Three Distinct Crises now Point to the Urgent Need for a New Economic System

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The current economic system, where money is created as interest bearing debt by banks, is coming to the end of its useful life. Three distinct movements all tell us this – those concerned about climate change, those concerned about global declining economic growth (the ones who understand its connection with peak oil), and those who know that rising private debt is dangerous and sure to end in tears.

1. The Demand for Economic Growth means Climate Change is not tackled properly.

In 1972 the world’s first whole-country environmental party, the New Zealand Values Party, questioned whether economic growth was making us better and happier. Economist Richard Douthwaite in his book The Growth Illusion wrote about the need for economic growth to be at least as high as the interest rate banks charged on money. Charles Eisenstein eloquently outlined the way the growth imperative financialises and thus depletes both our natural and our social capital. “The financial crisis we are facing today arises from the fact that there is almost no more social, cultural, natural, and spiritual capital left to convert into money.” 

The politics of climate change has highlighted the unfortunate situation where, given the choice between doing something meaningful about climate change and championing economic growth, governments will always opt for the latter and claim it is a matter of “balance”. The need for economic growth always trumps the need for climate action. As a result, according to the former United Nations climate chief Christiana Figueres we now only have three more years to turn around emissions or we will not reach the targets of the Paris Climate Accord. Carbon dioxide levels are flat at the moment, but an unprecedented effort is needed from all parties in the next three years.

Naomi Klein in her ground breaking book This Changes Everything says:

“Our economic system and our planetary system are now at war. Or, more accurately, our economy is at war with many forms of life on earth, including human life. What the climate needs to avoid collapse is a contraction in humanity’s use of resources; what our economic model demands to avoid collapse is unfettered expansion. Only one of these sets of rules can be changed, and it’s not the laws of nature.” 

2. We have reached peak efficiency in getting energy from using energy

We seem to have forgotten peak oil issues. Globally conventional oil production peaked in 2005 and unconventional oil peaked in 2015. But peak oil didn’t play out as we expected. We had omitted to factor in debt; because they had to spend more energy to get energy, fossil fuel firms had to go into debt and this kept growing. Two authors worth reading on this topic are Nafeez Ahmed and actuary Gail Tverberg. The former writes articles like this. It says we need a new economic system because we can no longer get the required economic growth. This is because the energy return on energy invested (EROI) has been on the decline since the 1940s. We used to get 50 times the amount of energy out of using 1 barrel full of oil to extract it. We now get only about 15 times that amount. This number will continue to decline. And it’s the same for gas and for coal. The decline is irreversible. The consequences for the global economy are profound and widespread.

Because we need more and more energy to keep the system going, less is left for the real economy. Tverberg carefully concludes that declining productivity growth is a result and also stagnant wages. Ahmed says James D Ward of South Australia argues that, although it was widely believed we could, GDP growth cannot really be decoupled from environmental impacts. Ward says what has happened is that we have financialised the GDP through the creation of new debt without increasing material or energy throughput. (That was done by Quantitative Easing. CNBC said it was a total of $12 trillion, and you can expect that to have a huge effect on the global economy. It did.) He also notes growing inequality of income and wealth. He demonstrates that GDP cannot be sustained indefinitely.

As far as growing inequality of wealth is concerned, Ward hasn’t yet spelt out that this is caused when we have a huge blowout of credit from QE at the same time as we fail to collect the land rent on rising land prices. The huge asset bubble created by QE has blown up house prices and the sharemarket. With a tax system that fails to tax assets (or at least land and natural resources) the wealth gap continues to rise.

Those without access to land and natural resources and natural monopolies fall into poverty and homelessness. Add the fact that wages remain low, jobs precarious and a punitive benefit system, many are in abject poverty.

All these factors combine for political instability resulting in the election of Trump and in Brexit. The growing section of population with casual work or precarious work are called the Precariat. Those with low wages with house buying beyond their wildest dreams are desperate. During elections they will now be clutching at straws, as there seems no hope for progress.

So we are now getting scholars who understand the fossil fuel energy issue and its effect on global growth saying we need a new economic model. This is new.

3. The third movement is those who know about the consequences of creating money as interest bearing debt. It produces instability as outlined by economists who follow the late Hyman Minsky.  The Minsky moment is the point at which excess private debt sparks a financial crisis. Minsky said that such moments arise naturally when a long period of stability and complacency eventually leads to the build up of excess private debt and overleveraging. At some point the system collapses and it can happen quickly.

Followers of the new economics movement are generally aware that there has to be a big system change and have been saying this for decades now. However with the demand coming from three different directions, it is  just a guess as to which will prevail. Maybe with the rise of the basic income movement something may change. Those who recognise the irony of politicians who turn a blind eye to $12 trillion dollars appearing from nowhere to rescue banks yet say we can’t afford a basic income will push this thing forward. Maybe environmentalists will stick to their environmentalism and monetary reformers will continue on recommending the same thing decade after decade while the planet burns and fascism threatens. . 

Summary

The New Economics Movement people who met between 2011 and 2015 to discuss a new economic system have produced ideas. These are crystallised to the best of my ability in my book The Big Shift: Rethinking Money, Tax, Welfare and Governance for the Next Economic System whose website is deirdrekent.com It can be bought here

Naming the book that comes from ideas in this website

I need help. I have struggled for a long time with a suitable name for the book I am writing, a book that is based on the contents of this website.

I have already submitted an essay to an international competition for called What’s your Alternative? I called my essay A New Political Economy. Boring title but it gives the crux of it.

I know naming a book is very important and I have a designer ready and waiting to design a cover. So I have been reading a marketing book called Platform: Get Noticed in a Noisy World by Michael Hyatt. He seems to classify good titles under one of four categories, PINC.

P stands for Titles that make a promise
I stands for titles that create intrigue
N are titles that identify a need e.g.Fearless: Imagine your life without fear
C are titles that simply state the content.(which was what I did in my essay)

Going through titles for TED talks I find lots of I titles and P and N titles and even C titles.

So here first is the elevator pitch for the book:
What is your book about? It’s about designing an innovative political economy. We need a completely new money system, a completely new tax and welfare system and a completely new governance system. Leave the old system alone. Then incorporate the big changes into a genuinely new package. We can’t just tweak the old system, we need disruptive innovation.

I know it is a nerve to take on such a task, but this book designs a system for a country, not the entire planet! But honestly the system we have is broken, we have passed peak oil and our system is designed for growth, and we can’t get that now. We are in real trouble and the old system is just not going to serve us any more. Almost all economists just want to tweak the old system. This book says we need to start again with a completely new model and so it proposes one.

Would you help me? The ones I have thought of so far are the following (I have had a Facebook group on the topic but I think the people there are getting a bit sick of the problem). Note: there would be subtitles too, bit longer.

The Big Shift to a Natural Economy
The Big Shift to a New Economy
Three Big Shifts
Whole System Shift
Designing a Better Economy

Now having re-read Platform and been through those TED talk titles, I am submitting:

Disrupt! A New Political Economy redesigned from scratch
Stand Aside Economists: We need a completely New System
The Big Shift to a Surprising New Economic System

I am open to anything and await advice from innovators, linguists, disrupters, comics, originals, advertisers, marketers, publishers

Later: The book is going to be called The Big Shift: Rethinking Money, Tax, Welfare and Governance for the Next Economic System. A hard copy will be ready in mid March and a kindle after that.

Green Capitalism The God that Failed

Richard Smith, an economic historian, has written an amazing article which I have only just discovered, (thanks to the wonderful people on our Facebook group).

He comprehensively dismisses green capitalism, as recommended by people like Paul Hawken and Amory Lovins. He says green growth is a completely blind alley, a God that failed. You can’t shop your way to sustainability.

He describes scary scenarios for a four degrees global warming, notes the lack of progress on reducing emissions over two decades and concludes that there is something wrong with capitalism itself. “From Kyoto to Cancun, governments have all made it abundantly clear that they will not sacrifice growth today to save the planet tomorrow.”

Cap and trade usually gets watered down. This is because there is such a huge range of occupations that negatively affected by it that the lobby opposing it is too broad and too powerful. The theory was nice. The cap was supposed to come down over time, but industry lobbyists in Germany badgered the government for higher caps and special exemptions of all sorts. “They warned of unemployment, threatened to pack up and leave Germany and so on.  In the end governments caved.” So in the market solution – cap and trade – profits ended up with the polluters and traders.  He says even carbon taxes when implemented can never be set at high enough levels to make a difference. And it makes no difference if it is revenue neutral or not.

Smith writes,”But the problem is not just special interests, lobbyists and corruption. And courageous political leaders could not turn the situation around. Because that’s not the problem. The problem is capitalism…..There is no way to cut CO2 emissions by anything like 90 percent without imposing drastic cuts across the board in industrial production. Because we live under capitalism, not socialism, no one is promising new jobs to all those coal miners, oil drillers, gas frackers, power plant operators, farmers and fertilizer manufacturers, loggers and builders, auto builders, truck drivers, airplane builders, airline pilots and crews and countless other occupations whose jobs would be at risk if fossil fuel use were really seriously curtailed.”

This book reminded me of Naomi Klein’s This Changes Everything in that it clearly states the problem is capitalism.

The article was written two years ago. During the last eighteen months the price of oil has declined 70% and now hundreds of thousands of oil workers have lost their jobs. Soup kitchens in Aberdeen are feeding former oil workers and tens of thousands of jobs continue to be lost in Alberta and North Dakota and Texas alone. In Nigeria 120,000 jobs have been lost. This month the New York Times put the global figure at 250,000 jobs lost. Meanwhile, and connected with this, the global economy is under severe threat of a complete meltdown, and central banks clamber to find yet another way to calm the markets, always by injecting more debt into the system.

So what answers does Smith come up with? He offers eco-socialism. A quick look at their website indicates they would nationalise the fossil fuel industry and the industries that are heavily based on them which means the auto industry, aircraft and airlines, petrochemicals, and so on.

So while it is wonderful to see Richard Smith facing the political realities of climate change, overconsumption, waste and pollution, there is another step or two he could take. He could ask, “And is there something structurally in the system that has demanded this incessant growth? Is growth written into the system? Which system? And if so can that be reformed?” Now Richard Smith may know this. I wonder if he also knows you have to transform the land tenure system if you change the money system, since the first reform demands the second. When you know about the money system you often wish you didn’t – that you could put the genie back in the bottle, so to speak. The corporates, as TPP has shown us, are more powerful than ever before in history and that changes the political landscape and our strategies. Few centralised solutions are now politically possible.

In our movement we have been struggling for over four years to work out some politically viable solution to our massive global problems. Maybe nationalising all these industries doesn’t get to the bottom of the problem. We need elegant, more lasting solutions.

Anyway his article is superb as far as it goes. He also has a book of that name.

http://www.worldeconomicsassociation.org/downloads/green-capitalism-the-god-that-failed/ is the e-book

And here’s a review of the book: http://www.truth-out.org/opinion/item/31959-book-review-green-capitalism-the-god-that-failed

Review of Naomi Klein’s book This Changes Everything, Capitalism vs Climate

Book Review by Peter Healy, Marist Priest of Otaki

This Changes Everything, Capitalism vs the Climate by Naomi Klein, 2014, $37

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This is a comprehensive and timely book. Klein says in part one, “If there has ever been a moment to advance a plan to heal the planet that also heals our broken economies and our shattered communities, this is it.” In the introduction she says “this is the hardest book I have ever written because climate change puts us on such a tight and unforgiving deadline.”

This book is about our “climate moment” with all its challenges and opportunities. First, Klein says we have to stop looking away. We deny because we fear letting in the full reality of a crisis that changes everything. The need to change everything is not something we readily accept. If we are to curb emissions in the next decade we need a massive mobilisation larger than any in history. She quotes the Bolivian Navarro Llamos who suggests it is time for a “Marshall Plan for Earth”.

The question is posed: What is wrong with us? What is really preventing us from putting out the fire that’s threatening to burn down our collective house? The global economy always takes centre stage. Market fundamentalism has systematically sabotaged our collective responses. Our economic system and our planetary systems are at war. We are faced with a stark choice: “either we allow climate change to disrupt everything about our world or we change pretty much everything about our world to avoid that fate”. We need a radical rethink for these changes to be remotely possible.

Our “climate moment” is accompanied by what she calls a “fossil fuel frenzy”. A wild dig is going on in most nations on the planet. Aotearoa/NZ being no exception. With the “fossil fuel frenzy” Klein says, “We have become a society of grave robbers, we need to become a society of life amplifiers, deriving our energy directly from elements that sustain life. It’s time to let the dead rest.” Our most important task now is to keep carbon in the ground.

To do all this we need to be thinking differently. A new worldview is required, “a project of mutual reinvention” has to be entered into. The door to 2 degrees of warming will close in 2017. We are in the midst of a civilisational wake-up call. This call is coming to us in the language of fires, floods, droughts and extinctions. We are being called to evolve, and the thing about a crisis this big is that it changes everything.

Wealthy nations need to start cutting emissions by 8-10 percent per year. They have to begin this now. We need to consume less and get back to 1970’s levels. Low consumptions activities like gardening and home cooking are good. Changing everything means changing how we think about our economy. Large corporations dodge regulations, and they refuse to change behaviours. No company in the world wants to put itself out of business, their goal is to always expand their market share. Klein talks about addiction rather than innovation when it comes to new methods of extraction. We need to keep all the fossil fuel we can in the ground, at the same time more extreme and innovative methods are being invented to get at whats left. The madness of “extractivism” is a relationship of taking with little care being given to regeneration and the future of life. As Klein says the market economy and the fossil fuel economy emerged at about the same time. “Coal is the blank ink in which the story of modern capitalism is written.”

There are no messiahs. The green billionaires will not save us, we have to change our lifestyles. Our most intoxicating narrative is that technology will save us, and this is one of our forms of magical thinking. There are some fascinating passages about Klein going to a geo-engineering conference in the UK. She describes the attendees as, “a remarkably small and incestuous world of inventors and scientists and funders.” It is all very risky, untested and dangerous stuff that they are proposing. The solution to global warming is not to fix the world, rather we need to fix ourselves.

The book has inspiring things to say about “Blockadia”. This is a broadbased grassroots resistance movement intent on shaking the fossil fuel industry to the core. Indigenous peoples are key in the Blockadia movement, their rights can be a great gift for the revival and reinvention of the commons we all love. Bolivia and Ecuador have already put “the Rights of Mother Earth” into their national statutes. Blockadia asks the question, “How come that a big distant company can come to my land and put me and my kids at risk and never ask my permission?” The corporations come from far away and go everywhere because the fossil fuel industry is one of extreme rootlessness.

Followers of recent global climate talks are well aware of failure and deadlocks. A Greenhouse Development Framework from the Stockholm Environment Institute is an attempt to deal with disparities within and between countries claiming the rights to develop and pollute.

In chapter 13 of the book Klein talks about her attempts to have a child while researching this book. There are some lovely descriptions of Klein coming to realise that earth is facing fertility challenges of her own. Many species are now against “infertility walls” and finding it hard to reproduce. Fertility is one of the first functions to erode when animals are under stress.

The challenge for the climate movement hinges on pulling off a profound and radical economic transformation. In extraordinary historical moments “the usual category that divides “activists” and “regular people” become meaningless, the activists are quite simply everyone”.

So this book is for you and me and everyone. We are all implicated in everything this book is about, so get hold of it, read it and pass it around. As a slogan at the recent climate march in New York said, “To change everything we need everybody.”

I found myself saying to someone the other day, “If any book will push us through and beyond the Great Transition that we all have to make, then this is it!” Along with the film that Klein’s partner is making on the same subject, we can take some hope. We still have our brief window of time. We are inventive and creative. We can join with the tangata whenua as guardians of Mother Earth.

From interest to reciprocity, savings pools are a great innovation.

Among all our discussion of currency and tax changes at national level we must never lose sight of the good things happening at local level. For it is at the level of neighbourhood that we all exist. It is at community level where our comfort comes from. It is from the ground up that initiatives and innovations happen. New Zealand has a unique innovation here.

It is at local level where we can take action to restore local economic resilience and maximise our chances of survival after a major bank failure and economic crisis. Nicole Foss has reminded us yet again that the system must crash. “When the music stops there is only one chair for every 100 dancers”.

Money-tabooIn August 2014 I had the privilege of attending the annual hui of the Living Economies Educational Trust. Among the local resilience initiatives being taken are green dollars, timebanks and now savings pools. It is the savings pools that I want to talk about here.

A savings pool is a family sized group of people (4 to 30 people) who get together regularly for the mutual financial purposes. It is a cross between a purchasing cooperative, a support group and a pawn shop. There is not a scrap of interest paid to anyone.

So how does it work? Members meet at someone’s home monthly. They discuss what they will contribute to the group’s shared pool. It might range from $10 to $200 a month, but where the membership is say 10, the group’s monthly savings can quickly range from $100 upwards. Before long you have a sum of, say, $3000.

But you don’t want this money languishing in the bank. You want it out amongst your members doing good. The members volunteer in turn what their financial needs are. Perhaps three in the group have financial needs. Susan draws attention to her credit card debt, Jim is desperate for a new car so he can get to work and a Rosy needs to pay a dental bill. The group then pays attention to those three needs. They figure they can work out how someone can take Jim to work for a while and decide to pay off Susan’s credit card. Without having to pay interest, Susan can put more into the pool each month.

Susan’s promise is to pay $50 a month to pay the pool back, plus another $50 as reciprocation (equal give and take) towards her future pool account. She pays a total of $100 a month now. Or else she could pay $50 a month for double the period. Her choice.

In savings pools trust is important but there is a saying “Trust in God but tie up your camel”. Tying up your camel entails prudent purchasing agreements. Collateral is usually necessary. e.g. if I want $1000 from the group to pay off my credit card debt and I have a $5000 car, the group can own my car and I enter into a purchasing agreement with the pool to buy back my car for $1000. That way the pool is more like a special kind of pawn shop. The car should be insured.

The whole group reviews their next month’s contribution, and the result is a bigger fund. Since they don’t know Rosy well they meet in her house next time. As trust builds and the social capital of the group grows, they realise Rosy should be next in line for a contribution from the pool as her teeth really are causing her trouble. Maybe there is enough in the pool to meet her needs now.

Rosy offers some appropriate property for sale and purchase, plus an equivalent savings/contribution to the pool.
Money, Colorful words hang on rope by wooden peg The accounting spreadsheet is available for them all to see. They add up what they will have at each month in the future, aware of some of the future demands on the use of the funds.

When Jim’s turn comes around for a car the pool has $5000 with which to buy a car. The car belongs to the pool. Jim uses it and pays off $100 a month. But as before he also has to put in another $100 a month so that others can have access to his money during the period he pays it off. If $100 a month is all he can afford then the term could be extended for two years. That is reciprocity in action. So instead of paying it off in one year Jim takes two years. At the end of the two years ownership transfers to Jim. He has paid off $5000 plus he has put another $5000 in the pool. When he has paid off his $500 and contributed another $5000, he can withdraw the second $5000 if he wants as it is his money. Meanwhile for all that time it has been at work for the pool’s benefit.

So you see not only has the group lent without interest but nobody gains from being a borrower without paying an equal amount back to the pool. Reciprocity replaces interest.

There are now at least 22 savings pools in New Zealand and membership is growing fast. Several people are now available to help new groups form. They do this by running a game (it’s more fun than monopoly) where they are each given an identity (e.g. a retired couple with no mortgage or a solo mother with part time work) Each person is then handed a crisis/opportunity card saying what happened that month for them (unexpected expense they can’t meet or an inheritance or ‘no change’). Then they role play what might happen within the group. At the end of the game people are itching to start their own savings pools.

These groups work particularly well if they start with a group who already know each other. It is also good if you have a cross section – those with extra money they want to protect in case of an economic crisis and those whose finances are more precarious. If a person dies or moves away their money can be withdrawn, together with their savings points (amount of money multiplied by the number of months they have had it in there) and passed to their heirs.

You need a person who will be a good recorder.

I have been to several of these events. Enthusiastic members of existing pools tell us of the celebration and joy when a credit card is paid off. One group had a party where they ceremoniously cut up the card.

The first financial threat is a global downturn causing major economic contraction and loss of ability to service mortgages. The second is bank insolvency where depositors (unsecured creditors of the bank) find their accounts have been frozen overnight and wake up with a “haircut”. In crises the solvency of banks depends on the elimination of debt and calling in non performing loans (mortgage foreclosures and asset seizures).

Savings pools already own all assets not yet paid for. Contributions will tend to dry but but the pool community remains. Loss of liquidity results in temporary paralysis of the system, but no loss of its real underpinnings

The assets of savings pools or more strictly Buyers Clubs in New Zealand are now growing at between 75-100% a year. In other words they are nearly doubling every year. If you would like to find out how it all started have a look at the 15 min video done by its founder Bryan Innes here.

For more information go to the Living Economies website where you can read more and see a typical agreement.

To start one in your area contact either Peter Luiten, Bryan Innes, Phil Stevens or Helen Dew. Or leave your information here

Petition asking for a Parliamentary Enquiry on Bank Stability declined

Our petition on Bank Stability Dismissed 31 July 2014

The New Economics Party is disappointed that their 877 strong petition asking for a Parliamentary Enquiry on bank stability has been declined.

Spokesperson Deirdre Kent said they were not just disappointed with the outcome (which was expected) but also by the process where the Select Committee met behind closed doors.

“There is so much at stake with banks playing in the derivatives casino, that the issue should be taken more seriously. The public is being kept in the dark as to what is going on internationally in the credit blowout. Their reply suggesting that they had it all in hand was by no means reassuring yet they have gone to the trouble of setting up a system whereby ordinary depositors will have their accounts confiscated in the event of a bank collapse.”

Ms Kent said “I don’t remember the Reserve Bank predicting the Global Financial Crisis, so why should we have faith in them now?

“The fact that the Select Committee meets behind closed doors is a big worry. We weren’t invited to give oral evidence, we didn’t get to eyeball them and we don’t know which politician said what. When Parliament has legislated 22 years ago for local authorities to have all their meetings in public without a good excuse, they continue to meet in behind closed doors. Such a process is unfair, undemocratic and not in line with their stated policy of open government.”

For further comment phone Deirdre Kent 06 364 7779 or 021 728 852

Punitive welfare legislation shows up need for Citizens Dividend or Basic Income

The new legislation against relationship fraud shows we are overdue to move to a Citizens Dividend, handed out unconditionally to individuals, according to the New Economics Party.

Spokesperson Deirdre Kent said the Bill, supported by both National and Labour, just highlights the need for a payment to all citizens where there is no asset testing, no means testing and no prying into the bedrooms of the citizens.

The legislation that would make both parties in a relationship responsible for welfare fraud will only result in tears. “Blaming and punishing doesn’t work and costs heaps in administration.”

“Everyone in our society has probably known someone that has defrauded the Social Welfare Department. The whole benefit set-up just invites beneficiaries to deceive WINZ because a couple gets more income if they live separately. We need a system where there is no financial benefit for those pretending to live apart. Our current targeted welfare system is no way to build a society which claims to value intimacy, honesty and strong families”, she said.

She said the New Economics Party wanted an unconditional Citizens Dividend for all individuals that was not means tested, asset tested or work tested. She said they believe that the benefits of the commons – land and the natural resources should be shared equally and this is a way of introducing an unconditional citizens income, small at first but growing.

She said New Zealand had three precedents for unconditional payouts. In 1948 every household was given a dividend because we had a particularly good wool cheque that year. The second was the Universal Family Benefit that existed from 1946 to 1991 when family support became targeted. The third was in 1977 when the unconditional National superannuation was paid to all over 65 without asset or income testing.

“British Columbia imposes a carbon tax and redistributed the revenue to all citizens and this is a popular policy.”