There's an old British movie called The Sound Barrier. Filmed in the 1950's it purports to tell the tale of the first attempts to fly faster than sound. At the time it was assumed that airtravel, which was starting to become cheap enough for all to afford, would mean faster and faster speeds. But first there remained the special problem of the Sound Barrier. High speed flight at supersonic speeds seemed to introduce new control problems, or at least that's how the film puts it.
At the moment we have the UK, apparently poised on the brink of something called a double dip recession. The UK, which is not a member of the Euro currency, has the option of using the old money supply controls to manage the economy. When it comes to stoking up a boom the tool that may be used is increasing the money supply. The current euphemism is QE, Quantitative Easing. This, it is claimed, will kick-start the economy by encouraging growth and this, by making it easier to pay more for property.
This seems to overlook a couple of things, the first being that the current demographic leaves a large part of the working population closing in on retirement age. The younger ones have doubts about their employment prospects and the scarcity of new jobs.
Secondly, and this is where we get into Sound Barrier territory, is the fact that the old tried and tested device for encouraging growth was last seen to work properly in 2006 and, arguably, something important has changed since then.
The change is Peak Oil, and this, for me, is where we have crossed into the supersonic region. These days growth no longer has access to an infinite fuel supply. In the old days, say the 1987 run up to the election, it was quite in order to fan the economy with cheap money, but the economies’ fuel was, and is, oil. At that time oil was cheap too, at that time, oil supply exceeded demand by a considerable margin.
This is no longer the case. Of course, officially, the jury is still out on Peak Oil, largely because the people with oil are pretty cagy about how much of it they have. Back when OPEC was being set up some members lied about how much they had because the size of the reserves represented position within OPEC. But there are reasons to believe that we have already past Peak Oil, or else are so close to it as makes no difference.
This means that any attempts to fan the market with cheap money will now be met with a new effect. As an economy tries to come out of recession and oil demand rises now the cost of oil goes up. We know that whenever this has happened before, because of war related supply restrictions, this has triggered a recession. (see previous blogs.)
This suggests that any attempt to 'kick start' the economy will be stymied, quickly, by an abrupt increase in oil price, with its customary depressing effect on the economy.
So how to deal with this? In the Sound Barrier movie one of the ace test pilots discovers that he can recover control by reversing the controls. To pull out of a dive he must push, rather than pull, the control stick back. In real life supersonic flight is a bit more complex than that, but this is movie as metaphor, not real life. ( In reality, the Sound Barrier was conquered by engineers as they gradually understood more about airflow in the supersonic region. )
Could the economy be fixed by a 'control reversal'? Instinctively, the citizens of the UK seem reluctant to buy into a new boom. They'd all sooner reduce their credit card debt and not extend their mortgages.
The civil aircraft industry didn’t persevere with supersonic flight. There just weren’t enough movie stars and millionaires to pay for it, hence no replacement for Concorde. Instead the industry chose to move people on mass, and put airtravel within reach of almost everyone. Which, along with mass car ownership and high energy cost agriculture, is why we are at Peak Oil now, and not twenty years from now.
The only fix on the table is to reduce the demand for oil, while keeping the wheels of industry going. Which means just one thing, more and more investment in renewable energy. If demand for oil can be reduced, there’s a chance of avoiding another oil price boom and shutting growth down.
Long term, this is going to be ever more difficult as oil gets harder to find. We’ll need to much burn less of it, so we can use what is available to keep our energy intensive agricultural systems going. We have to leave sufficient ‘headroom’, between the supply and demand, so that we don’t choke off all growth with high energy prices.
In the supersonic region the old rules no longer apply.