Until quite recently, the idea that the global economy might reverse – my preferred term is inflect – from growth into contraction lived in the realm of radical and unwelcome theory.

But this has been the year in which theory has been borne out by experience.

Much as astronomers deduce the existence of invisible objects through their gravitational effects on other bodies, we can see the effects of economic inflexion in everything from social discontent and the “cost of living crisis” to deteriorating international relations and worsening financial fragility.

The causes of the ending and reversal of growth can be summed up in the single word depletion.

Fossil fuel energy has been depleted to a point where its material costs, measured here as the Energy Costs of Energy (ECoEs), are becoming unaffordable.

Non-energy natural resources, too, such as minerals, agricultural land and accessible water, have been depleted, as has the finite ability of the environment to absorb the effects of human economic activity.

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It has turned out to be perfectly possible to measure, interpret and anticipate these economic processes, and that’s been the aim of the Surplus Energy Economics project from the outset.

But two centuries of industrial expansion have been quite enough to render economic reversal very nearly incomprehensible to most people, and almost entirely unacceptable.

Our first collective responses have involved simple denial, based on the ‘infinite growth’ promises of an economics orthodoxy firmly rooted in pre-industrial conditions, when none of today’s resource challenges were even conceivable.

Our second resort has been to hubris, manifested in the idea that human ingenuity, implemented as technology, can resolve all of our energetic, material and environmental problems. This can, supposedly, offer a seamless, with-growth transition to alternative energy sources, and perhaps even “de-couple” the economy from the use of energy.

The snag here is that the potential scope of technology is bounded by limits set by the laws of physics. The looming failure of technology is going to come as a gigantic shock to the system.

We’ll look at this impending failure shortly.

Reality, meanwhile, is breaking through, as it always does. Few voters now believe that their economic conditions have been improving in recent times, that the current extent of inequality is justifiable, or that soaring living costs are either fully reported or are traceable to one-off bits of simple bad luck. They’re increasingly attracted to scapegoating foreigners, who might be immigrants, or dishonest trading partners.

The authorities, meanwhile, have been drawn towards the ‘extend and pretend’ of reckless credit expansion, to ‘getting their retaliation in first’ against rising popular discontent, and to trying to skew the patterns of international trade to their own national advantage.

Before we judge them too harshly, though, we should remember – in this season of goodwill – that the process of inflexion itself is entirely outside their control, and that, one by one, all of the supposed “levers” of economic management have broken in their hands.

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The formal commencement of the industrial economy can be dated to 1776, when James Watt completed the first truly efficient device for converting heat into work.

But this was to be no sudden revolution. Even in Britain, where this process began, battleships were still made of wood, and powered by wind, into and beyond the 1850s. Industrialization began quite slowly in Europe and North America before extending, again gradually, into all corners of the world.

This said, and with a tiny scattering of exceptions, even the last countries in which industrialization took hold have been living with assumed economic growth for well over a century.

The ending and reversal of growth is, therefore, a profound culture-shock, up-ending generations of almost unchallenged expectation.

It’s a revolution far more sweeping in its implications even than the removal of absolute monarchy, or the arrival and subsequent failure of communism in the USSR and its satellites.

This means that we need to start looking for the practices, systems and institutions that will be swept aside by this revolution – and, conversely, at what might replace them.

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It helps us to know that two assumptions, above all, will be overturned by the ending and reversal of growth.

One of these is that each generation will be more materially prosperous than the one before.

The second is the notion that economic expansion is coterminous with progress. If somebody opposes the bulldozing of farmland or the destruction of historic artefacts for the building of a retail mall, motorway or factory, he or she is portrayed as an obstacle to progress. The word Luddite entered the English language as a term describing futile, unreasoning opposition to the unstoppable march of modernity.

The ever-perceptive Charles Hugh Smith has explained that a lot of what we continue to think of as ‘progress’ has in fact become Anti-Progress, a concept which he has connected to the collapse of quality. Your new domestic appliance, for example, might be wi-fi connected (”progress”), but won’t work as well, or last as long, as the old one (“anti-progress”).

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We can look at this, quite reasonably, as the product of misaligned incentives, where it’s more profitable to sell the customer a new and inferior product every five years than a higher-quality, more repairable one every twenty-five.

But there are structural factors involved as well.

In pre-industrial times, raw materials were costly, in the sense that their supply required large amounts of human labour. In these conditions, it made far more sense to use hard-won, costly timber to make furniture or buildings that would last for generations than to construct shoddier alternatives that would require replacement in a small number of years.

The advent of cheap and abundant energy changed all that, making possible a profit-incentivized shift to an accelerated cycle of creation, disposal and replacement. This is how the energy-dissipative economic model of the past became the dissipative-landfill commercial system of today.

This system will unravel, not as a matter of commercial practice or social preference, but because of changes in the productive-replacement equation itself.

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Contrary to the quaint notions of orthodox economics, the central processes of the economy are material, not monetary.

The defining purpose of the economy is to supply physical products and services to society.

Services are no less material than goods – we can’t run an e-commerce business without vehicles and warehouses, or supply on-line services without cables and computers.

Since a society without a history is as disconnected as a person without a memory, we can safely assume that history will continue to be taught and studied, long after economics has been subsumed into the sciences of thermodynamics and the characteristics of materials.

These historians of the future will be amused, as well as baffled, by contemporary notions that we could build an immaterial economy based on services, or somehow “de-couple” the energy economy from the use of energy. They’re likely to laugh out loud at the notion of ‘infinite, exponential economic expansion on a finite planet’.

The material economy works by using energy to convert non-energy resources into products. These then wear out, and are abandoned and replaced. Critically, the speed at which this cyclical process operates is determined by the relative costs of the necessary inputs.

These inputs are human labour, energy and raw materials.

When each of these inputs was costly, the lifespans of products were extended as far as possible. Cheap and abundant energy made each of these inputs less expensive – production required less human labour, the cost-efficiency of resource extraction rose sharply, and the cost of energy itself was low.

In consequence, life-spans of products became ever less important, and the relinquishment-replacement cycle was accelerated. The creation of the dissipative-landfill system has been a product, not of fashion, or even of incentive, but of evolving material circumstances.

Because this process has been material in its characteristics, nobody has been able to call a halt to it, any more than the advocates of a more human-scale approach could halt the takeover of England by “dark satanic mills”.

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The lesson to be learned from this is that prevalent commercial practice, far from being driven by the latest vogue in business-speak or the most recent pronouncements of management text-books, is determined by material conditions.

And these, as we know, are now changing rapidly. Raw materials, like energy itself, are fast ceasing to be cheap. The balance of cost and scarcity between human labour and exogenous energy is tilting rapidly from the latter to the former.

The ultimate exponents of the rapid-replacement model aren’t manufacturers, or suppliers of services broadly understood, but the behemoths of the “tech” sector. Their business models are tied, to a quite remarkable degree, to the already-failing presumption of ‘infinite economic growth on a finite planet’.

These business models are, to a greater or lesser extent, based on the assumptions of ever-cheaper raw materials, ever more abundant energy, and ever-expanding consumer discretionary affordability.

Yet these assumptions are already becoming twentieth-century notions, preserved in aspic.

The context, looking ahead, is set out in the following charts. In America, as elsewhere, top-line economic output – adjusted to exclude credit distortions, and known here as underlying or “clean” output (C-GDP) – has long been decelerating towards contraction. Meanwhile, the first call made on output by ECoE has been widening the gap between output and material prosperity (Fig. 1A).

Fig. 1

At the same time, the real costs of energy-intensive necessities have been rising, such that the affordability of discretionary (non-essential) products and services, shown in blue in Fig. 1B, is subject to relentless compression.

The United States has been chosen to illustrate these trends because of the differences between Figs. 1C and 1D.

Over a very long period, as the rate of discretionary expansion has fallen below the rate of increase in the population, the average American has experienced a continuing, but gradual, reduction in the affordability of discretionaries (Fig. 1C).

But aggregate discretionary affordability has carried on creeping upwards even as its per capita equivalent has drifted downwards.

This seems to have left many businesses wholly unprepared for the impending rapid decline of discretionary affordability.

The acid-test of vulnerability to these effects is the extent of exposure to discretionary compression. On-line retailing can continue pretty solidly, though it will tilt away from discretionaries and towards staples. EVs have a future, but only as niche products, since the replacement of all (or even most) of the World’s 2bn cars and commercial vehicles is a material impossibility.

On the other hand, anything dependent on advertising or subscription revenues, or on the mass sale of non-essential gadgets to the public, is heading over the Niagara of contracting discretionary purchasing.

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The way in which energy-hungry behemoths turn into dinosaurs will have a critical bearing on how society and the financial system adapt to the ending and reversal of material economic growth.

Embodying a law of diminishing returns, each new iteration of “tech” is more energy-intensive, and seems to add less material value, than the one before, and the sector is already starting to feel the headwinds of a decelerating replacement cycle.

This is typified by smart-phones, where annual units sold peaked back in 2015. The first cell-phone was a major breakthrough, as were the first smart-phones, but subsequent developments have added ever less valuable capabilities at ever increasing costs.

AI, the latest passing vogue in “tech” circles, exemplifies the pursuit of energy-intensive innovation for the sake of innovation itself, and for some very short-lived financial gains. Everybody seems to accept that AI will make enormous demands on energy, but nobody seems to be really clear about how it will add value.

The general (though rather vague) notion seems to be that AI will make profits by replacing human labour. In fact, though, human labour will be increasingly abundant as the economy contracts, whilst ever-higher thresholds will be set for the prioritization of energy use.

Some suppliers of energy-intensive tech services are already giving thought to investing in their own energy sources, typically small modular reactors, which might enable them to cool as well as power their sprawling data-centres.

What this idea overlooks, however, is the impossibility of re-energizing the economy in which their customers reside.

With no such capability possible, a combination of decreasing prosperity and ever-costlier necessities has already started to exert an ever-tightening stranglehold on the affordability of discretionary (non-essential) products and services.

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What, though, will be the wider implications of technological disillusionment for the broader human endeavour?

The word “technology” has two distinct meanings in contemporary parlance. To scientists and engineers, it means the implementation of human ingenuity in the material world. To investors and business bosses, it means a hugely successful sector that rose, phoenix-like, from the ashes of the dot-com bust.

To the general public, it probably denotes a combination of the two, a phenomenon which is both enabling and threatening, and something whose unstoppable advance only a card-carrying Luddite would seek to halt.

Humanity, and perhaps every sentient creature, seeks to alter its environment to conditions most favourable to itself. The human project has coined the word “technology” to describe our efforts in this regard.

Hitherto, we’ve been able to look back at the history of technology as an ascending march of progress. Noteworthy names in this progression include Watt, George and Robert Stephenson, Michael Faraday, Thomas Edison, the Wright Brothers, Karl Benz, John Logie Baird, Frank Whittle and Robert Watson-Watt.

We’ve learned, too, from our failures, as when Capt. Cowper Coles’ inherently unstable turret-ship HMS Captain capsized off Finisterre, and when John Blenkinsop invested in spiked wheels on the grounds that railway locomotives with smooth wheels wouldn’t be able to move.

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The critical point about technology, though, is that it has to work within the envelope of material and energetic possibility. Orville and Wilbur Wright, for instance, didn’t invent the aeroplane and then sit around waiting for somebody to discover petroleum. Rather, they found a novel and worthwhile application for a source of energy that was already available.

Modern technology has delivered marvels, and we seem, in any case, to have an instinctive attraction to the new and shiny. Technology has been elevated to the status of a secular deity, capable of resolving our each and every problem.

And this is why our disillusionment with technology, as it arrives, will be such a shock. Because of their inferior material characteristics, renewables can’t restore growth to the economy, or even keep it at its current size. Engineering can’t resolve our environmental problems in ways that allow excess consumption, and super-rapid resource depletion, to continue.

If, at this festive time, you’ll allow me a single cliché, ‘as one door closes, another opens’. There are alternatives to our current arrangements, and perhaps we’ll discuss these in the future.