The Myth of Growing Ourselves Out of Debt
Someone recently sent me a thoughtful opinion piece by Charles Eisenstein (author of Sacred Economics – which I reviewed back in May) from the UK Guardian This is the first commentary I have seen in the mainstream questioning the myth that economic growth is going to solve the recession. Eisenstein calls on Federal Reserve chairman Ben Bernanke and other policy makers to abandon their fixation with growth and look at building a sustainable steady-state economy focusing on lower consumption, more leisure time and ecological health.
According to Eisenstein, both liberals arguing for more government spending and conservatives who argue for less are deluded by the same unproven assumption that the purpose of economic policy is to stimulate growth.
The Fallacies Surrounding Economic Growth
He reminds us what economic growth really means – more consumption of goods and services that are exchanged for money – and the flawed way (increases in GDP) economic growth is measured. This means the economy grows if people stop caring for their own children and pay for childcare or stop cooking for themselves and go to restaurants.
After pointing out that endless growth and endlessly increasing production and consumption are making people unhappier rather than happier – as well as the impossibility of infinite growth on a finite planet – he briefly explains why our current monetary system can only function in a growing economy. Because all money is created as interest-bearing debt (by bankers – not government), by necessity there is always more debt than money to pay it back.
The Need for Continuous Growth in Our Debt-Based Money System
In a growth economy, new money (and new debt) is continually lent into existence so that existing debt can be repaid. When growth slows, indebtedness rises faster than income, and companies lay off workers and/or go bankrupt. In past slow growth periods, government and central banks stimulated recovery by lowering interest rates. This started the cycle of lending and borrowing going again by making debts easier to repay. With existing interest rates close to zero, this type of intervention has ceased to be an option.
What Eisenstein calls for is a gradual transition to a steady-state, non-growth economy. He proposes a number of practical steps that could help bring this about. One is for the government to purchase student loan, mortgage and consumer debt to free up consumer purchasing power.
Read more here.