Tuesday, August 2, 2011

Debt, Deficit, Pensions, Tuition Fees and Other Stuff

The US Government has finally agreed to lift the federal debt ceiling. All over the developed world, the recovery is looking more and more anaemic. Historically, countries have been able to run a deficit in perpetuity on the basis that economic growth would keep the total sovereign debt at a manageable proportion of GDP. Is that about to change?

Note that despite the increasingly pessimistic growth forecasts for western economies, and despite the IEA's release of emergency oil reserves, after a brief dip the (Brent crude) oil price is hovering near the $120/bbl level again.

The big problem with economic growth is that it's linked to increased energy - and therefore oil - consumption. Increased oil consumption will feed through to an increased oil price, which will act as a brake on economic growth. This negative feedback loop that means that economic growth is unsustainable without a major shift towards renewables - that's without considering the imperative of addressing climate change. Meanwhile in China and India, a middle class is developing that aspires to own cars, air conditioners and all manner of energy-consuming appliances, adding to the upward pressure on oil prices.

Meanwhile in the UK, we have a generation of young people who will be entering the world of work with a £80,000 student debt on their shoulders. They'll also be paying top whack for housing. If they do get on the housing ladder it looks unlikely they'll be enjoying the kind of house price growth we've seen over the past couple of decades. Then they'll be supporting an increasing population of older people. On top of all that, they'll have to save for their retirement, and unlike previous generations, their savings won't be growing unless the economy does - which right now it ain't, and it doesn't look like it will for some time.

It may be a message no-one wants to hear, but it seems increasingly likely that we've seen the peak of living standards in this country. We've been on a decade-long consumer binge, running up our private and state credit cards and using up the oil. Now, quite literally, it's payback time - unfortunately the generation who had been drinking champagne all night have left their children with the bar tab.

What has all this musing about economics and the 'jilted generation' got to do with cycling? Well, if we don't 'green' the economy, there won't be any growth. Without growth, fewer and fewer people, particularly of the younger generation, will be able to afford to run cars. If we do 'green' the economy, a switch from private motor transport has to be a part of that process. So either way, cycling being the cheapest and greenest form of transport, has to figure pretty large.

On the face of it, we don't need to invest a penny in cycling. That's the marvellous thing about it - cycling can take place on existing infrastructure that was designed for motor vehicles. However, the danger is that while the current barriers to cycling exist - mainly fear of traffic - people will have to get pretty desperate before they try it. And while people stay in their cars, we'll be stuck with an economy that will function a little worse every year as an escalating oil price eats into disposable incomes, business margins and competetiveness.

That's not to say that cycling is going to save the economy. It's only a small part of a massive program that has to involve energy efficiency, renewable energy, electric vehicles, public transport, a switch from air travel to surface transport, and lots of other shifts. But I suspect that the day the Government finally acknowleges cycling as a transport mode will be the day it finally accepts there's a new economic paradigm and lets go of the idea that we can simply carry on as we did before.


  1. I wonder whether there might be a connection between the plight of young people and a seachange in attitudes to transport, not today but who knows how soon, due to a youth uprising of some sort. You refer to £80k student loans. We know that young people are very angry indeed about the big hike in tuition fees, and lack of grants, which means that they pay dearly for education because their parents got it for free, and are too stingy (as taxpayers) to contribute back for the benefit they gained. My generation (sadly, I have to include myself as one of them) basically stole the family silver and sold it, yong people can see this, and there have been riots as a result.

    Move on to transport, and most young people are priced out of car ownership, not so much by the cost of purchase, which I suspect is softening, or for that matter fuel costs, but mainly because of unaffordable insurance premiums. Whatever the cause, they may take a look and see that their over-indulged parents enjoy benefits which are denied to them but what is worse result in alternatives also being denied to them - crap public transport, streets which are hostile to walking and cycling etc. That could, one day, provoke an even bigger riot. I live in hope.

  2. @PaulM
    "a youth uprising of some sort"
    How extraordinarily prescient of you!
    Got any tips for the Derby?

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