If growth is dead, and we are now seeing negative interest rates, is this not a GOOD thing?

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ronetnivek's picture
ronetnivek
Status: Martenson Brigade Member (Offline)
Joined: Oct 23 2008
Posts: 15
If growth is dead, and we are now seeing negative interest rates, is this not a GOOD thing?

A few years ago I read Charles Eisenstein's Sacred Economics, and one of his proposals for a solution to our current economic dilemna was to introduce negative interest rates.  As I understood it, negative interest rates would be an economic tool to 'unwind' the decades of growth-obsessed fiat money systems which is paralleled by the growth-obsessed economy in general.  It would improve the velocity of money, improve lending policies (lending money to people because they can benefit from the loan rather than the lender being able to make money off of someone less well off), etc.  If world GDP numbers are now hovering around 0, and interest rates also around 0%, could this not also be seen as a transition period to a world where growth is not the ultimate goal?  If negative GDP numbers coincide with (eventually larger) negative interest rates perhaps this is a good thing.  If this coincides with deflation, then savers also need not be so concerned as to the diminishing nominal value of their savings.  Moreover, if we are generally of the belief that perpetual growth is NOT a good thing for the economy, energy, and the environment, then we can hardly continue to hold the belief that growth IS a good thing for our individual savings accounts and retirement funds.

tomshackell's picture
tomshackell
Status: Member (Offline)
Joined: Jun 17 2011
Posts: 12
It is a fascinating question

It is a fascinating question and one I have wondered about a lot: what will our money system look like in a degrowing world? Probably for the current monetary system the answer is: severely dysfunctional. But what should it look like?

In recent history people have taken their money, and invested it in something in the hope/expectation that they will get back more than they put in, in real terms. However in a world without growth how can that still be true on average? Some investors might make money in real terms but on average people wouldn't. Unless "investment" is actually just a mechanism for transferring wealth from non-investors to investors, which is what seems to be happening at the moment. That can't last forever though ...

And yet investment desperately needs to happen now and in the future. Investment in clean energy, investment in public transport, investment in our sustainable future. If we move to a degrowing world (and I believe we soon will whether we choose it or not) how will that work? How will we convince people to part with their money to invest in projects that return less (in real terms) than they put in?

So one option is that all investment is done by government with the knowledge that it is loss making. Despite what is said governments don't actually *have* to balance their books, they can run at a loss indefinitely if they choose, so long as they control their own currency. However, a world where all investment is made by government is a hard thing to imagine given the world we have now.

So I can only see one answer: arrange it so that by not investing, people's money loses value even more quickly. So that the only options available to people are to invest and lose value, or don't invest and lose an even greater value.

How might that be achieved? Well one option is negative interest rates .. but they are problematic. For a start if the rate goes too low people will resort to taking the cash out and hoarding it. This can introduce all sorts of nasty feedback loops, such as a deflationary spiral. Also psychologically negative interest rates do not sit well with people, particularly given the history of the last few hundred years and the expectation people have.

The more realistic option is inflation. Have a high enough rate of inflation that although investments are loss making in real terms, they are still positive in absolute terms. Probably the easiest way to achieve this is to print money and give it people. This could be highly progressive if money were distributed per-capita, and could help with the very serious wealth inequality problems we have. Ironically enough, I actually think we could "print our way to prosperity" although for a somewhat different meaning of prosperity ..

Unfortunately I suspect what we'll actually see are financial crashes followed by a mad fight to maintain power, repression, revolution, etc.

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