The rules formulated and enforced by government ultimately favor one or the other of these competing systems. The tension between them defines the political struggle of our time. Government makes the rules that determine the economy’s structure and priorities. Its choices commonly favor Wall Street capitalism over Main Street markets, because Wall Street controls the money and the media that drive Washington politics. The public rarely hears about options supportive of a healthy Main Street market system, and such options do not find their way into the platforms of the major political parties.
To shift the political balance, we the people must articulate a compelling and holistic New Economy policy agenda for a planetary system of market-based Main Street living economies, bring it to the forefront of public attention, and compel the major political parties to make it a centerpiece of their legislative agendas. The three chapters of part IV provide an initial framework and identify focal points for strategic intervention.
Note that the focus here is on the substance of the legislative and administrative action needed from government. Mobilization strategies are addressed in part V.
Chapter 13, “Seven Points of Intervention,” presents a seven-point policy agenda for liberating Main Street and banishing the Wall Street phantom-wealth casino to the dustbin of history.
Chapter 14, “What About My…?” reveals how the financial “services” promoted by Wall Street are organized and managed to con the buyer. It then outlines public agendas for addressing the need for consumer credit, mortgage, insurance, retirement, and equity financing in ways that are at once more effective and more fair.
Chapter 15, “A Presidential Declaration of Independence from Wall Street I Hope I May One Day Hear,” provides a synthesis of the New Economy policy agenda in the form and style of a presidential economic policy address. It also sets a political marker for civil society. We will know we are at a breakthrough point on a path to success when we have created a political context that compels a sitting U.S. president and other heads of state to deliver the equivalent of this address.
CHAPTER 13
SEVEN POINTS OF INTERVENTION
Life or money: that is our choice. The current Wall Street system serves only money. Our task is to replace it with a New Economy system that serves life.
In this chapter, I identify seven critical system-intervention clusters around which citizen action can mobilize to hasten the dying of the old and the birthing of the new.1 The order in which the intervention points are presented defines a hierarchy of sorts, in that each item on the list provides a foundation for those that follow.
Living-wealth indicators provide the basic reframing of the New Economy’s purpose and values. That reframing becomes the basis for reorganizing the money system, which in turn creates a more favorable context for sharing wealth, making the transition to living enterprises, and restoring democracy and markets by breaking up big corporations. All of the above come together in local living economies organized as subsystems of their local ecosystems. New global rules create the necessary overarching legal framework to secure local democracy and prevent global corporations from stifling the development of local living economies by monopolizing economic resources and political power.
A logical sequencing of the intervention clusters is helpful in seeing the essential relationships among them. As a practical matter, of course, it is necessary and appropriate that grassroots groups work simultaneously on each cluster — which they are indeed doing. Let’s take a closer look at the interventions.
LIVING-WEALTH INDICATORS
THE GOAL: Replace financial indicators with indicators of human- and natural-systems health as the basis for evaluating economic performance. We get what we measure, so let’s measure what we want.
Children are society’s most vulnerable members. If you know the rates of infant mortality, child poverty, childhood malnutrition, teenage crime, and out-of-wedlock pregnancies, you have a remarkably clear picture of a society’s state of health. Other suitable indicators of human health include longevity and life satisfaction.
Indicators of social health include high school graduation rates, the percentage of jobs that pay a living wage with benefits, the unemployment rate among people seeking a paid job, average commuting times, attendance at farmers’ markets, and involvement in community service.
For natural systems, air quality, rates of soil runoff, biodiversity, the amount of CO2 in the atmosphere, and the size of fragile fish, bird, and frog populations are excellent indicators.
Once we adopt such indicators as the basis for evaluating economic performance, our national economic priorities will shift dramatically from a focus on money to a focus on life. We will see more clearly the benefits of reallocating real-wealth resources from the military to health care and environmental rejuvenation, from prisons to rehabilitation, from automobiles to public transportation, from mining to recycling, from suburban sprawl to compact communities, from advertising to education, and from financial speculation to financing local entrepreneurship.
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SEVEN INTERVENTION CLUSTERS
Living-wealth indicators: Replace financial indicators with indicators of human- and natural-systems health as the basis for evaluating economic performance.
Living-wealth money system: Redesign the money system to direct the flow of money to productive Main Street businesses rather than to Wall Street speculators.
Shared prosperity: Redistribute income and ownership to achieve a more equitable distribution of power and real wealth.
Living enterprises: Redefine the purpose of the enterprise from making money to serving community needs, and favor enterprise forms that support this purpose.
Real democracy/real markets: Free both the market and democracy from corporate domination by breaking up concentrations of economic power and limiting political participation to real people.
Local living economies: Create a planetary system of coherent, self-reliant local economies that function as subsystems of their local ecosystems.
Global rules: Restructure global rules and institutions to support all of the above.
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One of my favorite living-wealth indicators is the Happy Planet Index, created by the New Economics Foundation in London,2 which is based on purely nonfinancial indicators.
The numerator is a composite of two indicators: life expectancy, which is a simple objective measure of physical health, and life satisfaction or happiness, which is a subjective proxy for mental health. The denominator is the ecological footprint, an indicator of the economy’s per capita environmental burden.
The result is an indicator of the ecological efficiency with which a society’s economy is producing a given level of physical and emotional well-being. The results demonstrate that it is possible to live long, happy lives with a relatively small environmental impact.
The highest-scoring nation is Costa Rica, where people report much higher levels of satisfaction than Americans and live slightly longer but have an ecological footprint less than a quarter of that of the United States. The United States is 114 on the list, and our rank declined between 1990 and 1995. We could be far happier and healthier at a far lower environmental cost if we chose to base our economic choices on social and environmental, rather than financial, indicators.
Because GDP is best understood as the economic cost of achieving a given level of well-being, we may wish to retain it as a measure of the economic costs we seek to reduce. Thus, instead of our current quest for ways to grow our GDP, we would look for ways to shrink it.
LIVING-WEALTH MONEY SYSTEM
THE GOAL: Redesign the money system to direct the flow of money to productive Main Street businesses rather than to Wall Street speculators. Real resources follow the money, so design the financial system to put the money where it will produce the greatest living-wealth benefit.
The money system is to the modern economic system what the circulatory system is to the body. Where b
lood flows freely, the body’s cells flourish. Where blood flow is restricted, they become anemic and may die. The design of society’s money system institutions likewise determines which people, localities, and enterprises will have the opportunity to thrive and which will perish or struggle for survival.
Official money can be created by banks lending it into existence or by governments spending it into existence.
In our current system, most new money is created by private for-profit banks when they issue loans based on their assessment of risk and profitability. In recent years this has meant lavishing credit on speculation, housing bubbles, and consumer credit and withholding it from productive enterprises. As set out in chapter 2, this is exactly the opposite of what a sound money system would do. There are three issues to be addressed: (1) the structure of the banking system, (2) the respective roles of banks and government in money creation, and (3) money supply oversight and management. Let’s take them one at a time.
The banking system can be structured to favor large Wall Street banks or small community banks. The ownership can be for-profit or nonprofit. Nonprofit banks can be governed by a self-perpetuating board, organized as cooperatives, or owned by a state or local government. Priorities of the individual banks will vary accordingly. Private banks will favor their profits. Cooperative banks will favor their member interests. Government-owned banks will favor public purposes. There is nothing radical about a nonprofit bank. Cooperative banking has a long history in the United States and elsewhere.3
A New Rules Project study has confirmed exactly what we might expect.4 The smaller the bank, the greater the portion of its loans that goes to Main Street businesses. Because we want to favor a system that gives priority to funding productive Main Street business, it makes sense for the federal government to take over failed Wall Street banks, break them up, and restructure their local branches as individual community banks, savings and loans, or credit unions. To encourage the community banks to give priority to community interests over private profit, some or all might be organized as nonprofits or cooperatives. Perhaps some might be owned by state and local governments.
This process can be advanced further by legislating limits on bank size, taking antitrust actions to break up large banks, and implementing regulations and tax penalties that render banking conglomerates unprofitable.
Under a real-wealth banking system, the federal government would continue to insure the deposits of member institutions, as is now the case. But they would do so only on acceptance of strict reserve- and equity-ratio requirements. It is appropriate that local banks retain the capacity to issue credit equivalent to some modest multiple of their total equity and deposits, as this allows them to increase or shrink the local money supply in response to changing community needs and opportunities.
Now let’s look at the question of the respective roles of government and banks in creating the overall money supply. In a living-wealth money system, banks and the federal government would share the functions of money creation and allocation. As corporations and wealthy individuals have used their political leverage to significantly lower their taxes, the federal government has experienced a growing fiscal deficit that it makes up by borrowing money at interest from these same corporations and wealthy individuals, effectively shifting the burden to less affluent taxpayers. Chapter 9 described the example of Wall Street banks relending money to the government at 3 percent that they borrowed from the Federal Reserve at nearly zero interest. This, in effect, means that middle- and lower-income taxpayers are incurring future liabilities to cover the deficit created by lowering the tax rate for corporations and wealthy individuals, the bailout money paid to these same corporations to cover their speculative losses and, in turn, the losses of their wealthy clients.
This makes sense only to the bottom lines of private bankers. The federal government should be taxing corporations and wealthy individuals at a rate commensurate with their ability to pay and the public benefits they receive. If the federal government still needs credit to cover essential expenses, or to invest in productive public infrastructure such as public transportation systems, it can and should make the necessary accounting entry itself, avoid the subsidy to Wall Street, and save taxpayers a great deal of money.
This brings us to money-supply management, which must equitably serve both public and private needs. That means it is inherently a federal government responsibility, although the authority currently resides with the Federal Reserve. The Fed professes to be a federal agency and is so listed in the government’s organization chart. It operates, however, beyond meaningful public oversight and generally acts in the best interests of Wall Street bankers — which rarely coincide with the public interest.
The Fed is properly brought under the general supervision of Congress and the Treasury Department and its operations rendered publicly transparent and subject to audit. A restructured Fed would have the tools to adjust the flows of both private and public money as required to support productive investment, local employment, and environmental balance while minimizing wage and asset inflation.
So what of the Wall Street casino? Let would-be gamblers go to Vegas, where the games are regulated.
The ideal way to deal with a malignant cancer is to cut off its blood supply. Similarly, the best way to deal with financial speculators is to cut off their money supply through appropriate taxes and regulatory actions that render illegal or unprofitable outsized banks, financial speculation, predatory lending, financial fraud, and the shadow banking system of unregulated hedge funds and private equity funds.
SHARED PROSPERITY
THE GOAL: Redistribute income and ownership to achieve a more equitable distribution of power and real wealth. We all enjoy greater health, happiness, security, and social solidarity when wealth is equitably shared.
Globally, nearly a billion people struggle to survive on less than a dollar a day, while fifty private investment fund managers each average nearly $2 million a day. In the United States,
• The wealthiest 1 percent of the country’s households hold a third of all private assets, more than the bottom 95 percent of households combined
• The top 1 percent of households received 9 percent of the country’s total income in 1976; by 2007, that figure had increased to 23.5 percent5
Contrary to the claims of market fundamentalists, unregulated markets do not fairly reward everyone willing to work commensurate with their ability and contribution.
Among the world’s thirty richest countries, the United States has the greatest wealth disparity. According to the social epidemiologist Richard Wilkinson, that disparity explains why “the USA has the highest homicide rates, the highest teenage pregnancy rates, the highest rates of imprisonment, and comes about 28th in the international league table of life expectancy.”6 These are all negative consequences of the social and mental stress associated with extreme inequality.
On an environmentally stressed planet, the destructive effects of extreme wealth disparity cannot be resolved merely by expanding the economy to bring up the bottom. Redistribution is essential. When income and ownership are equitably distributed, the health of everybody — even the rich — improves. The market allocates more efficiently in response to the needs of the many rather than the wants of the few.
Appropriate corrective actions include the following:
• Instituting income and social services policies that assure every person access to a basic means of living, while favoring those who produce real value through productive work — for example, teachers, entrepreneurs, factory and service workers, family farmers, agricultural laborers, doctors, and hospital attendants
• Implementing progressive taxation and public spending policies that continuously recycle wealth from those at the top, who have far more than they need, to those at the bottom, who lack access to the basic essentials of a secure and fulfilling life
• Eliminating payroll and income taxes on incomes below $200,000 a year
and replacing them with resource-extraction fees at the point of extraction and pollution fees at the point of release, along with stiff luxury taxes on items of personal extravagance such as outsized personal yachts and private jet aircraft
• Minimizing the class divide through policies that encourage every person to engage in productive work and to share in the benefits and responsibilities of ownership in order to advance employee ownership, much as government advanced broad participation in home-ownership following World War II
• Supporting regional land-use policies for multistrata, compact development, and preventing geographic divisions by class and race and between affluent and blighted neighborhoods
• Requiring any corporation that decides to sell or close a local plant to give the workers or other interests in the affected community an option to buy the assets on preferential terms
LIVING ENTERPRISES
THE GOAL: Redefine the purpose of the enterprise from making money to serving community needs, and favor enterprise forms that support this purpose.
A living enterprise is human-scale. It has preferably fewer than a hundred employees and rarely more than five hundred, and it organizes around communities of people rather than pools of money. A smaller size means less need for hierarchy and bureaucratic control. That, in turn, supports innovation, teamwork, worker satisfaction, and ethical practice. The stronger the sense of community within the enterprise, the greater the firm’s contribution to strengthening the social fabric of the larger community it serves.
Markets are more efficient, innovative, and responsive to a diversity of needs when served by many small firms. When workers are owners, the conflict between workers and owners disappears, individuals have a stronger sense of ownership in their community, and democracy is more robust.
Agenda for a New Economy Page 16