Friday, January 30, 2015

Fact: if it ain’t Growing, it’s Dying




The point to be grasped has been staring Western civilization in the face for the last half century: namely, that a predominantly megatechnic economy can be kept in profitable operation only by systematic and constant expansion.
Mumford (1970:348)

In this post, I examine how the money system is ignored in the mainstream media. I include within “money system” the notion that price measures value satisfactorily and that by extension market-based distribution of goods and services is fundamentally a Good Thing, and further that Perpetual Growth is both possible and desirable. These have become fundamental articles of faith and represent a significant portion of the unseen-but-palpable skeleton of the mainstream narrative. The implication that emanates from the collective voice of mainstream reporting is that the money system is as natural, pervasive and unchangeable as a physical Law. It is therefore just as futile to question the system’s validity as it is to question gravity’s. Worse: the money system is kept out of sight, goes unreferenced lest people realise it is a human design, not a force of nature.

The first quotes come from a CNCB article on European QE (all emphases are mine throughout):

[…] in the hope of stimulating the euro zone economy. However, with consumer prices now falling in the region, the ECB has implied that it is ready to reveal even greater measures to try to boost inflation back to its target levels and provide a fillip for growth in the region.

She [Gemma Godfrey, Brooks Macdonald] believes that the main risk this year could actually be a U.S. recovery failing to lift growth in the rest of the world and Europe, instead, pulling U.S. growth lower. 
[…] “more money doesn’t necessarily mean more jobs” if the stimulus doesn't find its way into the pockets of the consumer.

This is like shooting fish in a barrel. Nowhere is there even a suggestion that growth is unsustainable, or that there could be any reason whatsoever to question the ‘logic’ that growth is “imperative”. As I have pointed out again and again at this blog, constant growth is a systemic requirement rooted in the the money system’s design (more below), not an inescapable Natural Law. But the implications of ending that system and implementing one that operates healthily with steady-state growth are as broad as they are profound. Opening that can of worms is simply too much work for the mainstream media. It is the devil they don’t know. Consumerism is what we do know. Ergo, more and more of it is better than less and less.

These are from a BBC article, also on QE:

[…] the eurozone economy still flatlining five years after its crisis […]

[…] the best it can do is cover up the symptoms and get the blood pumping a bit more energetically.

It is warding off a vicious spiral of disinflationary decline […] But it cannot turn low growth Europe into vroom vroom Europe.

[…] labour and product markets needed to be liberalised and stultifying vested interests crushed, that the costs of doing business need squeezing, that large public sectors need shrinking.

It would help a France or Italy to expand and invigorate their private sector […]

Again, fish in a barrel. Zero and negative growth warrant approbrium and negative qualifiers,
healthy business growth and Freedom to do business deserve praise and positive qualifiers. This is beyond doubt, a fact of life, something we all Just Know.

From the Telegraph (a good article actually):

Those who argue that the US and the UK are growing faster than Europe because they carried out QE early are confusing “correlation with causality”

While this is a good point that needs to be stressed more often, the unstated conviction throughout the article is that robust growth must return to rescue the world. Otherwise there is much in this article that I recommend, as it highlights how much of a quandry the world system is in. Without growth, this system simply doesn’t work. However, unlike the logic displayed in the cited articles, growth is not the solution.

I could of course quote other articles from other sources, but that would be mere repetition in what is already a simplistic post. It is abundantly clear and uncontroversial that the mainstream is most often an uncritical mouthpiece for the mantra that perpetual growth is both Good and Natural, and may not be questioned, even by implication. The unseen-but-palpable skeleton that is the ideological structure behind articles such as the above arises from real, painful phenomena like rising unemployment and its attendant economic hardship when economies are in recession or depression. This is the recent history we all know. And it is indeed bad.

Worse still are ecosystems that fail to support human life.

I am currently in the Philippines, a country of over 7,000 islands that is experiencing something of an economic boom. Cebu, the island I am on, is a case in point. Traffic is often gridlocked, cranes poke out of the skyline erecting the new office buildings, malls, residential complexes, hotels and resorts that are steadily replacing the surrounding jungle. Just two days ago I was on the roof of one such new hotel surveying the surrounding landscape. The view was a sobering confirmation of William Ophul’s quote: “As a process, civilization resembles a long-running economic bubble. Civilizations convert found or conquered ecological wealth into economic wealth and population growth.” A shorter version might be: Civilisation turns ecosystems into economic systems.

The question I always ask is this: Is economic activity more valuable than non-economic activity? If not, why must it grow at the expense of everything else?

One of the many consequences of the state of affairs I am highlighting here is that radical critiques of the system cannot be journalistic. Reports and articles that support The System can rest on a broad base of consensus assumptions that masquerade as Facts of Life. This means a whole lot of information can go unsaid. Mainstream articles can thus stay trim, nimble and brief. This leanness is confused for professionalism, authority and truth.

The opposite is true when The System is highlighted for critical analysis, and especially when radical alternatives are proposed. Articles from folks like me cannot be lean and authoritative precisely because a new story is being told. The new story’s referents are not established; there is no consensus, nor can there be in advance. People tend to be conservative, requiring Proof of Perfection before embracing the devil they don’t know. This is of course the conservatism that is such a vital cultural attribute. Without conservatism, wisdom would not accrue and change would be too haphazard, too volatile. Conservatism tests the metal of new ideas. It is (most often) the healthy cultural skepticism that exposes foolish ideas. Today, as ever, it is up to those of us who want to share the new story to do so in a way that commands respect. The burden is on us.

So: why is growth currently a systemic addiction?

The current system creates money as interest-bearing debt. When money is lent by commercial banks to the private sector, new (credit) money is created and the money supply expands. More money than is created as a loan must be repaid (interest) to settle the loan. Repaying the loan causes this money to vanish from the economy: the money supply contracts (even though the interest ‘earned’ remains with the issuing bank).

Somewhat similarly, when governments want to ‘add’ money to the economy, they borrow from the private sector by selling debt in the form of bonds, gilts, treasuries, etc. They then owe more back than they borrowed due to the compound interest.

In the case of government, it is in fact more complicated than this. The government actually drains money from the economy when it sells debt: money moves from private bank accounts to government accounts, which means there is less money in the private economy. However, this frees the government to e.g. spend more on teacher’s pay, as such largesse should be less inflationary following the drain. The effect is a kind of neutral ‘addition’ (in this example) to the public sector via government spending preceded by a drain.le It's a little like moving a computer file from one location on a hard disk to another: the amount of storage taken up does not change (if we ignore interest!). QE (quantitative easing) is, crudely speaking, buying back otherwise unsellable bonds, gilts, etc., thereby flooding commercial banks with fresh ‘cash’ in the hope they will lend it into the economy. I.e., QE is designed to increase private debt to stimulate growth. Instead, it tends to be used by financial interests to inflate stock and commodity markets, but that’s another story.

However, despite that lengthy excurs, the underlying dynamic is the same in both cases, as both are emergent phenomena of the deeper civilizational project. The money-creation-and-destruction process begins as interest-bearing debt one way or the other (otherwise one is simply printing money), a dynamic that requires constant economic growth to function properly. We’ll look at the differences between the public and private sectors of an economy in the next post by examining the messages contained in mainstream articles on Grexit, Greece’s possible exit from the euro.

Anyway, let’s not get too bogged down in technical details (if you do want to, read this). Instead, let’s look at the underlying dynamic (P < P+I). Money is almost always created as debt (notes and coins for example are not created as debt, but are only about 3% of the money supply). The debt (Principal) bears compound interest (+I, the exponential function), so more money must be paid back than is created. This never-enough-to-go-around, musical-chairs tension can only be kept from implosion by creating ever more money (i.e. issuing more debt). Otherwise the money supply contracts and deflation sets in. Roughly, deflation (and recession/depression) take hold when the amount of money in the economy is falling because of some mix of:

1                    People aren’t taking on new debt,
2                    Banks aren’t willing to lend,
3                    Consumers aren’t shopping as much,
4                    Businesses are ‘rationalizing’, etc.

This is the classic positive feedback loop that fuels the spiral: a shrinking money supply causing increased musical-chairs tension and thus more defaults, more caution, more deflation, and so on. The ‘cure’ is to somehow reactivate confidence in the future, to stimulate growth by encouraging banks to lend and consumers to spend.

(Orthodox economics will tell you that interest earned is fed back into the economy in a closed circle and thus need not lead to the dynamic I describe. To convince, this academic logic must overlook the pattern of history and with it the context of civilizational expansion, among other things. Qualified experts of the late 19th and early 20th century wrote very convincing books on how manned flight was impossible. Qualified experts can be wrong. Indeed, radical discoveries tend to happen outside orthodoxy, as one would expect.)

All the phenomena described are systemic effects of our debt-money system. They are not the consequences of some natural law. Jungles and forests, and non-human populations grow to a certain point then reach steady-state growth. Why shouldn’t the economy?

It should, or it will collapse. To mature to steady state, the money creation/destruction system needs to be fundamentally redesigned. The redesign I find most sound (Infomoney) will be the subject of later posts. In conclusion, it’s not exponential but steady-state growth we need. Understanding why this is so requires thinking far outside the mainstream box, and is thus studiously unexamined within it.

12 comments:

Debra said...

Interesting, Toby.
The quotation at the head of your article summarizes an idea of growth as.. cancer, in my opinion.
I keep coming back to some of my.. monomaniac ? ideas though, after all these years.
Why separate "economic" activity from non economic activity ? What does this separation mean ? Every kind of activity IS economic in an organic world, which means that money is not an artificial product of a human, thus, unnatural world. It is an example of what our species, different from other species, which makes it more skilled in some areas, but less in others, has brought into OUR.. natural world.
The mainstream media ideas about perpetual growth are the result, I believe, of our single-minded instinctual drive for liberty (no, not an invention of the French Revolution, as I read this morning...). If we are perpetually growing then, we are... FREE, and we don't feel the sides of the aquarium, and no animal in its right mind likes to feel the sides of the aquarium. All animals have a certain degree of curiosity, of desire to go beyond perceived boundaries.
Granted... we have devised some pretty high fallutin ways of not feeling the sides of the aquarium, particularly now that we no longer have non human predators to control our uncontrollable population that is eating up the planet, but we are still trying to manoeuvre to not feel the sides of the aquarium.
Now... what happens when we start feeling the sides of the aquarium ?
Well... like tropical fish in the aquarium we start seriously competing with each other for a piece of what has become a FINITE, thus limited pie. Intraspecific competition sets in, with increased aggressivity, and we start feeling guilty about our aggressivity... (maybe like the rats, Toby)
Ironically, liberty is both boon and bane...
I maintain that most of our current difficulties come from an individual, (sujet singulier) refusal to recognize that liberty is conditional, not absolute.
But... as animals we tend to " know" these things when they are impressed upon us from the outside, and the limits that give us structure are more meaningful, and have more weight, when they come from the outside, and are not self imposed.
Our perpetual economic growth ideology also deviates our reproductive drives, and sublimates them. That means that what you call mainstream media is vehiculating some pretty powerful, heady stuff, which is not going to go away because "we" decide that "it" is a bad idea.
Gotta find another way to deviate those drives, Toby. They are not going to go away...



Toby said...

Hi Debbie,

"Why separate "economic" activity from non economic activity ? What does this separation mean ? Every kind of activity IS economic in an organic world"

This point is valid in a different paradigm to our prevailing paradigm of Separation and is a perspective I often reference myself. I.e. everything that causes change is work, even sleep, even decay and rot, thus all activity is economic. i've made that argument many times. But this, as said, presupposes a very different definition of economics to the current one. Hence your conclusion:

"means that money is not an artificial product of a human, thus, unnatural world"

is a non sequitur. Money moves from person to person and business to business via what the market defines as (or 'decides' is) economic activity. I am not being paid to write this, you were not paid to post your comment, etc., etc. We might both agree that all our activity is economic, but orthodox economics does not see it that way.

Then the different between "artificial" and "unnatural". For me, the former means, "made by man", the latter is an impossibility. However, my beef with the word "unnatural" is fringe. Again, orthodox economics sees nature as a subset of the economy, the area from which natural resources can be extracted and exploited, have work applied to them, and thus turned into 'valuable' goods and services. This paradigmatic perspective puts humans somehow beyond and above nature, as engineer-scientists slowly but surely fulfilling their destiny to become Lords and Masters of all of nature (which is seen as a machine, not an organic whole), one day able to control all outcomes.

As for the urge to expand, experiment beyond the known, etc., of course, that drive is there. But it's economic growth as defined in the post as the conversion of nature into goods and services that is unsustainable. I.e. qualitative growth may well be infinite, but quantitative growth is not.

Drives manifest differently per the culture that harnesses them. Hunter gatherers are fiercely egalitarian, whereas civlisational cultures are stubbornly (vainly?, egotistically?) hierarchical. Each mode 'wields' human drives differently, giving rise to different expressions thereof.

Tao Jonesing said...

What do you mean by "steady-state growth," and how is it possible to differentiate it from perpetual growth?

There's a part of me that has come to believe that the present money system and supporting economic theory have been created as an economic "neutron bomb" to allow the powers that be to continue their games of conquest without destroying capital.

Toby said...

Steady-state growth is a term from ecology. It is characterised over time by averaged zero-growth consisting of intermittent periods of growth and degrowth. An example might be deer and wolf populations in wavering homeostasis with each other over time, sometimes a few too many deer, sometimes a few too many wolves. In terms of GDP, you might say we are there, more or less, already. And indeed, GDP measurements would be a primary way of establishing whether or not we are in steady-state growth, but there would be other measures, some of them environmental, i.e. the health of ecosystems.

Yes, the money system perpetuates the famous natural order. It is of the paradigm and preserves the paradigm. But even paradigms as pervasive as the modern world's come to an end.

Tao Jonesing said...


"Steady-state growth is a term from ecology. It is characterised over time by averaged zero-growth consisting of intermittent periods of growth and degrowth."

I am not sure that concept translates well from ecology to economy. Economic "degrowth" is due to conscious choices in response to a shock, not natural forces.

For whatever reason, I was reminded of this piece from Steve Keen:

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

Toby said...

"Economic "degrowth" is due to conscious choices in response to a shock, not natural forces."

Your observation is correct as far as it goes, but only as a phenomenon of consumerism and thus the deeper money system and meta-paradigm. Steady-state economics and consumerism are mutually exclusive. As I point out again and again, there's no silver bullet. The revolution needed to bring about steady-state economics must be so deep and broad that almost nothing is untouched. Cultural ideas about status, wealth, being and interbeing, purpose, etc., will all be affected and understood anew within a fundamentally different paradigm. That's not to say that status etc. will become things of the past, far from it. They just won't be measured or evaluated or understood as they is today, not if steady-state economics is established anyway. E-g., material acquisition won't be how status is measured.

That sounds too predictive. I mean it as a logical connection between steady-state economics and the other stuff that must change together (no silver bullet). And I don't mean it must be harmonious and carefully orchestrated. It will be very bumpy and fractious. And of course we can flunk this crisis/opportunity too. We can be too afraid to take the many necessary risks.

Toby said...

Oh, and I know the article well. Just referenced it over at Naked Capitalism. And you're right, the article does strongly imply that the money system requires constant growth to function. As constant growth is impossible, we need a money system that is happy with steady-state growth. This logic leads inexorably to many other factors of the current meta-paradigm that are rooted in humanity's sense of itself as somehow destined to Ascend, to defeat nature, etc. Achieving steady-state growth is a HUGE deal. It will change everything, if we manage it...

Tao Jonesing said...

Consumerism is a product of the 20th century, and yet we had financial boom-bust cycles well before that, starting at least as early the 18th century.

Even if the money supply were itself to exhibit steady state growth, the financial elites would nevertheless drive financial boom-bust cycles because they control access to both money and credit. When they incur losses in a bust, they tighten the credit and charge interest to gain an outsize share of economic growth created by other people. Once they've made back their losses and then some, they create speculative booms by charging less interest and engaging in all sorts of schemes.

It is not enough to change our attitudes towards growth, we need to change our conceptions of money and credit.

Debra said...

Reading both of you makes me think that you are thinking... from within the system.
...
My mother in law, who is convinced that she is losing her marbles nevertheless makes remarks on our current situation that are very pertinent.

One of her remarks is that she is swamped with overcomplicated paperwork.
These days, when she receives a letter from "the system", understand, the way WE have managed to organize our lives together, to take care of those major social tasks of deciding who is going to raise children, take care of them, who is going to take care of the old dependants, for example, her eyes go blurry, and she refuses... to READ, to try to understand.
She complains constantly about "all the paperwork"...
You may think that since she is 88, her stubborn refusal to... deal with what WE have decided is reality is due to her age.
But in France, at least, many people gripe about the complexity of... "the system" (which includes the State, the insurance companies, the retirement funds, social security, the banks, and.. etc...)
They feel helpless, and left behind.
This morning I heard on the radio that the Greeks were pulling their.. savings money out of their banks...
...
Let's NOT talk about money for a minute. Let's talk about something else.
Yesterday, I spent some time looking up, and meditating on, the etymology of the following verbs in French : "lire/élire/délirer".
You can recognize two of those verbs from English : élire in English becomes "elect", which has etymological ties to "elite".
"Elite" and "elect" are formed from the Latin "legere", lower Latin for "pick up, pluck" (note the agricultural context...) The verb "legere" became, for obscure reasons, "lire" in French, which means... "to READ"...
So... WHO are the elites ? The people who can read and write...
If you open Thomas Hardy's "The Return of the Native", you will learn that at the end of the 19th century, many people in the countryside neither knew how to read or write, and that they managed to get along quite well without it...Their... ECONOMY did not require for them to know how to read and write.
Because... in a complex world... when EVERYBODY knows how to read and write, your.. PAPERWORK explodes, your money system... explodes, and that ideal that you thought was so great ? It starts looking a lot like a nightmare.
That's where we are right now.
The buggy is running in front of the horse...
My dotty 88 year old mother in law.. KNOWS this in a way that she can't explain to you as I am doing here.
There is nothing... worse for our species than achieving utopia. That's when we realize that our.. Ideal is really not ideal at all.
Why can't we realize this... before ?
Because.. we are illogical, irrational animals who are convinced that we consciously control and can control, more than we can, and do.
As I say, the words seem to make us.. mean...
Not the contrary...

On your ideal, Toby...
If you open the etymological dictionary once again, in French you will see how words like "merci" which means "thank you", come from a subverted... Latin for "money", or "salary"...
What you are griping about, in part, is due to the very longstanding effects of our "détricotage", understand, unraveling, of what the Christian faith set up in order to subvert Roman empire/pagan ideas towards money, and.. elites.

Tao Jonesing said...

@Debbie,

I use the term "elites" to refer to the people who control the supply of money and credit, which is a tiny tiny fraction of the people who can read and write. These are modern day kings who rule largely anonymously, and that is by design. The delusion of increased "complexity" every generation complains about is not a spontaneous thing. We still have our kings (we call them billionaires), we still have our slaves (we call them workers), we still have our conquests (we just try to achieve them using finance instead of force of arms).

Toby's focus on the insanity of perpetual growth is aimed at the heart of the current elite's control mechanism, which drives businesses and governments to manage their firms and economies to simulate a bond of infinite duration and above-zero average yield. There is nothing complex about what the mantra of perpetual growth and the economic policies it drives. It is very simple and plain to see.

http://taojonesing.blogspot.com/2011/07/placeholder-illusion-and-lie-of.html

Toby said...

@Tao I: exactly, just as I have been arguing at this blog for years. I would add that boom-bust is the volatility that comes with perpetual growth. Steady-state growth is fluctuating growth and decline that is not boom-bust as the system has matured beyond such volatility. As for money supply, I will address that in some deail when I start post on the Infomoney idea. One of its key features is to make money (or what Infomoney calls "money") organically and systemically democratic such that it cannot be controlled by a minority. Proof to follow...

@Debbie: You might find "The Art of Not Being Governed" by James C Scott very interesting, especially his observations on the utility to controlling and control-mad elites of the written word. Otherwise I can't see how you think your pertinant observations are criticisms of my broader position. I find myself more or less in agreement with you. There's a deep communication problem here, and I really don't know where it comes from, me or you (both? virtual chemistry ;-) ?). When I reference elites, I mean a section of society that exploits for reasons of self-aggrandisement, vanity and patrician control of what they see as the Great Unwashed. I'm not criticising natural authority, or excellence, or superiority or anything else you constantly allude to in that vein. But I don't want to explain every word I use every time I use it. Once or twice should be enough.

@Tao II: I'd add that perpetual growth is the most obvious ill of this system, as well as being is core operating dynamic. The system's money system is thus a reflection of the deeper civilisational dynamic of expansion. Thus, addressing this challenge requires redifining the civilisational project itself. In other words, tackling Growth means tackling Civlisation, and won't be easy. Or: we can expect fierce resistance...

Debra said...

Tao, it's not because you can recognize recurring patterns that repetition is identical. You know that.
I think that SOME workers today may have lives that are much less enviable than SOME slaves during Antiquity.
Does that make the modern day worker a slave ?
Does that make the modern day financial elite a king ?
If you want to make the equation, go ahead.
But I won't make it.
I said that the elites WERE the people who knew how to read and write, because, etymologically, that.. paradigm has held up until the 20th century. It was in place for thousands of years.
It no longer holds. Because we have achieved that utopia. The elites NO LONGER are the people who read and write. Now, the generalization/democratization of the written word is one of the major factors threatening our survival. Because the written word is NOT the spoken word, at all. And what the written word sets up as symbolic system is much more... permanent ? and constraining than orality.
I continue to maintain that achieving that utopia has contributed to increasing.. complexity.
And no, complexity is not a lie. (Why talk about lies ? I have this argument constantly with some radicals I hang out with in France...)
The world is indeed different than it was when my grandmother rode in a horse and buggy. It is not because each generation gripes about increasing complexity that that complexity does not exist.
Our technological.. progress has got to such a point that our frail human, animal.. nature is menaced by it. That is a catastrophe. As REAL flesh and blood animals, we have limits. WE.. are not natural forces. We are not words either...NOT JUST.
Many people instinctively feel this, without being able to express it.
You said nothing about what I put about channeling our aggressivity, and sadism into perpetual growth, and the financial sphere. That too, is a hypothesis about how we got to where we are now..
As I said : you gotta do something with that aggressivity, and it isn't going to go away soon, if ever.
Toby : on the great unwashed... Two years ago, I went to a meeting of French people, mostly from Education Nationale, who were affiliated with a theater association devoted to popular education. We did a "tour de table" talking about why we were there, and most, if not all of them mentioned their desire to get culture to the people.
When it came my time, I asked them just exactly who the people were, because it seemed to me that in the country of the French Revolution, that revolution was made so that everybody would be the people. Yet, here they were, at the table, talking about the people as though THEY were NOT.. the people...
Those were not nasty, vain, hoity toity people, Toby. They were pretty ordinary people with an education, a job, and a car in the garage...
Ironically enough, I have fewer problems defending my position, since I am not... a democrat...
Thanks for the book reference, Toby.
I think that if we have communication problems, it probably comes from the fact that you are a guy, and I am a gal (nonobstant what Tao might think...).