Agenda for a New Economy

by David C Korten

  Surprised? Yes, successive Wall Street–dominated presidential administrations, both Republican and Democratic, have been cooking the books on inflation, money, unemployment, and the GDP for decades. Our economy is in far worse shape than the official statistics reveal. But I stray from our topic.

  Inflation of the money supply far in excess of real economic expansion — and the resulting real rate of inflation in consumer prices — is yet another cost of Wall Street’s phantom-money orgy. The inflationary phantom money that banks have been creating to fund Wall Street gamblers is one of the several vehicles by which Wall Street takes money out of Main Street pockets and puts it in Wall Street pockets.

  Credit Crunch in a World Awash in Money

  It is odd that we experienced an economic collapse in 2008 because of a credit crunch, an inability to borrow, at a time when the world has been awash not only in debt but also in money. BusinessWeek’s July 11, 2005, cover story shouted “Too Much Money” and spoke of a savings glut. Its June 11, 2008, European issue reiterated the theme, “Too Much Money, Inflation Goes Global.”

  Most discussion of the financial crisis focuses on the details and misses the big picture. The problem is twofold. The economic system is awash in money, but this money is in the wrong places. Second, virtually every dollar in the system is borrowed, because we rely on banks to create our money by lending it into existence. No debt, no money.

  As wages fall relative to inflation, the bottom 90 percent of the population is increasingly dependent on borrowing from the top 10 percent to cover daily consumption. But when the less fortunate can’t repay their loans, the rich people stop lending. Most loans continue to be repaid, but because the default rate is rising and the crazy system of derivatives trading makes it impossible to separate good debts and responsible borrowers from bad debts and deadbeats, banks are afraid to lend to anyone. As the good loans are repaid, the supply of money shrinks because new loans are not being issued.

  In turn, the demand for real goods and services begins to fall because people don’t have the money to pay for them. Businesses lay off workers, who consequently cannot repay their debts or even put food on the table. The problem appears to be a lack of money, even though the total money in the financial system is far more than enough to cover real-wealth exchanges in a rational real-wealth economy. The money, however, is locked up in the Wall Street casino economy rather than circulating in the real Main Street economy. Pouring bailout money into Wall Street does zilch for Main Street.

  It all traces back to a system that issues money as debt to the casino economy rather than to the productive economy.

  Why Debt and the Economy Have to Grow

  Because of how our financial system is designed, the economy has to grow or collapse. The growth may or may not provide employment, meet real needs, or reduce poverty — it must only meet the demand of the banking system for its pound of flesh.

  Because the bookkeeping entry a bank makes when it issues a loan creates only the principal, the economy must grow fast enough to generate sufficient demand for loans in order to create the money required to make the interest payments in an ever-escalating spiral. Otherwise, debts go into default and the financial system and the economy collapse. The demand for the eventual repayment with interest of nearly every dollar in circulation virtually assures that the economy will fail unless the GDP and income inequality are constantly growing. If you are a Wall Street banker competing for points in the power game, it does not get sweeter than this.

  Unfortunately for the rest of us, this demand for perpetual growth simply to keep the bankers happy results in a serious distortion of priorities. To avoid an economic collapse, policy-makers base their choices not on what will maximize the well-being of all but on what will create sufficient demand for additional borrowing to put enough money in circulation to pay the interest due to bankers on the loans already outstanding. The result is ever-increasing debt and the accelerating destruction of the natural environment and the human social fabric.

  It gets even worse. Given Earth’s material limits and the amount of debt already in play, there is no way that the productive economy can expand at sufficient rate to keep the game going. The necessary growth in debt must therefore come from the casino economy and its seemingly limitless ability to create phantom wealth by pumping up financial asset bubbles and loan pyramids — the ultimate Ponzi scheme.

  It is illogical and deeply destructive to design an economic system in a way that creates an artificial demand for perpetual growth on a finite planet. It is even more pernicious when the defining purpose is to make the already rich even richer relative to everyone else.

  By contrast, nothing in the design of the formal economic system allows those with little or no access to money even to give voice to their needs, much less fulfill them. They survive only by scratching out their living at the extreme margins of society in informal or “underground” economies of their own creation. These are design failures of the first order. To heal our sick society, we must redesign our economic system to remove these and other glaring defects, not only to secure our collective survival but also to achieve health and happiness.

  HEALTH, HAPPINESS, AND KEEPING UP WITH THE JONESES

  In a society defined by extreme inequality, our perception of our worth and our relationships with others are almost inevitably shaped by our position in the prevailing hierarchy of power and privilege. In this situation, we easily fall into the trap of valuing ourselves by our net worth and material possessions rather than by our intrinsic self-worth.

  Once in the trap, we will likely seek to endear ourselves to those above us even as we scheme to displace them and occupy their more elevated chair. Likewise, we may display contempt, whether overtly or subtly, for those below as a way of affirming and justifying our own status. Because financial fortunes are fluid and great phantom-wealth fortunes can evaporate overnight for reasons wholly beyond our control, even those in a position of financial advantage experience continuous, sometimes extreme, anxiety, with serious consequences for physical and emotional health.

  In an equitable society in which all people are valued for who they are rather than what they own, our natural concern is for the well-being of the group rather than for our particular position within it, because we truly rise or fall together. Seeking our place of service to the well-being of the whole thus becomes more important than defending and improving our position in a power hierarchy. Rather than anxiety, we feel calm exhilaration. Our blood pressure falls and our health and happiness improve. This is all confirmed by a wealth of scientific studies that document the benefits of equality for individual well-being.9

  When Ed Diener and his colleagues at the University of Illinois compared the life-satisfaction scores of groups of people of radically different financial means, they found four groups clustered at the top, with almost identical scores on a 7-point scale. One cluster of respondents, which comprised people on Forbes magazine’s list of the richest Americans, had an average score of 5.8. Ah, so money does bring happiness — at least when you are at the very tip-top of the hierarchy.

  The other three top-scoring clusters, by contrast, were groups known for their modest, egalitarian lifestyles and strength of community. These were the Pennsylvania Amish (5.8), who favor horses over cars and tractors; the Inuit of northern Greenland (5.9), an indigenous hunting and fishing people; and the Masai (5.7), a traditional herding people in East Africa who traditionally live without electricity or running water in huts fashioned from dried cow dung. These are all communities in which people care for one another and share their resources, and in which economic distinctions are minimal.10

  By definition, the Forbes 400 list is limited to four hundred people. We cannot all be on it. We could all, however, be living in equitable, caring, sharing communities and enjoying the associated health and happiness benefits. We need only to create societies that put less emphasis on making money and more on cultivating caring place-based
communities that distribute wealth equitably.

  Wall Street is bad for our health and happiness, not only because it has given us a health care system that places greater priority on Wall Street profits than on our well-being, but even more because it destroys a sense of community, creates a narcissistic culture, and rewards predatory competition.

  REAL WEALTH WITH NO LIMITS

  It is time to stop managing the economy for the benefit of Wall Street bankers and speculators, to ask what we really want from life, and to redesign our economic institutions accordingly. In so doing, we should look very closely at evidence demonstrating that once a basic level of material well-being is achieved, the major improvements in our health and happiness come not from more money and consumption but rather from relationships, cultural expression, and spiritual growth.

  These forms of real wealth are most valuable and fulfilling when they are dissociated from money and financial transactions — and they make little or no demand on environmental resources. The title of the classic ballad comes to mind: “The Best Things in Life Are Free.” Those words carry a lot of truth. What are the things that give you enduring pleasure? The material needs of people who are secure in their identity and sense of self-worth can be met in quite modest ways, freeing our energy for the things that bring us real joy.

  The cover story of the winter 2009 issue of YES! Magazine is about Dee Williams, a young woman who loves her life in an 84-square-foot house on wheels. It cost her $10,000 to build, including the photovoltaic panels that generate her electricity.11

  I’d give you odds that she is happier than most of the billionaires that Robert Frank writes about in Richistan, who spend their lives rushing between gigantic homes and estates in their private jets and yachts, occupied all the while with making deals by phone and computer to pay the bills.12

  Our economy needs a serious makeover. It is a design issue. We have for too long put up with an economic system designed to make money for rich people and maintain them in a condition of obscene excess by confining billions to lives of desperation and reducing Earth to a toxic waste dump. We can do better. And it’s about time we do so. We’ve put up with such nonsense for five thousand years. Finally, we have the means to choose a different way.

  CHAPTER 8

  THE END OF EMPIRE

  I think a pivotal point in our [human] story is the period of European expansion and colonization, which touched every single person on the planet and brought about the changes that we’re struggling with today. All our social movements since that time have been a response — the anti-colonialism movement, the struggle against slavery, the labor movement, women’s movement, the ecological movement.

  CARL ANTHONY, Yes! Magazine

  Look still further upstream beyond Wall Street — even beyond the money-is-wealth illusion — and we find the yet bigger picture — a five-thousand-year history of rule and expropriation by rulers intent on securing their privilege and pampering their egos by any means. Call it the era of Empire.1

  In an earlier time, rulers were kings and emperors. Now they are corporate CEOs and hedge fund managers. Wall Street is Empire’s most recent stage, and hopefully the last, in this tragic drama.

  Five thousand years is enough. This is an epic moment. We now have the imperative and the means as a nation and a species to end the era of Empire and liberate ourselves from a needless tragedy. Here is the larger story of what is at stake.

  THE TURN TO EMPIRE

  By the accounts of imperial historians, civilization, history, and human progress began with the consolidation of dominator power in the first great empires. Much is made of their glorious accomplishments and heroic battles as imperial civilizations rose and fell.

  Rather less is said about the brutalization of the slaves who built the great monuments, the racism, the suppression of women, the conversion of free farmers into serfs or landless laborers, the carnage of the battles, the hopes and lives destroyed by wave after wave of invasion, the pillage and gratuitous devastation of the vanquished, and the lost creative potential.

  In the Beginning

  According to the cultural historian Riane Eisler, “One of the best-kept historical secrets is that practically all the material and social technologies fundamental to civilization were developed before the imposition of a dominator society.”2 By her account, early humans evolved within a cultural and institutional frame that nurtured a deep sense of connection to one another and to Earth. They chose to cooperate with life rather than to dominate it.

  The domestication of plants and animals, food production and storage, building construction, and clothing production were all discoveries and inventions of what Eisler characterizes as the great partnership societies. These societies also developed the institutions of law, government, and religion that were the foundations of complex social organizations. They cultivated the arts of dance, pottery, basket making, textile weaving, leather crafting, metallurgy, ritual drama, architecture, town planning, boat building, highway construction, and oral literature.3 Indeed, without these accomplishments, the projection and consolidation of imperial power would not have been possible.

  The Dynamics of Power

  Then, some five thousand years ago, our ancestors in Mesopotamia, the land we now call Iraq, made a tragic turn from partnership to the dominator relationships of Empire. They turned away from a reverence for the generative power of life, represented by female gods or nature spirits, to a reverence for hierarchy and the power of the sword, represented by distant, usually male, gods. The wisdom of the elder and the priestess gave way to the arbitrary rule of powerful, often ruthless, kings. Societies became divided between rulers and ruled, exploiters and exploited.

  Mesopotamia, Egypt, and Rome were three of history’s most celebrated empires. Each had its moments of greatness, but at an enormous cost in lives, natural wealth, and human possibility, as vain and violent rulers played out the drama of Empire’s inexorable play-or-die, rule-or-be-ruled, kill-or-be-killed competition for power. The underlying dynamic favored the ascendance to power of the most ruthless, brutal, and mentally deranged.

  Rule by Psychopaths

  Social pathology became the norm as the god of death displaced the goddess of life and as the power of the sword triumphed over the power of the chalice. The creative energy of the species was redirected from building the generative power of the whole to advancing the technological instruments of war and the social instruments of domination. Resources were expropriated on a vast scale to maintain the military forces, prisons, palaces, temples, and patronage for retainers and propagandists on which imperial rule depends.

  Great civilizations were built and then swept away in successive waves of violence and destruction. Once-great powers, weakened by corruption and an excess of hubris, fell to rival rulers, and the jealous winners sought to erase even the memory of those they vanquished. The sacred became the servant of the profane. Fertile lands were converted into desert by intention or rapacious neglect. Rule by terror fueled resentments that assured repeating cycles of violent retribution. War, trade, and debt served as weapons of the few to expropriate the means of livelihood of the many and reduce them to slavery or serfdom.

  The resulting power imbalances fueled the delusional hubris and debaucheries of psychopathic rulers who fancied themselves possessed of divine privilege and otherworldly power. Attention turned from realizing the possibilities of life in this world to securing a privileged place in the afterlife.

  Ruling elites maintained cultural control through the institutions of religion, economic control through the institutions of trade and credit, and political control through the institutions of rule making and organized military force. Although elite factions might engage in ruthless competition with one another, they generally aligned in common cause to secure the continuity of the institutions of their collective privilege, often using intermarriage as a mechanism of alliance building.

  If many of the patterns associated with an
cient kings, pharaohs, and emperors seem strangely familiar to our own time of the democratic ideal, it is because — as elaborated in chapter 6 — the dominator cultures and institutions of Empire simply morphed into new forms in the face of the democratic challenge.

  A NEW NATION IS BORN

  More than two millennia passed between the end of the early democratic experiment of ancient Athens in 338 BCE and the beginning of the West’s next democratic experiment, marked by the signing of the Declaration of Independence of the United States of America in 1776.

  Resistance from Below

  It is axiomatic that democracy cannot be imposed from above or abroad. True democracy is born only through its practice.

  It is a remarkable fact that the American Revolution did not start as an armed rebellion. It originated in a process that looked rather more like a raucous social movement. For all their diversity and lack of experience with organized self-rule, the grassroots rebels who initiated and led the revolution in its earliest manifestations demonstrated a capacity to express the popular will through self-organizing groups and networks — long one of democracy’s most meaningful and effective forms of expression.

  When the British changed the rules of engagement from nonviolence to violence, the rebels felt compelled to respond in kind.

  As the violence escalated, it created a situation that both allowed and compelled the elites of the Continental Congress to assert their authority by raising an army that assumed control of the rebellion and restored imperial order under a new command.