Energy

Interest Rates and Inflation (this is a long one)

Everything here is my own view and does not reflect upon any institutions I may work for or be involved with. That’s not to say what I’m going to write is controversial (it largely isn’t among experts) but, you know, this is me.

It may also be that you have a view on this already and on that basis nothing I’m going to say here is written with a view to changing your mind should your view be different to mine. I am going to be snarky and if you find your view ridiculed? Sorry, I think these issues are important enough that those whose approaches would leave us all worse off need, at the very least, to be made fun of.

A couple of housekeeping points. First – prediction is really hard, especially when it’s about the future. (thanks Niels Bohr). I’m not going to talk about the future in this post. I’m simply going to talk about what some things are and what we know about them thanks to past events. Second, I’m going to try to keep jargon (such as monetarist, neo-liberal, keynesian, chicago school, exogenous, M0, M1 supply etc) out of the text – not because I can’t swing my educated dick around with the best of them but because this isn’t a policy document.It’s something I wanted to write to explain some stuff about inflation, rates and the consequences for you and me.

Third and final point of housekeeping – economics is not a science no matter how much maths is used, no matter how many formula. It is much harder than most science. It is also, as a discipline, much more arrogant. Although I’m trying to explain something here, I’m also giving you a health warning that although looking back we can try to describe what happened and then venture explanations as to why – the truth is there are no ‘great men of history’ driving what happens.

Right. That out of the way, let’s take a look at what I’m interested in talking about today.

The BoE describes Inflation as the word we use for rising prices. Which is annodyne without being incorrect.

The rate of inflation is therefore the rate at which prices are rising. Again, accurate without being insightful.

What that doesn’t do is explain WHY prices might be rising, what impact that has nor the fact that the measurement itself is…a thing worthy of examining.

So, first, what creates inflation?

Some people blame capitalism and suggest we could have a zero growth kind of world. I wish them luck. Why the snark?

Because inflation is a measure of what it takes to maintain the standard of living we have now. Think about that for a moment. Inflation is a measure of the cost of something at a given moment in time against another moment in time. I always struggle to help people see how inflation is a measure of cost over time. It’s not a measure of something today.

Think about it like this: I have built a road. To pay for the materials, expertise and labour I have to have money (and investment in stable systems in place over time to create expertise, tools and those same materials). I may have this money through two routes. I can save up until I have the funds OR I can borrow the money. Borrowing is essentially bringing money I might have in the future into today.

So I build my road. The money is spent. The road lasts forever.

Wait. Something isn’t right with that statement.

Yep. The road doesn’t last forever. It degrades. It crumbles and gets potholes through use. It needs maintaining to keep it in good nick. You could think about inflation as the amount you spend through time to keep that road in good condition. It’s not a perfect analogy but hopefully you get the point – which is inflation is a record of the cost of having something over time.

I think it’s a better description than saying inflation of 10% means a shirt that cost £10 last year will now cost £11 because it gives you a sense of why that additional cost has materialised.

So far so vague.

let’s delve into the weeds a bit. To do that we’ll need to leave the rather hand wavey/philosophical description above and assume that inflation’s about people wanting things and what they’re prepared to pay for them that drives prices – it’s obviously way more complicated than that. We’ll also ignore why basic measures of inflation entirely ignore the indirect impact of how society is structured and the economic and social policies in place for that society (and those it interacts with). For now though let’s go back to school for a moment and assume that what high schoolers and undergraduates are taught about inflation is actually true (pfff).

There’s basically two types of inflation. The first is what we call demand led inflation. This really means that you want something and you’re prepared to pay for it. If there’s not a lot of something and you still want it you might actually be prepared to pay more for it and the people selling it will therefore choose to charge you more because you’ll still buy it when they charge more. That is demand led inflation because your demand led to prices increasing.

Side Bar: this is not really what demand led inflation is – because that entirely ignores unequal demand, inequality and the elasticity of demand. ie. you may want something badly but can’t afford it, so you don’t buy it. I can afford it but the seller knows I can afford it and that I’ll still choose to pay for it if it’s twice the price. So they raise the price twofold and hey presto we have inflation. Except that the costs haven’t changed and now the seller is richer and there are lots of people(think about this globally) who can’t afford this thing that’s desirable. That might sound reasonable until you think of it being clean water or access to medicine. Inflation is too often thought about in connection to luxuries and not often enough with basic human essentials in mind. It’s important because sometimes the demand that we all have access to something is reasonable, compassionate and humane. Other times it’s not but the two things can both be true. END of Side Bar

There can be many reasons for this kind of inflation. You may be wealthy. You may have a critical need. You may simply want something for no other reason than you want it.

The other side of this coin is supply led inflation. Basically when the person/people/companies selling something jack up the price compared to the last time you bought it. Think Martin Schkreli who tried this with medicines and was, in the end, convicted although the actual gouging he engaged in wasn’t the illegal part (thanks laissez faire economics!).

The reasons for why supply led inflation may rise are also many but are rarely the same as those on the demand led side. They could be that the prices of raw materials have increased or the cost to heat their factory or the wages they must pay or the im(ex)port taxes levied by international treaties. They may be required to adjust their methods or invest in new machinery. Sometimes just the cost of keeping things running can lead to them needing to put cost up.

Side Bar: you may have heard of shrinkflation – this is a recent word for something that’s as old as the hills. When a company needs to put prices up it may not be able to because demand for that product would collapse. So it might keep prices the same but reduce what you receive for that. It may be a smaller chocolate bar or a flight with no free meal or a train that has no tables…these are all examples of the same thing. END of Side Bar

The perils of high inflation are unique to the human condition. high inflation, regardless of the cause, a the fact that prices are rising fast. Now, high inflation sounds like its a thing that happens in a moment but it’s not and this is REALLY important to grasp. Rising prices rise over time. That means that what costs £10 today may cost £12 next week but then £15 the week after. If you’re earning only £10 then both of those rises are damaging to your ability to just STAND STILL and maintain the quality of life you had yesterday.

You could just give everyone more money so they can afford everything but that too is definitely inflationary as suddenly people will spend this will definitely lead to SELLERS raising prices because they can and that will bring us right back to where we started but WITHOUT solving the problem of everyone spending more just to stand still.

It’s really important to realise that most inflation is transitory. By which I mean that there is a period in which the prices rise and then they stop rising. Think of it like this – when you accelerate from 20mph to 30mph there’s a period when you’re accelerating but when you reach 30mph you stop increasing your speed. Inflation is the acceleration and, just like driving faster, it stops when you reach that new level/speed.

Most of the time at least.

Knowing this doesn’t help if your wages don’t match the increased costs. Now, not being able to have the same quality of life as you did yesterday sounds bad and it is. For many people they absorb these costs and carry on but for many others they find they can’t eat or pay for heating or afford new clothes. For the least well off they discover they can’t afford to live in a house with walls and a roof. Inflation is exceptionally damaging in many circumstances because it always hits the poorest hardest, earliest.

Now, you’ll often find a moral dimension in inflation arguments and it runs like this. Talking heads moan about workers wanting more money arguing that if they do get more money they’ll then by able to buy more and therefore drive prices further up. No one ever criticises bosses for taking huge payrises or suggests that billionaires are responsible for asset bubbles (news flash, they’re a symptom of the disease not the cause, but they’re a cancerous symptom, one that spreads and does damage similar to but not identical with the problem from which they burst like nasty buboes). This one sided offence and moral castigation tells you people i) don’t understand inflation and ii) think workers should know their place and that place is to do work and not really be humans who might live for other reasons than work.

However there is some truth in the argument if you carefully excise the moralistic puss. It is this: if costs remain stable then demand led inflation can lead to price rises that increase inequality and damage economic stability. I come back to the fact that the ultra wealthy do this simply by existing as nodes for wealth accretion but hey, that’s just me.

In these circumstances, and these circumstances alone – that is where it is the great mass of people driving prices up via demand for more – then raising interest rates can have some impact. Not a huge amount, certainly not directly on people since the majority of homes in the UK are owned without a residential mortgage attached (the ONS estimates that only 28% of homes have a mortgage attached)) and so rising rates will have no DIRECT impact on the majority of people. If you factor those in with fixed rate mortgages the proportion remaining unaffected rises even higher. (and let’s not talk about the US where standard fixed rates are between 10-30 YEARS, not 1-3). For these people rates could rise to 10000% and they’d still not be directly impacted.

For others who borrow, the rate at which they borrow may only reset once every few years. So raise it today and rising rates won’t impact them until a few years from now.

Yet in fiction and in many economics textbooks and certainly in most news media, this is the only kind of inflation anyone ever talks about (because it’s easy to be moralistic about individual choices and being judgy sells copy).

What we’ve experienced in the last twelve months certainly has some elements of this – there was a huge amount of pent-up demand post lock down. Yet inflation was exceptionally low during lockdown and so this, really, can be balanced out by its later contribution to our overall inflation numbers (the rate at which prices rose reflected, in some part, the sudden demand in the market after months of people being stuck at home. This isn’t correct across many sectors but it’s close enough to being right that we’ll let it pass unremarked).

What isn’t well understood outside of banks and hedge funds, insurers and other financial professionals is this: the inflation that kicked UK CPI to 11.1% for it’s October reading is largely led by supply led factors. That is, factors that I as a consumer have no influence over. None at all. My buying habits have largely been to stay where I was this time last year. What I’ve discovered is that to do so I have to spend 11.1% more (on average – for those with less the inflation rate could be as high as 20% because the items they want have seen more extreme localised inflation). This isn’t me wanting more, it’s me struggling to stay still. Again, when I ask for a pay rise it’s not to buy more but to buy the same as what I was buying last year! That is hardly demand led as traditionally defined.

Why is this? A bunch of complex reasons all coming together at the same time.

The first is the impact of lock downs on a global scale. Factories shut, ships didn’t sale, ports were closed, mines stopped mining and people stopped planning for normal levels of demand. This meant that when the world started to ignore covid and carry on as if it wasn’t there (thank goodness for vaccines) the demand for life to return to how it was in 2019 simply couldn’t be met.

There were no factories producing widgets, no ships to take them and no ports to receive them. These shortages resulted in companies struggling to fulfil demand and prices rising because just to ratchet up production and mend supply lines and get shit around the world demanded new, unforeseen investment. It turns out that if you turn big things off it’s not simple (or free) to switch them on again.

Then the fact that some places responded to proposed shortages by agreeing to pay more than others. This demand inflation wasn’t created by you but by companies who wanted to sell to you and knew they could make you pay more just to stand still. So shortages turned into prices rises.

No one was earning more at this stage, we were just paying more.

Then came the war in Ukraine which obliterated the world’s grain supply as well as making its energy supply something it hadn’t been for 30 years – a geopolitical existential crisis.

Again, the desire to be warm is not a demand led problem. it’s a supply led problem. We ‘demand’ being warm but it’s not us pushing prices up wanting to be WARMER. We want to be as warm as we ever were not baking like never before…The political risk involved in this market which is a fundamental for EVERYTHING else meant that as unit costs for generating energy increased everything else also became more expensive. That is a cascade which means disproportionate non-linear rises in manufactured goods downstream. That process still hasn’t finished playing through the global system and there’s nothing to say it won’t continue for at least another 18 months (sorry, just the messenger here).

Now, I hear lots of ill informed people saying we need to raise rates to suppress demand. The desire to be warm when it’s -4C outside isn’t going to be suppressed by having the price of energy go up. You will impoverish people or, worse still, kill them from lack of heating. But you won’t make their desire to be warm go away. Fundamentals like this are not luxuries and the callous and wilful ignorance that refuses to see the nuance here infuriates me. That’s not the worst of it.

In a supply led inflationary scenario raising rates doesn’t work to bring prices down. Prices stop rising by themselves. Now, for those at the back – something really fucking important. When inflation falls from 11.1% to, let’s say 5%, that doesn’t mean prices are falling. It means prices are STILL RISING but only at a slower rate. In our car example, it means it’s going to take me longer to reach 30mph but I’m still going to reach 30mph.

It also means that price rises will naturally slow because the shocks play through the system and are gone. i.e. rising rates have no impact on those price rises and certainly had no influence on them slowing down. Prices have risen, the change is done, inflation has fallen but that doesn’t mean prices have fallen, on that the pressures on the supply side have stopped pushing prices rises through the system. We’ve reached 30mph which is, it turns out, too fast for many people to keep up with.

That is not a comfort to someone who’s already been priced out of being warm because their wages haven’t kept pace with rising costs.

Secondly, sure, Mr Governor, raise rates in the UK to 10%. I’m sure Putin and Zelensky will take notice in Russia and Ukraine…or not. I’m sure energy generators selling to China or the US will take notice and reduce their prices…or not. I’m sure people shipping from India will reduce their prices…or not. I’m sure the fact the EU can afford to pay more than they did before for supplies which once came to us will mean our prices fall…or not.

Localised raising of interest rates CANNOT control for global events as they interact with a thoroughly interconnected economic system.

What raising rates WILL do is lead us into recession as companies and individual exposed to interest rates find they can no longer meet interest payments, find that their customers can’t afford even what they bought last year. As their revenues decline those same companies will close and put people out of work and so on. It is, as the chief economist of a certain bank I know well said, meaningless and an act of self harm to raise rates when the drivers of inflation are i) not impacted by those rates and ii) those who are impacted by those rates will only be further impoverished.

Why? Well on one side prices are rising and will continue to do so. On the other hand my ability to even pay what I paid last year is now diminished because I’m at risk of losing my job and because my interest payments have increased. This triple whammy of rising prices, falling incomes and increasing interest rates is an economic disaster and why we’re likely to see rates in the UK peak around 4.25% – which is still historically low.

Sure it will reduce demand but it won’t reduce prices because those prices were rising independently of consumers.

Smart move there Mr Armchair Economist/Political Hack/Moralistic Moron.

Do I have better answers? There are some REALLY smart thinkers out there who have suggested alternate approaches for this specific kind of economic challenge but that’s for another post, another time.

December 9, 2022 0

The coming crisis

This post contains my own personal opinion (I work in finance and this is neither official advice nor representative of what my employer thinks – caveats done with, let’s talk turkey). There’s been a lot of words spilled in the last few months over inflation and [interest] rates and energy prices.

I’ve become convinced that we’re about to see a change in the shape and nature of British society that we haven’t seen in 50 years. I won’t rehearse the arguments here about how much energy prices are going to rise or what inflation is doing to our paychecks.

I also don’t want to make this a doomsday post. What I want to do here is spell some things out clearly and then offer some help (mostly by signposting you to others who are much better at this than me). If you want to skip my longer discussion about what is going on, just go to the end where I’ll make some recommendations you might already know, but hopefully will provide some tools for managing budgets and thinking about insulating yourself against rising prices.

Inflation hasn’t hit us yet. Nor have rises in interest rates. We’re still only really just seeing the impact on housing of changes wrought first by Margaret Thatcher and then exacerbated by the Financial Crash of 2007-8 (It hit the US earlier than the UK).

Which is why I’m worried. An inflation shock like this – specifically because it’s driven by factors coming from outside the UK cannot be controlled – it can only be prepared for and survived.

There’s been lots of discussion over interest rate rises. So I’m going to do write a short 101 on why interest rates are rising (and will continue to rise, perhaps has high as 4%). Classical economics suggests that inflation is driven by people wanting to buy more things, by growth being such that the sellers can increase prices because people can pay more. In that scenario you raise interest rates to make people poorer. Simple as that. Poorer people buy less. If they buy less sellers can’t keep raising prices and hence inflation stops.

This is fine. It is also literally economics for toddlers.

Actual inflation comes in many varieties and the kind we have here isn’t the one I describe above. It’s what we call exogenous supply side inflation. Those fancy words mean the following: exogenous – coming from outside. Supply side – meaning that prices are rising not because people want to buy more stuff but because the goods themselves literally cost more to make and provide. So, if we put that together we see that this inflation shock is best seen as prices for the things themselves rising because of outside factors which are largely beyond our (and our government’s) control.

For instance, there has been a food crisis globally because of supply chains which, when Russia invaded Ukraine became a catastrophe. Food may be more expensive here but it can still be bought. In places like Egypt, there is literally no grain regardless of how much people are prepared to pay. This is a global problem and the food is being shipped to places who can pay more – like the UK. This means that prices go up because a shortage of supply means EVERYONE EVERYWHERE has to pay more just to get what they used to get. No one is trying to get more here, we’re all trying to get what we had before and discovering there isn’t enough to go around.

Into this scenario we have a central bank with a strange mandate and only one tool to achieve it. They have been mandated to keep inflation at 2% +/- 1%. Their only real tool is interest rates. This may sound ludicrous and it is. However, there are good [limited access link] reasons that this mandate and this tool sit with the (currently) independent Bank of England.

I’m not interested in rehearsing those arguments or those as to how we got here (hint: decades of exporting inflation). We are here, now. We discussed above why people often think raising interest rates cures inflation. As you’ve probably guessed, in this case it can’t work. Indeed, raising interest rates has literally no intersection with exogenous supply side inflation because no one who is involved in the rising prices is impacted by those rising interest rates. Even worse, if interest rates are rising where those goods are made/created then they are only going to make our inflation experience worse as those increased costs will be passed onto us.

Now, you could argue that this will necessarily make us poorer and so make us buy less.

Well. Yes. We’re being hit by rising inflation AND rising rates. So not only are goods becoming more expensive, but our own lives are becoming more expensive and hence we can buy less.

Except.

Except this doesn’t mean we buy less because for most people, in a normal environment, they aren’t running a profligate personal spending lifestyle. We buy what we need, we save and we plan for the future if we can/have the bandwidth.

The situation we’re in now means we find ourselves not able to even afford what we could buy yesterday. It’s not that we can’t afford these extras, it’s that we can’t afford to stand still. This is bad for us all – both individually and also as a society because this kind of stress has no real outlet or safety valve. Not least because the ‘help’ we’re getting from the system is to make our lives even harder.

As the pandemic showed – we’re prepared to put up with a lot as a society if we’re in it together and if we feel there are effective measure in place for us all to make it through. Raising interest rates at this point is literally the opposite of that.

So we’re falling backwards as a base case. Ordinary people hit on all sides.

And still interest rates are going to keep rising because when all you have is a hammer your problems tend to look a lot like nails. I have every confidence that the BoE understands everything I’ve written above. I also have every confidence that the current executive of the British government doesn’t.

This means that not raising interest rates is impossible for the establishment.

A couple of reasons why

Politically, the reasoning is the simple (idiotic) version that we’ve just trashed. But the reasoning holds and so there is immense pressure to rein in inflation. Not least because people are (absolutely rightly) very frightened for societies where inflation runs out of control. There is a high tolerance towards suffering if it holds back the kind of political turmoil we saw in the 1930s.
The bank wants to bring inflation down and believes that by making people poorer it can achieve this end.

Newflash – inflation will fall. Like the sun will come out after a storm. Neither the fall in inflation that will hit next year nor the reappearance of the sun after rain have anything to do with ANY actions taken by people. It may look like raising interest rates works when we look back, but let’s be clear – they will have had negligible impact. As an aside – in 2008 the BoE had a webpage where you could model the impact of changes to the base rate. Here’s a fun fact. It is generally assumed that a change to interest rates takes at least 18months to work its way through the system. Ie, if rates rise today it won’t be until 2024 that you see the real impact. It is the same with inflation The scary headline is today, but trust me, you won’t feel the worst of the impact for another 2 years. Yes. 2 years.

This is why I’m worried and why I’m writing this post now. The worst is very much still to come. It is unlikely that even a competent government who cares about the poor can do anything to help with this crisis. It can, however, make things much worse.

Opinions are divided on how to manage a high inflation environment that leads to recession because it’s been rare and so varied each time. Economists like to think they know the rarefied truth. They do not. (queue gnashing of teeth by amateur economists from across the spectrum with their own takes – they’re all still wrong)

However, one might think that investment in future industries like renewables would make sense. yes it would. But rising interest rates mean that the government can’t afford to be splashy with our cash even if they want to be because they too are paying more to borrow.

You could say that we hold off on raising rates. Except we can’t because central banks across the world are doing exactly the same as the BoE. There’s a complex relationship between exchange rates, currencies and what we call the risk free rates (basically the government cost of borrowing) of each of those currencies . If we leave our interest rate low while others raise theirs then guess what…yep, our currency depreciates relative to others and we get…inflation!!!

So we’re left with mitigation. Both at a societal level but also at a personal level.

So here’s my thoughts on that because this is the most important thing. None of the below is easy and none of it is necessarily going to fix anything but it may well help and I hope it doesn’t come to it but I know I’ve just refreshed by monthly budget and the changes in energy costs really frightened me.

Create a monthly budget. Be really honest and look at what you’re spending your money on and figure out how much buffer you’ve got. This is just general good practice but right now it might be the difference between entering into debt and not. There are lots of good websites that offer FREE budgeting software if the idea of doing it yourself is too hard. Even the government has one.
Where it’s a case of disposable income being mashed then look at turning down your boiler or radiators by a couple of degrees, about being fanatical about lights and turning off monitors and tvs and pcs at night.
Where you can’t afford to live the lifestyle you have now (and I’m sorry if this is a euphemism for not being able to afford heating and lighting and food). Start talking to service suppliers, think about what can be binned (like TV subscriptions and gyms and, and, and.). Where that’s not enough start thinking more drastically about talking to landlords, electricity/gas suppliers about payment plans.
Follow people like Martin Lewis and Jack Munroe on twitter and at their actual sites. Money Saving Expert was once a gimmick. Right now it’s essential reading.
Think about how, for food and other items, you can club together with others to buy in bulk. For many people buying in bulk alone is out of the question, but we can do it as a team.
Savings often go out of the window at times like this but please, save. Save to pay for bills, save for emergencies, because as sure as we don’t they’re going to come along and kick us up the arse anyway.

I am ALWAYS happy to help think through what you can do and I hope the above has been even a little useful. As a I started – there are many who are better at this than me – but right now I’m so nervous about what’s to come I wanted to say something no matter if it only helps one person.

August 17, 2022 3

Why can’t we get there from here?

I was fortunate enough to speak at the LSFRC’s Productive Future’s conference yesterday at UCL’s School of Art. I managed to see a couple of other sessions too and they were universally well presented and provoked plenty of discussion afterwards in each case. I particularly liked Dan Hassler-Forest’s paper on the economics of the mega-franchise.

Below are my, edited, notes on the paper/speech I gave. Long story short – I have been concerned for a while now that much science fiction is lagging on the issues that really face us today – one of which is our relationship to energy. In the notes below I posit a couple of reasons why I think we struggle to develop that relationship as writers and I add one additional argument based in our relationship to neo-liberal capitalism which arose out of a question I was asked at the end of the talk.

Introduction

Thank you for having me. I’m coming at this as an economist, scientist and author. These three elements of my background will inform the construction of my argument and I’ll present my own thoughts based through these lenses. Before we get going though, a little bit about what we’re going to cover.

what we’re going to cover
- Definitions – energy
- Physical considerations – that is, the what, the who and the where of our relationship to energy
- Theory – what would a physicist say about energy? How does that divert from socially constructed meanings ascribed to energy
- Science Fiction and how what we write reveals about us
- The future – what kinds of subjects would I love to see us thinking about more carefully
- Conclusion – what can we hope for through literature
- Time for questions
But first a little about me – physicist, economist, banker, author blah, blah, blah.

Overview of Energy – a question of definitions

Energy is a word used in all sorts of contexts – from hard science where energy is a fundamental building block of everything to new age philosophy through to synonyms for our gas and electricity supplies.
In science fiction we have energy weapons (just about any space opera), light sabres, psychic energy (c.f babylon 5, Star Trek, Transcendence etc. etc.). The list goes on. For me, the concept of energy is multi-variate in nature with definitions as poorly defined as they are widely spread.
For the purposes of this presentation I’m interested in three uses of the word
- Energy as a physical resource – such as solar, oil and fission
- Energy as in physics – a raw measure of joules, electron volts etc.
- Energy as in useful sources of power for cars, ships, people and spacecraft – agnostic about the physical resources. i.e. how we use and consider energy as a motive force.

Physical Considerations – where, how, who – The Politics and Economics

The energy we use is not invisible or intangible. It takes up space, needs to be moved and managed and, in most cases, comes from a primary resource such as wood, water and oil.
The implications of this are perhaps well understood by companies and politicians but not by the average lay person – modern supply chains are complex, multi-national and hidden by design even from the individuals working within them. Getting oil from the gulf of Mexico to a car in China is a chain that crosses dozens of countries, navigates months of time and passes through companies employed hundreds of thousands of people. See here for instance for a fantastic infographic on the subject. Rutherford’s maxim that complicated ideas should be explainable to a barmaid does not stand.
This is partly a capitalist imperative – to reduce the agency of consumers who are forced into dependency because they cannot source their own supplies and cannot tinker. All innovation must be created by an economically motived agent, not a community agent because this is how you maximise profit for your shareholders.
Most ordinary people do not think about how their electricity is generated. They couldn’t tell you what green electricity really is – if you asked them how does green electricity get to your house they’d not be able to tell you it was a stupid question.
Furthermore the scale of the energy market – whose financial instruments, derivatives, futures and contracts with multiple benchmarks, currencies and timescales is too overwhelming for even experts to really understand. You only have to look at Goldman’s predictions of oil going to $200 a barrel in May 2008 about thirty days before it collapsed to less than $37 in Feb 2009 demonstrates the point well.[1]
So where does that leave us? There are a couple of strong narratives both in factual reporting and in fiction.
The first of these is that we don’t need to think about energy. We live, in advanced late stage capitalist economies, post scarcity. Energy is infinite (or at least abundant in the fact that it is ALWAYS there when we turn on the lights). The infrastructure we’ve built guarantees it fades into the background as a certainty we don’t need to consider – unlike for most of history where we’ve had to concern ourselves each day with whether we’ll have enough calories to make it through.
The second is well demonstrated in M L Ross’ book summarising the Curse of Resource Wealth first posited by Auty et al.[2]. Resource rich countries do not benefit from their resources. Or at least, the majority of the people in those countries. Consider Nigeria[3] where political violence between the state, local politicians, the companies and locals appear to be the only booming business despite the vast reserves of oil.
As always the truth is more complicated. Britain, Norway and the US, to name just three, have or have had deep resource benefits and did end up as ‘failed states’. In my mind it’s really more a sense of post colonial classification as post colonial powers look on at the eviscerated cultures they’ve then abandoned and scratch their heads to an answer. Any answer will do that doesn’t implicate their decade or centuries long pillaging as being largely responsible for environments in which these kinds of outcomes find fertile soil[4]. Better yet a narrative that blames those left behind for their own woes.
Contemporary thrillers understand that energy is politically volatile – there are many movies and novels about oil for instance (the very best of them being Oil! which was remade as the Oscar winning There Will Be Blood) but they often draw a straight line between governments and corporations as bad and people on the ground as good. They do not explore how those governments are often simply reflecting the actual exigencies of what their populations are demanding in terms of services and standards of living.
This comes back to the first idea – that we don’t need to think about energy and its intersection with the wider population.
Popular explorations of geopolitics and how societies survive have also entirely overlooked these links – Tim Marshal’s Prisoners of Geography and Jared Diamond’s Collapse or his Gun, Germs and Steel have strong central theses about why politics turn into guns being fired and they are not driven by the need for energy. Jared’s theories about scarcity and even his ideas about the impact of the horse skirt the edges of this but don’t take the heart of it seriously – that a need for energy security – be it fuel to cook, fuel to heat our homes and mine our bitcoin drives much of the conflict we’ve witnessed over the last 50 years.
The problem is, energy security is effectively at the heart of US projections of power. It also informs Russia’s tilt to supplying energy to China after Western sanctions hit, activity in the Yemen. I met a number of oil industry executives in 2003-2005 and they were exceptionally clear we went to war in Iraq because of energy security concerns over and above anything else. I remember one conversation on this matter with a CEO stood on their construction floor where they were building new drill bits which were ordered before the resolution was passed at the UN authorising the invasion.
Energy has huge social, economic and political meaning.

Theoretical Considerations – Domain, Range and Extensibility

Having explored the physical I want to step back a bit and think more abstractly before bringing these two threads back together and addressing speculative fiction’s coverage of energy more directly.
Energy is, in its purest sense – not dependent on people. The largest delivery mechanism of energy to the planet earth is the Sun, the second is our molten iron core. Neither of these need our input or can even be influenced by us.
How does that come into culture and is it helpful where it does?
Most discussions about energy are filtered into common language designed to make them graspable. It’s that mechanism that more often than not leaves us unable to really grasp the neutrality of the science of energy. By which I mean we’re at its mercy not that it doesn’t matter.
For instance, Electron mass is ½ MeV. And the mass of that very famous particle because of which most people have heard of CERN, the Higgs Particle is 125 GeV. Does this mean anything to anyone except physicists? If you tried to write a sci fi thriller about this where would you even begin?
How many calories have you eaten today? Most of us can’t parse that statement realistically without help from apps and information on the back of food containers. Why not? Because it’s hard, not because we’re dumb (although that’s often the underlying message of press coverage).
So forget asking what we mean by the horse power of your car? Or how much energy is there in the universe.
When thinking about how we can parse this into Sci Fiction, and perhaps into normal everyday language we should borrow an idea from mathematics about Domain, Range and Extensibility.
Energy is everywhere. This is its Domain
However, energy cannot be extracted from all things. Even if all work requires energy – this is its Range
Another way of saying this is as follows: not all types of energy are equally available to us (i.e. high energy photon which had 10Kcals of energy, enough to heat a cup of tea but no real way of harnessing it. Or when we burn petrol we don’t recoognise that the heat and noise oof the conversion are forms of lost energy which we’ve failed to capture).
We know energy is tough to harness and that laws of entropy mean there are ever diminishing returns for us. Carnot’s engine is learnt by undergrads but is not well known elsewhere. Yet it impacts what we can reasonably expect humanity to achieve. What energy can we expect to be able to harness? How can we do it and how do we cope with the possibility we will always be on the losing side of the equation?
These are questions not well addressed by a Science Fiction grounded in post scarcity economics. We tend to see worlds which have everything they need regardless of their energy system or we have apocalypse where there’s nothing (although they still somehow have enough to eat with some notable exceptions such as McCarthy’s superb The Road)
There is a religious impulse in this thinking – a strong desire to see one of the basics of a society which works as one where we have abundant energy so we can then focus on the surface elements rather than the infrastructure. You can see in many sci-fi texts (cf. Alita: Battle Angel) that the poor live among the infrastructure and the rich do not see it. In real life we are the rich in the West and we do not see the infrastructure of our energy consumption and so do not question either our position nor its impact on others except by waving our hands in their direction as if it’s their fault.
Further still, we are too often left with magical thinking in our forecasts about human energy consumption. Consider climate change, bitcoin and AI. I’m avoiding references here because I, too, am a writer and it’s just not done to highlight other people’s creative choices.
Mini-conclusion – energy is vitally important. Most people can articulate that but they can’t articulate why. They also have no grasp of what we mean by energy – be it theoretically or physically considered. People have no better idea what a barrel of oil can power, where it comes from or how many are produced a day than they do about HE photons or the impact of a gamma ray burst and its implications for a goldilocks zone within most galaxies.

Science Fiction – common flaws, notable successes

So now I want to discuss how all this scene setting influences the landscape of what we discuss in science fiction. We can all name the most common tropes:

Faster than light and other forms of space travel – Star Trek, Star Wars and any number of other texts such as Interstellar and Children of Time.
- The flaws to this are beyond the lack of science supporting it.
- The flaws are about the energy requirements and about how they could drive wars and conflict, cooperation and entirely new branches of science. c.f the energy requirements of the current writer’s favourite, the Alcubierre drive.
Cryptocurrencies – a new breed of thrillers and discussions from people like
- Neal Stephenson, myself, Kim Stanley Robinson, Doctorow and Friedman
- Bitcoin mining is energetically expensive and remains a poorly scaling store of value with no real economic application at this point despite its obvious libertarian political rationale – see the FT Alphaville blog for reams of articles on this point. Izabella Kaminska in particular.
Fusion – free energy. The Abyss! Space Opera.
- It’s ok to completely ignore this stuff and just write soap. Personally, I’m not advocating we only see hard SF.
- But sci fi can do so much more. It can present to us the challenge of energy and scarcity. Think about the Windup Girl by Paolo Bacigalupi which is the stand out example of addressing these issues.
The AI – from 2001 to Diamond Age to Ancillary Justice
Construction and maintenance of Cityscapes – Lavie Tidhar in Central Station, Rendevous with Rama and SevenEves and Red Mars.
Production of Metamaterials – relatively poor examples of how new materials can change everything. Again, we end up looking at people like Stephenson but too often they’re macguffins rather than realistic looks at how new tech changes everything. By Light Alone by Adam Roberts is interesting.
The support of transhumanism – any Kurzweilian approach to humanity. Zero K by Delilo is a really strong mainstream example which crosses boundaries.

The thing is they rarely talk through the key technological and economic problems of these technologies because, most of the time the technology is magic – not necessarily even internally consistent.

After all, AGI is terribly expensive to run.
Who provides the power to maintain a brain in a computer?
Why mine for materials in space when the energy required to get there would out weight the benefits from what could be brought back to earth by orders of magnitude?
As we’re all aware, in the real world, pursuit of energy security drives politics. Science Fiction is all too often the preserve of a homogeneous (and by this we mean white) cultural artefact and so entirely misses the political and racial streams of energy security.

The Future – plausible, implausible, impossible

My thesis then is this: energy is hyperreal. It is too large and too broadly defined an idea to be grasped well, even by subject matter experts. Hence we see speculative fictions struggling with how we get from where we are today to other futures – we struggle with developing the idea of Asimov’s Future History when it comes to energy. Part of this is by the cultural/political design of neoliberal capitalism, part of it is simply the scale of the political energy economy is too large for people to grasp.

Our abiding energy myth in western democracy is about abundance. It’s so ubiquitous we don’t even have memes about it being added to Maslow’s Hierarchy of Needs.

We have no new myths about energy scarcity yet. No stories we tell of how we arrived as a post scarcity environment for some and not for others, how we fought wars to create this world and how those wars are going to be fought and fought again as long as there isn’t truly abundant energy for all.

Here’s a trio of ideas I’d love to see in the literature – stories presenting possible futures to us where these kinds of technology are present but are also central to the worlds we’re creating.

There’s already a burgeoning field of Energy Economics[5]^{, [6], [7]} with its own journals and conferences. This is an exciting real world development and its subjects of study are ready made for political science fiction. I really hope that given we’re developing a language and pattern of thought which actually addresses these issues today we will start to see stories picking up on this and bringing these ideas into the mainstream
Zero carbon footprints – the challenge of lifestyles which could accommodate this and the importance of deflationary economics – the conflict in the heart of capitalism against deflation. My own employer is working toward being carbon neutral – if large companies can do this then there is language and conflict to explore.
Deflationary economic systems – Nouriel Roubini interview on FT Alphachat

What can we do through literature?

As we see new language discussing how we get from here to there I truly hope speculative fiction develops stories about the journey and not just the aftermath.

Explore the challenges of developing new technologies which are fantastically energy hungry

What are the challenges for authors though? Economics of course – stories have to sell. But also audience tastes. Info dumping, political appetite and making a point all turn readers off.

But speculative fiction can change the dimensions of the Overton window to allow us to see discussions about the hidden infrastructure as normal, about peeling it back being what we do.

Additional references

https://www.frontier-economics.com/uk/en/sectors/energy/

https://www.nber.org/programs/eee/eee.html

http://www.biee.org/

https://www.google.com/search?safe=active&rlz=1C1GCEA_enGB753GB753&biw=1264&bih=1322&q=energy+economics+articles&sa=X&ved=2ahUKEwic3qzF2LnkAhWDVBUIHYX1COc4ChDVAigAegQIChAB

https://www.nature.com/subjects/energy-economics

https://www.journals.elsevier.com/energy-economics

[1] https://www.nytimes.com/2008/05/21/business/21oil.html

[2] https://press.princeton.edu/titles/9686.html

[3] https://www.giga-hamburg.de/en/system/files/publications/wp120_maehler.pdf

[4] Political Research Quarterly, volume: 67 issue: 4, page(s): 769-782

[5] https://en.wikipedia.org/wiki/Energy_economics