Two Different Ways to Convert THE EXISTING ECONOMIC SYSTEM to a ‘No-Growth’ Economy
one completely conventional, the other rather revolutionary
Simply put, at this point the costs of economic growth are too great to continue as we have up till now. We are reaching our planet’s physical limits: we are depleting the stock of natural resources Earth possesses; we are testing its capacity for changing from natural environments to humanscapes; we are overwhelming its capacity for ingesting the waste associated with economic activity of all kinds — production (including packaging), transportation, and consumption; we are destabilizing the climate — the only climate humanity has known since civilization began to emerge several thousand years ago (a chronology with which the Bible and scientists are in agreement, by the way). As a result of all that, we are threatening the complex, fragile ecosystem on which life as we know it on Earth depends.
Anyone who rejects that summary of the facts is certainly free to stop reading. Anyone who accepts it is not.
Anyone who accepts that summary of the facts is burdened with the responsibility to seek a solution and advocate for what that person considers to be the best available one. Merely warning, decrying, wailing, or wringing hands or even analyzing is no longer responsible behavior. Anyone who accepts that summary of the facts is acknowledging that we know what the problem is well enough and that it is too late for relying only on incremental change — and too late to keep looking for a yet more perfect solution to be presented.
To preserve life as we know it we simply have no choice but to make some kind of major, systemic adjustment at the macroeconomic scale ASAP. That necessary change can take one of two forms, I have learned, without changing from the existing economic system. That makes it possible to make the change that is needed ‘overnight’— in either case, with ‘merely’ a single legislative Act.
Currently, almost every nation on the planet has the same economic system. It is comprised of money, a banking system culminating in a central bank, and government. For as long as civilization has existed, government (whatever form it has taken) has always been the biggest single economic actor in every state that has ever existed (to be clear, to include the whole history of the U.S.). Further, the government is where the rules, regulations, and laws governing participation in the economy — which are also part of what an economic system is — are promulgated.
Those rules, etc. vary greatly. They reflect a basic cultural attitude towards private property and ‘the market’. They result in more or less intervention in the functioning of the economy by government. The reflect a greater or lesser concern for the ecological environment and the minimum material well-being of individuals.
In short, those rules, etc. determine the nature of a nation’s economy. They generate very different economies using the same economic system.
An example of a different economic system would be North Korea. There, there is no private sector (except for black market operations). The government owns all of the ‘means of production’ — land, buildings, and equipment. Even the banking system is part of the government. (The government is completely controlled by the Communist Party, which is completely controlled by Kim Jong Un.)
Both of the two options related herein would change the way the all but ubiquitous economic system operates to a significant extent, but neither would be replacing it with a different economic system. As changes to the system, both are limited to the process of supplying money (in the form of currency) to the economy.
Nothing else regarding the fundamental rules, etc. governing participation in the economy, such as the attitude towards property or being more or less market-oriented, would have to change for any nation in either case. Any nation with that economic prevalent system could implement either option for converting to a no-growth economy and retain the kind of economy it now has.
The economy is the production and acquisition of goods and services. In every nation, growth — expanding total output, i.e., increasing the production and consumption of goods and services — has been considered to be necessary. The only acceptable reason to seek to slow growth rather than encourage it has been when the rate of price inflation has gotten to be ‘too high’ (however that might be defined).
Some people see personal greed as the primary driving force for seeking economic growth. The higher-ups in businesses get larger salaries and bonuses. The members of the ‘investor class’ who own significant amounts of stocks in companies benefit from the ever-higher prices for those stocks that sustained economic growth generates.
Economic growth has also had broader benefits for society. More growth means lower unemployment and can lead to higher wages and salaries for workers. More growth means more taxes collected at the current rates of taxation, meaning communities everywhere have more money at their disposal without raising tax rates. Those higher prices for stocks help support pension funds — public and private. For the sake of the simple truth, everyone must acknowledge that the system as it has functioned up to this point has lifted many people out of poverty, and especially out of the kind of poverty where people have no access to indoor plumbing, to include drinking water and the disposal of waste — though with growing rates of homelessness in almost all nations that measure of material progress is receding.
As noted, though, whatever its benefits, the costs of depending on ever more economic growth for material progress have become too great. Some kind of no-growth economy is now a necessity.
Herein, a “no-growth economy” is defined as one in which the production and acquisition of goods and services is not artificially stimulated by interjecting ‘new money’ into the economy via deficit spending by the central government or via the creation of additional money for the central bank to use for its own purposes (such as ‘quantitative easing’). Rather, the amount of money in the economy would be a closed system (domestically: net flows of money in a nation’s current accounts — primarily investment and imports/exports, though foreign aid and remittances can be significant — would still add to or subtract from the amount of money in its economy). In such an economy total output would be allowed to find its own level.
Here we must distinguish between money as currency — ‘new money’ — and the creation of money by banks when they make loans. When they make loans banks don’t hand over money from the vault; rather they ‘extend credit’: they credit the borrower’s account with money (perhaps an account created for the purpose). Thus in that way in a very real sense more money is created — even though in just as real of a sense the money isn’t actually ‘there’. For present purposes, what is most important in that process is that the ‘money’ thus created is returned (with interest) to its point of origin — to the bank that lent the money. It is a closed system.
‘New money’, on the other hand, currency, i.e., money that is created for the central government or the central bank to use for whatever their purposes might be, is not returned to its point of origin. Once in the economy, it exists forever. That is why eliminating adding currency to the economy via the creation of such money makes the supply of money — though it can still be increased through lending by banks — a closed system (domestically).
Obviously, that could be achieved by merely banning those two practices. That would be the completely conventional option. The result would be some short-term economic dislocation and increased hardship for some.
At present, though, no central bank anywhere is engaging in quantitative easing; indeed, most are engaging in monetary ‘tightening’, i.e., selling other assets to collect money in their vaults. (That money does not ‘disappear’, but is merely being held by the central bank). To be sure, central governments all over the place are still engaging in deficit spending, but in normal times (remember those?) only a small percentage of that spending is financed through the creation of new money. Almost all of it is purchased — primarily by financial institutions (to include the central bank) and other nations — using money they have on hand. So to stop the creation of currency at this point in time would not be the shock to the system that it would have been even a couple of years or so ago.
At the same time, the humongous stock of money as currency that has been created in the world since 2008 would still be in existence. Much of those trillions of currency is sitting in accounts in various places, doing nothing but perhaps collecting negligible amounts of interest. As time went on, that vast amount of money would be used to make purchases of one kind or another (including, yes, speculative assets), thus being brought back into circulation in the economy. Governments could use tax policies to encourage putting money that is sitting in accounts into circulation. [Also, one exception might be allowed: the creation of new money — currency — for the central government to spend (based, say, on its per capita spending at present) if the population of the nation had increased from one year to the next.]
Eventually, a nation would adjust to that new economic reality. It would not have to be a dystopia.
In the existing economic system government acts as a pump. Despite what many ideologues on the political right insist, the fact is that money sent to government in the form of taxes is not ‘gone’. Every last bit of money that government receives in taxes is returned, one way or another, to the private sector.
The question is, what form does that take? Does the money pumped back into the private sector go primarily to corporations (in the form of contracts for the production of public goods and services), or does it go towards individuals, either directly, in the form of payments, or less directly, in the form of subsidies?
The existing economic system can function either way. To the extent that the former prevails it does tend towards an economic dystopia in which some are insanely rich while others are forced to do without the basic necessities of life. To the extent that the latter prevails, it tends towards a nation focused on ensuring first and foremost that all citizens of the nation have enough and that the natural environment is taken into account.
In general, the U.S. and western Europe, respectively, have exemplified those two different approaches. In this no-growth scenario the political competition between those two tendencies would presumably become more intense, at least at the beginning, until a status quo for the new societal reality was established.
I have found another way to achieve a ‘no growth’ economy as defined above. This is the rather revolutionary option. Revolutions have historically been associated with violence, massive societal dislocation, hardship unto death, and redistribution of money/wealth. None of that would be the case in this case.
In it money would be created as needed to fund a (sufficient) minimum guaranteed income for (adult) citizens and to fund all government (from local to central). That money would not involve deficit spending. It would not involve debt in any way. It would resemble, instead, quantitative easing. Rather than going to the ever-more-reckless speculators at the ‘top’ of the economy, however, the money would go to government (to fund public goods and services) and directly to individuals at the (significantly raised) ‘bottom’ of the economy.
To reiterate, that money would not be taken from anyone. It would, as stated, be created as needed.
With this approach there would be a constant flow of ‘new money’ (as currency) into the economy. It would, however, be a closed system because there would be a mechanism for capturing money and returning it to the point of origin of that supply of money — which for present purposes we will assume would be the central bank. In terms of the functioning of the economic system, that is far and away the most revolutionary part of the proposal. To be clear: individuals and businesses would be able to retain plentiful pools of money (based on income) and no money would be collected from any person or business before it could be used for purchases of investment. That latter point differentiates this mechanism for collecting money from any kind of taxation. [A new Monetary Agency could be created to administer this new monetary paradigm, which would emphasize the independence of the supply of money — as currency — from both the central government and the central bank; either way, lending by banks, which, as explicated above, is its own closed system, would continue as at present.]
The outcomes for society from adopting this proposal are astonishing, even astounding. I had no expectation when the idea first occurred to me what they would be, much less that they would transform society in so many good ways — again, with the existing economic system in place and with the same kind of economy for any nation that would adopt it.
Those outcomes are absolutely, positively guaranteed. They are built into the functioning of the adjusted system. It would be impossible for them not to exist. Here they are:
- There would be no unemployment or poverty at any level of total output.
- There would be no taxes of any kind or public debt (once all existing debt had been paid off out of the allotted funds — thus making more money available for public goods and services), as long as government anywhere did not exceed its allotted funding; but if it did (say, due to a natural disaster), at least taxation would re-start at zero.
- The economic system would be completely self-regulating, with built-in protections against inflation. (There would still be plenty to argue about in the political process related to the economy, to include things like environmental regulations and consumer protections, but what to do about the functioning of the economic system would not be one of them.)
- Sustainability would be increased systemically because total output would be governed, passively but effectively, by demographics.
I have already written in detail about this new monetary paradigm here in Medium*. For present purposes, all that is left to say is that this change to the economic system would not impose any cost on employers, would not involve redistributing anything, would not impose any limit on income/wealth, and would not require people to act any particular way.
Neither the outcomes listed above nor that list of ‘would not’s’ are the result of ideology. It just so happens that there are things about this paradigm for people of any ideological persuasion to like. For anyone to ignore or actively reject this paradigm because there happen to be things about it that a person of an opposing ideology might like would be pathological ideologically driven conduct.
______________
*For anyone interested in gleaning more of the details about the paradigm I have developed, the best place to start might be “Permanent ‘Quantitative Easing’.” It is brief (a “4 min read”), makes an important point about money in the context of this paradigm, and at the end has links to “Same Economy, Way Better Outcomes for Society” and “Paradigm Shift.” The former focuses on details regarding the implementation of the paradigm (with the U.S. as the illustrative example) while the latter relates the paradigm in a much more technical but more generic way. For more income equality there is “The Unnecessariness of Marxism” (for society to go where Marx foresaw). All linked articles are in Medium, but not behind the paywall.