It is a fairly safe bet that Britain’s Chancellor will stick to the failing Tory plan to cut the deficit by the mid-2020s, and to run a balanced budget thereafter. It is an equally safe bet that the Leader of the Opposition will respond by calling on the government to end austerity, invest in infrastructure and to “give Britain a pay rise,” in order to stimulate the productivity and economic growth that has failed to put in an appearance since 2010.
Many statistics will be bandied back and forth with much gnashing of teeth over whose interpretation of the state of the British economy is closest to the truth. Media discussions will be heated. A growing number of economists will speak out against the “magic money tree” nonsense; and point out that with interest rates so low; there has seldom been a better time for government to borrow in order to invest. Indeed, one of the ways that we mere mortals “fix the roof while the sun is shining” is to go to the bank and get a home improvement loan. No doubt the trade unions, charities and left-leaning think-tanks will add their voice to calls to end the assault on Britain’s social security and public services. Against this, the siren voices of the ideological hard right will call on the Chancellor to stick to his guns and continue the policies that have so far failed either to cut the deficit or rein in the public debt.
There will, however, be tacit agreement about one fundamental belief – the way forward is via economic growth. Both the government and the opposition will contest the means by which growth is to be achieved (the Tories wish to shrink their way to growth; Labour wish to borrow their way out of debt) but neither will question the desirability – still less the possibility – of growth itself.
It is important to note here that the spectacular explosion of economic growth that occurred between 1953 and 1973 is treated as both normal and desirable. However, from a historical point of view, the period was the exception. As historian Mark Kennedy points out:
“The accumulated world industrial output between 1953 and 1973 was comparable in volume to that of the entire century and a half which separated 1953 from 1800. The recovery of war-damaged economies, the development of new technologies, the continued shift from agriculture to industry, the harnessing of national resources within ‘planned economies’ and the spread of industrialisation to the Third World all helped to effect this dramatic change.”
At the beginning of that period, industrialisation was limited to the USA, Western Europe the Soviet bloc and Japan. By the end, economies across the planet had developed modernising industrialised economies – a process that has continued more gradually until today.
There is good reason to believe that the rates of growth enjoyed as the economies of Western Europe and Japan emerged from the rubble of World War Two simply cannot be repeated on a global scale. A more modest growth of two or three percent is likely to be the best that could be achieved (most of it in emerging states like China and India).
Why is this?
When economists and politicians talk about growth, they (probably without knowing it) are promoting a particular type of growth. By economic growth, they mean growth by some percentage over some period of time. Mathematicians have a name for growth of this kind – “exponential growth.” It has severe consequences too. Anything that grows by a percentage over time will eventually double in size. And we can calculate the doubling time by dividing 70 by the percentage. So, suppose we wanted a modest 2.8 percent growth per year. If we achieved this, it would mean our economic output (including waste and pollution) would have doubled by the year 2042; and 100 years from now our output would be four times bigger than it is today. And if we were really ambitious and followed a Chinese rate of growth of seven percent, our output would double by 2027 and our output would be seven times bigger in 100 years’ time.
Ecologists have a different name for the explosion of economic growth that occurred in the aftermath of World War Two. They refer to it as “The Great Acceleration.” It is the period in which humanity’s exploitation of finite planetary resources began to threaten the habitat that we – and all other life on earth – depend upon. Perhaps the best known element of the acceleration is the growth of carbon dioxide in the atmosphere. But we have also seen exponential growth in energy, water, fertiliser and mineral consumption. Meanwhile we have exponentially grown the pollutants that result from our economic activity – including methane, nitrous oxide, and water-borne nitrates. In short, we are living through an ecological disaster because of economic growth.
There is, however, a deeper problem with economic growth. It is debt-based. From the earliest European voyages of discovery, through mercantilism and the triangular trade to modern industrialised economies, the deal has always been that someone (usually a banker) loans the funds to enable an enterprise on the understanding that they will be paid back with interest. So here’s the problem – where does the interest come from? The answer, of course, is that our activities use energy and technology to exploit raw resources to create goods (and more recently deliver services) whose value is greater than the sum of their parts. When these are sold into the market, the income generated will be sufficient to pay the interest on the loan and provide a profit to the owners of the venture.
We rarely ask who the loser is in this arrangement. For several decades, the left has erroneously claimed that the workers are the losers. This is because of the fundamental error made by classical economists like Adam Smith and David Ricardo, and repeated by Marx, that labour is the source of surplus value. In fact, labour is but one source of surplus value; and not a particularly powerful one. The true source of the surplus that fuelled the spectacular growth after World War Two was the earth itself; and in particular the enormous store of fossilised solar energy that we – through our technologies – began to consume at an unsustainable rate during that period.
In short, to pay off our debts we are obliged to destroy the only ecosystem that we know of that can sustain life. No wonder the conmen and people who should know better are desperate to establish a human colony on Mars in anticipation of the day when life will no longer be possible here on earth. Follow that pipedream if you must; but I would point out that we are no longer capable of travelling beyond a low earth orbit, and are yet to work out how to keep someone alive for the journey to Mars, still less how to prevent them dying the moment they are left on the planet surface.
Instead, let us ask a simple question. Where did the bankers get all of that money that we supposedly owe?
The fairy tale that we have been told is that banks are much the same as credit unions and building societies. One group of people – savers – pay money in while another group – borrowers – take money out. But this is not how banks actually work. As the Bank of England makes clear:
“Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.” (Their emphasis).
So not only are we destroying our habitat to pay off debts; we are paying off debts that were conjured out of thin air by people who did not possess the money they loaned us to begin with.
Why do we keep doing this? And why do our political leaders – even those who claim to want to change the system – keep demanding more growth to do so?
The answer is that the alternative is the quasi-religious fear of economic, social and political collapse. As Charles Eisenstein explains:
“It is hugely ironic and hugely significant that the one thing on the planet most closely resembling the forgoing conception of the divine is money. It is an invisible, immortal force that surrounds and steers all things, omnipotent and limitless, an “invisible hand” that, it is said, makes the world go ’round. Yet, money today is an abstraction, at most symbols on a piece of paper but usually mere bits in a computer. It exists in a realm far removed from materiality…
“Money’s divine property of abstraction, of disconnection from the real world of things, reached its extreme in the early years of the twenty-first century as the financial economy lost its mooring in the real economy and took on a life of its own. The vast fortunes of Wall Street were unconnected to any material production, seeming to exist in a separate realm.
“Looking down from Olympian heights, the financiers called themselves ‘masters of the universe,’ channeling the power of the god they served to bring fortune or ruin upon the masses, to literally move mountains, raze forests, change the course of rivers, cause the rise and fall of nations. But money soon proved to be a capricious god. As I write these words, it seems that the increasingly frantic rituals that the financial priesthood uses to placate the god Money are in vain. Like the clergy of a dying religion, they exhort their followers to greater sacrifices while blaming their misfortunes either on sin (greedy bankers, irresponsible consumers) or on the mysterious whims of God (the financial markets). But some are already blaming the priests themselves.
“What we call recession, an earlier culture might have called ‘God abandoning the world.’ Money is disappearing, and with it another property of spirit: the animating force of the human realm. At this writing, all over the world machines stand idle. Factories have ground to a halt; construction equipment sits derelict in the yard; parks and libraries are closing; and millions go homeless and hungry while housing units stand vacant and food rots in the warehouses. Yet all the human and material inputs to build the houses, distribute the food, and run the factories still exist. It is rather something immaterial, that animating spirit, which has fled. What has fled is money. That is the only thing missing, so insubstantial (in the form of electrons in computers) that it can hardly be said to exist at all, yet so powerful that without it, human productivity grinds to a halt.”
We cannot continue along this road anymore. The habitat that we depend upon will be gone in a generation if we insist on another round of economic growth. Most of the pollinating insects (to give just one indicator of our predicament) have already left – without the food crops they enable, we won’t be far behind them. This is why the fundamental proposition behind austerity is correct. We cannot – as the political left insist – continue to borrow our way out of debt using our precious planet as an ATM. Nor can we – as the right insist – cut our way to greatness.
Our only sane option at this stage is to cut our way to sustainability; to put an end to this debt-based charade and begin to rein in the lavish lifestyles enjoyed by the top 10 percent (and especially those at the very top) of the global population. As Mahatma Gandhi once put it, there is more than enough abundance on this earth to meet everyone’s need, but there will never be enough for anyone’s greed.
The problem with the Tory brand of austerity is not that it seeks to cut our consumerism (which the proponents of growth wish to maintain) but that it aims to maintain the greed of the rich by crushing the living standards of everyone else. In this it is as unsustainable as debt-based capitalism itself. But cuts are precisely what we need. Cuts to the materialistic culture that enriches a few by destroying the community and society of the many; cuts to the exploitation of the finite resources of the only planet that we can survive on. In their place, we desperately need a different kind of growth – a growth of localised economies, community cohesion and social wellbeing.
Just imagine that for a moment – a system within which banks could only make a profit if the money they loaned out restored local economies, created more community cohesion, more sustainable activity, more personal and social wellbeing. It would be a very different world to this one; but not, I think, one that we would want to avoid.
In any case, given the damage that we are doing to our environment and the rate at which we are consuming the last of the planet’s material and energy resources, we are going to get to that world one way or another. The real issue is whether we can do it in a planned and manageable way or whether we will be plunged into it as the current system tears itself apart. This, I submit is the question that those making and opposing today’s Budget statement should be exercised by. It is not, I fear, the debate that we will be given.
As you made it to the end…
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