We have had a “natural rate” of economic growth of around 3% for a couple of hundred years. There have of course been peaks and troughs, but the trend has been consistent. If anyone wants to quibble with the precise 3% figure, that does not affect my argument.
With the economy stagnant following a stark decline, there is much discussion how to “kick start” economic growth gain, either by tax cuts or higher public spending. The terms of so-called debate have been very limited, taking it for granted that substantial growth will resume again as soon as we get the engine turning.
But of course, that is not necessarily true. Civilisations do go into absolute economic decline. Never forget Ozymandias.
There are reasons to imagine life may never be normal again. We have lost a great deal of our manufacturing base. The presumption is that it is fine for low earning manufacturing to be carried out in the BRICs, while we get much higher margins for providing banking, insurance, design and marketing services.
But why should that last for ever? The banking crash was a result of the fact that so much of the financial services sector, on which we depend so heavily, has no more relationship to the real economy than the passing of cash inside a casino. It is a miracle of the brutality of power that taxpayers were made without violent revolution to give up much of their individual wealth to bail out rich bankers. The incredible pain of this is what we are just beginning to suffer, because our pockets are being lightened very very substantially but regularly, spread over a long period.
The banks have not really been reformed and western taxpayers actually no longer have the cash or credit to bail them out on that scale again. The house of cards could tumble any moment, and the Euro crisis and dollar deficit impasse are winds buffeting that card house.
But the Euro crisis and US deficit struggle are much more important than their immediate effects. The brinkmanship in the US will be resolved and, even if the US defaults, the immediate fallout will not be Armageddon. The real damage is already done. The BRICs nations have been reminded forcefully that they are supplying their goods in unbelievable quantities to the west, in return for bits of paper of extremely dubious value. The medium term consequences of the banking crisis and the currency crises will be drastic indeed. Do not expect the BRICs to put up with this forever. It is not going to take them long to work out they can do their own banking, trade in their own currency, finance their own research and marketing, and insure themselves. Then what will we do? Staff call centres for them?
The same is true of commodity suppliers, who are also wondering right now about the value of the bits of paper they receive in exchange. Watch gold mining shares.
Commodity supply is the other reason we cannot automatically expect to resume economic growth. We already face huge upward demand pressure on commodity prices, particularly from China. It is a truism that mineral resources are finite. There is a whole lot of mystic nonsense talked about “Peak oil”. The simple truth is that of course oil is a finite resource, and of course at some time production will go down. What is nore relevant is that, thanks largely to China, we have already passed the point when growth in supply of oil will ever exceed growth in demand. Rising commodity prices will also hamper UK economic growth in the medium term.
The little argument between Balls and Osborne over whether tax cuts, or lower or higher public spending, will make a difference, is largely irrelevant. The world has changed. Everyone seems to accept we will be in economic decline relative to emerging economies. They have to get into their heads that we could be in absolute economic decline – permanently.
infinite growth on a finite planet is impossible
You make some interesting points. However I was surprised to read recently that the banking sector represented only 10% of our income. Frankly I am not sure what ll the rest then consists of!
Starbucks
I agree with your analysis Craig. More debt-spending or austerity measures are not going to solve this crisis. The world has indeed changed, however – there is a threat to all of us with respect to the issue of Peak Oil and how this will impact all countries in the near-term:-
http://www.news.com.au/business/oil-crunch-by-2012-say-military-experts/story-e6frfm1i-1225854353413
“we have already passed the point when growth in supply of oil will ever exceed growth in demand.”
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I think you’ve said the opposite of what you mean there, but anyway there’s nothing ‘mystic’ about Peak Oil. The real hocus-pocus is all around ‘growth’. I posted this link on another thread (where it wasn’t relevant) but here it is again – some simple arithmetic to demonstrate the insanity of continued expectation of exponential growth. Quotes:
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‘No matter what the technology, a sustained 2.3% energy growth rate would require us to produce as much energy as the entire sun within 1400 years…..continued growth in energy use becomes physically impossible within conceivable timeframes….once we appreciate that physical growth must one day cease (or reverse), we can come to realize that all economic growth must similarly end.’
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http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/
Great work Craig!
You’re really homing in now to the heart of the matter. We hardly have anyone in the anti-imperialist tradition of Swift, Cobden and Hobson in Britain now except yourself.
I hope you still plan to stand at the next election which could be quite soon. Keep in mind that it’s possible to be right too soon and sometimes we have to wait for the moment for the kind of politics we are advocating. The collapsing parasitic economy, unravelling shadow state networks and the latest military fiasco mean that moment may be coming.
Colin
Thank you, a cheerful thought
Vronsky
Thanks – I read that again, and it seems to say what I mean, that growth in demand now outstrips growth in supply for good, doesn’t it?
Vronsky, Richard Stallman sent his thanks for your link, which he reposted here:
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http://www.stallman.org/archives/2011-may-aug.html#26_July_2011_(Galactic_Scale_Energy)
Manufacturing provides low returns to investors while financial instruments (AKA mickey mouse circle jerk monetarism, along with computerised Forex systems flipping coins back and forth across national borders) give fast, high returns. Also, manufacturing benefits local and regional communities which investors can only see as a non-viable misuse of funds which should belong to them. Better to shift those jobs to a economic climate where the worker drain on overheads is nearly negligible.
Trebles all round.
In a shrinking economy, the following research findings become even more important:
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http://www.tnr.com/article/environment-energy/89377/poverty-escape-psychology-self-control
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What can we do? Here’s a civil disobedience initiative from the US. Maybe something similar should be attempted in the UK:
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http://www.adbusters.org/blogs/adbusters-blog/occupywallstreet.html
Shouldn’t that be Starbucks and arms? Or has that also now been out sourced?
Try telling a politician that economic growth is impossible especially when it is combined with an ever expanding world population and they will ignore you as that doesn’t get votes.
… And that, in a nutshell, is what our overseas adventures are all about.
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It’s not a question of balancing the various components of the production cycle between different countries and classes of country on an equitable basis through good faith negotiation and never has been; it’s about forcing a globalised WTO/IMF Regime that does all of those things on dissenters then policing the system with overwhelming US/UK/NATO military and intelligence capabilities – all under the mantra of ‘Humanitarian Intervention’ of course.
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The problem for us right now is that, for the first time in 150 years, all of the above is becoming widely understood and deeply resented by those who are sitting on the resources we need and/or manufacturing our gizmos for us.
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And that same Western Axis is not going to go down with those capabilities intact – which means the risk of more widespread war is odds-on – IMHO
Where are we, in the progression of this economic situation?
1. Denial
2 Bargaining
3 Anger
4 Depression
5. Acceptance
Well I know a lot of people who are in the anger phase,and it is brewing away nicely.
The rest of the world has moved on to bargaining, but our blessed government is stubbornly sticking with denial. We have a long way to go.
On the face of it, 3% annual economic growth is unnecessary. The UK’s annual population growth is a little less than 1%, of which only half is “natural” – due to the excess of births over deaths – while the other half comes from net immigration.
So, to remain more or less as we are, only 1% annual growth would suffice. But, of course, no self-respecting country (or person) could be satisfied with getting no poorer year on year. Anyone can become a billionaire (or President!) and everyone should try. Most of us will succeed. (Irony flag for anyone entirely deficient in humour).
The pseudo-democratic regimes of which our leaders are so proud may quite possibly turn out to be a death trap for the human race. Any moderately intelligent dictator (someone of the calibre and experience of, say, Prince Charles) would have done better at thinking about the long-term future and devising ways of soft-landing in it. Ironically, all the people who jeered at the “communist” regime and smugly congratulated each other on its downfall may presently be experiencing something remarkably similar happening to the citadels of capitalism.
A truly intelligent species would be one capable of devising ways of governing itself that do not cause it to barrel faster and faster towards a brick wall.
Craig, all this was known many years ago, nothing was done to stop it by changing the way we live. It did not have to be this way. There is a plan behind all that is happening. I tell you the truth, I knew this was going to happen faster then I had thought in 1981, I knew that one day it would happen in 1964, didn`t think it would happen as fast as it has, I thought it was going to happen 2030/50. I was NOT the only one (even in 1964) that knew this day would come. I sat down at a school desk and wrote an essay, the title we were told was to be “What the world would be like in the year 2050”. I wrote that the USA would invade Iraq for its oil and use its strategic position to control the oil fields of the middle east, I wrote that by 2050 that global resources would be depleted. I wrote a lot more as well, only one of my predictions has (so far) not come true, at the end of my essay I wrote “this could happen by the year 2030”. I got my essay back two weeks after I had wrote it, it was marked 3/10.
I will tell you this, the only thing that is NOT finite is the evil of mankind. My only concern now is what have the powers that be got as the endgame for us ?.
Mike Cobley wrote “Manufacturing provides low returns to investors while financial instruments (AKA mickey mouse circle jerk monetarism, along with computerised Forex systems flipping coins back and forth across national borders) give fast, high returns”.
Very true indeed. And running Ponzi schemes and other scams can (if done well) give even faster, higher returns.
But whereas anyone can see the difference between manufacturing and financial engineering, it is sometimes almost impossible to see the difference between financial engineering and a confidence trick. (Or between Bernie Madoff and the US federal government, come to that).
best not to throw out that old bicycle in the shed just yet and maybe start thinking about growing your own fruit and veg, wood burning stoves and maybe we’ll return to a more rustic and natural way of life and hip-hooray for that.
But look on the bright side. No more consumerism. No more slebs. No more twaddle.
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Get yourself a bike, a wind-up radio and allotment. Grow your own. Brew your own.
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It’s back to basics. For real!!
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http://freegan.info/
“The little argument between Balls and Osborne over whether tax cuts, or lower or higher public spending, will make a difference, is largely irrelevant.”
That depends very much on how you rate unemployment as a social ill. I know where I stand, and I would say that any policy that leads to a stubborn and persistent high level of unemployment is going to do a helluva lot more damage to the country, leaving aside what the new global economic order could bring about.
Of the various issues you run through, the one I am most sanguine about is energy. The Saudis believe that oil above $70 a barrel is bad news for them because it makes alternative energy resources viable. Well, that’s where we are, and if economic history is any guide, the more we invest in renewables, the more likely we are to have technological advances, and this in turn will lead to cheaper energy.
There is some symmetry however to what you have said… the leading investor in renewable technology these days? China.
Great article Craig.
Our economy is inextricably tied to fossil fuels. As production has started to go into decline the days of growth are over.
Our whole way of life has been built on easily available hydrocarbons, especially oil.
There is a good UK forum about Peak Oil here: http://www.powerswitch.org.uk/forum/index.php
I meant to mention a surprise I got a few weeks ago. An acquaintance went to a meeting where the great economic guru and one of the influential architect of Nulab economic policies-sucha as the ‘third way’ -a leading lights of the nulabour fiasco of the last government.
It was about the economy, of course.
The acquaintance got into a conversation with the grand columnist. He was asked about growth and stated that he thought there would always be growth in the economy and that we would maintain growth by activities, such as mining the asteroids and other planets.
I guess my shock was induced by the realization that a person of such influence should have virtually no conception of the physical and scientific realities of such a venture, and was capable of making such a Panglossian comment.
Such a comment places any other pronouncements he may have made in the past into a distinct context.
Now I except that there are going to be people who express a certain sympathy with the idea. There is certainly a strain of science fantasy that imagines it will be possible to corral asteroids or set up commercial mining ventures on the moon. I need to say that there is absolutely no prospect of such activities in the foreseeable future.
The important point here is that people like Hutton, who retain powerful positions within the commentarial of this country are basically blundering imbeciles and fantasists, who are never really exposed. They continue for years. They play ‘mental’ games from a position of what they think is impregnability.
I think we really need to deal with the erosion of the democratic process that has permitted domination by a few
cliques, talking between themselves, playing an exclusive (points based) game that few people understand, but which creates waves that engulf people, assigning themselves all instrumentality. That problem, of the centralization of power will have to be dealt with before we can even begin to re-configure our economy in some way which is serviceable. These people are not honest men and women. (How on earth do we tolerate someone like Mandelson being anywhere near a position of importance, is beyond belief).
I would endorse the idea of trying to prise open the doors to the corridors of power through the electoral system and CM may fit the bill here, although I suspect he would be as tricky as a pack of monkeys once ensconced in some position of power.
However breaking up the current party or clique system, and providing a real voice to as wide a range of ideas and perspectives as possible , is a first step.
Certainly there is something wrong with the process of representation. My MP is an avuncular and probably decent and pleasant enough person who always says the least troublesome thing he can think of to the most people, but has sat on the pot for decades, and not a fart has emerged. Again we must actually start to grasp the reality of such a situation. Parliament is not functioning properly, it has been bought off by allowances and perks and empty threats.
It is incredible that we tolerate such a situation.
You can get oil from coal, we have (it is said) upto 600yrs worth of reserves. The tories won`t like the idea of that though!. “The Case for the Australian Coal-to-Liquids Industry”.
http://www.theoildrum.com/node/7002#comments_top
Craig
I would recommend Herman Daly, a great economist who has been banging on about this for years. He labels it ‘growthmania’, and points out that even if we were blessed with infinite resources, there would still be ‘diminishing returns to growth’. People fail to distinguish between economic growth and development. Development implies some kind of societal improvement, while growth for it’s own sake is pointless. An essay of his has the title “What some economists have learned, but others have not”.
In regards to the resources, he argues for a ‘steady state economy’. Also, in relation to free trade he makes an excellent point that the whole neo-liberal argument for free trade is based on false assumptions, and that if we continue to pursue it, it will simply drive down living standards the world over.
Traffic seems to be very healthy here! Keep up the great work.
Ha! 🙂
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Royal spin
Posted by The Editors on July 27, 2011, 3:47 pm
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Dear David,
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I write regarding media coverage of the royal wedding – and of media coverage of the royal family in general. I believe that this coverage is often distorted and calculated to maintain the status quo.
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It has recently been reported that the royal wedding was responsible for slowing our economic recovery. Prior to the wedding, the media assured us that the wedding would provide a shot in the arm for the British economy. Of course, it is no surprise that the cost to the hard-pressed taxpayer of this wedding received little coverage at the time. Nor did the CBI estimate of a £6bn cost to the economy as a result of the extra bank holiday.
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As a committed republican and a subscriber to your alerts, I would appreciate it if you would consider alerting your subscribers to such pro-royal bias in the media. We at Republic (http://www.republic.org.uk/) will, in turn, encourage our members to subscribe to Media Lens’ alerts.
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Your sincerely,
Paul Murphy
Radio 4 Today this morning 0848
Official figures have revealed that the UK economy slowed to 0.2% growth in the three months up to June. Lord Skidelsky, emeritus professor of political economy at the University of Warwick, describes what a stagnating economy really looks like and what its consequences could be.
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http://news.bbc.co.uk/today/hi/today/newsid_9549000/9549401.stm
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A Keynesian view perhaps?
His background
Political career – Skidelsky has been a member of three political parties: originally a Labour Party member, he left that party to become a founding member of the Social Democratic Party where he remained until the party’s dissolution in 1992. In 1991, he was made a life peer, and in 1992 he became a Conservative.[3] He was made chief opposition spokesman in the Lords, first for Culture, then for Treasury affairs (1997–9), but he was removed by the then Conservative party leader William Hague, for publicly opposing NATO’s bombing of Yugoslavia.[3] In 2001, he left the Conservative Party for the Cross Benches. He was chairman of the Social Market Foundation between 1991 and 2001.[3]
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Awards – Skidelsky’s second volume of his three-volume biography of John Maynard Keynes, The Economist as Saviour, 1920–1937, won the Wolfson History Prize in 1992.[3] The third volume, Fighting for Britain, 1937–1946, won the Duff Cooper Prize in 2000, the Samuel Johnson Prize for non-fiction writing in 2000, the James Tait Black Memorial Prize for biography in 2001, the Arthur Ross Book Award for international relations in 2002, and the Lionel Gelber Prize for International Relations.
In macrosociology I suggest the British problem has become one of regression. We moved through hunter gatherer, agriculture, military and industrial phases of development, eventually getting bogged down or vacillating (with government intervention) between military and industrial.
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Herbert Spencer my long lost mentor said, ‘the more primitive military society has a goal of conquest and defence, is centralised, economically self-sufficient, collectivistic, puts the good of a group over the good of an individual, uses compulsion, force and repression, rewards loyalty, obedience and discipline.
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Now production and trade has become too centralised; our passion for America has lost us connections with other societies and hence our economic relations, achievement of goals through voluntary cooperation, individual self-restraint and treating the good of the individual as the highest value. It is these actions I believe which regulates the social order and life via voluntary relations, values initiative, independence and innovation.
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We are now paying the price for subversion, hegemony, deception and propaganda. Militarization TO PREMPT AND ATTACK is redundant, decadent, costly, leaching our wealth and corrupting our young people.
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Soon we will all become hunter gatherers again,(after the crash). Perhaps time for me to review the allotment again so we can share produce within the group. Would you like to join?
“Perhaps time for me to review the allotment again so we can share produce within the group. Would you like to join?”
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What would be the point?, you will only go down to it one morning to find it has been raided during the night!, just like our pension funds!.
“It is a miracle of the brutality of power that taxpayers were made without violent revolution to give up much of their individual wealth to bail out rich bankers.”
I wouldn’t give up on that possibility quite yet, Craig. There’s a nasty undertow of disillusionment in this country these days, and historically that has generally led to violence of one kind or another. I remember Toxteth et al – my main memory being astonishment that so many people who should have known better were so surprised.
That said, I suspect the only thing that would provoke the UK population to revolution these days would be cessation of their TV or mobile phone services…
Anon – “Perhaps time for me to review the allotment again so we can share produce within the group. Would you like to join?”
What would be the point?, you will only go down to it one morning to find it has been raided during the night!, just like our pension funds!
I suspect you’re right, Anon. A couple of years ago, I converted my garden into a vegetable plot, to try to supplement my meagre (yes – robbed!) pension.
Coming back from a weekend holiday I found the garden bare – it must have taken HOURS to dig up all my vegetables. But my ‘neighbours’ (I use the term loosely) had “seen nothing”…
I know when I’m beat – it’s a lawn again…