#126: What’s next for SEEDS?

THOUGHTS ON FUTURE USE

With SEEDS (the Surplus Energy Economics Data System) now fully operational, it seems logical to wonder about the uses to which it can or should be put. If this discussion doesn’t provide answers, it can, at least, set out some thoughts which might be of interest. As ever, readers’ comments will be very welcome.

For starters, SEEDS wasn’t built with any commercial end in view, still less from any wish to influence policy. Rather, the aim of the project was “to see if it could be done” – could the principles of an economy determined by energy (and not, fundamentally, by money) form the basis of a new way of interpreting events, and forecasting outcomes?

Accomplishing this turned out to be even more difficult than had seemed likely at the outset.

I was prepared for the ‘linguistic’ challenge of expressing energy-based concepts in the financial language customarily used in economics.

But what I had not anticipated was the extent to which, even within the purely financial sphere, it would be necessary to reimagine much that is taken for granted within conventional approaches to the economy.

Outcome

Whether SEEDS has succeeded is a matter for others to judge, and the real ‘verdict’ on the effectiveness of the system is likely, in any case, to be delivered by events. But there do seem to be sound reasons for cautious optimism.

If conventional economic interpretation is correct, what we should have been seeing, long before now, ought to have been a combination of steadily improving prosperity and progressively diminishing risk.

The SEEDS interpretation, in stark contrast to this, is that prosperity has plateaued on a global basis – and has gone into reverse in most advanced economies – whilst risk continues to increase.

Moreover, SEEDS differs starkly from the consensus in pointing unmistakeably to a sequel (here called “GFC II”) to the global financial crisis (GFC I) of 2008.

It isn’t going to be all that long before we find out which interpretation is the right one.

Prosperity examined

What can be done, here and now, is to give you a single example of SEEDS interpretation which you can compare with the consensus or conventional view.

The British economy serves as well as any for illustrative purposes.

Comparing 2017 with 2007 – and with all numbers expressed at constant 2017 values – the GDP of the United Kingdom has increased by 11%. Population numbers have also risen over that period (by nearly 8%), but GDP per capita remained modestly (3.3%) higher in 2017 than it had been back in 2007.

If conventional interpretation has any validity at all, this rise in GDP per capita should mean that the average person in Britain must be more prosperous now than he or she was ten years earlier. Average prosperity certainly shouldn’t have deteriorated over a period in which GDP per capita has risen.

The SEEDS interpretation could hardly be more different from this conclusion.

SEEDS starts by noting that, whilst growth of 11% has added £206bn to British GDP since 2007, this has been accompanied by a £1.23 trillion increase in aggregate debt.

One way of expressing this is that each £1 of growth has come at a cost of £5.45 in net new debt. Another is to note that annual borrowing averaged 6.0% of GDP over a period in which annual “growth” was barely 1.4%.

This necessarily prompts a number of questions.

First, has growth since 2007 been ‘genuine’ and organic, or has it really amounted to nothing more than a cosmetic process of ‘spending borrowed money’?

Second, is taking on £5,450 of new debt in return for a £1,000 rise in income a rational choice, favourable to prosperity?

Third, can this can kind of equation ever be sustainable, or does the rise in indebtedness turn, of necessity, into instability?

Before we can answer these questions, we need to take the energy issue into account. According to SEEDS, 9% of the economic output of the UK in 2017 should be allocated to the provision of energy (in its broadest sense, as the foundation of all economic activity). This is a higher number than that for 2007 (4.8%), a change which exerts a further adverse influence on prosperity.

Altogether, according to SEEDS, the average person was 9.2% worse off in 2017 than he or she had been in 2007. SEEDS can put a number on this deterioration in prosperity (£2,230 per person), enabling comparison with the increase in average per capita indebtedness (of £12,400) over the same period.

Finally, shifting from GDP to prosperity enables us to recalibrate risk exposure. In the British instance, debt at the end of 2017 is likely to have been 250% of GDP, but 349% of prosperity. Likewise, total financial assets (which measure the scale of the banking sector) rise from about 1135% of GDP to about 1580% of prosperity. Both of these risk ratios, measured on the basis of prosperity as analysed by SEEDS, are appreciably higher now than they were on the eve of GFC I back in 2007.

Very different interpretations

These numbers – which, it must be emphasised, are replicated, to a greater or lesser extent, across most other Western economies – supply an interpretation of the national or global economy which could hardly be in starker contrast to a consensus line based on “synchronised growth” and controllable risk. It need hardly be added that these very different conclusions about prosperity can be assumed to be of considerable significance, too, in the political arena.

If SEEDS is – or even simply might be – right about this, then this is information that people need. It further implies that conventional interpretation is failing those who rely on it. This, in turn, seems to require at least some consideration of the uses to which SEEDS should be put.

These possible uses seem to fall into three main categories.

First, there seems a lot to be said in favour of continuing to pursue this approach, and making its findings available to those members of the public who are interested in it.

Other possible applications are less straightforward. Logically, SEEDS interpretation ought to be of use to the policy process, but it is highly unlikely that any government is going to ask for it.

I am not in any sense a ‘zealot’, and I’m certainly not set on convincing anybody of anything. So I’m not going to be promoting SEEDS as a tool that government ‘ought to be’ using. I’m not even sure that I would want to co-operate with government, even in the extremely implausible event of being invited to do so.

This leaves us with the potential for commercial use of SEEDS. I’m not opposed to this in principle, but I do have a set of parameters which, I think, can act as useful guidelines.

The first is that any co-operation with business could extend only to output from the system, and would never involve disclosing matters of process. The second is that SEEDS interpretations must remain available to the public, much as they are now.

In practical terms, this means that SEEDS datasets will be placed on the open access resources page of this site whenever they are relevant to a topic under discussion.

On the other hand, anyone wanting more comprehensive data (for instance, the numbers for all 27 countries covered by SEEDS, in their latest form), or requiring any kind of greater detail or tailored output, cannot expect this material to be made freely available. Much the same would apply to any licensed use of SEEDS output, again within the guidelines of (a) no disclosure of process, and (b) continued public access.

These are simply thoughts on what might be done with SEEDS, now that the system has been completed, and seems to be delivering useful results. Any comments on these ideas will be most welcome.