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!
Is there a public interest in a certain percentage of the population being educated to degree level, and another percentage being inducted into various apprenticeships? Clearly yes.
So why is there resistance to this being funded at an appropriate level out of general taxation? Maybe because of the suspect belief that it is the individual who is the primary beneficiary – clearly not true in the case of people like nurses. And maybe because we have been educating too many people to a degree level that creates over-supply of various skills.
The other reason is that government resources are increasingly under pressure since 2007, as the system itself founders, compounded by efforts to reduce the size of the State itself.
But tuition fees are now totaly discredited because of their severe implementation, leaving young people with an excess of £50000 of debts when embarking on life. In addition to the known problems of housing costs, poorer pensions and reduced opportunities for highly paid work. Crazy, an inter-generational injustice.
This should never have been cast as a debt – a ‘graduate tax’ or progressive taxation would have been a different matter. Strange that this one betrayal of their own voters is probably the reason for the low Liberal Democrat polling in the last two UK general elections. And Labour’s resurgence in tbe recent election is probably significantly down to their promise to abandon tuition fees.
In her post The Next Financial Crisis is not Far Away Gail Tverberg presents an interesting assessment of where the world economy has been, is and is going. It seems to explain a lot of what we see going on.
Gail makes a number of observations, based on extensive research, that appear to look deeper than most so-called economists.
our economy is a self-organised system that seems to grow by itself
economies can collapse if circumstances are not right cf USSR
oil exporting nations can have problems if prices are too low cf Venezuela, whereas oil importing nations can have problems if prices are too high cf Greece
energy consumption correlates with and enables economic growth (see Gail’s chart), so cheap energy means high growth cf recent China, India, but not now
world growth in energy consumption is now negative
these factors explain lack of strong Western growth since 2007/8, and corresponding structural problems such as many low-paying jobs resulting in reducing tax take, which generates pressure on public services and so on
Likely symptoms of collapse: political parties cannot agree, debt repayment problems, falling international trade, breakdown of higher layers of organisation cf USSR
The point Gail does not really bring out is that economic growth also tends to correlate with negative environmental impacts, so low growth is actually much better for the environment.
We seem to be in a bind: economic growth and social stability versus environment. It is likely that we will always default to the former until the effects of the latter are so disastrous that action is forced upon us.
In a sensible world, we’d be having a big conference to try to work out a better way of managing human affairs that works with the environment, and perhaps decouples perceived benefits from both energy and growth. Which brings us back to the money/debt system, who controls it and who benefits…
In the real world we will just muddle on. And whether Brexit represents a national suicidal impulse or a prescient reading of the runes will not become clear for some time yet! (Its short term negative impact is becoming increasingly clear.)
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.
You might think the Bank of England makes the money that is used to oil the wheels of the economy. You’d be wrong. The BoE creates only around 2.8% of the money in circulation. The rest is created out of thin air by commercial banks as debt. Debt is built into the system – so […]