Unplugging Our Economic Ponzi Scheme

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In recent decades, the status quo has relied on cheap fossil fuels, exhausting resources we cannot replace. 

 “Change before you have to.” 
 — Jack Welch, former chairman and CEO, General Electric Co.

In 1977, the editors of MOTHER EARTH NEWS published a sprawl­ing Economic Outlook that pre­sented a number of bold, disturbing as­sertions that emphasized our need for a new economic model:

• Capitalism, as we know it, is designed to exploit newly discovered resources and will flounder when we run out of new frontiers to conquer.
• The human population continues to grow rapidly.
• We can recognize and pre­dict coming shortages of oil, irrigation water and arable land.
• The health of our current world economy is con­tingent upon continued population growth and the discovery of new natu­ral resources.
• We need new economic systems to support a “steady state” econo­my — an economy of stable size with only mild fluctuations in population and consumption of en­ergy and materials.

To support their thesis, the editors (led by MOTHER EARTH NEWS founders John and Jane Shuttleworth) quoted historian Walter Prescott Webb, whose 1951 book The Great Frontier warned that when we run out of natural resources, our economic systems will stop working.

My predecessors wrote: “Western man’s clever technology, self-motivation, work ethic, economic system, and regard for the individual all came after and are all solidly rooted in the windfall resources and profits of The Great Frontier … And now that most of the cream has been skimmed from this windfall, capitalism (the economic sys­tem so ideally suited for the exploitation of a seemingly endless storehouse of natu­ral riches) will decline, prosperity will slip through (our) fingers …

“… Western Man’s 450-year-long expan­sionary binge — which was fueled by inex­pensive, plentiful energy and other natural resources — is now drawing to a close. And, just as Walter Prescott Webb predicted [in 1951!] … the industrialized nations of the world are having a difficult time under­standing what is happening to them.”

It’s now 2011, 60 years after Webb’s warning. The global recession is now about 3 years old. Are we “having a dif­ficult time understanding” what is hap­pening to us? Yes, I think so.

Do we still need to invent a so-called steady state economy? Yes, I think so. We need it now more than ever.

Humanity faces a dilemma. On one hand, our habitat won’t allow the human population to expand forever. Resources will eventually run short. But if the global human population sta­bilizes, we will face an unprec­edented economic problem. Prosperity, as we’ve known it, depends on an expanding hu­man population to support an expanding economy.

Longtime MOTHER EARTH NEWS contributing editor Lester Brown compares our present economy to a Ponzi scheme (to read his thoughts, check out the article World Economy Collapse). A Ponzi scheme, also known as a “pyra­mid scheme,” is a scam in which a con art­ist promises investors big returns, which he fraudulently generates from the contri­butions of later investors. Bernard Madoff is the most notorious recent perpetrator of such a scam. He raised tens of billions of dollars from thousands of investors before he went to jail in 2009.

Every Ponzi artist faces a day of reck­oning. Eventually, he runs out of new resources.

Brown quotes a 2002 study by the U.S. National Academy of Sciences that con­cludes we have been consuming resources that we cannot hope to replace since about 1980, about the time the MOTHER EARTH NEWS edi­tors published their Economic Outlook. Brown points out that, as of 2009, all the world’s major aquifers were being deplet­ed for irrigation, we were pulling fish out of the sea faster than they could repro­duce, and we were draining our reserves of cheap energy while not investing much in new energy technologies.

Modern trends are proving Walter Prescott Webb, the Shuttleworths and Lester Brown correct. Lifestyles are eroding while basic resources such as food and energy get more and more expensive. In our present recession, each time a tidbit of positive employment news is revealed, fuel prices spike and new jobs dry up. The housing market is in the dumps, but farmland values are soaring.

It begins to feel like we’re en­countering a natural limitation on our expansion, doesn’t it?

The connection between population growth and eco­nomic prosperity was clearly recognizable 600 years before our Economic Outlook was published. One of the earliest re­corded treatises on economic expansion was written by Arabian philosopher Ibn Khaldun in 1377:

When civilization [population] increases, the available labor again increases. In turn, luxury again increases in correspondence with the increasing profit, and the customs and needs of luxury increase. Crafts are cre­ated to obtain luxury products. The value realized from them increases, and, as a re­sult, profits are again multiplied in the town. Production there is thriving even more than before … All the additional labor serves luxu­ry and wealth, in contrast to the original labor that served the necessities of life.”

More than six centuries ago, this Arabian philosopher understood the basic machinery pretty clearly. Economic growth has been generated by population growth, augmented by technology and motivated by improving lifestyles.

So what do we do when population growth is no longer sustainable?

We must create new systems for dis­tributing value and maintaining pros­perity for a stable human population. But we’ve never had to do that before. Maintaining prosperity in a stable popu­lation will require new tools.

Instead of stubbornly clinging to eco­nomic models that aren’t working, we should be hard at work inventing new ones. Unfortunately, much of our en­ergy is being channeled into various forms of denial.

The spectacular collapse of the $100 billion energy company Enron at the be­ginning of the 21st century offers a chill­ing illustration of our capacity to ignore evidence in favor of comfortable self-delusion. The smartest financial analysts in the world’s most successful economy bought into Enron’s managers’ wild valu­ations because they profited from that belief. In spite of abundant evidence to the contrary, Wall Street believed Enron represented about $70 billion in assets because that belief temporarily benefited all of them — management, bankers and investors. For a time, skepticism profited no one. When those assets were finally called upon to generate cash, however, billions in shareholder value evaporated in just a few weeks.

Financial experts tend to believe what it’s profitable for them to believe.

It is not popular to suggest that our planetary assets are not sufficient to cover our long-term needs. No one is making a profit from this kind of skepticism. We are exaggerating the durability of our natural resources because, in the short term, it’s profitable — and soothing — to do so.

So far, technology has accommodat­ed and augmented human population growth. We’ve seen our “green revolu­tion” spread across the globe and feed multitudes. But now we know there were hidden costs, and that modern agricul­ture must adapt to natural limitations in order to be sustainable. And, indeed, the green revolution spurred even more of our human popula­tion growth.

In our fantasies, space travel solves our problems. One attraction of science fiction is its ability to extend the human frontier to the limits of the human imagination. Star Trek‘s famed mission statement de­claimed our potential to “explore strange new worlds … to boldly go where no man has gone before.” In a fictional world, our current economic theories and philoso­phies might carry us on, uninterrupted, to flourish across the universe.

Unfortunately, right now we can fly no farther than our own small, sterile moon, and lately we’ve concluded that we can’t even afford to take an occasional explora­tory jaunt into our upper atmosphere. We’re too busy rebuilding levees and guarding oil wells down here on the ground.

Our economic tools will be obsolete long before we perfect intergalactic space travel.

In fact, they are obsolete today.

It’s time for new ideas for a steady state economy. The founders of MOTHER EARTH NEWS offered some examples 34 years ago. MOTHER suggested that we:

• Learn how to grow our own food and generate our own power.
• Convert to wood heat, solar hot water and passive solar architecture.
• Build a greenhouse, plant a garden, start a flock of chickens, feed leftovers to a pig, raise rabbits, get some milk goats.
• Learn a basic trade and set up a home-based business.
• Dig a root cellar.

Those ideas are still new, because they haven’t yet been popularly acknowledged. The same goes for the writings of Walter Prescott Webb from 60 years ago. Today visionary writers such as Umair Haque (author of The New Capitalist Manifesto) and Michael Strong (author of Be the Solution) are adding their voices to the conversation, suggesting that capitalism itself needs to adapt.

MOTHER’s final word from 1977? “And what if the worst never comes to pass? What if our ‘leaders’ really do … work their magic so well that times … do nothing but get better and better from now until eternity? Wonderful! But keep right on tending that garden and converting yourself to solar en­ergy anyway … you’ll still be ahead of the game. It’s hard to beat the satisfactions of self-sufficiency and independence.”

Bryan Welch, Publisher and Editorial Director of MOTHER EARTH NEWS, is the author of Beautiful and Abundant: Building the World We Want.