De Crash Course 5 & 6
Deze crash course gaat over de veranderingen die de maatschappij te wachten staan. Economische, maar ook maatschappelijke. De focus is uit de aard van de herkomst op de USA, maar ook voor West-Europa bevat het nuttige lessen. Komende weken zullen we er met regelmaat een aantal toepasselijke lessen uit (her)publiceren.
NB: de link naar de gesproken text zit onder de link waar de duur staat aangegeven!
Engelstalige transcriptie Chapter 5: Growth vs Prosperity
Now I’m going to introduce the second Key Concept, and it is far enough outside of current thinking that I’m going to get a little backup from a 19th-century philosopher.
Here’s the quote.
“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”
This great quote comes from this happy guy here (Arthur Schopenhauer)
At some point over the next 20 years, this next concept I’m about to introduce will be “self-evident.”
But for now, I think it would be safe to say that a lot of people would consider it to be ridiculous.
What is this wild concept? It’s that economic growth may not be good for us any longer.
But growth is good, right? Nearly everybody would agree that we want a growing economy because a growing economy means that we are becoming more prosperous.
Economic growth offers opportunities, and we are all for opportunities. At least I am. And the desirability of economic growth is virtually unquestioned today.
It’s just something that everybody – from politicians, to investors, to business owners — talks about wanting more of.
So, many people would say that growth equals prosperity.
But is this actually true? And what if it’s not?
Growth is actually a consequence of surplus, if we think about it. For example, your body will only grow if it has a surplus of food. With an exact match between calories consumed and calories burned, a body neither gains nor loses weight. A pond only grows deeper if more water is flowing in than is flowing out.
So, it can be said that growth is actually dependent on surplus.
Similarly, prosperity is dependent on surplus. Here’s another example. Imagine that you are a family of four, your yearly income is $40,000, and at the end of the year there is no money left – on December 31, there are exactly zero extra dollars to spend on your family.
But then a 10% raise comes along, which equals $4,000, and your family can EITHER afford to have one more child OR you can enjoy additional prosperity by spending a little bit more on each person. But you can’t do both.
There is only enough surplus money in this example to do one thing, so you have to choose – will it be growth or will it be additional prosperity?
And what is true for a family of four is equally true for a town, a state, a country, and, yes, our entire world.
Through this example we can tease out a very simple and utterly profound concept, that growth does NOT equal prosperity. For the past few hundred years we have been lulled into linking the two concepts, because there was always sufficient surplus energy that we could have both growth AND prosperity.
That is, we didn’t have to make any hard choices between the two.
The economist Malcolm Slesser, of the Resource Use Institute of Edinburgh, Scotland, has calculated that over half of the world’s energy is now used to simply grow.
So here’s the big question: What’s going to happen when 100% of our surplus money or energy is being used to simply grow? The result is going to be stagnant prosperity.
And what happens if there’s not enough surplus to even fund growth alone? Well, when that time comes, we will experience both negative growth and negative prosperity– not exactly the sort of future I am looking forward to.
More immediately, all of the developed world’s bond and stock markets are priced with the implicit and explicit assumption baked in that there will be continued future growth in the economy, corporate earnings, money supply, debt and all the rest.
But what if that growth never arrives? What then?
Without robust growth those markets will be worth a lot less than their current valuations, and that’s a huge risk for individual portfolios, pensions, endowments, and even social stability. We’ll talk in more depth about the seriousness of this risk later in the Crash Course.
But simply put: If we do not properly allocate our dwindling surplus resources towards prosperity, and instead default into the comfortable and familiar pattern of growth, then we risk a future of less prosperity.
This, then, is the greatest challenge of our times – properly recognizing where we want our remaining surplus to go and getting that story out.
I, for one, want to see continued advances in energy efficiency, medical technology, and everything else that modern society can offer.
I want my children to have reasonable and fulfilling jobs, and I personally would vastly prefer to live in a world of happy and prosperous individuals versus one that is merely larger, but with less to go around for each person.
It is our future prosperity that we place at risk if we allow ourselves to do what is easy – that is, take the path of least resistance and simply grow – instead of doing what is right, which is directing our surplus towards a more prosperous future.
So there it is, Key Concept #2 of the Crash Course: Growth does NOT equal prosperity.
Now that you have these two in hand, we are ready to explore this thing called “money.”
Publicatie 4 juli 2014
Engelstalige transcriptie Chapter 6: What Is Money?
Before we begin our tour through the Economy, the Environment, and Energy, we need to share a common understanding of this thing called money.
Money is something that we live with so intimately on a daily basis that it probably has escaped our close attention, which is why we are going to dedicate a few minutes to the subject now.
Money is an essential human creation, and, were all money to disappear, a new form of money would spontaneously arise in its place, such as cows, tobacco, bread, a certain type of nut husk, perhaps, or even nautilus shells.
Today there are other forms of money such as airline miles and bitcoins. Each of which are ways for people to accumulate, store and then spend other intangible things that behave exactly the same as paper Dollars, or Euros, Yen, or Rubles, or Yuan.
Without money, the complex job specializations that we have today would not exist, because barter is so cumbersome and constraining. More importantly, though, is the concept that each type of money system has its pros and cons – each will enforce its own peculiar outcomes by promoting some behaviors while punishing others.
Now, if we crack open a textbook, we’ll find that money should possess three characteristics. The first is that it should be a store of value. Gold and silver filled this role perfectly, because they were rare, took a lot of human energy to mine, and did not corrode or rust. By contrast, the US dollar pretty much constantly loses value over time – a feature which punishes savers and enforces the need to speculate and/or invest.
A second feature is that money needs to be accepted as a medium of exchange, meaning that it is widely accepted within a population as an intermediary, within and across all economic transactions.
And the third feature is that money needs to be a unit of account, meaning that the money must be divisible and each unit must be equivalent. The US “unit of account” is the dollar. And each is identical to any other. Diamonds have much value, but are not good at being ‘money,’ because they are not perfectly equivalent to each other and dividing them causes them to lose value. That is, they fail at being a unit of account.
Blah blah blah….
So what is money, really? I believe in a very simple definition.
Money is a claim on human labor.
With a very few minor exceptions, pretty much anything you can think of that you might spend your money on will involve human labor to bring it there. I say it’s a claim rather than a store, because the human labor in question might have happened in the past, or it might not have happened yet.
The concept of money being a claim on human labor is important, and we’ll be building on it later, especially when we get to debt.
As implied in the picture series earlier, literally anything can be considered money – cows, bread, shells, tobacco. A US dollar, like all modern currencies, however, is an example of a type of money called fiat money. “Fiat” is a Latin word meaning “let it be done,” and fiat money has value because a government decrees that it does.
And this brings us to the key question: What exactly is a US dollar?
Once, a dollar was backed by a known weight of silver or gold of intrinsic value. In this example, we can see that the dollar came from the US Treasury directly and was backed by a given amount of silver that was payable to the bearer on demand.
Of course, that was back in the 1930’s, and those days are long gone. Now dollars are the liability of the Federal Reserve, a private entity entrusted to manage the US money supply and empowered by the Federal Reserve Act of 1913 to perform this vital function.
You’ll note that modern dollars have no language entitling the bearer to anything, and that’s because they are no longer backed by anything tangible. Rather, the ‘value’ of the dollar comes from this language right here: The fact that it is illegal to refuse to accept dollars for payment and that they are the only acceptable form of payment for taxes.
It is crucially important that a nation’s money supply is carefully managed, for if it is not, the monetary unit can be destroyed by inflation. In fact, there are over 3,800 past examples of paper currencies that no longer exist. There are numerous examples from the United States, which may have some collector value, such as the Greenback, but no longer possess any monetary value. Of course, I could just as easily display beautiful but no longer functional examples from Argentina, Bolivia, and Columbia, and a hundred other places
How does a hyperinflationary destruction of a currency happen?
Here’s a relatively recent example that comes from Yugoslavia between the years 1988 and 1995. Pre-1990, the Yugoslavian dinar had measurable value: You could actually buy something with one. However, throughout the 1980’s, the Yugoslavian government ran a persistent budget deficit and printed money to make up the shortfall.
Does this sound familiar?
By the early 1990’s, the government had used up all its own hard currency reserves, and they proceeded to loot the private accounts of citizens. In order to keep things moving along, successively larger bills had to be printed, finally culminating in this stunning example – a 500 billion dinar note. At its height, inflation in Yugoslavia was running at over 37% per day. This means prices were doubling every 48 hours or so.
Let me see if I can make that more concrete for you. Suppose that on January 1, 2007, you had a penny and could find something to purchase with it. At 37% per day inflation, by April 3, 2007 you’d need one of these – a billion dollar bill – to purchase the very same item. In reverse, if you’d had a billion dollars on January 1st stuffed in a suitcase, by April 3rd you’d have had a penny’s worth of purchasing power left.
Clearly, if you’d attempted to save money during this period of time, you’d have lost it all, so we can safely state that inflationary money regimes impose a penalty on savers. The opposite side of this is that inflationary money regimes promote spending and require that money be invested or speculated, so as to at least have the chance of keeping pace with inflation. Of course, investing and speculating involve risks, so we can broaden this statement to include the claim that inflationary monetary systems require the citizens living within them to subject their hard-earned savings to risk.
That is worth pondering for a minute or two.
Even more importantly, since history shows how common it is for currencies to be mismanaged, we need to keep a careful eye on the stewards of our money to make sure they are not being irresponsible by creating too much money out of thin air and thereby destroying our savings, culture, institutions, our political systems by the process of inflation.
Wait a minute. Did I just say ‘creating money out of thin air’?
Yes. Yes, I did.
That is such an important process to your, our, my future that we’re going to spend the next two sections learning about how money is created.
Publicatie 4 juli 2014