet leadership seems to have taken over the British political elite. To these people, the very idea that millions might vote for Jeremy Corbyn was – again, literally – unthinkable. Within their institutionalized terms of reference, ideas such as nationalization, or imposing heavy taxes on the wealthiest, or reversing privatization, or challenging the tenets of what passes for market economics, were simply mad. Accordingly, therefore, only a lunatic fringe would vote for it.

When millions did precisely that, it must have seemed as though a chasm had opened up where solid ground had once existed. A phrase involving “rabbits” and “headlights” characterizes what seems to have been happening in Whitehall and Westminster since Thursday.

Though a shock, the ”Brexit” vote was not sufficient to shake this mindset because, within the elite, leaving the EU was not unthinkable. The majority of the high command did favour continued membership, but enough of its members supported “Brexit” to make the idea real and credible.

That the voters might also turn their backs on the long-established economic orthodoxy, however, was not something that the high command had ever considered.

Are there solutions?

If there is a historic parallel with what is now happening in Britain, that parallel is 1974. In that year, a second election was called, but it was hardly more conclusive than the first. A Labour government limped on, supported by Liberal votes in Parliament. Nothing much changed, because no-one was in a position to change anything.

By 1976, a lot of influential commentators around the world had reached the conclusion that Britain was probably finished. The ensuing second “Sterling crisis” (the first was 1967) was resolved only with a strings-attached bail-out from the IMF. The institutionalized governing mindset didn’t change, however, and was only rooted out by the new broom wielded by Margaret Thatcher in the aftermath of the 1978-79 “winter of discontent”.

This time around, a rescue by the IMF would be out of the question. Not only are the numbers at stake simply too big, but international capital flows are now vastly larger, and dramatically more rapid, than they were back then. If the markets decide that Britain and the pound are financially toxic, then that – as the saying goes – is that.

This, clearly, is case where prevention is not only better than cure but, is very probably, the only choice on the table. There is no room for complacency – a major economy really can lurch into chaos if things are handled badly enough, especially if serious structural weaknesses already exist.

So somebody needs to get a grip, and soon – but that isn’t going to happen from within the rarefied confines of the political bubble. Mrs Thatcher, and her guru Sir Keith Joseph, were outsiders in the 1970s, people whose ideas differed completely from those of the contemporary political establishment.

Something similar is needed now. Thinking as radical as Sir Keith’s is required, and it will need to be taken up by someone as resolute as Mrs Thatcher.

This is not to say, of course, that a return to Thatcherism is the answer. Very clearly, it isn’t. Neither do Mr Corbyn’s ideas offer a solution. In both instances, turning back the clock won’t work.

Somebody had better come up with something new – and quickly.

A new settlement?

The outlines of a new model aren’t hard to sketch. If Britain is going to stop short of Corbynite collectivism, it is clear that the economy needs to be run along market lines. Equally, though, the current version of the market economy is finished, for two very good reasons – it is failing economically, and it is being repudiated politically.

In all probability, what needs to emerge is a renewed commitment to a “mixed economy” model which takes the best from both the private and the public sectors. Political reality will demand greater redistribution, and an ending (and probably a reversal) of the privatization of public services. Somewhere along the line, fixes need to be found for a system which rewards speculation at the expense of innovation.

For this to happen, many cherished privileges will have to be sacrificed. If there is good news here, it is that the country could hardly become more bitterly divided than it already is – and that “Brexit” can give policymakers greatly enhanced breadth of options.

 

61 thoughts on “#97: While time allows – part one

  1. I wonder what role technology will play over the next 20 years in politics? Is the current political system one from the past and a new one, catalysed by technology, possible?

    I appreciate the cliche but is something like the uberisation of government possible? With efficiencies and power being spread away from Westminster with a faster, more real time governing process?

    Is government a sector that’s changable by tech? I read somewhere (maybe here?) that the current centralised, Westminster based government was born of the need to make decisions in a society where information spread slowly if at all, hence the need to centralise decisions where the information could all be sent etc.

    (On a side note, one example of where tech could work could be the money saved if the government created a free online university rather than paying tuition fees.)

    Article below points to how tech is changing industries and ways of doing things (the VC industry in this example). Could be pertinent to banks and/or BOE/government in time.

    View story at Medium.com

    • Thanks – you raise some important and challenging issues. I’m not confident about tech solutions myself, because it’s not clear how we safeguard ourselves. We seem unable to prevent monopolies or near-monopolies in tech, and many people are worried about privacy (and rightly so, I think). Some ideas (such as free on-line tuition) are clearly good ones, but there’s potentially an Orwellian dimension to tech.

    • Thanks for the reply Tim.

      I appreciate that I bring up some abstract ideas I’ve read about.

      I just wonder whether tech is close to a point that could change how we run countries, even against governments’ will.

      As an example, I wonder whether something similar to bitcoin could change our monetary system like Napster and Spotify changed the music industry, that’s certainly what it was created for (although I appreciate it’s currently probably in a speculative bubble). Certainly the BOE is looking at blockchain.

      I appreciate it’s unlikely though.

    • John

      I wish I had. Fundamentally, the UK seems so rancorously divided, and so unwilling to “pull together”, that it’s hard to see how anyone could do it. It’s made even harder by the FPTP system, and the absurdity of a nominated rather than an elected Upper House.

      On one side, Jeremy Corbyn has “inflitrated” Labour, and is in the process of freeing it from Blairites.

      Can someone do something similar with the Conservatives, turning the party away from corporatism and political correctness, and towards competitive markets, the mixed economy and individualism?

  2. In the past a number of Nations, most notably Germany & Japan – the latter starting prior to WW2 have managed to successfully reinvent themselves so clearly there is no reason why it cant be done.

    • That was then this is now. I’m a great admirer of Tim’s work on debt, exponentials and all the rest but can see no way round the upcoming energy crunch which he lays out in the SEEDS reports on each country. If the EROEI which he calculates is in anyway accurate ( and he has been hoeing this field for a long time so I tend to believe him) the world is entering a particularly difficult period.

      The figures suggest an EROIE of much less than 10 by 2025 perhaps half that for much of the world. If that is in line with Charles Hall’s work it will be a question of survival not renewal.

    • Good point, and both Germany and Japan did reinvent themselves.

      But both had been reduced to rubble before this happened. I am fascinated by Germany in the post-1945 years. In 1945, Germans were starving and trying to scratch a living in the ruins of the “thousand-year reich”, with zoo animals stalking the streets of Berlin. The city itself was like a fire-blackened field strewn with bricks.

      Can a country reinvent itself from a low point less total than this? In Britain, the extent of division and selfishness seems to make any collective revival hard to envisage.

  3. In my opinion, this debacle was staged to prevent Brexit. We will hear a lot of chatter in the coming months, as soon as things go south, like a Sterling crisis on the horizon, talks will pop up for joining the €.

    First things first, preventing Brexit without stirring up the voters too much. That’s a proces they cannot force within a few months. The west has to keep up the status quo. And Great Britain is a part of the west.

    They cannot afford burning mosques and currency crises.

    • This is a fascinating line of thought, well worth developing.

      I have no problem with seeing the leadership as cynical enough to do this. My problem is seeing them clever enough to pull it off. Conspiracy theories rely on seeing the conspirators as masterminds – to me, they look more like half-wits.

      I’d take a bit of convincing that the elite are Cromwellian schemers – they look more like Sergeant Bilko to me!

    • I agree with you on this, Houtskool.
      As soon as I had heard this election called, I knew why.
      It had nothing to do with May increasing her majority. In fact I believe, and have said before, that May called this election, not to win it, but to lose it.
      The primary goal was to de-rail Brexit. Leaving Europe was never Tory party policy, yes they had their eurosceptics, but party policy was pro-Europe.
      You add an interesting slant there, by suggesting that a Sterling currency crisis might be generated which would lead to the UK joining the Euro. ( .. remember never to waste a good crisis !).
      Is it conceivable that the £ might be ousted as a component of the SDR ? hence allowing a greater %-age for the CNY ?
      What holds the future for Sterling ? ( half of my money is in £, the other in Euro )
      The secondary objective of this snap election was to attack the SNP in their drive for a second IndyRef. Scotland, being very pro-European, viewed Brexit as a step too far, and the general feeling there was to stay with Europe at the expense of the Union with England.
      Much of the MSM is now focussing on how Corbyn “won”, and how May “lost” this election.
      I do not see it that way at all.
      From my standpoint, the Establishment achieved both of its objectives, so they have well and clearly won.
      Do not let May’s downcast eyes fool you into thinking she feels in anyway disappointed with the outcome of this election.
      Once she gets into the privacy of her shower cubicle, she is probably singing and dancing ! !

    • I can see the logic of this – but are Mrs May (and those around her) clever enough? Presumably, if this interpretation is correct, she will remain leader? A lot of Tory MPs seem less than convinced.

      I’m not saying I disagree – but here, for consideration, are some counter-arguments.

      First, there are the many Tory MPs with wafer-thin majorities. Even with the DUP on-side, it would only take two or three Tory rebels to stop legislation, which is what would happen if there were local issues affecting them, such as hospital closures. What happens over, say, HS2 or Heathrow’s new runway, both of which have local objectors in Tory seats?

      Second, the DUP are likely (and entitled) to seek a profit from this deal, certainly in terms of policies favouring Northern Ireland. Their social conservatism, too, might be a factor.

      Pulling out of Brexit, or knocking it so far into the long grass that it never happens, is undoubtedly what a lot of the establishment wants. But Article 50 has been triggered, so it would have to be suspended. Can politicians defy the will of the voters, as expressed in a referendum, and expect to get away with it? And would the Brexit-supporting millions tolerate the euro, even if (as is quite plausible) GBP tumbles?

    • Theresa May, just like Cameron & Co. are expendible.
      Tory MP’s in marginal seats are expendible too. My initial idea was that the LibDem’s, as the pro-Europe party, would rise to go into coalition with the Tories again, with their price being a second referendum on Brexit. Thereby letting the Tories off the hook on Brexit. OK, I was half right.
      As Houtskool says above, The West must maintain the status quo, as I read that, the Establishment needs to maintain some form of stability.
      However, if a Currency crisis were to arise, then there would be ample room for the govt. to “suspend” Article 50 until economic stability returns. As is said:- never waste a good crisis. Anything can pass in legislation under extreme circumstances so renaging on Art.50 is not outlandish. So the Establishment may well create a crisis in order to implement their ( pre-prepared ) solution to it.
      As you point out in your article Tim, this is far from over and goodness knows how a relationship with the rabidly anti-catholic DUP is going to go. The whole question of the NI-Eire border needs to be thrashed out, not only in the UK but also with our Euoprean partners. How can Europe expect to implement a hard Brexit, yet allow an open back door in Co. Armagh or Fermanagh ? The DUP want a hard Brexit with no special status for NI, yet they say they want to keep the border open. This is contradictory, These people don’t really know what they want. All they can agree upon is ” No Popery”.
      But I think these questions will just remain questions and will never actually see the light of day. A new GE is all but inevitable. This govt will not last 2yrs.

      If Sterling crumbles, then I see no difficulty in getting die-hard Brexiteers to use the Euro. Peoples minds can change very quickly indeed, once they are hit in the back pocket. If they see the value of Sterling sliding over an extended period, then retailers may demand payment in Euro or whatever they percieve to be more stable or a better store of value.
      So, are we really heading for a currency crisis ?
      Our leaders are all looking very weak, confidence in the UK must be in question, the inflows of capital upon which the UK depends must be in jeopardy.
      We all know, ( which is why we all read your blog so intently ) that the world economy is heading for an implosion.
      Could a Sterling crisis be the trigger that sets off the Great Financial Re-Set ?

    • Well, we now know you have no economic understanding having so memorably shot yourself in the foot over MMT. For the Euro to be chosen over Sterling would have to be a gross incompetence. That is possible given the calibre of our politicians, but it would be a whole category of worse actions. The Euro has no central bank which means its directionless, just reacts not acts. None of its users are monetary sovereign. The whole edifice is sliding to failure. why would anyone suggest sterling be a part of that?
      There are also other interpretations of what’s happening. Take your pick:

      https://rielpolitik.com/2017/06/10/coup-detat-london-terror-to-complete-brexit-coup-detat-by-prof-john-mcmurtry/

      For me, if it’s a choice between a conspiracy and a stuff up, go for the stuff up every time.

    • They are not clever, just being informed by special government advisors as soon as they are ‘in charge’.

      One can leave the €, but what is the alternative in a failing fiat currencies environment? Go big or go home. Look at Greece.

      Like Greece, the UK understands, through ‘special advisors’, one has to be part of a larger player within the FX spectre. Explaining that to a larger public on prime time is another thing. It would undermine trust in the system.

      So that is what we are looking at. As you know doc, the beast needs more, not less. It cannot survive on less.

    • Yes – and one clear implication of what we’re seeing could be stagflation, because the stagnation has arrived, and the inflation is clearly possible. I’ve thought about a mini spending-spree if inflation gets likelier.

      But what sort of tangibles make sense?

  4. Tim, I am not an economist [thank goodness because the mainstream adherents are stuck in the same mindset crisis, denying reality] but I do know something about economics through MMT, which is a description of reality and not some silly model or other.
    Britain is ,notwithstanding some braking power in the Lisbon treaty, monetary sovereign. All and any debts held in sterling are payable without risk of bankruptcy. It only needs to concern its debts in foreign currencies. It will never need a bailout. That was an idea based on incompetent understanding of monetary sovereignty. Debt and equity injections from outside are not a major problem as long as they are denominated in sterling. Those that are not need to be converted. All Australia’s debts are in its own dollars. The private bank sector is another matter, because they do dabble a lot in other currencies. But that is their problem.

    So, yes, opinions of incompetency are a big concern, but the ratings agencies pronouncements have no leverage on one’s own currency, being irrelevant. I fear we are world wide suffering under incompetent politicians at the helm. Look at what Temer has done to Brazil locking in spending for years to come. That is rank incompetence, but not beyond the ability of others to make the same stuff ups.
    The public has been brainwashed by the venality of politicians under the thumb of the donor class, but this is now visible and being voted on at last. It’s a good sign, but we desperately need a modern understanding of economics so solutions can be implemented that are not cruel and nasty, which the Tories do and which Labour has let itself be partial to.

    J D Alt put out a presentation in cartoon form which sends the right message. But first a 6 minute basics view;

    Here is the Alt presentation as a text so one can take it in at leisure;

    https://docs.google.com/viewer?a=v&pid=forums&srcid=MTI2MDM2MTYyNTA4NzgyNzg0NzUBMTE5NTI2Mzk3MDk3MDEzOTYxMTUBSW1hTHVwU2JBUUFKATAuMQEBdjI

    Britain’s answers are here and not just for Britain.

    • ” MMT, which is a description of reality and not some silly model or other “.

      The “T” above stands for Theory.
      So we are In Fact talking about an unproven model, nothing else.
      MMT is NOT reality.
      It is just a MODEL of Reality, and a very poor one at that.
      Just as God is not a three Headed Elephant, despite half of the population of the Indian subcontinent being utterly convinced to the contrary.

      However, cartoons are a good way of depicting MMT.
      We have seen Wiley E. Cayote cartoons, how he is splattered flat onto the floor of the canyon, and then re-shapes himself, gets up and walk away, albeit with a bit of a headache.
      In real life that does not happen.
      Once you are splattered, you are Dead.
      There is no getting up, and walking away . MMT exists in a cartoon world.

    • Utterly incorrect! Theory is not only used for hypotheses but for bodies of ideas proven. Your comments come only from acute ignorance stupidly based on ONE word. MMT is also known as modern monetary mechanics [which I prefer since it avoids the trap you have fallen into] You haven’t watched the video or read the Alt tract, have you? Find me a “fact” you think is untrue and I will correct you. The cartoon idea is simply for dunces to better understand how the macroeconomy works. We actually live in an MMT world, even if you think your world is not a cartoon one. You really need to get out more and stop wallowing in mainstream nonsense.

    • Exponential growth won’t make it to 2025.

      So progress cannot be found in financial gimmicks like mmt.

      Everyone has got a plan, until they get punched in the face.

    • Don’t blot your copybook with silly remarks that MMT is a gimmick, it’s just an admission of ignorance on your part. Why? because we are actually living in an MMT world now, but it is unrecognised by the fairy tale mainstream academia based economic nonsense that is so damaging to everybody not part of the donor class.

      I dunno about 2025. Why do you choose 2025? Collapse could come at any time, but it’s hard to forecast which trigger will set it off. However collapse is ordained by our actions and there is no escape now. In the meantime let’s get the economy right. It will save a lot of tears in the medium term.

  5. The answer is clearly Marxism or aristocratic feudalism which worked well for the U.K. for centuries. The fossil fuel burning capitalist system has far too many internal conflicts and contradictions for it to succeed in the long run.

    • Welcome, and thanks.

      I’m not convinced about Marxism, perhaps because I know so much about the USSR from my late father.

      Capitalism is fine in principle – but what we have in practice isn’t capitalism, but monopolistic corporatism.

      The current system has indeed been built on an abundance of cheap energy that is now in retreat. This makes a reinvention of some sort imperative – but are we looking to a pre-capitalist system like feudalism, or something completely new?

    • You raise an interesting point here about Marxism.

      To me we are going to get robotics and this will destroy a large number of jobs as we know them. Now I know more will be created but these will not only be different but may be far less than those lost. In this circumstance ( a large net loss of jobs) what are we going to do? Leave the unemployed to make out as best they can? I can’t see that working; social unrest would be massive (a Terminator type World?). As I see it robotics is a means of redistributing incomes and the probability is that we will indeed have many more “wards of the state” as time goes on, possibly a large majority. You could say that this approximates to Marxism but this will come by effectively having to buy folk off rather than the revolutionary road envisaged by Marx.

  6. My front and back gardens aren’t big enough for feudalism – looks like I’ll be burnt at the stake for not keeping my lord happy.

  7. The economy runs an entrenched (and worsening) current account deficit, which last year was £85bn, or 4.4% of GDP.

    Maybe. Maybe not. It is a tell that you describe an accounting identity as crass.

    I’ll take the under that the 2017 UK current account deficit will be less worsening than the 2016 deficit.

    • The worsening current account deficit will only be worsening if it’s shrinking. If it’s expanding then the economy has more money to spend although it needs to be targetted at individual consumers and not sent to the banks. People must realise that a budget surplus drains non government sector resources, [a book keeping identity]. So it should not be aimed at unless there is a boom on, one needing reining in.

    • When Sterling weakened sharply after the “Brexit” vote, the effect was to increase the GBP value of overseas income. Obviously, the same would happen if GBP weakens further. A weaker exchange rate helps offset weakening net income.

      But the longer-term trend is quite emphatic – the income (or “non-trade”) component of the current account has been on a steadily worsening path for a decade. So there’s a forex effect, but around a secular trend.

      Since a weaker GBP ameliorates this problem, it’s one very good reason why the value of the pound might fall further, i.e. the C/A deficit is a downwards pressure on the exchange rate.

      Time permitting, this might be worth a discussion to itself.

    • But the longer-term trend is quite emphatic – the income (or “non-trade”) component of the current account has been on a steadily worsening path for a decade. So there’s a forex effect, but around a secular trend.

      Don’t think so. The UK net international investment position has barely budged (if anything it has marginally improved) in the face of the recent current account deficits.

      https://www.ons.gov.uk/chartimage?uri=/economy/nationalaccounts/balanceofpayments/bulletins/balanceofpayments/octtodecandannual2016/d92c022e

  8. ‘Your comments come only from acute ignorance stupidly based on ONE word. The cartoon idea is simply for dunces to better understand how the macroeconomy works. You really need to get out more and stop wallowing in mainstream nonsense.’

    Gentlemen, could we please be more civil…

  9. Can I point out that Sinn Fein cannot and will not ever take their seats in Parliament which shifts the numbers quite a bit…

  10. Also, I believe I’m right in saying that the default position on the border is that Eire are obliged by EU law to enforce it…

  11. Go at it boys.

    I’ll just point out that current accounts and foreign investment positions are arcane and not relevant to ECOE and debtcredit, which is the surplus energy economics base theory.

    What’s the numerator in the ECOE again? What is the savings account balance to household debt again?

    I’ll further point out that Morgan is a reformed buy side analyst. His former job was to bring in the sheeple (assets under management) to be fleeced (management fees). Now the sheeple were not advised by Morgan that there was another sheeple shearer across the hall from Morgan. He was the supply side analyst who tried to shear his own firm’s customers as well as other investment firms customers.

    With that out of the way, I’m looking forward to Morgan’s Perfect Storm mea culpa at any moment, although I could wait until the 5th anniversary next January.

    • For reasons which are not clear, you seem to be making your disagreement into something personal. By all means disagree with arguments, and make your own. But personal attacks are not constructive – please “play the ball, not the man”.

      Incidentally, why do you think I was a “buy side analyst”, “reformed” or otherwise? And what is a “supply side” analyst?

  12. It was North Sea oil that came to UK’s rescue in the late 70’s. Energy is the master resource. Thatcher also sold off the family silver (aka privatisation of publically owed assets). If bought us some time. However the larder is now bare and we’ve burnt all our furniture; a nation forced to live on credit, money laundering from dodgy regimes and individuals, and from arms deals to said dodgy regimes.

    The UK has a population of 65 million whose long term carrying capacity is about 20 million (4 people per hectare of arable land). The Cornucopians still believe that austerity is evil plot imposed on the poor by some shadowy but had to pin down elite, lol.

  13. Nonsense jobs producing nothing to improve our lot, what the US sage Bill Bonner calls win-lose deals (think red tape, compliance, public sector) and to add to our woe crap productivity rates compared to our competitors. From the Guardian last year. We’re even lower than Italy!

    Britain’s output per hour worked is now 22.2% lower than that of the US, 22.7% lower than in France and 26.7% lower than in Germany. Italy has shown no productivity growth since the turn of the millennium but still leads the UK by more than 10%.

    • You need to work harder, Jonathon, and stop wasting time writing comments on the internet. 🙂 😉

      But seriously, the average annual hours worked per worker in 2015 are
      US 1790
      Italy 1725
      UK 1674
      France 1482
      Germany 1371

      What does this tell you?

    • I have worked in the USA, the UK and in Germany. From personal experience, I can say the following:
      1). USA, people spend a great deal of time AT work, but not really working. They are in the office for long hours, they talk an awfull lot or irrelevancies, and some do not even take their holiday entitlement.
      2). UK, Is controlled by accountants who have the first and last say on everything.
      3). Germany. Age quod Agis. At work they work hard and effectively. When work is over, they go to the beer garden.

    • Might I suggest that you change your name, maybe to ” TheOriginalNigel” or something ?
      Your inputs would be missed if you go.
      I had thought about ending my contributions too, because of some individuals think I am too stupid to understand their personal doctrines, or because I dispute their pet theories..
      But why should I ?
      Dr Morgan is the man to decide whose contributions he accepts.
      I hope you stay with us.

    • Yes, keep Nigel. Get the imposter to change his name. Johan, You do a sterling job of playing the fool. You convinced me of that, so well done!

    • Johan

      Many thanks, I agree 100% – we would be the poorer for it if Nigel stopped contributing.

      I’m hoping the second Nigel will kindly change his ID here, maybe to Nigel-2 or something.

      I’ll also look into what I can do – really, the system shouldn’t accept a second user with the same name.

      Meanwhile, Nigel, do please bear with us.

      More broadly, and with regret, I think I’m going to have to put up some guidelines here.

  14. Tim, interested on your opinion.

    Do you think we will ever reach £1=$1.60 again?

    Could the £ go below £1=$1 if Corbyn or a successor with a similar ideology was elected?

    • David

      Only a personal opinion, of course, but I can’t see anything that would push GBP up that far (or USD down that far).

      Today’s news (widely reported) of a slump in UK business confidence is disturbing, if not surprising. The immediate FX reaction to the election was restrained, in an apparent hope that “Brexit” will be “softened”. But I don’t think that’s really all that much of a foundation for stability.

  15. Tim,

    Just a quick one to say thanks for the recent UK focused articles. Makes you wonder what is going on at Tory HQ. First Cameron permits the EU Referendum – which he then loses. Next May calls a snap election – surrendering her majority. That sought of incompetency has to hurt investor confidence.

    However, I still think that the main event is yet to pass – i.e. when Mother Nature enforces her unique brand of austerity; famine, disease, etc… As an open question is western civilisation the only incidence where the populace has not idolised its source of prosperity, i.e. fossil fuels? I can think of ancient Aztecs worshipping the sun, Native Americans participating in rain dances but I’m yet to see my fellow westerner bow before the altar of oil. Curious…

    Cheers,
    Luke

    • Deforestation on Easter Island that caused population collapse, comes immediately to mind. It has been estimated that the World only has 60 more harvests on average before the soils becomes totally exhausted. So its a race to see what will end first, fossil fuels or soil. In the Central Plaines in the US the race is between water in the Ogallala Aquifer and fossil fuels. A baby born today will have a hell of a time. 😦

    • Ed,

      Good point, Easter Island makes the list.

      Continuing with a theme (ish); I think the major turn off for me in politics is the lack of debate around the 2 pillars of western civilisation – debt and energy. It’s like all of the established parties consider them as the “words-which-shall-not-be-named”. It’d be like dropping f-bombs on Dimbleby’s Question Time (a UK political programme).

      I think the closest we got was Ed Miliband promising to freeze energy prices, but it wasn’t a serious foray into analysing the problem. He just wanted to show people that he cared…

      Also, while I’m on rant, let’s also add fossil fuels to the list of ‘dirty words’. Perhaps when our civilisation goes “carbon neutral” they’ll understand the folly of it all…

      Cheers.
      Luke

    • Ed,

      Thanks for the info – the book will be added to my reading list. Here’s a snippet from the review which most people just don’t seem able to grasp;

      ******
      “Dr. Hall qualifies that the most efficient energy return is not the only criteria, “In a competitive world, it is important to not only “out energy” one’s competition but to do it fairly rapidly, that is before the resource is captured by another individual or species” (p. 73).

      Thus, the organisms and societies that evolve optimize the rate of energy capture as well. Too slow and the energy is captured by another – too fast, and they waste too much energy to compete. Seeking the ideal balance between rate and efficiency is explained as the concept of Maximum Power.”
      ******

      Prosperous societies (and species) are those which are able to capture and utilise energy products before others.

      Going back to Britain for a second – seeing as how we were the first civilisation to industrialise I’d expect us to the first civilisation to de-industrialise. We get to be world leaders again! (said somewhat ironically) 🙂

      Cheers,
      Luke

    • Just one more thing to add: perhaps this de-industrialisation is showing up in our current account deficit.

    • Thank you, both. This is an extremely important contribution.

      First of all, I have the highest possible regard for Charles Hall, with whom I have corresponded on a number of occasions. I think he is the discoverer of EROEI – which, in my humble opinion, is the most important insight into how the economy works.

      Therefore, I will be obtaining his new book ASAP.

      The competitive nature of the situation is something that needs to be spelled out. It is mentioned in my own book, albeit only in passing.

      In this context, the attitude of the Pentagon is particularly interesting. Given the shale revolution, one might think that the capability to defend imports of oil by sea might have become less important. But everything I hear says it hasn’t. In other words, the US sees a continuing priority of ensuring oil supplies from the Gulf by sea.

      On this, as on so much else, the UK lacks long- (or even medium) term vision. The UK energy import position is far worse than that of the US, and Britain is traditionally a maritime power. But that isn’t reflected in capabilities.

      Looking back to 1992, just after the fall of the USSR, Britain had about 45 escorts (frigates and destroyers), with several more building. Now the RN has only 19, of which 2 seem to be in long-term reserve. Allowing for transit, training and refits, you can really only deploy 1 ship in 3. So the deplyable escort force is maybe 6.

      There were 3 (small) carriers in 1992. Now there are none – two in build, but how (given the escort numbers) can even one be escorted properly?

      Finally, yes, this is reflected in the current account. Please note that energy imports go beyond the quantities of oil, gas etc imported. Imported minerals, or manufactured goods, for example, are really imports of the energy used in producing them.

  16. Hi Tim regarding our Navy I’m sure you will have read about the disastrous problems with the engines of the type 45 destroyers which have undermined our forces capabilities to a large degree.

    However regarding energy we’re wasting huge amounts in building certain goods that simply fall apart after after a few years (think white goods and cars). Surely we should be using energy to build sturdy long lasting goods.

    My last washing machine went up in smoke after just 3 years (my previous one had given 12 years of trouble free service). I then invested in a Miele washing machine and a Miele tumble dryer. Not a hint of a problem in 5 years.

    Energy saved – no new machine or parts needed – no need for engineers to make energy costly journeys out to service it.

    We could end up with all our goods falling apart and not enough energy left to replace or service them – and sadly that could include windmills and solar panels.

    • Thank you. As you might know, I’m a bit of an “anorak” where the RN is concerned – I’ve flown on/off a carrier, been on a submarine and on assault exercises, and published a book about it.

      T45 engine troubles may be fixable, but are likely to keep at least one out of the six out of service for a long time. The T23s are meant to soldier on into the 2030s, but are ageing, and already one (F229) is said to be in “extended readiness”, meaning laid-up.

      You’re entirely right on your economic point. This also affects the calculation of inflation, and hence of growth. Inflation estimates include “hedonics”. So, if one £100 phone is replaced by another, also at £100 but with more features, the price is reckoned to have fallen, because the customer is getting more for his/her money. But what if the new one won’t last as long as the old one? Adjustment should be made for that – but isn’t.

      The surplus energy economics interpretation is that energy moves down a gradient from a concentrated (thus useable) form, through entropy, to waste (scientifically, waste heat, which equals waste/dissipated energy). Clearly, the more rapid the rate of waste, the worse it is – just as recycling can and should be a positive.

  17. Pingback: #98: While time allows – part two | Surplus Energy Economics

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