At the centre of the British system sits an assumption.
Growth will return.
It may be delayed. It may be slow. But it will come.
Budgets are written on that basis. Forecasts depend upon it. Elections are fought upon it. The language of policy assumes it.
Recovery. Investment. Renewal.
The national story is forward movement.
Yet at the household level, a different story may be unfolding.
I have recently come across a self-employed man and his self-employed wife. Both are skilled. Both are reliable. Both have lost work. Not because they are poor workers, but because they are considered too expensive.
They install bathrooms in existing homes. They decorate houses. Owner-occupied properties.
This is not emergency repair work. It is not a leaking roof or a failed boiler. It is an improvement. Modernisation. Enhancement.
Such work depends on confidence.
When households feel secure, they upgrade. They refresh. They improve. They borrow if necessary. They justify the expense by reference to rising house values and rising income.
When households feel uncertain, they postpone.
The bathroom can last another year. The paint can wait. The tiles are dated but serviceable. We will manage.
This is not drama. It is a caution.
And caution spreads quietly.
In a growing economy, quality commands a price. Clients choose the reliable worker. They pay for competence and speed. Time is valuable.
In a tightening economy, price becomes the first question. The cheapest quote wins. Or the job does not proceed at all. Or the householder does it themselves.
The worker has not changed. The context has.
This matters because discretionary domestic improvement sits in a sensitive zone. It is funded from surplus income, savings, or housing confidence. It is not essential, yet it is not trivial. It tells us how safe households feel.
If good tradespeople are losing such work because they are too expensive, something has shifted at the level of expectation.
At the top of the system, growth is still assumed.
The Treasury projects rising output. The central bank speaks of returning to the trend. Political leaders promise expansion. The language remains optimistic.
But at the kitchen table, decisions are being made differently.
Mortgage payments are higher. Energy bills are remembered even if they have eased. Food costs have risen. Employment feels less secure. Pensions look uncertain. House prices are not clearly rising.
In such a climate, the rational response is not expansion. It is preservation.
Cash is held back. Projects are delayed. Improvements are deferred.
This is how contraction begins. Not through collapse. Not through an announcement. But through hesitation.
If one household behaves this way, it is an anecdote.
If many do, it becomes a pattern.
And if the pattern persists, the structure of the economy begins to alter.
Discretionary markets thin out first. Trades linked to improvement rather than necessity feel it early. Good workers become “too expensive”. Clients seek cheaper alternatives or abandon the project.
As this repeats, several consequences follow.
Small firms compete more aggressively. Prices are cut. Margins shrink. Income becomes unstable. Workers reduce their own spending in response. That feeds back into the wider economy.
Meanwhile, the national narrative continues to speak of recovery.
A gap emerges between the language of growth and the behaviour of caution.
At first, this gap is tolerable. Governments can borrow. They can stimulate. They can promise.
But if the underlying behaviour of households has shifted from optimism to preservation, stimulus does not fully restore the former pattern.
Expectation has changed.
And expectation is central.
A growing economy rests on shared belief in improvement. People spend because they expect tomorrow to be better. They borrow because they expect income to rise. They upgrade because they assume value will increase.
If that shared belief weakens, the economy reorganises from the bottom.
People do not stop living. They adjust.
They repair rather than replace. They paint their own walls. They share childcare. They grow vegetables. They reduce travel. They extend the life of what they own.
These are rational responses.
They are also the building blocks of a different economic structure.
From above, the system still looks growth-oriented. From below, it is becoming sufficiency oriented.
The centre expects expansion. The locality practises restraint.
If this pattern spreads across many trades and many areas, it is not merely a cyclical slowdown. It is the early stage of structural drift.
Growth at the centre. Caution at the kitchen table.
If the kitchen table wins, the structure eventually changes.
The question is not whether growth is still promised.
The question is whether households still believe it.
If businesses and self-employed individuals are being told their services are too expensive, they must rethink their business plan.
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.
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.
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.
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.
