What does a sustainable economy look like?

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Doug's picture
Doug
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What does a sustainable economy look like?

One of the stalwarts of the site suggested that I start a thread to discuss a subject I brought up on the 4/3 DD.  Here's a quote from that post:

Quote:
Someone on this site once brusquely dismissed a question I posed having to do with whether an underlying requirement of Capitalism is eternal growth.  I have yet to hear a plausible explanation on how Capitalism can survive without growth and would like to hear a discussion of that point, as one of the tenets of this site is that we have to transition to a no-growth economy.  Can the two co-exist?

There was quite a bit of productive discussion after that post that I think deserves its own thread.  More broadly, my desire is to develop a well thought out vision of what a sustainable economy, based on the three Es, would look like.  I hope we can avoid the typical ism's that come up (socialism, capitalism, Marxism), without clear ideas of what the tenets of each are.  People have a tendency to think of each in some idealized way that fits their usually stereotyped views.  I don't find those discussions terribly useful because no economic, political or religious system has ever existed in a pure form.  The idealized visions are always compromised to accomodate other sometimes opposing views.  So, for a system to be successful it has to have resilience built in.  To me that means being accomodative without sacrificing principle.

We now have a couple centuries of experience with a bastardized form of capitalism as an example of what can go right and wrong.  I would prefer discussion of the values that we see represented in the various economic ideologies rather than some generalized view of them.  This is a somewhat edited version of my last post on the 7/3 thread, to which Rhare gave a thoughtful response:

Quote:

I originally posed the question of whether capitalism requires eternal growth because I think it does, and it is time to move beyond eternal discussion of the isms as they are rarely productive.  What needs to be discussed is what a sustainable economy looks like without relying on the rhetoric of the isms.

For instance, I have long felt that the central virtue of capitalism is that it rewards those who are truly inventive, innovative and hard working.  I want to see those traits carried forward into whatever system evolves.  Conversely, the dark side of capitalism includes a reportedly quadrillion dollar OTC derivatives market that is, apparently, the only truly unregulated market left in the world.  It may yet destroy us.

In my opinion, it comes down to deciding at what link in the economic food chain does a system that rewards virtue turn ugly and counterproductive.  I don't have a good answer to that question, but there are clear examples of profligate corruption that need to be eliminated from our imagined economy.  Wall St. can be totally eliminated without harm.  "Too big to fail" should be erased from our vocabulary.  Multinational corporations should be structured in such a way that the executives are personally liable in existing jurisdictions for their harmful policies and decisions.  Corporations are not people and free speech, at least in a political sense, should not apply to them.  Further, money is not speech, it is effectively a bullhorn, and should not be protected by the Constitution as speech.

I hope this can turn into an extended conversation of values we think should be embodied in an economy that will help ensure sustainability as we evolve into the next 20 years and beyond.

If Rhare wishes to copy his response over here, I think these two posts would be productive points from which to start the discussion. 

Doug

littleone's picture
littleone
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What IS going on?

Doug,

Thank you for moving this discussion.

Great comments, thanks to all.

I offer a few observations...

It is fascinating to think that governments can provide a service and collect tax revenue without competition incentive. If individuals don't like a government action...too bad...because the people have organized and given power to a collective government. No matter how many brilliant and caring individuals participate in government, the outcome lacks true accountability and individual morality. Because there is no mortal threat or risk to government for its ignorance or misuse of labor... while it keeps getting funded regardless of outcome.

Money used as a passive tool to represent exchange of resources and labor is fine...except that money cannot replace the individual labor and relationship to resources, otherwise it is immoral/unprincipled.

Richard Maybury discusses governments here:

It may seem as though people don't care or don't get it...but Greenspan clears that up here:

Mr. Greenspan: "It is not possible to manage something you cannot define."

source:

The Actual Money Supply

By Paul van Eeden

Read more: The Actual Money Supply http://dailyreckoning.com/the-actual-money-supply/#ixzz1IrHFVVBa

I would love to hear other's thoughts on this. 

I do think sustainable growth can be achieved by observing Universal Law.

-littleone

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Rihter
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Great Thread Idea

This is by far the best thread idea I have read on any board in a long time.

I think it is impossible to discuss an economic model without trying to establish the model of your government, tax structure, and an assumed availability of energy (baseline for size of economy). I will list my ideas as points of interest to be included, or not included, in the hypothetical model.

  • limit the scope and duration of life of any corporation in it's Articles of Incorporation. Any amendments to the original article should require dissolving the existing corporation and establishing a new one. Limit the person hood and rights of the corporation.
  • tax all point of sale or income, but not both. The government needs revenue to operate, but complex tax systems promote waste, fraud, unnecessary redundancy, over taxation, unfair competition, and an overall mess.
  • define national defense's funding, scope, design, and legal use in one comprehensive amendment designed for modern application 
  • somehow promote incentive's or limit the distance finished manufactured goods travel. Price, fees, law, infrastructure rules and codes, or education and culture. Whatever tool that can influence businesses to import raw materials and manufacture locally. The raw materials required globally, and manufactured locally. Reducing supply chains distance and dependence on energy(speed) would greatly increase sustainability and resilience.
  • redesign educational institutions. Currently they train students to be a cog in a manufacturing machine. We need to begin training our students to think more independently and work more collaboratively. Teach them to be problem solvers as opposed to training them to be disciplined followers and workers.
  • I would like to see Federal government establish guidelines but leave local governments the freedom to define their rules and regulations. For instance, the way the speed limits on highways are treated. The philosophy should be across the board. I firmly believe this would appease those that like quality government service and limited government intrusion.
  • set limits to the distance power companies can distribute energy. Require a sustainably calculated percent of energy use to be produced locally (i.e. 25,50, or 100 miles). Potentially requiring structures to produce a substantial percent of their own energy as part of the building code.
  • abolish the Fiat currency system. Establish a minimum reserve requirement that can only be altered by a congressional vote in both the House and the Senate, or a public referendum.
  • Financial brokers are supposed to have limitations on sales fees. CEO and management are getting around those limits by receiving performance bonuses. There is absolutely no reason a doctor, lawyer, teacher, scientist, engineer, etc... should be making less money or be more intensely regulated than Brokers. Reduce and/or limit the amount of money brokers can receive or selling or managing financial instruments. Or enforce the churning and fraudulent sales practice laws that currently exist.

That's all I have for now. Will check in soon.

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A Sustainable Economy without Money

So if we want to start a discussion about what a sustainable economy could look like, without all the "ism's", wouldn't we also want to recognize the root cause of those "ism's", namely money, or the monetary system?

If we had the opportunity to start from scratch (which we might if TSHTF) in building a sustainable economy, then why would we want to immediately consider building yet another monetary-based system, knowing what we know now? Isn't this the proverbial "trying to solve a problem from the same level of thinking that created it"? Or "doing the same thing over again expecting different results".

Having the level of consciousness, the scientific knowledge, the connectedness, the technological capabilities that we now have to create abundance, why would we want to re-create another monetary economic system that would still be predicated on competition, self interest, profit motive, and scarcity? Doesn't "competition" inherently mean that for somebody to win somebody else has to lose? Can't we do better than this? Isn't a system based on those principles--principles that inherently foster seperation and abhorant values like greed, hording and violence--doomed before it even gets started?  Are any so-called tweaks or "reforms" to the same monetary economic paradigm going to ever make it "sustainable", if there is a built-in need for perpetual growth?

As part of this exercise, if we are starting from scratch in trying to visualize what a sustainable economy could look like, why wouldn't we seriously consider the possibility of what has been called a resource-based economy, a world without money? I know it's radical, but it needs to be considered, since what we have now, a monetary based economic system, is merely a social construct, an agreement we have made amongst each other, and one that can be changed.

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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trwiley wrote: So if we want

trwiley wrote:

So if we want to start a discussion about what a sustainable economy could look like, without all the "ism's", wouldn't we also want to recognize the root cause of those "ism's", namely money, or the monetary system?

If we had the opportunity to start from scratch (which we might if TSHTF) in building a sustainable economy, then why would we want to immediately consider building yet another monetary-based system, knowing what we know now? Isn't this the proverbial "trying to solve a problem from the same level of thinking that created it"? Or "doing the same thing over again expecting different results".

Having the level of consciousness, the scientific knowledge, the connectedness, the technological capabilities that we now have to create abundance, why would we want to re-create another monetary economic system that would still be predicated on competition, self interest, profit motive, and scarcity? Doesn't "competition" inherently mean that for somebody to win somebody else has to lose? Can't we do better than this? Isn't a system based on those principles--principles that inherently foster seperation and abhorant values like greed, hording and violence--doomed before it even gets started?  Are any so-called tweaks or "reforms" to the same monetary economic paradigm going to ever make it "sustainable", if there is a built-in need for perpetual growth?

As part of this exercise, if we are starting from scratch in trying to visualize what a sustainable economy could look like, why wouldn't we seriously consider the possibility of what has been called a resource-based economy, a world without money? I know it's radical, but it needs to be considered, since what we have now, a monetary based economic system, is merely a social construct, an agreement we have made amongst each other, and one that can be changed.

trwiley -

What if money was loaned into existence as sovereign credit instead of debt?

What if banks had a 90% fractional reserve requirement?

What if banks were not allowed to charge interest for loaned money?

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Dogs_In_A_Pile wrote: What

Dogs_In_A_Pile wrote:

What if banks were not allowed to charge interest for loaned money?

Indeed.  What if a local bank loaned me money to start a local biz and the local biz succeeded and the only tap the bank laid on me was that if I succeeded I had to (a) repay my loan and (b) throw a big party at which I lauded my employees for making my biz a success [and we had good food and good live music and so forth] and (c) lauded the bank for making it possible and (d) I had a commitment to take 5% of my profits and lend them back to the bank [at 0% interest] so they could lend it out to other people with business ideas.

Now the local bank has actualized (a) Me.  Hey, I'm a Local Hero, I've created jobs!, and (b) what a cool party, brah, and (c) whoah, I thought you Bank dudes were uncool, but you're actually, uh...*cool!*, and (d) now the bank has 105% of their starting capital to invest in new [local!] businesses -- and hey, I've got equity in that new (maybe gonna fail, maybe gonna succeed but hell we gotta try!) local venture because now my success is the bank's success is the new business' success...

I guess it'd come down to making enough right decisions on loans so that you don't deplete the pool of loan-able capital.  Of course, if you're loaning to friends/neighbors/etc., you're more likely to know which loans are good bets and which loans are bad.

Wow.  It's almost as if localizing things makes for good decision-making.  Heh.  Laughing

Viva -- Sager

P.S.  And I reckon if you come back and read this post in 10 years, we'll be using this model -- whether by wisdom (adopting it on our own) or by necessity (total crash) remains to be seen....

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Our New Economy

SagerXX wrote:

Dogs_In_A_Pile wrote:

What if banks were not allowed to charge interest for loaned money?

Indeed.  What if a local bank loaned me money to start a local biz and the local biz succeeded and the only tap the bank laid on me was that if I succeeded I had to (a) repay my loan and (b) throw a big party at which I lauded my employees for making my biz a success [and we had good food and good live music and so forth] and (c) lauded the bank for making it possible and (d) I had a commitment to take 5% of my profits and lend them back to the bank [at 0% interest] so they could lend it out to other people with business ideas.

Now the local bank has actualized (a) Me.  Hey, I'm a Local Hero, I've created jobs!, and (b) what a cool party, brah, and (c) whoah, I thought you Bank dudes were uncool, but you're actually, uh...*cool!*, and (d) now the bank has 105% of their starting capital to invest in new [local!] businesses -- and hey, I've got equity in that new (maybe gonna fail, maybe gonna succeed but hell we gotta try!) local venture because now my success is the bank's success is the new business' success...

I guess it'd come down to making enough right decisions on loans so that you don't deplete the pool of loan-able capital.  Of course, if you're loaning to friends/neighbors/etc., you're more likely to know which loans are good bets and which loans are bad.

Wow.  It's almost as if localizing things makes for good decision-making.  Heh.  Laughing

Viva -- Sager

P.S.  And I reckon if you come back and read this post in 10 years, we'll be using this model -- whether by wisdom (adopting it on our own) or by necessity (total crash) remains to be seen....

Indeed I think you have nailed it!  As long as the system does not include interest it can avoid the pitfall of exponential growth and simply be a measure of say energy expended to produce a product. Novel idea!

Rothchild was clever enough to develop a system of living on interest by loaning money to more industrious people. It became all take and no active participation and it could only foreclose mortgages and seize propery. The ugly trick perfected in the twentieth century was to loan an industrious person (or a third world country) half of what was needed to make a go of it and then when he failed, take over his business (or the countries recources) and the invested money as well.  

Today, governments and chain banks are at it with a vengence and are assisted by taxes as well. But I doubt that they understand the power (achilles heel) of compounding!!!!!!

So our new model must also include a system of governance (oversight) that rewards the efforts of a populace measured by it's resilience and ability to create a surplus of goods from the energy inputs of the community.     More on that later. Great thread.

Coop

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Bank Reserves and Interest?

Dogs_In_A_Pile wrote:

What if money was loaned into existence as sovereign credit instead of debt?

What if banks had a 90% fractional reserve requirement?

What if banks were not allowed to charge interest for loaned money?

What if banks could only charge interest on loans made from money that they have reserves for (money that they earned)? Thus, if they operate on a 10% Fractional Reserve, they can only charge interest on 10% of the loan. If they operate on a 90% Fraction Reserve, they can charge interest on 90% of the loan.

Most tend to think that the Fed's "printing" is the enemy here, but what really got us in this mess is the banking system's "printing". If the banking system didn't overextend itself in the first place, then the Fed's current QE efforts would not be needed.

Doug's picture
Doug
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steady state economy

Turns out there has already been some thinking done on this subject by economists and philosophers as seemingly unlikely as Adam Smith:

http://steadystate.org/discover/definition/

Quote:
He theorized and observed that people trading in open markets leads to production of the right quantities of commodities, division of labor, increasing wages, and an upward spiral of economic growth. But Smith recognized a limit to economic growth. He predicted that in the long run, population growth would push wages down, natural resources would become increasingly scarce, and division of labor would approach the limits of its effectiveness. He even predicted 200 years as the longest period of growth, followed by population stability.

and John Maynard Keynes:

Quote:

John Maynard Keynes, the most influential economist of the twentieth century, also considered the day when society could focus on ends (happiness and well-being, for example) rather than means (economic growth and individual pursuit of profit). He wrote:

…that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable… We shall once more value ends above means and prefer the good to the useful.

and

The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems – the problems of life and of human relations, of creation and behavior and religion.

Hmm, how timely.

Doug

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Monetary policy the evil root of central planning.

Doug wrote:

If Rhare wishes to copy his response over here, I think these two posts would be productive points from which to start the discussion.

Sorry, I wasn't ignoring you, just got very busy the last few days and couldn't get back to this.

rhare, posts on Daily Digest4/3 wrote:
 

Doug wrote:

For instance, I have long felt that the central virtue of capitalism is that it rewards those who are truly inventive, innovative and hard working.

Ditto.

Doug wrote:

I want to see those traits carried forward into whatever system evolves.  Conversely, the dark side of capitalism includes a reportedly quadrillion dollar OTC derivatives market that is, apparently, the only truly unregulated market left in the world.

This is where we differ. I do NOT look at the quadrillion dollar derivatives market as a outcome of capitalism.  I see it as an effect of the central banks, mostly the Federal Reserve created vast sums of money for free and giving it to the primary banks.  Definitely not a capitalist trait.  Without the money being created out of thin air, I don't believe this, the housing bubble, the dot com bubble, etc. could have occurred.  Or at least they would not have been near as large.  When individuals have to put their hard earned money on the line they will demand rates of return that match the risk.  When you have primary banks and those closely associated with them the ability to pull from an endless source of funds, what do you expect to happen - they will naturally take risks since the money is essentially free.  When you gamble with poker chips for fun at home versus chips you have to buy at a casino, where do you take more risk?  Where do you make larger bets?

The fact that our money system sends false signals as to the value of capital that I believe is the root cause of so many of the problems we see today - giant derivatives market, housing bubble, large government, war.  Without access to free money (or at least the appearance of) so many of these problems would not have occurred or would at least be much much smaller.   Take war for instance, look at history (as shown in the crash course), nearly all wars required inflationary fiat currency.  Why - because if you directly taxed citizens, war would quickly become unpalatable.  If every year for the last 10 you sent a bill for $1,000 to every household in America for the wars ($1.1T/10year/130M households), do you think we would still be fighting?

Doug wrote:

In my opinion, it comes down to deciding at what link in the economic food chain does a system that rewards virtue turn ugly and counterproductive.  I don't have a good answer to that question, but there are clear examples of profligate corruption that need to be eliminated from our imagined economy. 

I suggest you look for the root cause.  How many of those ugly things can you trace back to the hands of central banks and fiat currency?  I believe you will find the "turn ugly" is when free money is tossed into the picture.   After all companies are simply reflections of the desire of those they serve, their customers.  What they sell or services they provide are determine by what the customer needs and is willing/able to pay and the consequences of providing the service.  However, when you have free/cheap money flooding the system it drowns out the smaller voices of the customers - that is it removes the need for companies (and governments) to follow the will of the citizens.

I think one part of the last paragraph needs a bit more coverage.  I said companies have to pay attention to the will of the citizens, including the citizens concern over the "consequences of providing the service".  So many of the socialist leaning folks believe that capitalism results in the destruction of the environment in the sheer quest for profits.  This takes the very snobbish attitude that consumers and citizens are too stupid to understand their actions.  It assumes that consumers will only buy from the absolute cheapest source no matter what the consequences.  Do you believe that to be true?  Do you believe that the vast majority of citizens do not care?  I don't.   I believe in a truely free capitalistic system, most people will buy from companies that are not raping and pillaging.  Most people (not all) will elect to buy from socially responsible companies.  That in turn forces companies to be socially responsible in order to keep profits high.  Why do you believe companies care about their image?  It's when you minimize the consumers role to impact a company that you get "evil" behavior.   Just look at GE and GM for two examples of the corruption of fiat currency.  These companies used to derive their profits from producing goods and services that people wanted, now the productive side of these companies has been gutted and much of the profits from come the financial side (GE Capital, GMAC).

I think littleone hit the nail on the head with this post:

littleone wrote:

It is fascinating to think that governments can provide a service and collect tax revenue without competition incentive. If individuals don't like a government action...too bad...because the people have organized and given power to a collective government. No matter how many brilliant and caring individuals participate in government, the outcome lacks true accountability and individual morality. Money revenue from resource monopolies fuels the depravity.

Money used as a passive tool to represent exchange of resources and labor is fine...except that money cannot replace the individual labor and relationship to resources, otherwise it is immoral/unprincipled.

If we look at the problems we have it's easy to see this "immoral/unprincipled" effect among those with access to free money that doesn't represent labor: unfulfillable government promises and corporate malfeasance.

darbikrash wrote:

The vast majority of consumers are of course quite concerned about doing what’s right, that is not the issue. The issue with respect to capitalism is transparency of the means of production, or more accurately, lack of it.

This is where you and I may continue to disagree forever, I don't view it as "capitalism" that has a lack of transparency.  If we had sound money then the true costs are generally known by all.  It's only when you have a "non-capitalistic" manipulation of money and the cost of capital (Fed setting interest rates) do you hide the costs associated with production of goods and services.

Bytesmiths wrote:

For example: a farmer wants to produce more food. So he buys another shovel, so his spouse can work along side him. He has doubled his "means of production." Did it require any growth? One might trace that shovel back through the modern manufacturing chain and say, "Yes," but if at every point, one imagined a craftsperson or skilled worker, using their own tools and labour, the picture is very different.

But what if the farmer isn't producing more food (growth), but rather making his wife help so that they can have more quality time (prosperity).  This fits in with one of the first tenants of the crash course, growth != prosperity  (!= means not equal - programmer speak).

Bytesmiths wrote:

Contrast this with the concept that little bits of colored paper get together in dark locked places and somehow reproduce. People who "invest" money and expect a profit in return are the ones who require growth, not those who employ "the means of production" in their craft or trade.

I think looking at this in a money paradigm hides the nature of capital.  Capital is excess production that is not consumed but saved.  That production may be consumed later when it is needed more (more valuable).  Here is an example without "money":

As a farmer, you produce an excess of corn.  You can try and barter it all immediately but as there is more corn than people need right now you won't get much in return.  So instead you save it in a big silo.  Later there is a shortage of corn and you can trade it for a lot more stuff because it is more valuable.  Was this "growth"?  Did your corn multiply?  As long as money is representative as a claim on "human labor" (another crash course tenant) then it isn't generally a problem.  It's when the money is created for free with little/no underlying effort that the problems appear - sometimes a very long time after the evil deed was done.

Rihter, you had a long list in your hypothetical model. However, from my point of view, much of your list is focused on central planning of a complex systems.  I believe attempts to centrally plan our complex system is what led us to where we are today.  I would rather see much less meddling in things (particularly money) and see if non-manipulated choices by millions of individuals result in a stable system.  I view the central manipulation primary through monetary policy as the issue.  While I believe only sound money such as gold/silver is the needed corrective action, presuming that is itself a manipulation.

Rihter wrote:

tax all point of sale or income, but not both. The government needs revenue to operate, but complex tax systems promote waste, fraud, unnecessary redundancy, over taxation, unfair competition, and an overall mess.

I don't believe income should ever be taxed, only consumption.  Who cares how much a person makes?  It sure seems like we want to encourage production and discourage consumption.  That is we want people to at least think about saving for later.  I do agree the complex tax system is a complete mess since the complexity hides the costs of services provided.  I think phone companies got this right.  When governments kept adding taxes to phone services, the companies itemized each tax on the bills.  This was very much against the wishes of the politicians who wanted it to be lumped into one line item to obscure the costs.

Dogs In A Pile wrote:

What if banks were not allowed to charge interest for loaned money?

I think this is one area where people get all wrapped up in the "banks" versus us game.  Banks should behave no different than individuals.  Would you lend money to an individual without interest?  Why?  If we look at the example above with the corn, why would the farmer save up the corn and barter at the same rate as when it was in less demand?  Why would you bother saving it in the first place?  Would you do it the next year? Savings, that is money to loan, is past production (at least if we had sound money) that was saved for when it would be more valuable.  Now this does require that banks are not given the power to create money from nothing.... (look were back to the root of the problem).

ckessel wrote:

So our new model must also include a system of governance (oversight) that rewards the efforts of a populace measured by it's resilience and ability to create a surplus of goods from the energy inputs of the community.

Hmm, sure sounds like your describing interest, just wanting to call it something different.  Interest is the reward those who save rather than consume.

JAG wrote:

What if banks could only charge interest on loans made from money that they have reserves.

Fractional Reserve banking is certainly a large part of the problem.  My personal take is that fractional reserve banking should not exist, however, I do believe that workable systems are possible and that my personal beliefs may not be the optimal solution.  Instead I would like to see freedom to choose.  I should be able to pick what banking/money system I want to use and suffer the gains/losses based on my choice.  Right now we are forced to use a broken system (legal tender laws, taxation of non-US exchanges)  where gains/losses are distributed by government (bailouts,FDIC issurance,...).

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