Had a quick review of The Fourth Turning last night – it is still one of the main over view pictures shaping my thinking. Yet I was musing on one aspect of it: the link between the US and the UK. It seems to me that Peak Oil will have very different effects on the two economies, and that the effect of this may be to push the UK much more into the European sphere, rather than the Atlantic.

If oil trebles in price, then, by and large, the price paid in the US trebles, as there is very little tax on it. In contrast, in the UK, there is a very high level of tax. That means two things – a rise in price is much smaller in the UK, and the government has the option of reducing tax (and raising revenue elsewhere) to avoid severe distortions in the economy. So the UK is in a much better state to cope with any price rises from an oil shock, compared to the US.

It also has a more extensive public transport system, especially rail, which will come in useful.

It is also solvent. The US is not. The US is, in fact, in a tremendously weak position financially, and a systemic shock like Peak Oil could cause hyperinflation there, without too much stretching of the imagination (part of the argument of the Leeb book – and I think Leeb was too optimistic).

Hyperinflation destroys the middle classes and provokes extreme government response.
That is very scary.