In the price of fish II I took the general concept of two societies with different costs of essentials (fish) and derived a relationship between fish (essentials) and shell necklaces (luxuries). This showed that the two were related in value through the rate of production of each. Or to turn it around, the economic resources used to gain them.
To summarise the view of most economists on energy, they are working under the delusion that we have a free market for energy! That is: that if the price of energy is too high then people and companies will simply find an alternative good to buy. That is because they view energy as simply another good which the consumer is free to buy or not to buy as they chose. However,what I’m asserting is that energy is an essential part of the economy, and that consumers and producers may be able to chose the form of energy they use (gas or electric heating), but for the most part, the energy consumed in producing goods and supplying services cannot be replaced by non-energy goods.
Thus energy is not something whose price works according to the normal laws of economics, instead energy is a critical “control knob” of the economy whose long-term price is a function of the economic cost that has to be scarified in producing that form of energy.
Interestingly however, I’ve previously stated that energy is a constraint on the economy, but I’ve now realised that within that model in Fish I & II, there is another constraint at work. In the primitive society that constraint was the idea that there are only a certain number of hours that each person could work each day.
Thus if gaining essentials took twice the effort (which equates to twice the cost), then this directly took away economic activity for producing luxuries (consumer goods). Or to turn it around, the reason that the economy has grown, is that the time spent producing essentials like energy and food as a fraction of the economic activity has reduced year on year allowing us more resources for producing luxuries.
However, this is a more complex limit on the economic output than I was imagining. It now says, the output of an average worker is limited by the average time workers spend producing essentials, freeing up time for luxuries.
At the moment that time spent in bare essentials is 1/4 of the working time or approximately 1/8 of the total available time (half the time we could be working, in the modern world, is spent not working – or 40hours a week is only half the possible 80hours a week).
As I found in fish II, that suggests that if energy costs quadrupled, the economy would collapse if we work the same hours a week. However, if the cost of energy/food were to go up 8x, then these rough figures indicate that human activity to survive would require 80hours a week and even then it would likely result in mass starvation.
Doubling & trebling energy costs
But let us start looking at what happens to the economy if we modestly double energy costs. At present energy & food costs are 1/4 of the economy. Doubling energy costs, has a feed through effect on food, so that effectively all food and energy costs double, and that then means twice the economic resources go to food & energy as present. That also means that rather than 3/4 of the economic activity working to produce luxury consumer goods, that only 2/4 of the economic activity is in producing consumer goods. That shows that the economy will shrink by a 1/3. If however the cost of energy trebles, a that implies 3/4 of the economic activity on essentials and 1/4 on luxury consumer goods. That implies the economy drops to 1/3.
To even consider this may sound crazy, but raising the cost of energy by at least double is exactly what treacherous May was proposing with her undemocratically passed sneaked through massively costly “zero carbon by 2050” debacle. If that is “achieved” by 2050, that means between 3 to 6% reduction in the economy each year. That’s a total cost of between £5 and £10 trillion in the UK. In terms of cost per household, that is around £185,000 to £370,000 per household. (I had guessed around £200,000 per household!!)
As of April 2019 the average house price in the UK is £228,903. In other words, the average cost of the “zero carbon”, is that most people won’t have a house. That doesn’t mean that they will be living in rented accommodation. Instead, it literally means they won’t have a house. In simple terms the economy will deflate until we have the wealth that was available in the decades after WWII. Most people will not own their own home, the homes that people live in will be a lot smaller with many people sharing.
“Achieving” this supposed “zero carbon” target will result in decades of economic decline, the like of which the UK has never seen since … probably the black death.
On the brighter side, I think it would be possible economically to shrink to post WWII levels. But politically I think it would be completely utterly impossible to achieve.
