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


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. . 


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 It can be bought here

A letter to my family on peak oil and the global economy

Tim turned 16 the other day. By the time Tim is 30 the world will be producing only half the oil it is producing now and when he is 40 it will be producing less than a third.

Since I found out about peak oil in 2004 I have bothered you with my dire predictions. I know we got the timing wrong, and I know we have subsequently found shale oil and the global economy has continued on a business as usual path. You think I was wrong, do you?

Well here we are at 2017 and the article I have just read several times explains why the timing was wrong. We didn’t allow for fracking and we didn’t factor in the financing of oil. But now we are stuck. You tell me where the Nafeez Ahmed article falters. He quotes from an HSBC report and that is the sixth to biggest bank in the world. The HSBC article quotes from the International Energy Agency and from a Swedish University’s energy programme. Ahmed quotes further from a recent Cornell University paper which in turn quotes a paper from the Italy’s premier agency for government research.

I know very few of you will want to read the Ahmed paper. After all it is holiday season and we all have books to read, swimming to enjoy, bike rides and tramps to accomplish and screens to attend to.

So let me summarise this paper a little, adding an odd bit for explanatory reasons:

Conventional oil peaked in 2005. Unconventional oil (shale oil, deep sea oil) peaked in March 2015. Oil is the most dense energy form human beings have ever found and nothing has yet replaced it. Consequently it is closely correlated with economic growth and population growth. The current economic system requires constant economic growth. Oil has fuelled the growth in global wealth.

Ten years ago some of you replied, “Don’t worry, we will find something”. Oh yes we found fracking, and China went back to coal. But we also had already found debt instruments. If you don’t understand what these are you are in good company. Not even the heads of hedge funds or big banks know what strange derivatives (bets) are being invented by their traders sometimes. Ahmed says simply “the world is borrowing from the future to sustain our present consumption levels”. I know the shale oil companies were largely funded not from banks but from selling bonds. Ordinary people bought company bonds and got paid very high interest rates. The interest rates have risen so high that many shale companies are going broke paying them.

As oil exploration is yielding fewer and smaller fields and the oil is getting deeper and more expensive to extract, the oil companies abandon uneconomic fields. This happened around New Zealand and we attributed it largely to the actions of Greenpeace. But it was more than that. It costs them too much to extract it. Oil prices have recently climbed to just over $50 a barrel and companies need about $60 to break even. So they borrow. The trouble is this debt doesn’t produce real wealth.

Remember back in 2008 just before the Global Financial Crisis we had soaring oil prices? Oil went to $150 a barrel. Since nearly all goods are transported and the transport cost went up there was less money left for the rest of the economy. So we had a huge recession. So if oil prices are too high we get a recessionary effect that destabilises the global debt bubble. That debt is now higher than the pre-2008 crisis. If oil prices are too low we get too much debt which brings with it huge bank risks.

The economy can’t grow without oil. So we are stuck. The article says “the economy can quite literally never recover unless it transitions to a truly viable new energy source which can substitute for oil.”

Ahmed won’t of course have read my essay that I just submitted to the Next System Project essay competition where I propose an entirely new way of constructing a political economy so that we are not dependent on oil or on money as debt. (More of this later, I have just entered it into their international competition)

Ahmed says that because on 1 Jan 2018 there are new regulations coming into force in the finance industry, there will be a massive collapse shortly after that. He called it in 2008 and he is calling it now.

So while you are reading soothing headlines about how the economy is ‘in recovery’ or angsting over Donald Trump’s appointment of Exxon Mobil chief as Secretary of State or yet another climate change denier to a key position, think about your preparation for next year. The economy can't recover, given its present structure and its geophysical limitations. Where will you get your food? Cash? Petrol? Will your local authority be able to maintain a good supply of drinkable water or a sewerage system if they are in increasing debt? What about power?

Now there will be those who say this is wonderful for climate change. Yes it may be the only thing that makes our planet habitable. But it is an awful way for billions of us to learn. Actually the people who will be best off will be those who are already scraping a subsistence living. But that is another matter.

If only half the today’s global oil supply is available to Tim when he is 30, what is the future for your grandchildren? Or your old age? Can you devote an hour of your precious time to getting a handle on the reality of all this? We are so privileged in New Zealand and have had it so good for so long. I have missed out on a share price boom I know. Yes I got the timing wrong. Yes I have been a doomster. But please think for yourself now. You are educated, you probably have unlimited data for your computer, use it. Plan now for a massive, tightly interconnected, global financial collapse now. You might have a year.