“At the Tony Blair Institute, we’ve been thinking hard about what this moment truly demands. In our recent paper, Disruptive Delivery, we surveyed over 12,000 voters across the UK, US, Australia, Canada and France – and the results were sobering. Across every country, a deep sense of decline cuts across political lines. Most strikingly, just 26% of people in the UK believe children born today will be better off than their parents, the lowest figure of any country surveyed. That’s not just economic pessimism; it’s a crisis of belief in progress itself.”
This widespread despair isn’t merely about statistics—it’s about the erosion of hope in what the future can bring. But, it depends how you see “a deep sense of decline”.
When Shrinking Isn’t Doom – and Inflation Falls, Too
Let’s explore an intriguing counterargument: if the economy shrinks, prices in general should also fall, leaving affordability little changed – or even improving – particularly when incomes and prices move in tandem.
To assess whether a smaller economy might correlate with improved affordability, let’s examine the post-war 1950s, a period of dramatic change:
Between 1951 and 1963, wages increased by 72%, while prices rose by just 45%, giving workers meaningful purchasing power.
These numbers suggest that in that period, even as the economy grew, wage gains outpaced inflation — the essence of improved affordability.
Regarding housing:
In 1954, the average UK house cost about £1,863,
In the 1950s, house prices cost 2 to 3 times annual earnings – compared with today, where affordability ratios hover around 7–9 times income.
So, in the past when the economy was smaller than now houses were more affordable than today. But is “affordable” in today’s terms.
So: Does a Shrinking Economy Mean More Affordable Housing?
Not necessarily – but under certain conditions:
If Incomes don’t fall as fast as prices affordability will improve.
But we have yet to find out what will happen to housing markets as the economy shrinks. How will future governments react to an increasing number of owners with outstanding mortgages insufficient to cover the value of their houses?
What will happen to mortgage markets which used to operate in the growing economy, where buying a house was seen as an investment. Will Building Societies survive in a shrinking economy?
In Victorian times (roughly 1837–1901), house purchase and mortgage finance were very different from today. Mortgages certainly existed, but they were far less common, the lending market was tightly regulated by social class, and large deposits were generally required. Most ordinary working families rented, while home ownership was largely restricted to the middle and upper classes until the late 19th century. Here’s a breakdown:
1. Early Victorian Period (1837–1870s)
Mortgages were rare for the working class.
Property was generally purchased outright by the wealthy or financed through private arrangements, often within families.
Where mortgages were available, they were provided by:
Solicitors (private lawyers acting as moneylenders)
Wealthy individuals
Occasionally landed estates for long-term tenants buying freeholds.
Loan-to-value ratios were low: lenders were conservative, typically offering up to 50% of the property’s value, sometimes less.
Deposits of 50% or more were common for those who borrowed.
Repayments were usually interest-only, with the capital repaid at the end of the term.
This meant most artisans, labourers, and low-income families had no access to mortgage finance at all and remained lifelong tenants.
2. Rise of Building Societies (1850 onwards)
By the mid-Victorian period, building societies began to transform the mortgage market, particularly for the emerging middle class and better-paid skilled workers.
Early building societies were terminating societies:
A group of members pooled savings until there was enough to build or buy each member a house, after which the society dissolved.
By the 1870s, permanent building societies became widespread, offering ongoing mortgage finance.
Building societies offered smaller loans, but on slightly better terms than solicitors.
Typical deposit requirement: around 20%–30% of the property value, sometimes more for riskier borrowers.
Repayments were usually repayment mortgages rather than interest-only, which made home ownership possible for clerks, teachers, shopkeepers, and better-off artisans.
3. Late Victorian Period (1880s–1901)
By the late Victorian era, mortgages became more widely available as the middle class expanded and suburbs grew.
Building societies dominated the lending market, and competition slightly improved terms.
Deposits of 10%–25% were possible for reliable borrowers, but 25%–33% was more typical.
Loan terms were short by modern standards, often 10–20 years.
The interest rate tended to be 4–6%, relatively stable because Britain was on the gold standard.
Nevertheless, most working-class families still rented, especially in cities. Home ownership remained aspirational until well into the 20th century.
4. Key Differences from Today
Aspect
Victorian Mortgages
Modern Mortgages
Availability
Limited to middle & upper classes
Widely available
Deposit
20%–50% (sometimes more)
Often 5%–20%
Term
10–20 years
25–40 years
Repayment Style
Mix of interest-only & repayment
Mostly repayment
Lenders
Solicitors, wealthy individuals, building societies
Banks, building societies
Access for Working Class
Very limited
Widely available
Summary
The Tony Blair Institute underscores a deep-seated belief crisis about future prospects.
A shrinking economy can lead to lower prices—and theoretically preserve affordability—but it’s a fragile dynamic that requires incomes to fall at a slower rate than house prices – the opposite of what happened when the economy was growing..
In the 1950s UK, real income growth outpaced price rises, preserving affordability—though this was a time of growth, not contraction.
Real affordability hinges on the interplay between income, prices, and access to credit.
Key data points:
Metric
Value
UK real disposable household income growth (1950–59)
Economic shrinkage leads inevitably to the collapse of capitalism because capitalism is built on one assumption – that tomorrow’s economy will be bigger than today’s.
Every part of the system depends on that assumption. Money is created as debt. Banks lend on the belief that future income will rise, so borrowers can repay both the loan and the interest. Companies invest to expand. Governments borrow against future tax receipts. Pension systems rely on growing employment and profits. None of this holds in a shrinking economy.
Once growth ends, the system becomes unstable. When the economy contracts, it becomes mathematically impossible for all debts to be honoured. Interest requires expansion. If total output is falling, there is not enough future income to meet past promises. Defaults rise, banks pull back, credit dries up and investment collapses. This is not a failure of policy but a failure of structure.
Capitalism is not just private ownership and markets. It is a debt based growth system. When growth turns negative, that system runs in reverse. Asset prices fall. Businesses fail. Tax revenues decline. Governments borrow more to delay the reckoning, but that only increases the burden while the real economy continues to shrink.
This is why economic contraction does not produce a smaller version of capitalism. It produces something different. The financial architecture of capitalism cannot contract safely. It is built to expand. As the economy shrinks, the system slowly unravels.
Why Borrowing Fails in a Shrinking Economy
In a growing economy, large projects are funded by borrowing. Roads, railways, housing estates, power stations and hospitals are built with debt. The loans are repaid from future income – rents, fares, tolls, profits and taxes. This only works if future income is larger than today’s.
In a shrinking economy, future income is lower. Borrowing to build becomes dangerous. Projects cannot repay their loans. Infrastructure cannot be refinanced. New schemes are cancelled because the numbers no longer add up. Debt no longer mobilises development – it blocks it.
This does not mean that building stops. It means the funding system changes.
From Borrowing to Using Savings
As growth fades, savings become more important than borrowing. The future will not be built on credit created by banks. It will be built on money that already exists.
There is a fundamental difference between borrowing to invest and using someone’s savings. Borrowing assumes that growth will generate new income to repay the debt. Using savings means one person temporarily gives up spending so that another can use those resources now. Interest becomes a payment for waiting, not a claim on future expansion.
In a shrinking economy this distinction becomes decisive. Money lent out of savings can be repaid even when the economy is not growing. Money created as debt cannot.
This is why finance will become smaller, slower and more local. Loans will be based on real savings, not on credit created against speculative growth.
Friendly Societies and Local Mortgages
Before modern banking dominated finance, much of this already existed.
In the nineteenth century, most ordinary people did not get mortgages from large banks. They got them from people and institutions rooted in their locality. Families, neighbours, tradesmen and small investors lent their savings directly to buyers. These private mortgages were secured on land or buildings and enforced by social trust as much as by law.
Friendly Societies and early building societies played a central role. They were mutual organisations. Members pooled their savings so that others could buy land or build homes. The interest stayed within the community. When their purpose had been fulfilled, many societies were dissolved.
This was not borrowing to speculate on rising prices. It was the use of local savings to meet real needs – housing, land and security.
Land, Food and Tied Cottages
In a shrinking economy, food becomes one of the most stable sources of income. Farmers will therefore become important builders again.
As food production regains priority, farms will generate steady cash flow from selling food to nearby populations. Part of those profits will be used to build cottages for family members and for workers. These are tied cottages – homes linked to the farm that provides employment and food.
This is a form of development that does not require bank debt. The building is funded from real surplus produced by the land. The housing supports the labour that keeps the land productive. It is a closed loop, grounded in physical reality rather than financial speculation.
What Replaces Capitalist Finance
As capitalism weakens, growth based borrowing gives way to savings based lending. Local people, families, Friendly Societies, cooperatives and farms will hold and allocate capital.
Land and buildings will no longer be priced mainly as speculative assets. They will be valued for what they provide – food, shelter, work and security.
The future will not be built on promises of expansion. It will be built from saved resources, shared risk and the steady returns of a smaller, more local economy.
For most of the modern period the economic system has rested on a single, rarely questioned assumption – that growth is normal, permanent, and ultimately recoverable even after shocks. This assumption is not just cultural or political. It is hard-wired into the credit system itself. Credit does not merely expect growth. It requires it.
When we refer to “the system” we are not talking about a single institution or a small group of decision-makers. The system is the interconnected structure of finance, government, corporate organisation, regulation, accounting conventions, pensions, welfare provision, and public expectation that has evolved around the presumption of continuous economic expansion. No one controls it in full. Everyone operating within it responds to its signals. Its behaviour emerges from shared rules, incentives, and assumptions rather than deliberate coordination.
Modern credit is created against the future. Loans are issued on the assumption that tomorrow’s economy will be larger than today’s, that incomes will rise, asset values will increase, and tax receipts will expand. Interest is not a marginal feature of this system. It is the mechanism that forces expansion. The borrower must return more than was borrowed, which is only possible at scale if the total economy grows. Without growth, the mathematics fails.
For decades this contradiction has been hidden by delay, displacement, and financial engineering. When real growth slowed, credit growth accelerated. When wages stagnated, households borrowed. When productive investment weakened, asset prices were inflated. The system learned how to simulate growth even as physical throughput, energy surplus, and real productivity began to flatten. But simulation is not the same as substance.
The critical moment arrives when the system itself grasps that growth has ended, not temporarily, not cyclically, but structurally. This is not a philosophical realisation or a political announcement. It is a collective adjustment in behaviour across markets, institutions, and regulators. It shows up first in pricing, lending criteria, and risk models. Credit markets begin to doubt future repayment not because of panic or ideology, but because the underlying cash flows are no longer credible.
Credit markets are exquisitely sensitive to expectation. A small change in perceived risk produces a disproportionate reaction. Once lenders believe that future expansion will not materialise, risk premiums rise, refinancing dries up, and liquidity retreats. Debt that could previously be rolled over quietly becomes unserviceable overnight. The implosion does not require mass defaults at first. It only requires the refusal to extend new credit.
This is why the collapse begins in the financial system but does not stay there. The physical economy now depends on continuous credit flow. Supply chains rely on working capital. Energy systems rely on financing. Local authorities rely on borrowing. Households rely on credit to smooth income shortfalls. When credit contracts sharply, activity stops not gradually but abruptly.
Factories do not close because they have run out of raw materials. They close because invoices cannot be financed. Transport does not cease because roads disappear, but because fuel purchases cannot be bridged. Shops do not shut because people have stopped eating, but because inventory cannot be funded. The physical economy is strangled by the withdrawal of abstract trust.
This moment is often misunderstood as a banking crisis or a market failure. In reality it is a recognition event. The system recognises that its future claims exceed what the real economy can deliver. Once recognised, this imbalance cannot be negotiated away. Interest rate cuts no longer restore confidence. Quantitative easing inflates assets but does not revive productive demand. Fiscal stimulus struggles because it too relies on future growth to justify present borrowing.
What follows is not a single crash but a cascading contraction. Asset prices fall because they were priced on perpetual expansion. Pension funds weaken because their assumptions no longer hold. Public finances deteriorate because tax bases shrink. Political authority weakens because it was built on promises that can no longer be honoured.
At this stage the language of recovery becomes misleading. There is no return to the old trajectory because the old trajectory was a product of surplus energy, cheap resources, expanding populations, and accelerating complexity. Those conditions are no longer present. Credit markets are simply the first place where this reality becomes visible.
The danger lies in mistaking this transition for a temporary malfunction. Attempts to force growth back into existence through ever larger debts only deepen the eventual implosion. The system becomes more fragile, not more resilient. Each intervention raises the scale of failure required to clear the imbalance.
Yet this moment also clarifies something essential. If credit collapses because growth has ended, then any future stability must be built on a different foundation. One that does not depend on perpetual expansion. One that aligns financial claims with physical reality. One that accepts contraction, localisation, and simplification as structural features rather than policy failures.
The implosion of credit markets is not the end of the physical economy, but it is the end of the economy organised around debt-fuelled growth. What follows will be harder, smaller, and more local. But it will also be more honest. The system will no longer be able to pretend that tomorrow can always pay for today.
The moment the system grasps that growth has ended is therefore not just a financial turning point. It is the moment when reality finally asserts itself over abstraction.
The United Kingdom appears to be trapped in a growing list of failures. Public services are deteriorating. Local government is close to financial collapse. The NHS is permanently in crisis. Housing is unaffordable. Infrastructure decays faster than it is repaired. Productivity stagnates. Politics has become brittle and short-term. Worst of all, household incomes lag while costs rise and debt burdens strain families. None of this is accidental, and none of it is primarily the result of poor management alone.
A more plausible explanation is that the UK economy is no longer growing in any meaningful sense, yet almost every part of the system continues to behave as if growth will soon return.
For most of the post-war period, the economy expanded. Rising energy use, favourable demographics and expanding global trade made it reasonable to assume that tomorrow would be larger than today. On that assumption, debt made sense. Borrowing could be justified because future income would be higher. Institutions were designed around that expectation.
That assumption no longer holds.
The economy is constrained by energy limits, ecological damage, global instability and an ageing population. Discretionary spending is shrinking. Real productivity gains are elusive. International trade is more fragile. The result is not collapse, but contraction: slow, uneven, politically awkward contraction.
The trouble is that the system has not adapted.
Recent reporting highlights this mismatch. A Daily Telegraph analysis warns that welfare spending pressures could push public debt dramatically higher if left unchecked, with some think-tank scenarios suggesting debt could soar to several times the size of the British economy without corrective policy. The Telegraph The framing is telling: the worry is not just the level of debt today, but the assumption that growth will continue to make servicing and reducing that debt feasible.
One clear measure of this mismatch is the public debt burden. UK public sector net debt stands near the highest levels in decades — elevated by weak growth rather than dramatic overspending on major emergencies such as world wars, when debt spiked above 200 per cent of GDP but was subsequently reduced through strong post-war growth. Today’s economy lacks the expansion to replicate that trajectory, leaving debt ratios high because the denominator (GDP) is subdued.
But policymakers still operate as if growth will solve tomorrow’s problems.
Government still borrows on the assumption that future growth will pay for today’s spending. Tax policy assumes rising incomes. Public spending commitments assume expanding revenue. When growth fails to appear, the response is not redesign but strain. Services are cut. Maintenance is deferred. Staff are overworked. Local authorities are pushed to the edge because their funding models depend on rising economic activity that no longer exists.
Local government illustrates the problem clearly. Councils are expected to deliver more with less while maintaining standards set during a growth era. They are encouraged to behave entrepreneurially, investing in property or commercial schemes to replace lost funding. These strategies only make sense if asset values and rental income keep rising. In a shrinking economy, they fail, leaving councils exposed, indebted and close to insolvency.
The NHS is caught in the same trap. It is designed for a world where funding grows faster than demand. Instead, it faces rising demand from an older and less healthy population, higher costs, and a tax base under pressure. The response has been to squeeze staff productivity, delay treatment, and centralise control. These measures do not resolve the underlying mismatch between a growth-based funding model and a non-growing economy.
Large businesses behave similarly. Many are structured around debt, shareholder returns, and expansion. When markets stagnate, they cut investment, reduce employment quality, and extract value rather than create it. This weakens local economies further, reducing demand and increasing dependence on public support.
Households feel the effects directly. Wages stagnate while costs rise. Debt becomes harder to service. Younger people are locked out of housing because the system assumes ever-rising asset values. Older people rely more heavily on public services that are already overstretched. Social trust erodes as competition for limited resources intensifies.
Politics, too, is distorted by false expectations. Parties promise improvements that depend on growth they cannot deliver. When promises fail, public confidence collapses. Short-term fixes replace long-term thinking. Central control tightens because systems under stress default to command rather than adaptation.
What is missing from almost all mainstream debate is the possibility that the economy is not temporarily underperforming but structurally shrinking. If that is the case, then many current policies are not merely ineffective — they are actively damaging. They force institutions, households and communities to behave as if tomorrow will be richer when in fact it is likely to be poorer.
A shrinking economy requires a different logic. Debt must be reduced rather than expanded. Systems must be simplified rather than scaled up. Local resilience must replace central optimisation. Informal and community-based activity must complement formal systems that can no longer meet all needs.
The UK’s troubles may not be signs of failure in the usual sense. They may be symptoms of a system designed for expansion trying — and failing — to operate in an age of contraction. Until that reality is acknowledged, policy will continue to treat consequences while ignoring causes, and the strain will deepen.
Britain’s national debt could soar to more than three times the size of its economy if politicians do not control spiralling welfare spending, analysis has found.
Researchers now predict that public debt will be 330 per cent of GDP by 2075 – higher than official estimates from the Office for Budget Responsibility (OBR).
This is higher than after either world war, or at any point since records began in the 18th century. Debt was below 50 per cent of GDP as recently as the early 2000s.
The Adam Smith Institute (ASI), a think tank, said the large increase in debt could only be avoided if productivity improved and politicians made significant cuts to health and welfare spending, including the pensions triple lock.
Rachel Reeves, the Chancellor, has promised to bring down the cost of paying interest on the country’s debt, which currently stands at around 10 per cent of all public spending.
But the OBR says the overall size of the public debt will continue to inflate because of Britain’s ageing population, welfare state and healthcare system.
In the closing paragraph of a recent piece in the Daily Telegraph, David Frost offers a sharp critique of modern government.
He argues that failure is inevitable when the state takes on too much, observing that “the only real answer to government failure is to limit what government actually does.” He also questions why we distrust politicians and bureaucrats while continuing to hand them more power.
That argument already points strongly towards localism, even if Frost himself does not yet take the final step.
Frost treats state failure as a political and administrative problem. But it is also an economic one. We are entering a period of economic contraction, not expansion. In a shrinking economy, the present system of government cannot be sustained. Centralised states are built on growth. They rely on rising tax receipts, expanding markets, and increasing discretionary spending to fund complex national systems. When growth ends, those systems begin to fracture.
Economic contraction has the practical effect of breaking up the existing model of government. As resources tighten, the state is forced either to withdraw or to ration more harshly. Attempting to maintain universal, centrally managed systems under these conditions only accelerates failure. Bureaucracy expands as outcomes deteriorate. Control increases as effectiveness declines.
This is where Frost’s argument becomes unanswerable, even if he does not yet acknowledge it. If there can be no more growth, then limiting what government does is not a choice but a necessity. The question is not whether the state should retreat, but how and in whose favour.
Localism provides the answer. When Frost says we must break out of the mindset that nothing can happen unless the state is involved, he is describing the mental barrier that prevents adaptation to contraction. Localism removes that barrier. It allows activity to continue even as national systems weaken, by relocating responsibility, decision-making, and production to the level of the locality.
Farming illustrates this clearly. Frost notes that viability does not have to be made subject to DEFRA and Treasury bureaucrats. In a contracting economy, it cannot be. Food production must respond to local land, labour, and need. Central schemes designed for an expanding economy become obstacles rather than supports. Local systems, though smaller and less uniform, are more resilient.
The same applies to energy, education, and care. Large, national systems depend on surplus. Local systems depend on knowledge, relationships, and adaptability. As discretionary spending declines, only the latter can survive without constant crisis management from the centre.
Frost calls for massive state surgery. Economic contraction ensures that surgery will happen whether politicians like it or not. Localism determines whether that process is chaotic and imposed from above, or deliberate and shaped from below.
The deeper issue is cultural. For decades, people have been trained to expect solutions from the centre. Growth made that illusion affordable. Contraction removes it. Localism restores a more realistic settlement, where responsibility is visible, limits are understood, and society continues to function even as the state does less.
Frost is right that things will keep getting worse until the scale of the state is reduced. Once the reality of permanent economic contraction is accepted, his argument leaves no alternative. Localism is not ideology. It is what remains when growth is gone.
We are living through a period of profound misallocation. Enormous amounts of money, energy and material are still being poured into activities that only make sense in a growing economy. In a post-growth world, many of these investments cannot deliver what they promise. When financial bubbles burst, they do not so much destroy value as reveal that the value was never there in the first place. The damage was done earlier, during the period of optimism, when malinvestment was mistaken for progress.
This problem is sharpened by the growing divide between two economies. The real economy, grounded in energy, materials, food and labour, is already contracting. The financial economy, by contrast, continues to expand through debt, speculation and asset inflation. These two trajectories cannot coexist indefinitely. When money grows faster than the physical systems that support it, trust in money itself begins to fail. A fracture in the financial system is not a distant possibility. It is a structural outcome.
When that fracture occurs, even basic questions become difficult. How will trade function if trust in money collapses? How will essentials be exchanged? Modern economies depend heavily on imports, not only of discretionary goods but of energy, food, minerals and components. No country is truly self-sufficient. A breakdown in financial systems therefore becomes a breakdown in physical supply chains.
At the same time, consumerism continues to place excessive demands on the planet. Energy use remains high. Resource extraction continues. Environmental damage accumulates. Yet the ending of consumerism is rarely discussed in practical terms. How do societies adapt when consumption must fall, not by choice but by necessity? This is not simply an economic question. It is a social one.
Inequality adds another layer of instability. Wealth and power have become increasingly concentrated. These inequalities are not accidental, and they will be fiercely defended by those who benefit from them. As pressures increase, the gap between what systems can provide and what elites seek to preserve is likely to widen, not narrow.
Competition for scarce resources is already reshaping global relationships. The old assumptions of stability, cooperation and rules-based order are weakening. This is not an aberration. It is a predictable response to scarcity. Managing this process peacefully will be one of the hardest challenges of the coming years.
Climate change intensifies all of these pressures. Rising temperatures, disrupted food systems and extreme weather are already driving migration. These movements will grow. Attempts to manage them through borders alone will fail, because the underlying causes are structural.
Taken together, these trends point to a future defined less by growth and more by adaptation. The central task is no longer how to expand the system, but how to manage contraction without collapse. That requires honesty about limits, a rethinking of trade and money, and a shift towards more local, materially grounded forms of economic life. The alternative is not stability, but unmanaged breakdown.
What to do? I will sit back and watch. Apart from ridding ourselves of debts, there’s nothing we can do until the powers-that-be recognise that growth has ended. Then we will be able manage our own moves into localism.
One of the greatest mysteries of our times is why the authorities have not only permitted but actively, through their policy choices, promoted the formation of the biggest bubble in financial history, whilst knowing perfectly well, all along, how this must end.
They cannot have done this simply to further enrich the already wealthy, since they must know perfectly well that asset value aggregates can never be converted in their entirety into spendable money.
The answer is that fears of the consequences of a bursting bubble are out-matched by an even greater fear – that the ending and reversal of economic growth might move from the land of theory into the realm of established fact.
If it ever became known that the economy had stopped growing and started to shrink, no existing set of social, political or commercial arrangements could survive.
The denial of economic inflexion is the sine qua non for the defence of the status quo. Nowhere in the world is worse equipped than the West for surviving the ending and reversal of growth.
There may indeed be people in authority who sincerely believe that monetary stimulus can reinvigorate a faltering material economy.
Many might also have swallowed the parallel tarradiddle, which is that human technological ingenuity can overturn the laws of physics to make possible the alchemist’s dream of ‘infinite economic growth on a finite planet’.
What seems to have happened is that the only lever that decision-makers can pull in a slumping economy is the lever of financial stimulus, the use of which in turn triggers a runaway compounding process of escalating risk.
This article must begin with an apology for the hiatus since #314: How wealth dies was published on 2nd November. Whilst the ending and reversal of growth has long been predictable, the sheer pace at which decline has been accelerating has called for considerable reflection.
As you may know, the Surplus Energy Economics interpretation of economics is based on a comparison between the “real” economy of material products and services and the parallel “financial” economy of money, transactions and credit.
The productive process which drives the underlying “real” economy works by using energy to convert other raw materials into products, artefacts and infrastructures, as part of a continuous cycle of production, consumption, relinquishment and replacement.
Though depletion has subjected the non-energy resource base – including minerals, non-metallic mining products, biomass and accessible water – to gradual degradation, the primary factor driving the material economy from growth into contraction has been a relentless rise in the proportionate cost of energy.
Measured here as the Energy Cost of Energy, this cost has climbed from 2.0% in 1980, and 4.3% in 2000, to more than 11% today.
Fig. 1
A long-standing debate about the economy is whether material constraints will, or won’t, eventually put an end to growth.
Kenneth Boulding famously said that only “a madman or an economist” could believe that exponential economic growth could carry on forever on a finite planet.
His view was reinforced and quantified by the authors of the contemporaneous The Limits to Growth (LtG), who set out the interconnected processes which would put an end to economic expansion.
But “eventual” has always been a key word in this argument. Though no timescales were specified in LtG, the accompanying charts appeared to put this ending of growth somewhere between 2020 and 2030, which was a matter of little immediate concern when the report was published back in 1972.
LtG has been revisited on a number of occasions, and these reviews have tended to vindicate the original thesis. As this has happened, time has moved on, and the moment of inflexion from economic growth into contraction has drawn ever nearer.
SEEDS analysis concurs with the LtG projections, indicating that material economic growth might already have ended, and that the economy will have inflected into contraction by the end of this decade.
This has been a matter of modelled calculation, but there’s an abundance of external evidence to support it.
Living costs are rising in a way that cannot be explained away as some kind of temporary and self-correcting “crisis”.
In domestic affairs, economic hardship and financial insecurity are combining with elevated levels of inequality to undermine social and political cohesion.
International relations have been degenerating into bare-knuckled fights over scarce and dwindling resources.
But the single most compelling piece of evidence for the onset of economic contraction is the gigantic bubble that has been inflated across almost all classes of assets in modern times.
Over the past twenty years, aggregate debt has increased by 165% in inflation-adjusted terms, and broader liabilities – incompletely reported as the assets of the financial system – have expanded by not less than 210%. The real-terms value of global equities has increased by about 250% since 2004.
Against this, reported real GDP has grown by 96%, meaning that each dollar of reported growth has been accompanied by net new financial liabilities of at least $8.
Even this calculation drastically understates the severity of the situation, for two main reasons.
First, the aggregate financial liabilities referenced here do not include enormous “gaps” in the under-resourcing of forward pensions promises.
Second, and even more seriously, most of the “growth” reported in recent times has been cosmetic, amounting to nothing more than the transactional spending of vast amounts of borrowed money.
SEEDS analysis puts real growth in prosperity since 2004 at only 25%, reflecting a 37% increase in energy consumption, a dramatic rise in ECoEs, and a gradual decline in the rate at which energy use converts other resources into economic value.
The scale risk of extreme increases in liabilities has been compounded by rising complexity risk as the financial system has morphed into a bafflingly Byzantine structure of inter-dependent cross-collateralisation.
We can estimate that, over the past twenty years, the regulated banking system has accounted for barely a quarter of the increase in financial commitments, with the unregulated NBFI (“shadow banking”) sector contributing about two-thirds.
In essence, qualitative risk has increased as the centre of gravity of credit supply has migrated from the comparatively transparent and conservative centre of the financial system to its opaque and dangerous periphery.
Everyone knows how the reckless over-inflation of bubbles always ends, and many are familiar with the truism that “you can’t taper a ponzi”.
“Everyone” in this context necessarily includes the authorities, which raises the question of why decision-makers have acquiesced in the inflation of a bubble which far exceeds, both in scale and in qualitative risk, anything previously experienced.
In fact, the authorities haven’t just acquiesced in the inflation of the “everything bubble”, but have been conspicuously active in its creation.
Starting in the 1990s, they promoted “credit adventurism” by making debt easier to obtain than ever before. After the GFC of 2008-09, they doubled down with the “monetary adventurism” of QE, ZIRP and NIRP.
The monetary tightening introduced during the immediate period of post-pandemic inflation is already being relaxed, and there’s every reason to suppose that a reversion to QE looms in the very near future.
Meanwhile, governments have become primary drivers of credit expansion, with public debt soaring as fiscal deficits now routinely exceed – in some cases, far exceed – reported “growth”.
But why would governments and central banks knowingly court the chaos that must result from the bursting of ‘the bubble to end all bubbles’?
Charles Hugh Smith has given us the clue to this seemingly inexplicable behaviour in a particularly perceptive recent article in which he explained that “the entire bubble economy is a hallucination”.
A “hallucination”, of course, is ‘a perception that differs from material reality’, or, in the simplest of terms, a false narrative. The “false narrative” to which we have been subjected is that economic growth not only hasn’t stopped, but won’t.
If it ever had to be admitted that economic growth had ended, you see, all existing social, political and commercial arrangements would be invalidated. The succeeding priority would be the sustenance of the generality.
This is a change of direction that might be survived by Russia or China – albeit not without significant difficulties – but would put an end to the post-capitalist expediency (PCE) now prevalent in the West.
This takes us to the two arguments customarily advanced against the idea that material finality might ever put an end to growth.
The first of these is that, since the economy can be explained and managed in terms of money alone, our complete control over the human artefact of money puts our economic destiny entirely in our own hands.
The second is that the continuity of growth will ensured by human ingenuity, enacted as limitless technological advance.
The recurrence of the word “human” in both of these arguments points to their inherent super-hubris. We are, we’re told, Lords of Creation, who can financially innovate, and technologically circumvent, any obstacle to ‘infinite, exponential economic growth on a finite planet’.
Neither of these claims survives rational appraisal.
First, the economy is not shaped by money. Within our two economies conception, we know that money has no intrinsic worth, but commands value only in terms of those material things for which it can be exchanged. This, in Surplus Energy Economics, is the principle of money as claim.
We can indeed create money in virtually limitless amounts, but we cannot similarly create those material things without which money has no meaningful value. Unlike money, energy and raw materials can’t be loaned into existence by the banking system, or conjured out of the ether by central banks.
In essence, money is a proxy for material economic prosperity, whilst the basis of this prosperity is the use of energy to convert natural resources into material products and infrastructures.
The second claim is, if possible, even more hubristically fallacious than the first. Far from being limitless, the potential of technology is contained within an envelope of possibility whose boundaries are set by the laws of physics and the characteristics of materials.
This comes down to a vindication of what Kenneth Boulding said more than half a century ago. The claim that ‘exponential growth can go on forever in a finite world’ is made, if not exactly by ‘madmen and economists’, then on the basis of orthodox economics and cornucopian fantasy.
Beyond its sheer size, what’s truly fascinating about the mania for all things AI-related is the way in which it fuses together the monetary and technological delusions that support the claim of never-ending economic growth.
Critical to this fusion is a disregard for the constraints of material finality.
Whatever promise the technology itself might offer, the current Western business model for AI makes vast demands for material resources, the most significant of which are energy and water. Even if these resources actually exist at the requisite scale – which is very far from certain – they can only be channelled into AI at the direct expense of households and other businesses.
The AI bubble also differs in other significant ways from previous exercises in irrational exuberance. For a start, whereas most of the money lost in the dotcom bust was equity, most of the value at risk in AI is debt, with significant cross-financing involved.
The assets used as collateral for this debt are likely to have remarkably little residual value – it’s hard to foresee much money being recovered from fire-sales of burned out or obsolete GPUs, or much of a post-crash market for vast single-purpose buildings ‘in the middle of nowhere’.
Whilst also noting the likelihood of AI degradation through the regurgitation of its own slop, it would be unwise to dismiss the transformative potential of artificial intelligence.
Rather, it seems likely that an alternative business model for AI will emerge, one that uses less capital, requires fewer resources, and, perhaps, sets itself less ambitious objectives.
What we have been seeing, then, is the use of reckless financial expansion in an effort to either counter, or disguise, the ending and reversal of economic growth.
Before we leap to the conclusion that this has been a deliberately-promoted false narrative, we need to allow for the fact that fiscal and monetary stimulus is an addictive drug, and a particularly alluring one when no other course of action is available.
Either way, we have long known that a financial system entirely predicated on the false presumption of economic expansion in perpetuity couldn’t possibly survive the ending and reversal of growth.
What recent events have been telling us is that, whilst policy-makers seem to be panicking, the moment of economic inflexion is drawing very close indeed. It might, in this context, be of interest that “the astronomical level of insider selling of publicly traded stocks” has now reached levels second only to those of 2007 – and we know what happened after that.
A recent article on the website Our Finite World explores what people can do as the global economy becomes more fragile and conflict becomes more common. It argues that falling energy supply, rising extraction costs, growing debt, and the increasing complexity of modern life point towards a long period of contraction. The article can be read here: https://ourfiniteworld.com/2025/06/18/what-should-individuals-do-in-a-world-filled-with-conflict
In this uncertain environment, the author suggests several practical steps for individuals.
Be thankful for what you have now We are still living in conditions that most people in the world would regard as fortunate. We have a wide choice of food, warm homes, and access to services. It is helpful to recognise this rather than constantly wanting more.
Keep away from conflict As cheap energy declines, global supply chains and long distance trade will become unstable. This may lead to tension between countries and within countries. Individuals gain little from being drawn into political or physical conflicts. It is safer to stay clear.
Expect simpler living and fewer goods The complex systems we rely on may not last. High tech medicine, electronic equipment, imported goods, and replacement parts depend on global supply chains. These systems may fail or become unreliable. We should adjust our expectations and prepare for a simpler life.
Rethink saving for retirement If the economy shrinks, there may be fewer goods and services available in future years. Money may lose value. The traditional idea of saving for retirement may not make sense in a contracting economy. Many people may need to work for as long as they are able.
Live in shared or extended households if possible Sharing space lowers costs. Larger households mean shared cooking, shared heating, and shared help with daily tasks. Living with family or trusted friends may provide greater stability in difficult times.
Avoid taking on large debts The article argues that the economy has produced too many people with long and expensive educations for the number of jobs available. It suggests that young people might consider practical or hands-on skills rather than long university degrees that create heavy debts.
Stay healthy and avoid ultra processed food As hospitals and medical supply chains come under pressure it will become more important to stay healthy. This means simple food, home cooking, less sugar, modest amounts of meat, and regular movement such as walking.
Grow some of your own food Even a small garden can provide fruit or vegetables. It will not make anyone fully self-sufficient. But small steps matter and provide a degree of security.
Why I Think This Matters
The article fits closely with the ideas I have been developing about the future of the United Kingdom. The decline in cheap energy, the rising cost of imported goods, and the loss of discretionary income will move the country towards a simpler and more local economy.
This will include more small farms, more local food processing, and more households growing some of their own food. It will include fewer long journeys, fewer imported goods, and a shift from highly skilled industrial jobs to more practical work with the hands. The future industrial economy will contract. The social economy will grow. Locality will become the centre of life.
The article reinforces the view that the coming shift will not be a matter of choice. It will be driven by physical limits. In that sense it supports the need to prepare for a smaller but more grounded way of living.
In his latest Post, Tim Watkins argues that many of the crises now closing in on us share a common root. Our monetary system relies on debt based money. New money appears only when someone takes out a loan. Interest then has to be paid on that loan. This structure forces the economy to expand year after year. If expansion slows, the strain increases. If it stops, the system begins to break.
Watkins warns that the global debt mountain is now at a point where it can no longer be supported. Once confidence falters, a major crash becomes likely. Such a crash would not simply cause a short downturn. It could trigger the rapid unravelling of global trade. Western countries would be hit hard. They have relied on currency dominance to obtain cheap food, fuel and manufactured goods from outside the locality. If that advantage disappears, shortages will follow. The hardship could be worse than the 1930s as even basic needs become uncertain.
He points to the example of the Soviet collapse. When its economic structure fell apart, life expectancy dropped sharply. He argues that something similar could happen in the West if debt based systems fail. This is not a forecast anyone would welcome. Yet it highlights how exposed we have become. Long fragile supply chains depend on cheap credit, cheap energy and political stability. All three are weakening.
Watkins suggests that after such a shock, attitudes may shift. People and the politicians they elect may have to accept that sustainability means living within limits. Managed decline will become necessary. Growth can no longer be the aim in a world of constrained resources and declining discretionary markets. In this new reality, debt based money becomes unworkable. It demands expansion when expansion is no longer possible. It traps households, businesses and governments in a structure that cannot survive the end of growth.
Once the debt based model breaks, something else must take its place. This is where the future begins to take shape. Without large flows of credit, without global supply chains, and without the ability to import essentials cheaply, economies naturally shrink in scale. Production moves closer to where people live. Exchange becomes simpler. Communities focus first on securing food, heat and shelter. In time, this creates space for a localist economy. It does not arise from political ideology. It emerges because local exchange becomes the only dependable system when the wider world becomes unstable.
Such an economy does not rely on debt. It relies on mutual support, direct production, personal trust and the use of simple local forms of money or barter that do not require constant expansion. It allows people to meet their needs without loading themselves with obligations that cannot be repaid in a contracting world. It replaces interest bearing debt with reciprocal arrangements and practical cooperation. It allows localities to adapt at their own pace rather than being dragged into crises created far away.
If Watkins is right, the monetary reset will not simply change how we think about finance. It will change the shape of society. The industrial economy will continue to shrink. The social economy will expand around it. And if I am right, a localist, no debt economy is not only possible. It is the natural outcome once the current debt based system reaches its limits.
Now and then, I have to remind myself where I have got to in my thinking.
For two centuries, the UK economy grew because we had cheap energy with a large surplus. We put a little energy into getting a lot back. That surplus powered everything beyond basic survival, including, for a while, the consumer-based economy, much of which is discretionary.
Discretionary businesses and markets depend on people having spare money created by surplus energy in the broader economy. When surplus energy is high and energy costs are low, households can afford extras such as leisure, travel, and luxury goods.
Essential businesses rely on steady demand for food, heat, and basic services, and their markets shrink or grow only slightly as energy conditions change.
As surplus energy falls and energy costs rise, households cut back on discretionary spending first, which causes those markets to contract while essential markets remain the backbone of daily life.
Now the surplus is decreasing, and we have become focused on affording the essentials. Less is left over for comfort, variety, and growth.
What this means for prosperity
Prosperity depends on what is left after the basics are paid for.
When energy costs increase, households have less money for eating out, leisure activities, holiday travel, new clothes, and gadgets. Firms have less to invest in staff and new kit. The State collects less tax from slowing activity, while costs for health care, care, and infrastructure continue to rise.
The result is a slow squeeze on the domestic and wider economies.
Discretionary markets are now shrinking. Second-hand replaces brand new. Some replacements cannot be afforded. It feels like a reduction in choice, pace, and reach.
What if the present UK system remains unchanged?
Assume the government tries to run the current model with blinkers on, as if nothing basic has changed.
Debt will try to bridge the gap of the declining surplus. Households will juggle higher bills and lower real incomes. Local shops will thin out. Out-of-town retailing will struggle with energy and transport costs. Public services will, in effect, be rationed through increased waiting times. Councils will delay maintenance. National supply chains will trim their range and carry less stock.
Daily life is already stepping back toward past habits. People travel less and nearer to home. More meals are cooked from basic ingredients (something now being rediscovered). Gardens and allotments will become part of domestic economies, not just hobbies. Homes will fill with repaired items. Sharing will become normal, from tools to car lifts.
Much of the formal framework will be retained, as an informal layer emerges beneath it.
The system quietly reverts to an older pattern, albeit boosted by modern technology.
Will this be an evolution or a revolution in the economic system?
Both are possible.
Evolution occurs when institutions acknowledge the energy constraint and redesign their use of money, services, and daily behaviour to accommodate a world that is no longer expanding.
Revolution occurs when the formal system fails to adapt despite rising pressure. The outcome includes a decline in honesty and trust. Although it may not be acknowledged, unconscious lying is a response to the ensuing muddle. Because people become unable to cope. From top to bottom in society, this may already be happening.
How change actually happens
Change is an evolutionary process. The government may want us to think it rules the roost, but in reality, the natural evolution of the economy determines what happens.
As the return on energy declines, discretionary sectors become memories of good times, and the rising costs of essentials creep into everything.
For example, heating all the rooms in our homes, an essential we grew up with, is becoming unaffordable and discretionary. Those of us who lived through the 1940s and 50s, when the economy was much smaller than it is now, will remember how we clustered round the only open fire and were kept warm, filling the coal scuttle.
Tax receipts will decline, and the state will have to trim benefits. Local authorities will defer projects. Households will move decision by decision toward thrift. Informal exchange will grow, from neighbourly help to small cash jobs.
In response to the shrinking economy, pay rates charged by electricians, plumbers, and builders for household work will decrease. Their purchase and maintenance of electrical tools will become unaffordable, and they will have to revert to using hand tools. DIY and self-built housing will increase, with some opting for off-grid living in response to rising utility prices.
The number of small businesses may increase because the margins of large-scale operations are too thin.
A parallel economy will form, close to home. Black markets in rationed food will develop.
If policy stays fixed, stress builds. Debt becomes harder to service. Banks and lenders pull back. Shocks, such as a winter price spike or a supply interruption, will expose the lack of slack. Trust in promises, both public and private, will weaken. People and firms seek reliability over growth. They value a steady supply over a low sticker price. They accept less variety if it is nearer and more certain.
The formal rules either bend to reality or break. Goods and services become less trustworthy. Home deliveries fail and are stolen.
What a managed evolution could look like
If the Government and councils recognise that the era of economic growth and surpluses is over, there will be an opportunity to shift to an entirely new way of thinking.
The first step will be for the government to recognise that a radical shift in thinking is needed. There can be no further economic growth. This will take time to be generally accepted and become the norm.
In the meantime, the UK will slip into an Anomie system. It may already be there.
In anomic systems, there is a growing absence of social rules, norms, and expectations that once guided people’s behaviour.
Society’s norms become unclear or weakened.
People feel disconnected, uncertain, or without guidance.
Traditional structures no longer provide stability.
In short, anomie is the feeling or condition of normlessness. Everything will seem to be muddled.
The outcome of this rethink must be recognition that the hierarchical systems of governance that enabled the industrial/consumer economy to develop are over.
The focus must shift from maximising throughput and economic growth, led from the top down, to enabling people in local communities to secure their essentials. Hierarchies enable growth; once growth ceases, they have to be de-layered and dismantled.
Planning and licensing will need to facilitate small-scale production, repair, and food production. Procurement must favour nearer suppliers to cut energy costs. Community buses, driven by volunteers, will replace conventional services. A transition which is already underway in country areas.
A kind of management is needed which enables this to happen. Not top-down, but enabling bottom-up grassroots activities to be born and develop. Not guided, which would be counterproductive because this is new territory not visited before. People won’t be bothered to think for themselves if local councils act as if they know best and limit funding to services they deem necessary.
As the economy shrinks, the localist economy is likely to be increasingly self-generating.
In time, there will be no need for top-down intervention in local community doings. Local health services will develop, and general hospitals will provide services sought locally. The localist economy will be established. At first, we can’t imagine what it will look like, except that it will be driven from the grassroots.
What a rupture could look like
If denial of the end of growth persists, cuts will deepen, backlogs grow, and services erode.
A sharp energy shock triggers business closures and job losses in the thinning discretionary sector. Households default. The tax base shrinks. The central government centralises more decision-making to hold the line, slowing local problem-solving. Black markets and petty thefts grow.
A settlement then arrives fast, not by design, but through breakdown. Price controls, rationing, emergency procurement, and strict priorities appear. After the shock, rules are hastily written to match the new reality. In effect, it would be creeping centralisation, leading to totalitarianism.
Not unlike what happened after the last big shock, when the Second World War broke out and then ended, leaving the government to deal with the dreadful state of the indebted economy.
Life in the United Kingdom during and after the war was shaped by disruption, hardship, and a strong sense of collective effort. Daily routines were transformed by rationing and power outages. Food was limited, so people learned to stretch every ingredient, grow vegetables, and share what they had. Cars became rare on the roads because petrol was tightly rationed, and most private motoring came to a halt. People walked or cycled. Essential vehicles were reserved for the military, ambulances, farming, and other vital work.
A return to the past would only be partial.
We will not rewind to the 1940s and 50s. We will keep today’s knowledge and experiences, basic digital tools, and some modern infrastructure. But for those of us who experienced the post-war era, the pattern feels familiar. Shorter supply lines. Less travel. National systems still exist, but local practice carries a greater share of the load.
Choosing the path
The energy fact will not change. The choice will be how we will change our systems with it.
Evolution is calmer than revolution. It will require clear communication about limits, early support for essential services, and legal space for small-scale activities. It will reward households that adapt and communities that organise.
Revolution is the risk if we delay, deny, or defend old models. Delay will result in the change arriving suddenly and on harder terms.
Politically
Revolution will involve a regular party-political choice, reacting to events. Parliamentary procedures may not be necessary.
A decision to enable fully fledged localism to evolve will require extensive parliamentary processes. Once enacted, each locality will decide how to govern itself.
A willing local authority may be able to implement some aspects of localism that do not require new legislation.
What to watch
There will be shrinking ranges on supermarket shelves. Longer waiting times. Rising repair trades. Growth of allotments and local food. More second-hand. New mutual aid groups. Small makers and services that thrive by being near. These are signals of the shift. They are also the seeds of the next economy.
Conclusion
Falling surplus energy leads to falling prosperity.
If we keep the current systems unchanged, life will narrow and move closer to home, much like it was 75 years ago. The issue is whether it will be a top-down revolution or grassroots localism.
With top-down systems maintained, there would be increasing government and local government regulation of daily life. Social inequality might increase due to rising social unrest.
Moving closer to home can be a managed evolution to localism. It may be self-managed at each locality.
The difference lies in whether economic shrinkage is acknowledged and accepted, and the UK positively redesigns around it, with localism playing a significant part. Or we can pretend that shrinkage isn’t happening and have to put up with the unexpected consequences of attempts to fabricate “growth”.
Tim Morgan’s latest essay argues that most of the world’s wealth now exists only on paper. The financial system has expanded far beyond the real economy that gives it meaning, creating a trap that will one day close.
He describes two intertwined systems. The first is the real economy – the world of energy, resources, and material goods. The second is the financial economy – an ever-growing web of money, debt, and asset prices representing claims on that real world.
For decades, governments have used money to fight off economic decline. Each time growth has slowed, they have borrowed more, cut interest rates, or printed new money. These actions give a temporary impression of prosperity but only inflate the financial economy further.
Morgan calls this the notional value trap: a situation in which we mistake rising numbers for real progress. As he puts it,
“Every failed effort made to stem material economic decline using monetary tools increases wealth, as it is measured financially.”
He warns that at some point the gap between the notional and the real will become unbridgeable. Then the financial system will collapse swiftly, not gradually, destroying most paper wealth.
Britain’s position
In Britain, official figures claim national “net worth” of £12.2 trillion – around four and a half times GDP. Yet, as Morgan observes, this figure is meaningless because these assets could never all be sold at those valuations. The country appears rich only because its measure of wealth is based on price, not substance.
Our economy is already shrinking in material terms. Energy costs are high, productivity weak, and the supply of real goods and services is faltering. Yet the financial system keeps expanding on the assumption that growth will resume. That contradiction cannot last.
A Budget built on hope
If Chancellor Rachel Reeves uses the forthcoming Budget to boost growth through borrowing and stimulus, it will repeat the pattern Morgan describes. Markets will cheer, property prices may rise, and commentators will talk about “confidence returning”.
But Britain’s real economy cannot deliver matching output. Energy supply is constrained, food and materials are mostly imported, and essential infrastructure is ageing. Inflation will re-emerge, and confidence will again give way to fear. Then, as Morgan predicts, the correction will come – not as a gradual adjustment but as a collapse of financial claims that can no longer be honoured.
What happens to the top-down economy
If this scenario unfolds, the most vulnerable part of Britain’s system will be the top-down public sector, which depends on continuous monetary flow rather than real output.
The NHS, already struggling with costs and staff shortages, will find its funding mechanism unsustainable when tax receipts fall and borrowing becomes prohibitive. It will have to contract towards core services, relying more on informal and community care.
The railways, another large, centralised network, will struggle to maintain services as passenger numbers fall and government subsidy shrinks. Many local lines may close, leaving communities to develop alternative local transport systems.
Education, policing, and welfare will all face similar pressures. The guiding assumption of the industrial age – that large institutions could deliver universal services from the centre – will no longer hold when money itself loses meaning.
The localism alternative
Yet Morgan ends with a small glimmer of hope. He notes that while financial values will collapse, utility will endure. Things that meet real needs – food, energy, shelter, and local capability – will still matter.
This is where localism becomes not just desirable but essential. As national systems struggle, local communities will have to rebuild from the ground up:
producing more of their own food,
generating local energy,
re-using buildings and materials,
and caring for one another through informal networks rather than waiting for central solutions.
Localism replaces monetary claims with real exchange – skills, labour, goods, and trust. It restores meaning to value by grounding it in use, not price.
In the end
The financial system may yet “die rich”, as Morgan puts it, but the communities that survive will be those that rediscover how to live usefully.
When the next Budget inflates notional wealth one last time, the wiser course will be to look closer to home – to the practical, the tangible, and the local – because that is where the new economy will begin.
How the present systems will actually disentangle has yet to be understood.
With peaking energy supplies humanity faces a massive dilemma. How to adapt to the shift from ever growing supplies of fossil fuels and minerals to an ever shrinking availability of these resources? Is this even possible?
Let’s take the case of America, the poster child of capitalism, for example. In order to see how degrowth might unfold — wholly unwillingly, I have to add — we must first understand the essence of our current economic system. The key thing to note here is that the core tenet of capitalism is not a belief in markets, free trade or private ownership but unimpeded growth. Unrestricted competition between businesses was nothing more than an ideal which was never met. The larger enterprises grew, the bigger their influence over pricing and regulation became. The repeated appearance of monopolies, an ever growing wealth inequality and a growing number of rent-seeking billionaire oligarchs thus were not unintended side effects of an otherwise benevolent system, but a clear goal towards which capitalism as a complex adaptive system evolved over time.
Concentrating wealth in the hand of the few and limiting competition was simply the best way to maximize profits. In fairness this is not an entirely new phenomena: whenever lootable, hoardable, tradable and storable surplus became available — be it grains, gold, sheep etc. — sooner or later some people always ended up owning much more than the average folk. And when the richest conspired to bend the rules for themselves, civilizations inevitably ended up in the rather unstable state of oligarchy. History never repeats itself, but it sure does rhyme — a lot.
What has made capitalism more “successful” than any of its predecessors was an ever increasing supply of raw materials, energy and labor turned into products and services at a profit. In a more or less stable system, such as in the Middle Ages, it would have been much harder for Rockefellers and Carnegies to rise and contest established power structures. That has changed when fossil fuels started to unlock more and more resources and technology in the industrial age. Whenever a new market or resource (be it real or digital) was opened up for competition, and ultimately for exploitation, a few companies quickly ended up dominating that field — making their owners the new richest kids on the block.
What would happen though, when that material growth finally turns into reverse, consumers can no longer afford to spend as much as they used to, and market after market start to shrink, only to eventually disappear? You see, without adequate surplus energy, it would be impossible to keep producing and consuming at present rates, so something will have to give. Is it possible for capitalism to adapt by degrowth or will this shrinkage — enforced by Nature — cause the system to mutate into something entirely different?
Profits over the economy
Just take a look at what growth has already turned into in the past five decades. In contrast to what it meant half a century ago — new, well paying jobs, a general rise in living standards and improving future prospects — growth has basically turned into a wealth pump. Ever rising asset prices and corporate welfare for the rich, collapsing living standards, food inflation and unaffordable housing and energy for everyone else. The post World War II economic boom revolved around making and selling goods at a profit while paying workers well, thereby creating a self-reinforcing feedback loop of consumption — driving manufacturing and still more consumption. This, however, required cheap raw materials, coal, oil, natural gas and electricity, as well as the “freedom” to dump waste on and destroy Nature free of charge. As environmental regulations became stricter, at the same time when resource extraction and conventional oil peaked (and became more expensive as imports kicked in) in the 1970’s, the old model of “economic” growth became impossible to maintain.
There is only so much you can extract, pollute and destroy without ruining your own prospects.
You see, a continued real, material improvement for the everyday person always required a corresponding increase in resource and energy use. A bigger house, a second car, electronic gadgets, flights abroad, eating out etc. could no longer be provided on a shrinking material and energy base. The only way to preserve growth was to move the manufacturing of the most energy intensive and polluting products and services abroad, where labor, resources and energy was still cheap. This practically meant unfettered growth in company profits, at the cost of disappearing industrial jobs and stagnating wages for everyone else.
Profit per unit of real gross value added of nonfinancial corporate business: Corporate profits after tax with IVA and CCAdj (unit profits from current production), retrieved from FRED, Federal Reserve Bank of St. Louis, October 2, 2025.
Education followed a similar pattern: as working class jobs vanished and salaries stopped growing in real terms, the only prospect for improving one’s lot was by going for a diploma. Asking more and more for higher education, and by financing this activity via student loans, created a lot of economic activity but required very little energy and resources to perform. Hence the birth of a myth: the post-industrial, service economy. (There is, of course, no such thing as a service economy.) These trends, on the other hand, has led to the devaluation of degrees, combined with a swell in administrative and frankly BS jobs. The same “happened” to healthcare, where the number of doctors barely grew as opposed to that of controllers and management. And the list goes on: from “owning” copyrights to creating “intellectual property”, providing financial services and inserting a middle man into every transaction imaginable. Sure, a lot of economic activity could be generated this way (measured as GDP growth and rising stock valuations), while very little — if any — real value was added. Money for nothing? Quite likely.
U.S. per capita energy use (from all sources including fossil fuels) is falling since 2000. China is set to surpass the EU in 2025 on a per capita basis. In absolute terms, China has already left behind the EU and U.S. (combined!) in 2020 already. Source
The real state of the economy
Despite the lack of real value added, and much to the reasons explained above, U.S. gross domestic product — the total value of goods produced and services provided during a year — just kept rising and rising. Lacking real material growth this expansion was increasingly financed by credit institutions and government debt. That is, by conjuring money into existence. (Yes, banks create around 80% of the money circulating the economy as electronic deposits.) And as of late: the government running massive deficits — i.e.: spending more than what gets collected as revenues.
Deficit spending, besides creating even more inflation, has a direct stimulating effect on the economy as a whole. When you take a look at what the government spends taxpayer money on, you find expenditures such as social security, Medicare, national defense etc. Retired workers spend their benefits on goods and services, Medicare pays doctors, nurses and the administrative staff (who then also use this money to buy stuff), while national defense drives entire industries (besides being a massive racket). In the end most of this government deficit spending ends up circulating the economy as consumption and investment a.k.a. GDP growth. On the other hand, this practice also increases inflation and locks future governments into a debt trap, where ever increasing amounts of money will have to be spent on servicing this debt. Short term benefits, long term costs — sounds familiar?
The effect of U.S. government deficit spending on GDP. The total height of each bar shows the “official GDP” reading for Q3 each year (in trillions of Dollars, seasonally adjusted annual rate) — source. The effect of deficit spending (source) was marked by diagonal stripes. The red line shows real gross domestic product (source) minus deficit spending — both converted to chained 2017 Dollars (seasonally adjusted annual rate). 2025 values are my estimates. Based on these real values, U.S. economic growth was 2% year-over-year in the past quarter of a century.
If we take a look at the actual GDP figures, we can not only discern a growing trend when it comes to overspending, but a tendency to use deficit spending to fill in the gaps after a recession. Governments in the past 25 years, it seems, have done everything in their power to a) hide the true depth of each recession, and to b) show higher than normal GDP growth. But that’s only half of the story. If we take inflation into account by using chained 2017 Dollars, and deduct government overspending, the true size of the U.S. economy in the middle of 2025 would have been around $22.5 trillion — some 27% below the official figure ($30.5 trillion). And that’s by using the seriously under-reported and heavily massaged CPI figures… If real inflation had been just two percentage points higher than the official figure, economic growth over the past eight years would have simply disappeared into the mist.
Take note how we got to this point: starting with the peaking of conventional oil production in 1970’s, then the outsourcing of manufacturing jobs, followed by neoliberalism and credit adventurism leading to a financial meltdown in 2008/2009. Then came zero interest rate policies, wage suppression, tax cuts for large corporations and now a cost of living crisis in the wake of the 2021 energy crisis (which has never ended). Is it any wonder the U.S. economy is where it is: drowning in debt?
Degrowth is already on — Now comes war
Let’s face it: degrowth is already here — since the 1970’s at least. So far it was offset by globalization (mainly by importing cheap goods from China) and a massive expansion of debt — both federal and private. However, no economy can be propped up artificially forever. With the coming peak and decline in U.S. oil and natural gas production later this decade, revenues can expected to fall dramatically, at the same time when the country becomes import dependent again. Should that be the case, a major economic downturn would be inescapable, and it would be only a question of time till the rest of the world realized that the U.S. economy would deflate like a balloon without incessantly increasing its debt levels, or seriously and heavily taxing its major corporations (1). The former would further erode trust in America’s ability to honor its obligations which, together with the realization that with less and less oil it would be impossible to repay these debts, would be devastating. The latter move, however, would make paying prodigious dividends to shareholders practically impossible, and quite possibly trigger a stock market meltdown. A rock and a hard place?
No wonder that slashing social benefits, Medicare, Medicaid are all on the top of the government’s list — we can take severe cuts to those as a given. But then what’s there to do the year after? Sure, cutting social spending will result in lower consumption (and lower GDP growth), but resource depletion won’t stop just because we no longer give adequate medical and financial support to retired citizens… The now accelerating long decline of high-tech industrial civilization will demand more and more cuts each and every year. Unless… Unless there is a way to “convince” other nations to give up their consumption and resources first.
The European economy is already in self-destruction mode for four years now, resulting in a massive (10%) drop in their overall energy consumption compared to 2014. And not only that, they also became more dependent on U.S. energy deliveries than ever. Should any of their nations decide not to put up with American pressures then, LNG shipments could easily drop to zero overnight. Or the last remaining pipeline underneath the Black Sea could suffer a severe blow. Europe, the second largest importer of energy in the world is now on a strict slimming diet, enforced and controlled by their biggest friend and ally. Next one on the list: China, the globe’s largest importer of oil and gas.
Constraining the world largest energy consumer’s access to hydrocarbons is a more tricky question, though, as they are not as dependent on one source as the EU was (or rather: still is). There are, however, some major suppliers — ruled by governments deemed hostile by the West — whose deliveries to China could be curtailed: Venezuela and Iran. Toppling these two regimes could thus deliver triple benefits: first, U.S. oil corporations could finally return in full to exploit their resources. Second, they could divert oil deliveries to America, instead of the far east, and third it could help reserve the Dollar’s status as the world’s number one currency. As Curro Jimenez observes:
Iran has the third-largest oil reserves and the second-largest gas reserves. If the U.S. were to control Iran and Venezuela’s oil reserves, it would control the first and third-largest oil reserves in the world, while the second and fourth – Saudi Arabia and Canada – are already under its influence. Having control and influence over the four largest oil reserves would allow the U.S. not only to influence prices and distribution, but to dictate in which currency they are paid.
Note, how bailing out Argentina, the last U.S. friendly South American state with a booming shale oil industry in its Vaca Muerta region, fits neatly into this picture. There is, however, a fly in the ointment: we no longer live in the 1990’s when the U.S. was the sole military superpower. Today, we have other players with formidable air defense complexes, hyper-sonic missiles and manufacturing capacities far greater than that of the entire West, combined. Russia, for example, is already busy training and equipping Iran to resist the next wave of U.S.-Israeli bombardment. The recent Tomahawk scare and turning Taiwan and the Philippines into a porcupine are thus part of a diversionary tactic aimed at pinning down air defense and missile resources far away from U.S. targeted countries. As for the success of this strategy… Well, I’m highly skeptical, to say the least.
Conclusion
U.S. per capita energy production and use is already falling for two decades now, despite the shale “revolution” adding record amount of barrels to the mix. Without an ever growing number of well paying jobs, and with a continued cost of living crisis, on the other hand, this cannot be expected to change. So even if American military adventurism were successful, it would most likely end up enriching a few oil corporations, while the rest of the population would still be unable to buy more gas or products made with oil. On a falling per capita energy availability — translating into higher electricity and gas prices — it will be impossible to keep consumption even on its current level. With a continued decline in conventional oil production, and now with peaking shale oil extraction, diesel fuel supply can be expected to fall in the years and decades ahead, making the crisis especially severe in the food, mining, construction and transportation businesses.
Under these circumstances it’s not terribly hard to understand why tariffs were a failed attempt to rein in competitors and to incentivize the re-industrialization of America; as none of these goals were achievable from the get go. Tariffs have thus ended up becoming just another tax on the average citizen, with the only practical purpose of raising government revenues to pay interest on debt, while further eroding people’s ability to buy more products and services. Now add in austerity measures, cuts to social benefits — as well as to many other government programs — and a continued decline in consumer spending is pretty much locked in. With slowing consumer demand, however, even more manufacturing companies will be forced to close doors, and even less oil wells will be drilled — effectively cementing peak oil in place. U.S. oil companies in anticipation of weaker demand and ever increasing drilling costs, are already accelerating layoffs and cutting investments, and not only in the shale business but everywhere.
This, however, is only the beginning. As more and more producers are pulled out, like blocks from a jenga tower, so will the risk of entire supply chains failing grow. Not just in the oil industry, but everywhere else. How this will affect finance and the monetary system is anyone’s guess at this point, but I suspect we are in for a pretty rough ride — potentially involving issuing massive amounts of stimulus checks, investors having to bail-in (2), and CBDC-s being introduced in a rush. Such a major, or even partial, meltdown of the economy, and the draconian measures needed to prevent a complete collapse, however, raises the risk of civil unrest to it’s highest level in recent history… That’s the risk every government around the globe takes, when not explaining that we are rapidly approaching the end of growth, after having surpassed an almost infinite number of planetary and resource boundaries. So, in case you were wondering why there is a war psychosis all over the world, or why the President called certain states and cities ‘training grounds’ or why did he sign orders to criminalize dissent — look no further for an answer. I’m afraid what we have seen up until now is just a dress rehearsal for what comes next: the biggest turning point in human history. Buckle up.
In a fossil-fuel economy, money floats free of nature. Notes and digits multiply at will, backed by banks rather than by land or energy. In a wood economy, the opposite is true: money grows no faster than the coppice.
Minting from the Coppice
Each parish sets aside a small copse as the source for its coin blanks. Every year, when seasoned wood and biochar are measured in the storehouse, the parish decides how many coins to mint. The number is limited by what the coppice has yielded.
Coins are turned on a lathe, dipped in a resin unique to the mint, and branded with a parish mark. The result is a currency that can be held in the hand, trusted by touch and scent, and recognised as local.
Equal Issue
At midsummer each adult villager receives the same number of coins. This equal issue ensures that no one is left without fuel. The coins circulate through trade and labour, but wealth in the wood economy arises not from hoarding tokens, but from skill, diligence, and cooperation.
A Closed Currency
Wood coins do not leave the parish. They cannot be exchanged for national currency, which prevents speculation or inflation. Instead, they circulate only inside the community and are always redeemable for cordwood or biochar at the storehouse.
Surpluses — charcoal, timber, furniture — may be sold outside the parish, but payment comes in national currency. That money buys salt, linen, or medicines. The wood currency remains closed and local, protecting its balance.
Anchored in Energy
Every coin represents a tangible unit of fuel. A single coin might redeem for a sack of seasoned logs worth around 100 kilowatt-hours of heat. With household demand measured in coins, the link between energy, money, and survival is transparent.
The Strength of Limits
A coppice grows at its own pace. So too must the currency. No council can inflate the supply. No bank can lend beyond the trees. The coppice itself is the mint, and nature sets the limit.
In Victorian times, society was shaped by values, technologies, and ways of life that are almost unrecognisable today.
Steam powered industry, rigid social hierarchies, horse-drawn transport, and limited communication defined an age that, from our perspective, feels distant and unfamiliar. Yet the Victorians, confident in their progress, believed they understood the direction of the future. They could not have imagined the transformations that followed: electricity, aviation, digital technology, and global interconnection.
If the world has changed so profoundly in little more than a century, it suggests that our own assumptions about what lies ahead may be just as fragile. The future is not a simple extension of the present – it is unpredictable, and often unimaginable.
In Victorian times (roughly 1837–1901), house purchase and mortgage finance were very different from today. Mortgages certainly existed, but they were far less common, the lending market was tightly regulated by social class, and large deposits were generally required. Most ordinary working families rented, while home ownership was largely restricted to the middle and upper classes until the late 19th century. Here’s a breakdown:
1. Early Victorian Period (1837–1870s)
Mortgages were rare for the working class.
Property was generally purchased outright by the wealthy or financed through private arrangements, often within families.
Where mortgages were available, they were provided by:
Solicitors (private lawyers acting as moneylenders)
Wealthy individuals
Occasionally landed estates for long-term tenants buying freeholds.
Loan-to-value ratios were low: lenders were conservative, typically offering up to 50% of the property’s value, sometimes less.
Deposits of 50% or more were common for those who borrowed.
Repayments were usually interest-only, with the capital repaid at the end of the term.
This meant most artisans, labourers, and low-income families had no access to mortgage finance at all and remained lifelong tenants.
2. The rise of Building Societies (1850s onwards)
By the mid-Victorian period, building societies began to transform the mortgage market, particularly for the emerging middle class and better-paid skilled workers.
Early building societies were terminating societies:
A group of members pooled savings until there was enough to build or buy each member a house, after which the society dissolved.
By the 1870s, permanent building societies became widespread, offering ongoing mortgage finance.
Building societies offered smaller loans, but on slightly better terms than solicitors.
Typical deposit requirement: around 20%–30% of the property value, sometimes more for riskier borrowers.
Repayments were usually repayment mortgages rather than interest-only, which made home ownership possible for clerks, teachers, shopkeepers, and better-off artisans.
3. Late Victorian Period (1880s–1901)
By the late Victorian era, mortgages became more widely available as the middle class expanded and suburbs grew.
Building societies dominated the lending market, and competition slightly improved terms.
Deposits of 10%–25% were possible for reliable borrowers, but 25%–33% was more typical.
Loan terms were short by modern standards, often 10–20 years.
The interest rate tended to be 4–6%, relatively stable because prices were generally stable.
Nevertheless, most working-class families still rented, especially in cities. Home ownership remained aspirational until well into the 20th century.
4. Key Differences from Today
Aspect
Victorian Mortgages
Modern Mortgages
Availability
Limited to middle & upper classes
Widely available
Deposit
20%–50% (sometimes more)
Often 5%–20%
Term
10–20 years
25–40 years
Repayment Style
Mix of interest-only & repayment
Mostly repayment
Lenders
Solicitors, wealthy individuals, building societies
Banks, building societies
Access for Working Class
Very limited
Widely available
The Victorian model of funding house purchases were that different from today because consumerism and the related expectaton of growth in prices, which has prevailed since the late 1960s, did not exist in the 19th century.
In the future, when a shrinking economy becomes established as the new normal, the post-growth model of house purchases will be as different again. If house prices decline as a result of declining prosperity, long term loans will not be commercially viable.
Any kind of borrowing will be unsustainable. Property owned free of of debts will be valuable as somewhere to live and run a business, which will retain its intrinsic value. The long-term usefulness of the house for living., will be maintained regardless of market price fluctuations.
Let’s start with a household analogy. A married couple have four fine children, and since expenses are higher than income, they borrow money in their children’s’ names to fund their lifestyle and investments. Once the offspring reach 18 years of age, the debt their parents borrowed is theirs to service.
The offspring didn’t get a say in how much money was borrowed or how it was spent, but the debt is now theirs to service (i.e. pay the interest) for their entire lifetimes, as the debt is simply too large to pay off with conventional wages.
The economy changed, and since wages don’t go as far and costs keep rising, the four offspring borrow in their own children’s’ names to afford the basics of a middle-class life.
The parents are now comfortably retired, drawing on their investments bought with borrowed money. The two generations behind them are now debt-serfs who funded their own lifestyles by borrowing even more money. Since the kind of house their parents bought for 3-times-income is now 6-times-income, the debt required to own a house and fund what is considered the minimum middle-class entitlements is multiples of their parents’ borrowing.
Is anyone willing to call this offloading of ever-expanding debt onto future generations wrong, as in morally wrong, or have we lost the vocabulary and ability to declare the offloading of debt as morally disgraceful, a line that should never have been crossed?
Debt that cannot be extinguished and that is offloaded onto future generations is a manifestation of moral decay, a decay of the moral foundations of the economy and society that is terminal.
So here we are, cheering on a big reduction in the Fed Funds Rate to encourage an expansion of debt, as more debt means more spending and that means more taxes and corporate profits. The manipulation of interest rates and the financial machinery to encourage more debt is viewed as bloodless, absolutely devoid of moral judgment: when it comes to “growth” of asset prices, spending, taxes and profits, there is no wrong, as “growth” is the only good anyone cares about.
This is the perfection of moral decay. Offloading debt onto future generations–money borrowed to prop up a self-serving status quo that focused on expediencies, not future consequences–and then telling the debt-enslaved generations, “we’ll inflate away the debt, and your wages will buy less and less, but no worries, we’ll just borrow more to pay the interest due”–how is this not morally repulsive?
Here is Federal debt as a percentage of Gross Domestic Product (GDP). This is a better measure of consequences, for it illustrates the Federal government’s ability to counter a deep recession by borrowing and spending trillions of dollars is now limited by extreme debt levels.
Those who track the history of government debt generally draw the red-line at 100% of GDP, so 120% is already deep in the danger zone. History is rather decisive: any attempt to add trillions in additional debt at these levels has zero chance of working as intended, i.e. a pain-free way to boost “growth.”
Note the debt-to-GDP ratio actually declined during both the stagflationary 1970s and the 1990s Internet boom. In both eras, the economy was still largely organic, i.e. unmanipulated enough that natural forces (supply, demand, risk aversion, writedowns of bad debt, etc.) could work through excesses of speculation and debt and restore not just balance sheets but legitimacy.
The Federal Reserve no longer trusted the system’s self-correcting capacity and leaped into full-blown manipulation of financial and mortgage markets in 2008-09. The debt-to-FDP ratio soared from 60% to 100% in the post-Global Financial Crisis (GFC) “save” of the Federal Reserve, which inflated the money supply and pushed ZIRP (zero interest rate policy) and QE (quantitative easing) to boost borrowing.
As a result, private-sector borrowing also skyrocketed. Now that households and enterprises have borrowed up to their capacity to service debt, their ability to “borrow their way to prosperity” is also constrained.
Here is total debt, public and private (TCMDO). In Q2 1975, total debt was $2.5 trillion. If this had tracked inflation, it would have reached $15 trillion by Q2 2025. ($1 in Q2 1975 is $6 in Q2 2025.) (BLS Inflation Calculator)
Let’s say that debt can double the rate of inflation if it’s being invested productively. That would put today’s total debt at $30 trillion.
But total debt isn’t close to $30 trillion; it’s $104 trillion and climbing, suggesting 70+ trillion is “excess debt.” As for all this borrowed money being invested productively–given “waste is growth” planned obsolescence and rampant asset appreciation / speculation, it seems obvious that most of this borrowed money was consumed by ephemeral products and services or squandered chasing asset bubbles.
Debt has implicit moral implications, and in denying this, we’re choosing a rendezvous with Nemesis–a rendezvous with Destiny that will be arranged by Nemesis, not the Federal Reserve or the Treasury.
Yes, debt can be productive, but it can also be exploitive, and therein lies the moral implications. Debt can never be amoral or bloodless; its moral nature cannot be extinguished. We appear to be destined to discover this truth the hard way.
Across the UK, people are noticing that life is getting harder in ways that don’t make sense if you’re still thinking in terms of normal economics. Prices are rising, but the economy isn’t booming. Wages are flat or falling behind. Public services are creaking. And while government figures talk about recovery, it doesn’t feel like recovery for most of us.
What we’re living through is stagflation – a mix of stagnation and inflation – but with a new twist: it’s happening in an economy that’s no longer growing at all. In fact, in many places, the economy is quietly shrinking.
What is stagflation?
Stagflation used to be rare. Economists once believed that if inflation rose, it meant the economy was overheating. However, we are now witnessing a simultaneous rise in prices and decline in living standards.
In plain terms, that means:
Your bills go up, but your pay doesn’t.
Jobs become harder to find or more insecure.
The weekly shop gets more expensive even as the packets get smaller.
Councils cut services while tax rises eat into your pension or take-home pay.
The causes are complex, but the direction is clear. The old model of growth, based on cheap fossil fuels, mass consumption, and global trade, is no longer effective. The government’s response so far has primarily involved printing money, raising interest rates, and hoping for the best.
What does this mean for ordinary people?
It means life is going to feel tougher, especially for those on lower or fixed incomes. And it also means that many of the systems we’ve relied on – housing, healthcare, transport, and food – will become less dependable over time.
You may already feel it: buses disappearing from rural routes. GP appointments are becoming harder to book. Rent is rising faster than wages. Local shops are closing. Savings are being eroded.
For families, it often means saying no to things that used to be normal – holidays, heating, hobbies. For younger generations, the promise that hard work will bring stability is eroding.
But there is another story here. One that doesn’t just leave us as victims of a failing system.
Because when the formal economy retreats, the informal economy begins to matter more.
How we respond: seven local actions that matter
Stagflation is serious. But it doesn’t mean helplessness. In fact, it’s a wake-up call – a chance to rethink how we live and support each other. Here are seven ways that communities and households can respond:
1. Grow more of what we eat With food prices rising and extended supply chains at risk, local food matters more than ever. Home gardens, community plots, and small farms can make a difference – and reconnect people with land and seasons.
2. Rebuild informal networks Mutual aid isn’t just for crises. Time banks, skill swaps, neighbour help – these are the lifelines of a post-growth world. They don’t show up in GDP, but they keep communities alive.
3. Waste less, share more From mending clothes to swapping tools, a culture of resourcefulness is re-emerging. Frugality, once looked down on, may become a new kind of wealth.
4. Local energy resilience Energy bills will keep rising. Local solar panels, shared heating schemes, and community energy cooperatives can give people more control and buffer against shocks.
5. Trade skills, not just money When cash is tight, practical skills become currency. Fixing bikes, making clothes, cooking, growing – these are the trades of a more grounded, resilient economy.
6. Reclaim local decision-making Councils and parishes need the power to act locally, not just carry out orders from above. When central systems falter, it’s the neighbourhood that holds things together.
7. Talk honestly about the future This isn’t just a blip. It’s a turning point. And we need to be honest about that – with our families, our communities, and ourselves. A smaller economy can still be a good society – but only if we build it deliberately.
In summary
Stagflation in a shrinking economy may sound like something only economists worry about. But for ordinary people, it’s already shaping the way we live. The challenge is real – but so is the opportunity.
We cannot return to the old model of endless growth. But we can go forward into a different kind of economy – one that values people over profits, place over global reach, and resilience over illusion.
And that begins not with waiting for someone else to act – but with small, determined steps close to home.
Gail Tverberg, the author of the blog Our Finite World, is a researcher and actuary with a background in mathematics. She focuses on the interconnection between energy limitations and economic systems, particularly how finite energy resources impact economic growth and stability. Tverberg has been writing on these topics since 2006, bringing a unique perspective that combines actuarial analysis with energy economics.
In her May 27, 2025, article titled “Economic Contraction, Coming Right Up,” Tverberg argues that the global economy is poised for a significant downturn over the next decade due to fundamental physical and resource-based constraints.
Main Conclusions
1. The Economy as a Physics-Based System Facing Diminishing Returns
Tverberg posits that the global economy operates as a “dissipative structure,” a concept from physics describing systems that require continuous energy input to maintain order. She asserts that as easily accessible resources are depleted, the energy and effort required to extract remaining resources increase, leading to diminishing returns. This phenomenon affects not only fossil fuels but also minerals such as copper and lithium, as well as arable land and freshwater.
2. Debt and Financial Systems Are Unsustainable Without Growth
The article highlights that modern economies rely heavily on debt, which presupposes future growth to repay. However, with physical limits to growth becoming more apparent, the ability to service debt diminishes, potentially leading to defaults and financial crises. Tverberg notes that high debt levels can temporarily mask resource constraints but ultimately exacerbate economic instability.
3. Societal Complexity Will Decline
Drawing on Joseph Tainter’s work on the collapse of complex societies, Tverberg suggests that as energy and resources become increasingly scarce, societies will be compelled to simplify. This could manifest as reduced government services, infrastructure decay, and a general decline in living standards.
4. Emergence of New Economic Structures
While acknowledging the challenges ahead, Tverberg believes that new, simpler economic systems will emerge as adaptations to the changing resource landscape. These systems will likely be less energy-intensive and more localised, reflecting the constraints imposed by diminished resource availability.
Tverberg’s analysis offers an enlightened perspective on the future of the global economy, emphasising the physical and resource-based limits to growth. Her integration of concepts from physics and systems theory provides a unique lens through which to view economic challenges.
However, some may argue that her outlook underestimates the potential for technological innovation and policy interventions to mitigate resource constraints. Advancements in renewable energy, efficiency improvements, and shifts in consumption patterns could play significant roles in addressing the issues she raises.
Nonetheless, Tverberg’s emphasis on the interconnectedness of energy, resources, and economic systems serves as a valuable reminder of the foundational elements underpinning modern economies. Her work encourages a holistic examination of economic sustainability, urging consideration of physical realities alongside financial metrics.Our Finite World
A look at how the world may change when governments cling to an old economic story, while reality quietly moves on.
This is not a vision from the left or the right. It’s not about what anyone wants to happen. It’s about what will unfold around us – quietly, unevenly, and outside the headlines.
We have lived for decades in an economy built on growth. Growth paid the wages, funded the services, justified the debts, and kept governments in motion. It shaped policy, purpose in politics, and confidence in households.
But that era is ending.
Not with a crash, but with a slow, stubborn refusal to continue. Energy is no longer cheap. Supply chains are more fragile than we realised. Populations are ageing. Climate pressures are rising. Global trade is becoming patchy and unreliable. And all the while, prices rise while incomes don’t.
The government, meanwhile, continues as if none of this is happening. It draws up new growth plans and talks of turning corners and unleashing potential. But the old levers no longer work. Nothing takes off. People quietly stop listening.
And beyond the headlines, big institutions start to vanish.
Supermarkets struggle with rising costs and falling demand. Most bank branches have already closed, and digital systems are becoming unreliable. Public services shrink. Connectivity becomes patchy. Confidence drains away.
This is not the failure of a government. It is the end of a model. The growth economy depended on scale, complexity, and rising consumption. When those are no longer possible, the systems built around them begin to fade – not because anyone decides to shut them down – but because they no longer work.
At the same time, global markets begin to fragment. Trade becomes slower, riskier, and more expensive. Countries turn inward, not for political reasons, but because there’s no longer much choice.
And yet, life does not end.
In place of the national economy, a different kind of economy emerges. People grow food, fix things, share tools, and find ways to get by. Empty land is cultivated. Empty buildings are used. Trust becomes local. Skills return. It’s not smooth. It’s not easy. But it is possible.
This isn’t a movement. It’s not a programme. People do it when the world changes and the system doesn’t. They will build something smaller, slower, and more practical in its place.
The danger is not collapse. The real threat is pretending it isn’t happening. The government risks losing all relevance by clinging to a story of growth that no longer fits the world. It talks while the future quietly organises itself elsewhere.
We are not heading into a political crisis – we are heading into a material one. But if we let go of the old assumptions, we may find that something new – and deeply local – can take root in the space that follows.
Across the developed world, economies are beginning to change in ways that mainstream analysis struggles to explain. Growth is stalling. Consumption is slowing. Traditional jobs are disappearing. Something more profound than a business cycle is at play: the old economy is winding down, and a new one is emerging.
This is not a smooth or painless transition. It is being driven not by planning or reform, but by necessity. As formal employment shrinks and financial structures falter, people adapt informally, locally, and creatively. They are shifting from consumer-oriented jobs to roles that support life more directly, even if these roles fall outside official recognition or legal frameworks.
This is how the evolution to the new economy works.
From Growth to Redundancy
For decades, the industrial economy flourished through the growth of discretionary markets—sectors built around non-essential spending: fashion, tourism, entertainment, advertising, hospitality, and a vast range of services that depend on surplus income. These markets expanded thanks to rising wages, easy credit, and relentless consumer demand.
But in today’s world, discretionary spending is under pressure. Household budgets are tightening due to inflation, debt, housing costs, and energy bills. Consumers are less able—and less willing—to spend on non-essentials. As a result, businesses in these sectors are cutting back. Jobs are being lost.
When someone in a discretionary job becomes redundant, they begin an arduous journey. The first step is unemployment. The second is searching for something more secure, grounded, and often more local.
The Shift to Essential Work
With fewer well-paid roles available, many redundant workers turn to essential occupations. These jobs keep daily life functioning: food production, caregiving, building repairs, cleaning, small-scale deliveries, informal childcare, and personal services. They are often physically demanding, less secure, and poorly paid—but they are necessary.
In towns and villages across the country, we are seeing the quiet growth of this economy of necessity. It is not driven by profit or prestige. It is driven by need.
Much of this work exists outside of contracts, tax records, and conventional regulation in the informal economy. Some of it operates in the black economy, where earnings go unrecorded. A smaller proportion may cross into illegality: untaxed trading, unlicensed sales, or in some cases, survival-driven criminal activity.
This is not moral decline. It is economic evolution and adaptation.
The Decline of the Financial Economy
The financial economy wobbles as the real economy shrinks and labour is reallocated. This is the sector that deals in money, credit, and speculation. Its valuations depend on assumptions of future growth and consumption. When these assumptions fail, the system destabilises.
Redundancy weakens income. Falling incomes reduce spending. Lower spending hits corporate earnings. In turn, markets lose confidence. Asset prices fall. Government revenues decline. Debt becomes harder to service. A vicious circle emerges.
Government attempts to revive growth—through stimulus packages, interest rate cuts, or quantitative easing—may delay the reckoning, but they cannot prevent it. When growth is no longer viable, the financial economy loses its anchor in the real world.
The Rise of Localism
As national systems falter, people fall back on what is close and familiar. Localism—a pattern of life rooted in place, relationship, and mutual support—begins to grow.
In the emerging economy, food is grown near where it is eaten. Services are exchanged informally, sometimes through barter or favour. Tools are borrowed, goods are repaired, and homes become productive rather than just consumptive. The goal is not to maximise profit but to meet needs with minimal dependence on distant systems.
Localism is not nostalgic. It is pragmatic. It offers resilience where globalised supply chains and centralised governance falter. It is often slower, smaller, and less efficient in industrial terms, but more adaptive and humane.
The early stages are difficult. The transition brings lower incomes, fewer comforts, and greater reliance on personal relationships. But over time, this economy can offer something more profound: a sense of purpose, belonging, and security that modern consumerism could never provide.
A Quiet Evolution
This shift is happening now, not through policy, but through quiet necessity. It is not a revolution. It is not a collapse. It is an evolution.
It begins when someone loses their job. It deepens when they take up essential work that pays less but matters more. It continues as they trade, grow, mend, care, and support others in ways that fall outside official channels. And it stabilises as local life patterns take root and begin to flourish.
The old economy may continue to dominate headlines. But underneath, a new economy is emerging—smaller, more local, and more human.
The sooner we recognise this transformation, the better we can prepare for it—and help one another through it.
