2052: Looking Ahead to the Next Four Decades

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At the end of the previous post on the moral dimension of economics, I set up a disquieting picture of where current economic thinking and practice are taking the world.  It involves a conundrum:  A determination to expand where there is no space left to do so.  What does that mean for the future?  We should think about that. 

Let’s use the picture as a backdrop for life in the decades ahead.  Here it is again.

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Five groups of economies are trying to expand like balloons at the mouth of a funnel that gets narrower over time as the Earth’s resources and carrying capacity are depleted and diminished.  Soon the collective volume of all these economies fills the funnel, and the individual economies will just have to sort things out.  They will have a variety of choices, such as managed contraction, conflict, cooperation and innovation.  Almost certainly it will be all of these and more. But one thing is clear: it can’t be business as usual when there is no usual to do business in.

That’s the broad-brush reality, but what about specific components that together make up the whole—components like energy use, population, availability of food, climate and weather, governance, settlement patterns, and so on.  In other words, what’s it going to be like living on this planet for the next forty years, and what will a snapshot of 2052 look like?

Those were the questions Jorgen Randers asked himself, and he set out about answering them.  The result is his new book, written as a report to the Club of Rome and entitled 2052: A Global Forecast for the Next Forty Years (2012).  Because the future he describes is mainly an outgrowth of the interaction between economic activity and environmental conditions, it serves as a good transition to where I am going next in this blog.  After discussing Energy and Economics as two drivers of human destiny, I am moving on to consider Ecology as the next factor affecting human life.  So in this post I will use Randers’ forecast as a bridge from Economics to Ecology, as well as a good indicator of the kind of world our grandchildren will be growing up in—unless human choices change things.

Jorgen Randers is well qualified to write about the future.  As a young systems analyst at MIT (the Massachusetts Institute of Technology) in the late 1960s he participated on the team that produced The Limits to Growth (1972), one of the early reports of the Club of Rome.  I have referred to it before in this blog as a controversial (at the time and continuing) report that incurred the wrath and condemnation of mainstream economists because it questioned that the Holy Grail of economic growth could continue indefinitely without incurring serious problems for humanity in the early decades of the 21st century.  Randers, now forty years older, is a professor of climate strategy at the BI Norwegian Business School.  He has been active for many years in influential circles regarding climate, the environment and the future.

Beyond The Limits to Growth

 In the preface to 2052 Randers refers to The Limits to Growth and points out that it was not a forecast, but rather a scenario analysis.  A credible forecast requires scientific rigour using many data points and reasoned comprehensive analysis.  The Limits to Growth project made projections based on the manipulation of key variables using computer simulation.  Randers sums up the output of that early work in this way: “The main conclusion from our exercise in the early 1970s was that, without big changes, humanity was poised to grow dangerously beyond the physical limits of our planet.”  It was an indication of how things are likely to play out—and despite the criticism it received (and continues to receive) from mainstream economists, it has turned out to be uncomfortably accurate.

In his new book Randers says it is his intention to do something entirely different from what he and his associates did in The Limits to Growth.  He says that with the help of others, “I will try to make a forecast of what will happen over the next forty years.”  A forecast makes specific assertions about how things will be at a specified time in the future. A weather forecast, for example, states what the weather will be like tomorrow or for the next few days.  The weather forecasters rarely go much further than that into the future, because things are too unpredictable.  Randers is therefore doing something very ambitious in making a 40 year forecast.  He acknowledges that it can’t be done with high precision because many things can happen that will affect the future.  He claims, however, that his work is a good educated guess, written with the intent to satisfy his own curiosity of what kind of a world he will be living in for the rest of his life, and partly as an attempt to kick society into action to make things turn out better. 

“Personally,” he says, “I am sure I am right, although this cannot be proven.  But neither can I be proven wrong until we are well on our way to 2052.”

So, let’s see what he has to say.

Background

Before giving the details of his forecast, Randers provides some background.  He makes it clear that what he will describe is not what he thinks should happen, but rather what he believes will happen given the choices he thinks humanity will make over the next forty years.  His general assumption is that “humanity will not rise to the occasion” to address such issues as inequity, amelioration of poverty, or preventing the impacts of climate change. “The complex and time-consuming decision making of democratic nation states will ensure that.”

His main focus is sustainability, and he thinks this will become more front and centre in societal thinking as the years roll on, not because of any collective societal conversion to higher values, but rather because of growing awareness of how bad things are getting.  His general conclusion is summed up in this observation: “I believe the transition to sustainability will be only half complete by 2052, and may run into serious difficulties in the second half of the century.  Global society will have to perform a miracle after 2052 if it is to end the century in a desirable situation.”  Not a reassuring outlook for our grandchildren and their children.  What does he look at to come to this conclusion?

Randers believes “that the next forty years will be strongly influenced by how we handle five central issues: capitalism, economic growth, democracy, intergenerational equity, and our relationship with the earth’s climate.”  To analyse the possible interactions among these variables over forty years to create a picture of the most likely global future to 2052 is a daunting task.  Randers summarizes what he did to come up with his best educated guess:

“I tried to handle the richness by calling on the expertise of a number of colleagues.  I tried to handle the dynamics using my old friend, the dynamic simulation model.  And I tried to maintain perspective by exploring new paradigms—by deliberately avoiding being stuck in the current post-World War II paradigm, which imprecisely could be termed ‘happiness via continued economic growth based on fossil fuels’.”

In the remainder of the Background section, Randers gives a brief overview of what he sees playing out in the five areas he has identified as key to the future.  Capitalism will continue to be used to make inappropriate allocation decisions based on markets where price signals don’t reflect environmental realities.  Fixation on economic growth will continue to be seen as the best way to provide people with work, but rates of growth will be much slower than in the past forty years.  Democracy will continue to produce endless debate rather than prompt action on critical issues like climate problems.  The issue of intergenerational equity will come to the fore as more people come to understand that the way they are living is degrading the planet for those who follow them; but even with this realization decisions will still continue to favour the current rather than future generations, which does not augur well for children born in the second half of the century.  Finally, the issue of climate change will prove to be the most troubling for humanity to address in a responsible way, so that the potential for runaway global warming in the second half of the century becomes a serious possibility.

It’s not a reassuring forecast for our grandchildren. But this is only the overview, so we need to look more closely at the specifics to see where there may be potential to do better.  Randers describes his forecast under five headings.

Population and Consumption to 2052

One of the surprising conclusions reached by Randers concerns an issue that has been a concern since the 1960s—a rapidly growing world population that seems unstoppable.  The United Nations has projected a world population of 9 billion by 2050 with a probable continuing increase after that.  Randers concludes differently that “the global population will peak before 2052 (actually ten years earlier), because of a continuing decline in the number of children per woman.  This decline will be only partly compensated by a continuing rise in life expectancy. . . These two trends will cause the global population to reach a maximum of some 8.1 billion people in the 2040s.”

 The stabilizing and beginning decline of world population might be seen as a good thing in a resource-scarce future, but it is a mixed blessing, as most of the people will be living in megacities all over the world and labour productivity will continue to grow, which puts more pressure on the environment.  Productivity growth will be uneven with continuing spectacular growth in countries like China and India and other emerging nations, while the West stagnates and the poorer nations fail to take off at all.

All of this adds up to a world economy that will be twice as big in 2052 as it is today, but much smaller than what many economists expect. (This gets back to the issue of the Earth’s resources funnel shown in the figure at the beginning of this post).  Randers describes it this way: “It’s important to note that my forecast is not based on an assumption that humanity will come to its senses and deliberately try to limit economic activity on earth, in order to protect it from overload.  What I am saying is that humanity will continue to try to create economic growth, but that it won’t succeed as much as desired.”

To illustrate his point about the problematic nature of trying to achieve economic growth in a “full” world, Randers includes an essay by Herman Daly (whose work I covered in Post #15, “Economics: Sustainable Development”) in which Daly says: “I think economic growth has already ended in the sense that the growth that continues is now uneconomic; it costs more than it is worth at the margin and makes us poorer rather than richer.”

One of the ways we will be poorer in the future is that we will throw money at the problems we are causing.  “In other words, society will try to solve the oncoming stream of problems through increased investment.”  We will spend money on adaptation instead of in trying to find a solution.  Randers calls this “forced investment”—repairing damage from extreme weather, spending more on substitutes for scarce resources, replacing ecological services that formerly were free like water from glaciers and fish from the oceans, and so on.  His forecast is that “world society will face an increase of 0% to 6% of GDP in forced investment over the next forty years. . . The sum could easily exceed 10% in the long run in a badly handled future.  And this is what I expect will happen.  Not because it is unavoidable, but because slow decision making will expose us to damage before we obtain the answer from delayed investments in new solutions.”

Energy and CO2 to 2052

Randers forecasts that “in 2052 more than one-half of world energy use will be from fossil fuels.”  And it will be much more costly than it is today.  This is bad news for CO2 emissions as I will discuss shortly.  However, the good news is that Randers expects “that the world’s consumption of fossil fuels will be in steep decline by 2052.  The contribution from nuclear will be declining.  The real winner will be the new renewables—solar, wind and biomass—which, along with hydro, will grow from 8% in 2010 to 37% in 2052.”  In particular, Randers believes that solar will be the power of the future as the costs of providing it go down.

Concerning CO2 emissions from energy, Randers forecasts that they will peak in the 2030s, but in 2052 they will still be a full 40% above global emissions in 1990.  This means that “the world will have lost its chance to keep global warming below the internationally agreed goal of plus 2 degrees C. . . There will be visible climate damage and growing worry about the future.  The world in 2052 will be knee-deep, literally—remember that the oceans will have risen by more than one foot between now and then—in a self-inflicted climate problem. . . The crisis could become catastrophic if self-reinforcing climate change is triggered.  This is a possibility in the latter half of the twenty-first century, when the temperature might go so high that it starts melting the tundra, thereby releasing vast amounts of methane gas that is currently locked in the frozen ground cover.”

The problem of global warming will be complicated by the fact that most people will be migrating to live in cities where they “will seek shelter inside modern city walls, leaving a small rural population to fend for itself against increasingly violent weather and ecosystem change.”

What all this will add up to by 2052, says Randers, is enough awareness that citizens will launch a “tremendous effort” to reduce emissions.  But will it be too little too late?  No one knows for sure.

Food and Footprint to 2052

Turning to the issue of food, the big question as time marches on is, Will we be able to feed ourselves?  Randers says, “Yes—at least until 2052.”  He qualifies this forecast by adding that “there will enough food around to satisfy all of us who can afford to pay,” though, sadly, many will still starve.  Diets will change.  Less red meat for the rich.  Less fish from the oceans.  But enough grain and chicken.

But what will be our ecological footprint as we strive to feed ourselves and try to do all of the other things we will still try to do?  We have already overshot the carrying capacity of the Earth and eventually our descendants will have to come to grips with this reality.  Randers points out that “there are only two ways out of overshoot: managed decline [reduction would be a better word—less pejorative] or natural collapse.”  Of course, we are trying to avoid the latter, but not doing nearly enough to implement the former.  In the process we will move to live mostly in cities, where we will do better at recycling and be more energy efficient, but overall the picture for the biosphere is bleak.

Randers includes an essay by ecologist Stephen Harding entitled “Nature Limited to Parks.” Harding’s assessment of human assault on the natural world is severe: “The list of atrocities that our culture has perpetrated on the living world makes for chilling reading.  We could have eliminated a quarter of all of the organisms on the Earth by 2052. . . the destruction and fragmentation of habitats. . . will have laid waste to all of the world’s wild places. . . Virtually the whole biosphere is being uprooted in unprecedented ways.”

On that sobering note, Randers turns from describing the physical future to what he calls the nonmaterial future.

The Nonmaterial Future to 2052

Randers begins this section of his report by saying that the results of his work on forecasting the physical future surprised him.  “I expected to uncover a bleak, even catastrophic future, ending in some kind of environmental collapse before the middle of the twenty-first century.”  Instead, he found a world that was still trucking along, though with a lot of unevenness and difficulty, and with a potential to spiral into decline after 2052 because of the real possibility of self-reinforcing climate change.

The section on the nonmaterial future does not add a lot to the picture.  Randers sees that a smaller world GDP than expected will push less harshly against global limits; that political decision making will still be focused on the short term; that economies will still continue to discount the future (“It is cheaper to push the world over the cliff than to try to save it.”); that as conditions worsen there will be more state intervention with mixed results; that there will be forced redistribution from the rich to the poor; that unemployment will be a major problem as economies contract creating the need for more social benefits and therefore higher taxes on those fortunate enough to have a job; that people will have access to more knowledge from an omnipresent Internet, but their ability to agree will not necessarily improve; that many of the charms of the life we know today will become increasingly scarce; that on the whole people will be healthy with good access to medical care; that the military will be used less to fight wars and more to repair the damage of climate change.

The last observation about the role of the military leads Randers to render a piece of pop-philosophy, that the “enemy picture” will shift from those we disagree with to what we have collectively caused, namely, human-made climate change.  “It will be a shift from being someone else to being our collective selves.  To quote a poster from the first Earth Day in 1970: ‘We have met the enemy, and he is us’.”

The Zeitgeist in 2052

Randers rounds out his forecast by reflecting on what all of the change he anticipates over the next forty years will mean for the spirit of 2052—the zeitgeist.  There will be deep impacts on the world’s cultures, its political systems, and the general frame of mind—all of which will add up to a profound shift of mood and outlook.

One of the driving concepts at the end of the 20th century and into the early 21st was the idea of globalization and “flattening” of the world where there would be few differences across national borders.  But the failure of nations to agree on cutting greenhouse gas emissions and on the liberalization of service flows across borders, leads Randers to conclude that globalization will wane over the coming decades.

This trend will reflect what will become a growing preoccupation within the rich world—how to manage inevitable de-growth.  Forward thinking regions within some nations “will try to build regional resilience in the face of global economic unrest and dwindling access to cheap energy.  And to do so, they will organize systems that rely on local food, local energy, and programs that strengthen regional and local economies.”

The central shift in thinking will be away from the conviction of the last forty years that economic growth is the way to a successful society.  Current evidence within the developed world is already showing more growth is not the answer.  This leads Randers to reflect that “over time there will emerge an ever louder critical chorus arguing that continued growth is not sustainable and must be replaced with  a new goal for society. . . Other voices in the chorus will . . . argue that continued growth is not desirable, even if possible, because never-ending materialism won’t lead to true life satisfaction.”

These are the voices of what Randers calls the “sustainability crowd.”  Today they are “still a tiny minority, and the paradigm shift is probably several decades in the future. . . But by 2052, the new paradigm—‘sustainable well-being based on renewable energy’—will be exerting increasing influence on policy making.”

How this will come about, who will lead—the rich democratic nations or more authoritarian states like China—is not clear.  Perhaps the always-on Internet and its capability to foster collective thinking will lead to a spirit of “collaborative ventures” and a zeitgeist of “harnessing the wisdom of the crowd” across boundaries of nation states and ideology towards a world in which collective well-being of humanity will be seen to outweigh the selfish individualism of our own time.

With this shift in thinking Randers speculates that “thinking people will become increasingly concerned with what type of world they are leaving for future generations. . . It will become obvious that the current generation is adding problems to the shoulders of the next generation that far exceed the power of the new tools, which are also part of their inheritance.”  On this point, so close to the spirit of this blog, Randers gives the last word to John Elkington, a British environmentalist:

“[I]t seems a sure fire certainty that future wars will ensure we have a World Court of the Generations by 2052, where governments, companies, and other actors are arraigned and prosecuted for ecocide and gross damage to the interests of future generations.” 

“I hope he is right,” says Randers.

Conclusion

The possible future that Randers describes in his forecast has a high probability of unfolding much along the lines he has described.  However, there are a number of critical factors not included in his deliberations, which could change things dramatically.  One is the possibility that governing authorities will make changes to the monetary system along the lines described in posts #20 to #24 on this blog.  If this were to happen within the next two decades, 2052 could look considerably different, as sustainability choices are made, in contrast to choices for economic growth, sooner rather than later.

Another possibility not explored by Randers is that human capability for enhanced decision making will be greatly expanded over coming decades.  Authors like Ray Kurzweil [How to Create a Mind: The Secrets of Human Thought Revealed (2012)] are already predicting the simulation of a non-biological human brain by 2023 with the potential to augment human learning by many orders of magnitude in following decades.  Under the threat of deteriorating physical and cultural conditions on the planet, leaders can potentially emerge who will use such enhanced powers for human learning to advance the sustainability agenda decades faster than it might otherwise occur.

Randers said that one of his reasons for producing his forecast for 2052 was to kick start humanity into taking action to avoid the undesirable features he has described.  Hopefully, this will turn out to be the most important contributions of his forecast.  He certainly holds out hope that this will be so.  In a brief closing comment he says as much:

“There is only one more thing for me to say: Please help make my forecast wrong.  Together we could create a much better world.”

We might all say “Amen” to that. 

In fact, by expressing such sentiment in 2012, Randers is tapping into a huge worldwide movement currently underway in a kind of parallel universe to the mainstream political-economic-industrial universe.  In this movement, millions are expressing heartfelt desire to give birth to a new human consciousness that would value connection and well-being over wealth and power.  If this swells in strength, it could provide a different momentum than what Randers fears will actually be the case.

As we proceed to further considerations in upcoming posts, we will assess the likelihood that a different zeitgeist might indeed take hold much sooner than Randers anticipates.  We can use his forecast for 2052 as a projection we are seriously trying to surpass in sustainable well-being, rather than as an inevitable outcome of our current mismanagement of human activity on the planet.

 

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Economics: The Moral Dimension

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In writing about economics as one of five key factors that are determining what our grandchildren can expect in their future, I have focused on conceptual failures in traditional economics that together have put global civilization on a non-sustainable path.  We have looked at the consequences of following the illogical notion that economies can expand forever along an exponential growth curve.  We have examined the difference between growth as quantitative expansion and development as qualitative improvement.  We have seen that sustainable development needs to be guided by the concept of prosperity rather than economic growth.  And finally, we have examined the flaws in the money system that drive people into behaviour that keeps adding to the problem of non-sustainability.

Throughout, I have argued that all of the conceptual errors can be corrected and replaced with new guiding principles that would serve humanity much better.  Many people are writing about this, and the evidence is mounting that we are now into critical times for making necessary changes.  Yet, at the end of the day the changes in these core conceptual failures are not made.  So we must ask—why?  Do our leaders just have an unconscious death wish for themselves and society?  Or is there another dimension to the problem that we have not considered?

The answer, I believe, is yes.  There is another dimension.  It’s as old as human society.  It has been present as an influencing factor since the beginning of tribal relationships.  It goes by various labels, such as values, ethics, morals or principles.  It is what we can call the moral dimension of human relationships.

In this post I will introduce several new books that speak to this moral dimension in different ways—in some cases explicitly by calling it for what it is, and describing the consequences of ignoring it; in other cases implicitly, by describing behaviour that is a self-interested response to conditions caused by ignoring the moral dimension.

Critique from an Unlikely Source

In the first camp comes a book from an unlikely source given its topic—the moral failure of Western style capitalism.  The book is Realeconomik: The Hidden Cause of the Great Recession (And How to Avert the Next One) (2011).  The author is not a moral critic from the West but rather a Russian politician and economist, Grigory Yavlinsky.  He is currently a professor of economics at the Higher School of Economics at the National Research Institute in Moscow.  As deputy prime minister of Russia in 1990, he wrote the first Russian economic program for transition to a free-market economy.

In his 2011 critique Yavlinsky’s focus is on the financial crisis of 2007-2009 and the period he calls the Great Recession of the early 21st century.  The central idea of his book is that the crisis was caused (and continues) because “at the core, modern capitalism is concerned with money and power, not ideals, morals or principles.”  He uses the word “Realeconomik” as a pejorative term in the world of economics to describe behaviour grounded in cynicism, coercion and amorality—just as the term “Realpolitik” is used to describe such behaviour in the world of politics.

Yavlinsky says that “the underlying premise of this book is that the nature of the Great Recession is not only economic.”  It goes deeper, he says, to issues of individual and social values, moral guidance and laxity in public control that developed over several decades since the 1950s.  His premise is that “there exists a code of simple and well-known, almost universal, informal rules of behaviour.”  Neglect of these rules in the world of politics and business leads to serious deficiencies in how the economic sector operates.  His impulse to write his book and share his concerns stems not only from his research, “but also from the daily experiences of mixing with people who consider the relation of politics and business to morality an issue unworthy of serious consideration.”  With such people in charge and exerting powerful influence over the fortunes of countless millions of others, we indeed need to be concerned and pay attention to an insider’s perspectives of what is going on and what can be done to change it.

Yavlinsky makes it clear that he is using the word morality, “not in the simple sense of personal moral qualities or ethical standards, but rather in the sense of the guiding principles by which a society as a whole is governed. . . One person’s personal greed poses little threat to a culture, but a society or government ruled by greed, which privileges self-interest as a natural and universal phenomenon, is the focus of my concern.”

The Underlying Causes of the Financial Crisis

In addressing the 2007-2009 financial crisis specifically, Yavlinsky asserts that there were underlying causes that enabled the specific aberrations that brought about the far-reaching impacts on economies around the world.  He cites these underlying causes as “complacency, self-deception, disregard for public interests, and in many cases open deceit and fraud on the part of both market players and regulators.”  His point is that “the recession was largely brought about by irresponsible actions on the part of those entrusted to keep the financial sector in order.”

The larger question we must ask ourselves is, What is going on in our Western capitalistic societies that would allow such large scale moral laxity to be entrenched not only in the financial sector itself, but also in those whose role it is to regulate the sector?

Yavlinsky addresses this larger question when he says that “the challenges for an economy arise not from individual vices or weaknesses, which are natural and eternal, but from public attitudes and reactions which may channel individual behaviour into completely different directions.”  The fact that moral failure is still not considered the essential cause of the widespread shocks to modern capitalism is an indication that society at large is prepared “to tolerate incompetence, negligence of duty, and outright deceit.”  This is the issue that troubles Yavlinsky most—and should trouble all of us—because it signals that lessons have not been learned and guarantees a repeat performance some time in the future.  The urgent need is for public outrage and a demand for repudiation of Realeconomik that is now endemic in capitalist society.

Yavlinsky argues that Realeconomik represents a dismissal of the Protestant work ethic that brought in the industrial revolution by promoting “work, care, frugality in consumption and honesty in dealings.”  The fundamental principles on which successful economies operated were “individual honesty, self-discipline, recognition of labor as the highest value, consideration of the collective and public interest, concern for other individuals, and the promotion of thrift and work for the good of future generations.”  In contrast to these principles Realeconomik represents “behavioral influences we term vices, which unfailingly include, irrespective of the specific cultural background, falsehood, greed, hypocrisy, deceit, indolence, and an unabashed passion for consumption.”

That these kinds of failures are now endemic is indicated, according to Yavlinsky, by the fact that the governing authorities were unable to control the downturn in 2007-2009 in a timely way.  They failed “to react to the evident increase in risks and problems threatening the economy, which had been observed for a long time preceding the acute phase of the financial crisis.”  Such failure, says Yavlinsky, was incomprehensible and points “to a failure of morality [rather] than to a shortage of data or professionalism in those responsible for preventing imbalances and promoting stability.”  He goes on to say that “the degree of complacency displayed by regulators in the years preceding the crisis suggested that public attitudes towards their activities had become too lax reflecting at least in part a general moral laxity in the society characteristic of a post-Cold War relaxation of self-discipline in the West.”  The general tenor of the time was reflected in comments like, “After all, everyone was doing it” and “We’ll fix it later!”

Yavlinsky’s final point is as penetrating as it is sobering: “There is a serious problem with the moral attitude of society if that society has become tolerant of frauds and crooks who perceive the thrust of social isolation as nothing more than empty words.”  The very foundation of democracy is threatened as citizens become increasingly indifferent to what is going on all around them.  We are already seeing this in the West as people become less engaged in the political process.  Yavlinsky’s warnings and call to action are clear:

“The next five years will require a more rigorous re-examination of economics and capitalism than we have seen in the past thirty years.  But ethical policy combined with independent professional expertise could counteract cynicism and restore the values of Western civilization as the driving force of economic and social development.  It is the best, the safest investment we can make in our future.”

But What If the Moral Crisis Is Even More Deeply Rooted?

Grigory Yavlinsky is one voice raising a cry against moral laxity in the body economic and politic. He is by no means alone, and compared to some his critique is mild.  In America, Chris Hedges is one who sees his home country sliding into inescapable economic, political and moral collapse.

In his 2009 lament for his nation, Empire of Illusion, Hedges asserts that “the cult of self” that dominates the cultural landscape in America is a deep rooted source of malaise.  Acquiring fame and wealth are seen as the highest values, and, once there, how you made it is irrelevant.  “It is this perverted ethic,” says Hedges, “that gave us Wall Street bankers and investment houses that wilfully trashed the nation’s economy, stole money from tens of millions of small shareholders who had bought stock in these corporations for retirement or college.  The heads of these corporations, like the winners on a reality television program who lied and manipulated others to succeed, walked away with hundreds of millions of dollars in bonuses and compensation.”

Hedges, who is a Pulitzer Prize winning author and widely respected columnist, sees in America “a populace deprived of the ability to separate lies from truth, that has become heritage to the fictional semblance of reality put forth by pseudo-events.”  In short, Americans are living in illusion and ignoring the signs of impending disaster.  “Blind faith in illusion is our culture’s secular version of being born again.  These illusions assure us that happiness and success is our birthright.”

The happiness and success Hedges is talking about are intrinsically connected to a dominant role on the world stage for America, but Hedges does not see any reason why Americans should believe they can recover from their current slide into a pale semblance of what their country once represented to the world.   He is no admirer of those who should be the best hope for the future—the leaders.  “Our elites—the ones in Congress, the ones on Wall Street, and the ones being produced at prestigious universities and business schools—do not have the capacity to fix our financial mess.  Indeed, they will make it worse.  They have no concept, thanks to the education they have received, of how to replace a failed system with a new one.”

In his criticism, Hedges delivers a polemic that echoes several of the themes I have raised in earlier posts, but in much stronger language: “Our collapse is more than an economic and political collapse.  It is a crisis of faith.  The capitalist ideology of unlimited growth has failed. It did not take into account the massive depletion of the world’s resources, from fossil fuels to clean water, to fish stocks, to soil erosion, as well as over-population, global warming, and climate change.”  His list of failures of current capitalism goes on and on: “huge unregulated flows of capital,” “stock and housing and financial bubbles,” “unchecked greed,” “empowerment of an oligarchic class,” “impoverishment of workers,” “unrestrained credit binges”—all “consequences of a failed ideology [that] conspire to bring us down. . . We let the market rule.  Now we are paying for it.”

Sadly, Hedges sees no reason to hope that government can step up to the challenges it faces: “The government—the only institution citizens have that is big enough and powerful enough to protect their rights—is becoming weaker, more anemic, and increasingly unable to help the mass of Americans who are embarking on a period of deprivation and suffering unseen in the country since the 1930s.”

Is there any reason for Americans to be hopeful?  Not much, according to Hedges, if by hope one means recovering what once was.  “The earth is strewn with the ruins of powerful civilizations that decayed. . . They all, at a certain point, were taken over by a bankrupt and corrupt elite. . . These empires died morally.”  The clear implication from Hedges’ book is that America is on the way to join them.

In what seems like a token acknowledgement of something to believe in, Hedges introduces in the last three pages of his book an ill-defined concept of love as the quality that will endure as America goes through its inevitable contraction and pain: “Love constantly rises up to remind a wayward society of what is real and what is illusion.  Love will endure, even if it appears darkness has swallowed us all, to triumph over the wreckage that remains.”

A Better World Is Possible

Well, after all that, one might ask if there is not something more positive to believe in.  Bruce Nixon asserts there is.  In A Better World Is Possible: What Needs to Be Done and How We Can Make It Happen (2011) he pulls no punches on how serious the problems are that humanity faces, but then offers inspirational advice on how to make things better.

“What has happened over recent decades is an outrage,” says Nixon. “Yet we allowed it.  Change rarely comes from within a system.  It comes from outside.  That has to be us.  The two key arguments of this book are: The whole global system has to be transformed to serve everyone, everywhere.  We, ordinary people, need to turn our anger into effective action to bring about radical change. . . There are alternatives to this unsustainable, unjust system fueled by debt money and war.  We could be at the beginning of a new age in which we cherish the Earth’s resources and diversity, an age of sustainability, fairness, economic justice and peace. . . We certainly cannot leave it to the politicians.  It depends on every one of us, 7 billion people using our power. . . All of us have to get involved in politics. The purpose of this book is to help create the mass movement to prevent catastrophic climate change, save our planet Earth, create a sustainable and just global economic system, and put an end to war.”

Nixon clearly lays the blame for the world’s slide into a non-sustainable decline at the doorstep of a failed system of economics.  Quoting Joseph Stiglitz from an article in Vanity Fair in January 2009, he says: “The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and the role of government should be minimal.”  From there Nixon outlines most of the other problems and solutions that have been described in previous posts in this blog.

But his unwavering message to his readers is to get involved—get involved in bringing in a paradigm shift that will reform democracy, end the destruction of the ecosystem, embrace prosperity without growth, and “create a new identity for ourselves, not based on power and wealth but living well and being stewards and servant leaders.”

The key strategies he advocates are to act locally to strengthen communities and not allow local governments to destroy neighbourhoods; and to act globally by lobbying government and global institutions and corporations and insist they change.  People have to self-organize and engage in massive education and awareness-raising about the priority issues facing all of humanity.  Be strategic, he urges, and focus on the issues you are most passionate about where you believe you can make the biggest difference.

A Range of Perspectives

So far in this post about the moral dimension in economics we have ranged over wide territory.  We began with Yavlinsky’s focused criticism of moral laxity in the general population in the West that has allowed financial operatives and those who regulate them to abuse their powers at great cost to everyone except themselves.  We heard Chris Hedges lament about America’s decline in the grip of illusions that lead them to believe that somehow former glory will return while the populace does little to face up to the hard truths about what is at the root of their problems.  And we have heard Bruce Nixon’s call for a populist resurgence of people power, energized by a moral certainly that a better world is possible by pursuing principles of fairness and justice and recognition of the need to live within environmental limits.

A Shrinking Global Pie

However, in the world in which we now live and in which our grandchildren will have to make their way as best they can, context is everything.  And the context is that there is a shrinking global pie to meet all the aspirations reaching for it.  How this is managed in the years ahead will pose the greatest of moral challenges, and underlines the importance of coming to grips with the issues raised by the authors reviewed above.

Two new books speak directly to the reality of a finite resource base to meet the demands of the world’s nations in the 21st century.  One is Dambisa Moyo’s provocative title, Winner Take All: China’s Race for Resources and What It Means for the Rest of the World (2012).  The second is by Fred Pearce: The Land Grabbers: The New Fight over Who Owns the Earth (2012).

Moyo describes how China is positioning itself for coming resource shortages by purchases and agreements around the world so that it will be able to continue its drive for economic growth, which is transforming the lives of hundreds of millions of its people from abject poverty to economic standards that rival the West.  Moyo asserts that of all the world’s great powers China is the only one that “has focused its economic and political strategy on anticipating the considerable challenges presented by a resource-scarce future.”  So Winner Take All, as well as describing China’s initiative in this matter, is also “a clarion call to the rest of the world, which remains highly ill prepared for the challenges of resource scarcity and the evolving dynamics around China’s central role.”

In the second book, Fred Pearce describes how the world as a whole is proceeding in a kind of “wild west” fashion to grab for resources: “Soaring grain prices and fears about future food supplies are triggering a global land grab.  Gulf sheiks, Chinese state corporations, Wall Street speculators, Russian oligarchs, Indian microchip billionaires, doomsday fatalists, Midwestern missionaries, and City of London hedge-fund slickers are scouring the globe for cheap land to feed their people, their bottom lines, or their consciences.  Chunks of land the size of small countries are exchanging hands for a song. . . It’s not all bad, but it all merits attention.  And that is the purpose of this book.”

Pearce asserts that the “land grabbing” has mostly to do with the ambitions of agribusiness for industrial-scale farming.  On the moral side, he asserts that we should “be angered by the appalling injustice of people having their ancestral land pulled from beneath their feet.”  He goes on to say that “over the next few decades I believe land grabbing will matter more to more of the planet’s people, even than climate change.  The new land rush looks increasingly like a final enclosure of the world’s wild places, a last roundup on the global commons.”

Both Moyo and Pearce see the next few decades as critical for the world’s peoples and their leaders to come to terms with how they are going to live together on a resource-scarce planet.  Moral laxity and the “cult of self” will in no way measure up to this challenge.  I will leave the last word on this matter to Moyo: “We find ourselves on earth at a unique time with the extraordinary challenge of managing and navigating the headwinds of commodity shortages that the world faces over the next two decades.  At present we are ill prepared to contend with this eventuality, yet the challenges we face go beyond our living standards to the survival of the planet as we know it.  This fight is about life or death.”

Competing Priorities

Just how hard it’s going to be for the world’s nations to find their way through a world of competing priorities is illustrated by one last book I will reference in this post.  Paul Krugman is a prestigious American economist, winner of the 2008 Nobel Prize in Economics.  He is passionately concerned about the stagnant economy of his country, just outside the technical definition of recession, and in other ways gripped by human depression—depression of spirit as much as anything else.  In a tone of desperate appeal to American leadership Krugman published earlier this year (2012) a small book called End This Depression Now.

Krugman sees as “a moral imperative” the need to enact policies that would address the persistent high unemployment rate in America since 2008.  “Tens of millions of our fellow citizens are suffering vast hardship, the future prospects of today’s young people are being eroded with each passing month—and all of it is unnecessary.”

It is unnecessary, Krugman believes, because the policy solutions are widely available: It’s time “to step on the gas pedal, not take our foot off it.”  Pour in billions of dollars of government stimulus to get things moving and not worry about the ballooning US debt.  “We won’t even have to pay off the debt; all we’ll have to do is pay enough of the interest on the debt so that the debt grows significantly more slowly than the economy.”

The thinking behind this line of economic reasoning is all too obvious and conventional: Everything will be fine as long as you keep expanding the economy—and when you’re talking about the American economy, that’s one big expansion.

But here’s the rub.  The Earth’s resources are finite.  The point about the two previous books I reviewed, Winner Take All and TheLand Grabbers, is that nations are already running into resource shortages and are jockeying for positions in a resource-scarce future, with China being the most proactive for its own self-interest.  What makes anyone think these huge nations can expand their economies indefinitely in a finite world that is already in overshoot in terms of meeting human activity?

Imagine this.  The great American economy cranked up again, running full bore along with China’s surging growth and the economic drive of Brazil, Russia, India, South Africa and other emerging economies, with the older industrialized economies of Europe, Australia, Canada, etc. trying not to fall behind, while the rest of the world strives to do the best it can—all seeking to expand into the open end of the Earth’s resource funnel that gets narrower and narrower the further we go into the future.  Business as usual because no country can figure out how to do it differently, even though everyone who thinks about it knows the situation is impossible and not sustainable.

Take a look at this picture.

The Funnel of Changed Expectations

I show the reality of what I am talking about in the following illustration.006

The economies of the world’s nations are shown as five balloons at the mouth of a funnel that represents the earth’s capacity to absorb the increasing human activity on the planet. The five groups are the ones I mentioned above: the USA; China; OECD (Organization forEconomic Development) countries (less the USA) like Europe, Canada, Australia, etc.; BRISE  (Brazil, Russia, India, South Africa and other emerging economies); and ROW (the rest of the world).  The mantra of leadership in all of these nations is the same: the need to continuously expand the economy by using energy and resources so that people are employed and the material standard of living is either maintained (if already at a high level) or improved (if at a lower level).

The illustration shows what happens as we go forward over the next forty years from 2012 to 2052.  As all of these economies seek to go through various iterations of expansion, things begin to get very crowded in the funnel as we go into the future.  The economies increasingly bump into each other and a lot of squeezing becomes the order of the day. 

Here we have entered the era of changed expectations as it becomes very evident to all that old theories of economic growth don’t work in a full world.  Remember that capitalism was invented in the 18th century when the world was essentially empty.  Not so in the 21st century.  How our grandchildren will manage in a world of such changed expectations needs to be at the forefront of thinking now.  Don’t you think if you saw yourself heading full speed at a brick wall you would take your foot off the accelerator and turn the steering wheel?  Winner take all, land grabbing, and reckless attempts to spend the way forward will only make a bad collision inevitable.  Moral laxity about greed and corruption and the pursuit of one’s own self-interest will be certain recipes for human misery.

The moral dimension for how to live well in a crowded multi-everything world is of utmost importance.  We must strive to ensure that voices for sanity, restraint, empathy, and cooperation can be raised loud enough to be heard so that the noblest, worthiest aspects of human potential can be realized.  This, surely, is the highest possible goal for which to strive.

The End of Economics

On that note I come to the end of my summary of Economics as a driving force of human destiny.  It has not been an easy journey, and we are left with the inescapable conclusion that fundamental reform is not only necessary, but will be forced on all of us by the physical constraints that lie ahead.

How comfortable a new reality is going to be will depend very much on how well we prepare for it.  What factors we must consider and what strategies will serve us best will be foremost in mind as I move on to the other three Es of human destiny: Ecology, Empathy and Enterprise.

 I look forward to sharing the continuing journey with you.

 

 

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Economics: Creating A Monetary Ecosystem

009

Reform of the money system is without question one of the most complex and difficult undertakings facing humanity.  If it were just technically complicated, we could be hopeful that human ingenuity would find a solution.  However, it is also politically difficult (some would say impossible) because of all of the vested interests aligned against meaningful reform.

In the last post I described the approach favoured by James Robertson and others who think like him, namely, for the government to take back the responsibility for control of the money supply, making it illegal for the private banks to do what they now do by creating new money out of thin air and putting it into circulation as debt.  Robertson is hopeful that the winds are blowing in this direction, particularly in the United Kingdom.  In the USA a similar proposal has been presented to Congress by Congressman Dennis Kucinich as the American Monetary Act, an equivalent of the Chicago Plan, mentioned in the last post as a1930s proposal to make the creation of bank-debt money illegal.  I am not aware that Kucinich’s proposal has much traction, but it is an indication of some interest in this topic in the US.

A Different Approach

In this post I come back to a different approach as favoured in the Club of Rome report (discussed in Post #22, “Economics: Seeking Optimal Balance”) because of its identification of lack of resilience or diversity as the key problem that needs to be addressed.  This approach favours the creation of a monetary ecosystem.  “If the objective is to create diversity,” say the authors of the report, “the most logical step is not to get rid of the one large-scale system already in place.  The logical focus should be on innovative, non-financial incentive systems that can function in parallel and complement current financial incentives based on bank-debt money.”

As we go into this discussion, let us not forget that the overriding objective is to bring human activity on Earth into a sustainable relationship with the natural world on which all life depends.  The current relationship is non-sustainable.  It can probably continue for another 40 or 50 years, but things will get progressively worse as economies continue to expand, and as we draw down the Earth’s resources and increase the likelihood that crucial ecosystems will begin to fail, and the effects of climate change overwhelm the potential for human progress.  Sadly, the timeline for this scenario falls within the lifetimes of today’s youngest grandchildren, not to mention those who come after them.

You will recall that the authors of the Club of Rome report identified the money system that drives human affairs as a prime contributor to non-sustainability.  Their chart showing the necessity for an optimal balance between efficiency pulling in one direction and resilience pulling in the opposite direction is repeated below.

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Their argument is that the money system is already outside the window of viability in the direction of too much emphasis on efficiency at the expense of resilience, and it needs to be reformed to increase resilience through increased diversity in how we manage financial transactions.  For this reason they propose the widespread development of what they call “innovative, non-financial incentive systems” to operate in parallel with the existing money system based on bank-debt money.

Obviously, the issue of scale immediately comes to mind in considering this approach.  Given the almost total dependence of modern economics on the current monetary system, how could alternatives at the margins have significant impact?  This is precisely James Robertson’s point—they won’t have much impact; hence the need for government to step in and take control of the money supply before everything falls apart.

In defence of their point of view the authors of the Club of Rome report point to “the explosive growth of NGOs that number over a million organizations worldwide. . . More significant than their sheer numbers is the qualitative shift from being simple observers and critics to being actors implementing innovative policies.”  Part of the action that NGOs could take would be to implement alternative ways for people to engage in transactions that don’t require the use of conventional money.

A Monetery Ecosystem

The Club of Rome report notes that there are already thousands of such schemes operating around the world, but they tend to be small scale.  However, the authors give examples of five non-governmental systems that are capable of being scaled up and that can deliver a significant societal benefit.  I will describe three of these examples.

Doraland: Creating a “Learning Country”

Doraland is a system that has been proposed to help Lithuania, the first of three small Baltic States that became independent from the Soviet Union in 1990, to become “A Learning Country” by stimulating grass-roots educational initiatives.  “It would be best implemented,” according to the Club of Rome report, “by NGOs, organized around a new Learning Foundation.” 

The idea is that an individual could earn “Dora currency” by providing teaching activities, in say conversational English or computer skills, and the “Doras” could be exchanged for an educational experience that the individual would choose to pursue—even outside of Lithuania.  The Learning Foundation would create and provide the Doras while other NGOs could get involved in organizing the learning activities.  The Dora could be tracked using mobile phone technology, and another NGO could be set up to independently audit the earning and exchange of the Doras.

“This Dora learning-economy is intended to operate in parallel with the conventional monetary system.  We are, therefore, witnessing the beginning of an exchange media ecosystem. . . Doraland is an example of a complementary system that encourages non-spontaneous but desirable behaviour patterns.”

The process starts with a citizen’s dream project for learning, then Doraland makes a contract with him or her to help realize his or her dream in return for a certain amount of Doras earned through teaching activities.  “Non-profit organizations would play the same role in the Dora economy as corporations do in the conventional currency world: organize, motivate and audit the relevant activities.”

Wellness Tokens: Overcoming Market Failures in the Health Care System

This second example of an alternative currency approach addresses the problem that health care costs are rising while little progress is made on preventing the development of chronic diseases that drive the costs.  A Wellness Token system is proposed to counteract this specific market failure.

“Wellness Tokens would be issued by a Wellness Alliance to induce healthy habits.  The members of the Wellness Alliance would be those organizations that have a financial interest in keeping the population healthy (e.g., insurance companies, local government and local employers).  One of the purposes of the Wellness Tokens would be to generate changes in habits towards health promotion and disease prevention by encouraging healthy behaviours and emphasizing preventive health care.”

The idea is that people would earn Wellness Tokens by engaging in healthy behaviour.  They could then use the Tokens in a number of ways including paying part of their insurance premiums with them or purchasing goods and services related to prevention or health promotion from providers pre-qualified by the Wellness Alliance.  The businesses accepting the Wellness Tokens could use them to start their own wellness program or cash them in for conventional currency through the Wellness Alliance.

This approach ensures that the “cash flow” remains within health-promoting goods and services.  “We believe this is crucial when it comes to introducing diversity,” say the authors of the Club of Rome report: “The Wellness Token system allows a durable preventive health sector to develop in a parallel economy. . . This approach would also allow long-term cost reduction for insurance companies, and for governments subsidizing them.  The Wellness Token program provides positive encouragement—rather than punitive threats—for individuals to acquire healthy habits.”

C3: “Commercial Credit Circuits” for Small and Medium Sized Enterprises

The third example of a non-governmental system using an alternative to conventional money is called “C3: Commercial Credit Circuits.”  This system was developed in the Netherlands by the Social Trade Organization (STRO), a Dutch Research and Development NGO.  The model has been successful in several Latin American countries.

The C3 is a “business-to-business” approach to aid small businesses that might have cash-flow difficulties because of the refusal of conventional banks to offer them credit.  If the small businesses collapse, particularly in times of financial crisis, people are thrown out of work and social tension increases.  This approach provides a way for the businesses to help themselves.

The basic idea is that a small business (A) that has made a sale to a larger enterprise (B) can use the invoice it issued to B to obtain “clearing funds” from a clearing network, with which it can then pay its supplier, another small business (C).  This allows the two small businesses to continue to operate while A is waiting for B to pay its invoice.  When the invoice is paid by B in the national currency, the money is deposited in the clearing network.  Many small businesses can participate in the clearing network, and in this way an alternative local economy begins to operate in parallel with the regular economy. 

There are many benefits from such a system.  The community benefits from maintaining high employment in a successful local economy.  Banks benefit because they can supply services to the clearing network.  If many regional economies like this operate successfully throughout the nation, the national economy benefits from high employment, which ensures a tax flow to provide government services.

Examples of Government Initiatives

Having described several examples of non-governmental systems of alternatives to using conventional money, the Club of Rome report cites four examples of governmental initiatives.  This is the second half of a “solutions menu.”  It is important because “the full potential of a monetary ecosystem will manifest itself only when governments and government bodies throw their weight behind the process.”  I will describe one of the initiatives.

Civics: Funding Social, Cultural or Civic Activities

This example can be applied at the level of a city, region or country.  It provides an alternative approach to implementing a plan to achieve some kind of social benefit, such as to become a green city, or to support cultural activities.  The conventional way for a government to do this is to provide the necessary funds by raising taxes or borrowing the money and incurring debt.

The alternative way is for the government, e.g., a city, to require residents to make an annual “Civics” contribution.  “A civic is an electronic unit issued by the city that is earned by residents through activities that contribute to the city’s publicly agreed upon aim.  The unit of account could be one hour of time, valued at the same rate for everyone.  For example, if the aim of the city is to be more green, the activities could include growing food on terraces or rooftops, or taking responsibility for plants and trees in the neighbourhood and parks, or training people in city-based horticulture, and so on.  Non-profits would play a key role in the Civics economy by organizing the associated activities and verifying the quality and quantity of the work performed.”

The first objective of the Civics program is to fund the labour component of desirable civic projects.  This is often the largest component of the budget.  It also gives opportunities to build a stronger sense of community.

The way the system works is for the city to issue Civics to reward specific measurable civic activities.  Payments could be in the form of paper tokens or of electronic units tracked by mobile phone.  The city would set a fixed exchange rate between the civic and the national currency, e.g., one civic equals one dollar.  Residents could exchange Civics for national currency on free-market principles.  A local online market (like E Bay) could be set up to facilitate such exchanges and assure transferency and trust.

More importantly, however, the Civics would be accepted by the issuing government in lieu of taxes.  If an annual tax of, say, $1000 can be replaced with 10 hours of Civic activity per household, anyone earning less than $100 per hour should be interested.in joining the system.  If people wanted to earn more Civics than they need for their annual contribution, they could sell them on the market to buyers who might want to pay for the Civics in the national currency or as an exchange for any good or service acceptable to the other party.

While there are many details to be worked out, the Civics system has substantial benefits.  The government benefits by generating an abundance of civic activities with minimal financial cost.  Non-profits benefit by gaining access to their own valuable currency, and by stimulating volunteer activities through issuing the complementary currency as a reward.  Citizens benefit from enjoying a flourishing community and a better quality of life.

Solving the Money Problem

The authors of the Club of Rome report foresee greater resiliency in the money system if the examples they describe were to become widespread around the world.  They believe if they had been in place before the 2007-2008 financial crisis, people and governments now in serious financial difficulty would be a lot better off,

The approach favoured by the Club of Rome report hinges on the concept of replacing conventional money with credit clearing systems using some kind of token with an established value.  A comprehensive explanation of why this is the best approach to reform is provided by Thomas Greco in The End of Money and the Future of Civilization (2009).  Greco believes that “solving ‘the money problem’ is a fundamental necessity in solving the other critical problems facing civilization.”  The question is, how best to do that?

In addressing that question Greco makes a distinction between those he calls “reformers” and others he calls “transformers.”  The goal of the former is to reform money and banking through political means.  James Robertson from the United Kingdom, whose approach was reviewed in detail in Post #23, “Fixing the Broken System,” and Dennis Kucinich in the USA, who has introduced the American Monetary Act into Congress, would fall into this camp.  Greco does not favour the reform approach because he argues that “the fundamental problem with the present political money system is the monopolization of credit money per se, and not who happens to be the owners of that monopoly.”  He argues that “governments cannot be trusted with the money power,” and that because of the collusion between governments and the elite of the financial world, “the political approach would seem to have little chance of solving anything.”

“What we really need government to do,” says Greco, “is not to take control of the money monopoly, but to end it.” (Emphasis added).  That, essentially, is the goal of “transformers”—those who seek to transcend money by private initiative and the creative application of new technologies and methods.  This is the approach Greco argues for.  It is consistent with the approach recommended by the Club of Rome report, but goes further.  Greco foresees a future where there would seem to be little role for national currencies.

He is realistic enough to note that “while we may not be able to do much in the short-run to change the legal privilege of political currencies or bank-created credit money, we can reduce our dependence upon them.  The way to do that is by taking control of our own credit and organizing independent means for allocating it directly to those individuals and businesses that we trust and wish to support.” (Emphasis added).

Greco asserts that while independent credit-based exchange alternatives are still in the early stages of development, we can compare the situation to the state of development of aviation in the early part of the twentieth century.  Just as manned powered flight was achieved by first understanding the underlying principles, so “we now have adequate understanding of the principles to design exchange mechanisms that are sound, effective and economical—but more importantly that are honest, fair and empowering.  And thanks to the new computerized telecommunications technologies, we now have the tools and the infrastructure that are necessary to easily implement these designs. . . Equitable and efficient exchange mechanisms, free from political manipulation, will become the norm.  These will include both private and public community currencies, business-to-business trade exchanges, and mutual credit clearing circles. . As local credit clearing associations proliferate, they will inevitably be networked together into federations that will span the globe, providing exchange media that are locally controlled yet globally useful.”

Are you beginning to catch Greco’s vision?  What he is talking about is “cashless payment based upon direct credit-clearing among buyers and sellers . . . a revolutionary innovation in reciprocal exchange that might be compared in importance to the invention of the printing press, which empowered masses of people by making literature widely and cheaply available and freeing them from dependence upon scribes and scholars. . . The principles of credit and exchange are now better understood; as they are more effectively applied . . . the tremendous possibilities will become generally apparent, sufficient amounts of resources will be allocated to their further development and implementation, and the world will be forever changed.”

In his book Greco goes into considerable detail about how the mechanism he is describing would work in practice.  He gives examples of systems based on these principles that have been successful, in particular the Swiss WIR Bank and the Argentine “credito” currencies that were issued by the so-called trueque clubs (trading clubs) from the mid-1990s onwards.  He argues that groups and organizations can promote healthy, sustainable local economies by organizing regional mutual credit clearing associations as the centrepiece of a comprehensive program.

“Just as a modern jet aircraft bears little resemblance to the Wright brothers’ first airplane,” says Greco, “so too are the more optimized exchange structures proposed in this book unlike any community currency, LETS [Local Exchange Trading Systems], or commercial ‘barter’ exchange with which people might be familiar.  Based on the principles we have outlined, it is now possible to engineer and build exchange systems to carry heavy economic loads within local bioregions and to operate them according to sound business principles.”

Greco is talking about transforming the entire financial system within a people-powered framework that destroys the monopoly of elites by denying them the power to control our destiny.  Ultimately it derives from a value system that says we are all in this together and we must take personal responsibility to engage in voluntary cooperation and organization using the new communication technologies now available to us.

In Conclusion

In conclusion what might we say about prospects for reform of the money system?  I would agree with all of the writers reviewed over several posts in this blog that without addressing this issue we will have little likelihood of success in achieving the other major changes needed to bring civilization onto a sustainable trajectory.  The current money system is driving humanity to behave in selfish, competitive, consumptive ways that will continue to degrade the planet and limit the prospects for our grandchildren and those who follow them.  I am inclined to think that the best prospects for the future will come if we, the people, push both for institutional reform from government and for creative initiatives at the local level to put new systems in place.  In other words, push on both fronts—the reform plan to get government to take more responsibility, and the transformational plan to put local exchange systems in place.

To turn a dismal scenario around we need to embrace the mindset of one who recognizes a problem and derives life satisfaction  from addressing it and making progress in the company of committed others.  In an earlier work of fiction I called such people “Visioneers”—pioneers of the future.  But we are not engaged in fiction here.  It is the real thing, and we must lift ourselves to the task before us.

I will leave the last word on this topic to David Korten in his Agenda for a New Economy (2009): “We can find hope in the fact that the institutional and cultural transformation required to avert economic, environmental, and social collapse is the same as the transformation required to unleash the positive creative potential of the human consciousness and create the world of which humans have dreamed for millennia.  We are privileged to live at the most exciting moment of creative opportunity in the whole of human experience.  Now is the hour.  We have the power to turn this world around for the sake of ourselves and our children.  We are the ones we have been waiting for.”

 

 

 

 

 

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Economics: Fixing a Broken System

008 The last several posts have discussed the need to reform the money system.  The 2012 report from the EU Chapter of the Club of Rome entitled Money and Sustainability: The Missing Link made it clear that we have no chance of building a sustainable global civilization without monetary reform, because the current money system has insufficient resiliency and is certain to lead to economic collapse around the world as those in charge repeatedly make matters worse by reinforcing the systemic flaws in the system.

 Thomas Greco in The End of Money and the Future of Civilization (2009) issues the same warning when he says: “It appears that the fate of the world, and everyone in it, is now to be determined [unless something changes] by a very small group of individuals who have the power to decide for all of us without consulting any of us.”  He goes on to say that “most of our political, economic and religious leaders seem to be taking us in the wrong direction,” but that we still have some “wiggle room” to engage in dissent.  He sees that “civilization is at a critical juncture where circumstances require that each of us take greater responsibility—not only for ourselves and our close communities, but also for the common good.”

 Of course, interpreting how to act in support of the common good has always been a problem for human societies.  No doubt most of the “very small group of individuals” who Thomas Greco believes are leading us into perdition would claim they are acting in the common good as they manage things to ensure their own self-interest is not unduly compromised. 

 The other prominent reformist whose work I have been referencing, James Robertson, comes at it from another angle: the need to fix a broken system.

 The Broken System

 “Impartial visitors from another planet,” says Robertson, “would stand aghast at how we create and manage our national money supply.  You can imagine them saying to one another: ‘These people must be absolutely crazy!’  To us they might say, more tactfully, ‘We wouldn’t start from here, if we were you’.” 

 “If we were now starting from scratch to arrange how money should be supplied to a democratic society,” Robertson goes on to say, “nobody in their right mind would dream of setting it up as it is right now.”  What they would not dream of doing is creating the money supply by giving private banks the authority to create money out of thin air and put it in their customers’ bank accounts as a loan on which they are obliged to pay interest.  In this way roughly 97% of the money circulating in the economy passes into the bank accounts of other customers as we use the original loans to do our business, all the while paying interest to the bank as we also repay the capital.

 “When customers repay their loans to their banks, the banks write off the money and return it to the nothing from which they had originally created it.  But the money that has been paid on it as interest remains in existence as the property of the banks.  This makes it continually necessary for enough money to be lent into existence to replace both what was originally lent but has now been written off plus what has gone into the banks as interest on it.  Otherwise there will not be enough money in circulation to support the non-financial activities of the economy.”

 The long and the short of it is that the economy must grow continually and the economy must continually expand (economic growth) to keep up.  Moreover, because this arrangement requires people and businesses to continually take out loans from the bank, it automatically causes rising indebtedness in societies.

 “You don’t have to be the proverbial rocket scientist—or even a professional economist or statistician,” says Robertson, “ to figure out who, apart from the banks themselves, will benefit most from increasing indebtedness in society and who will suffer most. In general, those who benefit most will be people and businesses with enough spare money to lend or invest it and get back more money for doing so.  Those who suffer most will be those who have to borrow money at interest, and so pay more in order to meet the needs of themselves and their families.  In short, the present way of providing the money supply systematically works to increase poverty and widen the gap between rich and poor.”

 Robertson then goes on to point out that in addition to creating economic and social inequality, the current system, because it requires growth in debt and growth in economic production, “has the general effect of making us earn our living by extracting and wasting more of the Earth’s resources than would otherwise be needed.”

 Robertson makes a final point about the problem of allowing the banks to be the prime source of money creation.  This essentially allows the banks to decide how the money they create will be used on its first entry into circulation, which leads to problems like excessive lending for speculative purposes (like land and buildings), and ignoring projects that have a high long-term value to society (like preventive health and public services).  

 Fixing the Broken System

 Not surprisingly, given his concerns about the private banks’ role in creating money and putting it into circulation, Robertson’s first recommendation on how to fix the broken system is to take that role away from the banks and put it somewhere else.  He says the need to do so has become even more urgent following the worldwide financial crisis of 2007-2009, as indebtedness increases and the banks become richer and richer from all of the interest paid on the debts.  In addition, central banks, like the Bank of England in the UK, the Federal Reserve Bank in the USA, and the European Central Bank in the Eurozone, continue to pour massive amounts of money into commercial banks in the process that has become known as “quantitative easing.”  The hope is that the banks will relend that money out, but that has all the problems already described above.

 Enough already, says Robertson.  Don’t put that new money into the banks, but put it directly into circulation in the real economy, for example via a Citizen’s Income. (More on that later).

 The key point to understand about Robertson’s approach to reform is that all countries with national currencies (and the Eurozone in Europe) have national banks whose role in the financial system has been diminished to issuing banknotes and coins and providing regulatory functions, while the overwhelmingly large component of the supply of public money is provided by the private banks in the form of bank-account money mainly held and transmitted electronically.

 Governments should transfer to these nationalized central banks, says Robertson, the responsibility for creating almost the entirety of the money supply. “Having created the money, the central bank will give it to the government to spend it into circulation on public purposes under standard and democratic budgetary procedures.  The second part of the reform would prohibit anyone else, including commercial banks, from creating bank-account money out of thin air, just as forging metal coins and counterfeiting banknotes are criminal offences.”

 Essentially, what Robertson is recommending is nationalization of the money supply—and I can already sense the blood pressure rising of readers who have less than a stellar view of the ability of governments to undertake such a mission.  However, Robertson asserts that this would merely treat banks like all other private businesses without giving them a free gift of unlimited potential to make money off private citizens and businesses.  “Anyone who genuinely accepts the virtues of a free market economy subject to rules fairly laid down and enforced by democratic governments in the public interest, should support it,” says Robertson.  Moreover, taxpayers would get a break because the money previously created by the commercial banks as debt would now be created by the central bank free of debt and added to public revenue, “either to reduce otherwise necessary taxes or to be spent into circulation on public purposes.”

 Robertson goes on to discuss, mainly from the context of the UK, details involved in the kind of transition he is proposing.  He concludes with the issues that have become so publicly sensitive in the aftermath of the 2007-2009 crisis, namely that some banks are “too big to fail” and have to be bailed out by government (and taxpayers) while the bankers give themselves huge bonuses.  Robertson asserts that his recommendations would “remove our self-inflicted dependence on big banks” and would “liberate us to develop a more democratic, decentralized money system.”

 “The obvious way to reduce our public and private debts is to stop having all our money created as debt,” says Robertson.  “It’s a ‘no-brainer.’ So why don’t we get them to stop it?”

 A Comprehensive Approach to Monetary Reform

 James Robertson’s approach to monetary reform entails a comprehensive rethinking, not only of the way money is created and put into circulation as described above, but also how money should be collected by government as taxes, and finally how money might be paid directly to citizens as a “Citizen’s Income” in order to keep the economy running without the booms and busts that are part and parcel of the current financial system.

 I do not have space here to render an adequate summary of Robertson’s proposals, and I encourage readers who want to know more to read his book Future Money: Breakdown or Breakthrough. (Bibliographical details appear on the References page of this blog).  In the following paragraphs I will briefly summarize the main features of what he is proposing.

 I have already covered Robertson’s proposal for nationalization of the money supply.  Now I will turn to taxation.  With regard to taxes, his main point is that they should be reduced and eventually abolished on value-added, incomes and profits, which penalize useful work and enterprise.  In their place taxes or charges should be placed on things and activities that subtract value from common resources.  In particular, he would tax land values that drive up the price of housing and fuel speculative activity that adds no real benefit to people in the real economy.  In addition, he would tax the use or right to use other common (mainly environmental) resources and take into account the capacity of the environment to absorb pollution and waste.

A Citizen’s Income

 Not the least controversial aspect of Robertson’s proposal is to introduce a Citizen’s Income—“a tax-free income paid to every man, woman and child as a right of citizenship.  The additional costs will be met by reducing the costs of interest on government debt, of perverse subsidies [to farming and agricultural sectors, and to fossil-fuel extraction and other ecologically damaging activities], of contracting out the provision of public infrastructural services to the commercial business and financial sector, and of public sector inefficiency and waste.”

 The idea of a citizen’s income has been around for a long time.  I know that work was done on the concept in the USA and Canada in the 1960s under the label of a “guaranteed annual income,” and I am sure it has an equally long history in Europe.  As far as I know, no country has as yet embraced the idea, but perhaps with the increasing need now for monetary reform, the timing might be right.  Robertson certainly thinks so and sums it up succinctly:

 “The controversial assumption has been that there is no way of funding a Citizen’s Income except by taxing people’s other incomes highly, and it might have to be at a rate as high as 70%.  For many years that has been seen as ruling out a Citizen’s Income.  Like many other objections to otherwise desirable proposals, the assumption is due to inability or unwillingness to think outside a narrow box.

 “There is actually no problem.  The extra money needed on top of what is now spent on the pensions, allowances, benefits, tax reliefs and tax credits that a citizen’s Income will replace can easily be found from within the three sources above—new revenue from monetary reform, taxing values subtracted from common resources, and savings from existing spending.”

International Monetary Reform

 Having described how the money system should be reformed at the national level, Robertson devotes a chapter of his book to international monetary reform, making the point that “we face the threat of a combined collapse of the interconnected ecological systems on which human civilization and our economic and social systems depend. . . [so] we must reform the whole money system that generates the money values that motivate us all to live in the ways we now do.”  In sum, what this means “is that we need to develop the way the money system works at the international level to provide us with a genuinely international currency [not the US dollar, which is a national currency masquerading as an international currency] and to introduce efficient systems of international taxation and public spending—and we should do so as a matter of urgency.”

Local Money Systems and Community Currencies

 For Robertson reforms of the money system would not be complete without the re-invigoration of local currencies that would exist in parallel with the national currency.  This is the approach to reform most favoured by the Club of Rome report referred to earlier and by Thomas Greco, the other major writer on this topic that I am reviewing.  I will deal in detail with their approaches in the next post.

 While Robertson is a strong advocate for local currencies, he makes the point that until “national reforms [along the lines he has described] are carried through, the scope for enlarging the role of the local economy and local currencies will inevitably be limited.  Once that stifling force is removed, local people will be able to direct their energies more freely to promote local people-centred, green development, and with more enthusiastic support from their local government agencies than is possible under existing conditions.

 “In short, the dominating power of big money must be reduced in order to liberate the essential role of local economies and local money in people-centred conserving development.”

 For Robertson and other reformers who think like him, big business, big money and big government impose a huge burden of ecological, social and economic costs on society.  In particular, they create a system that virtually guarantees cyclical high rates of unemployment as busts increasingly become more common than booms and people become victims in a system over which they have no control.

 “The problem of unemployment,” says Robertson, “will probably only be resolved when that top-down approach is seen as complementary—and subservient—to the aim of encouraging increasing numbers of self-motivated people to undertake worthwhile paid or unpaid work for themselves.”  This comment needs to be understood in conjunction with what he has argued earlier for a Citizen’s Income that would provide a base from which work is carried out.

 To understand the scope of the reforms that Robertson is advocating you have to see them within a framework rather different from what we are presently accustomed to.  He makes this clear with respect to work when he goes on to say: “The transition to a society based on ownwork rather than conventional employment will include more self-employment, job-sharing, part-time work, work in small businesses, local co-operatives, community enterprises, and so on.  Local governments should be persuaded to remove whatever obstacles they now impose on those and give them what encouragement they can.”

 Robertson’s final thought clearly expresses a value system of cooperative responsibility: “The people of the world really are all in this together—most of us, anyway.  We will need to adjust our minds to greater freedom to control the nature of our work, our family life, our leisure and the balance between them—and to the greater social responsibility that will come with it.  If we do that, most of us will almost certainly be able to provide ourselves and our families and neighbours with better opportunities for a good quality of life than if we don’t.”

Conclusion

 In this post I have summarized the approach advocated by James Robertson’s to reform of the money system.  He has been working on these issues without a lot to show for it for a very long time in his native country, the United Kingdom; but he now seems more optimistic than ever that things are going to change in the direction he is proposing of a nationalized money system.  His optimism comes mainly from his conviction that things are now deteriorating so rapidly on the economic front that governments will be forced to act.  He alludes in several places in his book that the British Prime Minister, David Cameron, is sympathetic to this way of thinking.

 In his Newsletter of October 2012 Robertson sounds almost ecstatic that “a conspiracy of silence” to not discuss monetary reform in the public media is breaking down (at least in Britain) as he cites articles from the Daily Telegraph and the Financial Times.  Most significantly, he refers to an August 2012 report from the International Monetary Fund (IMF) that “provides dynamite of the most constructive kind.”  The article is entitled “The Chicago Plan Revisited” referring to a proposal on monetary reform that goes back to the 1930s at the height of the Great Depression, which recommended that private banks should not be allowed to issue loans unless they were backed 100% by the banks’ own reserves.  This is called 100% reserve backing.  It would essentially prohibit, as Robertson recommends, private banks from creating money out of thin air in the form of debt placed in a customer’s account.  The IMF research supports the benefits of this kind of reform, and though it does not represent IMF policy, Robertson is heartened that this kind of discussion is now surfacing in such prestigious economic circles.

 But other reformers are not as convinced as Robertson that the government should take over the control of the money supply, because it would be replacing one monopoly with another, when what we really need is an ecology of alternative currencies running in parallel with the national currency. 

 We shall consider this approach in detail in the next post.

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Economics: Seeking Optimal Balance

In the previous post I drew heavily on the Report of the Club of Rome EU Chapter entitled Money and Sustainability: The Missing Link (2012) to point out that industrial civilization is defying a law of nature by using excessive quantities of energy that continuously create new conditions on the planet to which we must continuously adapt or perish.  Adaptation is becoming increasingly difficult and problematic as the rate of change accelerates.  We are seeing the problems in such phenomena as the melting of sea ice, loss of species, depletion of oil reserves and other natural resources, intercultural conflict, and increasing social and economic inequality

Humanity is now literally evolving its presence on Earth, and the evolution process is being driven by the ideas or “memes” that we carry around in our brains.  If a meme works against our ability to adapt, we are in serious trouble, unless we change that meme.  The authors of the Club of Rome report assert that one of our most problematic and defective memes working against our survival is the belief that a monoculture of money in the form of individual national currencies is the only way to operate a money system.  The reason that this meme is a serious problem for humanity is that it constitutes a structural flaw in the money system causing repeated financial crises as well as aberrant speculative behaviour that distorts the operation of the whole money system.

Equally serious is the fact that because money is created and put into circulation mostly as debt on which interest is charged by banks, people are forced to work to pay off debt and therefore continuously expand the economy.  This puts a priority on the need for on-going economic growth, which, collectively as a global phenomenon, is consuming the resource base of the planet. There is clear evidence that worldwide industrial activity has put global civilization into overshoot (we are drawing down natural capital faster than it can be replenished) such that in the lifetimes of our grandchildren they can expect serious environmental, economic, social and cultural breakdown—unless we change the defective memes that are getting us into trouble.

In this post we will continue to explore systemic problems with the money system with a view to identifying the best alternatives that might be put in place.  In order to do so, it is important to recognize that there is yet another issue to understand about how the current operation of the money system guarantees that society will move further and further into unstable territory unless reforms are introduced.  It requires us to develop a new understanding about what is meant by sustainability.

A New Definition of Sustainability

The Club of Rome report presents a synthesis of new research on “complex flow networks,” which looks at how nature is able to maintain ecological sustainability while human systems, in particular the economic system, are manifestly unsustainable.

The reason is that sustainability is a balance between a pull towards efficiency, on the one hand, and a pull towards resilience, on the other hand.  What does this mean?  Let me explain.

Efficiency is the process of streamlining operations so that you try to get the best outcome for a given amount of input.  However, it can get you into trouble if, in the process of increasing efficiency you weaken your resilience, that is, your ability to bounce back or recover from adversity.  Resilience in a system is increased by having greater diversity, that is, more ways of doing things, “numerous channels of interaction to fall back on in times of trouble or change.”  Efficiency, on the other hand, is increased by following a single path.

The point is that efficiency and resilience are both necessary, but they pull in opposite directions.  Nature selects those systems that have the optimal balance of the two.  That is why you don’t see monocultures in nature.  Natural systems operate on having a lot of diversity so that if things go wrong for a plant species or animal species through something like a fire or prolonged drought, the natural system as a whole has a way of recovering.

Now let’s apply this insight to human-created monetary systems.  First, it helps to have a visual perspective of what we are talking about.  The Club of Rome report provides this useful picture.

 The figure shows the sustainability curve mapped between efficiency pulling in one direction and resiliency pulling in the opposite direction. In nature, resilience is given more importance than efficiency so the curve is steeper on the resilience side of the graph. Sustainability reaches an optimum point (near 100%) when there is a balance between high resilience and moderate efficiency.  When you go beyond that optimum point, sustainability drops off as efficiency increases.

This phenomenon is summed up by Paul Hawken in Blessed Unrest (2007):  “Life tends to optimize, rather than maximize.  Maximization is another word for addiction.”  Unfortunately, as I remember one of my economics professors telling me in university, human beings tend to be maximizers.  That is why we are continually getting into trouble with nature.  In relation to the graph, what this means is that too much resilience means low sustainability because nature needs a certain amount of efficiency in its operations to be sustainable.  On the other hand, too much efficiency lowers sustainability because the system breaks down from shocks from which it can’t easily recover.  This is where the human economic system continually finds itself.

The Club of Rome authors point out that there is a “window of viability” around the optimum point on the graph in which viable systems operate.  This is shown in the chart below.

 So what do we learn from all of this?  “The main point is that nature does not select for maximum efficiency, but for an optimal balance between the two opposing poles of throughput efficiency and resilience. In other words, sustainability requires just enough, and not too much, of both efficiency and resilience.  In most human designed systems, and certainly in the monetary domain, we have been concerned only with efficiency, and have therefore tended to unduly sacrifice resilience.” (Emphasis added).

From this understanding we can derive a definition of sustainability as “the optimal balance between efficiency and resilience.”  Now, let’s look at how human systems repeatedly violate the principle of sustainability.

Overshooting the Optimal Balance

A classic and common example of disregard for the principle of sustainability is the way in which we favour organizations becoming excessively large and efficient such that they out- compete smaller organizations for resources, causing the smaller ones to die off, which “reduces resilience, increases instability and steadily moves the whole system towards collapse (i.e. sustainability = 0).”  This trend towards bigness and efficiency is rampant all over industrialized society.  In the economic system it leads, as we have repeatedly seen, to “bubbles” which appear as “a shimmering bubble of wealth over a feeble, eviscerated real economy.”  When the bubble bursts (as all bubbles do) we realize how unstable the whole economic structure is.  Can we do better? Yes, but only if we understand what the problem is and correct it, rather than react to the symptoms.

Turning now to the global monetary system, we see that it is “a network of monopolistic national currencies, one for each country.” (In the European Union several countries have opted for the one currency, the euro, but it is still a monopoly within those countries).  The technical justification for such a system is “to optimize the efficiency of price formation and exchanges in national markets.”  However, the hundreds of systemic crashes that have occurred over the past forty years demonstrate that what we really have is an unstable network of “monopolistic national currencies [which have] evolved into an overly efficient and brittle system.”  Another chart illustrates this point.

 What this chart shows is that “today’s monetary ecosystem significantly overshoots the optimal balance between efficiency and resilience. . . The general belief that all improvements must go further in that same direction [as shown by the arrow] will drive us yet further away from sustainability” (Emphasis added).

The problem for people shows up acutely when we have a financial collapse.  This happened in Germany in the 1920s and in Argentina in the 1990s.  We are on the edge of it happening in Europe today in the form of a potential euro breakup and in America as a possible dollar collapse.  What do financial and political leaders do to deal with the problem?  “Until now, the same old remedy has been applied: the banking system and the monopoly of bank-debt money are forcibly re-established as quickly as possible.  Typically, the largest banks that are ‘too big to fail’ are bailed out and helped to absorb the smaller ones, fueling further concentration in a few financial institutions.”  Another chart shows the process.

 “As soon as possible after a financial crash, the monopoly of bank-debt money is re-established, creating a loop where system crashes or crises are predictably repeated over and over again.”  Of course, it’s not only the economic system that perpetually wobbles on this knife edge of unsustainability; the whole structure of society twists and turns in agony, and each new “recovery” forces more of the aggressive economic growth that is ravaging the planet.  What a sorry system!  Can we not do better than this?

Yes, say the authors of the Club of Rome report, as well as a lot of other well-informed people writing and speaking about what is going on.  But it requires a structural solution—a break with a dominant economic paradigm—and that is notoriously hard to do.  As far back as 1976 Freidrich Hayek , one of the leaders of the influential Austrian School of Economics, said about the issue: “There is an immense education task ahead before we can hope to free ourselves from the gravest threat to social peace and continued prosperity inherent in existing monetary institutions.  It will be necessary that the problem and the urgent need of reform come to be widely understood.” 

Almost forty years later in 2012, the Club of Rome report and this blog are continuing with this educational task, while the whole social and economic future of global civilization continues to wobble precariously as it remains firmly in the grip of the traditional economic paradigm.

The Solution: An Ecosystem of Complementary Currencies

The authors of the Club of Rome report argue for an ecosystem of complementary currencies to replace the monoculture of national currencies.  They use a biological metaphor to illustrate their point.

“Conventional money plays the role of the red blood cells in your blood stream: they carry vital oxygen to all parts of the body.  While red blood cells are necessary, they are not sufficient to keep your body healthy.  Such a focus on only one type of cell would ignore the role of white cells, platelets, and dozens of other specialized hormones playing complementary functions to sustain your health.”

Likewise for the monetary domain.  “The key lesson from natural systems is to allow and even encourage the development of specialized media of exchange to circulate in parallel with the conventional national currency.  While this approach may seem unorthodox, please remember that it is orthodoxy that has led us into our current troubles.  Complex flow systems theory demonstrates that continued orthodoxy would compound the trouble.”

Is it time to think outside the box of the conventional approach to the money system?  Yes, but first we need to appreciate other ways the money system works against sustainability.

Other Ways the Money System Works Against Sustainability

Before describing alternatives to a national currency, the Club of Rome report delivers several more knocks against today’s monetary system.  While the modern money system gave birth to the industrial age—no small accomplishment in the evolution of human society—it also has delivered a heritage of negative consequences.  Significantly, it acts as a large scale “unconscious programming tool” that encourages aggressive, competitive human behaviour where little or no thought is given to sustainability.  Self-interest today is at the top of the agenda and the future can go hang!

The core of the problem—the most egregious feature of the traditional money system—is that it authorizes private banks to create money out of thin air in the form of debt to be repaid by the borrower with interest.  “Since bank-debt money in our current system is created with interest, it is subject to compounded interest or ‘interest on interest,’ which automatically implies exponential growth.”  Unfortunately for humanity, our brains have great difficulty in comprehending the implications of exponential growth.  It begins with small increments, but the amounts increase at an increasing rate over time.  Our brains tend to think in linear increments and can’t readily comprehend exponential growth, possibly because nature never allows it to continue and our brains have not evolved to comprehend it.  If feedback mechanisms are not put in place, the system is faced with runaway growth.  The inevitable result is system collapse as the other components of the system are overwhelmed by the feature that is growing out of control.  Our closest experience of this in ordinary life is the disease of cancer, where renegade cells multiply at an exponential rate and will kill the body if not removed or checked into remission. 

But the same thing is happening in the economic domain as national monetary systems all over the world grow exponentially.  The Club of Rome gives two examples of exponential growth in the money supply, one from a developed country, the USA, and another from a developing country, India.  The fact that it is happening in both kinds of economies shows the systemic nature of the process.  Here are the two charts showing what has happened to the money supply in the USA and India over recent decades.

 

 The same process is crippling poor developing countries who have large external debt (relative to their economies) which is compounding annually.  For example, Nigeria borrowed $5 billion in 1985, paid back $16 billion, but in 2000 still owed $28 billion.  In the developing world “governments are forced to neglect their domestic economies since there is no alternative but to export an ever larger proportion of their resources to service their debts.”

 But the problem is endemic in populations in countries all over the world as individuals, businesses and governments struggle to out compete each other in order to pay down debt.  Natural resources are used up, pollution is allowed to run rampant, and human-induced climate change continues unchecked.

 These environmental problems are bad enough, but add to that the evidence that the money system’s use of interest paid on debt as one of its central operating mechanisms results in a transfer from those who do not have enough to those who have surplus money.  General awareness of this as a social issue erupted in the “occupy movement” that spread from Wall Street in the USA to many countries around the world in 2011-12.  The mantra of that movement was that the 1% of the world’s super rich are dispossessing the 99% of the rest of us.  No one fully understands how serious this problem is, but we can be sure it will get worse over time.  Many of the 99% are still doing well enough financially to keep them off the streets, but when the effects of overshoot kick in and the rapid impact of exponential growth on the steep part of the curve takes hold, then all bets will be off on what people might do.  Unless, of course, changes are made now while there is still room to manoeuvre. 

 How might necessary change be made?  The institution we have invested with the authority to do it in democratic countries is government.  As the Club of Rome report says: “Governments have the right to exert power over their citizens and over the businesses active on their territory.”  If we had a perfect system, with governments acting in the best interests of all, there would be reason to hope for the right kind of changes to be introduced.  However, the report identifies the problem in its next sentence: “Therefore, whoever can control governments can project power all over the world.”

 The report then goes on to describe the complex arrangements entered into historically by which the creation of money became predominantly privatised so that private banks under the loose control of a central bank (not fully controlled by government) are authorized to create money and put it into circulation as debt.

 Various plans for reforming the money system by having government take back the authority to control the creation of money are circulating in countries around the world.  However, the Club of Rome report does not recommend this approach as the solution for the following reasons:

 1.       The problem is lack of resilience or diversity in the money system; replacing one monopoly (private banks) with another monopoly (government) would not generate the needed diversity.

2.      If governments were the only ones in charge of creating money, there might be a risk of inflation rising to a greater extent than it has in the past.

3.      Political realism: The banking system would fight to the death to avoid government takeover.  An army of lobbyists would exploit to the full the potential for “legalized bribery” of politicians.

4.      The risk of unintended consequences from an all-or-nothing venture that would be required in the nationalization of the banking system.

 For these reasons the authors of the Club of Rome report favour a focus on “innovative, non-financial incentive systems that can function in parallel and complement current financial incentives based on bank-debt money.”  Further, their hope is that the burgeoning NGO movement around the world will become a key actor in finding a solution to the impending challenges coming our way.

 Conclusion

 This post has made it clear why reform of the money system is a key requirement for the global civilization to come into a sustainable relationship with the natural world on which it depends.  That the problem is locked into the defective “memes” that decision makers are carrying around in their heads makes this a truly daunting task.  However, if the solution is the creation of new, sustainable memes based on clear understanding of the problem, then there surely is hope that a new generation of decision makers can do it.   If citizen energy can be channeled into implementing creative alternatives, we may still find a way to bring the system back into optimal balance and avoid the impending disasters that the current system is setting up for future generations to suffer through.

We shall continue this discussion in the next post.

 

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Economics: Money and Sustainability

At the end of the previous post on “Reform of the Money System” we were left with a series of questions that need to be answered if we are to address the “right” purposes of a money system.  These range from questions about how money should be created and put into circulation and how people and businesses should be rewarded and taxed, to the key issue of how to shift our dependence on money for virtually everything we need and do, so that we can focus on building a sustainable society.

So this brings us back to what is the most important issue of all for this blog: how to ensure that our grandchildren and their children after them can grow up and prosper without the fear that everything will collapse around them.  It’s the issue of building a sustainable global civilization, a goal we are presently a long way from achieving while the window for the possibility of doing it closes a little more with every passing year.

In this post we will come to the nub of the matter: why it will not be possible to achieve sustainability of a complex human society on Earth unless the money system that lies at the core of its operation is substantially reformed.  The four authors referenced in the previous post—James Robertson, Thomas Greco, David Korten, and Graeme Maxton—all were particularly blunt and assertive about the negative consequences for humanity if this reform is not carried out.  In this post we will come to understand why.

Drawing Some Threads Together

To begin, we need to draw some threads together from previous posts on the Economics theme.  First, we need to recall that the human economy is an open system nested within the social system, which is nested within the natural system of the biosphere.  Multiple interactions occur within and between the first two and the third, but the third one, the biosphere, is a closed system that can’t be refreshed from the outside except by the energy that comes in from the sun.  If we use up natural capital and make the biosphere unsuitable for life, that is the end of the story for humanity—and the bad news is that we are on an accelerating trajectory to doing just that.

A second thread in this complex puzzle is to distinguish between growth and prosperity.  The first has to do with quantitative expansion and the second with qualitative improvement—making things better.  We like to congratulate ourselves that we are in many ways making things better for humanity—more democracy, better healthcare, expansive education, and so on—but if we are tracking towards destruction of the biosphere, it is hard to claim that we are being successful in making progress where it ultimately counts: a sustainable future for humanity.  On the growth side there is plenty of evidence of what we are doing: expanding global population, material abundance of every kind, a money supply that has ballooned far beyond our human ability to comprehend the numbers, and mountains of debt everywhere.

The third thread is the concept of sustainability itself—what it really means.  To date we have worked with definitions that speak about providing a good quality of life for present generations without impinging on the possibility of a good life for future generations.  This is a good objective, but it says nothing about how to achieve it, and clearly we are not achieving it, or we would not have the concern about the future for our grandchildren that prompted me to start writing this blog in the first place.

So now it’s time to get to the nub of the issue—to draw these three threads together and explore what needs to be done to create a sustainable human presence on Earth while achieving progress within the open social system in which we live, work and play.  To do so, in this post we will look at the core operating system of society, the money system, and see why it is preventing us from achieving ultimate progress and sustainability.

The Money System Has a Structural Flaw

Every builder, artisan, or manufacturer knows that if something is built with a structural flaw in it—whether it be a building, a piece of pottery or a machine—sooner or later it will cease to operate or fall apart.  There may be warning signals along the way in the form of malfunctions and breakdowns, which are repaired, only to fail again.  The same is true of the money system.  If it is subject to repeated failures, each one of which is very costly to society, we should suspect that there is a structural flaw somewhere.

A new report, February 2012, entitled Money and Sustainability: The Missing Link, identifies and describes the structural flaw in the world’s money system, and proposes a course of action that is a necessary part of addressing it.  The report was released by The Club of Rome EU Chapter as a contribution to addressing the severe economic issues in Europe that repeatedly grab world headlines as several major European economies teeter on the edge of collapse.  The principal author is Bernard Lietaer whose earlier book, The Future of Money: Creating New Wealth, Work and a Wiser World, partly informs this report.  Three other authors are Christian Arnsperger, Sally Goerner and Stefan Brunnhuber.

The Club of Rome is a worldwide affiliation of individual members and over thirty associations whose mission is “to undertake forward-looking analysis and assessments for the betterment of humanity.”  The Club of Rome EU Chapter is an independent Brussel-based, non-profit association.  The original Club of Rome, so-called because its members met in Rome in Italy, first achieved worldwide attention forty years ago with the release of its report entitled The Limits to Growth (1972), which was one of the first publications to warn that maintaining commitment to continuous economic growth would lead to severe problems for human society in the early decades of the 21st century.  This latest report from the EU chapter indirectly addresses several of the themes raised in that original report, but its focus is squarely on a flawed money system as the central agent in contributing to humanity’s difficulties, not only economic, but also social and environmental.

Evidence of a Structural Flaw in the Money System

The report identifies three sets of evidence that something is very wrong with the money system on which global economics depends.

1.  Systemic Crises.  Global data from the International Monetary Fund reveal that in the forty years between 1970 and 2010 there were 145 banking crises (banks going bankrupt), 208 monetary crashes (devaluation of national currencies), and 72 sovereign-debt crises (concerns about a country defaulting on its national debt).  That’s a total of 425 systemic crises, an average of more than ten countries getting into trouble each year.  Hidden behind these statistics is the untold misery of hundreds of millions of people who suffer from job losses, social and political turmoil, and increasing levels of poverty.  In the words of the report, “If a car, a plane or an organization had such a track record, would there not be a universal outcry to send the designers back to the drawing board?”

2.  The Emergence of a Global Casino.  A global financial system of national currencies floating in value against each other has created in recent decades a huge ocean of what David Korten calls “phantom wealth”—wealth that appears or disappears as if by magic.  Phantom wealth is created in various ways through speculative activity, such as the inflation of asset bubbles like the recent examples of the “dot-com” bubble at the end of the 1990s in the USA, followed by the real estate bubble that collapsed in 2007.

Even more astonishing, however, is the data revealed in the Club of Rome report that “out of the $4 trillion of daily foreign exchange transactions only about 2% are associated with the real economy,” in which goods and services are produced and traded.  “The other 98%are purely speculative. The sole purpose of a speculative transaction is to buy or sell a foreign currency to make money on the change in value between currencies . . . Such volumes of speculative currency transactions are thousands of times larger than the daily trading volumes of all the stock markets worldwide [also largely speculative].  One day’s currency speculation represents more than the annual economic output of Germany or China changing hands.”  Astonishing! Incredible! None of this phantom wealth is the product of real work being done in the economy.  It is a staggering mismatch between what is real and what is illusory.  The Club of Rome report uses the analogy of the tail wagging the dog: “If a dog were to consist of 98% tail and have just 2% available for the rest of its body, visualize what would happen to the dog when the tail moved.”  Yet this is the kind of “tail-wagging-dog world” in which we now live as huge amounts of wealth get transferred into fewer and fewer hands for no productive work.

Might we wonder if there is not something wrong with a money system that allows this to happen?

3.   The Sovereign Debt Squeeze.  The whole world is only too well aware of the banking crisis of 2007-2008 and its ongoing reverberations.  Of particular concern is its impact on public debt in developed countries. However, this is likely only the tip of a very large iceberg looming menacingly in the course of all national economies as they converge towards a precarious future.

 The Club of Rome report summarizes the present situation, then signals what is coming: “The median debt increases among recent crises is 24% of GDP.  Thus, public debt burdens have increased significantly as a consequence of policy measures during the crisis.” Regarding the future, the report references a study by the Bank for International Settlements (BIS) entitled The Future of Public Debt: Prospects and Implications.  Driven by converging pressures from anticipated public expenditures on the consequences of climate change and the “Age Wave” of retiring baby boomers sweeping across the developed world, public debt/GDP ratios are estimated to increase in the coming decade to well over 100% and to as high as 300% in some countries.  “In the longer-term, the situation grows even more unmanageable; by 2040 the projected debt/GDP ratios for all these countries range from 300% to 600%!”  Such a level of public debt is not supportable and “some fundamental change will obviously happen before these projections become reality.” 

The BIS’s conclusion is frank: “Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in industrial countries is unsustainable.”  When a financial institution like the BIS comes to such a devastating conclusion, surely we mustask if there is not a structural flaw in the money system that must be addressed before human civilization slides into a pit of despair from which future generations will struggle all their lives to emerge?

 The Structural Flaw:  Instability Built on Error and Ignorance

 It is all too easy and simplistic to blame human nature (driven by greed and fear) for the problems of the monetary system.  This is a defeatist position.  Human nature is what it is—good and bad.  What we need is a system that provides incentives for the best aspects of human nature to come forward.  What we have now is a system that encourages the worst aspects of human nature to take over.  We try to control this by repeatedly creating new regulations, but they never seem to work well enough.  As pointed out above, we are tracking towards ever deepening crisis despite all the regulations that have been introduced over the years. It is time to stop blaming a bad driver for the car’s poor performance and look for the fault in the car’s design that causes it to continually break down and sometimes crash.

The Club of Rome report asserts that that the flaw in the design of the monetary system is centuries old, and it exists because of mistakes made by those who created it compounded by ignorance of how complex systems work.  The good news is that these faults are identifiable and can be corrected so that we can have a much better system.  The bad news is that we can expect massive resistance to change from those who are benefiting most from the current system.  That, too, is human nature; but it can be addressed if a majority of people come to understand what needs to change and how they can benefit from bringing about the necessary change.  Once they see the possibilities they can become excited about participating in implementing them, because that, too, is part of human nature.

First, let’s identify the mistakes.

Misclassification of the Economy as a Closed System

 I have written about this in previous posts, particularly in referencing the work of economist Herman Daly (see post #15 “Economics: Sustainable Development).  Related mistakes have to do with trying to apply the rigour of mathematics to economics as if it is a science similar to physics.

According to the Club of Rome report, the problem goes back to the work of Leon Walras in 1874 and other economists of the late 19th century.  They “borrowed from physics a set of ideas that fundamentally misclassified the economy as a closed equilibrium system.”  This error has “acted as a straitjacket, forcing economists to make highly unrealistic assumptions and limiting the field’s empirical success.”  It forces them to deny the effects of outside inputs like energy, and unwanted by-products like waste and pollution.  In other words, the model used by “Traditional Economics” is not the real world—it is an illusion, but they stick to it because it’s the only model in which their mathematical formulas work.

However, as bad as that is, it’s not the whole story.   The 19th century economists made another serious error.  They did not know about the Second Law of Thermodynamics, which states that order in a system is continually breaking down.  This is the concept of increasing entropy.  “Since its discovery, entropy has become a central concept in the way physicists view the world.  Unfortunately, for Walras, Jevons and the other builders of Traditional Economics, this supreme law of nature was missing from their framework.”

These two fundamental errors make it necessary for Traditional Economics to make a long list of unrealistic assumptions necessary for the equations to function—assumptions such as the following: human beings are driven only by self-interest and perfect rationality, and they always have access to all relevant information at the moment they need it.  “In reality, we must often make decisions with incomplete and ambiguous information with finite calculative and cognitive abilities.”

If Traditional Economics does not use the right conceptual and mathematical tools, we should not wonder that so often the predictions produced are off the mark and prescriptions for what to do about problems don’t work.

So much for the errors.  Let’s turn now to the other problem of ignorance.

Lack of Understanding about Economics as a Complex System

In the real world both human-made systems, like the economy, and natural systems of the biosphere belong to what the Club of Rome report calls a “realm of ordered complexity” characterized by “a high diversity of components and a dense network of interaction between these components.”  In other words, there is a lot of interactive stuff going on in society and nature.

The classical mathematical tools used by economists don’t capture this type of complexity.  However, with the recent development of more powerful and inexpensive computing power a new set of mathematical tools dealing with ordered complexity has emerged.  “Complexity theory has already revolutionized a wide range of fields including geophysics, demography, ethnology, biology, medicine, acoustics, electronics and finance.”  Economics as a whole could similarly benefit, but it has a long way to go in shifting from its current dominant ideas and methodology.

A New Law of Nature

The Club of Rome report references the work of Franḉois Roddier, “one of the most brilliant astrophysicists of our time,” in pointing out what amounts to a previously unknown law of nature.  It essentially says that all complex systems (such as plants, animals, humans, societies and economies) are continuously dissipating energy to evolve new environments to which they must adapt or disappear.  This has been going on in the universe since the beginning of time at the Big Bang. Dissipation of energy formed galaxies, then stars, then planets.  On Earth we know that further dissipation of energy formed plants followed by animals and finally humans with our big brains, which we are now using to dissipate energy at a rapid rate to create complex societies.  “The evolution of human societies and their economies is currently driving humanity’s capacity to dissipate energy . . . in an exponential manner,” says Roddier.

What this means is that we are in danger of dissipating energy too rapidly and modifying our environments faster than our ability to adapt.  We are already seeing this in the exhaustion of oil reserves, pollution, extinction of species, and exacerbation of social inequalities.  If we think we can improve any of these things and many other problems we face while we continue to use energy in the amounts that we now do, we are kidding ourselves, because it is against this law of nature.

The process is now essentially being driven by the knowledge and ideas in human brains.  Zoologist Richard Dawkins coined the term “memes” to describe information stored in human brains. Roddier points out that to avoid extinction we humans have to evolve our memes.  We can’t do this individually or unilaterally as a country, or we run the risk of being eliminated by natural selection.  The species has to do it as a whole.  Roddier comes to the following conclusion:  “The only hope is a change of consciousness at a global level—the realization of the need for a new meme: the need to reduce our energy consumption on a planetary scale.  Such a change is starting to occur because, for the first time, the degradation of the environment is visible within the time span of one generation—the sign of a seismic environmental shift on a global level.  Hence the urgent call for sustainable development.  While trying to save a planet which could not care less, we may be able to save humanity.” 

If Roddier is right the evolutionary power inherent in the universe will save the species, but we are in the process of causing colossal damage that threatens future generations with a massively degraded planet on which to live.  The need for leadership at every level in every generation in every country to evolve the new meme of how to live sustainably on the planet is absolutely critical.

The authors of the Club of Rome report take this insight from Roddier and focus on what they believe is the prevailing meme of our current industrial societies, namely the meme of a monoculture of money, that they believe has to be changed to avoid “strangling human evolution and creativity at a critical juncture of our collective journey.”

This is a very powerful insight that we must now take the time to consider seriously.  The evidence of the dysfunctionality of the current financial system is all around us.  Combined with  a flawed concept of economies as closed systems, it’s a deadly combination threatening human survival.  In the next post I will explore this issue in detail and present ideas from various sources on how the money system can be changed such that our grandchildren can live productive lives with an entirely different relationship to money than what preceding generations have experienced.

I look forward to sharing this information with you.  All of us are part of the process of evolving new memes to serve us better than many of our current ones.

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Economics: Reform of the Money System

In closing out Post #19, “Managing without Growth,” I referenced Milton Friedman’s observation that when a crisis comes along that precipitates real change “the actions that are taken depend upon the ideas that are lying around.”  It is necessary, he said, “to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”

Nothing today would seem to be more politically impossible then reform of the money system.  So intertwined with every aspect of modern life is the way we depend on and use money that it seems truly impossible that we could have a workable society by handling financial transactions in some other way.  However, there is a growing body of literature and chorus of views that argue that fundamental flaws in the money system are at the heart of the problem of non-sustainability of modern industrialism.  A number of writers are contributing to a set of ideas that are “lying around,” still very much on the fringe of accepted economic and political thinking, that may become essential to the well-being of our grandchildren’s generation, when “the politically impossible becomes politically inevitable.”

 The Four Horsemen of the Apocalypse

One of the writers with the longest pedigree for sustained reformist thinking about the failings of the money system is British analyst and commentator, James Robertson.  I first became aware of his work over thirty years ago when he wrote The Sane Alternative (1978) in which he argued that “the human race must break through to a new kind of future” if it is to take the next “important upward step on the ladder of evolutionary progress.”

In his latest book, just published in 2012, Future Money: Breakdown or Breakthrough, Robertson asserts that since he wrote those words over thirty years ago “we haven’t made very much progress—the reverse in many ways.”  But in the 21st century he is hopeful that because of worldwide mass communication and a shared growing awareness of what it means to be living on the same planet as one another, and a sense of the shared responsibility that goes along with that, that an effective response to financial instability might be forthcoming.

In this latest book Robertson couldn’t be more explicit about what he believes is at stake: “Radical reform of the money system will be a necessary condition, though perhaps not by itself a sufficient condition, of the survival of anything like our present civilization, and perhaps of our species, beyond the end of this century . . . If unreformed, its workings will continue to frustrate all the well-meant efforts of active citizens, NGOs, and government agencies, to deal with our present ills and problems—including worldwide poverty, environmental destruction, social injustice, economic inefficiency, and political unrest and violence within and between nations.”

Equally forthright in his opinion on the centrality of money reform for the future well-being of our grandchildren is American writer and commentator, Thomas Greco.  His 2009 book, The End of Money and the Future of Civilization, was praised by James Robertson as “a devastating criticism of the present monopolistic control over credit, exercised through a banking cartel armed with government-granted privilege.”  In his own words, Greco says, “If the money problem is not solved, we can expect that the future will bring ever greater misery—continued wars for dominance over resources, accelerating despoliation of the natural environment, continued erosion of democratic institutions, the imposition of a global neo-feudal society, and the beginning of a new dark age.”  Whatever else he might say, Greco doesn’t mince words in projecting the consequences of an unreformed money system.

And then there is David Korten who has had a long and distinguished career on both sides of the financial establishment—from the Harvard Institute for International Development and Ford Foundation project specialist on international development, to work as an active critic and founder of citizen-action groups working to promote a new economy agenda.  He is the author of several best-selling major works on the need for financial restructuring (When Corporations Rule the World, The Great Turning: From Empire to Earth Community, and The Post-Corporate World: Life after Capitalism), but in his slim Agenda for a New Economy, published in 2009 in the wake of the 2007-2008 financial collapse on Wall Street and around the world, he takes dead aim at the same issues cited by Robertson and Greco.  “Why,” he asks, “is our economic system consigning billions of people to degrading poverty, destroying earth’s ecosystem, and tearing up the social fabric of civilized community? What must change if we are to have a world that works for all people and the whole of life?”

Before turning to the answers to Korten’s questions, I would like to cite one more vocal critic of what has happened to economic thought and practice since the days of Adam Smith in the 18th century.  Graeme Maxton is “an economist, author and presenter, well-known for his punchy, clearly-articulated analysis on global affairs.”  This biographical note is taken from the dust-jacket of his 2011 book, The End of Progress: How Modern Economics Has Failed Us.  Maxton’s criticism cuts wide and deep: “Modern economic thinking has led us to under-value our world, accelerating the pace of planetary destruction . . . We use the world’s raw materials on the cheap, leaving others to pay much of the cost.  We think primarily about short-term profit and less about long-term social gain . . . We have dismissed widening income inequalities as if they do not matter . . . Modern economic thinking has given us false goals, demanding growth for its own sake, encouraging a mania for consumption that requires the planet to be laid waste, exploited for our convenience . . . We were persuaded that there were no limits to growth . . . As we are about to learn, that was wrong.”

Though Maxton does not refer specifically to the money system as the source for his wide-sweeping criticism of the way economics is failing our society, it is nevertheless clearly implied.  Let us now look more closely at the money system as the underlying systemic cause of failing economics.

The Underlying Systemic Cause of World Problems

I have already discussed in some detail in previous posts the concerns of environmental economists about the pursuit of continuous economic growth in developed nations—that it fails to recognize ecological limits, that it is a poor measure of true prosperity, that it keeps poorer nations in perpetual subjugation.  What new piece of the puzzle are the above writers seeking to elucidate, to put on the table for policy scrutiny and action with such vehement assertion that if it is not addressed, nothing else we might do as policy correction will make much difference?  What indeed?  Nothing less than what Greco calls the “underlying systemic cause” that connects all of the problems—environmental, economic, political, social and cultural.

Greco’s contention is that we have to re-invent money, that this is a necessary prerequisite to accomplish goals that would mitigate the world’s major problems. He asserts that the change required to get global civilization onto a sustainable path is analogous to a caterpillar’s metamorphosis into a butterfly.  We are presently in the caterpillar or larva stage, eating voraciously so that we grow and grow.  If this is not checked in time, we could devastate the whole planet and never reach the next stage.  If, however, we can recognize we have grown large enough, we can then, like the caterpillar, enter the pupa stage inside the chrysalis. At this point something miraculous happens.  In the caterpillar’s world, its body disintegrates allowing the “imaginal cells,” which were present all along, but dormant, and which carry the program of the emergent butterfly, to become active until the butterfly is formed and crawls out of the chrysalis, spreads its wings and flies away.

In our world, following this analogy, we have to get into the pupa stage of no more growth so that we can transform into something quite different and much more beautiful.  The problem is that the money system as it presently works will prevent us from ever reaching the stage of no more growth, because it requires growth to operate.  That is why Greco and the other writers cited above argue that reform of the money system is a necessary prerequisite of getting into the pupa stage.

Greco quotes evolution biologist, Elizabet Sahtouris, with regard to what this means for people living at this time:  “If we see ourselves as imaginal discs or cells working to build the butterfly of a better world, we will understand that we are launching  a new ‘genome’ of beliefs, values and practices to replace that of the current unsustainable system.  We will also see how important it is to link with each other in the effort, to recognize how many different kinds of imaginal cells it will take to build a butterfly with all its capabilities and colors.”

As seen by Greco, there is a great struggle ahead of us in this transformation process.  It is a struggle between elitism on the one hand and egalitarianism on the other.  By elitism Greco means “the centralized rulership exercised by a small privileged class, while egalitarianism implies the dispersal of power and popular self-government.”  He warns that we must be watchful for signs of creeping totalitarianism—“government secrecy, stonewalling . . . surveillance of citizens, harassment of dissenters.”  These telltale signs in political action are linked to what he calls “the powers of financial capitalism.”  He quotes President Bill Clinton’s mentor at Georgetown University, Professor Carroll Quigley, who has candidly revealed that “the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.”

This, then, is the context underlying the assertions of the reformists that a complete transformation of the money system is essential for the survival “of anything like our present civilization . . . beyond the end of this century.”

Purposes of the Money System

The first step in understanding the money system is to consider the purposes of money.  James Robertson is quite radical in his criticism of the way money is currently used.  Before looking at what should be the proper purposes of a money system, he says we need to be aware that the current system has a number of unspoken purposes:

  ·   To transfer wealth from poorer people and workers to richer and more powerful people.

  ·   To conceal this objective in mystery, myth and technical tricks of the trade.

  ·   To foster international competition in technical, economic and military power.

  ·   To exploit the resources of the planet to the maximum extent.

Some readers may wish to dismiss such comments as radical socialist opinion.  Before you do so, however, I encourage you to stay with the discussion until all of the main points are on the table so that you fully appreciate what Robertson and the other critics of the current money system are getting at.  One of Robertson’s central points is that the money system affects human behaviour.  Depending on how it works, it motivates people to live in some ways rather than in other ways.  The current system motivates us to live in competitive, exploitative, consumptive ways, and needs to be changed to motivate us to live cooperative productive lives that don’t destroy the environment on which we depend.

What, then, according to Robertson, would be “the right purposes of a reformed money system?”  He suggests that they would be along the following lines:

  ·   “To enable everyone to benefit from organizing the productive exchange of goods and services as fairly and freely and efficiently as possible, and

  ·   to motivate us all to live and organize our lives in ways that maintain the planet’s resources in conditions supportive to the survival and well-being of our species and life on Earth.”

 In order to determine how those “right” purposes might be met, we will need to consider the following things:

  ·   How money is created and put into circulation.

  ·   How people are to be rewarded for what they contribute by their efforts and skills to the value of our common inheritance of the world’s resources.

  ·   How people and businesses should be taxed on the value of what they take from those common resources and the common wealth for their own benefit.

  ·   How we might all share in the revenue produced by cooperative effort.

  ·   How our dependence on money might be reduced as we work to provide for ourselves and our families so that we are not increasingly dependent on getting money in order to meet our needs.

Addressing those questions will be the purpose of following posts.  Some quite surprising information will be revealed, which will take us into controversial territory.  Hopefully, at the end of it we will have a better appreciation of why things don’t seem to be working as well as they should in our world, and what might be done about it for the benefit of the generations coming after us. 

I look forward to continuing on this journey of exploration with you.

 

 

 

 

 

 

 

 

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