WHY ECONOMIC NEWS?
Our fundamental problem – ignored or denied by mainstream economics – is that we are running an infinite growth paradigm on a planet of finite resources. The fact that this paradigm is now losing its war of attrition against hard, physical limits is the unseen hand behind much of the chaos I report here on alternate days. In truth, it is not really us running the paradigm, though…
The need for perpetual growth is an emergent property of the totality, with something around 3% p/a the preferred rate. In other words, the global economy, as an entity, has evolved its own agenda, and is now a self-organising complex system that is only consciously controllable in niches by individual humans and groups of humans. I am emphasising the word self here to point out the challenges faced by academics who advocate for a fundamental re-wiring of the global economy to facilitate gentle de-growth or more sustainable growth.
Locked into this remorseless, planet-eating superorganism, we, its constituents, are driven to transform raw materials into an ever greater number of goods and services, year on year, with competition and problem-solving needs constantly forcing technological advancement and rising complexity. We achieve all this via the dissipation of ever greater amounts of energy, mostly from fossil fuels (irreversibly so, alas), generating in the process ever more pollution and waste materials.
But of course there are only finite amounts of energy sources and minerals on the planet, so our quest is ultimately doomed to failure. Furthermore, we will always naturally go for the most easily accessed resources first. This means that we have a physical resource-base that is constantly shrinking in quantity and quality and/or accessibility.
Meanwhile maintaining extant infrastructure and battling the growing entropy soaks up more and more of the available energy, leaving less and less for growth.
Perched precariously on top of this shrinking and degrading pool of natural capital is a financial system that can only exist in a state of growth. The primary reason that growth is essential to the survival of the global economy is that debt is built into it. Governments use debt to pay for infrastructure, services and programmes before they collect taxes; companies use debt to start-up and/or access resources before they become profitable; individuals use debt to pursue higher education and purchase ‘big-ticket’ items like cars and houses.
Debt is the promise of a more profitable tomorrow that we use to ‘ramp up’ our purchasing power in the present. In fact we can understand burgeoning global debt and the growth in increasingly arcane and complex financial instruments as an attempt by the global economy to compensate for the encroachment of growth-constraints. We can trace this all the way back to Nixon’s cancellation of the direct international convertibility of the US $ to gold back in 1971, which occurred just after the US passed peak conventional crude production and as their imported oil rose significantly in cost.
Debt must be paid back with interest accrued, so a debt-based system is fine until tomorrow is less profitable than today – then it starts to take on on the characteristics of a Ponzi scheme.
We have now reached the point at which each tomorrow really will, in biophysical terms, be less profitable than today. Energy and resource-constraints are biting, as evidenced by the dramatically rising extraction costs of conventional oil this century, for example, and we have a flat throughput of energy per capita. Meanwhile, many elements within the global economy are approaching debt-saturation, ie existing debt is an ever worsening drag on growth and new debt is becoming less and less productive.
The increasingly fractious and polarised politics we are seeing in various parts of the world is a predictable response to the underlying sense of “not enough to go around” and the unease it generates. When people feel that their economic prospects are constrained or threatened they will vote or protest accordingly. Politics turns dysfunctional. Geopolitical friction worsens.
Perhaps more likely than a global conflagration is that the financial system seizes up, as it nearly did in 2008. Certainly, post-Covid, the central banks have few tools left to counteract another major financial crisis and the geopolitical climate is less conducive to a co-ordinated, international response. Risks have only risen since 2008, and have simply migrated to shadow banks since tighter regulations were imposed on traditional banks (2024 addenudum: those tighter regs are starting to loosen).
