"Every generation has an incentive to borrow money from the future to spend on itself."
—David Brooks, The New York Times, Jun 4, 2012
The political debate in the United States and Europe has focused attention on public financial deficits and how best to resolve them. Tragically, the debate largely ignores the deficits that most endanger our future.
In the United States, as Republican deficit hawks tell the story, “America is broke. We must cut government spending on social programs we cannot afford. And we must lower taxes on Wall Street job creators so they can invest to get the economy growing, create new jobs, increase total tax revenues, and eliminate the deficit.”
Democrats respond, “Yes, we’re pretty broke, but the answer is to raise taxes on Wall Street looters to pay for government spending that primes the economic pump by putting people to work building critical infrastructure and performing essential public services. This puts money in people’s pockets to spend on private sector goods and services and is our best hope to grow the economy.”
Democrats have the better side of the argument, but both sides have it wrong on two key points.
To achieve the ideal of a world that secures health and prosperity for all people for generations to come, we must reframe the public debate about the choices we face as a nation and as a species. We must measure economic performance against the outcomes we really want, give life priority over money, and recognize that money is a means, not an end.
To realistically address the nature of the public financial deficits at the center of the current political debate, it is crucial to understand the nature of money and debt. Money is just a number, a system of accounting useful in facilitating economic exchange. A deficit occurs when expenditures exceed income. If, as a result, financial liabilities come to exceed financial assets, we go into debt. It is all basic accounting.
The key point, which the deficit debates rarely address, is that one person or entity’s financial debt is another person or entity’s financial asset. We can only borrow money from each other. The idea that we borrow money from the future is an illusion.
From a societal perspective, total debts and assets are always in balance. Consequently, if we say that one person or entity has excessive financial debt, we in effect say that another has excessive financial assets. Reducing the aggregate financial debt of debtors necessarily requires reducing the aggregate financial assets of the creditors.
In theory, we could instantly wipe away all financial debts through a universal forgiveness, a modern equivalent of the ancient institution of the Jubilee. The ancients recognized the significance of such action to restore the balance essential to the healthy function of the human community.
The deficit-hawks recoil in horror and assure us that we can reduce government debt while leaving the financial assets of the rich untouched. It makes perfect sense in the fantasy world of pure finance in which profits and the financial assets of the rich grow perpetually even as growing inequality and wasteful material consumption deplete the social capital of community and the natural capital of Earth’s biosphere.
A viable human future, however, must be based on living world realities rather than financial world fantasies.
Any normally intelligent 12-year-old is fully capable of understanding the distinction between a living forest or fishery and a system of financial accounts that exists only as electronic traces on a computer hard drive. Unfortunately, this simple distinction seems to be beyond the comprehension of the economists, pundits, and politicians who frame the public debate on economic policy. By referring to financial assets as “capital” and treating them as if they had some intrinsic worth beyond their value as a token of exchange, they sustain the deception that Wall Street is creating wealth rather than manipulating the financial system to accumulate accounting claims against wealth it had no part in creating.
Real capital assets have productive value in their own right and cannot be created with a computer key stroke. The most essential forms of real capital are social capital (the bonds of trust and caring essential to healthy community function) and biosystem capital (the living systems essential to Earth’s capacity to support life). We are depleting both with reckless abandon.
According to the World Wildlife Federation’s 2012 Living Planet Report, at the current rate of consumption, “it is taking 1.5 years for the Earth to fully regenerate the renewable resources that people are using in a single year. Instead of living off the interest, we are eating into our natural capital.” This is a path to never-never land. Unlike with financial deficits, simple debt forgiveness is not an option.
When we deplete Earth’s bio-capacity—its capacity to support life in its many varied forms—we are not borrowing from the future; we are stealing from the future. Even though it is the most serious of all human-caused deficits, it rarely receives mention in current political debates.
When we assess economic performance by growth in GDP and stock price indices, we in effect manage the economy to make the most money for people who have the most money. This leads us to the fanciful belief that as a society we are getting richer. In fact, we are impoverishing both current and future generations by creating an unconscionable concentration of economic power, depriving billions of people of a secure and dignified means of living, and destroying the social and biosystem capital on which our real well-being depends.
With proper care and respect, biosystem capital can provide essential services in perpetuity. The reckless devastation of productive lands and waters for a quick profit, a few temporary jobs, and a one-time energy fix from Earth’s non-renewable fossil energy resources represent truly stupid and morally reprehensible deficit spending. Evident current examples include tar sand oil extraction, deep sea oil drilling, hydraulic fracturing to extract natural gas, and mountaintop removal coal mining The fact that we thereby deepen human dependence on finite nonrenewable fossil energy reserves and accelerate climate disruption make such actions all the more stupid and immoral.
Financial system logic, which rests on the illusion that money is wealth, tells us we are making intelligent choices. Living systems logic tells us our current choices are insane and a crime against future human generations and creation itself.
The economy of a just and sustainable society needs a proper system of money creation and allocation that:
The current U.S. money system does exactly the opposite. It celebrates and rewards the destruction of living capital to grow the financial assets of Wall Street looters at the expense of Main Street producers—thus concentrating economic and political power in the hands of those most likely to abuse it for a purely individualist short-term gain.
Wall Street operates as a criminal syndicate devoted to the theft of that to which it has no rightful claim. It then bribes politicians to shield the looters from taxes on their ill-gotten gains and to eliminate social programs that cushion the blow to those they have deprived of a secure and meaningful means of livelihood. This brings us back to the real source and consequence of excess financial debt.
In the big picture, the Wall Street 1 percent has divided society into a looter class that controls access to money and a producer class forced into perpetual debt slavery—an ancient institution that for millennia has allowed the few to rule the many [See inset: “Wall Street and the Ultimate Tyranny”] (note: in original article). The immense burden imposed on the 99 percent by public debt, consumer debt, mortgage debt, and student debt is an outcome of a Wall Street assault on justice and democracy.
The resulting desperation and loss of social trust account for the many current symptoms of social disintegration and decline in ethical standards. These include growth in family breakdown, suicide, forced migration, physical violence, crime, drug use, and prison populations.
I grew up in America during a time when we took pride in being a middle-class society without extremes of wealth and poverty. In part, we were living an illusion. Large concentrations of private wealth were intact and systemic discrimination excluded large segments of the population—particularly people of color—from participation in the general prosperity. The underlying concept that the good society is an equitable society, however, was and still is valid. And from the 1950s to the 1970s the middle class expanded.
Complete equality is neither possible nor desirable. Modest inequality creates essential incentives for productive contribution to the well-being of the community. Extreme inequality, as exemplified by current U.S. society, is both a source and an indicator of serious institutional failure and social pathology.
British epidemiologist Richard Wilkinson has compiled an impressive body of research that demonstrates beyond any reasonable doubt that economic and social inequality is detrimental to human physical and mental health and happiness—even for the very rich. Relatively equal societies are healthier on virtually every indicator of individual and social health and well-being.
In highly unequal societies, the very rich are prone to seek affirmation of their personal worth through extravagant displays of excess. They easily lose sight of the true sources of human happiness, sacrifice authentic relationships, and deny their responsibility to the larger society—at the expense of their essential humanity. At the other extreme, the desperate are prone to manipulation by political demagogues who offer simplistic analyses and self-serving solutions that in the end further deepen their misery. Governing institutions lose legitimacy. Democracy becomes a charade. Moral standards decline. Civic responsibility gives way to extreme individualism and disregard for the rights and well-being of others.
To achieve true prosperity, we must create economies grounded in a living systems logic that recognizes three fundamental truths:
Runaway public deficits are but one symptom of a profound system failure. They can easily be resolved by taxing the unearned spoils of the Wall Street looters, eliminating corporate subsidies and tax havens, and cutting military expenditures on pointless wars that undermine our security.
Joblessness can easily be eliminated by putting the unemployed and underemployed to work meeting a vast range of unmet human needs from rebuilding and greening our physical infrastructure to providing essential human services, eliminating dependence on fossil fuels, and converting to systems of local organic food production. If the primary constraint is money, the Federal Reserve can be directed to create it and channel it to priority projects through a national infrastructure bank—a move that avoids enriching the bankers and does not create more debt.
In addition, we must:
Within a political debate defined by the logic of living systems, such measures are simple common sense. Within a political debate defined by conventional financial logic, however, they are easily dismissed as dangerous and illogical threats to progress and prosperity.
So long as money frames the debate, money is the winner and life is the loser. To score a political victory for life, the debate must be reframed around a narrative based on an understanding of the true sources of human well-being and happiness and a shift from money to life as the defining value.
A promising new frame is emerging from controversies surrounding the recent United Nation’s Rio+20 environmental conference. Wall Street interests argued that the best way to save Earth’s biosystems is to put a price on them and sell them to wealthy global investors to manage for a private return. Rather than concede the underlying frame to Wall Street and debate the price and terms of the sale, indigenous leaders and environmental groups drew on the ancient wisdom of indigenous peoples to challenge the underlying frame. They declared that as the source of life, Earth’s living systems are sacred and beyond price. They issued a global call to recognize the rights of nature.
Thus framed, the Rio+20 debate highlights a foundational and inherent conflict between the rights of nature, human rights, property rights, and corporate rights.
In current practice, based on the same financial logic that leads us to treat financial deficits as more important than social and environmental deficits, we give corporate rights precedence over the property rights of individuals. We give property rights precedence over the human rights of those without property. And we give human rights precedence over the rights of nature.
We will continue to pay a terrible price for so long as we allow the deeply flawed logic of pure finance to define our values and frame the political debate.
There is no magic bullet quick fix. We must reframe the debate by bringing life values and living systems logic to the fore and turning the prevailing rights hierarchy on its head. The rights of nature must come first, because without nature, humans do not exist. As living beings, our rights are derivative of and ultimately subordinate to the rights of Earth’s living systems.
Human rights come, in turn, before property rights, because property rights are a human creation. They have no existence without humans and no purpose other than to serve the human and natural interest. Corporations are a form of property and any rights we may choose to grant to them are derivative of individual property rights and therefore properly subordinate to them.
The step to a prosperous human future requires that we acknowledge life, not money, as our defining value, accept our responsibilities to and for one another and nature, and bring to the fore of the debate the social and bio-system deficits that are the true threat to the human future.
Replacing cultures and institutions that value money more than life with cultures and institutions that value life more than money is a daunting challenge. Fortunately, it is also an invigorating and hopeful challenge because it reconnects us with our true nature as living beings and offers a win-win alternative to the no-win status quo.
David Korten wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas and practical actions. David is the author of Agenda for a New Economy, The Great Turning: From Empire to Earth Community, and the international best seller When Corporations Rule the World. He is board chair of YES! Magazine, co-chair of the New Economy Working Group, a founding board member of the Business Alliance for Local Living Economies, president of the Living Economies Forum, and a member of the Club of Rome. He holds MBA and PhD degrees from the Stanford University Graduate School of Business and served on the faculty of the Harvard Business School.