Growth vs Sustainability

It is one of the main dilemmas of our time. Economic growth is seen by governments and people as essential. If the economy falters then there is unrest and governments get thrown out.

Yet economic growth is creating unsustainable demands on the ecosystem – pollution, global warming, resource depletion, and so on. The two do not appear to be reconcilable. We know all this.

There has to come a solution. If we leave it to the earth’s natural systems, we may well not like the result. We are getting a taste, as extreme weather events become more common, plastic pollution becomes increasingly pervasive, species extinctions accelerate. Refugee crises, population migrations and epidemics are likely to get much worse.

So it’s important to consider possible solutions. One is put forward by Positive Money in their excellent research paper Escaping Growth Dependency, just published. They argue that the debt-based money system is a major factor driving the growth imperative, and reform of this money system is essential as part of the solution.

They propose adding a new tool to the Central Bank’s toolkit: ‘sovereign money creation’, and preventing banks from creating money altogether. Thus money as means of payment is decoupled from money as a source of credit.

The paper suggests that such a change could ‘open the door to a transition to a sustainable economy’. I’m all for that!



So there is a Magic Money Tree

The status quo is not working, and there is increasingly insufficient money to fund adequate public services in many countries. Let’s try a simple thought experiment.

Suppose that the Central Bank takes back control of the creation of money. Instead of most new money being created by banks as debt, it is just created centrally by the sovereign power – and then loaned at a very low rate to accredited banks to lend on to customers. Let’s call this very low rate delta. Alternatively, delta is taken as a levy on bank lending/debt creation activities – the effect is the same.

Now, if delta is small enough, I would suggest that there will be little or no effect on either bank lending or confidence in the currency. But the sum of a lot of all these small deltas can be quite large. All this money could be passed on to government and would be available either to finance public services or to provide the beginnings of a basic income – and maybe bankers would be not be quite so rich.

Of course, there would need to be adequate safeguards around delta to prevent unscrupulous use by politicians. In the UK, we know how to do such things, eg monetary policy committee.

So there is a magic money tree, after all. Of course, there are others, eg Tobin Tax on financial transactions, as mentioned in an earlier post Magic Money Trees.