So, let us begin with some of the basics which this site has been talking about for more than a decade now. First, let’s talk about the exponential function. This is the area of mathematics which deals with compounding growth. And most people fail to grasp it. For example, here in the UK, the government has bet the house on something called “economic growth,” which they seem not to understand. But how much growth is desirable – 2%? 3%? 5%?
One reason why financial services have struggled in recent times is because they were modelled upon pre-2008 growth rates of five percent or more. But what does five percent growth mean? Most people – including, I suspect, most of our political class – seem to assume it means five percent at simple interest. That is, we take five percent of our current economy and grow it by that much into the future. But anything that grows by a percentage over time mirrors compound interest. That is, a five percent growth rate means adding the five percent to the current economy and then each year recalculating that five percent. So that, fourteen years from now, the economy will have doubled in size.
This (sort of) looks okay if you are a saver or an investor – every £100 invested today will grow to £200 fourteen years from now. But when we step back, we notice some unpleasant side effects of the compounding. For the economy to “grow” by five percent requires either or both of two key metrics to double over our 14-year period. First, the material economy – and especially energy and raw resources – has to double in size over the period… twice the energy consumed, twice the minerals mined, twice the goods and services produced, twice the greenhouse gas emissions, twice the refuse going into landfill, etc.
Second, in our debt-based currency system, debt must also double… which is bad news if you have an overdraft, or if you are a government which has been buying popularity by using government debt to fund all manner of public handouts and (especially) corporate welfare (such as bank bailouts and covid grants to your friends and relatives).
Now let’s take another given – that you can’t have infinite growth on a finite planet. Sooner or later, you are going to reach a halfway point at which you will be producing more stuff than ever before… and more than you will ever do again! Call it “peak industrial civilisation,” if you will. We might comfort ourselves that since industrial civilisation gradually grew to this point over three centuries, the road down the other side of the bell curve might be equally gradual. However, this overlooks the high degree of complexity and interconnectivity that was an integral part of our civilisation’s growth. When this begins to unravel, it will most likely follow a “Seneca Curve.”
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Like financial bubbles, industrial civilisation may have walked up the stairs, but it will fall down the lift shaft.To this, we can add a related problem – the low-hanging fruit trap. Nobody scales the top of an apple tree to pick the highest apple when there are apples aplenty just a few feet above the ground. In the same way, nobody dug a deep coal mine when there was plenty of surface coal from seams jutting out of the side of hills. Nor did anyone deploy a deep-sea oil platform in the days when vast oil reserves lay just a few metres beneath their feet. Nor did this matter much back when there were just a billion humans on the planet, and when just a couple of million of them were consuming the products of industrial growth. Today, there are eight billion of us, and less than one billion are excluded from industrial consumption. This has left us having to invest more and more into deep mining and drilling, in increasingly hostile regions of the planet, just to maintain some semblance of economic growth.
Central to this, is the concept of the “energy cost of energy.” That is, in order to have energy, we must invest energy. This invested energy (which is also embodied in the machinery and infrastructure of energy production) is unavailable to the wider economy. The remainder – the “surplus energy” – must meet both essentials like food and shelter, and the much wider discretionary economy of goods and services which, while not essential, often make life a little more bearable than it would otherwise be.
In the early twentieth century, surplus energy was growing, both because the expansion of energy production provided economies of scale even as technological developments lowered the energy cost of energy. These productivity gains reached their height in the years immediately after the Second World War, when the USA’s European and Asian partner economies were making the transition from coal to oil as their primary energy source. The result was an exponential growth in oil production in the post-war boom years, 1953 to 1973 – a period which witnessed as much production and trade as the 150 years which preceded them. Harold MacMillan, it turned out, was right when he told us, “You’ve never had it so good.”
Unfortunately, just a few years later we reached the end of exponential oil production even as economic growth was replaced by a combination of stagnation and inflation… stagflation! This was wrongly blamed upon excessive government spending (at a time when almost all of our money came in the form of notes and coins) and on militant trade unions. Hidden from sight, from economists trained in the medieval economics of Adam Smith, along with the politicians who listened to them, was the simple fact that the energy cost of energy had increased considerably following the end of conventional, land-based production in the USA. And as the energy cost rose, so the surplus energy available to power economic growth began to falter.
Not, of course, that surplus energy didn’t grow. It simply grew at a slower rate. And ultimately, the economy had to get into step with that lower growth rate too… except… except that the debt-based Eurodollar system needed higher growth rates to avoid an international debt crisis. Two options presented themselves in the 1970s. We might have opted to restructure domestic and international banking and financial arrangements in favour of a system more benign to the needs of ordinary people, and one which might address the growing environmental concerns of the period. Alternatively, we could throw the people and the environment under the bus and give the bankers and financiers, and the rentier class which benefits from them, control over the economy. We were duped into voting for the latter.
https://consciousnessofsheep.co.uk/2025/04/05/economic-chemotherapy/