The full title of this fascinating book by Tim Morgan is
“Life After Growth: How The Global Economy Really Works And Why 200 Years Of Growth Are Over“.
I gave it Four Stars in my review at Amazon.co.uk. This means I think it is Good and Well Worth Reading.
I’ve always known that there is a money economy and a things economy. What I hadn’t focused on was how the thins economy is underpinned by energy. The author argues that in effect we have an energy based economy and while the money economy has been inflated by the explosion in debts and Quantitative Easing, the energy economy is deflating.
Why is that?
Because we cherry picked the biggest and best, most accessible, most productive sources of oil, gas and coal first and slowly but surely, the old sources are exhausted and the new sources that are developed aren’t as good.
This has a big consequence on a vital measure that underpins the economic development of the last 200 years – energy returned on energy invested.
In the good old days, we used to be able to extract energy on a ratio of 100:1 i.e. the cost of energy was in effect 0.99% a tiny price for our economy to bear.
Gradually our energy costs more – an EROEI of 30:1 means an energy cost of 3.23%, more expensive but not earth shattering.
The author suggests based on his research that our EROEI is now 14:1 . That says energy costs us 6.67% of our economy.
The ratio is still heading down and the big white hopes of solar power and fracking have an EROEI of mid single fingers. Some sustainable energy methods are even lower.
As energy costs us more and more, it increases the cost of essentials like food which is very energy intensive and leaves us with less money to buy non-essentials.
The economy is going to go through a period of fundamental change as energy use dominates the way we are forced to live our lives.
These changes will have a massive detrimental effect on the money economy.
Even without the continual slide in energy, the two have diverged sharply and a day of reckoning could happen at any time. The money economy is built on foundations of sand.
The message of the book is bleak.
The past isn’t a good guide to the future.
We’ve lived in a fools paradise as increases in debt have given us the illusion of real economic growth and allowed many to live well beyond their means.
Lenders won’t get their money back, borrowers won’t find more people to fund their excessive consumption. Both sides will feel the pain of the adjustment.
Conclusion
If you want to understand the current wider economic situation better, I recommend this book and you can get a copy from Amazon.co.uk or Amazon.com (affiliate links)
I wish the book had ideas for how we can get out of this mess as individual consumers and business owners. I have little confidence that politicians will act in time.
Further Reading
Throughout 2013 I have been increasingly concerned at what is happening in our economy and I have been doing a lot of research to understand the problems and to try to find the answers.
I must admit that I’m doing a better job on problems but at least that’s a start.
Like a doctor, if the diagnosis is wrong, there is little chance that a cure can be successful. There are dangers with treating symptoms while allowing the underlying root cause to grow.
My series of articles starts with:
The Future Of Your Wealth And Business
I encourage you to read it and to follow the links for items that are particularly relevant to you.
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