On Friday, September 17, the US Federal Reserve blinked in the face of unrelenting, global economic malaise. This private bank, which possesses the monopoly to print US money, had promised to raise interest rates a paltry 1/4-percent, after seven years of near-zero interest intended to revive the US economy. Corporations had used the free money to buy their own stocks, fattening their own net worth and boosting the US stock markets, but this "growth" was an illusion. Faced with mounting debt, crashing international markets, and national defaults in Europe, the bankers lost their nerve.
A foodscaped neighbourhood: Ecological economics is possible, but it will be nothing like industrial economics. Avanchets estate, Geneva, Switzerland. © Yan Arthus-Bertrand
One may fairly wonder: Who cares? And what does a 1/4-percent interest have to do with ecology and the state of the world?
Money is something quite distinct from real wealth: water, soil, fish, forests, and productive ecosystems. Money in our modern world is ephemeral, based on faith, hyped like snake oil, and relentlessly eroding in value as banks print more. Central Banks — US Federal Reserve, People's Bank of China, Bank of Japan, and the European Central Bank — create money from thin air, on a whim, allegedly to stimulate national economies. Pumping paper currency into an economy enriches bankers and corporate insiders, but lowers the currency value, punishes wage earners, and sets the economy up for a fall.
When paper currency first appeared in China a millennium ago, money represented a receipt for something real — gold, silver, livestock, wheat — held by someone for the owner. But when bankers realized they could write receipts without actually holding the goods, everything changed. For centuries, financial schemers have created speculative value and sold it to gullible citizens. Roman bankers reduced the silver in "silver" coins, eventually to zero. Two thousand years later, Enron Corporation shuffled assets and liabilities through shell companies and sold the bogus stocks to their victims. From 17th century tulip bulbs to modern mortgage-backed security derivatives, without the real wealth of a productive ecosystem, the global economy becomes a giant Ponzi scheme.
Since the economic collapse of 2008, world banks have created some 10 trillion dollars (Euros, Yuan, Rubles, etc.) and loaned this money to governments and corporations. Debt-based currency is fake energy. The presumed value only becomes real if the economy grows, and someone can pay the debt from future profits. Bankers, governments, and most people, want their economies to grow, so if an economy won't grow, bankers reduce interest rates to make the fake energy cheaper to borrow. But what happens when economies become so sluggish that interest rates drop to zero, and still the economy won't respond? For the banks, this means a loss of profit. For the public, free money sounds too good to be true, and it is. There is a dark side to this game.
Once interest rates hit zero, bankers and governments lose their primary tool to stimulate the economy. The US government debt now stands at over $18 trillion, so even a meagre 1/4-percent would mean $45 billion more, annually draining from US public coffers to the banks. The bankers would love to get this money, but they fear crashing the economy and exposing the ephemeral nature of their overvalued currencies and stocks. The US Federal Reserve Bank is now stuck in this trap, unable or too fearful to raise the prime rate a quarter-percent above zero. The banks have lost control. The economy will not behave as their theories had predicted. Now, we approach closer to the connection between money and ecology, because the greatest error in industrial economic theory — capitalist and socialist — is that they failed to account for Earth's contribution, conditions, and limits.
A thought experiment
In the fifteenth century, European aristocrats — experiencing land and resource constraints at home — gained access to the western hemisphere, Africa, and the South Pacific, which they viewed as resources colonies. In 1667, British King Charles II granted to his cousin Prince Rupert sole rights to some five million square kilometres of North America, which of course he presumed to confiscate from the Inuit, Naskapi, Cree, Ojibwa, and other nations, who lived there. The charter's language provides a vivid account of the wealth that these oligarchs coveted:
"We have given … all those Seas Bayes Lakes Rivers Creekes and Soundes … Lands and Territoriyes … with the Fishing of all Sortes of Fish Whales Sturgions and all other Royall Fishes … and all Mynes Royall … Gold Silver Gemms and pretious Stones …"
They wanted the stuff. Charles and Rupert raised investment for ships, and their first haul of pelts from Hudson's Bay fetched £1,380 in London (£3 million in modern currency). The European occupation of the Western Hemisphere, Africa, and the south Pacific was not a campaign for democracy, "progress," or religious freedom; it was a conquest for plunder. Twice in history the human population growth rate turned negative: During the Eurasian epidemics in the last days of Roman imperialism, and again during the genocide and occupation of the Western Hemisphere.
European oligarchs grew extremely rich from the looting, which has not ceased. At the most fundamental level, the last three centuries of Western economic "growth" was made possible by plundering the wealth of the Western Hemisphere, Africa, the oceans, and the rest of Earth's biophysical stores. That orgy is now over. The virgin forests, ocean bounty, and mineral bonanzas that enriched the global elite are depleted or gone.
So here is the thought experiment: Imagine that humans could find another pool of resources comparable to the Western Hemisphere, a new continent, islands, and oceans. You might imagine harvesting a productive, Earth-like planet. If the industrial economists could lay claim to a new productive ecosystem, there would be no stock market malaise or hand-wringing over a quarter-percent of interest. Borrowing rates and stock markets would soar in a massive competition among Exxon, Cargill, Gazprom, Sinopec, and other corporate monsters, to exploit the new storehouse. Investors would swarm to get in line for the bonanza.
However, there is no new continent to discover or ocean to plunder. There is no accessible new planet to scour. We've reached Earth's limits, and we have to make human economies work here.
New technology does not save us from these realities. Since the 1987 Bruntland Report and 1992 Rio summit, faced with life on a depleted Earth, market economists have placed great hope in "sustainable growth," the notion that economic growth can be "decoupled" from ecological impact. However, none of this "decoupling" has actually occurred. Remember when computers were going to save paper? Computers have actually helped increase paper consumption by six-times, from about 50 million tons annually in 1950 to 300 million tons today. Meanwhile, we lost 600 million hectares of forest, human population has almost tripled, and we've changed Earth's climate by burning up the hydrocarbons. During this computer era, industrial productivity growth — the measure of growing return on materials, energy, and time — has declined by fifty percent.
Ingenuity does not create materials or energy. Ingenuity focused on wealth and possessions only helps us plunder Earth more quickly. Efficiency doesn't save us either. Historically, when humans become more efficient with a resource, they used more of it, not less (see Jevon's paradox and the Rebound Effect.) Fancy batteries that require a massive mining industry and leave a trail of waste, are not energy sources; batteries are energy sinks. New technologies can make life more pleasant, entertaining, and efficient for those who can afford them, but new technology does not solve humanity's challenge to live within Earth's capacity. That requires modesty and contraction.
Overshoot
During the August financial collapse, investment advisor Monty Guild told his subscribers, "Panic over Chinese stock markets and the Chinese economy is irrational… With US economic fundamentals continuing to strengthen, we … view the current correction [as] a buying opportunity."
This is cheer-leading for a doomed paradigm, the eternal promise of "growth," a modern version of insisting in the 16th century that the Sun circled a stationary Earth. Real fundamentals are not "job growth" or "low inflation," and certainly not the tortured statistical versions fed to the public by governments and stock salesmen. The real fundamentals of economy are found in ecology.
Economy requires a living Earth that provides materials, energy, and nutrients, the trees, fish, water, rare earth metals, iron, silicon, platinum, phosphorous, and soil, powered entirely by sunlight.
Hydrocarbons represent 500 million years of stored sunlight, and industrial humanity has burned through the best half of that storehouse in a century, enriching a few, while filling the atmosphere with ancient carbon. With cheap energy stores depleted, bankers and stock promoters attempt to sustain the growth delusion with debt, with fake energy. However, investment advisors now warn clients that they should prepare for a "low return world," for a while, until growth recovers. On the other hand, biophysical reality suggests that we exist in a low return world forever, based on the rate at which plants, windmills, and solar panels can transform solar energy into biomass and electrical energy.
Every global economy on Earth is now resource-constrained. Forests have been reduced by half, fish and marine mammals depleted, and fresh water, soil fertility, and essential phosphorus stores depleted. We have been warned. Simplicity and modesty appear as fundamentals of every spiritual tradition on Earth, and for very good reasons. Babylon fell into its own depleted soils. Thomas Malthus (who was not wrong) warned of the coming clash between growth and a finite Earth over a century ago. Limits to Growth, by Donella Meadows and colleagues, published in 1972, and confirmed in scores of updated reviews, warned of surging consumption in a dwindling biosphere. William Catton published Overshoot, explaining this crisis in clear language, 35 years ago. In 2009, Nature journal published "Planetary Boundaries" by Earth systems scientist Johan Rockström and colleagues, showing that human activity has pushed seven essential systems – biodiversity, temperature, ocean acidification, nitrogen and phosphorus cycles, land use, fresh water, and ozone depletion – near or beyond critical tipping points. In 2012, Nature published "Approaching a State Shift in Earth's Biosphere," by 22 international scientists warning that human sprawl and consumption could "transform Earth rapidly and irreversibly into a state unknown in human experience." William Rees, at the University of British Columbia, created the "ecological footprint" analysis to measure human impact compared to Earth's capacity, and summarized the results in "The Way Forward" in Solutions Journal in 2012: "A virtual tsunami of evidence suggests that the global community is living beyond its ecological means... by about 50 percent."
How much evidence do we need? Disappearing species, forests, and soil? Melting glaciers and expanding deserts? A billion hungry humans and nine million starving to death annually?
Coal ash river in China, Greenpeace photo: There is no economy on a depleted Earth.
The Quads are Coming
The faltering modern economies are not entirely unique in human experience. All dominant empires and economies in history have collapsed, typically following ecosystem collapse, as witnessed in Mesopotamia, Assyria, Maya, and so forth. There are no wheat fields on depleted soil, and there is no industrial growth on a depleted Earth.
Since the year 2000, to prop up financial markets with fake energy, the global consolidated debt grew from about $87 trillion to over $200 trillion today (McKinsey). Bankers make trillions from this debt, but the world is not any richer or better off.
Furthermore, during this debt frenzy, corporations used virtually free money to pump their own stocks and pay themselves bonuses and dividends. Private investors and pension fund managers, chased this fake growth, by buying into the stock markets, creating a massive financial bubble, but an entire year of wealth growth vanished during a few days in August. Some three trillion Euros (dollars, yuan, rubles, yen) of speculative wealth simply disappeared, returning into the thin air from which it had been conjured. And the blood-letting is far from over. The "big one" growls in the shadows, and even the swindlers know it is coming.
Financial bubbles represent fake value, based on the fake energy of debt. Insiders and a few clever investors make a lot of money during a financial bubble, but the global economy does not get any richer, and when the financial bubble bursts, the gullible lose, while the insiders have long since moved on to new schemes. When the insiders get caught still holding the fake assets, as they did in 2009, they demand to be "bailed out" by the citizens, "to avoid a worse catastrophe." In our modern resource-constrained world, the stock markets have grown less about investing or allocating available funds, and more about gambling. The stock markets resemble a giant casino, where insiders always win, a few lucky or clever players may win occasionally, but most players lose. The net flow of cash in global markets is to the wealthiest players.
Atop this house of cards sits a "derivatives" market worth an estimated — and completely presumptuous — quadrillion US dollars! Just when we're getting our heads around "trillions," here come the quads. This massive figure — a million-billion dollars or Euros or Yuan, representing $140,000 from every single person on Earth — does not reflect economic growth; it reflects economic inflation, speculation, and debt.
Derivatives are naked bets. They have nothing to do with "investing" in worthy enterprises or stimulating economies. Derivatives allow super-rich casino patrons to bet for or against certain rates, indices, or the likelihood that Greece or Japan will default. Meanwhile, this entire casino game rests on the delusion that human enterprise can continue to grow forever on a finite Earth.
This delusion is fading as surely as the belief in a flat Earth faded with the evidence five centuries ago. An ecological or biophysical economics is not an impenetrable mystery. Energy physicist Howard Odum outlined the fundamentals of a biophysical economics in "Energy, Ecology, and Economics" in the 1970s. Herman Daly, a former Senior Economist at the world bank, described an ecological economy in 1977 with Steady State Economics. Since then, thousands of economists and ecologists have contributed to the rich study of an ecological or biophysical economics, based on Earth's capacity to supply material and energy flows and to process human waste. Gail Tverberg (Our Finite World), Mark Anielski (Economics of Happiness), and Charles Hall (Energy and the Wealth of Nations) are three good examples. The time has long since arrived whereby growth economics may be tossed into the recycling bin. Real economy will be driven by solar income, and real economists will help restore and protect our one and only Earth.
Rex Weyler is an author, journalist and co-founder of Greenpeace International.
Notes, References::
1. Limits To Growth, Donella Meadows, et. al., Universe Books, 1972.
2. Johan Rockström, et. al., "Planetary Boundaries," Nature, v. 461, September 23, 2009.
3. Anthony D. Barnosky, et. al., "Approaching a state shift in Earth's biosphere," Nature, v. 486, June 7, 2012.
4. William Rees, "The Way Forward: Survival 2100," Solutions, v. 3, #3, June 2012.
5. William Catton, Overshoot: the ecological basis of revolutionary change; University of Illinois Press; 1982.
6. R. Weyler, "Real Wealth: Howard Odum's Energy Economics," Deep Green, Dec. 2011
7. Howard Odum,"Energy, Ecology, & Economics," 1974, Mother Earth News.
8. Herman Daly, Steady State Economics; first edition, 1977; new addition, Island Press, 1991. The classic; amazingly relevant today.
9. C. Hall and K. Klitgaard, Energy and the Wealth of Nations, Springer, 2011. Expands the work of Odum and others; important emphasis on net-energy.
10. Gail Tverberg, Our Finite World, "Low Oil Prices - Why Worry": a good analysis of economy, vital commodities, and the current global recession.
11. Mark Anielski: Economics of Happiness, and "genuine wealth."