PF Henshaw
10/14/06 08/25/08minor ed: I inserted this graphic because it add perspective on the problem. The total number of doublings before a growth system climaxes corresponds to how hard it hits its limits, the abruptness of the transition. Wealth has been regularly doubling for around 600 years now, and all signs are that it began responding to the limits of the earth around 1960. In terms of the suddenness of change we're experiencing (just to form an conceptual image to then push and pull to better fit reality) it's almost as if all the change of the past 600 years was packed into the period from 1900 to 1960 and an equal amount in the opposite direction may need to take place in the next 20 to come to a sustainable level to avoid extreme overshoot and collapse. That conceptual model is not a formula that things follow, but a set of proportionalities that can be expected. One of the strong implications is that our transition to stability needs to be abrupt when we hit the limits for whatever reason, given the length of doubling we've had, and that delaying transition after we've hit the limits will require even greater increases in the abruptness of the transition required. --
What happens is that the highly productive and competitive community of professionals (the world's economic power hitters) will see the problem. Those who care about the future of the earth will confront a dilemma. If they do what's in their own and everyone else's best interest voluntarily, it would put them at a strong competitive disadvantage to those who would exploit it. The former won't put up with either wrecking the earth or conceding advantage to those who would, and the new practices required will quickly become universal.
How to Pull the Switch
9/9/06 The ideas of a 'big fix' for the problems of modern economies has a relatively inglorious history, the most notable being Russia's failed attempt to adapt 'communism' into serve totalitarian military control. There have also been a variety of other kinds of utopias each with their own models and mostly tragic tales. A surprisingly large number of American states, cities and towns were founded by radical communities committed to living in a new way, often with experimental monetary systems. The growth system economy that has endured and now dominates the earth, and seems to win the Darwinian test of survival, is a form of natural capital system that can only remain stable if it's growing exponentially. That suggests Darwin might change his vote. What I identified in my general study of systems 20 years ago was a necessary, if perhaps insufficient, structural change required for a free market economic system to be stable. I was studying growth as an organizational instability in itself.
I wrote a couple papers on it but people apparently thought it was politics or opinion, or just didn't appreciate the issues involved. I can't find the better reading version at the moment, but the details of the original model and proof can be found in a paper online called General Allocation Theory (2Meg scan). It's just as well my old explanations are not available. I don't think I really made as much sense in explaining why all the really smart people on earth managed to agree on one thing, designing our life support system in the natural form of a bomb. Our growth system is designed to multiply explosively with no limit but system failure. I still can't explain it, of course, but have more respect for the curious dilemma it represents. Something this 'strange but true' deserves to be held in awe more than explained perhaps. If you look at it historically, adding up all the little things people thought were too small to make a difference, you could see how some people would be fooled, but almost everyone??.
Even if it's an accumulative mistake of adding a million little mistakes together, it's really unbelievable to say the very least. It's more like there's a natural blind spot built into our way of thinking, like being unable to see the lens of the eyes we see with. A bizarre recent thought is that it might come from a kind of reflex regarding some obvious but unprovable things, turning toward or away, inherited from the times of the real overlords of the distant past and their great obsessions for power and control, something like a delayed stress reaction saying 'don't look at that'. People do seem to have a trick of putting on blinders at just the right time it seems to me. Whatever the trick of nature involved, what's bringing it out now is that we're at the end of the amazing growth period that began around 5-600 years ago, with the dawn of individual liberty and free enterprise in Europe, after the black plague. Since then we've chalked up a productivity multiplier, estimated as 600 years of 3 1/2% growth, in the neighborhood of an awesome one billion. Maybe a billion makes infinity believable, they're both quite large!
Still, people deal with the growth climax issues all the time in their own business and personal lives, "don't overdo it" is a very common phrase and understanding, the fable of The Sorcerer's Apprentice is read to kids all the time, and there are lots of examples of personal stories and economic and other kinds of system crashes from overshooting their natural limits. But still, when it comes to the future, we just seem to feel comfortable projecting infinite wealth! One really has to be in awe of this strange trick nature seems to have played on us, and it seems to be quite appropriate to be deeply suspicious about everything connected to it.
The model is simple. To stay in business, businesses have to produce a return for investors and investors typically use that return to multiply more businesses that promise the same thing. That describes an endless positive feedback loop. The physical economy has to grow exponentially to remain solvent because each business is dependent on the financial economy for credit and the investment economy is always building competition and taking exponentially more money out than it is putting in. Following the 'prudent man rule' investment is managed for growth and can only climax by great failure. Because the physical side of the economy has to deal with reality it, however, won't continue to grow exponentially. Projecting money is simple, but with reality there are complications, and it's in attempting to make ever more complicated and faster decisions about our complex world where the collision with our limits actually occurs.
If you didn't allow returns on investment the endless cycle would be broken, of course. Removing returns on investments is too drastic, however, like following the Muslim and old Catholic Church rules banning lending for interest. Very little growth and change could occur at all. The object is to allow the physical economy to grow as human ingenuity can comfortably allow, and only remove the drive that requires growth to overshoot and collapse, i.e. to remove the growth imperative. That can be accomplished if investors only spend their returns rather than give them up entirely. If any 'immortal' investor or class of investments is excluded, then the solution fails.
What this very curiously does is remove the primary means by which people concentrate huge wealth and power, the reinvestment of returns, and switches that stream back to the normal circulation of money in the physical economy. Any solution that doesn't have that effect also necessarily fails. Instead of concentrating wealth it would distribute wealth, according to the values of the people doing the spending. In all likelihood several things would result. For one, it would not reduce the amount of investment or innovation, only the future rates of increase. We'd stop multiplying the creativity of the system, buy climaxing and first aiming to hold it at it's peak. The problem is not change and creativity, it's exploding change and inherently incompetent 'creativity'. Another thing that would happen is that a large number of people, not just the super rich but most people with upper middle incomes too, would have to think about what their values were, since they could no longer just leave money unattended. It might well result in a general increase in consumption. Since many people see the problem of growth as the harms done by over-consumption, that's a worry. Extra spending might cause inflation, and require fiscal and monetary policy restraints. It might also get absorbed in paying off debt as we find just how many long range financial plans are based on current spending of expected future earnings from perpetually accelerating growth.
The main thing it would do is feed income to existing businesses in preference to building ever more competition to replace them, lowering costs by making it a sellers environment at the same time as it increased revenues, resulting in profits, higher incomes, higher employment and higher personal savings and government revenue. It would not slow down innovation and the formation of new businesses, only stop the accelerating increase of new businesses and other financial investments. Except for paying down an unknown amount of bad debt, and things I've overlooked perhaps, there would be an overall bonus.
Instead of the 'trickle down' theory, that worked only indirectly anyway and stopped working at all about 1970, it would be a 'shower down' stimulus providing direct income to people in their existing jobs, extending the employment ladder toward the bottom, and making it less likely people would get bumped off on their way up. 'Trickle down' did the opposite, built new competition to knock people off the ladder and pulled the bottom up out of reach so lots of people at the bottom couldn't get on. It also made others wealthy in the process so that they thought the world was working just fine, having no idea that they were beneficiaries of other people's hardships. When the system 'pulls up the ladder' and there's no ladder to climb, it looks as if the people not on it are just not making an effort. The experience of not being able to reach up to the bottom rung, though, is very disheartening. The opinion that it's their fault would be more frequently accurate in an environment like we had for educated white men before 1970 than afterwards, when we opened up society but business began investing to eliminate people. Now the top end of the economy has started moving into overshoot, leaving the great majority of people behind.
Is fixing the growth imperative the first or only step necessary to change capitalism into a natural capital system fitting in with sustaining the earth? No, probably not, but a symbolic step in that direction would be good to take, like eliminating capital gains taxes for unearned income that people spend. That much would be easy and relatively painless as people contemplate the very similar but also very different kind of world that is bound to follow. I expect that meaningfully eliminating the automatic compounding of financial returns is also not sufficient to protect the earth and mankind from all varieties of self-destructive growth. All I can prove is that it's necessary. It's like we built our whole way of life around business and finance being a universal cancer, a cancer of riches, granted, but a cancer none the less.
You might ask, why break it up by making people spend their own money from only a single source? They're bound to cheat and it can't work. That's two important issues. The answer to the first is that deciding to use returns for either spending or savings and investment is the one point of free choice in the loop. All other points of control would alter free enterprise as a system of creative experimentation guided by popular choice in open markets. I also think it approximates the trick of how nature manages it's growth systems that creatively climax. The answer to the second is that laws work when people widely agree that that's how they want to relate to each other anyway, so whether it works or not is fundamentally a question of common opinion whether we want to deal with people cheating. It sounds plausible that a new common expectation of how to do business and manage money would build up. It certainly does not exist now, of course. There's also a wide range of other questions, perhaps even whether there are definable ways to allow individuals and institutions with a talent for amassing huge wealth, now only for raising their own 'score', to still wield that kind of power because some jobs can only be done with huge sums of money moving at the stroke of a pen. I'd generally say no, unless their returns are passed back to their individual owners and those owners spend them according to their personal values. Still, there are lots of places where lines will have to be drawn and the issues may be less clear cut. A big part of the job is the economic study that will show where the wiggly lines between public obligations and private responsibility lie. That'll take time and value judgments we can't yet foresee.
Would it fix everything? Not at all. It wouldn't fix the unquestionable ways in which the markets fail to reflect the real cost of goods and services, like energy use. Markets don't actually have any value for most things of real value in life. And businesses simply won't give up near term competitive advantage for even clear long term benefits from taking another path. Fixing growth also won't directly fix the over complicated, expensive and populated world we've built either. Time may do that, leading us to new ways to share knowledge and simplify, but new global rules would make things even more complicated in the short run. It's important to keep the models simple, adaptable and effective. The way physical systems work the purpose of things is what they end up getting used for, and it seems we still have to figure that out for the Earth.
Only to mention one other thing, we need to learn how to help uncompetitive economies if we hope to make any progress with the desperate population/environmental problems. A century of foreign aid seems to have significantly failed due to the developed world's own incompetence in doing it. I think the way to help people is to buy things directly from the people we want to teach how to be self-reliant, finding value in what they have to offer, rather than giving them things. We'd also need to invent some kind of financial barrier to prevent weak economies from being exploited by 'friendly' businessmen and bureaucrats who are only going to send their take from it back to Paris or New York where the charity came from, etc. That means looking at how we help people in as backwards a way as I'm suggesting we look at how we've been helping ourselves! The mess we're in is horrendous, and we seem to need to rethink a lot of things quite quickly, but without haste. The whole top end of the world economy is clearly acting like a bubble itself at the present. We'll find ourselves in a much bigger mess, though, if we have to try rebuilding from a major collapse without the cheap resources we've already consumed and won't be available for a second try. A lot to think about.
Hey, so we can sleep on it anyway..., and see if it's still there in the morning! :-)
fyi, the dotted segments of the Da Vinci man symbol represent the way nature draws circles, with continuities made by discontinuities. The Physics of Happening