The newest video from the new economics foundation (nef), titled “The Vampire Squid” takes the title from commentary on our banking system by Matt Taibbi, writing in Rolling Stone back in 2008, referring to Goldman Sachs as “a great vampire squid, wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

Watch the video here:

Also, check out the campaign website and briefing (pdf).

Related posts:

1. Four Years. Go.
2. Misgivings On Giving
3. Paul Gilding At Town Hall Seattle

Wednesday night I attended a nice little event for Yes! Magazine supporters and enjoyed many great conversations. One conversation in particular, with Jule Meyer Principal of Parkman Foundation Services, revolved around philanthropy and the great Giving Pledge campaign started by Bill and Melinda Gates. Now, I should preface what I’m going to talk about with this statement: I think the world’s wealthiest donating most of their wealth to noble causes is a wonderful idea. I just have a few misgivings around the intention and the implicit idea that the giving is a sacrifice for others.

The Gates’ number one ally in getting the campaign rolling, Warren Buffett attempted to start the giving by pledging that ”more than 99% of [his] wealth will go to philanthropy during [his] lifetime or at death.” At face value this appears to be quite the statement: more than 99% of his wealth given away! However, it seems to me that Buffett’s pledge might be more for show and is slightly disingenuously when labeled as philanthropy. Here’s why…

The Richest of the Rich

Perhaps it is difficult for the majority of us to actually realize how much money the top 1% of the world have in their bank accounts. A simply way to think of it: the richest 1% of Americans possess more than all the combined wealth of the bottom 90%. In Warren Buffett’s case, he’s currently valued at around $47 Billion – with a B. That’s more zeros than can fit in most calculators – $47,000,000,000. He recently fell from the #1 richest person in the world to the #3 spot, poor guy.

I wonder if there is even a concept of “enough” with this class of richest of the rich. These top 1% wield an amazing amount of influence and power with their vast sums of monetary wealth. Do they really deserve this power? Is it right for them to have so much while most of the world has hardly enough?

When Is Enough, Enough?

Income and wealth inequality are traceable to many social and environmental problems. In their book The Spirit Level, Kate Pickett and Richard Wilkinson link the wealth inequality in developed nations to shorter, less healthy and increasingly unhappy lives, as well as rising rates of teenage pregnancy, violence, obesity, imprisonment, poverty and addiction. Pickett and Wilkinson starkly point out that economic growth must be halted, as these  life-diminishing results of valuing growth above equality in rich societies can be seen all around us.

Growth is the driver of consumption that is quickly depleting the planet’s limited resources and is the instigator of climate change that has drastically reshaped the face of the planet for the foreseeable future. It is no wonder that Buffett, juxtaposed next to the more climate-conscious Gates family, is one of Rolling Stones top ten “Climate Killers.” He’s got hands deep into oil, gas and coal, as well as funding climate denying science organizations and publicly denouncing ideas of a comprehensive climate bill. If he truly cared about his impact in the world, would he really worry about his profits in these industries over the destructive climate change that results from their use? How much good can his wealth do if it is made by destroying the planet?

Why Buffett’s Pledge Is Not Much Of A Sacrifice

I should point out that this is a lot of money that will, eventually, go to (hopefully) worthy organizations doing good in the world. I think that’s spectacular. I take issue with the way Buffett tries to frame his “giving,” and his lack of actual philanthropic action. In my opinion philanthropy means to actually give up wealth to better others because it’s the right thing to do, not to maintain your extremely wealthy position and give away excess that you’re running out of ways to spend.

He outwardly states in his pledge that “my family and I will give up nothing we need or want.” I think the want portion of that statement is where it gets a little muddy: [emphasis added]

“This pledge will leave my lifestyle untouched and that of my children as well. They have already received significant sums for their personal use and will receive more in the future. They live comfortable and productive lives. And I will continue to live in a manner that gives me everything that I could possibly want in life.

Some material things make my life more enjoyable; many, however, would not. I like having an expensive private plane, but owning a half-dozen homes would be a burden….”

He goes on to say, “I will continue to annually distribute about 4% of the shares I retain. At the latest, the proceeds from all of my Berkshire shares will be expended for philanthropic purposes by 10 years after my estate is settled.” Great, so you’re donating what I assume to be enough to help out on your tax return (the 4% annually), but everything else is going to have to wait until you’ve kicked the bucket?

The kicker is this: 1 percent of his wealth amounts to $470,000,000 – $470 million dollars. Even if he did a more philanthropic action of actually giving away 99% of his wealth today, in full, he would still be able to at least earn $14.1 million a year at a low rate of 3%. I would find this a bit more worth of praise, yet even this is an ungodly amount of money – anyone would be able to do well in this world making $14 million a year. So, I don’t buy that his pledge is entirely much of a burden or sacrifice for others – he just has sooo much money that there’s almost nothing else to do with it after he’s dead anyway. Why do we allow a system to give so much excess to some while not providing enough for others?

It’s Not All Bad

It’s not all that bad, here’s more:

“My wealth has come from a combination of living in America, some lucky genes, and compound interest. Both my children and I won what I call the ovarian lottery…  My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. [Actually, it doesn't many that well, but he seems to serve you well, Mr. Buffett]

I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate’s distribution of long straws is wildly capricious.”

Buffett at least seems to realize that our economy is distorted and he is lucky to have this much wealth, especially for performing very little for the good of society (whereas the teachers he mentions make next to nothing compared to the benefit they provide). But our system doesn’t need to be constructed this way – we can institute simple and effective measures that encourage a more reasonable distribution of wealth. For now, we can give thanks that at least some of the people at the top are donating large percentages of their money.

As Jule put it last night:

“As a philanthropic adviser, I never want to dish a philanthropic impulse—especially one with such scope and potential impact as Buffet’s. And while giving away the lion’s share of his fortune won’t affect Buffet’s lifestyle (so he has said) it’s curious to ponder the number of zero’s remaining in his wallet (my calculator couldn’t show me all the zeros)…

What is important is that both Buffett and Gates are widely respected in the business community and their leadership is having ripples—forty of the U.S. billionaires have already signed on. In fact, I hope Americans living at all levels will consider giving more and volunteering more, and not because of tax advantages but because if FEELS SO GOOD!”

Related posts:

1. Federal Reserve Transparency
2. The Robin Hood Tax
3. Financial Policy the Definition of Insanity

Newsweek recently published an article titled, “The No-Growth Fantasy: Europe’s Attack on Capitalism.” Calling a no-growth economy a fantasy is a bit delusional, I think continued economic growth is the real fantasy here. I just commented on that article, my response is below – expanded past their comment section’s character limit.

“A large part of what was taken as growth was financed by unsustainable bubbles in credit and asset prices.” Most of our growth in the past 50 years has been nothing but bubbles: credit bubbles, housing bubbles, internet bubbles, property bubbles – even a Uranium bubble. We all hate when the bubble pops, why get back on the growth horse and expect different?

You discuss resource depletion as if it can be thinned down to last forever, while we continue to grow the economy (and therefore, the amount of resources needed). Efficiency is key, for sure. However, you can only get so efficient! If we could reach 100% efficiency we’d be able to use the same gallon of gasoline in our cars over and over again forever. Even if you don’t trust those pesky laws of thermodynamics, common sense should tell you this is pure nonsense.

And discussions of “barely tapped potential of genetic engineering and other plant-breeding technologies” envision a future of mutated plants, crowded cities, and soylent green. I don’t know about you, but I do not want to live in a world of genetically engineered food supplements, packed into a tight living space, simply because we didn’t want to think outside of economic growth. Besides, these technologies will have their limits as well, assuming we can make them viable in time, and then what? What’s the next thing we can latch onto in order to keep this hamster wheel spinning?

“Even if the critics are right and growth is going to be harder to attain post-crisis, that’s no reason to give up on it. Just the opposite: all the more reason to spend our energy coming up with the right policies—from education and innovation to entrepreneurship and competition—that will help foster it.” Right, pick something to keep the wheel going because you’re afraid to deal with the transition to a stable, just, sustainable economy? This is cowardice shrouded in a cloak of misplaced optimism.

Capitalism & Marxism vs Growth

“Critiques of growth have always been, at their core, about uneasiness with capitalism itself… Marxist idea of ‘economism.’” Let us first realize a few important concepts here: Capitalism is an economic system where there is private control of production. That is all it truly entails. Socialism is an economic system with worker or public owned production. Communism is an economic and social structure with government owned production. None of these systems are preferential to economic growth unless we choose them to be. Economic growth is a human creation. Perhaps none of these systems are right? Shouldn’t we question this and try to create a system that does work?

Calling a no-growth economy socialism or communism is disingenuous at best, outright deceitful at worse. Tim Jackson‘s work, Prosperity Without Growth, shows that continued growth of developed economies is not only conflict with the biosphere but continued economic growth is harmful to our wellbeing and happiness. Forgive me if this sounds too optimistic, but I think I prefer my wellbeing and happiness over growing our economy. The two are undeniably separate conditions.

Furthermore, the promises of the growth economy we’ve designed are not being fulfilled. We have more poverty, more environmental problems, and larger inequality now that we did 30 years ago – yet our economy has grown by leaps and bounds in that time. There is plenty of food, water, and work out there – yet our system creates people with too much and people with too little, because economic growth is preferential to those already at the top.

Continued economic growth also defies the natural order (in nature everything finds a biophysical limit or it is wiped out). Far be it for us, with our tiny brains, to think we can out think nature – which has billions of years of experience figuring these things out. Yet this is the tone with which you defend economic growth. Before you start talking about separating economic growth from environmental problems, read Tim Jacksons work. I wrote a summary of the decoupling counter-argument here.

There is a thing in micro-economics called optimal scale, that is missing from macro-economics, which states that something grows to a perfect point and further growth is actually detrimental. We need a macro-economic optimal scale. This requires the application of sustainability to the social science that has lacked the concept - internalizing the “externalities,” so as not to work off an unfinished equation. This is a steady state economy.

A Steady State Economy

A steady state economy was envisioned by John Maynard Keynes, the economist that shaped most of our economic theory and policy today, as well John Stuart Mill, another founding economist. Both realized that a growth economy was a means to an end, not the end itself. They recognized that we would at some point be able to put behind us this growth for something better – focusing on development of our society. They’re not the only ones, either.

You should read more about the steady state economy, because we will reach it either by destroying our ecosystem (and likely our society) and being forced into it by mother nature OR we can choose a sustainable path in which we maintain our society and ecosystem for future generations, finding a balance and focusing on developing things like social justice, increasing our knowledge, and enlightening ourselves. These are the higher paths that we all want – happiness, prosperity, and increasing wellbeing – these do not require the size of the economy to increase.

I suggest you check out the Center for the Advancement of the Steady State Economy (CASSE). Read Tim Jackson’s book Prosperity Without Growth, or the shorter, free report online. Pick up a Herman Daly book, Gus Speth’s The Bridge at the Edge of the World, or Brian Czech’s Shoveling Fuel for a Runaway Train. For god sakes, don’t listen to the dribble this magazine publishes, they are obviously hanging on the last threads of a dying ideal – spinning the same old rhetoric and adding to the counter-intuitive notion that economic growth can continue infinitely on a finite planet.

A sustainable society will require a sustainable economy. A steady state economy is what humanity existed within for most of our history. They last 75 years of economic expansion have brought a lot of good, but now it brings with it more bads than goods. We should use our vast knowledge to take the next step and stabilize the economy, make it socially just, and create a planet that can continue to support human life. This is the only means of creating a global society that improves well-being and prosperity in a sustainable fashion.

Related posts:

1. Growthbusters: Hooked on Growth
2. Life After Growth – Economics For Everyone
3. Uneconomic Growth

Last night I attended a presentation by Dr Muhammad Yunus, Nobel Laureate for his pioneering work in micro-credit. Titled ‘Abolishing Poverty – The Human Rights Priority’, the central messages in Dr Yunus’ presentation, to an enthusiastic and highly receptive Sydney crowd of more than 500, were simple. He believes access to credit is a human right; that we can end poverty by channelling the market forces of capitalism; and that we can ‘solve’ all the world’s problems if only private enterprise would be more widely accompanied by ‘social business’ – a term he uses to describe commercial activity whereby businesses whose primary goal is to help ‘the poor’, reinvest their entire profits back into their work, rather than into shareholder pockets. Holistically speaking, I am not convinced.

Dr Yunus’ track record is as incredible as his ideals are worthy. His present-day work began in 1974 when he loaned US$27 to a Bangladeshi woman who made bamboo furniture. Viewed as a ‘repayment risk’, traditional banks were not interested in considering such individuals for the provision of small loans. This experience was to prove life-changing for Dr Yunus.

Nine years later he established the Grameen Bank that has since disbursed US$6.6 billion in micro-loans averaging US$130 to ‘the poor’. Bypassing the traditional method of a customer needing to demonstrate collateral before a loan can be administered, the Grameen bank uses a customised approach to solidarity lending whereby each drawer must be in a five-person group that merely serves to encourage repayment. The results have been stunning. The bank boasts a repayment rate of 98.35 per cent and 97 per cent of its members are women. As Dr Yunus noted with a smile in his Sydney presentation, the global financial crisis showed who you can really bank on when it comes to repayments.

The Grameen model has now been replicated in over 100 countries, with proposals on the table for its extension to poverty-stricken cities in the ‘developed world’ such as Glasgow, in the U.K.

There is no doubting that Dr Yunus’ approach continues to challenge attitudes of business in both the ‘developed’ and ‘developing’ world. But does it challenge these views enough to ensure our longer-term sustainability as a species? Thinking ahead, perhaps Dr Yunus’ approach sets us up to hit a fundamental ceiling in which inequity-creating businesses continue to thrive, removing hope for ‘poverty alleviation’ and sustainable futures, because their image in the community is largely defined by publicly-embraced subsidiary social businesses.

Unfortunately, Dr Yunus’ presentation reinforced my frustration with what I see as ultimately atomistic arguments made by our ‘poverty champions’ (think Jeffrey Sachs, Bono, Hugh Evans). Thus, when the floor opened up to questions I asked:

“In a world with serious biophysical limits, how can any growth-based financial system – including micro-credit – ever be truly sustainable?”

Dr Yunus quickly replied that human creativity is an amazing thing and that I should not be so grim.

I sat down. Given the chance, I would have responded by saying that his answer is the kind men have been giving ever since anthropogenic global warming became accepted by mainstream audiences and the news on this front is not getting any better. At its heart, I believe Dr Yunus’ answer falls somewhat into the common habit of using the term ‘creativity’ as a pseudonym for ‘technological innovation’. In this sense, there is mounting evidence that such faith is misplaced; that the idea of de-coupling economic growth from environmental degradation at the speed required to avoid catastrophic effects from climate change is totally unrealistic. In addition to the problem that increased technological efficiency often equates to greater levels of associated consumption, as Professor Tim Jackson from the University of Surrey in the U.K. has recently shown:

“In a world of 9 billion people, all aspiring to a level of income commensurate with 2% growth on the average European Union income today, carbon intensities (e.g.) would have to fall, on average, by more than 11% per year to stabilize the climate, 16 times faster than they have fallen since 1990. By 2050, the global carbon intensity would need to be only 6 grams per dollar of output, almost 130 times lower than it is today…”

All said and done, I remain critically hopeful. I think Dr Yunus is inspiring and well-intentioned, and I like his concept of social business – similar to what we, in Australia, call not-for-profit social entrepreneurship. In fact, I like his concept so much that I propose we be brave enough to entertain the thought of a world in which every business is a social business.

From large multinationals to small cafes, what could we create if the ‘developed world’ unhooked itself from its addiction to quantitative growth and the ‘developing world’ was free from ideological and physical coercion to adopt unsustainable ‘development models’? As Dr Yunus is quick to note, when you take the individual profit motive out of it, anything becomes truly possible.

Guest contributor Donnie Maclurcan runs an Australian social business, is investigating nanotechnology and its consequences for global inequity and is working on a film about the limits to growth.

Related posts:

1. The Opportunity of Limits
2. The Sigma Of Growth
3. Newsweek: The No-Growth Fantasy

I might be amongst a rare few who believe that the real worth of a person is based outside of material possessions and economic status. Perhaps our society is right to place value in material wealth and pull away from centuries of teachings valuing integrity, ethics, and community (see valuing what matters). There is strong argument that this skewed approach to valuing material wealth is, in part, why our generation is suffering from a rising “social recession.” What we value, how we value, and where we place the concept of wealth are drastically important parts of our lives and our society.

The chemist turned rogue economist Frederick Soddy was one of the first to lay out the difference of real wealth and, what he termed, “virtual wealth.” Today, “real wealth” is a term being used by the planners of the coming “new economy” to represent physical wealth in the real world. “Phantom wealth” (or Soddy’s “virtual wealth”) is the monetary representation, or store, of real wealth. It is being described as phantom because we have inflated our system to allow money to make more money – money out of thin air is virtual, phantom wealth. But isn’t that money is a store for real, physical value?!

So if we create new money, either by printing it, loaning it into existence, speculative trading, or some other devilish creation of the private banking system, do we also create correlating real wealth? No. This means as we allow money to earn more money, without ever being traded for a real, valuable good or service, we are devaluing those real goods. Banks are essentially stealing real wealth by creating more phantom wealth for themselves. (All the more reason for a Robin Hood Tax)

I just picked up one of Soddy’s books that outlines these concepts: Wealth, Virtual Wealth, and Debt. Soddy set a lot of the ground work for today’s ecological economists and his work was greatly expanded upon by Herman Daly, Richard Douthwaite and Nicolas Georgescu-Roegen. I am excited to read some of Soddy’s work and in researching his (spot-on) views of money, debt, and the banking system I found more great quotes on the subject I wanted to share.

Quotes on Money, Debt, and the Banking System

Frederick Soddy, Nobel chemist and rogue economist, once said:

“The whole profit of the issuance of money has provided the capital of the great banking business as it exists today. Starting with nothing whatever of their own, they have got the whole world into their debt irredeemably, by a trick…

“This money comes into existence every time the banks “lend” and disappears every time the debt is repaid to them. So that if industry tries to repay, the money of the nation disappears. This is what makes prosperity so “dangerous” as it destroys money just when it is most needed, and precipitates a slump…

“There is nothing left now for us but to ever get deeper and deeper into debt to the banking system in order to provide the increasing amounts of money the nation requires for its expansion and growth…

“An honest money system is the only alternative.”

John Adams, United States’ second president and founding father, once said:

“All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.”

Thomas Jefferson, United States’ third president, founding father, and a personal hero, once said:

“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. The issuing power (of money) should be taken from the banks, and restored to the people to whom it belongs…

“If the American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered…

“I hope we shall crush in its birth the aristocracy of the moneyed corporations, which dare already to challenge our Government to trial of strength and bid defiance to the laws of our country.”

Here’s a good one from left-field, Henry Ford, founder of the Ford Motor Company, once said:

“The function of money is not to make money but to move goods. Money is only one part of our transportation system. It moves goods from man to man. A dollar bill is like a postage stamp: it is no good unless it will move commodities between persons. If a postage stamp will not carry a letter, or money will not move goods, it is just the same as an engine that will not run. Someone will have to get out and fix it.”

Related posts:

1. The Creation of Money And Illusion of Wealth
2. The Money Fix
3. Wealth & Poverty

I’m going to start a new serious in this blog, “Points Of Progress,” a once-monthly report of things happening in our world, policies, articles, and practices in-line with the steady state economy, that are worth some time to read about -  the good news, the promising results. This stems from the many articles I have been scoping through on google reader (a great RSS feed tool, for those of you interested in getting updates via rss).

Through the 50-100 posts I receive daily, I manage to pick out a handful of good ones and post on twitter (follow me), but some of these deserve some recognition on this blog. This monthly report is for the exciting things happening I just don’t have time to post about in-depth. Here are some cool things happening in the world:

Maryland’s New Alternative Metric: The GPI

Herman Daly‘s home state has just instituted their version of the Genuine Progress Indicator. This alternative to the grossly inadequate GDP takes into account 26 factors, from incorporating the costs of crime to the costs of ozone depletion. The state is using the GPI as a tool to education the public and policymakers on the balance between costs and benefits of decisions regarding resource use.

As Governor O’Malley said, “The GPI will help us ensure that our economic growth will not come at the cost of our natural resources, and that they both support our progress toward a sustainable future and a better qualify of life for all Maryland families.”

21 Hours: Work Less, Live More

Part of the many policies of a steady state economy, adjusting the work hours for increases in efficiency is a policy that could revolutionize our society. Not only does this policy fight unemployment head-on by making more work available, it frees up time in our weeks to do something really important – live.

The new economics foundation’s new report, 21 Hours: Why a shorter working week can help us all to flourish in the 21st century outlines how the average time worked in Britian, 21 hours, should  be the new standard. As nef explains, “A ‘normal’ working week of 21 hours could help to address a range of urgent, interlinked problems: The average overwork, unemployment, over-consumption, high carbon emissions, low well-being, entrenched inequalities, and the lack of time to live sustainably, to care for each other, and simply to enjoy life.”

The IMF Rethinks Macroeconomics

The International Monetary Fund (IMF) has not only recently acknowledged that macroeconomic policy may have “exacerbated the recent financial crisis,” but also has begun to rethink those policies.

Olivier Blanchard, the IMF’s chief economist, published a paper, “Rethinking Macroeconomic Policy” (pdf), stating that better economic policies might include increased government involvement, higher inflation, and help for the poor. The IMF’s typical policy of telling governments that less intervention and low inflation were powerless to prevent the “Great Recession.” Great news for those of us hoping for changes in the IMF and World Bank.

Related posts:

1. Points of Progress
2. Points of Progress
3. Points of Progress