Yesterday I had the opportunity to attend two events in one day presented by two significant economic analysts. Stoneleigh runs The Automatic Earth, now the 7th largest global website on finance, did a presentation in the afternoon at the new economics foundation. Later I attended a public debate – ‘Economic growth, prosperity and sustainability: a contradiction?’ in Westminster with Paul Ekins and Tim Jackson, hosted by the Sustainable Consumption Institute, University of Manchester. I have a lot of respect for Tim Jackson, his analysis and the fact that he has been able to bring sensible and radical positions into government working with the now becoming defunct Sustainable Development Commission. Nevertheless, it does appear to me that the Stoneleigh has a more important story to tell at the moment.
Stoneleigh’s analysis is based the relationship between financial systems and energy systems. We are facing an economic contraction on a scale greater than that of the great depression. If those in charge of the economy had paid attention to the critiques of the economic model based on endless quantitative growth earlier, we might not be facing such a dire economic predictions. As it is, shifting policy to reflect geo-physical realities (such as the fact that the earth’s resources are finite and that climate change threatens civilization) would be smart, but it will not save us from more immediate dangers that will now be an inevitable consequence of the failure to manage financial sector responsibly combined with the failure to plan adequately for the advent of peak oil.
While climate change and ecological damage are devastating legacies left by this generation to all future generations, a more immediate danger looms in the near horizon. The challenge is to help as many people understand what is going on so we do not have the same kind of political leaders rising as the last time the economy was so thoroughly buggered. I am sure everyone reading this blog is aware of how the depression created the conditions for Hitler to gain power.
When Tim Jack son released Prosperity Without Growth just over a year ago, I attended the launch and filmed his talk. Jackson states that fear of collapse keeps us from confronting problems. ‘Is this economic system capable of addressing problems?’ he asked last night, answering: ‘No.’ I am not going to review his argument in Prosperity without Growth here, you can watch the video to get the gist. Jackson comments on what is happening now; ‘we are punishing poor for mis-doings of the rich.’ He explains that investments for social and ecological welfare needed do not have massive financial payoff and so are not possible in a system that fetishes quantitative growth. Jackson displayed his integrity in contrast to Ekins who did the standard academic trick of refusing to take moral position by conceding to a relativist position. Ho, hum, end of argument in a defeatist moment.
Meanwhile, Stoneleigh explains that we are now in a situation with vastly larger debt per capital than in the great depression. Credit comprises of well over 95% of the overall wealth. This money has actually been ‘created’ (through credit) by private banks (to serve their own interests obviously), but now it exists as toxic debt. This means the debt that does not have real value (in laywomen’s terms). Because markets are driven primarily by perception not reality, an implosion of excess perceived value is set to happen soon according to Stoneleigh. Deflation is a result in a decrease in the money supply and credit relative to the supply of all available goods and services. We are facing a contraction of money supply and deflation – which will be very difficult for anyone who is in debt. This is the shorter term situation caused by financial markets, very shortly after that we will have deeper problems when the contraction in the economy is caused by the contraction of availability of fossil fuels.
Stoneleigh argues persuasively that national governments are unable to solve problems since they have such a vested interest in status quo and are hostage to the banks. It is up to us to create alternative social institutions and frameworks to help us through this situation. Meanwhile it is critical to help spread an understanding of the dynamics at work in the economic system, so the political situation does not evolve to a worst situation than we have today.
The graphic above displays national debt. This is different from total debt which includes debt held privately and by the financial sector. The UK is has the second largest total debt per capita of leading nations at 466% of GNP in 2009.