FROM FIRST PRINCIPLES
We have reached a turning-point at which economics and the economy have parted company. Orthodox economics continues to promise growth in perpetuity, but the economy itself is going in the opposite direction.
The explanation for this is simple. Conventional economics assumes that the economy is driven by money, which is entirely under our control. But the economy is, in reality, not a financial system, but a physical one, which uses energy to convert raw materials into the products and services which constitute prosperity. The modern economy has been built on abundant, low-cost energy from fossil fuels, but this dynamic is winding down and, as we shall see in a future instalment, we have no complete (or timely) alternative with which to replace it.
The aim with The Surplus Energy Economy is to set out a comprehensive assessment of the condition and prospects of the world economy and financial system, seen from the perspective that the economy is shaped by energy, not money. This series of articles will be as specific as possible, using data from the SEEDS economic model.
The conclusions reached here necessarily contradict the orthodox line, which is that the supposed ‘normality’ of growth will soon return, and that seamless transition to renewable energy sources will deliver economic expansion in perpetuity.
The economy is analysed here as a material system which has started to contract after reaching physical constraints imposed by the availability and cost of energy. Similar limits apply to environmental tolerance for energy-based economic activity.
Findings will come later in this series, but we are completely unprepared for the reversal of prior growth in the economy. The ending of growth has not arrived without warning, and we can identify a precursor zone, starting in the 1990s, which was characterised by deceleration, followed by stagnation.
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