A rural family of four plus an elderly mother are working out how to live with less energy. The children are 3 and 1. The father Doug owns a small farm but the mother Joan occasionally drives an hour and a half to the nearest town to give her specialist art lessons. She spends a lot on petrol her 1996 Nissan Pulsar which is often needing repairs.
With three adults and two children, the quota is 8 Tradable Energy Quotas (TEQs) a week each. Between them they will get 16 TEQs a week. They know next year it will be fewer, which gives them the opportunity to plan ahead. They have to surrender TEQs each time they buy petrol or diesel.
The farm is a business so Doug will probably buy TEQs from a broker at the going rate. Doug finds he has enough TEQs this year but plans to buy a draft horse next year to relieve his quota situation. Electric tractors are too dear. He plans to breed draft horses and is learning about this.
Joan is faced with options when she is offered more work in town. Driving an hour and half for a morning session for a few dollars is surely not going to be worth it. Does she buy more TEQs? She could, but no she really can’t afford to that and it isn’t a long term option. She tells the class and her boss she is thinking of leaving. But the Polytech doesn’t know of anyone else who can teach her specialty. Everyone thinks.
If she stays home, she could either keep her TEQs and pool with others in a similar situation to set up an appropriate business for the little rural community or else she could sell her TEQs for cash on the market. She tries selling them this year but continues to plan. She knows that her friends are in much the same boat as their old cars aren’t exactly fuel efficient and none of them can afford an electric car. The friends get together and work out a business that would keep them in the rural area, use less petrol, and they would spend less time on the road. They reckon this new business would attract others to their area. Maybe it has something to do with her art, maybe horticulture or something else.
Do you see the trend? Not only do Joan’s students have to work out how they will learn that special art, but the whole family decides as a group how to adapt. Joan and her friends are another group that has to plan together. Rona the mother gets involved with the family decisions. Doug learns about what alternatives he has to his diesel driven tractor. The knowledge spreads around the small community. Everyone gets involved. Everyone has to adapt. And small rural communities are going to thrive.
I have a theory that the reason it seems superior to FEASTA’s Cap and Trade, Canada’s Carbon Fee and Dividend and all others is because Fleming was a historian/environmentalist who later in life got a PhD in Economics. He understood how the economy works. This meant that he saw the close correlation between energy use and economic growth. He knew that if the economy doesn’t grow it collapses because it is designed like that.
So he took all of this into consideration when he invented TEQs, a managed energy descent framework that wouldn’t result in economic collapse, widespread unemployment and social unrest. He was also aware that rations must be tradable or else a black market develops.
His idea is that government gives an entitlement of energy units (they could be denominated in emissions too) for each adult, and high energy users would have to buy them on the market from low energy users. Businesses and Government etc have to buy theirs on a weekly tender and this sets the price. Hence it delivers climate justice like Fee and Dividend. But it differs in many ways which his colleague Shaun Chamberlin summarised well in his 2015 post here. For effective climate action, every citizen needs to be involved to change the way we live, work and play, so Fleming’s scheme involves every citizen.
While the Fee and Dividend system is simple to administer because in Canada they just impose the fee on about 1350 mines and ‘preparation sites’, (and it is passed down to wholesaler, retailer and customer), there is still no built-in incentive to adjust their lifestyles or to cooperate to adapt to live with less energy. TEQs is not complicated to administer. The weekly tender auctions are just like those for Government bonds and units can be added and subtracted just like Airpoints or Flybuys or Snapper card. Almost everyone has a mobile phone.
They also have to spend extra money to support small, rural and remote communities. I am not sure if TEQs would require this, but I believe that remote rural communities would tend to thrive again.
I am keen to recruit people to a regular Zoom call until we all learn more about it (and this includes economists!) We are thinking out a strategy and have been discussing whether it could be implemented at a local body level. We have had one call and are getting good people involved. We know we have to be able to defend it, compare it with other systems and answer awkward questions so all brains are welcome!!
A few months ago I gave this presentation to a climate change group. Hope you enjoy it. Well it’s not actually enjoyable to know that energy use and economic growth are so closely linked. As Naomi Klein said “The economy is at war with the climate”. We are going to need all our collective intelligence to downshift without chaos. Can we manage an energy descent without it being haphazard and dangerous socially?
That is why I got to be studying Tradable Energy Quotas (TEQs) which set the scene for a well managed transition to a low energy economy. I even wrote a blog on it recently.
Some years ago I read about Tradable Energy Quotas as a method of ensuring everyone has access by right to their fair share of what fossil fuels are left and high energy users could buy units from low energy users. Then, being aware that our country, and indeed the whole world, was not make the necessary cuts to emissions in time to have a liveable climate, I thought to revisit the idea.
I discovered that not only had the idea lasted, but that there was a UK organisation called the Fleming Policy Centre which promoted it. This was named after the visionary green economist Dr David Fleming whose ideas on de-growth for a post fossil fuel economy are well worth reading. He died in 2010 but his friend Shaun Chamberlin carried on his work, finishing his two books Surviving the Future and Lean Economy.
Rationing had always appealed to me. As a child I remember taking ration coupons to the shop to buy sugar, clothing, butter and tea along with our money. Naturally our parents managed the petrol coupons.
Petrol was rationed from 1940 to 1950. During the last three years of the war the restrictions were severe. New Zealand also rationed clothing, footwear and nylon stockings.
Then in the 1970s there were oil shocks. When carless days were introduced in 1979 they were unpopular and largely ineffective because a black market arose in exemption stickers given to car owners in essential industries. Petrol rationing was threatened but never imposed.
The fact is that black markets will always appear when there is no trading allowed in ration coupons. And if you ration per month with no trading allowed, then people will buy all the petrol they can and store it in all sorts of containers like “califonts, kegs, kettles, demijohns, vinegar and whisky bottles, tins of all descriptions” as one account says. The government then made this illegal, which really encouraged a black market.
TEQs are ration coupons but they will come in digital form these days like Airpoints or Flybuys. The difference is that you can’t use them alone when you cash them. You will have to surrender them along with your cash when you buy petrol or gas or any fossil fuel.
Fleming worked it out that only 40% of petrol users were private individuals and the rest were business, governments and other organisations. Each year there is a set number of TEQs allowed. 40% are given to individuals in a weekly allowance. The business and governments have to get theirs through buying them at a weekly tender and this sets the price in NZ dollars when people come to trade them. Through a market, heavy users will be able to buy TEQs from low users. Buying and selling is as easy as topping up a mobile phone or Snapper or HOP card for bus trips.
Fleming argues that this method puts the onus on the users to find the best ways of reducing their fossil fuel use. (More about this later). In WW2 people used horse and cart or just walked.
And of course TEQs units also be denominated in emissions rather than energy. In fact it makes more sense these days to do that now that we know how many categories there are for emissions. That’s worth doing instead probably. But you can understand that this was invented in 1996 before so much was known about our NZ emissions. We certainly didn’t know agriculture contributed nearly half our emissions in those days and we have quantified emissions from waste much better too.
A great deal more information on TEQs are at https://www.flemingpolicycentre.org.uk/faqs. This will take a long time for you to get through. Skim it and come back and back. I recommend reading the 2011 All Party Parliamentary report.
If you are a New Zealander and interested in following through as an idea, please get in touch with me at email@example.com as we are trying to start a movement to promote TEQs.
It is not uncommon these days to see advertisements urging us to buy local because local shops have done it hard during the Covid-19 lockdowns. This sentiment used to be confined to the Greens and the new economics groups, but it is now widely accepted.
In 1996 economist Richard Douthwaite wrote in his book Short Circuit – Strengthening local economies for Security in an Unstable World, “The establishment of a local money system is fundamental to greater economic self-reliance.” He went on to describe the various local currencies possible, spending considerable time on the dramatically successful Austrian depression currency in Wørgl in 1932-33. You see the Mayor of Wørgl had read and digested the message of Silvio Gesell in his book Natural Money 1906. Gesell said that money should decay like ordinary goods and it was completely unnatural that those with money should find it increased. (of course those were the days of higher interest rates)
Another chapter of Douthwaite’s book was entitled “Banking on Ourselves” and argued that to strengthen a local economy we must have local banks. Douthwaite himself had been a development economist and knew how essential it was to have development finance for business.
It was a surprise therefore when I listened to economist Steve Keen being interviewed by Phil Dobbie for his Patreon site. Steve Keen, an Australian economist who currently lives in Thailand, argued that the German system showed the importance of local banks. He said he was once being driven to a small town of 5000 people when they came across a factory building satellites. He said that sort of thing only becomes possible if the local bank manager knows and trusts the people involved. (He also argued that the bank should take shares in the business to share the risk). Keen said the big banks of Germany influence only about half the economy and the rest comes from banks called Sparkassen, local non-profit savings banks publicly owned. According to the OECD, the German public banking system had a 40% share of total banking assets in Germany.
Dobbie said that wealth in UK was concentrated in the London/South East where the GDP per capita was about twice that of the poorer North East of England. Dobbie asked Steve Keen about relocalising, banking, taxation, democracy and even currencies and Keen rose to the occasion, describing the success of the Wørgl currency in the 1939s. They talked about the possible Scottish devolution. It is one thing to have a budget from the national government, but quite another to have your own currency, Treasurer and central bank.
“We don’t want to rely on gratuitous payments of a central government handing out case for political point scoring”, said Dobbie. Now that sounds familiar! That lesson is so clear in New Zealand after the spectacle of a $3 billion Provincial Growth Fund where the Minister, over three years has favoured Northland which, although poor, just happens to be where that Minister is contesting the election. It received $553 million whereas the West Coast got $140 million and the Wairarapa received $10 million.
Imagine instead if there were 16 regional banks, all supplying local money to their regions. Imagine if the regional government was able to run a deficit because it is an issuer of a currency. Can you? Wealth would be more evenly distributed in our country. But with banks and Government all being centralised we can’t help but have a concentration of political and financial power in the cities of Auckland and Wellington.
Maybe the unimaginable can become possible in these Covid days.
Kate Raworth is an author who can’t be ignored. Google her book “Doughnut Economics” and you get 155,000 results. In September 2020 Goodreads had 549 reviews and Amazon 469 ratings. Her book is lucid and accessible and I love her chapter headings. She has an extraordinarily comprehensive list of references.(Some chapters have 90-100)
This is a comprehensive review of orthodox economics over a few centuries. Her “doughnut” metaphor describes the realm of a living habitat for humans as being only in the doughnut. We have to be lifted out of poverty to reach a certain minimum standard of living, yet not consume so much of the earth’s resources so that we are breaching planetary boundaries. Her doughnut is unforgettable and will go into future economics textbooks. She describes a social floor for wellbeing and an ecological ceiling.
To illustrate her strong call to rethink economics she packs her chapters with a dense and interesting mix of facts and trends within economics thinking. The strength of this book is that because of Raworth’s deep understanding of the history of economic thinking she is acutely aware she is just but one thinker in a chain, and that there will be another generation of thinkers beyond her. She regularly invites her readers to think our way out of this mess and tempts us with numerous leads. She is an advocate of drawing diagrams.
However naturally there are omissions and blind spots.
Naturally when reading a new book on new economics (I have written two) I go straight to their bibliography and there I find a good list on the topic of money and an excellent one on tax –Gaffney and Harrison, Henry George, Michael Hudson, JS Mill, Ricardo, Josh Ryan-Collins and Peter Barnes. I also find Michjaninel Bauwens on the commons and Janine Benyus on biomimicry.
So here is what I think a list of what the next generation of thinkers could productively focus on:-
First Omission – asking what is the root cause of the growth imperative?
One of the more irksome features of her discussion is that she never really asks what causes the growth imperative. She doesn’t appear to stress that it is built into the system. While she cites many who write on money creation including Benes and Kumhof, Charles Eisenstein, Michael Hudson, Steve Keen and Bernard Lietaer but never seems to use the phrase “interest-bearing debt” or explore the consequences of issuing money this way. She dabbles but pulls back when it comes to probing important leads. I urge thinkers to read Chapter 2 of economist Richard Douthwaite’s book The Growth Illusion, where after a discussion about the consequences of issuing money as interest bearing debt, he concludes. “In our present economic system, the choice is between growth and collapse, not growth and stability…The alternative is slums, dangerous roads, old factories, cramped schools and stunted lives.” Douthwaite, like Raworth, was a development economist who spent years on overseas aid work, and in the process he had to spend time relearning and unlearning economics.
Second Omission – the role of power
When I was a full time advocate in the smokefree campaign in the 1980s, I watched public opinion change over a decade of debate and conflict. I was high profile in the media for a decade. On non-smokers’ rights I was a controversial figure in many households, workplaces and clubs. The health lobby, equipped with all the scientific facts, gradually and painfully learnt the reality of political power. We started to understand the subtle influence of the tobacco industry, and came to realise that the frustrating reluctance of politicians to move was because they were waiting for public opinion to change. So I always notice when an academic advocates for change and appear to imply it happens without pain and struggle. The famous quote of Mahatma Gandhi, “First they ignore you, then they laugh at you, then they fight you, then you win” is relevant here. So even a passing reference to the role of power and the agony of the political struggle would have been helpful here.
Third Omission – the importance of currency design
Kate Raworth leads us to the insightful author Silvio Gesell, summarises his argument for a demurrage currency, chooses the best quotes from him, and then pulls back. I urge the next generation of thinkers to follow through this clue, because the design of money changes everything, from purchasing behaviour to investment patterns.If Keynes called Gesell ‘an unduly neglected prophet’ we should really pay attention. She has a whole chapter called ‘Design to Distribute’, but completely omits the critical nature of currency design.
She has read Bernard Lietaer, or at least one of his books, but the next thinkers should read the more of Lietaer and think deeply about his argument that the design of money affects human economic behaviour and that there are good examples in history of a dynamic, successful societies where dual currencies contribute to this result.
When it comes to discussing the regenerative circular economy, where the essential concept is to ensure we can unmake everything we make. I am not sure how this fits with the Second Law of Thermodynamics says that processes that involve the transfer or conversion of heat energy are irreversible. … It also states that there is a natural tendency of any isolated system to degenerate into a more disordered state. As energy is transferred or transformed, more and more of it is wasted. So the circular economy is not that simple.
I am rather inclined to agree with a University of Otago scientist Craig Anderson who recently wrote on an email discussion, “Concepts like Doughnut Economics will not achieve what we need – they sound lovely and the heart is definitely in the right place – but these concepts are still not yet grounded in the realities of the remaining resource base and energy constraints.”
Fifth Omission – Land Tax reform
She has spent a few pages on Henry George who would replace income tax with land value tax and on the origins of the board game Monopoly. This occurs under the chapter heading Design to Distribute. But she doesn’t really convey that land tax is the most powerful way to distribute wealth. Those wanting to take this topic further should learn about the value of inner city land, not just rural land and learn from Georgist organisations like Progress in Australia for more information. A discussion of the relative merits of capital gains tax, land value tax, death duties, wealth taxes, estate taxes would have been useful.
This book is a must read for any critic of orthodox economics. Raworth concludes, “We are all economists now”. So if we are to survive, we can’t avoid this discipline.
Two of my previous posts have advocated local authorities get authority from Government to issue a new currency which decays like ordinary goods decay. It would exist alongside the national currency. Because it decays, it will circulate much faster than the national currency, the rate being dependant on the rate of decay.
The previous idea was to do what the Mayor of Wōrgl, Austria did during the Great Depression in 1932, to spend it into existence by paying part of the wages of council employees in that currency. In the case of Wōrgl that was a Work Certificate that had to be stamped every month. Owners of the certificates would have to buy a stamp every month worth 1% of the note’s face value. That means over 12% a year of decay, or a -12% interest rate. Well that turned out to be big because the certificates circulated so fast that the town had to withdraw a large percentage of the notes from circulation.
This Government promised to prioritise child poverty. Child poverty comes from many sources, with one of the biggest being debt from loans with high interest rates. The 2019 efforts by the Government to legislate to constrain the predatory lending practices of loan sharks leading to unmanageable debt have hardly had much effect, if the number of debt consolidation agencies is anything to go by. A search on “debt consolidation” will show pages and pages of companies offering help to the desperate.
And Covid-19 has made it all worse.
On 4 May 2020 Tim Barnett, CEO of Fincap the umbrella group for 200 financial mentoring agencies, said the $11 million they received for running Fincap last year would not do the job this time around.
“If unemployment goes to 12 percent, that’s triple [the current rate], and we’d expect the demand to triple as well. That’s going to be impossible for us to meet at the standard we want. So [we are] absolutely needing more support.
He said in 2018, “The people we see have an average debt of $10,000 – so that’s about $600 million debt a year.”
FinCap surveyed agencies on their experiences of dealing with clients whose financial lives were in turmoil as a result of unsustainable debts. People came to the agencies as a “last resort”, facing extreme hardship such as eviction, going hungry, or having the power cut off, the report said.
Many borrowers were struggling with debts after losing employment, or falling ill. Multiple debts were the norm, including credit card, high-interest payday loans, overdrafts, truck shop and Work and Income debts, with agencies estimating the average number of debts per client at between three and five.
A recent report (June 8, 2020 Stuff) by BERL on high-cost lending noted that small high-cost lenders had become increasingly common in New Zealand and were now a $8.5 billion industry.
It might be said, and often is said, that people should live within their means. Some blame them and other sympathise.
Yet there is a third option – it is inevitable. The very system itself makes sure of it. How can this be?
Well most of us know that commercial banks are the main issuers of the money we use. Whenever they issue a loan, they just write a credit on one side of the ledger and a debit on the other. The home buyer gets a deposit put in their account and they have to pay the bank back over a number of years. But they have to pay it back WITH INTEREST. The bank, you see, has created the deposit but not the interest. So borrowers must go out and compete with others to find that interest. Some will succeed but a small portion will necessarily fail, because there isn’t enough for them.
It is best illustrated with a story. Bernard Lietaer, author of the Future of Money said,
“I have a story that I call the “11th Round Parable.” I learned the story in Australia, so I’m setting it in the Australian Outback, in a little village where people don’t know about money. Every week they gather, and people bring hams, chickens, and eggs and barter and bargain with each other.
Then one day, a gentleman comes with a very fancy hat and very shiny shoes, and he observes the market. At one point, he sees a farmer trying to carry 12 chickens around the market to exchange them for a ham—and the farmer is obviously having trouble doing that. So the man starts laughing.
The wife of the farmer says, “Hey, stranger, do you know a better way of getting around with the chickens?”
And the man says, “I don’t know about chickens, but I know a better way of doing all this.”
“Oh, really,” she says. “What would that be?”
“See that tree in the corner?” he asks. “I’m going to sit under that tree. One of you bring me a big cow skin, and I will prepare something. Bring every family together, and I will explain it to you.”
He goes to the tree, and they bring him the skin. He cuts little rounds in that skin and puts a fancy little seal in each of those rounds. He gives ten rounds for every family. One round is equal in value to a chicken. So now the villagers can carry those rounds instead of the chickens.
Then he says, “I’ll come back next year and sit under the same tree. I want everyone to bring 11 rounds. The 11th round is the token of appreciation for the improvement that I’ve made possible in your community.”
The farmer’s lady asks, “Where will the 11th round come from?”
He says, “You’ll see, you’ll see, you’ll see. Don’t worry.”
Do you know what’s going to happen?
TRACY: Some people will have enough, and others will be left with fewer than 11.
BERNARD: What has to happen is on average, one of ten families has to go bankrupt to provide the 11th round to someone else. We’ve created a negative-sum game. And the next time the harvest is ready, not everyone will participate to help a neighbour in trouble to get his harvest in before a storm.
That’s how scarcity is created and how competition is generated. Lietaer said, “Our money system is structurally brittle. It doesn’t matter if you put a very clever guy or a stupid guy at the wheel. The clever guy will take a half hour to have an accident, and the stupid guy will take ten minutes.”
Of course how to solve it is another matter for another time. Meanwhile let’s first understand that unless you look at the structure of the money system and ask the right questions you are not going get the right answers.
I don’t believe the Labour Party understands the cause of accumulating debt in the section of our society at the bottom of the heap. Yes, sure they understand the pain. Yes they try. But the way they try is to put more and more bandaids on. They also keep up the rhetoric about solving child poverty.
The only trouble with knowing that the very structure of our money system requires a certain number of vulnerable people to keep getting into unmanageable debt is that once you understand it, once the genie is out of the bottle, you can’t push it back in. You can’t unknow it. But the more of us that are informed, the more likely we will collectively discover various solutions.
Right now many groups round New Zealand are doing a lot of thinking about how we might build back better after the pandemic. They are identifying issues and making recommendations, whether it be on addressing climate change properly, facing the wealth disparity or generally working towards a world with a future for humanity.
But where should we intervene in the global or national political economy? It’s easy to suffer from overwhelm of ideas and information so it might just be helpful to think about which interventions would have the most leverage. Would a small intervention somewhere have a big effect?
Donella Meadows, a systems analyst focused on environmental limits to economic growth did a lot of thinking on this topic during the 1990s and wrote a classic piece. She identified twelve leverage points to intervene in a system. A complex system could be a firm, a city, an economy, a living being, an ecosystem or an ecoregion.
So I am just going to deal with the first three which bring the greatest results. They are also the hardest ones to move. Here is a quote from Wikipedia
“3. Goal of the system
Changing goals changes every item listed above: parameters, feedback loops, information and self-organization.
A city council decision might be to change the goal of the lake from making it a free facility for public and private use, to a more tourist oriented facility. That goal change will effect several of the above leverage points: information on water quality will become mandatory and legal punishment will be set for any illegal effluent.
Mindset or paradigm that the system — its goals, structure, rules, delays, parameters — arises from
A societal paradigm is an idea, a shared unstated assumption, or a system of thought that is the foundation of complex social structures. Paradigms are very hard to change, but there are no limits to paradigm change. Meadows indicates paradigms might be changed by repeatedly and consistently pointing out anomalies and failures in the current paradigm to those with open minds.
A current paradigm is “Nature is a stock of resources to be converted to human purpose”. What might happen to the lake were this collective idea changed ?
Power to transcend paradigms
Transcending paradigms may go beyond challenging fundamental assumptions, into the realm of changing the values and priorities that lead to the assumptions, and being able to choose among value sets at will.
Many today see Nature as a stock of resources to be converted to human purpose. Many Native Americans see Nature as a living god, to be loved, worshipped, and lived with. These views are incompatible, but perhaps another viewpoint could incorporate them both, along with others.”
Donella Meadows wrote, “The shared idea in the minds of society, the great unstated assumptions, unstated because unnecessary to state; everyone knows them‚ constitute that society’s deepest set of beliefs about how the world works. There is a difference between nouns and verbs. People who are paid less are worth less. Growth is good. Nature is a stock of resources to be converted to human purposes. Evolution stopped with the emergence of Homo sapiens. One can “own” land. Those are just a few of the paradigmatic assumptions of our culture, all of which utterly dumbfound people of other cultures. Paradigms are the sources of systems. From them come goals, information”.
Covid-19 in New Zealand has resulted in the loss of thousands of jobs, including from Air New Zealand, Auckland Council, Fletchers, Millennium hotels, Sky City, Ngai Tahu and Bunnings. With the first round of wage subsidies ending in June and the second round ending in September there will be thousands more jobs to be lost. Despite the fact that on Monday 8 June we moved to Level One and we can all move around normally within our country, there is no sign of overseas tourism starting up again or Air NZ getting back to 2019 levels within the foreseeable future.
The economy is a gigantic machine in which one person’s consumption spending generates someone else’s income. We buy the things we want and need, and in exchange give money to the people who produced those things, who in turn use that money to buy the things they want and need, and so on, forever.
But right now it is not looking good. Spending money at your local cafe won’t cut it. The OECD said in its Economic Outlook 2020, “The global economy is now experiencing the deepest recession since the Great Depression in the 1930s, with GDP decline of more than 20% and a surge of unemployment in many countries.” New Zealand can’t escape.
The Government has already responded with a wide range of schemes to help keep jobs and businesses. The Reserve Bank has lowered interest rates and gone on a spending spree in the secondary market buying up NZ Government bonds which they believe will lower interest rates further. They also lifted Loan to Value Ratio restrictions for commercial banks lending. In other words they want banks to lend money. In a recession businesses and individuals are loath to invest or borrow, so the Reserve Bank wants to make it easier for them.
Naturally all these actions from RBNZ have kept the property market from falling in most regions. Pity about the fate of some young couple with a small deposit a year out from now when their house value declines! The Reserve Bank has sent them out to buy a house now, because of course property owners have total privilege in our tax system. They are exempt from land value tax, capital gains tax, wealth tax and inheritance tax. The only way they pay for the privilege of monopolising a site is when they pay their rates and that is certainly nothing near the capital gain they will enjoy later. And all this for doing nothing to their land but enjoying the development all around. Yes, the capital gain really belongs to the wider society not to them.
Tax issues aside, let’s get on to the circulation of money round an economy. The Dominion Post two days after we started in Level One had the following front page headline, “Wellington, let’s get spending”. Yes we are urged to spend, and yet the Retirement Commissioner urges us to save for our retirement, and those wanting to buy a house naturally want to save a deposit. So we get two opposing messages from society. Apparently we paid off $1 billion during lockdown on our credit cards and this is bad for the economy because every time a debt is paid off there is less money in circulation.
Two Conflicting Functions of Money
Most people are not aware that our NZ dollar has to act in two conflicting ways, as a both medium of exchange and also as a store of value. It simply can’t do both at the same time. That is a problem. It should be one or the other.
Every time a sale is made both the seller and buyer benefit. So the argument goes the more transactions we have the bigger the benefit for the whole economy. The total sales expenditure is the country’s GDP which was around $203 billion in 2019.
In deflationary times it is well known that consumers hold back on their spending and the velocity of circulation declines. People also pay off credit card debts and mortgages, taking money out of circulation. When they do this the money supply declines if banks aren’t making new loans or the Reserve Bank doesn’t print more digital money. And with all the Covid-19 unknowns and with the possibility of cheaper prices tomorrow or less income tomorrow, consumers hold back even more.
A Dual Currency System is needed
What is needed therefore is a dual currency. One, the national dollar is useful for buying imported goods and for paying taxes. It can be a saving currency as well as a spending currency. However, because these functions conflict, we need a currency that is a spending currency only. Like ordinary goods, the currency will rot or decay or go out of date.
There are two ways of starting up such a currency:
Give local authorities the power to pay their employees partly in rates vouchers redeemable only by that local authority and make those vouchers decay at something like 8% a year.
Do it nationally. That would involve chartering a new bank and having it issue a new currency. The bank would be essentially a second Reserve Bank with a different name. Spend the new currency into existence through paying for part of the budget on health, education or transport or anything else the government does.
The advantage of the local option is that it is in line with what happens in Nature, a system within a system. But the disadvantage is that when it comes to the practical matters of having a new digital only currency with two currencies on an EFTPOS card, there are too many local authority currencies (78 of them) and too much complication. However the Government itself will not accept these new currencies for taxes and nor should they. The issuer of the rates voucher is the local authority itself and when the voucher is paid to Council in rates and is redeemed, it simply disappears.
The advantages of having a second national currency is that the EFTPOS dual currency card system is simple. There would be only two currencies in the country. The disadvantage is that the new consumers could favour buying from one region over another leading to unplanned centralisation. Then there would be too much internal transport required in New Zealand which would not be efficient. Duplication occurs in Nature and is perfectly logical. For instance you can grow pumpkins or potatoes or apples all around the country so it makes no sense to centralise this activity.
Right now businesses aren’t investing. They are reluctant to upgrade their software, buy new plant, add new employees, educate their employees, or recruit a top executive. Like individual consumers, businesses are sitting on their capital and waiting to be more certain of the future.
What about those with money? Are they investing in business? We know we have to build back better because of the constraints on energy use. A successful energy transition will entail moving away from a growth based consumer economy to an entirely different way of organising our investments. The rising stockmarket since just after lockdown shows investors had unrealistic optimism for weeks. But US stocks tanked on Thursday 11 June, as cautious commentary from the Federal Reserve and rising coronavirus infection rates prompted investor concern. All three major indexes posted their biggest single-day declines since March 16.
But imagine we had a second currency operating and it had a circulation incentive built into its design. Its value declines as time passes. What would you do with it? You can’t save it. We wouldn’t fill our houses with cheap imported Chinese goods because we need national dollars to buy imported goods. And we wouldn’t buy more imported cars.
I think, as in previous civilisations where a spending currency existed alongside the national currency, we would save in the form of tangible investments. When we had spent on personally useful things for the future, we would work communally to industrialise in a 21st century style production. We might form a cooperative buying up 3D printers and appropriate materials. Another group might grow bamboo or hemp. Another group might start an orchard and pay workers. Another cooperative would set up a clothing factory. We could invest in art, spend up large on local entertainment. The arts would thrive.
Oh, and as I wrote this I needed to do something with the dispensing box my baking paper came in. What a waste to put it in landfill! People with local spending money itching to be spent might even find it profitable to buy up waste and do some imaginative upcycling. Maybe.
Previous civilisations give us clues
What happened in the Central Middle Ages from 1150-1300 approximately in Europe? They had a dual currency system with the spending currency being used in communal efforts to build cathedrals that would bring pilgrims who would be a source of future wealth. So it was a community that did the investing. See here for more details.
What happened in Wōrgl, Austria in 1932-33 with a dual currency? In 15 months the council paved roads, built a ski jump, built a bridge and renewed their reservoir. Once again it was a communal effort in infrastructure that benefitted everyone. Also unemployment levels declined.
And in PreDynastic Egypt they invested in education and produced new knowledge in astronomy, mathematics. They maintained their waterwheels and their wine presses. Dressmakers and laundrymaids could read. They fed their population well.
The logistics of the implementation are not underestimated here. Granted there are major barriers to adopting a second currency, not the least of which is persuading businesses to keep two sets of accounts and all the technical issues of EFTPOS machines with more than one currency. There is also a challenge to ensure that the local currency remains on par with the national currency. The biggest one of all of course is that the tax system needs to be changed first so excess spending money doesn’t result in unearned profits from land speculation. All these are not addressed in this paper, but it is not being too hopeful to believe that enterprising and clever New Zealanders can solve them all.