Jeremy Warner is an excellent business and economics journalist who works for the Daily Telegraph; I always read what he has to say. Generally I concur with his analyses and conclusions. However, there is one fundamental issue on which I profoundly disagree with Mr Warner. Take his article in today’s Daily Telegraph “J M Keynes’ prophecy of prosperity after the gloom of recession” (link below). In 1930, J M Keynes (a hugely influential economist and father of ‘Keynsian’ economics) predicted that 100 years hence, living standards would be between 4 and 8 times as high as they were then.
Mr Warner points out that the statistics don’t go back to 1930, but since records of household expenditure began in 1948, the living standards of the British people have grown nearly six-fold in real terms. Not bad. Not bad at all.
So, in the article, Mr Warner decides to reiterate J M Keynes’ prediction of the 1930s and declares that over the next 100 years our living standards will turn out to be between 4 and 8 times higher than they are now. Now, I beg to differ – primarily because Mr Warner chooses not to consider the economy as an energy construct. Whether he fully comprehended the implications, or not, Keynes’ prediction in 1930 was underpinned by the subsequent availability of (almost) 100 years of cheap, fossil-fuelled energy with a relatively high (relative to today) energy-return-on-energy-invested (ERoEI). In other words for the past 100 years or so, it didn’t take much energy to extract enough energy for our everyday use; enough energy, indeed, to facilitate the six-fold growth in our living standards over 60 years or so. Today the ERoEI story is much, much different.
Have you noticed the costs of energy (of all forms) today, and the proportion of your budget (and your business’s budget) that energy consumes? Do you experience and/or foresee this situation improving or deteriorating? If you’re not sure, keep reading.
The posts in the links below (written earlier for this blog by me) suggest that, on balance, in 100 years from now our living standards could – in all probability – be defined by a prior century of low or no economic growth (relative to the growth trend of the past 100 – 200 years). That is a shocking prospect. On this basis, Mr Warner is correct to observe “how societies choose to manage change on such an awesome scale, are of course much harder questions to answer.” The changes we face over the next 100 years are indeed truly awesome and, moreover, unprecedented if one studies the rise and fall of civilisations throughout the history of mankind. Few folk seem to realise this yet, Mr Warner included if I may say.
So here are those earlier posts, the contents of which I acknowledge represent heresy to the orthodox economics community:
‘Energy – Reality Intrudes‘ (if you have neither the time nor inclination to read this post, then do at least spend 5 minutes watching the video at the end): http://tinyurl.com/b4r45sc
‘UK Economic Growth Forecast Halved‘: http://tinyurl.com/d3fe38f
Here is another analysis in similar vein:
‘Perfect Storm – Energy Finance and the End of Growth‘: http://tinyurl.com/bout93t
Finally to all those who cry “We’ll all be saved by shale gas and shale oil!”, you should read this: http://tinyurl.com/aqj6kqg.
And to those who wonder how seriously the oil producers themselves take ‘peak oil’ then here’s the final link for today: http://tinyurl.com/cbpz9aq.
For what it’s worth guys, I think we’re sleepwalking …
“J M Keynes’ prophecy of prosperity after the gloom of recession”: http://tinyurl.com/bp4kk2t