#276: The Worthington Factor

PLANNING FOR A CONTRACTING ECONOMY

I still have vivid recollections of my first experience of driving in a big city – in my case, London – where the volume, speed and aggression of traffic was outside all my prior rural and small-town motoring experience. The collective attitude seemed to be: “I may not know where I’m going – but I’ll get there before you do!”

Financial markets seem to have adopted a similarly frenetic mentality, characterised by a combination of breathtaking speed and a complete lack of direction.

Just weeks ago, in the full flood of AI euphoria, the NASDAQ index hit an all-time high. It has since dropped rapidly, unwinding all gains made since September 2021. The stock price of Nvidia, poster-child for the AI afficionados, has fallen by 20% in less than a month.

My attitude to this directionless froth and frenzy is to reflect on The Worthington Factor, the thought being that Don’t put your daughter into tech, Mrs Worthington would be an appropriate soundtrack for our times. Equally, There are bad times just around the corner is an apt commentary on unfolding prospects in many economies and, for once, I will particularize, saying that Mrs Worthington would be especially unwise if she invested her daughter’s future in Britain or Japan.

Many of us never believed that AI was going to be world-changing anyway, so this latest handbrake-turn in market sentiment is, perhaps, of little material significance.

What’s far more important right now is that the transition to renewable energy is decelerating markedly, whilst even the BBC has noticed “cooling interest in electric vehicles”.

In big-picture terms, then, whilst investor gains or losses on the latest technological fad might not matter very much, the same can’t be said of the unfolding failure of the consensus narrative of ‘sustainable growth built on ultra-cheap renewables and limitless advances in technology’.

In stark contrast to market drama, the consensus line on global economic conditions has become almost soporific. Growth is continuing, we’re told, though some observers are starting to concede that long-term growth trends have been softening.

Likewise, we can rest assured of an economic soft-landing, whilst financial risk, though elevated, remains manageable. Inflation, although proving surprisingly sticky, is being brought back under control, and central banks may be able to relax their monetary policies in the not-too-distant future.

In search of answers

Looking beyond rollercoaster markets and the sleep-inducingly laid-back economic consensus, many of us – whether as consumers, voters, employees, employers, entrepreneurs or investors –  want to know what’s going to happen next, and we can’t obtain this information from market or consensus sources.

The aim here is to try to provide some answers.

The conclusion is that, at this point, the wise person should be putting little or no faith in promises of “growth”, especially where these promises are based on energy transition, the advance of technology or the wisdom of decision-makers in government, business or finance.

Beyond a general scepticism about the promises made by political leaders, we need to recognise that some national economies are in very, very big trouble.

I’ve been busy putting the latest raft of economic data into SEEDS, but the projections supplied by the system are very largely unchanged. My broad conclusion is that decision-makers either don’t know, or choose not to discuss, where the economy and the financial system are really going.

In economic terms, material prosperity is at, or very near, the point at which prior growth inflects into contraction. Meanwhile, the real costs of necessities are continuing to rise.

The result is leveraged compression of the affordability of discretionary (non-essential) products and services. As well as keeping her daughter out of “tech”, a modern Mrs Worthington would be well advised to steer clear of sectors supplying things which consumers may want, but don’t need. Obvious examples include leisure, travel, hospitality, media and real estate.

Financially, decision-makers are sitting in the cab of a runaway railway locomotive, pulling one lever after another in a frenzied – and futile – effort to stave off an impending wreck.

It might help to put some numbers on this. With everything stated at constant 2023 values, reported global GDP has expanded by $88 trillion over the past twenty years. But this has been accompanied – indeed, made possible – by a $290tn increase in debt, the latter accounting for only half of an estimated $580tn escalation in broader liabilities over the same period.

SEEDS headline numbers put this into context. Since 2003, and in stark contrast to the reported doubling of GDP since then, global aggregate prosperity has increased by only 28%. Because the world’s population rose by 26% between 2003 and 2023, the average person was less than 2% more prosperous last year than he or she was twenty years ago. Against that, his or her share of total debt far more than doubled – it rose by 140% – between those years.

The projections provided by SEEDS don’t, at first sight, look particularly frightening. In comparison with 2023, aggregate prosperity is forecast only fractionally lower by 2030, though 14% reduced by 2040. The world’s average person is set to be 7% poorer by 2030, and 25% less prosperous by 2040. This is a far cry from the imminent economic “collapse” predicted by some.

The devil, though, is in the detail. Whilst the world’s average person may be “only” 7% poorer by 2030, his or her cost of essentials is projected to rise by 14% in real terms over that period. This means that per capita PXE – Prosperity eXcluding Essentials – will fall by 17% in the coming seven years, and will have more than halved (-54%) by 2040.

This why Mrs Worthington’s daughter needs to steer well clear of discretionaries, and plan a career in a sector which supplies necessities to consumers.

Fig. 1

There is, as you might expect, a nasty sting in the tale of discretionary contraction.

As well as ceasing to be able to afford costly holidays, a new car or entertainment subscriptions, and in addition being unable to respond to the allure of the advertised, the average person is going to find it increasingly hard to ‘keep up the payments’ on all of the mortgages, secured and unsecured loans and broader financial commitments taken on in the years of reckless credit expansion.

This takes us, necessarily, into the question of risk. The consensus line about financial risk being manageable is based on the mistaken assumption that credit carrying capacity will expand even as the quantum of obligations continues to rise. This, though, isn’t going to happen.

We’ve reached a point at which event risk – vulnerabilities to wars, pandemics and localised crises – is recognised, whilst process and systemic risk are not.

By process risk is meant a deterioration in the economy as a system for the supply of material products and services to society. Systemic risk references the consequences of a continuing worsening in the disequilibrium between the “real” and the “financial” economies.

It’s time for us to get into some economic fundamentals.

Looking backwards, looking forwards

Having started my career as an oil and gas analyst, it was never much of a stretch to work out that the economy itself is an energy system – there was probably no point at which I wasn’t fully aware of this.

Writing investment strategy research in the heat of the 2008-09 global financial crisis, however, led to one inescapable conclusion, which was that the financial system had become massively out-of-kilter with the underlying economy itself – there was, and remains, no other way of explaining the fundamental causation of the GFC.

This led to the conclusion that the economy cannot be interpreted in terms of money alone, but requires recognition of the concept of two economies – a “real economy” of material products and services, and a parallel “financial economy” of money, transactions and credit.

I put these ideas forward in a series of reports – including Perfect Storm – authored as global head of research at Tullett Prebon, one of the world’s biggest inter-dealer brokers, and developed them in the book Life After Growth, published in 2013.

Whilst writing the latter, I became uncomfortably aware of an inability to model and project the material “real” economy, both as the driver of prosperity and as the underlying basis of the set of financial processes lazily, and mistakenly, referred to as “the economy”.

To cut these recollections short, it took five years to complete the calculation of material prosperity, and another five to explore the ramifications of the two economies concept whilst refining and developing the SEEDS model.

Fortuitously, completion of this project occurred just as unmistakable evidence began to emerge of the ending of the precursor zone, and the onset of the inflexion of the economy from growth into contraction.

The Surplus Energy Economics approach is based on three principles, each of which seems incontrovertible. The first is that of prosperity as a material concept, provided by the use of energy to convert natural resources into products and services.

Since the supply and use of energy requires a material infrastructure – and nothing material can be created, operated, maintained or replaced without the use of energy – it follows that, whenever energy is accessed for our use, some of that energy is always consumed in the access process, and is unavailable for any other economic purpose.

This “consumed in access” component is known in SEE as the Energy Cost of Energy, adding the principle of ECoE to the principle of the economy as an energy system.

The third basic principle is that of money as claim. This recognises that, since money has no intrinsic worth – we can’t eat money, or power our cars with it – it commands value only as an exercisable claim on those material products and services for which it can be exchanged.

When, along these lines, we compare the material economy with its monetary counterpart, it becomes apparent that the history and future of the material and monetary economies needs to be recalibrated in terms of two dynamics. One of these is the supply, value and cost of energy. The second is the relationship between the energy and financial economic systems.

ECoE is critical in these interconnected dynamics. If we have to consume, say, 90 energy units to put 100 energy units to use, we have a low prosperity system, indeed an economy comparable to the agrarian societies that preceded industrialization.

If, conversely, we can consume only 1 or 2 energy units in harnessing 100, the effect on prosperity is transformational.

This is the nature of the economic transformation which, known to historians as the Industrial Revolution, followed from the harnessing of fossil fuel energy in the late 1700s.

Our predicament now is, in its fundamentals, simply stated. The trend ECoEs of fossil fuels are rising inexorably, as a consequence of, quite naturally, using lowest-cost resources of oil, natural gas and coal first, and leaving costlier alternatives for later.

Contrary to widespread assumption, renewable energy sources, such as wind and solar power, cannot take us back to low ECoEs enjoyed in the heyday of carbon fuels. The material characteristics of renewables make this impossible, and technology – again contrary to widespread supposition – can’t repeal the laws of thermodynamics in order to make it possible.

It was never likely that we would choose to address environmental and ecological hazard by voluntarily relinquishing our fixation with “growth”. One doesn’t need to be unduly cynical to think that sustainability alone could never have been sold to the public as a choice preferable to consumerism. This, perhaps, is why the pursuit of environmental responsibility has been presented to the public as a promise of “sustainable growth”.

As the economy inflects from growth into contraction, two trends, at least, are clear. The first is that we’re going to have to prioritise needs over wants. The second is that we’ll have to redesign a financial system built on the false predicate of infinite, exponential economic expansion on a finite planet.

Listening to the song, it’s hard not to feel sorry for young Miss or Ms Worthington, for whom “the width of her seat/would surely defeat/her chances of success” treading the boards, whilst “an ingénue role/would emphasise her squint”.

But at least her modern-day equivalents can choose not to make their prospects worse by ignoring the hard realities of an inflecting economy and a dangerously over-stressed financial system.       

#275: Why are we surprised by the inevitable?

ALIGNING EXPECTATION WITH POSSIBILITY

Why is the world at large so often “surprised” when the materially impossible doesn’t happen?

In economics, the consensus line – a narrative shared by government, business and, for the most part, the general public – is that the economy will carry on growing as we shift from climate-harming fossil fuels to cleaner alternatives such as wind and solar power. This process, boosted by advances in technology, will increase our leisure time, and give us more money to spend on discretionary (non-essential) products and services.

In reality, none of this can happen, yet we keep being “surprised” when it doesn’t.

Renewable energy cannot replicate all of the economic value hitherto sourced from oil, natural gas and coal, and the supposedly “green” credentials of renewables are, to put it mildly, highly debatable. EVs can’t replace all of the world’s ICE-powered vehicles on a like-for-like basis.

As top-line prosperity decreases, and the costs of energy-intensive necessities carry on rising, the affordability of discretionary products and services will decline. A string of sectors and activities widely regarded as highly growth-capable are, in reality, heading into relentless contraction.

This same process of affordability compression is going to undermine the ability of the household and corporate sectors to service, let alone honour, their enormous debt and quasi-debt obligations.

In short, the much-cherished consensus view of the economic future is founded on a series of material impossibilities.

Accordingly, anticipated “growth” in discretionary sectors like travel, leisure, hospitality, the media and entertainment won’t happen, and these sectors will, instead, start to contract. The same thing will happen to “tech”, undermining faith in the concept of inexhaustible, profitable growth driven by the relentless advance of innovation.

Property prices will fall as affordability is compressed, and the authorities will come under increasing pressure to cut rates and resume the creation (“printing”) of money. There will be another “banking crisis”, except that, this time around, systemic risk won’t emerge first in banks themselves, but from within parts of the NBFI sector (the non-bank financial intermediaries known colloquially as “shadow banks”).

Meanwhile, the authorities will come under ever-increasing pressure to explain why people are getting poorer in supposedly “growing” economies (and good luck with that one).

These considerations take us into the purposes of projection. If you’re convinced that economic catastrophe looms, there may seem little point in forecasting disparities in performance.

If, though, you believe that we might muddle through – that ‘things are never as good as we hope, or as bad as we fear’– then there’s much to be gained by calling out the distinctions between consensus expectation and material possibility, and using these discrepancies to frame our choices.

As consumers, voters, employers, employees and investors, times might be hard, but there’s little merit in making things worse than they need to be by exposing ourselves to the worst disappointments that are looming for the consensus.

How, then, can we draw these distinctions between the generally-expected and the materially-possible?

‘Man bites dog’

The unexpected is newsworthy, whilst the widely anticipated usually isn’t. Snow in Wales during December barely makes the news, but snow in July would be the stuff of headlines.

The headline article in the Financial Times on 3^rd April referenced declining sales of electric vehicles by Tesla and Chinese competitor BYD. These falling sales, said the FT, had “stoke[d] scepticism over speed of electric shift”, raising “fears for long-term growth” in the EV sector.

Two days later, the Times ran a similar story about EVs losing market share in the United Kingdom.

This is newsworthy because it runs contrary to consensus expectations, which are that sales of EVs will continue to grow to a point at which all cars and lorries powered by internal combustion engines will have been replaced.

My first reaction to this story, and perhaps yours too, was to wonder why anyone was surprised by this at all. We have long known that replacing all, or even most, of the world’s two billion cars and commercial vehicles with battery-powered alternatives has never been within the bounds of practical possibility.

It’s more than doubtful that we have the raw materials to produce this many EVs and, even if we did, we don’t, and won’t, have the energy required to access and process these materials, or to power an EV fleet of this size. EVs have only advanced as far as they have because of generous government incentives, and these can’t be sustained in perpetuity.

The consensus narrative about EVs is, of course, a branch of the wider assumption that we can replace all of the energy value hitherto sourced from fossil fuels with cleaner alternatives from renewable energy sources, principally wind and solar power, thereby averting environmental disaster at no cost to standards of living.

This, again, isn’t feasible. Other considerations aside, the far lesser energy density of renewables alone makes this impossible.

Technology can’t get us past these material obstacles, because technology can’t create raw materials that don’t exist, or repeal the laws of thermodynamics that determine the characteristics of different sources of energy.

To assume otherwise is to accede to a collective hubris which contends that human ingenuity can make us masters of the universe when, in reality, the potential scope of technological advance is strictly circumscribed, by finite material resources and by the laws of physics.

Rather than pursue the theme of energy impossibility – that renewables aren’t a like-for-like replacement for oil, natural gas and coal, and that neither renewables nor EVs deserve their supposedly hyper-positive environmental credentials – my thoughts turned in another direction.

How many other non-surprising “surprises” are we going to encounter as the economy inflects from growth into contraction, and as the costs of energy-intensive necessities carry on rising?

Why, in essence, is the world at large so “surprised” when the impossible doesn’t happen?

The basis of myth

According to conventional economics, we live in a world of infinite possibility, and we owe it all to the human contrivance of money.

No material shortage need ever put the brakes on growth. If something is in short supply, its price will rise. As well as discouraging consumption, price rises incentivize producers to bring new supply to the market, and encourage both substitution (where consumers switch to buying something else instead) and innovation (where we find new ways of supplying or substituting for the product in question).

This theory can sometimes work in practice, in markets for things like coffee. If the price of coffee rises, some consumers will buy tea instead. High prices encourage suppliers of coffee to increase planting and harvesting, perhaps growing coffee on land that previously grew something else. We might find improved methods of growing and processing coffee beans.

These, though – whisper it who dares – are mechanisms with limited reach.

Another way to put this is that this money-only economic theory might well have worked in an agrarian society of the kind that was universal in 1776, when Adam Smith penned The Wealth of Nations, the founding treatise of classical economics. Smith can’t be criticised for not knowing what would happen after another Scot, James Watt, gave society the first truly efficient machine for converting heat into work.

Ironically, this also happened in 1776.

Both the agrarian and the industrial economies are energy systems, as all economies are. But the similarity ends there. In agrarian economies, energy is sourced from human and animal labour, and from the nutritional energy which makes this labour possible. Even supplemented by some rudimentary wind and water power, this system was never going to expand the global population ten-fold, or create severe environmental and ecological hazard.

Unlike the principles of classical economic theory, the economy itself has moved on since 1776. The vast majority of the energy used by the system now comes, not from human or animal labour, but from oil, natural gas and coal, which continue to account for four-fifths of primary energy supply. Hydroelectric and geothermal power make useful but limited contributions, as does nuclear, though the latter has never – thus far – lived up to some of the more outlandish promises made on its behalf when we first harnessed “the mighty atom”.

Energy, though, is fundamentally different from commodities like coffee and tea. If coffee is too expensive for economies or consumers to buy, they are no worse off for not having it – they simply spend their money on something else.

But a household or an economy deprived of energy is materially poorer, because everything that we produce or consume is a function of the energy available to the system.

In short, the principles applicable to the working of an agrarian economy don’t work in an industrial society, because they don’t apply to energy.

Anyone who understands this fundamental difference possesses the ace-in-the-hole for out-forecasting those by whom this critical distinction hasn’t been recognised. This takes us into the dynamics of material economic prosperity.

An understanding of process

Essentially, the industrial economy works by using energy to convert natural resources into material products and services. This is a two-part equation, with the production process operating in tandem with the dissipative conversion of energy from dense into diffuse forms. This productive-dissipative process becomes a dissipative-landfill system when we choose to accelerate the rate at which products are relinquished and replaced.

Importantly, if we switch to energy inputs of lesser density, the dissipative process is truncated, the parallel productive process is correspondingly shortened, and the economy gets smaller. This, ultimately, is why renewables cannot replace all of the economic value hitherto sourced from oil, gas and coal.

The friction drag on this dynamic is the cost of energy, a cost which isn’t financial (because we can always create money), but material. Because putting energy to use requires the creation, operation, maintenance and replacement of a material infrastructure – and nothing material can be created or operated without energy – the supply of energy is a process in which we have to use energy in order to get energy.

Put another way, “whenever energy is accessed for our use, some of this energy is always consumed in the access process”. This “consumed in access” component is known in Surplus Energy Economics as the Energy Cost of Energy, abbreviated ECoE.

If ECoEs fall, any given quantity of energy yields a larger quantity of ex-cost economic value. If ECoEs rise, this material economic value decreases. Prosperity is defined in SEE as the financial corollary of the surplus (ex-ECoE) energy available to the system.

Money plays a humbler role in the economy than that claimed for it by classical economics. Money can’t overcome physical limits, convert natural resource scarcity into surplus, or power infinite economic growth on a finite planet.

Rather, money functions as a medium of exchange, meaning that the owner of money has an exercisable claim on the output of the material economy.

This is fine so long as monetary claims are matched by corresponding quantities of material products and services available for exchange. Prices, as the monetary values ascribed to material products and services, act as the interface between the material economy and its monetary proxy, and comparative analysis of these two economies is by far the best way of working out what inflation really is.

This is why SEEDS uses its own conception of systemic inflation, RRCI (the Realised Rate of Comprehensive Inflation).

The application of principle

The recognition of the economy as an energy system more or less compels us to adopt the conceptual necessity of two economies. One of these is the “real economy” of material products and services, and the other is the parallel “financial economy” of money, transactions and credit.

From this process, certain observations about our current predicament and future prospects can be reached, and most of them run counter to the consensus narrative.

First, the economy has started to shrink, because ECoEs are rising at a far more rapid pace than can conceivably be matched, let alone overtaken, by increases in the supply of total (pre-ECoE) energy – indeed, the likelihood now is that aggregate energy supply will decrease, because renewables are likely to be added at a rate which falls short of the pace at which fossil fuel availability decreases.

There is most unlikely to be any improvement in the rate of conversion which governs the amount of pre-cost economic output generated from each unit of energy available to the system. Accordingly, output will decrease, whilst the difference between output and prosperity will widen as a result of rising ECoEs.

The energy-intensive nature of so many necessities dictates that the costs of essentials will carry on rising. Investment in new and replacement productive capacity can be expected to decrease, for two main reasons. First, opportunities for profitable investment are contracting.

Second, a little-noted but critical trend has undermined the process of investment itself.

Historically, investors’ returns on their capital came in the form of cash dividends and coupons, supplemented by capital appreciation driven by rises in anticipated forward income streams.

Now, though, yield – the rate of cash returns – has been very severely depressed, and investors’ returns come mainly in the paper form of capital gains, and these, in aggregate, can never be monetised. Once the “everything bubble” in asset prices bursts, returns on invested capital will fall back to the (very low) levels provided by yield alone.

This trend needs to be seen in the context of rising financial stress and worsening exposure. Stress can be measured by comparing movements over time in the material and monetary economies, remembering that a tendency towards equilibrium is inherent in the claims relationship between the two economies.

Quantitative exposure has, of course, increased dramatically, with both debt and broader quasi-debt outgrowing the economy, even when the latter is calibrated as GDP, a measure artificially-inflated by the credit effect on transactional activity.

In essence, a radical correction in the relationship between financial stock and material economic prosperity has been hard-wired into the system.

Knowing this, however, makes it no less important that we understand that discretionary sectors are going to be the main victims of a process of leveraged compression, as the costs of essentials rise at the same time as the material economy itself is contracting.

Fig. 1

#274: The elusive pursuit of trust

GOVERNMENT AND ECONOMIC INFLEXION

There’s nothing new about conspiracy theories – we’ve long been invited to believe that the security services assassinated JFK, or that the Moon landing was faked, or that Elvis is alive and well and working in a supermarket somewhere – and most of us have always given short shrift to such claims.

What’s different now is the inter-connected nature of such theories, and traction they continue to gain with the general public. The common theme of such claims is that Western states are ruled by a self-serving clique which daily deceives and schemes against the public for its own nefarious ends.

To be clear about this, we don’t have to believe in such theories in order to take them seriously. At the very least, they are destabilizing, and corrosive of trust.

This undermining of faith in the integrity of government has been happening at the worst possible time, with the economy inflecting from growth into contraction, a ‘GFC II’ financial crisis looming, and a very real environmental and ecological crisis unfolding.

Ideally, governments would be addressing these issues in search of constructive responses centred on the good of the public as a whole, and the governed would be placing trust in the honesty and intentions of the governing.

In fact, the very opposite has happened, and we need to try to work out why.

The best way to do this is to concentrate, not on the distractions of party politics, still less on the politics of personality, but on the way government is and has been conducted, particularly in the West.

Economics aren’t everything in government, but aren’t very far off. People enjoying prosperous lives, in a society whose fairness they trust, are very unlikely revolutionaries. Hardship, and perceptions of unfairness and dishonesty, are the stuff of which political instability is made.

From this perspective, the ‘establishment’ – or whatever term we choose to apply – has two very big problems. First, their routine assurances that economies are continuing to grow are being falsified by events. Second, their behaviour during and after the 2008-09 global financial crisis was inexcusable.

These two issues are intimately connected. By the second half of the 1990s, in a process known at the time as “secular stagnation”, economic growth was decelerating very markedly. The proposed ‘fix’ was credit expansion, which didn’t re-energise the economy (because it couldn’t), but did lead straight to a very serious financial crisis.

In a sense, the adoption of credit adventurism was ‘the break-in’ in this economic version of Watergate, and the response to the GFC was ‘the cover-up’, and the latter did a lot more damage than the former.

As the banking sector teetered on the brink in 2008-09, the authorities made two big calls. First, they would engage in unorthodox, ultra-loose monetary policies, centred on QE, ZIRP and NIRP. Second, they would promise the public that these were “temporary” expedients, to be kept in place only for the duration of the “emergency”.

We need to be in no doubt at all about what these policies did. First, they were a gigantic exercise in moral hazard. Second, they handed enormous gains to some at the expense of others. Third, they abrogated the principles of market capitalism.

By moral hazard is meant the sending of dangerous signals. What should have happened during the GFC was what had happened in previous financial crises – those who had been reckless, or were simply unlucky, would be wiped out, the system would dust itself off, and normality would return.

But rescuing dangerously overindebted businesses and individuals sent the message that, should similar conditions recur, they could expect to be rescued again. This took off the brakes on all kinds of excess risk.

Worse still, the extreme tools used to rescue the reckless at the expense of the prudent handed enormous unearned gains to (generally older) people who already owned assets, at the expense of (generally younger) people who aspired to find rewarding careers and start to accumulate capital.

Third, these enormous interventions destroyed the essential principles of market capitalism. In a market system, the possibility of taking big losses is a necessary corrective to the pursuit of profit. If rescuing the reckless wasn’t bad enough in itself, ultra-low rate policies made it impossible for investors to earn positive real (above inflation) returns on their capital. The markets were prevented from carrying out their essential functions, which are price discovery and the pricing of risk.

Perhaps my memory is at fault, but I can’t recall being given an opportunity to vote on a programme of rescuing the reckless, handing enormous unearned capital gains to a favoured few, or scrapping the basic precepts of market capitalism.

Things mightn’t have been quite so bad if the authorities had kept their promise about these expedients being “temporary” fixes for the duration of the “emergency”, but these policies were kept in place for a period longer than the combined lengths of the first and second world wars.

Instead of conveying an impression of competence in an emergency, the handling of the GFC sent the message that, when a crisis arises, the instinctive response of the authorities is to take care of the wealthy and the well-connected, and leave everyone else to take their chances.

Having blown this enormous hole in their credibility, the authorities are reduced to giving assurances that cannot be believed. They insist that “growth” is continuing, a claim which is put in context in the following charts. A 2% rise in real GDP isn’t “growth” if the government has to borrow 8% of GDP to make it happen. There’s no point in rival politicians promising “growth” in a country whose prosperity hasn’t grown in fifteen years, and whose social infrastructure is falling to bits. We can’t build long-term economic “growth” on a real estate Ponzi scheme.

The only thing that’s really growing now is the World’s gigantic burden of debt and quasi-debt.

The great hope now is, supposedly, technology, which has become the secular faith of the modern age. Sometimes abbreviated “tech”, this is going to re-energise the economy, save us from environmental disaster, and carry on making vast profits for those invested in it.

Ultimately, technology is a vast exercise in collective hubris, a statement that human ingenuity can rule the universe.

The reality, of course, is that our powers are much more circumscribed.

No amount of ingenuity can deliver material resources that don’t exist, or repeal the laws of physics to deliver infinite economic growth on a finite planet.

Some technologies are already failing. We can no longer operate commercially viable supersonic aviation, or put a man on the Moon. We can’t, as our predecessors did, handle waste water without pouring raw sewage into our rivers and seas. We’re already starting to lose faith in some much more recent examples of world-changing technological wizardry.

In an ideal world, the powers that be would admit that economic growth has gone into reverse, and apologise for the monetary gimmickry maintained for more than a decade after the GFC.

This won’t happen, of course. The authorities may not know about the inflexion from growth into contraction, though this is hard to believe. They may have slipped into the trap of – as one senior politician said of another – “believing your own press releases”. They may be following the old adage of ‘don’t announce a problem until you can announce a solution’.

In the absence of constructive policies for managing economic contraction, we’re in for a set of one-at-a-time discoveries. These are going to include discretionary contraction, a financial crisis bigger than that of 2008-09, and the realisation that technology, far from putting us in control of the universe, can’t even carry on making big money.

Through all of this, the social good of trust between governing and governed is likely to become ever more elusive.