Show blog for Too Fat for Our Pants on Radio One, 91 FM, Dunedin, New Zealand. Airs Mondays 10 am - 12 pm.

If all economists were laid end to end, they would not reach a conclusion.
~ George Bernard Shaw

Sunday, 24 July 2011

The End of Growth

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The thesis of this blog is that perpetual growth is impossible in a finite world.  I believe this to be the fundamental problem facing humanity at this point in time: it underlies the current ongoing global financial crisis, climate change, and peak oil – indeed, peak just about everything.  At heart, the drive for perpetual growth is an economic issue, and so this episode of Too Fat For Our Pants is about economics.  I am not an economist, I have never formally studied economics – my knowledge of the discipline comes from having read books about it.  Gasp! That means that there is a very real possibility that I have a better understanding of economic principles than many economists, not because economists are dumb and I'm smart, but because formal economic training is deeply flawed and incomplete.  The good news is that if I can learn and grasp basic economic principles, then so can you: this is just another one of those things that we are encouraged not to understand, in fact we are told that it is too complicated for people to understand over and over and over again. I might go so far as to suggest that the obfuscation of economics has been deliberate: a lot of money is made on the back of people’s ignorance.  Knowledge is power, as they say, so hopefully today’s show helps you to arm yourself a little better.

It seems like the idea that perpetual growth cannot exist in a finite world would be rather obvious to everyone, and indeed it should be.  Thomas Malthus warned in the late-18th Century about the inevitable conflict between arithmetic resource growth and exponential population growth.  Seems pretty obvious that these two methods of growth cannot exist comfortably together; however Malthus had the misfortune of speaking out just right before the industrial revolution really found its legs, after which point of course we were able to ignore environmental limits with the help of fossil fuels, making sure that no one listened to Malthus for one second.  And because that happened, and then the Green Revolution happened in the 50s and 60s – more on that little gem in another show – so far, with the right eyes, it has looked like he was wrong.  Human ingenuity, in conjunction with millions of years of heat and pressure and ancient sunlight, has so far managed to stave off our reckoning with the Great Ecological Dilemma.  There will not be another gift like fossil fuels, and having put off paying for so many people for so long has only made it more and more expensive. That bill is now due, just as our bank account empties.

Let us first be clear that economics is not a hard science, it is more like a branch of moral philosophy.  Adam Smith did not ‘discover’ that the market is self-correcting, he hypothesized that it could, assuming a strong and tight-knit community, the social norms of which would curb the excesses built into the system.  THAT is the invisible hand – the invisible hand of people having to answer to their community for how they spent their money, which would keep investment dollars inside the country.  I believe this abuse of the phrase ‘invisible hand’, combined with the fact that Adam Smith recognized that eventually the ‘progressive’ or growing economy would be replaced with the ‘stationary’ economy, makes the Wealth of Nations the most misunderstood book since the Bible.

So the entire modern world exists within an economic structure that relies on debt to create money.  This has been going on for an awfully long time, even in a time when profiting off a loan was called ‘usury’ and was illegal.  Bankers in the Middle Ages kept gold and gave out receipts for the amounts deposited, facilitating trade, and in the process they discovered that no one really knew if they wrote receipts for more than was physically present in the vaults.  Most of the time, that worked great – the only problem arose when everyone wanted to cash their chips at once, like in the Great Depression, but that happened so rarely that it became common practice for banks to loan money they didn’t posses.  It’s called fractional reserve banking, and is one of the main ways that new money enters an economy.  So as the production and manufacturing sectors decline in percentage of GDP, the money created by fractional reserve banking, by debt, grows in importance, and its eventual disconnection from physical material like gold or silver meant that “growth in total outstanding debt  became a precondition for growth of the money supply, and therefore for economic expansion”.

So here’s the rub: implicit in an economy which relies on debt for money creation is the belief that tomorrow you will have more than today, and with the extra money you will have in the future, you will be able to pay the growing balance on your debt.  Anyone with a credit card knows how this works; making minimum payments every month still sees your total debt grow; you must increase your payments every month in order to pay off principle and lower your debt balance.  This is the principle on which the entire global economy now rests: tomorrow we will have more.  And not only that, but also that tomorrow there will be more of us, and we will all have more. Obviously, at some point, we were bound to run into problems. The most remarkable thing is not that we find ourselves in this incredible position, but that we are so surprised by it, and so completely unprepared to deal with it.

It’s important to understand that the perpetual growth imperative is the fundamental truth underlying all mainstream economic philosophy at this point.  Not that there is great variety in mainstream economic philosophy, though we are encouraged to think that there is vast ideological difference between left- and right-wing economics, as they are practiced in politics today.  The collapse of the soviet union in the late-80s effectively removed communism and the far-left from popular discussion in the Global North, leaving us to choose between neo-classical laissez-faire economics and Keynesian social liberalism.  

As it turns out, though, the choice between social liberalism and neoliberalism is not much of a choice.   Neoliberalism, or neo-classicism, is essentially the belief that the market is some kind of quasi-deity that, if left alone, will regulate itself.  By ‘left alone’ I mean a complete lack of government regulation; everything is privately owned and there is no such thing as a social service, no taxes, no free health care, no free education, no public transportation, no welfare, nothing.  More importantly, no government intervention into how private businesses operate, no regulation of the market, no minimum wage.  The idea is that the market will, in the same way that wild ecosystems do, find its own sustainable balance and regulate itself through competition.  For this reason a neoliberal would advocate austerity measures to bust a recession, arguing that government intervention was just interfering with the efficiency of the market and eliminating that involvement would stimulate growth once again.  Just ask Greece how well austerity measures work at ending a recession.  Or, I guess, wait a bit and we’ll be able to ask ourselves. However, it also relies on a version of humanity known generally as homo-economicus: that all people are completely rational actors in the market, and that that rationality means we are acting exclusively in our own economic self-interest all the time.  Furthermore it assumes the presence of losers, as well as winners – some people will never have enough, and the existence of that demographic is necessary for everyone else to have enough, and for some to have more than enough.  Everyone being cared for is explicitly not a goal of neoliberal capitalism, though that little nugget is not brought up very often. 

Social liberalism is the belief that “government has a legitimate economic role in addressing social issues such as unemployment, healthcare, and education … Their general goal was to retain the dynamism of private capital while curbing its excesses.”  Though this is considered a leftist view now, it is actually very much in the centre of the public-private economic spectrum, which should highlight for you just how far rightward the conversation has moved in the last 40 years or so.  The most famous advocate for social liberalism was John Maynard Keynes, who believed that government stimulus was the way to revitalize an economy in a recession – and it has worked, in the past: Roosevelt’s New Deal was basically a test-run of Keynesian social liberalism, and it is generally credited with ending the Great Depression. 

Maybe you’ve noticed the real problem here.  These two schools of economic thought, Keynesian social liberalism and Freidmanite neoclassicism, both “assume that perpetual growth is the rational and achievable goal of national economies.”  So all the debate, being played out in such spectacular farce in Western, and particularly American, politics, is simply about how best to maintain perpetual growth – to tax or not to tax; private entity-led growth or government-led growth.  At no point is anyone talking about whether or not perpetual growth is desirable or possible, merely how best to stimulate it.  Even if we could manage to somehow trick the economy into growing the way it had been, it would only speed us towards the next crash faster.  This is why I have no faith in parliamentary activism: I can see no point in addressing environmental or energy issues within a context which still demands perpetual growth.  Parliament rests on a fundamentally unsound assumption about the way we as societies can exist in the world.

This also means that the 2008 global financial crash was much bigger than it seems at first glance – Richard Heinberg calls it a crisis of economic philosophy, not just an economic crisis.  Social Liberalism, which helped drag the US out of the Great Depression, is not even an option for us now, as it relies on a continuing supply of capital, energy, and resources which are no longer available to us.  And the absence of those resources is going to – has, already, probably – put an end to economic growth.  While Karl Marx, Adam Smith, and Thomas Malthus all assumed that at some point that would have to happen, we have made no plans to transition to a stationary economy, and so we remain shackled to a system in which even the slightest decrease in growth manifests itself as a recession – note that that doesn’t have to mean a decrease in the economy, just a decrease in the rate of growth.  So we can be in a recession and still be growing the economy – in fact, at the height of the last recession, the third and fourth quarters of 2008, Canada was still posting a 1.6% growth rate.  And none of this even addresses the fact that economic growth can be stimulated by negative facticities as well as positive ones – at what point do we start manufacturing crises in order to spur growth? I think it might already be happening – Hilary Clinton talking about melting the Arctic to access the trapped fossil fuels seems a rather explicit example.  Or tearing down Iraq to create whole new markets. How far will we be willing to go before we accept the limits to growth?

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