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We can’t grow ourselves out of debt, no matter what the Federal Reserve does

September 17, 2012 • United States, Daily Email Recap

Here is an Op-Ed published in The Guardian. Written prior to the 9/13/2012 announcement of further quantitative easing by the Federal Reserve, it is nonetheless worth a read as it argues against engineered consumption and instead champions a steady-state economy.

We can’t grow ourselves out of debt, no matter what the Federal Reserve does

Let’s replace our fixation on growth with a steady-state economy focusing on lower consumption, leisure and ecological health…

See: http://www.guardian.co.uk/commentisfree/2012/sep/03/debt-federal-reserve-fixation-on-growth?CMP=email

Federal Reserve chairman Ben Bernanke’s pledge at Jackson Hole last Friday to “promote a stronger economic recovery” through “additional policy accommodation” has drawn criticism from economists, liberal and conservative, who question whether the Fed has the wherewithal to stimulate economic growth. What we actually need is more spending, say the liberals. No, less spending, say the conservatives. But underneath these disagreements lies an unexamined agreement, a common assumption that no mainstream economist or policy-maker ever questions: that the purpose of economic policy is to stimulate growth.

So ubiquitous is the equation of growth with prosperity that few people ever pause to consider it. What does economic growth actually mean? It means more consumption – and consumption of a specific kind: more consumption of goods and services that are exchanged for money. That means that if people stop caring for their own children and instead pay for childcare, the economy grows. The same if people stop cooking for themselves and purchase restaurant takeaways instead.

Economists say this is a good thing. After all, you wouldn’t pay for childcare or takeaway food if it weren’t of benefit to you, right? So, the more things people are paying for, the more benefits are being had. Besides, it is more efficient for one daycare centre to handle 30 children than for each family to do it themselves. That’s why we are all so much richer, happier and less busy than we were a generation ago. Right?

Obviously, it isn’t true that the more we buy, the happier we are. Endless growth means endlessly increasing production and endlessly increasing consumption. Social critics have for a long time pointed out the resulting hollowness carried by that thesis. Furthermore, it is becoming increasingly apparent that infinite growth is impossible on a finite planet. Why, then, are liberals and conservatives alike so fervent in their pursuit of growth?

The reason is that our present money system can only function in a growing economy. Money is created as interest-bearing debt: it only comes into being when someone promises to pay back even more of it. Therefore, there is always more debt than there is money. In a growth economy that is not a problem, because new money (and new debt) is constantly lent into existence so that existing debt can be repaid. But when growth slows, good lending opportunities become scarce. Indebtedness rises faster than income, debt service becomes more difficult, bankruptcies and layoffs rise.

To read the full article, please click here: http://www.guardian.co.uk/commentisfree/2012/sep/03/debt-federal-reserve-fixation-on-growth?CMP=email


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