Read Online The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg - Free Book Online Page B

that can return our economy to a “normal” state of “healthy” growth. One way or the other — whether through planning and methodical reform, or through collapse and failure — our economy is destined to shrink, not grow.
    BOX 1.2 Absurdities of Conventional Economic Theory
• Mainstream economists’ way of calculating a nation’s economic health — the Gross Domestic Product (GDP) — counts only monetary transactions. If a country has happy families, the GDP won’t reflect that fact; but if the same country suffers a war or natural disaster monetary transactions will likely increase, leading to a bounce in the GDP. Calculating a nation’s overall health according to its GDP makes about as much sense as evaluating the quality of a piece of music solely by counting the number of notes it contains.
• A related absurdity is what economists call an “externality.” An externality occurs when production or consumption by one party directly affects the welfare of another party, where “directly” means that the effect is unpriced (it is external to the market). The damage to ecosystems that occurs from logging and mining is an externality if it isn’t figured into the price of lumber or coal. Positive externalities are possible (if some people farm organically, even people who don’t grow or eat organic food will benefit thanks to an overall reduction in the load of pesticides in the environment). Unfortunately, negative externalities are far more prevalent, since corporations use them as economic loopholes through which to pump every imaginable sort of pollution and abuse. Corporations keep the profit and leave society as a whole to clean up the mess.
• Mainstream economists habitually treat asset depletion as income, while ignoring the value of the assets themselves. If the owner of an old-growth forest cuts it and sells the timber, the market may record a drop in the land’s monetary value, but otherwise the ecological damage done is regarded as an externality. Irreplaceable biological assets, in this case, have been liquidated; thus the benefit of these assets to future generations is denied. From an ecosystem point of view, an economy that does not heavily tax the extraction of non-renewable resources is like a jobless person rapidly spending an inheritance.
• Mainstream economists like to treat people as if they were producers and consumers — and nothing more. The theoretical entity Homo eco-nomicus will act rationally to acquire as much wealth as possible and to consume as much stuff as possible. Generosity and self-limitation are (according to theory) irrational. Anthropological evidence of the existence of non-economic motives in humans is simply brushed aside. Unfortunately, people tend to act (to some degree, at least) the way they are expected and conditioned to act; thus Homo economicus becomes a self-confirming prediction.
    Business Cycles, Interest Rates, and Central Banks
    We have just reviewed a minimalist history of human economies and the economic theories that have been invented to explain and manage them. But there is a lot of detail to be filled in if we are to understand what’s happening in the world economy today . And much of that detail has to do with the spectacular growth of debt — in obvious and subtle forms — that has occurred during the past few decades. The modern debt phenomenon in turn must be seen in light of recurring business cycles that characterize economic activity in modern industrial societies, and the central banks that have been set up to manage them.
    We’ve already noted that nations learned to support the fossil fuel-stoked growth of their real economies by increasing their money supply via fractional reserve banking. As money was gradually de-linked from physical substance (i.e., precious metals), the creation of money became tied to the making of loans by commercial banks. This meant that the supply of money was entirely elastic — as much could