Economic Growth < Sustainable Development

    Recently the people have spoken, the environment is more important than any other factor in an economy. This is because -- as everyone should know -- without a healthy functioning biosphere, our current economy, no matter how strong, will collapse immediately. So what constitutes a healthy environment? Presently the Earth has been experiencing depleting stocks of its natural capital, capital by the way that has been collecting in deposits for over 4 BILLION years. This is important to understand, because it is the future of which we will be a part of, whether prosperous or catastrophic is our choice. The idea that the world is always “full” of some things and “empty” of others is false. As our planet continuously changes and shifts to adapt to the changes, which we cause, the natural capital stocked in the planet varies. There is never a point at which one resource may be “full” while another is “empty”, it simply is impossible. This is mainly due to the ever smaller amounts of resources that are stocked in the Earth, they simply shrink to lesser and lesser amounts, but never reaching “empty”. Technology and relative wealth impact these concepts of “fullness” and “emptiness” by creating ever more efficient processes of extracting and utilizing resources, which theoretically increases the amount of a resource simply from the fact that we can now exploit a resource with 2x or 3x the efficiency of prior operations. This creates a new perspective on stretching non-renewable resources through technological breakthroughs instead of comprehensive reengineering of a system to design something new.

    As the world continues to deplete its stocks of natural capital, society has begun to speculate on which resource will be the first one to go, and which resource is the most important. Society has decided that potable water is the most scarce resource, along with being the most important for the survival of all species -- especially humans, who have adapted their drinking habits to avoid contaminated water. I believe this speculation is accurate. Presently we witness thousands of people dying every day simply from in-access to potable water. With water being the single most important resource consumed by humans it is important to take these speculations seriously, because no matter how much wealth you may acquire, it will not be enough for one glass of potable water when the time comes that Earth enacts its limits. Now Earth will not necessarily “run out” of potable water, but along with other slowly renewing resources it takes eons to fill fresh water aquifers, and when depleted these aquifers may become contaminated with salt water through pressure changes underground. All the same, if there is ANY type of speculation towards the depletion of potable water stocks, it is imperative that humans address this speculation seriously.

    After studying the concepts of ecological economics, I have come to a conclusion -- much the same as when I began -- that our current economic growth models and indicators are unsustainable. With this I use “unsustainable” in the context of being unable to sustain current levels of economic growth for more than 1,000 years. A sustainable economic growth model DOES NOT exist presently, mainly because of the current economic models, including neoclassical, Keynesian, free-market, and many other outdated models that worked for the short period in which we call the industrial revolution. For an economy to be sustainable it must incorporate development, not growth. With development we will see the efficient allocation of resources, as society develops its infrastructure no resource will be put to waste, because the growth of the society is not measured, just the development.

    The influential genius R. Buckminster Fuller was famous for stating at the beginning of every conversation a question, this question was posed to create thought processes that still are not utilized properly. The question is, “what is the most important thing we can be thinking about right now?” If answered logically, this question creates further questions regarding the morality of societies current actions, and whether or not we DESERVE to have planet Earth enact limits on our irresponsibility.

    Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel

The Moral Problem With Banks

 As the U.S. economy slowly rebounds to once again express growth rates throughout the sectors, we have again come to a fork in the economic road whereby society must decide whether or not to evolve from current financial lending and spending practices, which have continuously put us in an oscillating financial uncertainty cycle. Now to continue with this discussion we must define some key terms that will help us further explain the two options of which humans can choose to evolve our economic system or continue business as usual -- where the delay oscillations will only become stronger.

Balance of Payments: The sum of the current account (exports minus imports), and the capital account (inflow of capital to the nation minus outflow of capital from the nation).

Exchange Rate: The rate at which one nation’s currency is traded for that of another nation. Exchange rates can be fixed by central banks, floating according to daily supply and demand, or some combination of the two.

Efficient Market Hypothesis: An investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.

Financial Instability Hypothesis: A period of stability induces behavioral responses that erode margins of safety, reduce liquidity, raise cash flow commitments relative to income and profits, and raise the price of risk relative to safe assets -- all combining to weaken the ability of the economy to withstand even modest adverse shocks.

Ponzi Investors: Are investors who proceed to invest in clear ponzi or pyramid schemes, while acquiring more investors whom bring more profit into the ponzi scheme. Almost always ponzi schemes and the investors behind them collapse on themselves as new investors begin to become scarce.

 Now that we have defined these key terms we can now begin to discuss these two paths of which human society must decide one of which to take -- the revolutionary path or business as usual path. Currently in economics there are signs of a shift from a more neoclassical and Keynesian economic policy structure, to a more ecological economic structure as more and more individuals are realizing exactly how deep we have been led into the rabbit hole. This is very important in relation to the understanding of financial investments, because it provides a new way of dealing with growth and development. An example of this is, how ecological economics prefers a tax on investments. This means that ecological economists believe that with investments of various sizes comes a sense of moral hazard, meaning that institutions will operate on high risk margins with the security of having insurance if they fail. This most recently occurred with the national banks in the U.S. after they had repeatedly dealt in high risk lending through subprime mortgages, which resulted in a collapse of the real estate bubble and the defaults of thousands of loans lent by banks whom had bundled these subprime mortgages into traded stock, further creating an economic collapse. Now we are finally learning something from history, and taxing investments is a way of mitigating the potential moral hazards that may be created by banks. A tax on an investment will create an environment in which high risk, high return becomes too expensive with a tax that increases as risk increases. This would create a more stable financial situation mitigating the possibility of the financial instability hypothesis.

 Along with a tax on investments I believe more regulations are necessary for the banking and finance sectors that will require more transparency, third party audits, and more diversification of both the banking and finance sectors. As we begin to stabilize from this extreme example of the financial instability hypothesis we may begin to demand from the government to extend further regulations towards creating a more balanced and investor concentrated banking and finance sector. It is in our power as citizens to demand such actions, and our money will speak for itself. As the federal reserve continues to print more money -- simultaneously becoming wealthier as a private entity -- the national banking and finance institutions continue high risk operating practices, and the credit rating companies simply being bought out to provide manipulated credit ratings for agencies, it has become imperative for society to evolve in their economic policies by demanding reform to these “too big to fail” institutions who, in reality should be “too big to exist”.

 All this culminates in the globalization of the U.S. economy with the growing imbalance of payments of our imports to exports ratio , exchange rates of our currency related to other global currencies, and the continued manipulation by our own government to create an illusion of growth, which has supported the financial instability hypothesis all while ignoring the efficient market hypothesis allowing ponzi investors to manipulate the market to swing prices for huge profits in the short-term creating an even more unstable economic market.

 You can thank yourself for the delayed reaction to this dire situation, because as Thomas Jefferson famously stated, “Every generation needs a new revolution.” And it is up to you and I to determine whether or not it happens.

Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel