Virtual Wealth Growthism
“Money as wealth is an illusion.”
By this point in the conversation, our six passengers had joined us and were listening to what we were saying with great interest. They each had their own viewpoint on what was going on with the U.S. economy and were eager to share their opinions. Captain Bob had to leave the discussion to go make some adjustments to a frustratingly temperamental auto-pilot. But I had the good fortune of being able to listen in on a fascinating, spirited, and most unexpected debate about a ‘virtual-wealth casino economy’ on the brink of collapse:
I am afraid that the vast majority of people do not understand the profound role that cheap, abundant fossil fuels have played in enabling our complex societies, career specialization, mass-consumer lifestyles, and phenomenal economic growth. When that energy is no longer cheap to produce, or abundant, economic growth will end. And when that happens, our growth-mandated financial systems will collapse in short order.
We are seeing early signs of that now and are desperately trying to sustain a fundamentally unsustainable system by creating massive quantities of debt, most of which will never be repaid, and encouraging increasing consumption in an era of rapidly decreasing natural resources. We are playing whack-a-mole risk games with ever more creative ‘financial products’ and observing the cancerous growth of massive secondary markets for ‘derivatives.’ None of this will alter the fundamental physical reality of obvious limits to growth on a finite planet, though clever Wall Street 'quants' can still make lots of money just as easily when markets fall as when they rise.
Sadly, the average American carelessly invests in the stock market with very little knowledge and essentially gambles with their life’s savings because they have been conditioned to expect a free lunch from a growing economy that ‘floats all boats.’ Having worked on Wall Street, I can tell you that the U.S. economy has degenerated into a casino economy. Money created through the manipulation of financial markets is phantom wealth as it does not result in anything of real value in the process; it becomes a baseless and fundamentally unjust claim against society’s real wealth. And when the markets ‘correct,’ that virtual wealth, unsurprisingly, quickly evaporates.
Did you know that the world’s total financial assets greatly exceed the market value of the world’s real physical assets? There are ludicrously extravagant ‘paper claims’ on the world’s wealth and far too few tangible resources backing those claims. And why is that a problem? Because this creates expectations of entitlement by those few who hold these outsized financial assets — expectations that can never be realized. It leads to clueless cable-TV pundits confusing stock and housing price bubbles with ‘wealth creation.’ It is all false wealth!
And here we are being told that we are getting richer as a society when in fact — if one is truly paying attention — all of the living systems essential to our well-being are in distress and rapidly declining from abuse and neglect.
It is a foolish game you are playing. On my island, we feel deeply connected to the Earth — we belong to the Earth; it does not belong to us. Ours is a richer and more natural ‘living-wealth’ informal economy that does not focus on how to best allocate money to maximize financial returns, but on how best to allocate human time and talent to maximize living returns to people and to Nature. Exchange of money is not the rule, but the exception.
Money has much reduced significance in our ‘lean’ economy. We strive instead to properly manage and balance the many things that we value and find useful — what you call ‘capital’ — beyond just ‘financial capital’ or ‘money’ — those things include human, natural, social, intellectual, and built ‘capital’ — and the sustainable trust we share between members of our community. Money, markets, and corporations are useful servants; but monstrous masters.
Our current economic system encourages maximizing financial assets and flows of money as GDP, while ignoring the care of the living systems on which the economy depends. There is no short-term profit incentive in sound environmental stewardship. We also have too many social traps, where local or individual short-term incentives that guide behavior are inconsistent with healthy long-term goals. Cigarette and drug addiction, overuse of pesticides, economic boom and bust cycles, privatization of information, and overfishing are all good examples of these social traps. They all have this in common: by following short-term feel-good road signs, over the long term resources get exploited or a system is weakened to the point of collapse. The elimination of social traps require intervention — the modification of the reinforcement system.
Ideally, a democratic government assumes this role — while maintaining as much individual freedom as possible — through education, regulation, and legal means. But in a market economy, resources for which access is difficult to restrict — such as frontiers beyond the control of governments, open oceans, Earth’s atmosphere, and wildlife that crosses national boundaries — are frequently overexploited. For example, overfishing is far more likely in an open-access fishery than in a fishery managed as a common resource.
The global climate-regulating system is also a great example of a global resource in desperate need of commons-management institutions. For centuries, industrializing nations have dumped carbon dioxide — a by-product of fossil-fuel combustion — and other greenhouse gases into the atmosphere with no regard for the impact on the climate system as a whole. To avoid this tragedy of ‘open-access commons’ requires the existence and enforcement of boundaries. The role of government needs to be expanded beyond its essential role in regulating and policing the private market economy.
It has a significant role to play in expanding the commons sector, which can manage non-marketed natural capital assets and social capital assets. It can also help develop new common-ownership models at various levels of scale that are not driven by short-term growth principles. Unfortunately, we humans are naturally prone to completely ignore the possible future effects of choices made today.
This future discounting explains our collective failure to adequately respond to the most likely negative future consequences of the disturbing trends we are observing today from our unbridled pursuit of products, profits, power, and the theology of GDP growth — or growthism.
Isn’t it amusing how you mainlanders try to grow GDP, while we try to shrink it. We view GDP as the economic cost of producing a given level of well-being — as the rate at which society transforms Nature and human activities, helpful or harmful, into a monetary economy — and we try to minimize that cost, not maximize it.
For example, money flowing for treating large populations of chronically sick people from unhealthy lifestyles or for cleaning up after toxic chemical spills would improve your GDP from the associated economic transactions of cleanup, remediation, and legal work and therefore be seen as an economic good. The bigger the toxic spill, the better for GDP! We, on the other hand, would prefer to promote healthier lifestyles, cleaner environments, and responsible business practices and drastically lower or even eliminate all the 'economic transactions' associated with reductions in overall societal well-being.
We would never welcome unregulated, money-seeking, power-concentrating, publicly-traded, limited-liability corporations. Our institutions only exist to serve a democratically determined public interest. We see that there is a perverse tendency for GDP numbers to rise in many countries where powerful corporate and political interests destroy the lives of the vulnerable in the name of progress. Our companies are all human-scale, cooperatively owned, community-rooted enterprises.
Oh, come on now. We don’t have to redesign any institutions. Americans are innovators — we always come up with some new magical technology that kicks the economy back into overdrive. It’s what we do. We are the indispensable nation thanks to our proud culture of rugged individualism, risk-taking, and innovation. Sky-is-falling doomers like you all always discount human ingenuity and technical innovation.
Clara, I am afraid that technology, even any ‘magical’ technology you can imagine, and energy are completely different things; one is no substitute for the other.
Look, I understand that no one wants to hear that we may be reaching energy, resource, and pollution limits on our planet — and certainly no elected politician could ever mouth such dismal truths — but creating more money by expanding debt will not solve the fundamental energy and resource predicament that we are in.
Business-as-usual tweaking with the excuse that some new technology will soon save us means game-over for both the economy and the environment. Things have got to change — in a very big way and very soon!
I wonder how many people are aware of the fact that just one barrel of oil, costing around fifty dollars today — the price of dinner for two at a restaurant — contains the energy equivalent of close to five years of one human's labor! And over ninety percent of industrial labor today is fossil-fuel labor, not human labor.
Our precious fossil-fuels — indistinguishable from magic in their remarkable energy density and portability — took hundreds of millions of years to ‘manufacture’ through geologic forces. Coal, oil, and natural gas are the pressed and cooked remains of the plants (mostly) and animals that lived hundreds of millions of years ago. Because they are also flammable, we burn them as fuel. We greedily turn this truly amazing one-time energy endowment, along with other natural resources, into dollars, then into fleeting feel-good emotional consumer experiences, then into waste in our linear take-make-waste economies. And we are doing this at an ever-accelerating rate. Today, almost 90 percent of the energy used on Earth to drive, cook, light, warm, cool, and manufacture stuff comes from the burning of fossil fuels. We each now use about one hundred times more energy than our hunter-gatherer ancestors. This gorging can’t go on much longer!
That is all such left-wing bullshit! All this concern over global warming and resource depletion is just a grand socialist wet dream to give more control over to big government. Businesses are the most dynamic and adaptive institutions that have ever existed on this planet. They will solve these problems, including energy and environmental problems, as they emerge. It’s what they do best. We don’t need more wasteful government interventions.
Never gonna happen, Tucker, and you know it — you are not stupid. For-profit, shareholder-owned corporations like yours have proven themselves time and again to be best suited for one thing only, and that is concentrating economic power for their own internal profit-seeking purposes. They have no conscience.
Corporations are generally insulated from accountability for the harms they inflict on individuals, communities, and Nature. In fact, they have a fiduciary duty to not give a damn about future generations, environmental health, or sustainable business practices unless shareholders can benefit immediately somehow. And they certainly are not interested in sharing their wealth broadly.
Consider that real wages for average Americans peaked in the early 1970’s, yet overall productivity has gone up dramatically. Yet only the top five percent are making more than they were a decade ago. It is no surprise that ‘deaths of despair’ from suicide, prescriptions drug overdoses, and alcohol-related illnesses are on the rise among white, middle-aged Americans without college degrees.
Also, given the existing overpopulation of developing countries, wages in developed countries have been driven down with globalization, thus widening the disparity between labor and capital in high-wage countries. Chronic economic inequality is justified by claiming that global labor wages will eventually equalize and start to rise as the rest of the world develops and attains middle class lifestyles — which is an ecological impossibility!
Continuing to grow the global economic pie over time as a solution to address inequality ignores the reality that our biospheric oven is only so big.
It may be that we will have to accept the existence of some alternate form of government to manage shared resources now that we are living in a world where humans so clearly dominate and influence the natural world. We are now unwittingly capable of inflicting tremendous damage on the environment from our collective impact.
Do you know that in the last forty years, we’ve lost half of all the large animal life on the planet? Humans, our livestock, and our domesticated animals now vastly outnumber other wild animals. This is the sad outcome of unregulated free markets and unchecked economic growth.
Corporations are only interested in maximizing short-term profits and have no inherent interest in sustainable, steady-state resource management. Somehow we have got to reclaim our democracy from this corporate tyranny and bring to a quick end our present suicidal economic system. The modern industrial era of fierce competition, domination, and destruction must be terminated with extreme prejudice to clear the way for a new era of equitable distribution and biospheric restoration.
Sadly, most people believe that money — a trust-based claim on past or future products or services of human labor — is backed by some real wealth somewhere else. They would be shocked to find out that money in today’s debt-based fiat money system is mostly derived out of thin air as loans by private banks — it is literally loaned into existence. There is no real value being created anywhere on the planet that backs up that new money! And when the Federal Reserve — a federally sponsored private banking cartel licensed to loan money into existence — writes a check to purchase a ‘debt instrument’ such as a U.S. treasury bond or a mortgage-backed security, it is literally creating money from nothing.
Contrary to the common belief that governments create money, virtually all money spent in the economy is created by private commercial banks when they extend credit to borrowers. And therefore private commercial interests, not public benefit, play a significant role in deciding which investments to support. Thus, investment dollars tend not to flow to projects that would support the long-term protection of the assets on which basic economic services depend, such as low-carbon technologies and infrastructures, resource productivity improvements, protection of ecological assets, and the maintenance of public spaces. In other words, short-term private gain gets prioritized over long-term public security.
In today’s economy, money and finance play a major role in influencing decisions on consumption, production, investment, employment, and trade through careful management of interest rates and money supply and the involvement of central banks, commercial banks and other financial institutions. And money, as a claim on future energy and resources, is increasing exponentially, while at the same time energy and resources — real capital, real wealth — is decreasing. In other words: Money as wealth is an illusion!
Current consumption levels are being temporarily and artificially propped up and supported by central banks creating new money in the form of new debt — not by the discovery of any new real wealth. And with just a few central banks operating as all-powerful players in our global economy, never has ‘wealth’ been determined for so many by so few.