The Defining Myth of Our Culture

Many people view the word myth as almost synonymous with ‘story’ or ‘fairy-tale’. This sells myth appallingly short, for it is much more that that, a trope that can give meaning and context to a whole culture.

Myths can define a culture, giving a people a shared world-view, a common set of assumptions from which to experience the world. We may sneer and say the myths were wrong, for instance the view that the Earth is at the centre of the universe, requiring byzantine wheels within wheels to explain the movement of the planets in the sky. And yet even such a world-view is good enough to farm successfully, it was good enough for Ptolemy to be able to predict planetary motion reasonably well.

Religion is often a defining myth, indeed Christianity has probably been the defining myth of the West for much of its written history.

We believe, of course, that we are more sophisticated. We don’t need a myth. But we have one

Our myth is continual growth

Like Ptolemy’s geocentricity, it needs to be true enough to explain many observations. From where I’m standing it explains most things. I grew up in a world of coal fires, frost on the inside of windows in winter and pipes that froze up in the cold and vacuum tubes in the radio.

We now have central heating, iPods and a bewildering choice of all sorts of things. That’s growth for you, and pretty much continual growth at that. I’m not complaining, but I don’t think I’ll see another 30 years of it at the same rate.

So the myth of continual growth is a good myth for our times. Our economic system appears to be predicated on it, and until now it has worked pretty well. However, most natural systems have limits, beyond which they won’t go. Draw too much water from a well, and you don’t have any any more.

It is this part of our myth that I think is breaking down. Humanity is continually adding to its numbers, we are consuming more and more energy and we are using more and more mineral resources. At some time this has got to stop increasing. The Club of Rome looked at this in the 1970s, and produced a seminal work, Limits To Growth. People hated it, because it challenged the defining myth of the Western world. Few people that panned it had actually read it, the title pretty much said it all and they wanted none of it.

I borrowed an updated copy from the library recently. It wasn’t as incendiary as I had been led to believe. It said that there were natural limits to growth, in several areas, energy and food growing capability being two of the main ones. It proposed husbanding resources and managing the transition to a steady-state society, with a stable human population growing food in a sustainable way.

The way we grow food at the moment is not sustainable, requiring prodigious amounts of fossil fuel for machinery and fertiliser. It knackers the soil as well, which will seriously spoil our day if we need to farm without the help of oil-derived products. We are just as likely to find out we are running short of oil in terms of price spikes at Tesco’s supermarket as we are to find out at empty petrol pumps.

The updated versions of Limits to Growth make the tart observation that we have collectively failed to take the steps recommended in the 1970s, even though there was a wake-up call in the oil price shock early in that decade.

I think this myth is beginning to fail us. Oil production is flatlining, despite there being over a billion new middle-class aspirants in China and India ready and willing to take up the slack where the economically moribund West is rolling back.

All sorts of other indicators are suspicious, too.

Take university education, for example. When I went to university, only 7% of school-leavers went to university, and many applicants failed. I applied to Cambridge, and though I managed okay on the subject exams (Cambridge tested entrants itself in those days, I don’t know if it is still allowed to do that) I didn’t even understand half the questions on the general studies papers. It was fair enough. I failed because I wasn’t bright enough, though at least I got into Imperial as a second choice.

I have no idea what makes Labour choose the  nutty target of 50% of school-leavers going to university. Why, FFS? University starts to look more like a parking bay for school leavers to hide the fact that the economy isn’t providing useful work for them. The parking fees are outrageous, too, so as a by-product it is damning them to debt so they become pliable debt-slaves.

That is such a rude thing to do as a society to our young people. We pick on them when they are starry-eyed, and sell them an empty dream that costs them over a year’s median wage, and 4% of their allotted time on earth upfront. If we can’t help them because the myth of our culture is failing and our economy is so damaged that it does not have enough middle-class jobs requiring a university degree, then we should let them make their own decision, not sell them this expensive pup at the beginning of their working lives, when they can least afford it.

We should cut those university places by 80% and make the exams discriminate between the bright and the not so bright. Then support those that do get in to university, that means grants, not debts, assuming that we do have a requirement for trained engineers, scientists, historians, medics, etc. We’ll get our cash back in taxes.

The 90% of school-leavers that don’t get in will still get a strategic benefit. Though their precious self-esteem may take a hammering, they won’t be clocking up debts chasing the will’o’the wisp of a graduate career, and it will also put paid to piss-taking employers demanding a degree to work in a call centre or wait on tables. You don’t need a degree to do that. In the past those not going to uni were sometimes supported via employers with vocational qualifications like HNC/Ds, practical apprenticeships or they simply did without and got on with the serious business of earning a living. All these alternatives have been flattened into the one-size-fits-all notion of pay-as-you-go university.

The curious futility of higher education is one indicator of the economy running out of steam. There are others – the bizarre level of house prices in the UK is another. At some point since the 1970s, we had the choice, to work more hours and make more money to buy more Stuff, or to take longer holidays. We went for the more Stuff, and no, I don’t recall being asked which I’d prefer either. Then crazily we went and instead of buying more stuff we decided to all make houses more expensive and tie up most of our national wealth (or tolerate the inflation that appeared to be wealth) in the numbers printed in estate agents. It’s not that we got any richer for it all – the vast majority of British “homeowners” live in houses owned by a bank or building society. So the banks end up making a packet from the interest.

Another example of things going wrong is in the sheer level of consumer crap that abounds. Take this delightful article, for instance, on best toothbrush holders. If that isn’t a sign that we have collectively lost the plot, I don’t know what is. Even the ghastly quality of the industrial design indicates an existential decadence.

So what will the world look like, if the myth of our time turns out not to be true?

In some ways I am living one alternative. As part of my escape plan, I stopped buying nearly all consumer crap. I’ve still got everything I had before, I simply haven’t added to it. What I do spend money on is tools, so I can make things I need cheaper. With that I include safety equipment, because that is investing in my health. I bought a bike, for a safer riding position commuting to work, this is an investment in reducing travel costs that will be recovered by Christmas. I replaced a fridge freezer, becuase I measured the old one as consuming so much power the new one would pay for itself in a year.

And I do celebrate the odd birthday going out for a meal with DGF and we spend a bit too much on wine. I don’t have cable, or Sky, or a mobile phone, or an iPod. I don’t need these – because I don’t watch much TV, work supplies me with a perfectly serviceable mobile and if I want to listen to music I want to hear it properly on my hi-fi, and if I’m on my bike I want to be able to hear the cars about to overtake me, not to mention the birds singing.

That’s not a criticism of any of those things per se. For someone with a boring commute an iPhone can be a godsend, and if sport is your thing you probably have to suck it up and pay the Digger his due. But they’re expensive to run. And they’re part of the myth of our culture; we didn’t need any of them 20 years ago, they are the result of continuous growth.

My story, of course, is a benign alternative to the myth of our time, a simple stasis at current levels. It applies to capital assets, things like buildings and land. It doesn’t apply to continuous inputs, like energy, though I have attacked that with some success. I have reduced my electricity consumption to < 4KWh per day which is less than half the average UK household usage of 3300kWh p.a = 9kWh per day.

This is still deadly unsustainable. One British Standard Horse is good for 746W, so if I get two horses and run them in the living room for two hours, which I think is the longest time you can run a horse flat out, I would be okay, conversion efficiencies notwithstanding. There isn’t enough room in the garden to grow the hay, so I am SOL for sustainable energy *. Half of this goes to running my (A-class efficiency) fridge freezer, so next time you take a look at your fridge-freezer think of that sweat-streaked equine pounding away for two hours each day to keep your milk and frozen peas in good condition if oil runs out. And make sure you close the door properly – get that wrong and you’ll probably kill the poor beast.

Believers in the magical properties of CFL light bulbs should note that I mainly use incandescent bulbs and a LED reading light. A household with adults only does not need to use CFLs, other than in hallways. Energy-efficiency is about hitting the measurable power hogs first. Never underestimate the energy-saving capabilities of the humble light switch set to the off position.

* I know I haven’t taken into account the energy for transportation, heating, the energy to grow food etc etc. There’s only so much apocalyptic exuberance a guy can handle in one day

I hope that the defining myth of our culture continues to explain how the world plays out, despite the increasing world population and apparently limiting oil production. I’m not omniscient, and it is perfectly possible that I am pumping the hazards up out of all proportion. The bearish argument always sounds smarter.

The more likely alternative, IMO, which greenies call Contraction and Convergence will result in a very serious loss of living standards in the developed world which has built much of its living standards on the basis of easily obtainable energy. If and when that energy returns to a little bit above what it was before the Industrial Revolution, the amount of energy per head will be a lot less, because there are so many more of us (about twice as many as since Queen Victoria died in 1901) in the UK than there were before the Industrial Revolution. Technology may help us, at least with electricity to some extent, but a lot of technology depends on cheap energy to mine and refine specialised raw materials. C&C is a hard sell for politicians, it fails the “what’s in it for me?” test. What’s in it for you? How about “Well, a damn sight less than you have got already, chum”.

It is always possible for some people in society to live a more energy-rich lifestyle. In Victorian times it was done with servants and child labour. In the American South, it was done with slaves. What isn’t possible, however, is for everybody to live an energy-rich lifestyle, unless there is an abundant and cheap source of energy like oil.

So here’s a toast to the myth of our age,

continuous growth

May it live long and prosper, and may humanity have the wisdom to know when it is time to get a new myth. We may be smart enough to do anything, but we are probably not powerful enough to do everything.


Post Retirement Needs & Wants are Hard to Envision in Debt Slavery

Chatting to some colleagues, it seems that many have a hard time envisioning living on less that they currently earn. D’oh, what’s so surprising about that you might say? Well, some of these guys are serious savers. Some of them have kids that are soon to transit from being dependents to adults in their own right, some are already empty nesters.

The point is that many are already living on less than they earn, or their outgoings are about to fall. That’s the only way you get to save 🙂

And yet, sometimes discussing how much we’d need after leaving work, their default level is roughly 2/3 of what they currently earn, and few people seem to be able to conceive of living on less.

Now I’m no Jacob of ERE, but here are some of the reasons I will pay less when I stop work than I have done for most of my working life:

No mortgage. For twenty years housing has cost me about the equivalent of five grand in 2010 real terms. No more. Say I spend £1k a year on maintenance. That’s £6k less I need to earn a year (4k difference plus tax and NI)

No need for two cars. With more time I can be flexible, or use taxis, car-sharing systems, hire them if I really must. Saving about £1.5k in all the parasitic costs of owning a car and keeping it on the road. That’s say £2k a year less I have to earn.

No commuting costs. It is easy to end up paying thousands of pounds in commuting costs, and this is not just the cash, but the loss of time every working day. Say another £2k off. This applies less to me because I often bike to work and live closer than most colleagues.

That’s around £10k less that I’d need to earn simply by stopping working. Not having to earn the money to spend on something that’s not fun is always better than having to earn it and buy it. Having one car in the household is a big step up from no car. The second one is only a step up when it covers times where one won’t do.

The mortgage is an anomaly in that is has nothing to do with stopping work. It’s more to do with sucking up 20 years of not spending more than I earn. The house is something I now have, it saves me the need to pay rent, it isn’t inherently work-related.

These are costs saved, but there are other costs that can reduce. With more time, I can do things that previously I’d have had to pay other people to do. On my first house, I replaced the guttering myself. On this one I paid someone to do it because I didn’t have the time, but I could have done it myself and saved money.

All these are steps that move me a little bit out of the money economy. Doing something for yourself is usually cheaper than buying it, because to buy it you have to earn the money and pay tax on it. If I buy £100 worth of spuds from Tesco I have to earn £130 gross to do that. If I grow £100 worth of food from £3 of seeds, I only have to earn £4. I don’t pay tax on value I add myself where I consume it myself – or barter it with others.

There’s a balance here, we don’t have to go all American pioneer and aim for self-sufficiency. As a debt-slave you have to be largely in the money economy. You haven’t got time to to otherwise. As a financially independent individual, you can choose to be less in the money economy – reducing the amount of your effort creamed off as tax.

The money economy can do things for you that you just can’t easily do yourself – I don’t want to keep my own cows and you can’t grow coffee in the UK. You can’t make a PC at home. But let’s face it, you can grow far better tasting veg than money can buy from Tesco, and there are many other things you can do yourself.  If you have the time.

Holidays, a temporary respite from wage-slavery?

Some of the other things colleagues felt were non-negotiable needs were holidays. Some had plans to see all sorts of things on Grand Tours. Obviously they need money for that. Something that has changed over the years is that people pack a lot of expectations into their two week holiday in the sun, almost as if that is a compensation for the grimness of debt slavery. This is almost an addict’s logic – work is awful so I need my break. Needing a break is a symptom, not a solution. Some nutcases even borrow money to buy their holidays, WTF? The summer holiday has almost become totemic – even though some folk even get back to work more stressed than when they were in the office.

Holidays don’t have to be expensive, particularly if you are flexible when you travel. The young usually keep the cost of their holidays down of necessity, and the old do too, both these groups can usually take more time over their travel and aren’t tied to school holidays. Flexibility, and being open to roughing it every so often are the key.

After experiencing Stansted airport in 2007 I came to the conclusion that flying is just not an enjoyable experience for me. The bit in the air is okay, it’s the rest of the package that sucks.  Airports makes me want to kill my fellow humans and yell into their screaming kid’s ears to STFU when they scream into mine. That’s before I have even got off the ground. You get ripped off for the journey to the airport, ripped off to park your car, ripped off to eat or drink anything, hassled by half-wits in security. Why do people pay to do this? Just because the ad says pay £5 to get to the beach doesn’t mean this pain is worth enduring. You get nickel-and-dimed 20 times over in surcharges for the necessities to actually get to use your £5 ticket.

You can pay more to avoid the excesses of the so-called ‘low cost airlines’ but then you find yourself at the whim of striking air traffic controllers/baggage handlers/cabin crew. There are just so many single points of failure in the way of a good experience of air travel. Hopefully increasing fuel prices will drive up the cost of air travel and reduce numbers – I’d much rather fly every third year and have a good experience than twice a year with a rotten experience. About £200 return to Europe air tickets would get numbers down, and hopefully price some of the chavs out of the air too.

I don’t see what the attraction is in paying for this experience, so I haven’t set foot in an airport since then, other than for the occasional work trip. Once my time is my own, I will travel again, but slowly and overland, not in tubular cattle trucks.

So much for holidays. They’re a luxury, not a right, and you don’t get a right to them just because you have a crap job. Modern holidays seem to be almost the anathema of simple living, too. But they’re obviously really really important in some talismanic sense for an awful lot of people, so whoever’s doing the advertising spin must be doing something right.

Power and Heating are the exception

Of course, not everything reduces when you stop working. Heating and power are two obvious areas that will increase. I have hedged some of that with a wood stove and a chain saw and some contacts. Energy costs are a big hazard – my heat and power bill is £800 a year. It is low by UK standards because I have invested in some conservation but mostly because I have aggressively attacked electricity consumption using an Efergy power monitoring system and an appliance meter. That showed me, for instance, that scrapping my fridge-freezer and buying a new one would reach payback in one year, and that where possible I should use my 60W laptop rather than my 210W desktop PC. It is pretty obvious that energy costs are going to go up. You don’t have to be a peak oiler to see that.

The UK has become a net oil importer in recent yearsBritain has become a net importer of oil in recent years, and the aspiring middle classes of China and India are going to be bidding on the same world energy market as we are. Increasing demand running into a fixed supply usually means a price hike. Observe the effect on the price I have paid per kWh of electricity (the dips in Aug 06 and April 08 are artifacts due to the power company screwing up reading my meter, I have smoothed the curve with a 4-point moving average)

Variation in the price I pay per kWh of electricity

Test Your Retirement Budget While Still Working

It seems obvious to me – test out the retirement budget for a couple of years before you plan to retire, particularly if you aim to do it early. Obviously you still do have the inherent work-related costs like commuting, you can reduce the cost of lunch and coffee by taking a packed lunch, or simply qualify that in the budget too. A fantastic side-effect is that you will probably save more money which you might as well put towards retiring early – in my case some of my savings are going towards paying my way in the years before drawing my pension. If you hate having less money more than you hate working, well, the answer is obvious – work longer, at least you will know why!

I don’t find this, and indeed I am saddened by how little extra quality of life I bought with what was a pretty wanton spending on trinkets and gewgaws. There are some things I bought which I still enjoy and treasure – my Canon SLR lenses for both long bird shots and wide-aperture macro shots. I’ve even sold some pictures. I’ll be pushing up daisies before I get to the break-even point, but it’s fun.  My Hi-Fi – one of the key components bought with six month’s salary saved from my very first job, and most of it over 15 years old.

What runs through the Stuff I treasure and use is that it usually was decent quality, it lasts years, and it has low running costs, and often has been serving me well for years.  It often has multiple uses. I also bought a lot of ephemeral junk too, suckered by consumerism, though at least I didn’t get into debt to buy it.

What I found is that Ivan Illich was right when he said

I believe that a desirable future depends on our deliberately choosing a life of action over a life of consumption, on our engendering a lifestyle which will enable us to be spontaneous, independent, yet related to each other, rather than maintaining a lifestyle which only allows to make and unmake, produce and consume – a style of life which is merely a way station on the road to the depletion and pollution of the environment. The future depends more upon our choice of institutions which support a life of action than on our developing new ideologies and technologies. (1973, Tools for Conviviality)

Illich spotted that it is usually our relations with others, not what we have, that lends colour to life – conviviality, who matters more than what, once a certain level of needs is met. He was thinking of it more in the design of society rather than the individual case, indeed it is surprising how much of that early 197os thinking has some resonance to now.

Early in one’s working life the focus usually is on Stuff, because you start with nothing. RetiredSyd seems to make a similar observation that you get more bang for your buck on Stuff when you’re younger. What’s notable about some of those early purchases is that they can be in service for a lifetime – my pots and pans, my hifi, for instance. One big piece of Stuff is the house. Common wisdom has it that you should always stretch yourself when buying a house, on the principle that your leveraged asset is not marked to market and house prices always go up in the long run. I would differ – I live in a house which is cheaper than many of my colleagues on comparable earnings, but I also bought my house outright earlier in life than they will, even after some setbacks. Once you own your house, early retirement becomes much more attractive. In normal times, you could just as well get an investment portfolio that underwrites your rent, but there is an atavistic urge that makes owning the physical entity so much more reassuring than glowing figures on the screen, for me anyway.

So it is that there comes to a curious paradox – towards the end of your working life, hopefully when you are at the peak of your earning power, you can find you have less need for money, and stuff it into savings. You can get trapped on the hamster wheel like some of my colleagues, or you can rationally look at your wants and needs, qualify them, and perhaps get a better quality of life. There’s more to life than work.

There is no brighter future ahead

The Archdruid Report considers this a key prognosis, one that goes against the spirit of our times. We expect tomorrow to be better than today, to be better off than our parents’ generation.

His phrase is based largely on what the material world will be like, as a peak-oiler with a view that the basics of life such as food will be scarce. There is a point that previous generations did not have the same expectations that we have of a better future – their better future was often projected into the afterlife. Human beings need hope, even if mythical.

The Archdruid report is trumped in succinctness, however by David Bloom of HSBC’s currency desk.

If we have a US slowdown with a fresh financial crisis, everybody is going to want to buy the Swiss franc, along with bottled water, tin hats, and a shotgun,”

Now how do I go long on tin hats, I wonder 🙂 Give me CHF now, dammit forget now, yesterday is too late…

Nuts – No NS & I linkers for you lot for the moment

National Savings, they of the horse chestnut logo have decided that they’ve sold enough index linked certificates to the fearful savers of Britain and they’re not doing that any more for a while.

National Savings suspend index-linked certificates July 2010

I liked these. The index linking, to RPI, was great. It’s the government you’re lending to, so they will be the last to fall in a run on banks, which is nice. And they’re tax free, so they are a great place to stash some cash to hold it in real terms, almost risk-free. By the time these become risky you will be able to hear the hoofbeats of the Horsemen of the Apocalypse, and you know you’re going down with ship UK… Presumably this paves the pay for some savings certificates linked to the CPI not the RPI, which as we all know is a true reflection of inflation as real people don’t use fuel or pay housing costs, natch.

The official reason is that NS&I has met its targets for savings this year. The conspiracy theorist in me thinks “yeah, right. What is it that you guys know about forthcoming inflation and government policy that you’re not letting on. As these two guys posted to the Daily Torygraph

The only (risk free) way to protect your savings from inflation being withdrawn. Is this an indication that inflation will rise further still?
Looks like it.

They’re are going to steal everyone’s wealth via inflation, taxes, debt repayments and printing of more funny money. The last train out has just left the station.


Break out the tin hats and the sick-bags people. It’s gonna be a bumpy ride down. Also screws my plans where I am regularly buying the three-year version every month to give me an RPI-hedged income for three years.

Peak Oil, Transition and Depression – how Do You Invest For That?

An interesting take on the financial crisis from Nicole Foss, a.k.a. Stoneleigh from The Automatic Earth.  She gave this talk at the Transition Network Conference in June.

I personally fear inflation ahead, but it’s quite possible that my thinking is elementary and not deep enough if what Nicole is saying is right. As I understand her, she asserts that the enormous increase in credit since 1980 but especially after the dot-com bust has vastly inflated the money supply.

This is not, however, the same mechanism as governments printing money. Up to 2007, it had the same effect, witnessed by the real estate bubbles in the UK and US which is where the extra money went to find a home.

Believing their houses were worth more, people then “used their homes as ATMs” to extract equity, and spend it on foreign holidays, fine living and dancing girls…

That’s fine, as long as they’re on the pre-2007 side of this graph

click to see article on The Automatic Earth

Post 2007 these homeowners are dead men walking. For a start, if you have a mortgage then you are not a homeowner. At least in America, you can walk away from the home and the debt if you are in negative equity. Unlike in the UK, the American ex-“homeowner” may not have a home if he walks away, but he also doesn’t have any debt from the negative equity…

Stoneleigh’s argument is that what is happening is that the credit component of the money supply is being reduced by the destruction of the loans advanced against these ‘assets’ by the borrowers defaulting. This, she expects to cause an environment where cash is king, ferocious unemployment, credit hard to come by, but surprisingly little inflation.

A recording of the talk is available here – it’s about an hour and a half long. It is well presented, the slides are no longer there, but anyone familiar with the concepts will understand it without the slides. I find it reasonably compelling, and an interesting twist. The takeaways from this talk include many PF mantras. Her action plan includes:

  • Eliminate all debt. Your bank may well go bust but your debt then can get sold on to people with thick necks and wide shoulders. Debt is bad in a deflationary environment because it gets bigger in real terms as time goes on.
  • that means mortgages toorent rather than buy if you can’t buy outright
  • beware of future promises, ie pensions, shares and the like. They are unlikely to be honoured due to the suppliers going bankrupt.
  • cash will be king, but don’t hold it in banks, which will be destroyed by the bad debts (again). NS&I Linkers and physical notes in ‘creative places’
  • Gold is not as valuable as it might be in the short term, because people forced selling to buy essentials will drive the price down short-term. Over the long term, >20 years, it will serve as the traditional store of value. That’s physical gold, not ETFs which will be destroyed by counterparty risk.

A summary of the talk from someone who has been to a similar one called A Century of Challenges. TAE has a post that expands on forestalling options.

Stoneleigh’s viewpoint is that we are about six months away from the verge of a Great Depression the like of which has never been seen before.

So what am I doing about it? Well, I own my house, and I have an interest in land, though I have no food producing skills personally. These I have done independently illuminated by my own fears, mainly to hedge against a financial crisis by turning a significant part of my net worth into real stuff.

As for the rest of my net worth, it is in a mixture ofa pension,  ETF’s, investment trusts, linkers and cash in a bank ISA. All of  which, according to Stoneleigh, will be written off to zero in the coming months, with the possible exception of the NS&I linkers. Seems nuts, given that my own fears gel fairly well with hers, and the difference between expected outcomes of inflation and deflation is a technicality which probably reflects her greater understanding of economics.

I do that because the bear case is always more attractive, and it is writ larger on the backdrop of our nightmares, there is an inherent conundrum.

Nobody knows when or where the cross-point will come, when energy supply will be outstripped by demand and we go into something like Stoneleigh’s Long Depression, or the financial and potential societal failure I feared before.

I therefore want to have some exposure accounting for both views, accepting that to hedge some of the unknown I will lose money. I’d much rather this view turned out right, and my shares ISA and pension do the heavy lifting of securing my future, rather than Stoneleigh’s, where I end up possibly digging on the land or patching up generators using wood gas and scavenged car parts from the shattered streets to retain some vestiges of light and communication before they are extiguished for five thousand years in some dark Mad Max/James Kunstler future.

I do find Peak Oil reasonably convincing, from two viewpoints. One is the shape of oil consumption has flatlined

US Energy Consumed has Flatlined

The Oil Drum has more, as to why this is a Limits To Growth sort of thing rather than Americans deciding to turn the A/C down and drive/fly a bit less.

The second reason is, let us assume this were a limit to production but not a decline, China and India’s consumption will grow rapidly and the people aspire to a US lifestyle. Population growth in all these countries will need proportionally more energy to maintain the same lifestyle.

What can you do about peak oil? Not much. What’s great about oil is its remarkable energy density – ever since the first lumps of coal went into Newcomen’s steam engine in Victorian Britain, fossil fuels allowed humans to punch above their weight.  There were 1 billion of us in 1804, and next year we are due for 7 billion. Cheap oil is what has enabled much of that increase, and there is an obvious corollary to that oil becoming scarce.

We have made scientific and intellectual progress since then much of which will serve us still, though the boosters of genetic modification etc are talking out of their hats IMO. That might have worked/be worth the risk in a world flush with cheap energy. Post peak oil the world with become a much larger and much more localised place, unsuited to that sort of centralised control and distribution model. We will be working with soils that have been horrendously damaged by 50 years of external fertiliser input – an input that won’t be there any more.

The Transition Network – an approach to Peak Oil and Climate Change

Although I occasionally drink beer with the Transition Ipswich guys I don’t really get the community angle from a gut feel. Growing up in London probably queered the pitch for me, and having benefitted from a long career in a reasonably good job makes me favour self-reliance over community.

However, I can understand the intellectual basis for a community response, which is more eloquently expressed here. Basically, human beings are social animals with the need to sleep a third of the time. Turning up in a remote area bristling with guns and cans of beans sets up an indefensible high-value position, and you’ll get sick of beans, sleep deprived and jumpy. What kind of a life is that…

Transition does tend to be an awful lot of talking and not enough doing, but it is as good a start on responding to Peak Oil as any.

Why You Shouldn’t Buy a House

I ought to make a declaration up front that I have bought my house and own it outright.  It’s taken me nearly 20 years to get there though, and the world has changed. And obviously it’s not up to me as to whether you should buy a house, I’m just playing devil’s advocate because nearly everything else you’ll read says go for it 🙂

Here are some reasons you might set against buying a house in today’s market:

  1. Houses are overpriced
  2. You need over 9 years of net income to pay it off
  3. In London? Forget it unless you work for the likes of Goldman Sachs
  4. Paying just the interest? You’re renting from the mortgage company, but unlike with a landlord you can’t make it fix the boiler for you.
  5. You may need to move to follow work.

There’s a strong emotional attachment to home ownership in the UK. It may have served us once, but there is much to be said for a model where renting is more widespread in a world where jobs are less secure than they used to be. Let’s take a look at these items –

Houses are overpriced. A mortgage used to be given on an income multiple of 3.5 times gross earnings for a single person, or 2.5 times joint earnings. This income multiple has stood the test of time; if you need to borrow more than that then the houses you’re looking at are overpriced for you. You can:

  • earn more
  • stump up more capital
  • be less ambitious in your house aims (I wanted a detached 3-bed in ’89, I bought a mid-terrace two up two down 🙂 )
  • move to a cheaper area (I left London – couldn’t compete with the über-rich)
  • give up the idea
  • take ridiculous chances with your personal finances and risk losing money and your home.

Housepricecrash has a chart of real house prices varying over time.

House prices in real terms over time

At the moment it looks like this. From the trend line, perhaps they are not as overpriced as they have been for the last 10 years, however, there is a recession on so I wouldn’t bet on a switchback, personally…

I bought in 1989, and had to sweat through the 1990-2001 hole. There’s no fun whatsoever in paying down on a mortgage that is ‘underwater’ and my net worth is down by about £40,000 in 2010 terms from buying at the wrong time. People even warned me that there were specific factors inflating prices but I was too cocky to listen. You never hear from the people that lose money on buying houses. It happens, but people usually keep schtum about it because success has many fathers but failure is a bastard.

I’m an exception to that because I’ve managed to pay off my house, so I can view this from the other side, it doesn’t still trap me in debt-slavery. Buying that first house was what is so far the one most monumental personal finance cock-up of my life. It dwarfs my second worst PF mistake –  endlessly churning my portfolio and then losing my shirt in the dot-com bust. At least I got some excitement out of that, and learned what not to do!

Everybody talks up the Kodak moments about buying a house. Nobody talks about grinding years of looking at your mortgage statement at the end of the year and making an annual capital repayment of about the price of a secondhand car  so you can at least see an end to it in decades hence. This was around the time when they started to tell me my with profits capital repayment vehicle wasn’t going to repay the capital… A bonfire of fresh twenty pound notes every December would have been more fun than that.

You need over 9 years of net income to pay it off. This mortgage calculator shows that at an average 6.5% interest rate you get to pay back twice the amount you borrowed. So if you borrow 3.5 times your gross salary, you get to pay back 7 times your salary back.

The Government relieves you of about a quarter of gross for a typical basic rate taxpayer, leaving you with 75% of it. Kiss goodbye to 9 years of it if you want to pay the mortgage off in 25 years at an average interest rate of 6.5%.

Things that work in your favour here is that your salary may increase in real terms through job switches, promotions etc. Inflation also reduces the real value of the loan, if we manage to stick with the 2% targeted rate of inflation the real average interest rate is 4.5%, provided your salary keeps up with inflation. That means in real terms you get to pay back 1.67 times what you borrowed, which take out nearly eight years of your net salary.

London prices? They kicked me out of the city 20 years ago and are still causing Londoners problems. The problem is that you’re competing with serious money in the Smoke, both UK wealth from the City and foreign wealth too.

Paying just the interest? You’ll never own your home. Not only that, but you have to fix the damn thing if something breaks, and you can’t up sticks and leave it behind (unless you are in America, where apparently you can simply surrender the house to the bank and walk away debt-free). Seems a lose-lose situation, I can’t understand why anybody goes interest-only without having a strategy to pay the capital, other than for a short period of financial stress. As for those nutters that kept on ramping up their mortgages in equity release schemes to go on holiday, well I not sure they should be licensed to drive any financial instruments whatsoever 😉

You may need to move to follow work. Work is much less stable now than it was in our parents’ generation. Globalisation and the associated ‘creative destruction’ churns companies and job roles faster and faster. Buying and selling a house is stressful and costs money in estate agents’ fees, removal costs and stamp duty. Owning a house makes it hard to get on your bike for a new job. That can seriously damage your wealth, and your health if you end up with a long and stressful commute.

The pros of home ownership are often promoted without a hat tip to the darker side. And one fact is inescapable – nobody who has a mortgage owns their own home. They only own their home when they release the dead hand, by paying the last installment and redeeming the loan. Without a strategy to do that, they might be better off renting instead.

ConDems to Final Salary Pensioners: All Your Base Are Belong To Us

In a remarkable piece of retrospective legislation the ConDems not only trashed public sector workers pensions by between 10-25% but they also want to do that to me, and I’ve never worked in the public sector! How? by switching pension indexation from RPI to CPI. A couple of the things RPI contains that CPI doesn’t are fuel and council tax, it’s good to know that these are things I won’t be needing as a pensioner, I guess I can burn the furniture to keep warm and lob burning logs at the Council Tax bailiffs to keep them at bay…

In some ways this would be acceptable if the pension scheme itself proposed this change, in the end there are issues with funding and you have to be pragmatic, 90% of something is better than 100% of sod all. I’m not chuffed at the idea of working another year to save enough to compensate, but in the end we have been living beyond out means in the west for ages so some of this may have to happen. Inflation is likely to rise in future for some of the reasons outlined here: a burgeoning Asian middle class, food price inflation, peak oil and pretty much peak everything if human numbers continue to grow exponentially.

What I really don’t like, however, is the concept of retrospective legislation, ie things that were contractually defined in the past (my pension booklet says benefits linked to RPI subject to a cap) can get undefined, just like that. It makes you question the rule of law in this country. I am of the opinion, backed up by Land Registry records that I own the land my house stands on, but is the Government going to change the rules and appropriate that, along with other items of what I currently believe are my private property.

We need a stable framework to plan our lives, and while laws can be changed going forwards, so that things that were once legal may no longer be so, retrospective legislation sucks, big-time. Particularly in the areas of property – changing what you contractually have so you no longer have it is expropriation. In civilised mature democracies, that is normally only resorted to in times of war.

Perhaps the doomsters are right, and we are travelling towards a situation where you have to hide gold and silver coins into the ground to preserve wealth. The FT sums it up nicely

A hoard of Roman coins found in Frome, Somerset, the second largest found in Britain, is set to shed new light on a previous era of economic crisis and precarious coalition government.

The hoard of 52,500 coins, weighing 160kg, dates back to the third century and the rule of Britain’s “lost emperor”, Carausius.

For what it’s worth, expropriation of property isn’t unknown in times of financial stress. Roosevelt nationalised the privately held part of the US gold stock in the New Deal era.