Tuesday, November 05, 2013

From the Mouths of Babes

Gottfried Helnwein
[This week's guest post is by Scott Erickson, who is an award-winning humor writer and the author of a satirical novel titled The Diary of Amy, the 14-Year-Old Girl Who Saved the Earth. I liked it. It is entirely disarming and strikes a good balance between humor and seriousness. There are enough jeremiads and diatribes and rants on this topic out there. Luckily, this isn't one of them because Scott's scathing social critique and mordant wit are delivered via a charming narrative device: a smart, earnest, precocious 14-year-old girl.]


Hi! I’m Amy Johnson-Martinez, the 14-year-old girl who’s saving the earth from environmental destruction. A lot of people don’t understand how the destruction of the earth is connected to our addiction to economic growth. Actually, a lot of people don’t even realize that we’re addicted!

Personally speaking, I think it’s kind of weird that economists don’t tell us about this. So I guess it takes a 14-year-old girl to tell you about it!

Economists always say, “The economy has to keep growing or else it will collapse.” But it can’t grow forever, because the earth is running out of resources. Actually, it’s already starting to happen. That’s a big reason why the economy is getting worse.

Our economy is giving us a totally stupid choice: Save the economy or save the earth. It won’t let us save both! I personally think that’s pretty crazy!

On my journey to save the earth from environmental destruction, I figured out pretty quickly that the main problem is the economy. Pretty much every time there’s an idea that would make things less destructive and more sustainable, the argument against it is always: “It will be bad for economic growth.”

That’s when I found out the economy has to grow or else it collapses. But when I asked why, nobody knew the answer. So I had to figure it out myself.

I looked at a bunch of economic books, but none of them said anything about why we’re addicted to economic growth. I couldn’t even find out how the economy could grow. That’s another basic question: How can money grow?

Isn’t that an interesting question?

This led to another question, “How is money introduced into the economy?”

The answer wasn't easy to find. At first I thought the answer was that the government prints it, but that was back when I was young and naive. It turns out that the government prints only a tiny percentage of the money in circulation, and the rest is just promises, based on future growth (which is kind of weird if you think about it.)

Then I found out about “quantitative easing,” which sounds intellectually sophisticated. But it’s not the “real” answer, because quantitative easing only creates more promises. And the only way to live up to these promises is by overall growth of the economy. So we’re back to where we started: How does the economy grow?

Since I couldn’t find any answers in books about contemporary economics, I tried looking at books about the history of economics. I focused a lot on John Maynard Keynes, who was from England and invented the basic economic ideas we still use.

I found something interesting that he wrote in 1933. It’s the first thing I found that talks about economic growth. Basically, he thinks it’s important to have the economy grow, but when everybody is doing OK then growth should stop:
Suppose that a hundred years hence we are eight times better off than today. The economic problem may be solved.

The economic problem, the struggle for subsistence, always has been the primary, most pressing problem of the human race. Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to live wisely and agreeably and well.

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. The love of money will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.

I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanor, and the love of money is detestable.
But the prediction that economic growth would end poverty hasn’t happened. In fact, even with all the economic growth that’s happened since then, poverty is getting worse. Obviously, the idea that economic growth will end poverty isn’t right.

I had to look up what the word “avarice” means, and basically it means “greed.” I also had to look up what “usury” means. It means to charge interest on loaning money. It’s a religious word and at one time all religions were against it as unethical.

Even though the quote was interesting, it didn’t answer the question about how money can grow. So I had to go back even farther. The ideas of John Maynard Keynes were influenced by another guy – John Law.

What a weird person! According to one book, in addition to being a banker and an economist he was “a gambler, swindler, rake and adventurer forced to flee the British Isles after killing an opponent in a duel.” This kind of person helped invent our economic system?

I found something in a book about John Law that seemed important: “Law made clear the distinction between a passive treasury, where money just accumulated, and an active bank, where money was created.”

Banks create money? That was news to me! I thought they just kept money and loaned some of it out.

The answer has to do with the “fractional reserve system” which started in the 1700s. It used to be that money was sort of a “receipt” for gold. The receipt was called a “banknote,” which was printed by the bank. But then some bankers figured out they could print more “receipts” than the gold they had, therefore they only had a “fraction” of the gold compared to the “receipts” (actual money).

That explains how it came to be that banks could create money, but it didn’t explain how money could “grow” – since banks were only allowed to print a certain percentage extra.

Then, some bankers figured out a way to become even more wealthy with this “extra money” they could print themselves. What they did is to give out the money in the form of a loan. Since they charged interest on the loan, they would get back more than they gave out. This next part is where the addiction starts.

Let’s say you get a loan for $100, but because of the interest you pay back $110. Here’s an interesting question: Where did that extra $10 come from?

It didn’t come from you, since you can’t create money. Only banks can – by making loans. So the extra money could only come from one place: More loans! If you trace money to where money comes from, it almost always comes from a loan.

People can get personal loans, but what’s more important for the economy is business loans – loans to start or expand a business. Of course all the loans have interest, which means paying back more money. But we’ve already figured out that money is “created” by banks issuing loans. So to pay off past loans, somewhere else in the economy there has to be new loans which create more money. But then THOSE loans have to be paid off with money, which means MORE loans.

It always comes back to the banks making more loans to pay off the existing loans. This has been going on for hundreds of years, which is how the economy “grows.”

Economic growth needs more money, but more money needs more economic growth, which needs more money. And it doesn’t stop. It can’t stop.

That’s not only how the economy grows, but why it HAS to grow. We can never get to a point where growth is “enough.”

This is why we’re addicted to economic growth. We’re not creating money; we’re creating debt!Like with any addiction, we keep doing it even when it’s not working any more. This is why even when it’s obvious that economic growth isn’t solving unemployment or ending poverty or doing any of the other stuff it says it can do, we keep trying it anyway. It’s why even though we have more money than ever before in history, we still need more.

The funny thing is that the solution is super-easy. All we have to do is stop the banks from creating money as debt.

You know what’s really interesting? I discovered that our greatest president Abraham Lincoln figured this out and tried to stop it. Lincoln tried to fix the problem by having the government print a kind of money called “greenbacks”—$450 million of interest-free money. But the banks did NOT like this because they wanted to create all the money themselves! So they bought up all the “greenbacks” and forced the government to buy them back in exchange for gold.

Lincoln had the right idea, but he didn’t go far enough. We have to eliminate interest on ALL money. The answer is actually super-easy.

To end the addiction to economic growth and save the earth, this is what we need to do: End the creation of money as interest-bearing loans. Put an end to fractional reserve banking and make it so banks can’t create money. Then give the U.S. Treasury the exclusive right to issue U.S. currency free of debt.

Of course, the big banks won’t like this, because they make money from keeping us addicted. But as I learned in school, we live in a democracy which means companies aren’t the boss of us; we’re the boss of them. Yay for democracy!

Let’s stop the addiction before the economy collapses and destroys the earth, which is very beautiful. In fact, it’s my favorite planet!


Martin said...

A very clear and concise illustration/explanation of how we got where we are - and from a 'virtual' 14-year-old at that!

Bankers - damn their eyes and progeny.

k-dog said...

"This is why we’re addicted to economic growth. We’re not creating money; we’re creating debt! Like with any addiction, we keep doing it even when it’s not working any more. This is why even when it’s obvious that economic growth isn’t solving unemployment or ending poverty or doing any of the other stuff it says it can do, we keep trying it anyway. It’s why even though we have more money than ever before in history, we still need more."

Not exactly what a fourteen year old would say but I appreciate the device.

What is excellent about the device is that it attacks fractional banking with a purity and intensity that fractional banking deserves. Ending fractional banking is an essential step on the road to sustainability. Fractional banking must go down but that is only a start.

Unfettered rapacious capitalism is the bigger problem in which fractional banking plays only a part.

Bifurcation of class structure into endless us Vs them camps caused by unfettered capitalism is another huge piece of the pie. We need a steady state economy without fiat money dedicated to powering down while still improving quality of life. We need a society where art and culture fills and replaces the drive to compete. We need a social democracy where the gap between the richest and poorest of us is reduced to seven to one. Part of that is implementing a single payer health care system in America.

When Amy gets older she should consider having no more than two children and think seriously about having only one.

She should become militantly radical in demanding truth from all political figures and demand total transparency in all aspects of public life. She should demand that those in public life who deceive be sent to the unemployment line for retraining in jobs where they can do no harm.

Ending fractional banking is only a start but a very good and necessary start.

Greg said...

"I learned in school, we live in a democracy which means companies aren’t the boss of us; we’re the boss of them."

Didn't your teacher tell you that it's Goldman Sachs and a few other corporations who select and finance the presidintial candidates? The people may then vote for the Goldman Sachs candidate whose face they like better.

michigan native said...

And as we enter into this second great depression with our resource base mostly spent, what were the headlines on the internet today?

Marilyn Manson goes make up free. I wouldn't have slept tonight if I had not known that. The oldest woman to run the NYC marathon fell and hit her head and died at the age of 86. Subjects of vast cosmic importance. The stupidity of most humans seems unlimited. I am waiting for the next senseless mass shooting or announcement for military action against this country or that country.

Sales were down at stores like "Halloween City" this year. I guess masses of unemployed or under employed people are not very concerned about making their front yard look like grave yards (that will happen in due time)or wearing spooky costumes (malnutrition and being homeless will achieve that effect for free) when they are having their utilities shut off or being evicted from their homes. I am frankly surprised my city didn't pass an ordinance that required those people who did carve pumpkins and all that to pay for some permit or license to do so. They actually arrested a few dozen homeless people sleeping in the park a few months back, fining them for "vagrancy" and it is now a $200 fine if you are caught pushing a shopping cart around. This poor guy was fishing for discarded food and returnable cans and bottles in trash bins and the cops got him. They are kicking the poor and the helpless in their vain and undignified efforts to steal money from people as they are all broke from chronic contraction/budget shortfalls due to an ever eroding tax base.

People who survived the first great depression said they would not want to live through another one. When I was young, I used to laugh at those old people. Smoke a joint and relax, old timer. Now when they talk they get my undivided attention. Our resource base was largely intact then and many more people lived on farms. Just try to imagine what this second, inevitable one will be like, when the dollar is dropped as the world's reserve currency, probably before the end of 2014. And we take the environment down with us, probably extinguishing life on earth trying to maintain this insane asylum we set up.

Anonymous said...

Is it possible to have a middle class in a society without "usury?" It seems like financial mobility is only possible when capital is available to start new businesses (or expand old ones) and wealthy people do not make loans to poor(er) people without a profit. Few people if any could ever save enough to pay cash for a house, although real estate values would undoubtedly plummet with no buyers.

JimK said...

I don't think that it is compound interest that creates the problem. That notion is a sort of confusing distraction. Here is my attempt to redirect attention more usefully: http://interdependentscience.blogspot.com/2013/11/interest-growth-and-power.html

Chris G said...

A very concise, simple, and clear exposition - admirably so. There is truth to it - and I am largely in agreement. Of course, the 14 yr old still has much to learn, as do we all. I can't say I'll put it down as elegantly, but there are other factors.

First, the money is only a symbol, it's not the real economy. But it has become a key component of a system of acquiring power over and freedom from nature, by some.

When the bank loans out money at interest to the business, the laborers must add value through their labor. At this stage in the game, that labor is supplied by the stored energy in fossil fuels, almost entirely; the people just point that energy in a certain direction, so to speak. the growing money supply represents the growing utilization of energy.

Part of the trick of the debt is the sense of obligation on the one hand and entitlement on the other, to the repayment. It's deeply ingrained. Graeber in Debt: the First 5000 Years explores the origins of debt in the temple, and the links to more primitive notions of sacrifice to appease the gods. that is, we repay our debt to satisfy the needs of our eternal soul.

The energy needed to repay the debt supports the fulfillment not only of our subsistence needs (food, air, shelter, water) - far more now, it supports the fulfillment (again for very few) of the heart's every desire. Even the middle classes, and arguably the lower classes of the developed world, live much like pharaohs or kings. So the money also symbolizes our desires for more more more ... power over nature.

Once that desire for power over nature is driven from people's minds, the money as debt, the banks' whole system, complex as it is, the money as tool for acquisition, crumbles.

But really how much can we expect of people? We're animals. We may to some extent be aware we're altering the planet, in ways that do not portend well for the survival of us: but that rational understanding can't seem to get a grip on the underlying appetite for expansion. For food, for having babies, for growth.

it's a good device, and accurate, but we probably all know intuitively, the deeper reason is life's unquenchable thirst for life - for more. And humans gained a huge, but temporary advantage over nature. And like all things, it will die.

My donkey said...

The subject matter reminds me of a pamphlet I read as a college student in the late 70s: "Billions for Bankers, Debts for the People" written by Sheldon Emry in 1967 but updated numerous times since and freely available on the web.

I understand the arguments and I agree that the situation is unfair and should rightfully be corrected, but I haven't done (and won't be doing) anything about it for two main reasons:

1. Not important enough. I've never put much value on money because I never had any as a dirt-poor kid, and yet my childhood couldn't have been happier than the 24/7 fun fun fun that it seemed to be; consequently -- except for entertainment or as a mental exercise -- I never think about things I don't need, and how can you care about something that you can't even bother to think about? Let those who think this is a critically important issue do something about it; I promise not to impede them.

2. It's a self-limiting problem. Economic growth will eventually stop as peak oil and other peak resources run their course (and climate change has the effect of adding insult to injury), so why bother spending energy trying to stop something that will stop soon enough on its own?

Nigwil said...

Lincoln, Kennedy and Kennedy. All had the same idea, and the same unfortunate outcome, for them and us.

Virtual-girl is quite correct, of course. But the chance of we-the-people-of-the-world finding the collective guts to implement this feat is not high enough to make a difference in time.

Patrick said...

My Donkey, your second point is one I try to make with friends who are working hard to stop the next generation of massive nuclear reactor to be built here in the Great Lakes watershed. I's not going to happen—there just isn't the massive amount of capital to complete such a project anymore. Focus on something else. Of course, I could be wrong (I never thought a biracial guy named Barak Hussein Obama could get elected president), but I don't think so.

Michael Dwyer said...

why sustainability trumps economic growth; Nature bats last.