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Life on the Layaway Plan: We’re All Greek Now

Is modern economics one big Ponzi game, where the debt of today is continuously postponed beyond any ultimate day of reckoning? The European debt crisis may have been temporarily managed with a quick-fix German bailout of Greek insolvency, but does anyone really think that a country with a GNP of $X can repay almost $2X after its economy has shrunk by 25% (insert current value of X = 240 billion for Greece)? I have some swamp land in Florida if you do.

In any pyramid scheme/scam, a day of reckoning always comes, as in the first great Ponzi swindle. Charles Ponzi was a transplanted Bostonian, who in the 1920s developed subdivisions in Florida at 23 lots to the acre in places next to nonexistent cities, described by John Kenneth Galbraith “as repugnant to the people who bought it as to the passer-by.” The modern love affair with a future prosperity was instant. Citing American feeling prior to the eventual 1929 stock market crash, Galbraith aptly noted that “the Florida boom was the first indication of the mood of the twenties and the conviction that God intended the American middle class to be rich.”

But we can’t all be rich, a mathematical impossibility using any basic accounting. We can haggle over the precise percentage between privilege and poverty, but divide and conquer is now the approved reality in a me-first, board-game-playing world. But only for a while can the final reckoning be postponed before the last middle-class player lands on Boardwalk with a hotel.

We’ve been here before. Dutch tulips were bid up beyond sane accountability to $10,000 a bulb in 1637, holding companies owned holding companies that owned holding companies prior to the Great Crash of October 1929, cheap sub-prime mortgages were hard sold in 2009 with new “owners” approved because they could chew gum and walk at the same time. Call it Bubble Arithmetic that relies on increased growth (or even on expectations).

But endless growth always reaches a limit, whether the number of transistors on a chip, Star Trek tribbles, paper folding, or insolvent countries trying to pay back the unpayable. All attempts at permanent growth are unsustainable. What’s more, the blow-up is all the more perilous the longer it continues. A “no-means-yes” Troika-led Europe has turned Greek tragedy into comedy by supposing a shrinking economy is a spur to growth. As if blood can be wrung from a stone.

The same goes for pyramid scams such as Bernie Madoff’s $50 billion swindle, which used new investors to pay off old investors, although the most perilous future plan may be our own government pensions made unsustainable by swelling Baby Boomer demographics and dwindling finances. Dambisa Moyo doesn’t pull any punches in How The West Was Lost, stating that 2008 American pension costs were 15% of GDP and in the United Kingdom an even more staggering 64% of GDP: “Forget Bernie Madoff, forget Allan Stanford, the biggest Ponzi scheme has got to be the looming car crash that is Western pension funds. And like any well-run Ponzi game, its results will be devastating.”

Compound the problems with growing number of retirees and a shrinking treasury where the U.S. national debt is a whopping $18 trillion and counting (up from $11 trillion when Barack Obama first took office). The U.S. debt has been pushed off the front pages of late, but the solvency debate will reappear soon enough when antsy senators don’t want to play the Keynesian Shuffle anymore (after the next $901 billion allotted by the so-called Temporary Debt Limited Extension Act is blown).

Printing money is one solution, as long as we don’t run out of paper and ink. Or the more imaginative Fed-led electronic quantitative easing, that props up equities instead of helping out the regular Joe. All the while poverty increases, presumably distasteful to both the left and the right. What’s more, American personal debt is more than $50,000 per capita. Indeed, we’re all Greek now, hawked to the rafters.

On top of national insolvency, bereft pension plans, and record personal indebtedness, propelled by our belief in a bigger future, it seems that the Chinese stock market is being propped-up and manipulated by growth-obsessed leaders. As Paul Krugman chillingly noted, “Large shareholders have been blocked from selling; state-run institutions have been told to buy shares; many companies with falling prices have been allowed to suspend trading” (“China’s Naked Emperors,” The New York Times, August, 1, 2015). The Chinese government is hard-selling our latest manufactured future-world dream.

We are also reaching geological limits, unnoticed in plentiful frontier days, but now as plain as the sun on our noses. We have over-extended ourselves like the hare, stuck in an expansion-only economic model, focused on production and market levels, instead of need and availability. As such, the ultimate Ponzi scheme may be our own demand for more.

But why are we in such a hurry to grow without considering the connection to the environment or our own needs, especially given the indebtedness and inequalities that occur? All such questions are related to economic competition, a worker-led busy-ness that belies real resources and needs.

Why not more jobs at a lower wage, such as a 4-day workweek, if it results in more employment and everyone participating in society? In The Winner-Take-All Society, Robert Frank and Philip Cook suggest more public holidays and noted that “if everyone worked less we would need less.” In Prosperity Without Growth, Tim Jackson noted that reduced workloads are “the simplest and most often cited solution to the challenge of maintaining full employment with non-increasing output.”

Few would disagree that we are overvaluing the producer and undervaluing the consumer (machine versus man?) and praising short-term gain, e.g., first-quarter earnings over long-term goals. John Naisbitt wrote in Megatrends that “Long-range plans must replace short-term profit or our decline will be steeper still.” Frank and Cook take the argument further, itemizing our own fixation with the simplicity of the here and now: “the inability to set one’s sights on larger, more distant rewards is associated with, among other difficulties, criminal behavior, alcohol and other substance abuse, marriage dissolution, and pathologically low savings rates.”

In fact, valuing long-term goals over what appears better in the short term is similar to developing the ability to defer instant gratification. We have to look at the long-term structural problems and not the everyday MacGyvering.

Frank and Cook also offer a simple solution, one that is starting to gain popular traction: “a greater tax burden on the economy’s biggest winners would not only help set our financial house in order but would also help steer our most talented citizens to more productive tasks.” They also noted that a progressive tax on consumption would reduce luxury spending as well as create more efficient consumption practices.

Shouldn’t we strive for a greater quality of life for everyone, instead of growing the coffers of the few? Money is not the measure of the man. There are simple prescriptions to see the folly of our ways. Without recognizing the other in our midst we can’t achieve our own higher goals let alone solve the problems of our day. Life is a shared accomplishment, not a debt contract to a faceless machine. Not everything is a commodity, a Troika number.

In his influential work about the new economics of excess rather than that of scarcity, John Kenneth Galbraith noted in The Affluent Society: “the ancient preoccupations of economic life—with equality, security and productivity—have narrowed down to a preoccupation with productivity and production.” Affluent, however, only for some. The quest for more and the belief that more is better are at the core of a failed modern economic thinking. What game are our latest presumed masters playing?

Our borrowed world is inching closer to foreclosure, but we have to rethink the end. We have to rethink our contract with each other and the fatal desire to want what we can’t have. What have we got to lose but our debts?

More articles by:

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: john.white@ucd.ie.

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