Beyond Bubble Economics
Many argue that our increasingly globalized economy cannot keep up with the speed at which financial systems are changing – because of differing national laws, unregulated financial practices, or the still-prevalent unequal living and labor standards throughout the world – which simply postpones asking the hard questions about whether greed and the demand for more should be at the root of economic practice. And whether it’s time to put Bubble Economics into the trash can of history.
As Ben Selwyn noted in Development By the Elites, For the Elites (March 7), “total global wealth was $241 trillion in 2013 and is expected to rise to $334 trillion by 2018. Yet the majority of people live in poverty.” That’s an almost 40 percent increase in 5 years, for a system still reeling from crisis, austerity, and unemployment. Not very human, enlightened, or even practical. While Paul Krugman noted with equal outrage in the New York Times (“Liberty, equality, efficiency,” March 9) that “Almost 40 percent of American children live in poverty or near poverty.” That’s forty as in four zero.
But why do we want a system so detached from what makes us human? In The Post-American World, Fareed Zakaria wrote that “no system – capitalism, socialism, whatever – can work without a sense of ethics and values at its core.” He also likened the world economy to a race car, faster and more complex than ever – alas, one that still regularly crashes. Do we really need to live at breakneck speed with ever-increasing financial growth? Excessive speed is not good for cars, nor is excessive growth good for economies. If an economy continues growing, it must by definition reach an end – like a balloon stretched beyond limits.
Nouriel Roubini – the so-called Dr. Doom, who prefers Dr. Realist – said it best when he stated that we need to take away the punch bowl once a party gets going, a countercyclical or negative feedback system. Not to dampen the fun, but in fact to keep the system going. But no one does – ever – not the Federal Reserve, not the American government, not corporations that seek growth at all costs. In fact, they relentlessly encourage more. About the Fed at the start of the last crisis, Roubini noted that they were “adding vodka and whiskey and even more toxic stuff to the punch bowl and making everyone drunk with irrational exuberance.” No wonder, the system didn’t stand a chance.
In times of prosperity, the economy is expanded, fueled in part by easy credit and increased debt, what is least needed, whereas in more frugal times, spending is decreased, again the opposite of what is needed. It is one thing to stimulate an economy in bad times as intended by Keynesian monetarist policies, but quite another to do so in good. We may see temporary gain, but it never lasts. Indeed, by the end of one crisis, the next is already beginning.
Alas, the seeds are being sown again, where governments ramp up the rhetoric on the latest economic miracles, stoking the fires once more. Former U.S. Secretary of Labor Robert Reich calls it Supercapitalism, where shareholders’ rights are more important than civic rights, the basic everyday ones on which our modern enlightened society was founded. We are again becoming slaves to the almighty stock ticker.
To be sure, the American Dream is over, as personified not by the likes of Andrew Carnegie, Bill Gates, or Mark Zuckerberg, but by a vast unnamed citizenry. We simply cannot all be rich, and it is time to recognize that cooperative strategies and not growth-based competition are needed. Our futures depend on it.
There is, of course, much to do. Anatole Kaletsky believes “we are where astronomy was when Copernicus realized that the earth revolves around the sun” – pretty depressing given how wrong and complicated the geocentric system was. With the likes of CDSs, which Soros called a “toxic market” and Warren Buffet “weapons of mass destruction,” we really are in the economic Dark Ages. Or the Wild West, not the lawless frontier aberration of overly romanticized westerns, but the apparent norm of might is right and money makes the rules.
Kaletsky noted in The Times (Sep 15, 2010) that things are not improving, sadly still true today:
Not only have the banks escaped any wide-ranging regulation, but politics, at least in Britain and America, has reverted to the language of the Thatcher-Reagan period. Genuine jobs can only be created by the private sector. There must be minimal interference with market forces, whether in managing trade and exchange rates, subsidising science or culture or in shifting incentives to encourage a transition from fossil fuels.
In Prosperity Without Growth: Economics for a Finite Planet, Tim Jackson asked “whether economic growth is still a legitimate goal for rich countries, when huge disparities in income and well-being persist across the globe and when the global economy is constrained by finite ecological limits,” further noting that “progress towards sustainability remains painfully slow.” He was updating E. F. Shumacher, whose groundbreaking 1971 book Small Is Beautiful: A Study of Economics as if People Mattered helped wake up our wasteful world.
Schumacher warned that we were using up fossil fuels (what he called “natural capital”) at an alarming rate. Natural capital is not limitless, doled out forever like collecting $200 every time one passes “Go” in Monopoly. Fossil fuels cannot be replenished, and, thus, the question is not will we run out of resources – which of course we will – but when and what damage will be done in the process?
Reduce, reuse, recycle are the three Rs that matter most for all our futures – to take away the drugs that feed our relentless appetites for more. To help understand that how we do something is as important as what we do. For example, to cycle or to take public transport to work, to engage not perpetually subjugate my world with my needs.
Of course, the challenges are great and more pressing as we reach the limits to our previously thought inexhaustible resources. One hopes we have not reached the limits to our imagination or inventiveness.
So what to do? In The Evolution of Cooperation, Robert Axelrod noted that “mutual cooperation can emerge in a world of egoists without central control by starting with a cluster of individuals who rely on reciprocity.” Yes, think globally, but act locally. Axelrod showed also that religious prescriptions work, such as “do unto others as you would have them do unto you.” Forgiveness helps to deescalate conflict, and cooperation turns one-off, zero-sum interactions – where people care little about meeting each other again – into ongoing, non-zero-sum interactions, which serve to stabilize mutually beneficial futures – in short, good community relations. As Axelrod wrote, “This continuing interaction is what makes it possible for cooperation based on reciprocity to be stable.”
Trust and reciprocity are at the core of the microfinancing projects such as Graneem Bank, started amid the poverty of Bangladesh in response to uncaring banks whose excessive usury gives little thought to community. Faceless interactions create faceless communities, but as Axelrod noted, “Frequent interactions help promote stable cooperation.” In reality, without people there can be no profits, a simple maxim forgotten by today’s profit-first megabanks.
We must also say no to the seductive power of “More.” No to viral wants, mass consumerism, the obsessive attempts by finance-oriented governments and faceless corporations who think only in terms of numbers. I am not a number. But I am not an island either.
Will the coming revolution remove the individual from the center and recognize our collective interests? The former Federal Reserve chairman Alan Greenspan once stated that future crises will always happen unless we change human nature, but given that we have been taught and in fact legislated how to behave since the beginning of civic society, blaming human nature seems an unfair cop-out. What we need are real representatives, useful regulation, and a proper accounting of misdeeds for those who misbehave with impunity.
It is time to put people back into economics, and back into our world.
JOHN K. WHITE, an adjunct lecturer in the School of Physics, University College Dublin, and author of Do The Math!: On Growth, Greed, and Strategic Thinking (Sage, 2013). Do The Math! is also available in a Kindle edition. He can be reached at: email@example.com.