Understanding Comes Late

I have been struggling for a long time with the direction in which Money has been taking us all — businesses, the country, the world. I was going nuts over the image of the Evil Multinational Corporate CEO, one of the collective puppeteers of the US Congress and the Executive branch, driving us little people into grinding poverty without a care in the world as he sips his Dom Perignon.

Gilding’s book, The Great Disruption, gave me a new insight into what these Evil CEOs and their government minions are thinking. If the insight is correct, they’re not really evil. They’re just mistaken about a few facts of nature. And the good news is that they’re figuring this out, even as I write.

Here’s the key insight: the Evil Corporate CEOs are actually trying to do good.

Here’s the economic model they believe in: that capitalism lifts all boats, and is gradually pulling the entire world out of grinding poverty. It turns out that the current system is extremely inefficient, but it is (in theory) slowly working. For every $100 in wealth that is “created” (economically), about $0.60 goes to lifting those in abject poverty to a point where their basic needs can be met. The remaining $99.40 goes to those who are already above poverty, and most of that goes to the wealthy. But that $0.60 does go to relieve poverty.

So in theory, if enough wealth is created, there will be no more poverty. Anywhere. That’s a good thing.

Of course, advancing the poor at a ratio of 6:1000 is a miserable leverage, and there’s an increasing gap between the rich (who become very much richer) and the poor (who become slightly less poor). On the other hand, there are a whole lot more poor than rich, and the rich are doing all the work of growing the economy — the poor are getting a free ride, and have no reason to complain. I can see where the Corporate CEO could sleep well at night. I can see why young idealists would get involved with the IMF (International Monetary Fund), trying to make the world a better place, especially in the third world. I can even start to see the hard-line conservative, who says, “If you don’t want to wait for us to drag your sorry ass out of poverty, get a job and join the workforce. Otherwise, just shut the Hell up while we make your life better for you.”

If it really worked this way, I could even get on board with it. But it doesn’t work this way.


Here’s the problem: our current economy, with its seven billion people, consumes roughly 140% of the entire earth’s “usable” resources (meaning the resources the economy  needs to keep running). That means we are cutting down trees faster than they are being renewed, fishing the oceans faster than fish populations can recover, emptying aquifers faster than they fill. By the time capitalism has eradicated all poverty, our economy will have to be at least fifteen times its current size, which means that we will need about twenty Earths to support that economy.

Newsflash: we have ONE Earth.

The capitalist plan is a bust. It’s like the old Soviet joke: “If I only had a bit of meat, I’d make a sandwich, if I had some bread.” We’re out of meat and bread, and we’re still expecting to make more sandwiches and increase business by selling them.

So what is really happening with this capitalist economy set loose on our ONE Earth?

Well, first, we need to notice that we’ve decoupled our economics from the real economy, through our financial sector. The people who manufacture and handle money are doing just fine with the magic of compounding interest. In fact, their “economy” is growing exponentially, mostly on-track for eradicating poverty by consuming the output of twenty Earths within a century or so. If you look only at financials, there just isn’t a problem. Okay, an occasional “business cycle” bust, self-correcting and too big to fail. Not to worry.

Unfortunately, the financial sector is ultimately backed by a real world of goods and services that are expanding much more slowly than the money supply.

Ultimately, the real world economy has to stop growing altogether. This isn’t news: Adam Smith, John Stuart Mill, and Keynes all commented on it. Once you’ve reached 100% of the earth’s carrying capacity, there’s no way to grow the economy further.

So what happens when the financial sector grows faster than the economy? The result is called “inflation,” and it has been going on and accelerating for most of a century in this country. Simply put, more dollars represent the same amount of goods and services. So the dollars are worth less. It’s that simple. Money becomes worth less, and prices rise.

A suburban house my father bought in 1960 for $16,000 sold a few years ago for $150,000. A sedan bought in 1960 for $2500 would cost $25,000 today. A family of four could get by on $100/month in food — now it costs about $1000/month. None of these things is worth more — the dollar is worth less.

When the real economy goes flat, as it must, then every gain in the financial markets (which puts more money into the world) will be exactly matched by a devaluation of that money. It will take more money for the same goods and services: prices rise. Every tick upward in the stock market will raise prices in the supermarket.

That $0.60 going to the poor? Completely wiped out, and then some, by rising prices. In fact, since the gap between the poor and the rich is expanding at a 6:1000 ratio, and since all those increasing dollars are now competing for exactly the same number of Big Macs, the poor get ground into starvation as their money becomes literally worthless.

In a very straightforward way, capitalism begins to consume the poor to allow the rich to get richer.

In the United States and Europe, government interventions (through entitlement programs like Social Security) have kept the poor from starving, so the burden has fallen entirely on the middle class instead. We’re being eaten to feed the economic machine that increasingly benefits only the rich.

Economic cannibalism of this sort doesn’t last very long.

The good news is that the Evil Corporate CEOs (who perhaps aren’t all quite so evil as I’d thought) are starting to open their eyes to this reality. They ignored it while it was merely a matter of Greenpeace saving the whales and preaching Mother Earth, or Al Gore preaching about global warming. But thanks to some of the work of people like Gilding, they’re starting to understand that growth-based capitalism spells the end of their businesses. Not someday in the future, but someday in the next few years. That gets their attention. And as that message makes it through the corporate strategic planning committees, we’ll see fundamental changes take place, very quickly.

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