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Dr Tim Morgan’s latest essay, #327: Surplus Energy Economics, is perhaps the clearest and most complete summary yet of the ideas he has been developing over the last thirteen years. Rather than introducing new theories, it draws together the evidence into one coherent explanation of why the era of economic growth is ending and what may follow.

For anyone interested in localism, it is an important document because it describes the physical limits that make a more local society not simply desirable but increasingly inevitable.

The economy runs on energy, not money

Morgan begins with a simple observation. The economy is not fundamentally a financial system. It is a system for supplying goods and services. Money merely records claims upon that production.

This seems obvious, yet modern economics often behaves as though money itself creates wealth. Governments, banks and investors increasingly judge success by GDP, stock market values and financial assets rather than by the economy’s ability to provide food, housing, energy and essential services.

Morgan argues that this is the wrong way round. Wealth comes first from energy and physical resources. Money only has value because it represents claims upon those resources.

The importance of surplus energy

Every energy source requires energy to obtain it.

Coal must be mined.

Oil must be drilled, transported and refined.

Wind turbines and solar panels must be manufactured, installed, connected to the grid and eventually replaced.

The energy left over after obtaining energy is what Morgan calls surplus energy. This surplus powers everything else in society – farming, manufacturing, healthcare, education, transport, entertainment and government.

His central argument is that the Energy Cost of Energy (ECoE) has been rising steadily for decades. More of society’s total energy is now consumed simply in obtaining more energy, leaving less available for everything else. According to his estimates, average ECoE has risen from around 2% in 1980 to more than 11% today.

This is not simply an energy problem.

It becomes an economic problem.

Why growth has stalled

Traditional economics assumes that growth can continue indefinitely through technology, finance and innovation.

Morgan disagrees.

He argues that technological improvements have not been able to overcome the steadily increasing energy cost of obtaining usable energy. As surplus energy falls, so does the ability of the economy to expand.

Debt, quantitative easing and financial engineering have delayed recognition of this reality but cannot remove the underlying physical constraint.

From this perspective, many of today’s problems begin to make sense.

• Falling living standards.
• Increasing inequality.
• Rising government debt.
• Asset bubbles.
• Political instability.
• Competition for resources.
• Declining affordability of essential goods.

These are symptoms rather than separate problems.

The connection with localism

This is where localism enters the picture.

Many people still think localism is a lifestyle choice, a political preference or nostalgia for village life.

Morgan’s work suggests something much deeper.

As surplus energy declines, highly centralised systems become progressively harder to maintain.

Long supply chains.

Global food systems.

Just-in-time distribution.

Mass commuting.

Disposable consumer goods.

International tourism.

Large bureaucracies.

All depend upon abundant surplus energy.

As that surplus declines, societies naturally begin shifting towards simpler, shorter and more local systems.

Essential replaces discretionary

Morgan distinguishes between essential and discretionary activities.

Essential activities include food production, water, housing, healthcare and basic transport.

Discretionary activities include much of modern consumer culture – endless product choice, fast fashion, frequent flying, luxury consumption and many financial services.

As energy becomes scarcer, society increasingly directs resources towards essentials.

This is exactly the direction that localism has advocated for years.

The future economy is likely to become less concerned with consumption and more concerned with resilience.

A more labour-intensive society

Another conclusion follows naturally.

Where abundant fossil energy once replaced human labour, declining surplus energy means more work will again be done by people.

That does not necessarily imply hardship.

It may instead mean more gardeners, growers, builders, repairers, foresters, craftspeople, carers and local manufacturers.

Many activities abandoned because fossil fuels made them uneconomic may once again become worthwhile.

Small farms become viable.

Repair replaces replacement.

Local food processing returns.

Community skills regain their value.

What local communities should be doing now

Morgan ends on a remarkably optimistic note.

He argues that a post-growth economy is entirely manageable if societies begin developing local, bottom-up institutions before centralised systems weaken further.

That observation deserves careful attention.

Waiting until national systems fail would be a mistake.

Communities can begin preparing now by:

• rebuilding local food production;
• protecting agricultural land;
• developing local water resilience;
• encouraging repair and maintenance skills;
• supporting local businesses;
• strengthening community organisations;
• creating local energy where practical;
• reducing dependence upon long supply chains.

None of these requires waiting for government.

A different understanding of progress

The greatest value of Morgan’s work may be that it changes the question.

Instead of asking:

“How do we restart growth?”

we should perhaps be asking:

“How do we build good lives with less surplus energy?”

That is precisely the question localism seeks to answer.

The transition will not be easy. Many existing institutions were built during two centuries of expanding fossil-fuel energy and assume that growth will continue indefinitely.

But if Morgan is broadly correct, then localism is not an alternative to the future.

It is the future already beginning to emerge.

The sooner communities understand this, the more orderly, resilient and humane that transition can become.