https://consciousnessofsheep.co.uk/2025/04/05/economic-chemotherapy/
Before reading this post, sit for a moment and take a few long and deep breaths. Because I want to set out some home truths about what just happened, as it provides an example of why the self-identifying left keeps losing. I refer, of course, to the reaction to Donald Trump’s “Liberation Day” tariffs. First, notice how many people who, just a week ago, would have told you just how awful neoliberal capitalism is, are now defending the wealthy beneficiaries of neoliberalism solely because it is Trump who has just torn up the “rules-based international order.” And so, almost everyone on the neoliberal left is today rallying behind their neoliberal overlords in defence of the status quo… See how easy it is, as Malcolm X once put it, to find yourself supporting those who oppress you?

Notice also the bit of classic Trump trolling in the shape of the penguin islands and the seemingly complex mathematical formula used to calculate the tariffs, which, sadly, too many so-called leftists have vented their energy on today… “ha-ha, orange man dumb!” There are, however, far deeper issues which need to be faced. And this requires that we step back from the political and media froth which creates and feeds upon emotional responses which serve to cloud out reason.

So, let us begin with some of the basics which this site has been talking about for more than a decade now. First, let’s talk about the exponential function. This is the area of mathematics which deals with compounding growth. And most people fail to grasp it. For example, here in the UK, the government has bet the house on something called “economic growth,” which they seem not to understand. But how much growth is desirable – 2%? 3%? 5%? One reason why financial services have struggled in recent times is because they were modelled upon pre-2008 growth rates of five percent or more. But what does five percent growth mean? Most people – including, I suspect, most of our political class – seem to assume it means five percent at simple interest. That is, we take five percent of our current economy and grow it by that much into the future. But anything that grows by a percentage over time mirrors compound interest. That is, a five percent growth rate means adding the five percent to the current economy and then each year recalculating that five percent. So that, fourteen years from now, the economy will have doubled in size.

This (sort of) looks okay if you are a saver or an investor – every £100 invested today will grow to £200 fourteen years from now. But when we step back, we notice some unpleasant side effects of the compounding. For the economy to “grow” by five percent requires either or both of two key metrics to double over our 14-year period. First, the material economy – and especially energy and raw resources – has to double in size over the period… twice the energy consumed, twice the minerals mined, twice the goods and services produced, twice the greenhouse gas emissions, twice the refuse going into landfill, etc. Second, in our debt-based currency system, debt must also double… which is bad news if you have an overdraft, or if you are a government which has been buying popularity by using government debt to fund all manner of public handouts and (especially) corporate welfare (such as bank bailouts and covid grants to your friends and relatives).

Now let’s take another given – that you can’t have infinite growth on a finite planet. Sooner or later, you are going to reach a halfway point at which you will be producing more stuff than ever before… and more than you will ever do again! Call it “peak industrial civilisation,” if you will. We might comfort ourselves that since industrial civilisation gradually grew to this point over three centuries, the road down the other side of the bell curve might be equally gradual. However, this overlooks the high degree of complexity and interconnectivity that was an integral part of our civilisation’s growth. When this begins to unravel, it will most likely follow a “Seneca Curve.”
Like financial bubbles, industrial civilisation may have walked up the stairs, but it will fall down the lift shaft.

To this, we can add a related problem – the low-hanging fruit trap. Nobody scales the top of an apple tree to pick the highest apple when there are apples aplenty just a few feet above the ground. In the same way, nobody dug a deep coal mine when there was plenty of surface coal from seams jutting out of the side of hills. Nor did anyone deploy a deep-sea oil platform in the days when vast oil reserves lay just a few metres beneath their feet. Nor did this matter much back when there were just a billion humans on the planet, and when just a couple of million of them were consuming the products of industrial growth. Today, there are eight billion of us, and less than one billion are excluded from industrial consumption. This has left us having to invest more and more into deep mining and drilling, in increasingly hostile regions of the planet, just to maintain some semblance of economic growth.

Central to this, is the concept of the “energy cost of energy.” That is, in order to have energy, we must invest energy. This invested energy (which is also embodied in the machinery and infrastructure of energy production) is unavailable to the wider economy. The remainder – the “surplus energy” – must meet both essentials like food and shelter, and the much wider discretionary economy of goods and services which, while not essential, often make life a little more bearable than it would otherwise be.

In the early twentieth century, surplus energy was growing, both because the expansion of energy production provided economies of scale even as technological developments lowered the energy cost of energy. These productivity gains reached their height in the years immediately after the Second World War, when the USA’s European and Asian partner economies were making the transition from coal to oil as their primary energy source. The result was an exponential growth in oil production in the post-war boom years, 1953 to 1973 – a period which witnessed as much production and trade as the 150 years which preceded them. Harold MacMillan, it turned out, was right when he told us, “You’ve never had it so good.”

Unfortunately, just a few years later we reached the end of exponential oil production even as economic growth was replaced by a combination of stagnation and inflation… stagflation! This was wrongly blamed upon excessive government spending (at a time when almost all of our money came in the form of notes and coins) and on militant trade unions. Hidden from sight, from economists trained in the medieval economics of Adam Smith, along with the politicians who listened to them, was the simple fact that the energy cost of energy had increased considerably following the end of conventional, land-based production in the USA. And as the energy cost rose, so the surplus energy available to power economic growth began to falter.

Not, of course, that surplus energy didn’t grow. It simply grew at a slower rate. And ultimately, the economy had to get into step with that lower growth rate too… except… except that the debt-based Eurodollar system needed higher growth rates to avoid an international debt crisis. Two options presented themselves in the 1970s. We might have opted to restructure domestic and international banking and financial arrangements in favour of a system more benign to the needs of ordinary people, and one which might address the growing environmental concerns of the period. Alternatively, we could throw the people and the environment under the bus and give the bankers and financiers, and the rentier class which benefits from them, control over the economy. We were duped into voting for the latter.

In pursuit of the mythical “free market” which was supposed to save us all, new rentier-backed governments destroyed national infrastructure, manufacturing bases, and social safety nets. At the same time a whole new corporate welfare scam was created in which the state funded corporate greed along with kickbacks to compliant NGOs and political campaigns… all of it on the back of a massive expansion of government debt which must, ultimately, be repaid through taxation (i.e., deductions from your income along with levies on your spending).

Which brings us back to that thorny problem of compounding debt. Because the debt itself has been growing exponentially, the interest that neoliberal governments are now paying on their debts is among the highest part of government spending. In the UK, interest on government debt is nine percent of all spending – a full £30bn more than the disability benefits the government recently (and mendaciously) claimed it needed to cut to “balance the books.”

There are a host of alternatives to the austerity cuts of the UK government if only someone was prepared to look beyond the neoliberal orthodoxy. However, none of those alternatives is pain free, because across the western economies we have arrived at the “hockey stick” moment when government debt spirals out of control. The USA, for example, is borrowing an additional trillion dollars of debt every 100 days… and the exponential function means that the timeframe is shrinking with each passing day.

The USA has tried the democratic “solution” of imposing debt ceilings… and it doesn’t work. The UK tried the authoritarian alternative of punitive austerity… and that failed too – or at least came at the cost of disintegrating critical infrastructure and growing social unrest. And so, in practice, we have turned a collective blind eye while governments and central bankers attempted to borrow their way out of debt.

In the absence of a serious debt reduction programme – which, of course, would be politically unacceptable – only two alternatives present themselves. The first – which we had a small taste of two years ago – is to inflate the debt away. That is, to reach a point at which real growth declines, taking the value of the currency with it. This would be experienced by we mere mortals as crushing hyperinflation on a Zimbabwe or Weimar Germany scale, so that while the nominal amount to be repaid would stay the same, it would be worth a mere fraction of its current value. Alternatively, we might have to face a banking and financial crash on a scale that would make 2008 or 1929 look trivial, as much of the current debt is defaulted on. And that’s a particular issue for the USA, because get this wrong and the dollar may lose its reserve currency status.

So how would you prefer your collapse? Would you like to lose everything (or at least almost everything) in the course of a massive, global, debt-default and currency reset? Or maybe you would prefer to lose the value of everything in a stagflationary collapse in which the over-indebted financial economy is brought back into line with the much smaller real economy?

Insofar as next to debt, cancer is the only thing we know of which seeks to grow exponentially, our predicament is not dissimilar to that of a cancer patient. There is no good alternative. And while doing nothing – and possibly even denying the condition – might feel better in the short-term, it is a death sentence for later on. But the surgery of inflation and the chemotherapy of a debt default are almost as debilitating as the disease itself… and as with cancer, there is no way of guaranteeing a successful outcome.

Which is where Trump’s tariffs (and Starmer’s counterproductive austerity cuts) come in. Among Trump’s backers are several “accelerationists” – people who argue that if a crisis is unavoidable, it is best to lean into it, both to dispel unhelpful denial about the existing situation and to accelerate the potential solutions. Trump’s tariffs are not – as much of the establishment media would have you believe – a foolish attempt to bring a short-term economic upswing to the USA. Rather – and in line with the Trump administration’s geopolitical shift – they are a means of ending the half-century-old neoliberal order… while attempting to keep the reserve currency.

This is where the (neoliberal) left is out of step with reality, taking Trump’s trolling as evidence that there is no plan. As with most things Trump, however, the brains behind the operation are mostly out of sight. The brains in this case being Scott Bessent – Trump’s treasury secretary, who in 1992, helped George Soros break the Bank of England – and Trump’s economic advisor, Harvard PhD, and hedge fund strategist Stephen Miran. According to Dr. Joeri Schasfoort, host of the Money Macro channel, The Bessent/Miran plan comes in three stages:

“Step 1: Tariff chaos. In this step the administration shows that it means business. It no longer cares about the stock market crashing. It no longer cares about the economy temporarily doing poorly. It just applies a lot of high Tariffs to foes and friends alike to create negotiating leverage…

“Step 2: reciprocal tariffs… This is the long term goal of the tariffs. Or in Bessent’s words: ‘tariffs are designed to address – leveling the playing field such that the international trading system begins to reward ingenuity, security, rule of law, and stability, not wage suppression, currency manipulation, intellectual property theft, non-tariff barriers and draconian regulations…’

“Step 3: a Mar-a-Lago accord… Yes, a Mar-a-Lago accord that will go into the history books to rival the 1944 Bretton Woods agreement, or 1985 Plaza accord in which Japan, the US and European countries came together to collectively raise the values of the Yen, and European currencies versus the Dollar.”

It is, of course, a dangerous game to play. There is no guarantee that the USA’s allies will sign up to a new currency system which moves them in the direction of becoming formal vassal states, dependent both upon the American economy and the American military. Moreover, with the BRICS alternative growing steadily, Japan and Australia – whose economies are closer to China – might get better terms with the BRICS than via the new Trump dollar system. But it might be that, given the ever-growing threat of an American dollar default (whether through inflation or an inability to repay its treasury debt) a radical shake up is the only thing left on the table.

Whether the currency chemotherapy being administered will cure or kill the patient, we will have to wait and see. And for those of us who understand that some form of crash is inevitable anyway, it doesn’t matter all that much. But there is no point – as much of the neoliberal left is currently doing – clinging to a neoliberal order which was in any case just months away from a sovereign debt collapse under its own weight anyway. Largely absent, though – at least for now – is any alternative to the post-neoliberal world that Trump and his backers are forcing into place… Once again, the self-identifying left is allowing the right to shape the new narrative while it wastes its energy defending the indefensible.