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.