Energy crises are nasty aren’t they?
If like me you were around in the 1970s, you’ll remember the slow-motion car wreck feel to things as unemployment rolled upwards, businesses closed down and family budgets stretched more thinly every month.
Then, as now, prices inflated as the economy stagnated. Politicians and union leaders railed against each other or met over beer and sandwiches, depending on which party was in power.
There were strikes. Not today’s one-day affairs but bloody disputes with pickets and braziers that went on for weeks or months. But in those days, there was a bigger, brighter future to fight for a bigger share of.
One of the big reasons why the Seventies and Eighties were shite (apart from the fashions and the Brotherhood of Man) was the massive energy crisis that gripped the UK from the first oil price shock in ’73 until the North Sea started to really come on stream in the Nineties.
Cheap(ish) black stuff
In 1970, the UK got half its energy from coal and virtually all the rest from oil. Then suddenly both became major problems. The UK coal industry was way past its peak by the Seventies because nearly all the high-thermal-value, easy-to-get-at stuff was already gone. Keeping it going called for ever-higher investments that produced ever-lower returns.
Meanwhile, oil had been so cheap that we Brits used it for everything from heating schools to generating electricity, not to mention powering inefficient monstrosities like the Austin Princess. But then the US hit its peak of oil production and lost its ability to ‘swing’ the world price by turning its taps on or off. OPEC, which had been counting backwards from 100 ever since it read MK Hubbert’s peak oil model, immediately turned the price tap, which it now controlled, all the way to ‘diamond-studded camel harness’ and the rest is history.
Lavender Hill Zombies
Suddenly starved of the kind of cheap energy that made it possible to keep flogging crappy cars with 1940s-era engines and 18mpg fuel efficiency, the hitherto relatively graceful decline of Britain’s post-colonial industrial base turned thoroughly disgraceful, almost overnight.
Imagine a pleasant old cove from an Ealing Studios comedy opening a bedsit door and being swarmed by a garish horde of George Romero zombies and you get the flavour of Britain circa 1975.
The problem wasn’t that the world was running out of fossil fuel. Far from it. Our problem was that our energy inputs – and therefore everything else in the economy – were being suddenly and viciously repriced and there was nothing we could do about it. Of course, the Brits are a nation of decent fellows with a love of decency and fair play – so we went for each other’s throats for a couple of decades: Northern Ireland, football, the miners, you name it.
Western Governments borrowed and printed money to keep their societies and economies functioning during the adjustment to high-priced energy and (in the UK’s case) the transition away from domestic coal to imported stuff and North Sea oil and gas.
I guess the original idea was that they’d ratchet down the monetary incontinence once they’d straightened out the energy thing. As if. By the end of the Eighties we were getting on top of expensive energy inputs (by off-shoring dirty, labour-intensive activities to the Far East) and the supply side was pretty much sewn up between OPEC, who were making up new oil reserves, and the USA, who were making up dollars to buy them.
That would have been a good time to stop flooding the planet with credit simply to fund ever more innovative ways of wasting fossil fuels. But Maggie and Ronnie were too deeply in love with the idea that all this new-found wealth was magically created by their monetarist ideology to see that it really still came from holes in the ground.
Because we’re worth it
This wasn’t even a case of setting fire to the house to keep warm. It was setting it alight just to ooh and ah at the pretty sparks whirling up into the night sky. Over the last 30 years, the world (mainly the US and Europe) burned through most of the remaining endowment of easy-to-get-at oil and gas. It doubled its population by turning to industrial agriculture and artificial fertilisers to convert oil and gas into food.
We invented the bestest-ever ways to amuse ourselves and, if we ever wondered where all the energy was coming from or whether anyone was still bothering about the state of the country’s infrastructure, we figured that these were problems that would easily be fixed. After all, there’s supposedly nothing that can’t be delivered by the amazing power of free markets or by the Chairman of the Federal Reserve whirling around dropping money from a helicopter.
In fact, all we’ve proved since the Seventies is that you can fill the world with a heck of a lot of stuff and people as long as there’s plenty of cheap energy. ‘Economics’ is now more or less solely concerned with removing any obstacles to revving the stuff-people engine faster and faster. Why keep mindlessly revving? Well, I assume it’s because we’re worth it or something.
So why is it beginning to look and feel like the Seventies again? Unemployment heading for three million; falling living standards; rising living costs; steep energy bills; a sense that young and old generations alike are heading into a cul-de-sac?
Are we heading into an energy crisis? Well, yes. The UK has a complex industrial economy that calls for shedloads of energy just to stand still. That energy is getting scarcer and more expensive – just like 40 years ago.
But this time the Government can’t simply launch a credit expansion on the scale of the one it kicked off in the Seventies to tide us over the energy contraction. People can’t afford to borrow and the banks can’t afford to lend.
Nor are there any huge lakes of oil and gas waiting to be discovered in easy-to-exploit places. What’s left lies in faraway, difficult and dangerous locations. Even when big discoveries are made, like the one off Brazil, the potential flow-rate (which is all that matters) puny compared to what’s needed to put a dent in the $100-plus prices that are suffocating the developed nations.
All the Government can do is print money as a lubricant to stop the economy seizing up. Note that it’s only a lubricant: it doesn’t stop the real economy from slowing down for want of cheap energy. And the way the money is created tends to enrich the very richest while doing nothing to raise the living standards of the bottom 90% (although the Government might argue that, by preventing complete economic seizure, QE and now Credit Easing, are preventing a sudden meltdown that would plunge everyone into destitution overnight).
Hands on the wheel
Maybe in the end, the demonstrations spreading around the world from Wall Street are all about who gets to hold the steering wheel as the world slaloms along its post-peak-net-energy course. The young can divine their futures in the plates of crumbs and bare bones being pushed towards them by greasy-chinned parents and grandparents who barely have the honesty to feign apology for squandering so much irreplaceable wealth in a mad half-century binge.
They’re very unhappy and they don’t intend to leave the ship in the hands of people they see as short-sighted, greedy and incompetent. The bankers and their captive politicians ballsed-up the biggest bonus ever given to any species on earth and the next generation isn’t going to allow them preside over the coming fall out.
Today, like a century ago, Governments can’t or won’t see that capitalism has reached a historic turning point. At the start of the 20th century, Western Europe’s governing classes reacted to organised demands from labour and liberal groups by more or less reluctantly setting up social institutions to spread the coming wealth around more fairly. A couple of decades later, the Great Depression dragged America’s ruling class kicking and squealing into the same recognition.
In Russia the rulers’ policy of ‘let them eat borscht’ led to revolution, civil war, economic isolation and decades of misery for millions.
It’s decision time
Time is running out for those who seek to paper over the cracks with yet more debt. The choice for the politicians is to make concessions or try to control increasing conflict.