Musings on the limits of growth, our economy and our deranged politics
I've heard this idea attacked from multiple angles and it gets pretty complicated so here's my nickel synopsis. Trying to boil down the theses of several books I've read recently, including Graeber's Debt and Heinberg's End of Growth.
Our money is based on debt and debt carries interest and this is incompatible when working within a steady-state or declining system; interest only works in a growing economy.
Imagine we have an economy with ten people. There's a hundred bucks in total circulation. At the start, everyone has ten. I decide to put one of my dollars into an investment. Now if I'm only collecting simple interest, I get $1.05 back no matter how long it takes the borrower to return the cash. Assuming I get the first mover advantage and start accumulating more wealth, there's a certain point where I'm holding a significant fraction of the dollars. If I want my pile to get bigger, I might argue that we should make more dollars for this economy.
But what does the dollar represent, really? It's an IOU to collect on goods and services. There's a maximum amount of useful work any person could perform in life. If you're farming my land for me, you can't give me more than a day's work or seven days in a week. It's just not possible, no matter what the books say you owe. If I'm due a month's worth of work, I'm not getting it out of you in less than a month, likely more if I can't monopolize your time.
Now add compounding interest to this mix. A dollar invested and returned with simple interest is pretty honest. A dollar invested that perpetually returns interest seems like magic. It returns money endlessly for no additional expenditure of effort or capital. But for this to work, the money supply has to grow. The economy has to grow. Otherwise, we quickly reach absurdity.
Think about where inflation comes from. Inflation arises from more money chasing fewer resources. And how does that happen? Because the imaginary economy is growing faster than the real economy. In my ten person economy, let's imagine half of us are investors with our original $10 stake growing into $100 apiece. (Supposing they wrangled an increase in the money supply, beyond the original $100 total.) Each of us is trying to secure the laborers and I must outbid my fellow to attract attention. This drives the price up. But even as my wealth grows through interest, the laborers are left with dollars whose worth is shrinking by the same rate. They are unable to park their wealth in the same investments available to me and my ilk.
But to keep the whole game afloat, we need growth. It can't ever stop or the bubble bursts. Is this not the very definition of a Ponzi scheme, a rigged game that requires a constant addition of new money to pay off the original investors? And the payoff promised for the new investors can only be paid off if more people are added to the base of this tottering pyramid.
The real question regarding growth is whether infinite growth is possible on a finite planet. This is not a question of ideology but of facts and science. And the abundant evidence is that it just can't happen. And what this means is that we need to seriously reevaluate our basic assumptions about economics and finance or else we are going to be seriously fucked. This is going to be as significant of a removing gods and spirits from explanations of how the natural world operates. Our economics is still lousy with voodoo and witchcraft.
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Seems to have sunk like a stone, though. Maybe I should have included a few topical references like Miley Cirrhosis?
