https://consciousnessofsheep.co.uk/2026/04/13/the-map-is-not-the-territory/
That’s a phrase often used in therapy to help people experiencing mental distress understand that their beliefs about the world may be distorted or even plain wrong. The phrase though, equally applies to the mainstream ‘neoclassical’ school of economics which has framed much of western political economy since World War Two. Why? Because, in the end, the economy is too complex a system to ever understand. And so, simplified models are used in an attempt to second guess how things might unfold… except, as we know from bitter experience, the best adjective for economics is ‘wrong.’

Consider for a moment Harry (Henry Charles) Beck’s famous map of the London Underground network. An electrical engineer used to plotting out wiring diagrams, Beck came up with an efficient means of describing the Underground network for its passengers. The colour coding of ‘lines’ (Bakerloo, Circle, District, etc.) were not synonymous with the actual tracks but still allowed passengers to work out the best route. And while stations were equidistant on the map, there were massive physical differences in the real geography – in central London, stations can be so close to each other you are better off walking, but in the Northern commuter belt, stations are miles apart. Suffice to say that the map is completely useless to motorists or pedestrians hoping to find their way around London and its hinterlands.

Now consider the old joke about the drunk under the lamppost. The cop finds the drunk on his hands and knees and asks what he is doing. The drunk replies, “I’m looking for my keys.” The cop asks, “Where did you lose them?” The drunk points across the street. “So why are you looking here,” asks the cop. “Because this is where the light is,” says the drunk. We humans, of course, would like to pretend that we are far too clever to act like the drunk. But then again, Maslow’s Hammer (if the only tool available is a hammer, every problem starts to look like a nail) has proved correct time and again… particularly in the realms of economic policy.

So, what is the problem? ‘The economy’ is not something separate from us or some compartmentalised fraction of what we humans do. It is everything we do, from the neighbour kid who offers to wash your car to some Big Tech godzillionaire who borrows trillions of dollars to squander on his latest energy-guzzling datacentre fantasy. But that poses a serious difficulty for anyone who would seek to understand (still less predict) what amounts to hundreds of billions of human interactions every day. Like Beck attempting to make the London Underground system intelligible to the tourists who travel on it, the economists needed to create a map… and it turned out that the simplest thing to map is the way money changes hands.

Since most financial transactions are monitored by banks, tax departments, currency exchanges, etc. It is possible to model the movement of currency. And since some changes in the pattern of movement coincide with large scale economic events – booms and busts – it appears that economic policies can be designed to moderate the way this – financial – economy operates… except, of course, the predictions are invariably wrong.

In the post war years, economists could get away with this fraud because as the western states entered the oil age, they witnessed an unprecedented explosion of production and trade. As historian Paul Kennedy observed:

“The accumulated world industrial output between 1953 and 1973 was comparable in volume to that of the entire century and a half which separated 1953 from 1800. The recovery of war-damaged economies, the development of new technologies, the continued shift from agriculture to industry, the harnessing of national resources within ‘planned economies,’ and the spread of industrialization to the Third World all helped to effect this dramatic change. In an even more emphatic way, and for much the same reasons, the volume of world trade also grew spectacularly after 1945…”

During the period, economists and politicians could implement whatever policies they chose, and businesses and households would simply use the increased energy to find a workable way around them. But this came with the drawback that the economists – like so many mental patients – began to believe that their map was the territory. That is, that ‘the economy’ was something separate from we mere mortals… something existing in the rarified atmosphere of high finance, where a new breed of technocratic alchemists fixed the system to deliver prosperity for all.

And so, we arrive at today’s schizophrenic separation of the financial economy – of banks and shadow banks – from the real economy of real people and material wealth. In 1966, economist Kenneth Boulding had criticised mainstream economists for following what he called ‘cowboy economics.’ This was an analogy with the early settlement of North America, when people could simply head west to find the resources they needed. The thinking being that all of the physical resources required for life were practically infinite. Since, prior to the 1970s, industrial civilisation had not experienced material shortages, economists had convinced themselves – and the politicians and journalists – that the material world didn’t matter. Whenever a resource was in short supply, the price would rise. And at the new price, more would be produced or some substitute would be found.

Boulding contrasted this with the ‘spaceship economy,’ in which the resources of a finite planet had to be carefully husbanded if we were to avoid catastrophe. Burning through the planet’s finite supply of fossil fuels risked the combined threat of environmental and thermodynamic collapse.

The 1970s provided the western states with a brief taste of the latter in the form of the 1973-74 oil embargo, which left economies which were far less reliant on oil than we are today scrambling to maintain far more local supply chains. Conservation turned out to be the only viable short-term response – ration fuel, lower speed limits and wear warm clothing to use less energy, impose drive-free days and shorter working weeks, etc. – while there was an all too brief interest in electrification, with France embarking upon a programme to build 107 1GW nuclear power plants (58 were eventually constructed). But new – albeit more expensive – oil from the seabed off Alaska, the Gulf of Mexico and the North Sea appeared to validate the mainstream economists’ claim that the real economy didn’t matter.

The additional ‘cost’ of the new oil really was a problem though… just one that was invisible through the lens of mainstream economics. In financial terms, the energy shock had led to higher prices which, in turn, caused households to rein-in their spending, businesses to fail, and unemployment to rise. So that, the ensuing loss of demand caused oil prices to fall… although not quite to the low levels of the post-war boom. Less obviously though, the energy cost of that new oil was much higher. That is, it required more energy to recover than had been required to recover oil from the continental USA or the Middle East.

This should have been obvious enough. Clearly, driving a pipe a few metres into the ground to break into a pressurised oil deposit uses less energy than investing in the specialised platforms required to drill thousands of metres into a seabed itself thousands of metres below the surface in regions frequently battered by storm force winds and high seas. But to the economists, energy is so abundant that the energy cost could be ignored. After all, dollar for dollar, a litre of oil costs less than a litre of Pepsi. It is, however, the energy return that makes the difference.

One way of thinking about this is that an average barrel of oil provides the energy equivalent of some 4.5 to 5 years of human labour. And yet, until recently, we were paying less than $80 for it. At the median wage in the USA, that works out at around $310,000 returned on each $80 investment… and given the USA’s consumption of more than 20 million barrels a day that’s some $6.2tn worth of work every day.

Of course, these financial equivalents, while they help us to understand the scale of our energy use, cannot be equivalent to the energy cost simply because oil prices are affected by gluts and shortages more than the actual energy investment required to recover energy. Nevertheless, it does provide us with some insight into the scale of our dependence upon the energy we derive from oil (not to mention the many non-fuel oil products that we have come to depend on). And this forces us to consider two related issues. First, geology. Oil is a product of the solar energy contained in fossilised plankton which died in shallow, de-oxygenised seas millions of years ago. Compressed and heated in the Earth’s crust, these were ‘cooked’ into the oil and gas we depend upon today… the biggest deposits of which are in the USA, Mexico and Venezuela, and the crescent running from the Caspian Sea through the Middle East and west across North Africa… the biggest of all being the Ghawar field in Saudi Arabia, which accounts for some six percent of the world’s supply.

Nothing like the Ghawar field – discovered in 1948 – has been found since. More importantly, throughout the twenty-first century we have been consuming some 17 times more oil than we have been discovering. Indeed, ‘peak discovery’ was in the mid-1960s. Which leads us to the second issue facing us, declining energy returns. There is a roughly 40-to-50-year process in conventional oil recovery from the discovery of a field to its production peak. So-called ‘enhanced oil recovery’ techniques can extend the life of a deposit, but struggle to maintain a production peak. So that the global economy has been increasingly reliant on unconventional – i.e., expensive and difficult – recovery techniques (most famously fracking) to prevent a decline in production.

To an economist concerned only with financial transactions, none of this matters because the price of oil is apparently determined by demand. When the USA began fracking its shale deposits in the aftermath of the 2008 crash, they produced a global oil glut which forced the oil price down below $35 (a long way short of the $200 the investors in fracking had hoped for). But to understand the life-sapping problem behind this, we need to view it through the lens of ‘net energy.’

Energy is not just another cheap input to the productive process. It is the lifeforce of the economy. Without energy, nothing happens. And in the eighteenth century, humans began feasting on the geological cooky jar which is fossil fuel… first coal and from the 1860s the more versatile and powerful oil deposits. By the end of World War Two, the USA was producing more than 100 barrels of oil for every barrel of oil equivalent needed to get the stuff out of the ground. This meant that 99 of every 100 barrels was available for non-energy producing economic activity.

In language you and I can understand, people were suddenly able to drive cars, operate washing machines and vacuum cleaners, listen to music on radios and record players, and watch televisions. The consumer society which so many of us have taken for granted was born. Shocks like the 1973 oil embargo, and in the UK the coal miners’ strikes of the same period, gave us an artificial taste of what might happen in the event that net energy began to fall. Notice though, that even when we doubled the energy that had to be invested to get energy, it barely impacted the net energy available to the wider economy. Indeed, even if net energy falls from 100:1 to 10:1 it is still possible to operate a complex global economy. Only when we are obliged to chase hugely expensive resources giving a return of less than 10:1 do we run into problems, because we then hit the net energy cliff beyond which a complex economy can no longer be maintained.

Estimates vary as to where we currently are. Some say that recovering oil from the Canadian tar sands is as low as 2.5:1, while fracking struggles to get above 10:1. But so long as these resources are merely being added to the higher net energy deposits in the Middle East, Kazakhstan and Russia, this is not too much of a problem in the short term (the same goes for non-renewables like wind turbines at 12:1 and solar panels at 5:1). Humanity though, has been operating on a low hanging fruit basis. That is, we began by recovering the cheapest and easiest (in energy terms) oil deposits before moving on to the more expensive and difficult ones. This, in turn, means that the best net energy resources are the ones which have depleted first. This has resulted in a Red Queen process in which we find ourselves investing ever more energy just to maintain the complexity we have created.

This is why the global economy simply cannot afford to lose oil production. In Europe since 2022, the loss of Russian oil and gas has demonstrated the depression and deindustrialisation that follows. But this again, was artificial. A product of sanctions, against which Russia merely sold its oil and gas elsewhere. So that the wider global economy was largely unaffected. The current situation following Trump’s Operation Clusterfuck is very different because, while even the Whitehouse tea lady – along with the rest of the world – could see that Iran would block the Strait of Hormuz, Trump’s neocon warmongers apparently couldn’t. And so, the world is short around a fifth of its flow of oil and gas, along with much else (fertiliser, helium, sulphur, aluminium, etc.) aside. And this is not just any old oil. It is the high net energy stuff. So that, in energy terms the loss to the economy is far greater than 20 percent… a lot of the oil we are now left with is low net energy, and so economic activity will have to decline accordingly.

Not that the economists and politicians understand this. The European Central bank repeated the mistake of 2008 – raising interest rates into a deflationary oil shock. The Bank of England held off a rate cut, and threatened hikes in future. And there is political pressure on the other western banks to add to the looming crash by adding higher debt repayments to businesses and households which are already struggling to make ends meet.

Meanwhile, the politicians, also seeing things through a financial lens, have responded to spiking oil prices with calls to reduce taxes and duties on fuels… apparently unaware that doing so will allow motorists to use up even more of the pre-blockade fuel before the actual shortage arrives. In the UK, this was inevitable given that there are crucial elections in May. And no politician wants to advocate rationing before the votes have been cast. But the logic of global supply chains may force their hands anyway. The last tanker to leave the Gulf for Europe before the Strait of Hormuz closed was unloaded last week. And since the Strait remains closed, Europe must now make do with what little remains in the North Sea along with imports from the USA… far less oil, that is, than Europe needs to avoid widespread shortages.

Nor, of course, is oil the only thing in short supply. Europe’s gas storage is low. And now is the time when the continent ought to be filling up ahead of next winter. Again, the politicians are viewing this as a financial issue, with the UK Treasury, for example, drawing up plans to provide financial support to the neediest households. But again, the problem is of absolute shortages, meaning that industrial users – including gas-fired power stations – will be denied gas, leaving much of Europe and the UK dependent on a handful of ageing nuclear plants and a desperate prayer that the wind keeps blowing.

Fertiliser may prove an even bigger issue. The closure of the Strait of Hurmuz came at just the point when the northern hemisphere should have been importing fertiliser to spread on crops now that the growing season has begun. And once again, the politicians are seeing the problem in financial terms, assuming some repeat of the 2011 Arab Spring, when food was short across North Africa and the Middle East. But this time, Europe – which gave up on food security in 1992 – may not be able to import the food its people need at any price, as, without fertiliser, global food shortages are likely.

The miasmic non-solutions bleated by factions within the political class involve the use of energy that we no longer have so as to deploy resources we can no longer access to somehow lower our reliance on oil and gas from the Gulf. Wind turbines, made with Chinese steel that is no longer being exported are not going to save the day. Not least because we already have massive offshore windfarms which cannot be connected to the Grid because of a lack of copper cable. In any case, it takes decades to build windfarms. The same goes for anyone who thinks we are about to open up new oil and gas drilling on the UK continental shelf. Assuming this is possible at an oil price below $200, we are still talking about a multi-decade, multi-billion-pound investment to access no more than a couple of hundred million barrels of oil.

In reality, as with the artificial shock in October 1973, the only viable responses are rationing and conservation. And this has to be done before shortages begin… i.e., sometime last month. But better late than never. Diesel fuel in particular needs to be rationed in order to hold onto a reserve for the military, emergency services, food deliveries and critical infrastructure. Petrol may be more available but continued rationing by price will mean that the rich go on driving while the poor – including many of the essential workers that keep us alive – will be unable to use their cars and vans.

If mainstream economics had switched to a better map, akin to Boulding’s ‘Spaceship Earth’ and Frederick Soddy’s energy-based economics, our political class might have been prepared to respond to the coming shock appropriately. But schooled in the fantasy that money can buy us anything we want (more or less immediately) they fail to understand that when the energy and food runs out, money becomes worthless.