Money is the least of our problems. It’s time to pay attention to the real deficits that are killing us.
posted Aug 10, 2012
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"Every generation has an incentive to borrow money from the future to spend on itself."
—David Brooks, The New York Times, Jun 4, 2012
The political debate in the United
States and Europe has
focused attention on public financial deficits and how best to resolve them. Tragically,
the debate largely ignores the deficits that most endanger our future.
In the United States,
as Republican deficit hawks tell the story, “America is broke. We must cut
government spending on social programs we cannot afford. And we must lower
taxes on Wall Street job creators so they can invest to get the economy
growing, create new jobs, increase total tax revenues, and eliminate the
deficit.”
We can only borrow money from each other. The idea that we
borrow money from the future is an illusion.
Democrats respond, “Yes, we’re pretty broke, but the answer
is to raise taxes on Wall Street looters to pay for government spending that
primes the economic pump by putting people to work building critical
infrastructure and performing essential public services. This puts money in people’s
pockets to spend on private sector goods and services and is our best hope to grow
the economy.”
Democrats have the better side of the argument, but both
sides have it wrong on two key points.
- First, both focus on growing GDP, ignoring
the reality that under the regime of Wall Street rule, the benefits of GDP growth
over the past several decades have gone almost exclusively to the 1 percent—with dire
consequences for democracy and the health of the social and natural capital on
which true prosperity depends.
- Second, both focus on financial deficits, which can
be resolved with relative ease if we are truly serious about it; and ignore far
more dangerous and difficult-to-resolve social and environmental deficits. I
call it a case of deficit attention disorder.
To achieve the ideal of a world that secures health and
prosperity for all people for generations to come, we must reframe the public
debate about the choices we face as a nation and as a species. We must measure
economic performance against the outcomes we really want, give life priority
over money, and recognize that money is a means, not an end.
What We Borrow
from Each Other
To realistically address the nature of the public financial
deficits at the center of the current political debate, it is crucial to understand
the nature of money and debt. Money is just a number, a system of accounting
useful in facilitating economic exchange. A deficit occurs when expenditures
exceed income. If, as a result, financial liabilities come to exceed financial
assets, we go into debt. It is all basic accounting.
The key point, which the deficit debates rarely address, is
that one person or entity’s financial debt is another person or entity’s
financial asset. We can only borrow money from each other. The idea that we
borrow money from the future is an illusion.
The deficit-hawks recoil in horror and assure us that we can
reduce government debt while leaving the financial assets of the rich
untouched.
From a societal perspective, total debts and assets are
always in balance. Consequently, if we say that one person or entity has
excessive financial debt, we in effect say that another has excessive financial
assets. Reducing the aggregate financial debt of debtors necessarily requires
reducing the aggregate financial assets of the creditors.
In theory, we could instantly wipe away all financial debts
through a universal forgiveness, a modern equivalent of the
ancient institution of the
Jubilee. The ancients recognized the significance of such action to restore
the balance essential to the healthy function of the human community.
The deficit-hawks recoil in horror and assure us that we can
reduce government debt while leaving the financial assets of the rich
untouched. It makes perfect sense in the fantasy world of pure finance in which
profits and the financial assets of the rich grow perpetually even as growing
inequality and wasteful material consumption deplete the social capital of
community and the natural capital of Earth’s biosphere.
A viable human future, however, must be based on living
world realities rather than financial world fantasies.
What We Steal
from Future Generations
Real capital assets have productive value in their own right and cannot be created with a computer key stroke.
Any normally intelligent 12-year-old is fully capable of
understanding the distinction between a living forest or fishery and a system
of financial accounts that exists only as electronic traces on a computer hard
drive. Unfortunately, this simple distinction seems to be beyond the
comprehension of the economists, pundits, and politicians who frame the public
debate on economic policy. By referring to financial assets as “capital” and
treating them as if they had some intrinsic worth beyond their value as a token
of exchange, they sustain the deception that Wall Street is creating wealth
rather than manipulating the financial system to accumulate accounting claims
against wealth it had no part in creating.
Real capital assets have productive value in their own right and cannot be created with a computer key stroke. The
most essential forms of real capital are social capital (the bonds of trust and
caring essential to healthy community function) and biosystem capital (the
living systems essential to Earth’s capacity to support life). We are depleting
both with reckless abandon.
- Social capital is the foundation of our human capacity to innovate,
produce, engage in cooperative problem solving, manage Earth’s available
natural wealth to meet the needs of all, and live together in peace and shared
prosperity. Social capital is depleted as individualistic greed becomes the
prevailing moral standard and the governing institutions of society deprive all
but a privileged minority of access to a secure and dignified means of living.
Once it is depleted, social capital can take generations to restore.
- Biosystem capital provides a continuing supply of breathable
air, drinkable water, soils to grow our food, forests to produce our timber,
oceans teeming with fish, grassland that feed our livestock, sun, wind, and
geothermal to provide our energy, climate stability, and much else essential to
human survival, health, and happiness. It is depleted when soils are degraded,
oceans are overfished, rivers and lakes are polluted, forests cut down,
aquifers contaminated and depleted, and climate stabilization systems disrupted.
These natural systems can take thousands, even millions of years to restore.
Species extinction is forever.
When we deplete Earth’s bio-capacity ... we are not borrowing from the future; we are
stealing from the future.
According to the
World
Wildlife Federation’s 2012 Living Planet Report, at the current rate of
consumption, “it is taking 1.5 years for the Earth to fully regenerate the
renewable resources that people are using in a single year.
Instead of living
off the interest, we are eating into our natural capital.” This is a path to
never-never land. Unlike with financial deficits, simple debt forgiveness is
not an option.
When we deplete Earth’s bio-capacity—its capacity to support
life in its many varied forms—we are not borrowing from the future; we are
stealing from the future. Even though it is the most serious of all
human-caused deficits, it rarely receives mention in current political debates.
When we assess economic performance by growth in GDP and
stock price indices, we in effect manage the economy to make the most money for
people who have the most money. This leads us to the fanciful belief that as a
society we are getting richer. In fact, we are impoverishing both current and
future generations by creating an unconscionable concentration of economic
power, depriving billions of people of a secure and dignified means of living, and
destroying the social and biosystem capital on which our real well-being
depends.
With proper care and respect, biosystem capital can provide
essential services in perpetuity. The reckless devastation of productive lands
and waters for a quick profit, a few temporary jobs, and a one-time energy fix
from Earth’s non-renewable fossil energy resources represent truly stupid and
morally reprehensible deficit spending. Evident current examples include
tar
sand oil extraction, deep
sea oil drilling,
hydraulic
fracturing to extract natural gas, and
mountaintop
removal coal mining The fact that we thereby deepen human dependence on
finite nonrenewable fossil energy reserves and accelerate climate disruption
make such actions all the more stupid and immoral.
Financial system logic, which rests on the illusion that
money is wealth, tells us we are making intelligent choices. Living systems
logic tells us our current choices are insane and a crime against future human
generations and creation itself.
From
Built-to-Loot to Built-to-Serve
The economy of a just and sustainable society needs a proper
system of money creation and allocation that:
- Supports the health and productive function of social
and biosystem capital and allocates the sustainable generative output of both
to optimize the long-term health and well-being of all; and
- Rewards individuals with financial credits in
proportion to their actual productive contribution to living system health and
prosperity.
The current U.S.
money system does exactly the opposite. It celebrates and rewards the
destruction of living capital to grow the financial assets of Wall Street
looters at the expense of Main
Street producers—thus concentrating economic and
political power in the hands of those most likely to abuse it for a purely
individualist short-term gain.
Wall Street and the Ultimate Tyranny
Wall Street has perfected the
ultimate tyranny based on privatizing and monopolizing the power to create and allocate
money. The earliest of human societies organized around systems of exchange
based on mutual trust and caring mediated by culturally determined norms of
reciprocity.
Eventually people learned they could benefit from more complex
exchange systems using mutually accepted tokens of exchange such as shells or
gold to mediate relationships with people from outside their immediate circle.
Money was initially mostly a convenience.
As systems of production became increasingly complex and relationships became
ever more monetized, however, it became essential to our individual ability to
access food, water, shelter, waste disposal facilities, and most all the other
essentials of life. This gives those who control the creation and allocation of
money virtual life-and-death control of our lives.
That power now resides
largely with Wall Street institutions devoted to enriching the Wall Street 1 percent
while reducing the 99 percent to debt slavery.
See the New Economy Working Group Report
How
to Liberate America from Wall Street Rule for details and
recommendations for corrective action.
Wall Street operates as a criminal
syndicate devoted to the theft of that to which it has no rightful claim. It
then bribes politicians to shield the looters from taxes on their ill-gotten
gains and to eliminate social programs that cushion the blow to those they have
deprived of a secure and meaningful means of livelihood. This brings us back to
the real source and consequence of excess financial debt.
Masters and Debt Slaves
In the big picture, the Wall Street 1 percent has divided society
into a looter class that controls access to money and a producer class forced
into perpetual debt slavery—an ancient institution that for millennia has
allowed the few to rule the many [See inset: “Wall Street and the Ultimate
Tyranny”] .The immense burden imposed on the 99 percent by public debt, consumer debt,
mortgage debt, and
student debt is an outcome of a Wall Street assault on
justice and democracy.
The resulting desperation and loss of social trust account
for the many current symptoms of social disintegration and decline in ethical
standards. These include growth in family breakdown, suicide, forced migration,
physical violence, crime, drug use, and
prison populations.
Equality as a Crucial Variable
I grew up in America
during a time when we took pride in being a middle-class society without extremes
of wealth and poverty. In part, we were living an illusion. Large
concentrations of private wealth were intact and systemic discrimination
excluded large segments of the population—particularly people of color—from
participation in the general prosperity. The underlying concept that the good
society is an equitable society, however, was and still is valid. And from the
1950s to the 1970s the middle class expanded.
Complete equality is neither possible nor desirable. Modest
inequality creates essential incentives for productive contribution to the
well-being of the community. Extreme inequality, as exemplified by current U.S.
society, is both a source and an indicator of serious institutional failure and
social pathology.
British epidemiologist
Richard
Wilkinson has compiled an impressive body of research that demonstrates
beyond any reasonable doubt that economic and social inequality is detrimental
to human physical and mental health and happiness—even for the very rich.
Relatively equal societies are healthier on virtually every indicator of
individual and social health and well-being.
In highly unequal societies, the very rich are prone to seek
affirmation of their personal worth through extravagant displays of excess.
In highly unequal societies, the very rich are prone to seek
affirmation of their personal worth through extravagant displays of excess. They
easily lose sight of the true sources of human happiness, sacrifice authentic
relationships, and deny their responsibility to the larger society—at the
expense of their essential humanity. At the other extreme, the desperate are
prone to manipulation by political demagogues who offer simplistic analyses and
self-serving solutions that in the end further deepen their misery. Governing
institutions lose legitimacy. Democracy becomes a charade. Moral standards
decline. Civic responsibility gives way to extreme individualism and disregard
for the rights and well-being of others.
To achieve true prosperity, we must create economies
grounded in a living systems logic that recognizes three fundamental truths:
- The economy’s only valid purpose is to serve
life.
- Equality is foundational to healthy human
communities and a healthy human relationship to Earth’s biosphere.
- Money is a means, not an end.
A New Political Narrative and Agenda
So long as money frames the debate, money is the winner and
life is the loser.
Runaway public deficits are but one symptom of a profound
system failure. They can easily be resolved by
taxing the unearned spoils of
the Wall Street looters, eliminating corporate subsidies
and tax havens, and
cutting military expenditures on pointless wars that undermine our security.
Joblessness
can easily be eliminated by putting the unemployed and underemployed to
work meeting a vast range of unmet human needs from rebuilding and greening our
physical infrastructure to providing essential human services, eliminating
dependence on fossil fuels, and converting to systems of local organic food
production. If the primary constraint is money,
the
Federal Reserve can be directed to create it and channel it to priority
projects through a national infrastructure bank—a move that avoids
enriching the bankers and does not create more debt.
In addition, we must:
- Break up concentrations of unaccountable power.
- Shift the economic priority from making money to serving
life by replacing financial indicators with living
wealth indicators as the basis for evaluating economic performance.
- Eliminate extremes of wealth and poverty to create a true
middle-class society.
- Build a culture of mutual trust and caring.
- Create a system of economic incentives that reward
those who do productive work and penalize predatory financial speculation.
- Restructure the global economy into a planetary system
of networked bioregional
economies that share information and technology and organize to live within
their respective environmental means.
Within a political debate defined by the logic of living
systems, such measures are simple common sense. Within a political debate
defined by conventional financial logic, however, they are easily dismissed as dangerous
and illogical threats to progress and prosperity.
The Rio+20 debate
highlights a foundational and inherent conflict between the rights of nature,
human rights, property rights, and corporate rights.
So long as money frames the debate, money is the winner and
life is the loser. To score a political victory for life, the debate must be
reframed around a narrative based on an understanding of the true sources of
human well-being and happiness and a shift from money to life as the defining value.
A promising new frame is emerging from controversies
surrounding the recent United Nation’s
Rio+20
environmental conference. Wall Street interests argued that the best way to
save Earth’s biosystems is to put a
price
on them and sell them to wealthy global investors to manage for a
private return. Rather than concede the underlying frame to Wall Street
and debate the price and terms of the sale, indigenous leaders and
environmental groups drew on the
ancient
wisdom of indigenous peoples to challenge the underlying frame. They
declared that as the source of life, Earth’s living systems are sacred and
beyond price. They issued
a
global call to recognize the rights of nature.
Thus framed, the Rio+20 debate
highlights a foundational and inherent conflict between the rights of nature,
human rights, property rights, and corporate rights.
In current practice, based on the same financial logic that
leads us to treat financial deficits as more important than social and
environmental deficits, we give corporate rights precedence over the property
rights of individuals. We give property rights precedence over the human rights
of those without property. And we give human rights precedence over the rights of
nature.
We will continue to pay a terrible price for so long as we
allow the deeply flawed logic of pure finance to define our values and frame the
political debate.
When democracy is not determined by economic power, it is possible to imagine alternatives to “growth” and “austerity.”
There is no magic bullet quick fix. We must reframe the
debate by bringing life values and living
systems logic to the fore and turning the prevailing rights hierarchy on its
head. The rights of nature must come first, because without nature, humans
do not exist. As living beings, our rights are derivative of and ultimately
subordinate to the rights of Earth’s living systems.
Human rights come, in turn, before property rights, because
property rights are a human creation. They have no existence without humans and
no purpose other than to serve the human and natural interest. Corporations are
a form of property and any rights we may choose to grant to them are derivative
of individual property rights and therefore properly subordinate to them.
The step to a prosperous human future requires that we acknowledge life, not
money, as our defining value, accept our responsibilities to and for one
another and nature, and bring to the fore of the debate the social and
bio-system deficits that are the true threat to the human future.
Replacing cultures and institutions that value money more
than life with cultures and institutions that value life more than money is a
daunting challenge. Fortunately, it is also an invigorating
and hopeful challenge because it reconnects us with our true nature as living
beings and offers a win-win alternative to the no-win status quo.
David Korten wrote this article for
YES! Magazine, a national, nonprofit media organization that fuses powerful ideas and practical actions. David is the author
of
Agenda for a New Economy,
The Great Turning: From Empire to Earth Community, and the
international best seller
When Corporations Rule the World. He is board chair
of
YES! Magazine, co-chair of
the New Economy Working Group, a founding board member of the
Business Alliance for Local Living
Economies, president of the
Living Economies Forum, and a member of the
Club of Rome. He holds MBA and
PhD degrees from the Stanford University Graduate School of Business and served
on the faculty of the Harvard
Business School.
