Economic reality strikes – growth is ending

Of late the Opposition has been pointing out that business confidence is declining. NZIER had released a survey saying business confidence is at a seven year low. The Government has been quick to dismiss it as a political bias by business – as something they always opine when a Labour Government comes in. And the Asian stockmarkets are currently looking wobbly. RNZ’s long term economic commentator Patrick O’Meara talked of softer demands, slower growth, lower investment intentions. He talked of the looming US-China trade war has attributed that to the fact that on Saturday Trump’s tariffs on Chinese goods begin. It may also affect markets in Europe, Canada and Mexico.

The trend started well before Trump appeared.
But because of declining net energy, worrying trends happened decades before Trump’s tariffs kicked in. Let me explain declining net energy. Whereas in the mid 20th century if you spent one unit of energy to extract oil, you would get 100 units of energy back, nowadays because it takes more energy to extract fossil fuels from deep sea wells and from fracking, the energy left for the economy is progressively declining. Since net energy available is closely correlated with economic growth we would expect economic growth to decline. Moreover productivity will decline. Productivity is an economic measure of output per unit of input and input includes energy.

Is it time for Nafeez Ahmed to be taken seriously?

British investigative journalist Nafeez Ahmed has written a great article explaining the gradual decline of both economic growth and productivity in the UK economy. He concludes, “In other words, trying to keep the growth machine growing when the machine itself is running out of steam is precisely the problem — the challenge is to move into a new economic model entirely.”

He quotes from a piece of research for the government by Professor Tim Jackson giving graphs of declining economic growth and productivity. Jackson says, “In 1996, the trend rate of growth in the global GDP was 5.5%. By 2016 it was little more than 2.5%”. From 1971-2016 productivity growth dropped from over 3% to just 1%.  We must have similar graphs in New Zealand.

Economist Michael Reddell says on his website “Over the last five years there has been only about 1.5 per cent productivity growth in total.”

Ahmed himself is well ahead of others in the way he puts together and explains the connection between many serious global issues –fossil fuel depletion, climate change, finance, geopolitics, terrorism, food security, political instability.

Trump is just a symptom

Trump’ regime is picked to promote business as usual
Ahmed wrote on Inauguration Day 2017  that “Trump is not the problem. Trump is merely one symptom of a deeper systemic crisis. His emergence signals a fundamental and accelerating shift within a global geopolitical and domestic American political order which is breaking down.” He talked of the elephant in the room being the global net energy decline that drives all this.

Less than a month later he penned  a chilling analysis of Trump’s regime.   Half of them are now gone, having resigned or been fired by Trump.  He grouped them under five headings – money monsters, fossil fuel freaks, black ops brigade, Ku Klux Klan and the guru gang  – saying that was the perfect combination required to keep the old model working. Business as Usual must proceed. Drill baby drill.  Increase funding for the military. If things look bad financially try riskier and riskier financial instruments.

Never before has there been such an environmental crisis where our emissions are making our habitat more and more inhospitable with floods, fires, droughts and the accompanying food insecurity. Never before have we seen governments like ours desperate to solve child poverty throwing money at them. We have even got a superannuitants winter energy payment. Yet homelessness and poverty continue.

The tragedy is that while the current government has its heart in the right place – to end poverty and preserve our environment – it is hamstrung. It is damned if it does and damned if it doesn’t. Political instability is becoming inevitable. Will New Zealanders after the hope of Jacinda Ardern be doomed to see in a Trump like government within five years? Nigel Farage is coming to our country soon. If we don’t find a new economic model that is not dependent on growth, we will come nowhere near a just, sustainable economy. That is the tragedy.

 

 

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To get the next economic system we need to find the assumptions of this one

Banks Peninsula fires after drought Feb 2017

Many are asking if we have to sit around waiting for the current system to collapse. If we have only 3 years to turn around the emissions pattern as the UN has said, we had better get on with designing the next system.

The current system assumes:

  1. There will be only one currency for a country.
  2. The majority of the country’s money will be created and controlled by private banks.
  3. The money will be created as interest-bearing debt.
  4. All land, all natural resources and natural monopolies can be privately owned, and this means people can profit from buying and selling it.
  5. All major decisions will be made by national or international governments or agencies.

This all adds up to a system with a growth imperative built in.(For years I thought it was just the money system but I believe now after a conversation with Steve Keen it is a combination of that and the land tenure system) The consequences are regular booms and busts, regular monetary crises, banking crises and sovereign debt crises and ever widening wealth inequality.

Edgecumbe floods 2017

The growth imperative also means that it is inevitable that we consume our natural and social capital.  Perpetual growth is not natural. There is no entity in nature which is designed to grow forever, unless, as Margrit Kennedy pointed out, you count cancer. And now we are paying for our blindness with floods, droughts, coastal erosion and food shortages.

Therefore the phrases ‘doughnut economy’, ‘stable state economy’, ‘no-growth economy’, ‘regenerative or resilient economy’ are good descriptive words, but they don’t change the current economy’s DNA. We have been inventing more and more names for this since the publication of The Limits to Growth and arrival of the NZ Values Party in the seventies. They all sound good but we can’t go on and on pretending there isn’t a growth imperative built into the design of our mono-currency economy.

It is like saying I would like this rose to be white and scented but in fact it is red and unscented. The redness and unscented is built into its DNA and no amount of nice new language or great new writing will alter it. We just can’t go on creating more and more names for a good economy.

The Growth Imperative is in the DNZ

I am sure economists like Kate Raworth are contributing to raising awareness but honestly, give or take a few years of dormancy, people in the advanced economies have been at it since the 1970s. The Greens talked about it for a few years but dropped it like a hot cake quite a while ago.

Now I don’t expect too much new thinking will come out of universities. It is tricky for a university economist to breach the parameters of what they can say without losing their salary. Professor Steve Keen is having to crowdfund his salary now.

It is now time to acknowledge that we need to leave the new system alone and invent an entirely new model. We can’t solve climate change within the current model.  Within the old system you can’t put on a hefty carbon tax and expect a different political result from Australia. (Yes you can plant trees and do other things, sure.)

Supposing therefore we allow:

  1. There to be more than one currency
  2. It must be publicly created and controlled for inflation.
  3. The currency will be spent into existence not lent into existence.
  4. The currency will be designed to decay (Silvio Gesell’s quote is “Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron and evaporates like ether can be capable of standing the test as an instrument for the exchange of newspapers, potatoes, iron and ether.”)
  5. The commons must be publicly owned and rent for their monopoly use must replace income tax and sales tax.

I realise that these are all huge jumps in thinking and the last point means there have to be very strong leasehold contracts to protect the occupier of the property together with no rent on land used for conservation or historic purposes.

Naomi Klein has spelt out this challenge for a new economic system in her book This Changes Everything.

Though The Next System Project is grappling with the challenge of finding it in Washington DC it would be great to have a special platform somewhere in NZ to work on it ourselves.

Oh, and by the way, my book The Big Shift – Reinventing Money, Tax, Welfare and Governance for the Next Economic System is available from Living Economies bookshop. It is the result of a four-year think tank of what was the New Economics Party and is the source of the above ideas. We may be right we don’t know, but we tried.

 

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Summary of The Big Shift: Rethinking Money, Tax, Welfare and Governance for the Next Economic System

The Big Shift: Rethinking Money, Tax, Welfare and Governance for the Next Economic System by Deirdre Kent

This important little book is a very dense read. The current growth-dependent economic system is not only broken must be completely replaced with a new paradigm.

This is now critical. Conventional oil peaked in 2005 and unconventional oil peaked in 2015. It takes energy to extract energy so the global net energy is inexorable decline. Therefore the economy can’t grow with less energy from fossil fuels to drive it. Therefore the economy can’t grow without more and more debt.

Based on the discussions of the New Economics Party of 2011-2015 to develop policy, the author argues that neither monetary reform nor tax reform are possible at central government level as the banks are too powerful these days. A change from an intrusive welfare system to a basic income should come from sharing the rents from land, natural resources and natural monopolies.

To design an economic system to serve the planet in a post fossil fuel age requires new thinking on money design, land tenure and governance. Examples from history are used as evidence of stable and prosperous societies using these principles.

This leads to the conclusion that very local government should assume powers of money creation, land purchase and rule-making about taxes for trades in that new currency.

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Off to the Living Economies Expo

This next weekend I will be presenting at the Lyttelton Living Economies Expo. I have a 35 min powerpoint to illustrate and summarise my book.

I am taking down books where there will be a special Expo price. From then on the book will be sold by Helen Dew.  It will  available from the Living Economies website shop.livingeconomies.nz

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