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.

This article focusses on one of the assumptions of the theory of enerconics which is whether innovation drives economic growth or whether we innovate as a result of economic growth.

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In the Value of Fish I considered two societies where the only difference was the rate at which they could secure life’s necessities (9 fish a day). In this article I want to generalise that concept.

Let:

• d = average number of hours a day
• n = quantity of necessities that are needed
• r_n =the rate of acquiring necessities
• r_i =  the rate of producing consumer good i

The time taken to produce the day’s necessities is = n/r_n

The available “luxury time” is given by (d – n/r_n) where d > n/r_n

The number of consumer good i that can be produced in a day is  ( d – n/r_n) . r_i

The quantity of necessities which can be produced in a day is  ( d – n/r_n) . r_n

Therefore if we take that a day’s work is equal then:

1 day’s available goods = ( d – n/r_n) . r_i  . good_i = ( d – n/r_n) . r_n . necessity

Thus the ratio between consumer value of item i and necessities is given by:

( d – n/r_n) . r_i / (( d – n/r_n) . r_n ) =  r_i / r_n

Or to put it another way, the value of a necessity in terms of consumer item i is given by:

v_n = r_i / r_n  v_i

Thus if the rate of producing a consumer good (shell necklaces) remains the same, but the rate at which the necessities of life doubles (from 1 fish/hour to 2fish/hour), then this means the value of fish relative to shell necklaces halves.

Because energy is a necessity in a modern economy, this also implies that the cost of energy is directly proportional to the economic activity (here given as hours of work) required to provide that energy. It also implies that if a quarter of the GDP is tied up in producing necessities like energy, then the economic activity involved in producing energy is 1/4 of the total activity and that if the price of energy doubles, then the economic activity used to produce energy will double to 1/2 the economy meaning that there will be a reduction from 3/4 of the economy producing consumer (luxury) goods to 1/2. It also means that if 1/4 of the economy is currently involved in producing necessities, then if the cost of necessities like energy (and food which is closely linked to energy costs) were to quadruple – as I think is necessary to get “zero carbon”, then basically there will be no other economy other than necessities and our modern economy will basically catastrophically collapse.

In other words, if energy costs were 4x their present value, it would be IMPOSSIBLE to run anything like our present economy and e.g. the number of hours worked by an average person would need to MASSIVELY increase. That means the effective end of free time, which in turn means the end of any opportunity for almost all individuals to engage in political campaigning such as these “climate action”. It also means, there will be next to no TV, next to no press, next to no cinema, so the wholesale wipe out of the present media, present groups like Greenpeace, Friends of the Earth. Not quite the stone-age but certainly a lot more like Dickensian London in terms of economics, culture, politics and free time.

Enerconics

But, more importantly than the mere total collapse of the economy as we know it, what about the idea that economies can be measured in terms of energy rather than money? Contrary to my earlier belief, there is not a direct relationship between the two, rather the availability of energy and economic activity are proportional to each other with that proportionality being determined by the ratio of the rate of production of energy and the rate of production of consumer goods.

If both rely on the same technology, then the relative value of energy and consumer goods will remain. If however, there are fundamental changes in the way we obtain energy, that significantly reduce the cost of energy, or as is being proposed now, that the cost of energy should dramatically rise, then the value of energy relative to consumer goods will dramatically change. A reduction in energy costs relative to consumer goods expands the economy, an increase retracts the economy. As such changing energy costs explain the rise in the scale of the economy, but the key to using energy as an economic unit of value, is in knowing the relative cost of producing energy compared to producing consumer goods.