The Growth Myth-Metaphor

 

The angst of the day is the prospect that low growth will become a permanent feature of the world economy. Flashman has asked what it would mean if the GFC was permanent? As he notes, the Asian Development Bank is cutting its growth forecasts. Europe and America are struggling to grow at all and Japan is, well, Japan. Many are starting to blame the baby boomers for loading up economies with debt and having the indecency to live longer than the actuarial tables forecast. Perhaps we could kill a few to balance the books, as it were. Of course the biggest problem was the destruction wreaked by the financial sector, as The Economist points out. It notes that in the 1950s and 1960s the US economy grew by 3% despite its maturity. There was stagflation in the 1970s, but the rate returned to 3% in the 1990s:

“Today the growth machine is in trouble. It all but exploded in the financial crisis of 2007-08. But even before that it had been juddering. Examine the machine’s three most powerful pistons — capital markets, innovation and the knowledge economy — and you discover they have been malfunctioning for a decade.”

What is missing from this analysis is a simple question. What is this “growth” of which we speak? In a literal sense it is a record of transactions. The Economist uses GDP figures from 1950 to now. What is not mentioned is that GDP statistics were only created in the late 1930s, in the run up to the Second World War — John Maynard Keynes being a major player, as is pointed out in the book Double Entry. Keynes expected the records to be dismantled after the war; he was no doubt astonished to see them take over the global imagination.

So “growth”, usually GDP, is a record of transactions, and those transactions have only been recorded for about 60 years. Thus when people say growth is evaporating, what they literally mean is: “Our newly created records indicate that the volume of transactions is slowing.” Sounds a little different, doesn’t it?

There is an enormous cost to the failure to define precisely what is being said — a seemingly limitless tendency to be seduced by metaphors. Growth, as the Economist article shows, is depicted as the driver of a machine, its energy source as it were. If that energy dried up, then we are all rooned, as it were. But the image is plain wrong. Transactions are a social artifact that is created when people agree to share activities and agree over the value of those activities. If the rate of transactions slows, it is because people are not agreeing. What is causing the problems in developed economies is that relentless improvements in productivity has created over supply in many product areas.

A second, bigger cost of the “growth metaphor myth” is a deep confusion over the tangible and the intangible. Transactions are intangible. They can be recorded with tangible things, such as gold or coinage, but that occurs after the fact. By adopting the metaphor of the engine, however, people can persuade themselves that “growth” is tangible and analyse it accordingly.

This leads to all sorts of errors.

It can be seen in the confusion of consumption of resources and the rate of transactions. People who say that the environment will not support endless growth are confusing consumption with transactions. They are right that the consumption of resources has limits. They are wrong that this is the same as growth figures. Most of the economic activity (that which leads to transactions) in developed economies is services and they can consume very few resources. If I write a story and get it published it can create a transaction that mainly uses my time and perhaps a bit of electricity, maybe a bit of damage to my computer, a coffee or ten. If a babysitter gets paid for a few hours work they are simply being paid for their time, any consumption of resources is minimal.

More crucially in relation to recent events, the severe financialisation of economic activity — the massive volume of “meta money” that inevitably caused the global financial crisis — showed that transactions can be created virtually without limit. One bet on top of another, as it were. There was plenty of growth (of transactions) but it was extremely dangerous, more like a cancerous growth. The problem was the disjunction between theoretically limitless potential for the creation of transactions, and the limited character of the resources and activities that underlie those transactions. A United Nations report shows how this has played out in the commodity markets, where financialisation (the creation of too many transactions) has become rife:

 

What is really needed is a better understanding, and control of, the transactions that we have created. What they are for, and how we can judge whether they are creating socially desirable outcomes. Bearing in mind that transactions can be limitless, while the tangible world that they reflect is very much subject to limits.

It is often said that economics is the study of scarcity. But the financial world is a study of a lack of scarcity, and the inter-relationship between the two needs to be better understood.

 

 

 

 

Comments

    • A must-watch for all the commenters on this page

      The End of Economic Growth — ‘The End of Economic Growth’, why it is upon us and how humanity should best prepare and recalibrate itself for life in world beyond peak oil. Richard gave this fascinating in-depth public lecture at the University of South Australia while promoting his book ‘The End of Growth’ on September 25th, 2012.

  1. A thought-provoking and enjoyable piece, SoN. I think most proponents of the school of thought that we can’t continue to grow without limits are referring to the fact that the growth in developed economies such as Australia or the US comes with the growth of the population. On that basis,they are not confusing consumption with transactions because, indeed, more humans consume more stuff, much of which is limited, such as food or energy. I like the idea of a growing economy without the need for a growing population, as the much maligned Dick Smith does, but it leads to a lost decade or two, as Japan has found out, and no doubt a fully developed China will one day find out too.

    • “Sell on News” points are very good, and your discussion is helpful too, Runningman. What “Sell on News” said here, is a great quotable quote:

      “…..People who say that the environment will not support endless growth are confusing consumption with transactions. They are right that the consumption of resources has limits. They are wrong that this is the same as growth figures…..”

      As I say below in my reply to Jackson, the population growth has actually become possible because of increased efficiency in the use of resources as well as increased consumption of resources. Probably the former even more so than the latter. The role of totally new uses for resources is all-important. The world was not a better place because the ancient civilisations (Greece, Rome, etc) were by default great conservers of fossil fuels.

      You are absolutely correct about the “lost decades” when population is falling. See these comments:

      http://www.macrobusiness.com.au/2012/07/more-failed-arguments-for-population-growth/#comment-163603

      http://www.macrobusiness.com.au/2012/07/more-failed-arguments-for-population-growth/#comment-163605

      But even without a collapsing population, it seems likely that “saturation” occurs in population and in consumption of many items such as “transport”, so that future gains in efficiency (via technology) will represent clear “net” gains. The USA’s CO2 emissions are reducing markedly because natural gas is replacing coal in power generation and heating and other applications. Their “vehicle miles travelled” has obviously been reaching “saturation” for the last couple of decades, the rate of growth in VMT has been many times higher in nations that lag the USA in “development” by a few decades. Italy is spectacular.

      Dargay, Gately and Sommers (2010) show that the rate of uptake and tapering off to saturation is remarkably consistent across different national economies. It seems to be merely a question “where on the curve” a nation is.

      • PhilBest said:

        The world was not a better place because the ancient civilisations (Greece, Rome, etc) were by default great conservers of fossil fuels.

        There is no acknowledgement here of one key difference between the ancient Classical civilizations and modern Western Civilization, and that is that the energy that drove the Classical civilizations was slave labor, and the energy that has driven Western Civilization, at least beginning towards the end of the 18th century, is hydrocarbon energy (i.e., coal, petroleum, natural gas). Wind, watermills and animal power played intermediary roles.

        The effect these new energy technologies have had on politics cannot be overestimated, as Hannah Arendt explains in On Revolution:

        All rulership has its original and its most legitimate source in man’s wish to emancipate himself from life’s necessity, and men achieved such liberation by means of violence, by forcing others to bear the burden of life for them. This was the core of slavery, and it is only the rise of technology, and not the rise of modern poltiical ideas as such, which has refuted the old and terrible truth that only violence and rule over others could make some men free.

      • It should also be pointed out that, according to libertarian and Marxist thought, that as technology replaced human labor in meeting man’s necessities, this would eventually eliminate the need for rulership and domination. Thus, as Arendt points out, “Not freedom but abundance became now the aim of revolution.”

        Abundance, however, produced neither universal freedom nor peace, as a look about the world amply testifies. As Arendt goes on to point out, “The hidden wish of poor men has never been ‘To each according to his needs,’ but ‘To each according to his desires.’ And while it is true that freedom can only come to those whose needs have been fulfilled, it is equally true that it will escape those who are bent upon living for their desires.”

        Violence and domination didn’t go away with the rise of technology, and the “violence which occurs between men who are emancipated from necessity” and which “is different from, less terrifying, though often not less cruel, than the primoridal violence with which man pits himself against necessity” only “appeared in the full daylight of political, historically recorded events for the first time in the modern age.”

        Arendt’s is a secular take. For a religious take, here’s the Christian theologian Reinhold Niebuhr on the same phenomenon:

        The idea that men would not come in conflict with one another, if the opportunities were wide enough, was pratly based upon the assumption that all human desires are determinate and all human ambitions ordinate. This assumption was shared by our Jeffersonians with the French Enlightenment. “Every man,” declared Tom Paine, “wishes to pursue his occupation and enjoy the fruits of his labors and the produce of his property in peace and safety and with the least possible expense. When these things are accomplished all objects for which governments ought to be established are accomplished.” (Thomas Paine, “The Rights of Man,” Part II, Ch. 4) The same idea underlies the Marxist conception of the difference between an “economy of scarcity” and an “economy of abundance.” In an economy of abundance there is presumably no cause for rivalry. Neither Jeffersonians nor Marxists ha any undertanding for the perennial conflicts of power and pride which may arise on every level of “abundance” sicne human desires grow with the means of their gratification.

        REINHOLD NIEBUHR, The Irony of American History

  2. Thanks SoN. Its pretty clear to me that we need to think a bit more about the objectives of our economic and financial systems. For a period of time it was clear that the volume/size of transactions was a pretty good proxy of well-being (whatever that is!). I don’t hold much hope for alternate measures when we can’t even get a consistent discussion going about GDP per capita unfortunately.

    We have built a system with so much friction that only a very small percentage of our actual effort is going to put rubber on the road.

    Really appreciate these posts btw.

    • What do you mean by “friction”?

      I believe that the finance sector has gradually captured a greater and greater share of the income in the economy, and this is a bad thing. If that is what you mean by “friction”, I agree.

      But if we look at the proportion of the population that is engaged in actual wealth creation via the use of resources, rather than wealth consumption or transfers, we will see that this proportion steadily drops as an economy develops – and everyone ends up wealthier.

      Under subsistence conditions, everyone both creates and consumes their own “wealth. Specialisation and trade enables a lower and lower proportion of the population to actually create the wealth, while more and more people make incomes from consumption and transfers. Hairdressers, shop assistants, bureaucrats, lawyers, clergy, brokers, etc etc.

      Although total “activity”, or transactions, or GDP, is increasing, and population is increasing, the actual “resource-intensity” of economies relative to total income, tends to steadily decrease. However, resource use does rise because of rising population and rising incomes.

      I would tend to use the term “reducing friction” to describe this process. Population and incomes increase because of the reduction of “friction”, rather than being correlated to the increase of it.

      But the factor of “rent-seeking” is certainly like “friction” in the economy, as opposed to wealth creation via actual efficient use of resources. “Rent seeking” involves unearned income being made by people purely as the result of political and regulatory distortions in the economy. The ultimate one is urban growth restraints, that drive the price of all property up. This is not wealth creation at all, it is wealth transfer, it is “rent seeking”, and it increases costs to the part of the economy that actually does create wealth. It would be absolutely correct to describe this as “friction” in the economy.

      It is also correct to describe increased finance sector income, via interest charges, fees, etc, as the result of unproductive distortions in the economy such as an urban land price bubble, as “friction”. This is another manifestation of “rent seeking”.

      A good slang term for what I am getting at, is that too many people are getting to “clip the ticket” as honest income moves through the economy. This could be described as “friction”.

      • I agree with his conclusion:

        “….But if an incident or series of incidents leads to a severe and prolonged drop in productivity, and so long as government accelerates the printing of money to paper over the cracks, hyperinflation is a mathematical inevitability…..”

        The assumption that Bernancke et al are making, is that they can increase the money supply via the purchase of Treasury Bonds with newly created money, and avoid hyperinflation by selling the Treasury Bonds as inflation does show signs of recommencing. But wiser heads are asking, “what if by that time, no-one wants Treasury Bonds”?

        There is an excellent paper, “Inflation and Debt” by John Cochrane, that points out that historical episodes of hyper-inflation all occurred not immediately on the creation of vast amounts of new fiat money, but when instruments of debt had reached such a peak that no-one expected repayment of them. This seems to be the episode that is re-running in the USA now.

        When it comes to “houses”, inflation in the price of the land that all existing property is sitting on is far more catastrophic to the economy than “building too many houses”. By preventing the latter with strict “urban planning” we have actually got ourselves the worse evil, the former. And we seem to be behaving like excruciatingly slow learners on this point.

      • It is also correct to describe increased finance sector income, via interest charges, fees, etc, as the result of unproductive distortions in the economy such as an urban land price bubble, as “friction”. This is another manifestation of “rent seeking”.

        Indeed Phil. The additional “money” (currency) needed to pay those usury charges and fees, is itself created in the form of new debt, burdened with yet more usury and fees in the act of its creation.

        Permitting usury to be applied to/on the creation of (electronic) “money”, renders the monetary system itself a Ponzi scheme. Ever more debt-plus-usury-money must be created, in order to keep up with the repayments of principal + usury on the debt stock already created.

      • And the point I am most trying to get established, is that when this debt-usury is connected to the urban land that everybody needs for housing and production, the damage to the economy is far greater than when any other kind of bubble has occurred.

        So what if a share market bubbles and crashes? Most people had no skin in the game. But you can’t avoid having skin in the game when urban land is the subject of the mania.

        And shares being overpriced, will not affect the productivity of the companies concerned. But urban land being too expensive DOES affect productivity adversely.

        Fred Foldvary is one honourable exception to the rule that economists have utterly failed to notice that there was a massive bubble and crash in the price of urban land in the 1920’s – 30’s Great Depression; and it is almost certain that THIS is what made it so severe. What happened in the NY Stock Exchange is just a red herring.

        Consider every bubble and crash in which urban land has been involved. We SHOULD know that this included the 1930’s Depression. But we DO understand Japan, Ireland and Spain. But all the stock market crashes……? Phoooey. Who even remembers them all now?

        THIS CURRENT “Great Recession” is a BIGGIE BECAUSE it involves urban land bubbles….!!!!!!!!! And there are numerous countries with unburst bubbles right now, including Australia, Canada, Sweden, France, China, India, and Brazil. The UK has a long slow severe inflation of urban land prices.

        OK, maybe clever monetary policy can avoid all these bubbles bursting for a while. But the inflated land cost is itself the means of undermining productivity and income growth, and thereby maximising the “usury” at least until the whole racket destroys itself, which has to happen just as surely as a cancer cannot grow indefinitely without eventually killing the host.

      • Spot on Phil. Moreover, I think it worth noting that, as I understand it, throughout recorded human history land ownership has been deemed real/ultimate wealth. So who is best positioned to increase real ownership (title) of the most real wealth, when a Ponzi monetary system is placed at the heart of economics, inevitably fuelling land/asset bubbles that are predestined to crash, bankrupting vast swathes of the land owning certificate-of-debt-bondage-owning populace?

      • Thanks, Opinion8red. The “Georgists” have always had a point. Land value is the best point in the economy at which to extract taxes, because its value tends to represent the capture of amenity from government spending and from income growth. Of course land-owning interests have always been powerful enough to keep this off the agenda.

        And the other thing going under everyone’s radars, is that land owning interests LOVE urban “planning” and growth containment. Magazine articles as far back as 1974, in possession of this writer, discuss the involvement of certain high-profile wealthy individuals in advocacy of the introduction of strict land use controls in the USA. Many such people are well known to be major funders of environmental and planning activism right to today. Of course the activists so funded will rationalise this as genuine social concern on the part of the wealthy property investors.

        Here is Mason Gaffney, in “Policies of Urban Growth Containment”, 1964:

        “…..As the German historians relate, the monopolistic city can exploit its customers. The city exploits its customers by stunting its own development, limiting the number of creaking doors and sagging gates through which its customers may go for supplies and services.

        There is also exploitation within the city. Employers, merchants, and assorted rent-collectors are generally happy with policies that keep out untrained interlopers who might have alien ideas about competing for labor, tenants, and customers, and in general keeping the natives restful in their compounds. Negative containment policies have an instinctive fascination for anyone whose interest is to limit competition.

        There are many groups which would like to limit competition, of course. But cities tend to fall most strongly under the sway of those who stand to gain or lose most by municipal decisions, and those whose assets are irrevocably committed to the city, that is, the landowners. The rest of the citizens are ‘by comparison mere transients, outsiders and climbers whose organization and influence is seldom commensurate with their numbers. To the dominant landowning oligarchy, few limitations on competition commend themselves with quite the same force of logic as limitations on the entry of new lands into urban use. It is therefore no accident that negative containment is the most respectable and salable kind of planning in many quarters. It harmonizes all too mellifluously with the interest of a dominant class. But from the viewpoint of social economy, of other interest groups, of the general welfare, of the region, state, and nation, and even of most urban landowners in their roles as workers and capitalists, negative urban containment is an instrument of monopoly exploitation……”

      • @ PhilBest

        You know, PhilBest, there are 88 keys on the modern piano keyboard, and yet you always bang away on only one key—-urban land restraints.

        One has to ask the question: “Why?” I think the answer lies in the fact that this almost unitary focus on urban land restraints conforms to your libertarian ideology. Urban land restraints, afterall, are a form of regulation. If we can lay the blame for the GFC at the door of urban land restraints, then we can lay the blame the GFC on over-regulation.

        Other causes, however, are cited to explain real estate booms. One is the explosion of private credit. But over-leveraging is not the product of over-regulation, but under-regulation. Sources as varied as the FDIC and IMF have acknowledged this. Here, for instance, is the FDIC’s take on the Savings & Loan crisis:

        During the early years of the [Reagan] administration, responsibility for the unfolding thrift crisis lay with the Cabinet Council on Economic Affairs, chaired by Treasury Secretary Donald Regan. Its members included senior officials from OMB and the White House. Firm believers in “Reaganomics,” this group crafted the policies of deregulation and forbearance and adamantly opposed any governmental cash expenditures to resolve the S&L problem.31….

        The free-market philosophy of the Reagan administration also called for a reduction in the size of the federal government and less public intervention in the private sector…. The devastating consequences of adding many new institutions to the marketplace, expanding the powers of thrifts, decontrolling interest rates, and increasing deposit insurance coverage, coupled with reducing regulatory standards and scrutiny, were not foreseen.

        FEDERAL DEPOSIT INSURANCE CORPORATION, “The Savings and Loan Crisis and Its Relationship to Banking”
        http://www.fdic.gov/bank/historical/history/167_188.pdf

        Granted, as the FDIC explains in great detail, most of this easy credit went into financing real estate ventures, with Texas leading the way in this regard. But the proximate cause of the real estate boom was not urban land constraints, but easy credit, with the ultimate cause being a lack of banking regulation.

        The IMF has also acknowledge the key role of deregulation in creating credit bubbles:

        The causes of the Nordic banking crisis

        3. Weak regulatory and supervisory frameworks, including: allowing for concentrated lending, portfolio mismatches, inadequate loan valuation that overstate bank profits and capital, incompetent management, etc. Supervision may also lack authority, and have an insufficient number or skilled staff that may be poorly motivated and compensated.

        Speech by Stefan Ingves, Director
        Monetary and Exchange Affairs Department
        http://www.imf.org/external/np/speeches/2002/091102.htm

        Again, we find real estate bubbles lurking in the background, but not thrust to the forefront as your ideology requires.

        Another IMF study hits a similar note:

        In each of these episodes, a loosening of credit constraints allowed households to increase their debt. This increase in credit availability was associated with financial innovation and liberalization and declining lending standards. A wave of household optimism about future income and wealth prospects also played a role and, together with the greater credit availability,
        helped stoke the housing and stock market booms.

        The United States in the 1920s—the “roaring
        twenties”—illustrates the role of rising credit availability and consumer optimism in driving household debt. Technological innovation brought new consumer products such as automobiles and radios into widespread use. Financial innovation made it easier for households to obtain credit to buy such consumer durables and to obtain mortgage loans. Installment plans for the purchase of major consumer durables became particularly widespread (Olney, 1999). General Motors led the way with the establishment of the General Motors Acceptance Corporation in 1919 to make loans for the purchase of its automobiles. By 1927, two-thirds of new cars and household appliances
        were purchased on installment. Consumer debt
        doubled from 4.5 percent of personal income in 1920 to 9 percent of personal income in 1929. Over the same period, mortgage debt rose from 11 percent of gross national product to 28 percent, partly on the back of new forms of lending such as high-leverage home mortgage loans and early forms of securitization (Snowden, 2010). Reflecting the economic expansion and optimism that house values would continue rising, asset prices boomed.26 Real house prices rose by 19 percent from 1921 to 1925,27 while the stock
        market rose by 265 percent from 1921 to 1929.

        INTERNATIONAL MONETARY FUND, “Dealing with Household Debt”
        http://www.imf.org/external/pubs/ft/weo/2012/01/pdf/c3.pdf

        When you make statements like the following, it just goes to show how completely disconnected from reality you are:

        …there was a massive bubble and crash in the price of urban land in the 1920′s – 30′s Great Depression; and it is almost certain that THIS is what made it so severe. What happened in the NY Stock Exchange is just a red herring.

        The reality is of course that easy credit and speculative fever drove both the price bubble in real estate and the price bubble in equities that contributed to the Great Depression. But the equities bubble dwarfed the real estate bubble in size. Also, the bursting of the equities bubble coincided with the onset of the Great Depression, whereas the various bubbles scattered across the nation in farm land, suburban real estate and urban real estate burst in the period between 1926 and 1928, well before the big bull equities market crashed in 1929. As Frederick Lewis Allen put it in Only Yesterday:

        Yet the national speculative fever which had turned their eyes and their cash to the Florida Gold Coast in 1925 was not chilled; it was merely checked. Florida house-lots were a bad bet? Very well, then, said a public still enthralled by the radiant possibilities of Coolidge Prosperity: what else was there to bet on? Before long a new wave of popular speculation was accumulating momentum. Not in real-estate this time; in something quite different. The focus of speculative infection shifted from Flagler Street, Miami, to Broad and Wall Streets, New York. The Big Bull Market was getting under way.

        FREDERICK LEWIS ALLEN, Only Yesterday
        http://xroads.virginia.edu/~hyper/allen/ch11.html

      • My point remains: stock markets have bubbled and crashed to sizeable extents, again and again, without bringing down a whole economy, for the reasons I described. Comparing the % inflation in housing with % inflation in the stock market, does not indicate the relative destructiveness of each phenomenon. I won’t repeat my explanation here; only say that I regard it as not at all disproven by your figures.

        Blaming house price bubbles on “credit” is a terrible red herring. How do we explain the UK’s highly volatile house price cycle which was not interrupted at all, unlike in the USA and other countries where there was genuinely competitive automobile based development? It certainly was not “easy credit” that did it.

        The USA had ridiculously easy credit during the era of the GI Bill, yet house price median multiples were never LOWER, thanks to Levittowns and the like.

        South Korea has had some of the toughest credit in the world, accompanied by some of the world’s most severely high housing median multiples. In fact after they enacted a Planning system like the UK’s, in the 1970’s, national savings boomed, not debt, as young people desperately tried to save most of the purchase price of their first home. Marriage and birth rates plummeted.

        And it is patently unrealistic to expect governments and central banks to “toughen” credit to compensate for inelastic housing supply. In the real world, the trend is always the OTHER way; if we have a housing affordability problem, we inevitably get subsidies, monetary easing, mandates on mortgage lenders, etc etc etc. Everything but “liberalisation” of housing supply.

        I like your analogy about the keys on the piano. “Urban land supply” is like “all the white notes”, and the mainstream economics profession is sticking to the “black notes” – credit, and fiscal distortions. This is literally how stupid it is. Taking urban land supply into your analytical reckoning is like getting to use the white notes for the first time. It is the failed mainstream who is playing endless repertoire that all sounds like “chopsticks” or monotonal 6-note-scale Eastern music, while an honourable minority are the ones who sound like the western musical tradition. Alan W. Evans, Stephen Malpezzi, Edwin S. Mills, Alain Bertaud, Paul Cheshire, Alex Anas, Peter Gordon – these people are the ones who are making sense.

        I don’t know how long it will take before the “credit and fiscal policies” 6-noters will be recognised as failures – they are certainly leading economies around the world to further doom right now.

      • • PhilBest says:

        Blaming house price bubbles on “credit” is a terrible red herring.

        Is it? There certainly seems to be an overwhelming amount of empirical evidence gathering out there that says otherwise.

        You don’t like the FDIC and the IMF? Well then, here’s a recent study from the Bank of International Settlement. The authors state that house prices are a function of real income, user cost, credit standards, housing stock, and other demand shifters. They then conclude:

        Our findings indicate that swings in credit standards played a major, if not the major, role in driving the recent boom and bust in US house prices.

        JOHN V. DUCA, JOHN MUELLBAUER and ANTHONY MURPHY, “Credit Standards and the bubble in US house prices: new econometric evidence”

        Then there’s Atif Mian and Amir Sufi’s article, “The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis,” published in The Quartely Journal of Economics. They address the link between credit and house prices using micro data and conclude that the expansion in mortgage credit was more likely to be a driver of house price growth than a response to it.
        http://qje.oxfordjournals.org/content/124/4/1449.abstract

        An earlier paper of theirs, published by the National Bureau of Economic Research, states:

        Given that we have identified the expansion in credit and increase in house price due to the shift in the supply of credit, we can use our microeconomic estimates to answer an important macroeconomic counter-factual: How would mortgage lending and house prices have evolved if the shift in supply in the mortgage
        industry had not occurred?…..

        Our central finding is that a rapid expansion in the
        supply of credit to zip codes with high latent demand for mortgages is a main cause of both
        house price appreciation from 2001 to 2005 and the subsequent sharp increase in defaults from 2005 to 2007.

        http://www.nber.org/papers/w13936.pdf?new_window=1

        • PhilBest says:

        …the mainstream economics profession is sticking to the “black notes” – credit, and fiscal distortions.

        Here again you’ve taken reality and turned it on its head.

        If you would have been following some of the recent debates between Paul Krugman and Steve Keen, such as Keen’s Submission to the Australian Senate Standing Committee on Economics, you would have learned that it is your position that is very much the mainstream, neo-classical one. Here’s Keen:

        The economic crisis occurred because of a failure of both economic theory and economic management. Economic theory is dominated by the “Neoclassical” school of thought… Attempts to control the macroeconomy have been based upon this theory, and have therefore failed. Policies to control the banking system need to be based on a realistic model of how it operates, and this is the model of endogenous money.

        This model, which is strongly supported by empirical research, argueds that bank lending…can cause asset bubbles and financial crises…

        Perhaps the most striking feature of the Global Financial Crisis (GFC) was the confidence that all leading economists, official economic advisors and forecasters had in the state of both economic theory and the global economy immediately prior to the crisis….

        In his most recent book End This Depression Now!, Nobel Laureate Paul Krugman asserts that “debt is money we owe to ourselves”, and therefore the absolute level of debt is unimportant….

        The fact that mainstream economists ignore this debt-and-money-creation role of banks is why they did not see this crisis coming.

      • I screwed up the italics on the Keen quote. Here it is again:

        The economic crisis occurred because of a failure of both economic theory and economic management. Economic theory is dominated by the “Neoclassical” school of thought… Attempts to control the macroeconomy have been based upon this theory, and have therefore failed. Policies to control the banking system need to be based on a realistic model of how it operates, and this is the model of endogenous money.

        This model, which is strongly supported by empirical research, argues that bank lending…can cause asset bubbles and financial crises…

        Perhaps the most striking feature of the Global Financial Crisis (GFC) was the confidence that all leading economists, official economic advisors and forecasters had in the state of both economic theory and the global economy immediately prior to the crisis….

        In his most recent book “End This Depression Now!,” Nobel Laureate Paul Krugman asserts that “debt is money we owe to ourselves”, and therefore the absolute level of debt is unimportant….

        The fact that mainstream economists ignore this debt-and-money-creation role of banks is why they did not see this crisis coming.

  3. Fact is the world has grown population wise (but will stabilise by 2050), and I don’t think Australia can take a fortress attitude. Further, arguments of sustainable environment don’t hold much weight when with or without population growth from outside Australian habits and lifestyles have to change. Economically there seems to be idea that economic growth is wholely a negative through focussing upon physical or tangible goods (and people leveraging into large houses, more cars, consumer goods etc. with related financial services), yet even Australia is mostly a services economy? For example, how would an innovative IS/IT/Telecomms e.g. Google algorithm or other service product impact physical resources and environment?

    • For example, how would an innovative IS/IT/Telecomms e.g. Google algorithm or other service product impact physical resources and environment?

      You’ve obviously never been inside a big server room or data centre. The data centres that make the Google algorithm possible use MASSIVE amounts of energy. I forget how much… maybe you could Google it.

      • Last numbers I heard was that 2% of the world’s energy consumption went to computers, mostly in cooling costs.

  4. I found myself feeling empty after reading this excellent article; I couldn’t find the ‘who dun it’ part. I had to re-read Flshman’s original piece to give me the satisfying conclusion I was missing. “… ultimately we’re still drinking from the same poisoned chalice.” Thx. To both articles.

  5. People who say that the environment will not support endless growth are confusing consumption with transactions

    They are, but all transactions consume some resources — your computer and coffee requires electricity, and the babysitter has to travel to your house — so you still can’t have infinite growth. Infinity multiplied by a very small number is still infinity.

    We need to restructure our economy such that we can continue to improve living standards, while not consuming any more of the world’s resources. Short of moving to another planet, this is a fundamental truth that even the most die hard cornucopians cannot deny.

    • “Saturation” occurs in population and in consumption of many items such as “transport”, so that future gains in efficiency (via technology) will represent clear “net” gains. The USA’s CO2 emissions are reducing markedly because natural gas is replacing coal in power generation and heating and other applications.

      Their “vehicle miles travelled” has obviously been reaching “saturation” for the last couple of decades, the rate of growth in VMT has been many times higher in nations that lag the USA in “development” by a few decades. Italy is spectacular. Developing countries are spectacular too, only they are still nearer the bottom of the curve.

      Dargay, Gately and Sommers (2010) show that the rate of uptake and tapering off to saturation is remarkably consistent across different national economies. It seems to be merely a question “where on the curve” a nation is.

      But “developing” nations can reap the benefit of technological advances much sooner in the curve. Numerous African economies have sub-markets functioning around the use of cellphones, at the same time as people are still burning dung to cook food.

      You say:

      “…..We need to restructure our economy such that we can continue to improve living standards, while not consuming any more of the world’s resources…..”

      What crazy new religion is this? Or is it a revival of old paganisms where everything in nature had a spirit in it and was sacred? “Not consuming ANY MORE of the world’s resources”……????? None of its uranium? None of its natural gas? None of its hydrogen? None of the energy resources we have not yet found uses for?

      Make it better by one, pal. But don’t expect the rest of us to join you in your new cave, or join your church. There are rules against this in “secular” countries.

      And your kind have NO sense of PROPORTION, NO idea how vast the earth is compared to “man”. We have not really even scratched the surface as yet. We have no idea how much oil there could be found and extracted yet if the price was $200 per barrel. Not that substitutes won’t have long since supplanted oil by that time.

      Was it logical anti-cornucopianism to predict in 1880 that the streets of New York would be 20 feet deep in horse excrement by 2000? Or was that just hyper-linear stupidity that well deserves derision now. Pity that each generation respects Malthusianism and hyper-linear ideology so much and all the derision occurs decades later when those who most deserved it are dead and buried; probably having gone to their graves convinced that the exctinction of humanity was going to occur very soon, and wishing they had lived just a little longer to witness it and be vindicated.

      • Phil,

        “What crazy new religion is this?”

        There are Govt’s who are forcing populations to accept this new religion by finding ways to tax them to fund their continueing dogmatic programs of propaganda. People who choose not to believe are labelled with slurs , derided and stygmatised by the pompous religious zealots. These are the hallmarks of Totalitarianism, yet those on the “inside” see it as being benevolent and fashionably modern.

        Like to take a stab at guessing a country ?

      • It would be hard to find a “developed” nation NOT infested with this decline back to pre the enlightenment. But I do say that PARTS of the USA are holding out like a little Gaulish village, against the invaders.

      • Ok guys, at what point do we stop consuming resources without replacing or recycling them? 10 years? 100 years? 1000 years?

        Surely you must concede that at some point it has to stop?

        And your kind have NO sense of PROPORTION, NO idea how vast the earth is compared to “man”.

        My kind?! Crazy religion? Dear me. Was it only yesterday people were accusing me of calling people “skeptics” and other egregious slurs?

        Ok, lets look at the oceans. They’re “vast” aren’t they? Have we or have we not decimated fish stocks?

      • And could we or could we not “farm” fish; and does Greenpeace and other enviro loony organisations support or oppose this?

        And is Greenpeace a rational, dispassionate, scientific organisation, devoted to humanity and its environment, or are they, as Patrick Moore was forcibly told by his fellow leaders in 1986, “dedicated to the mission of the overthrow of global capitalism”? (Moore was one of the founders of Greenpeace in 1968 but quit in disgust in 1986 over what Greenpeace had become).

        And have we decimated the global stocks of cows and sheep, and is the problem with fish in the oceans, not one of “the commons” rather than of sustainability, period?

      • Lorax,

        My apologies. “Crazy” is somewhat over the top 😉

        We have decimated our fish stocks. And our forests. These are cause for serious concern that I’m in agreement with. AGW however…….. Still much to be analysed and tested. Too many unanswered question remain. It smacks of a politicised and corrupted issue unfortunately.Made worse by deceitful policies. An opinion only.

        On fish and forests , we need to use regulatory, science and technological options to obtain outcomes that essentially are within our reach. The Amazon for example is being felled primarily to make way for beef ffs. Better ways to grow beef production are available that would seriously undermine the economics of clear felling. Asia is mining our oceans for fish protein 24/7, unchallenged and unsupervised beyond the horizon. What do we do? Make it harder for a bloke to catch a fish for his table. Makes no sense.

        This is where it gets nasty. The Greens solution to stop these practices is One World Govt so it can fix those kind of Sovereign issues. Freedoms handed over to an Indian or Chinese. That such a policy even exists in Australia deserves all the derision it attracts, and more.we have to face it- there are no easy solutions. We can only manage our special little corner of the world ,accept it and enjoy it for what it is and position ourselves at the forefront of R&D, Science and Technology to develop the commercially viable solutions to these global problems. The real game changers.THAT is where our efforts, energies and passion should be directed.

      • PB: could we or could we not “farm” fish?

        Well, obviously we can and we do. But whether this is a good idea depends on how it is done.

        Take salmon farming, for example. Leaving aside the ecosystem impacts and disease issues, you need several kilos of small fish to produce one kilo of salmon. Much more efficient just to eat the small fish directly. The salmon farming industry, to their credit, have been working on this, using plant-based inputs etc and a lot of the fish that go into salmon feed are by-catch or leftovers from fish processing. So salmon farming can be more or less sustainable (at least in terms of feed inputs) up to a certain point. On the other hand, that “sustainability” is dependent on the sustainability of the fishing practices that produce the by-catch and /that/ is questionable.

        Looking at the ecosystem angle, a lot of prawn farming involves clearing mangroves. But, like coral reefs, these mangroves are the breeding grounds for countless types of fish, and so prawn farms are arguably less productive than natural ecosystems, and the net result in terms of “protein in the ocean” is probably negative. In parts of Africa where they have replanted mangroves they have seen dramatic improvements in fish stocks.

        China has has an explosion in aquaculture, but instead of salmon and other carnivorous fish they are mainly using herbivorous carp (catfish). Catfish have a reputation for not being very good eating in the West, but apparently that has a lot to do with the quality of the water they live in. In the future, we might not be able to be as fussy.

        What excites me is “aquaponics” – a cross between aquaculture and hydroponics that aims to create a closed loop between fish farming and agriculture. This is particularly suitable for places with limited water – like most of Australia. The cycle is not completely self-contained, and the setup and maintenance costs are considerable, but this is an approach that I hold out a lot of hope for.

        So can we farm fish? Yes, but whether this is sustainable, and whether it is something that should be supported or opposed, really does depend on how it is done.

      • Apologies for the italics fail.

        The other point I was trying to make was that even if we pursue aquaculture with gusto, it will still be subject to ecological limits.

        In a nutshell, the feed inputs will have to come from somewhere, and the fish poo will have to go somewhere. And fishing farming will have to compete with other potential uses of land and water.

        I’m a big fan of fish farming if we can get it right, but it’s not a free pass.

      • GSM wrote:

        AGW however…….. Still much to be analysed and tested. Too many unanswered question remain

        Is that you, Gina? 😀

        The “jury is still out” furphy is one of the famous memes of the denier autoscript as disseminated by Big Oil, Big Coal, Big Energy and Big Mining.

        Stop reading from their playbook. 🙄

      • R2M: The “jury is still out” furphy is one of the famous memes of the denier autoscript

        The reason this meme is so insiduous is because up until about 10 to 15 years ago this was actually a reasonably defensible position.

        Of course, an enormous amount of evidence has accumulated since then, and the jury is now well and truly in.

        Anyone who claims that there is not enough evidence to say for sure whether global warming is happening, or whether humans play any significant part in it, really needs to say what kind of evidence they would accept in order to be convinced. (That’s you, GSM.)

        Models predicting the future are still fair game to a certain extent, but the models have been out there for long enough now that we can begin to check their track records. And what we find is that in most cases observed reality is trending way above the worst-case scenarios predicted by the models.

      • And what we find is that in most cases observed reality is trending way above the worst-case scenarios predicted by the models

        Sadly true.

        And it gets worse. Listen to What if the permafrost thaws? Tell your kids not to have kids, is what I’ve done.

      • R2M, Johnny et al,

        You guys still keep missing the point, everytime. Casting slurs and insults achieves SFA. Even if your treasured AGW theories were accurate (show me accurate predictions in this science), the RESPONSE to ENSURE mitigation is too massive, complex, global and EXPENSIVE for Australia to have any meaningfull effect whatsoever. WHATSOEVER. For example Australia will not ever stop India or China from burning coal for their base load or the polltion spewed from Russia’s chemical megacities. Doing “something” and TAXING productive incomes just to make you feel good is a sickness of modern leftist Australia that again achieves SFA for mitigation of AGW effects. What it does do is act as one of the means whereby certain parties dupe gullible but well meaning “believers” into loving them. If you REALLY do want to achieve a productive outcome in this issue, why not drive policy towards resourcing the discovery of PRACTICAL solutions to mitigate AGW that we can make commercially profitable for adaptation worldwide? Are our people not smart enough?

        Of course this is not possible, because of blind belief in the “benevolent Govt.” Govt cares for you. Gov’t will provide. Govt must control= Big Govt.

      • PRACTICAL solutions to mitigate AGW

        Here’s one: stop exporting coal.

        That’s what Australia can do to mitigate AGW! 💡

      • GSM: I never said effective mitigation was affordable or likely to be implemented. However, that doesn’t change the science.

        As fantastically expensive as mitigation is, I am of the opinion that adaptation will be more expensive economically, and it terms of “externalities” such as loss of biodiversity, mass extinctions, loss of habitat etc.

        I’m also of the opinion that we will choose the adaptation route, because effective mitigation is politically impossible.

        So for all your huffing and puffing, you really don’t have much to worry about. Your side will “win”. The planet will lose.

      • Lorax, R2M, Johnny.

        http://www.livescience.com/19643-nasa-astronauts-letter-global-warming.html

        “The unbridled advocacy of CO2 being the major cause of climate change is unbecoming of NASA’s history of making an objective assessment of all available scientific data prior to making decisions or public statements.”

        Whether you lot accept it or not, there is valid dissent from more learned folk who have yet to be convinced of the efficacy of AGW.

        Some food for thought;

        http://joannenova.com.au/2012/10/man-made-global-warming-disproved/

        “Continued faith in flawed models breaks central tenets of science

        The two things which make science different from religion are that nothing in science is sacred, and everything in science must ultimately fit with observations of the real world. While a theory may never be 100% proven, it can be disproven. The pieces of the climate jigsaw are coming together. The observations suggest that the warming effect of man-made emissions of CO2 has been exaggerated by a factor of 3 – 7 in computer simulations.”

      • GSM: You do your credibility no good by quoting from Joanne Nova.

        Show me something — anything — from a credible mainstream science journal, or national scientific institution and I’ll read it. I won’t read anything from Nova because she is not a climate scientist, and has been running an anti-climate science agenda for years now.

      • “Saturation” occurs in population and in consumption of many items such as “transport”

        I agree with you for once here, but I think that the saturation curve is partly dependent on other things – such as the configuration of cities, for example, and the number of hours in the day.

        You raise some interesting points in your comments, but I would be more inclined to read them if you would stop shouting.

      • I have a confession to make: I can’t work out how to “italicise” on this blog. So I “capitalise”. Sorry it puts anyone off.

      • I wasn’t referring to the capitals so much as the tone of your comments. Like I said, I learn quite a bit from your comments, and I have almost come around to your core idea that land use regulation is a major factor in land price bubbles (even if I can’t come at the idea that it is the ONLY cause).

        What puts me off hacking my way through your rants are the dense thickets of straw men.

      • What unscientific bollocks Phil.

        There are physical constraints to growth within any finite system. Why we will still be able to continue to use the earth’s resources there utilisation will not be able to grow at a steady percentage, and will eventually have to stop for the non-renewable resources.

        Why can’t we have exponential energy growth you say, surely some clever person will come up with some cunning new technology. Well putting aside that no one has come up with anything better than fossil fuels in the last 100 years, there are actual thermodynamic limits to the amount of energy humans can use on earth with out frying ourselves as the amount of energy radiated out from the earth is limited by the temperature of the surface. Although these amounts of energy output are huge with exponential growth they will soon be reached. For more information on this point you can read this blog here (http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/) which does alot better job of explaining it than I do.

        There are alot of conucopians out there as there are also alot of religious nutters and they all have one thing in common. The lack of a good knowledge of science and a curious mind. You say “And your kind have NO sense of PROPORTION, NO idea how vast the earth is compared to “man”.” Well actually it is quite easy to work that out. Assuming that the average person weighs 60kg and there are 7,044,000,000 of us the total human population weighs approximately 4.23 x 10^11 kg. The earth weighs 5.9736 × 10^24 kg and hence humans are only 7.08 x 10^-12 % of the total mass or next to nothing. However, at the current world growth rate of 1.15 % it will only take 2,648 years for the human population to match the mass of the earth. Clearly however, the worlds population will never reach that and with a bit of luck will hopefully reach a peak and start declining soon (40 years or so) but I thought I would put this in to show how peoples ignorance of exponential growth can lead them to think it will continue forever.

        I will leave you with a quote from R. Buckminster Fuller saying in 1967, which can be be found at the same blog I mentioned earlier on a particularly relavent post
        http://physics.ucsd.edu/do-the-math/2011/09/discovering-limits-to-growth/

        “Humanity’s mastery of vast, inanimate, inexhaustible energy sources and the accelerated doing more with less of sea, air, and space technology has proven Malthus to be wrong. Comprehensive physical and economic success for humanity may now be accomplished in one-fourth of a century.”

      • “Well putting aside that no one has come up with anything better than fossil fuels in the last 100 years”

        And then someone comes along and cracks the physics for cold fusion……… or invents penicillen……or the steam engine….or jet propulsion……..or the telephone………..or domesticates electricity………

        Yes there are stresses , seemingly insurmountable, but human endeavour, adaptability and ingenuity just keep pulling us through somehow. In a world of uncertainty, it’s possibly the surest bet there is.

      • And then someone comes along and cracks the physics for cold fusion

        50 years on, and we’re still waiting … 😯

        or invents penicillen

        Ironically, antibiotics are now losing effectiveness with no substitute in sight

        .or the telephone………..or domesticates electricity…

        Those are ancient inventions and discoveries. And don’t confuse technological advances with discoveries of energy sources (a typical cornucopian mistake). 😐

      • R2M: don’t confuse technological advances with discoveries of energy sources (a typical cornucopian mistake).

        Actually, IMO this is the CORE cornucopian mistake.

        Almost every single technical innovation of the last few hundred years has been a clever way of harnessing stored energy to do useful work.

        We haven’t been able to work out how to create energy, and there are good reasons to believe that it might not actually be possible.

        (Note that I’ve read enough about cold fusion to be open-minded about the possibility that fusion is occurring, but the problem is that it is COLD, and so does not produce useful energy. Hot fusion might be a game changer but I am very skeptical about it ever producing net energy, and it would be foolish to count that particular chicken at this point.)

        What we are left with is a few technologies for harvesting diffuse energy, such as wind and sunlight. These energy flows will become increasingly important as our stock of stored energy runs down, but ultimately their potential is relatively modest, and eventually we will have to learn to scale back our ambitions so that we can live off this modest stipend.

      • • PhilBest said:

        The USA’s CO2 emissions are reducing markedly because natural gas is replacing coal in power generation and heating and other applications.

        I notice how you just gloss over the problem of methane pollution associated with natural gas production, distribution and consumption. There’s quite a controversy stirring over whether the harmful effects of increased methane emissions will outweigh the positive effects of reduced CO2 emmissions, both brought about by the replacement of coal and oil with natural gas. Google “methane pollution from natural gas” to get an idea of the debate.

        • PhilBest said:

        What crazy new religion is this?

        Fair enough. But I think it’s also fair to ask what your religion is.

        Your religion actually has a name. It’s called Positivism. And, as John Gray notes in Al Qaeda and What It Means to Be Modern:

        Through their deep influence on Marx, Positivist ideas inspired the disastrous Soviet experiment in central economic planning. When the Soviet system collapsed, they re-emerged in the cult of the free market.

        Gray goes on to give a superb encapsulation of the history and content of Positivist thought. But I think Hannah Arendt’s is better:

        The notion that there is such a thing as progress of mankind as a whole was unknown prior to the seventeenth century, developed into a rather common opinion among the eighteenth-century hommes de lettres, and became almost universally accepted dogma in the nineteenth. But the difference between the earlier notions and their final stage is decisive. The seventeenth century, in this respect best represented by Pascal and Fontenelle, thought of progress in terms of an accumulation of knowledge through the centuries, whereas for the eighteenth the word implied an “education of mankind” (Lessing’s Erzienhung de Menschengeschlenchts) whose end would coincide with man’s coming of age. Progress was not unlimited, and Marx’s classless society seen as the realm of freedom that could be the end of history—-often interpreted as a secularization of Christian eschatology or Jewish messianism—-actually still bears the hallmark of the Age of Enlightenment. Beginning with the nineteenth century, however, all such limitations disappeared. Now, in the words of Proudhon, motion is “le fait primitif” and “the laws of movement alone are eternal.” This movement has neither beginning nor end: “Le mouvement est; voila tout!”…Marx’s idea, borrowed from Hegel, that every old society harbors the seeds of its successors in the same way every living organism harbors the seeds of its offspring is indeed not only the most ingenious but also the only possible conceptual guarantee for the sempiternal continuity of progress in history; and since the motion of this progress is supposed to come about through the clashes of antagonistic forces, it is possible to interpret every “regress” as a necessary but temporary setback.

        To be sure, a guarantee that in the final analysis rests on little more than a metaphor is not the most solid basis to erect a doctrine upon… Its great advantage becomes clear as soon as one compares it with other concepts of history—-such as “eternal recurrences,” the rise and fall of empires, the haphazard sequence of essentially unconnected events—-all of which can equally be documented and justified, but none of which will guarantee a continuum of linear time and continuous progress in history… Of course, there are a few melancholy side effects in the reassuring idea that we need only march into the future, which we cannot help doing anyhow, in order to find a better world…

        However, these disadvantages, which were only rarely noticed, are more than outweighed by an enormous advantage: progress not only explains the past without breaking up the time continuum but it can serve as a guide for acting into the future. This is what Marx discovered when he turned Hegel upside down: he changed the direction of the historian’s glance; instead of looking toward the past, he now could confidently look into the future. Progress gives an answer to the troublesome question, And what shall we do now? The answer, on the lowest level, says: Let us develop what we have into something better, greater, et cetera. The, at first glance, irrational faith of liberals in growth, so characteristic of all our present political and economic theories, depends on this notion….

        Progress, to be sure, is a more serious and a more complex item offered at the superstition fair of our time. The irrational nineteenth-century belief in unlimited progress has found universal acceptance chiefly because of the astounding development of the natural sciences, which, since the rise of the modern age, actually have been “universal” sciences and therefore could look forward to an unending task in exploring the immensity of the universe. That science, even though no longer limited by the finitude of the earth and its nature, should be subject to never-ending progress is by no means certain… And it is true that it is by no means impossible that we have reached…a turning point, the point of destructive returns. Not only has the progress of science ceased to coincide with the progress of mankind, whatever that may mean, but it could even spell mankind’s end… Progress, in other words, can no longer serve as the standard by which to evaluate the disastrously rapid change-processes we have let loose.

        HANNAH ARENDT, “On Violence”

      • “….Not only has the progress of science ceased to coincide with the progress of mankind, whatever that may mean, but it could even spell mankind’s end…..”

        Absolutely agree; as Winston Churchill and Matt Ridley have both pointed out, the biggest threat to humanity always has been bad politics. And I am saying, just as people who in 1900 were skeptical about Communism, and people who in 1930 were skeptical about eugenics and fascism, that modern environmentalism has the potential to be the next “bad politics” capable of bringing mass tragedy on humanity if its trajectory is not interrupted. Environmentalism involves a hatred of ALL humans, whereas the previous tragedy-dealing ideologies only hated SOME humans…….

      • “Environmentalism involves a hatred of all humans” – lol. Jacques Costeau, clearly a human hater if I ever saw one.

      • OK, there are some sincere people involved with “environmentalism” going back some years. Patrick Moore is another one, he is a good man. But such people tend to have repudiated their connections with what the movement has become. As I already explained.

        One example, is the way that environmentalism originally favoured low density urban living, with numerous “sustainable” aspects that are simply not possible under high density living conditions. “Concrete jungles” were not in favour. But the movement has morphed, on a neo-pagan religious basis, into a movement that seems to want to punish humanity as an end in itself, and preserve “the environment” as a kind of temple even if this temple ends up several hundred times the land area of that actually lived on by humans. This results in outcomes that are all negative, the alleged “gains” are not even true and the “costs” to society and the economy are far greater than alleged. In fact numerous environmentalists deny that urban growth containment drives up the cost of housing at all, this is how terminally thick or bloody-minded they are.

      • So let me get this straight. Science is nothing but politics?

        And the vast body of empirical evidence that has been gathered by scientists that demonstrates the existence of AWG, as reviewed by Naomi Oreskes in this presentation to The Science Network http://thesciencenetwork.org/programs/beyond-belief-candles-in-the-dark/naomi-oreskes , is nothing but mere politics?

        And if we can get rid of the bad politics, then we can get rid of the bad science, and AGW will just go away?

        Again, this whole line of thinking is grounded in your libertarian ideology, which is really nothing but warmed-over Fichteanism, as Michael Allen Gillespie explains:

        In the thought of Fichte, we witness the turn away from coexistence [of freedom and nature] toward the assertion of freedom as absolute and the consequent demand that objective nature be annihilated. Freedom and freedom alone must rule, a pure will of activity that shapes only itself, and abides by no laws, that knows in its heart of hearts that it is the source of all laws, of all logic, and of all ontology…. [M]an must become an absolutely unconstrained and thus radically free being, must become, in other words, God.

        MICHAEL ALLEN GILLESPIE, Nihilism before Nietzsche

  6. Obviously GDP existed before Kuznets or Keynes ‘created’ it in the 30s. GDP (or GNP), as an idea, is descriptive. Arguing that Kuznets created GDP is like arguing that Newton created gravity. Gravity existed prior to Newton, and national economies had a gross annual output before Kuznets.

    To take the analogy further, saying that GDP is just transactions is like saying gravity is just mathematics. We describe the physical phenomenon of gravity using numbers, but these numbers are not what gravity is. GDP is measured using transactions, but these transactions represent real conditions. The rate of transactions is no less frenzied in Lagos’ Jankara Market than Midtown Manhattan (it’s probably much more so, I’d say), but no one is arguing that this means equivalent GDP. What matters is what lies behind the transactions; What else can you consume once you have fed yourself and your family? What vocations are available to your children? Just the one? Can you decide to board an aeroplane are spend a month traveling through Western Europe this year?

    Thus, GDP is an abstraction of a nation’s standard of living. It is an incomplete one, of course, there are a plethora of other factors that determine national welfare, but income is paramount and it needs to be thought of in terms of real goods and services that can be consumed, not the transactions that act as abstractions of that consumption.

  7. SoN,

    Thank you for another superb piece, speaking to the heart of pet topics I have long preached to any unfortunates foolish enough to listen. An observation (my bold emphasis):

    What is this “growth” of which we speak? In a literal sense it is a record of transactions … So “growth”, usually GDP, is a record of transactions … when people say growth is evaporating, what they literally mean is: “Our newly created records indicate that the volume of transactions is slowing.” Sounds a little different, doesn’t it?

    …Transactions are a social artifact that is created when people agree to share activities and agree over the value of those activities.

    Please correct me if I am wrong. But as I would understand it, “growth”, as popularly measured by “GDP”, is a measure not merely of Volume (number) of transactions, but might be more clearly defined as the Volume x Value of transactions.

    This leads me to my pet subject – “money” (currency), and usury.

    In a monetary system such as humanity presently has, where the “money” that is the legally-enforced Unit of Account for all transactions is created in the form of a debt-with-usury-owing, then it is an inevitable consequence of the monetary system system that “growth” or “GDP” (ie, Volume x Value of transactions) MUST continue on a (broadly, accounting for periodic so-called “cycles”) upwards trajectory. If for no other reason than that it is prerequisite for ever more debt-money to be created, in order to service the total of usury owing on previously created debt-money.

    In other words, even if the same number of transactions (activities) occurred within the economy from one year to the next, the base requirement for more debt-money to be created in order to fund repayments on the previously created debt-money that is the sole legal unit of account, would mean that the Value of some transactions must rise – same supply of goods/services, but more “demand” (debt-money created) available to bid for them.

    Ban usury. Problem solved.

      • I would imagine that it might be done in similar fashion to that which enforces what is “legal tender” – by an act of legislation, breaches of which legislation are punishable by [insert punishment of choice].

        Of course, once we even begin to contemplate the possibility of banning usury, we are inevitably talking about fundamentally rethinking / reforming all of “banking”. Just as we should be.

      • spleenblattMEMBER

        If you are worried that carbon trading is another mechanism for investment banks to create new profit streams, I can assure you than a ‘ban’ on usury will equally trigger a suite of innovative financial produces that are designed to circumvent the conventional mechanisms of usury (or perception of usury), while in effect still retaining the same underlying construct of having one party indebted to another, at one party’s financial benefit and another’s potential detriment. I have seen this in sharia compliant financial products.

        It does not really bear thinking about the kind of transformation our societies would have to go through to reach a point where such legislation could be enacted and enforced by punishment. By all means let’s rein in our banking system and debt accumulation, but I think banning usury (and I mean, really, genuinely banning usury) is utopian thinking, that is only even remotely attained as a goal in mostly authoritarian societies.

      • banning usury (and I mean, really, genuinely banning usury) is utopian thinking, that is only even remotely attained as a goal in mostly authoritarian societies..

        It is my view that humanity is already well down the track to precisely that, thanks to our collectively permitting the usury-money Ponzi ever since the so-called “Enlightenment” began to undermine the ancient wisdom, still held (at the time) as doctrine by the great global authority of the time (“Christianity”) that money-lending at usury is evil. There is a very good reason why so many great wise men – Plato, Aristotle, Cato, Cicero, Seneca, Moses, Philo, Buddha, and many more – all denounced the evil of money-lending at interest. Indeed, it is the same reason why the only Biblically-recorded instance of Jesus Christ resorting to violence, was when he chased the money-lenders out of the Temple with a whip.

        It is my view that we are nearing the final station. A transformation away from usury-money is IMO a fundamental necessity in order to avoid a looming outcome of global “money”-based totalitarianism.

      • There was good justification for charging interest to be proscribed in the bible and by old-time philosophers. In the era prior to fiat money, steady deflation was the norm. That is, the more “production” there was with a finite supply of “money” in which it could be denominated, the lower the prices of standard commodities fell. This is why we see historically, monetary denominations steadily being “divided”, into “half-pennies” and the like.

        So it was unnecessary to charge interest; in fact people tended to PAY a “banker” for keeping their gold secure…..! Once you got your gold back again, it bought more anyway.

      • Phil,

        There was good justification for charging interest to be proscribed in the bible…

        At risk of opening a can of worms, technically, the charging of usury in the Bible (OT, specifically) was banned between Hebrews/Jews” (“thy brother”, etc), but most interestingly, permissible by Hebrews/Jews on “the stranger” (ie foreigners).

        In the era prior to fiat money, steady deflation was the norm. That is, the more “production” there was with a finite supply of “money”

        Indeed. Hence my argument that, given humanity has long been in a fiat era … and in modern times, we’ve even moved beyond “real” printing into an electronic bookkeeping entry “money” era, there is, IMO, zero rational and in particular, no moral justification for the charging of usury on “money”, at all.

      • spleenblattMEMBER

        Why swap money based totalitarianism for another brand of totalitarianism that enforces a ban against usury ? At least under this regime we all ultimately have a choice as to whether we take on debt or not.

        Buddha and Jesus were great men no doubt, but certainly not the last word on any issue as far as I’m concerned. There are equally wise men throughout history who recognise the benefit of usury (in balance).

        I sense where you are coming from Op8, but I feel that a more realistic ambition (though not necessarily any easier) is a reform of the banking sector and finding ways to encourage more productive investment.

      • Why swap money based totalitarianism for another brand of totalitarianism that enforces a ban against usury ?

        If one were to consistently apply that rationale, then any ban against any thing could rightly be deemed a brand of “totalitarianism” 😉

        I feel that a more realistic ambition (though not necessarily any easier) is a reform of the banking sector…

        You may well be right there spleenblatt. For my part, I tend to think it highly improbable that the political class (in the West, at least) would ever willingly legislate an end to usury, or indeed, eliminate central banking and issue debt-free currency via the Treasury. IMO they are all far too self-serving, ignorant, spineless, and for too long (generations) been beholden to the national/transnational vested interests, of whom banksters comprise the most powerful element (ie, “TBTF”). Rather, I suspect that the only way debt-at-usury-money might one day be eradicated, is as a consequence of a grass-roots driven substitution/replacement, over time, of the inevitably imploding present (ie, post-Enlightenment) usury-money system. And FWIW, I’ve observed increasing evidence of precisely that beginning to happen, especially post-2008. LETS and other CC (complementary currency) systems (Bitcoin, Ripple Project, et al) are springing up all over the world. There are dozens in “strong” Germany alone. Personally, I think they are all flawed, but the fact that they are alternate monetary systems, is an enormous positive and a great starting point. While it may take decades, who can tell, I believe it is both plausible, and possible, for humankind to end debt-slavery through the grassroots adoption of alternate form/s of “money”, that render our Units of Account/Mediums of Exchange to be a true servant of mankind rather than its master.

        As SoN says, “money” is “rules”. It could be argued that “revolution” is about the common folk, en masse, choosing a different set of rules to those previously chosen by their “betters”.

      • spleenblattMEMBER

        Op8. Which democratic, non Islamic fundamentalist countries currently ban usury, and ban it beyond any shadow of a doubt ?

        I think it is optimistic to imagine that any regime that seeks to impose a ban on usury is going to be anything less than totalitarian. For any one other than a ‘true believer’, I can’t imagine life is going to be too much fun under such a regime.

      • Which democratic, non Islamic fundamentalist countries currently ban usury, and ban it beyond any shadow of a doubt ?

        Not a single one, that I am aware of. If you review my posts, I trust you will see that is one of the points I am making – in terms of official, government-sanctioned monetary systems, the whole world is effectively under debt-at-usury systems. It is my view that these are all Ponzi schemes at their core, and will ultimately collapse. It is also my view that politicians will not willingly alter the status quo of what is essentially already a global debt serfdom under various “national” currency systems. Instead, what more and more of them will do is, a la Ireland and Greece, eventually sell out their citizens’ respective national sovereignty via policy choices (eg, bank bailouts) that result in insurmountable levels of “national” / “public debt” servitude.

        The bright spot is that alternate currency systems are springing up all over. I remain hopeful that these can and will serve as both an educational and a functional springboard to better things.

    • Although the relationship between growth and interest is symbiotic, you have muddled it. Economies do not grow because they ‘have to’ owing to the ubiquity of interest-bearing securities; rather interest-bearing securities owe their ubiquity to growing economies, that is, to capitalism; and in turn, help facilitate growth.

      No economy can grow just because it’s debt burden demands it. Your analysis presumes there is some magic wand that can be waved to boost output. Yet, as we know, economies cannot grow simply because the debt serving burden demands that they do. If they could, there would be no debt crises.

      Growth can only occur when investment is undertaken in productive works that increase output. If one day we exhaust all available productive investments, then you will have your wish of a near-disappearance of interest-bearing securities. Until that time, it is not desirable to do away with interest, since it is integral to the financing of investment. Without debt, the only way to turn an idea into a working production process is equity financing. Some people do not want to bear the risk that entails, and so a massive source of capital is left unused if you do not offer investors a of return that is not tied to the profit of a firm.

      The problem is not debt-money, the problem is the misallocation of credit to unproductive works, such as residential property speculation.

      As an aside, the historical criticism of usury being immoral owed to the absence of economic growth. Today, an interest-bearing security that is used to finance investment can lead to mutual gains for both the borrower and the lender. That is, the borrower ultimately achieves a rate of return that exceeds the interest on the loan, and the lender receives the interest. Lending money at interest, in the absence of an expanding economy, is a zero-sum transaction. If overall output doesn’t increase, then there is simply a transfer of wealth from borrowers to lenders at some time in the future. The practice was therefore considered exploitative and immoral. it is not the same as interest tied to investment, hence why the term usury is not used in this context.

      • I disagree with your interpretation of my viewpoint. I do not argue that the existence of debt-at-usury “money” forces “growth”; that is, in the sense of some innate natural physical force.

        Instead, what I argue is that those who gain most from the power of either (a) issuing debt-at-usury “money” (ie, commercial banks), and/or (b) having first use of debt-at-usury “money” (ie, primary dealers vis-a-vis the Fed), have a vested interest in encouraging / tempting borrowers to borrow, irrespective of whether the person actually “needs” more “money” to pay for more “transactions” (thence, “GDP” “Growth”) or not. More loans = more usury repayments & fees = more profits.

        Let me put it another way, to illustrate the point.

        Do you think there would be as much total Volume x Value of housing-related “transactions” in the economy, if folks had to first save up 50, 60, 80, 100% of the purchase price? If it were difficult to obtain a loan of “money” … a “credit” card, personal loan, etc, do you think that there would be as many “transactions” in the economy?

        The total of transactions within the economy (“growth”) is, IMO, a direct consequence of “money”-at-usury-lenders pushing their debt-slavery trade. Without the growth in “money” supply, to pay for myriad trinkets and gadgets and unnecessary “services”, many of those things would not exist. Noone would invent them, take a personal risk in bringing them to “market”, if they did not believe there was going to be sufficient “money” out there to pay for them at a profit to the inventor/entrepreneur.

        We are fooled (fool ourselves; hubris) into believing that “economic growth” and our “higher standard of living” versus our fellows in other lands, are a consequence of our being more clever, inventive, or intelligent than the people in “less developed” nations. It’s BS. The reality is, that “growth and our “standard of living” come at a cost. That cost is debt serfdom.

        In my view, a debt-free peasant in the Third World is in truth, far wealthier than the vast majority of “rich” First World debt slaves; driven to work every day, often at tasks that are in truth no less menial and no more psychologically/spiritually rewarding than that of a low-paid fellow human toiling in a Third World sweat shop, at all times, 24/7, subconsciously carrying the heavy burden of care (“I must earn more” / “Must not lose my job”) that is a direct consequence of having chosen to be a debt serf in order to “have more” and “have it now” … because “you deserve it”.

      • You are entitled to that view. But you need to accept that the vast majority of humanity does not share it. Given the choice, human beings generally prefer a lifestyle in a wealthy country, where they can choose their vocation and choose how they wish to allocate work and leisure, even if it means a mortgage, rather than the banality of subsistence living, where they have just one choice in life: survive or die.

        If you are consider subsistence agriculture to be more rewarding than being a musician or a surgeon or a lawyer or an architect or a radio presenter or a geoscientist or a carpenter or a bartender or a teacher or an economist or a fund manager or a journalist or any other of the plethora of vocations available to anyone that applies themselves in a wealthy country, then I say good for you; get on a plane and go live in Chad. But while you’re telling yourself that herding cattle renders you ‘wealthie’ than a mortgagor in Sydney, remember that you choose that lifestyle. And the fact that you were free to make that choice is means that you are incomparably wealthier than the man next to you who had no choice but to herd cattle.

      • Not at all. You argued that an impoverished peasant in the Thrid World is wealthier than my neighbour with a mortgage. Aside from this being idiotic in the most obvious sense, in a deeper sense it cannot be true because real wealth is measured in choices. I don’t have to go into debt. It is not coerced. And the choices I may make in life are close to boundless in comparison to an impoverished peasant. Thus your assertion is false.

      • MJV said:

        If overall output doesn’t increase, then there is simply a transfer of wealth from borrowers to lenders at some time in the future. The practice was therefore considered exploitative and immoral.

        But isn’t that what this post is all about, the possibility of an end to the increase in overall output?

        If that does indeed prove to be the case, doesn’t that make ursury “simply a transfer of wealth from borrowers”? “Exploitative”?

      • I am certainly of the opinion that the citizens of low-housing cost cities, with their very much higher discretionary incomes, are far wealthier in the long run than the residents of cities in, say, Australia with low interest rates and massive debt and very much lower discretionary income over the long term.

        Wealth has everything to do with discretionary income, not zero sum “transfers”, which is what asset price bubbles are.

      • Assuming the day comes when economic growth is exhausted, I presume lending at interest would become a rarity. Until that time, it is vital to the formation of capital.

    • Op8,

      Isn’t there a distinction between charging interest and the process of money expansion by debt creation?

      For example i have $1000 that i do not require over the next 12 months but i do not personally know any one who would like to borrow it. However, i do know a person who makes it their business to know such people – the money lender.

      I reach agreement with that person that i will give them my $1000 on the understanding they will return to me $1050 after 12 months.

      They as the middle man reach agreement with the person who wishes to borrow $1000 that after 12 months they will return $1100.

      Net result is that i earn $50 and the money lender earns $50 and the person who borrowed the money had access to $1000 for 12 months which cost them $100.

      I can see no reason to object to this arrangement ( usury) nor a reason to adopt the complicated mechanics of islamic banking as an alternative.

      What i think you object to is to the practice of banks and money lenders to create loans that exceed the value of deposits received and repayable at call.

      • What i think you object to is to the practice of banks and money lenders to create loans that exceed the value of deposits received

        No. It is the practice of usury that I object to. To clarify, we must return to first principles.

        What I object to, is the system whereby all modern “money” first comes into existence in the form of a debt-with-usury owing. Your example that “i have $1000 that i do not require over the next 12 months but i do not personally know any one who would like to borrow it” misses THE fundamental point – your $1,000 already has usury owing on it. If not by you, then by someone else, who gave it to you in return for your labour, or for something you sold them; “your” $1,000 came into existence as a debt-with-usury owing.

        The idea that money first exists in unencumbered form, is deposited by a “saver” or “investor” with a bank/money-lender, who then loans that deposit out to borrowers at a higher rate of usury than that offered to the “saver”, is false. This is NOT how the monetary system works.

        From Modern Money Mechanics – A Workbook on Bank Reserves and Deposit Expansion, a complete booklet originally produced and distributed free by the Public Information Center, Federal Reserve Bank of Chicago, now out-of-print (my emphasis added):

        Who Creates Money?

        Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

        The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.

        In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

        [Op8: This is why governments the world over are so obsessed with maintaining public “con-fidence” in the banking system. It is why they so fear any hint of a “run on the banks”. As at 1 April 2012, according to the RBA there is only $53.2 billion in actual cash notes in existence (or $4,655 per employed person) … even though Australian households and non-financial businesses believe that they have a combined $986 billion in total Deposits.]

        It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their “deposit receipts” whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.

        Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment.

        Transaction deposits are the modern counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could “spend” by writing checks, thereby “printing” their own money.

        Think about it.

        Every loan (which becomes a “deposit” for the borrower to spend) comes into existence with a rate of usury owing. More loans must be created – again, with usury owing – in order for there to be sufficient extra money to make repayments of the principal + usury charges owing on the original debt stock. The monetary system itself, is a Ponzi scheme.

        FWIW, I do not advocate Islamic banking either. As (IIRC) spleenblatt has ably pointed out in previous discussions, while having the appearance of banning usury for “religious” (Sharia) compliance reasons, as with all “top-down’ (ie, authoritarian) systems, be they religious or secular, it is circumvented in various ways, doubtless with a wink and a nod. This is why I tend to think that the only way for humankind to finally overcome usury, is through education and understanding rooted in “bottom up” alternate currency movements.

      • Another way of illustrating this, is by way of personal example.

        The only time I have had a debt, was in my early twenties – a $5k personal loan for a s/hand car. I chose to live as an effective hermit (no socialising) on steamed vegetables and pasta for approx. 6 months, in order to repay the loan asap and so minimise the total of usury repayments. In my time I’ve started a number of small businesses, a couple quite successful, the others not, but always financed out of personal “savings”, beginning very small and growing through (again) living cheap and returning all profits into financing business expansion.

        Now, if I accepted the popular delusions about “money”, and viewed the monetary system from a purely individualistic perspective – as most do, sadly – then I could say that, excepting one brief period, “my” money has never existed as a result of borrowing. But that would be incorrect.

        Irrespective of my personal “debt-free” status, the money I received from others and viewed as “mine”, nevertheless still represented a debt-with-usury-owing by someone else who obtained it first and transacted it to me – they took out a “loan”, and used some of the resultant “deposit” in their name to pay me for my product/service.

        So the upshot is, we are all trapped in this usury system together. Even those like myself who shun debt, are still a party to the usury-money-system, because the money we receive and “save”/”invest” ultimately has its source in the action of some other poor sod who was tempted into borrowing it into existence, in exchange for their signature on a loan document, representing their binding legal agreement to expend a term of their lives under debt+usury serfdom to a bank. My own “debt-free” status is not something I can in good conscience be in any way proud of, as it is ultimately only made possible at the expense of my fellow men, who did choose to be debt slaves.

      • It appears that my use of $1000 in my example has caused confusion – instead change $1000 for 1000 g of gold and at the end of 12 months I receive back 1050 g and the money lender receives 1100 g.

        If currency is redeemable in gold on the basis of $1 for 1 g then it makes no diff.

        What your extended response describes is the creation of promissory notes or debt.

        Perhaps what my example describes is not usury but it appears to serve a useful function whereas I fully agree that is less certain that the process you are critical of does.

        The trade in promissory notes may well be a house of cards.

      • Pfh007,

        No confusion here. In your substitution-of-labels analogy, where does the extra (based on your original eg, I presume you meant to write) 100g of “gold” come from, in order for you to get your extra 50g in “interest”, and the money-lender to get their 50g in “interest”?

        That’s the whole point. The interest/usury component has to come from somewhere. It too, must be borrowed into existence.

        I’d urge you to reread the quoted section above, from the Federal Reserve themselves. Under our “modern” monetary system, that extra 100g/$100 simply does not exist, unless a(nother) money-lender makes another loan of 100g/$100 … and of course, because that too comes into existence as a loan, it too has more usury owing on it.

      • I have read the reference and I understand what you are talking about.

        You are missing the point of the Goldsmith story.

        The goldmsith having accepted a deposit of actual gold issues a promissory note to the person who wants to borrow gold instead of the gold itself as that promissory note is as good as gold as long as people trust the goldsmith to honor it.

        Whilst he is trusted he can keep issuing promissory notes which exceed the value of the gold that has been deposited with him.

        That is how debt is created and is what you (and many others) are concerned about.

        That is a completely different issue to usury.

        It would be quite possible to make it illegal for the gold smith to issue more promissory notes than the quantity of gold that he actually holds.

        If he holds 25 kg of gold he can either lend the physical gold or give a promissory note but the total must never excess 25 Kg.

        That would stamp out the debt creation process you are concerned about (and I agree with you it requires much closer regulation and limits if not a complete ban) but allows usury.

        Trying to stop people reaching an agreement to lend an amount with a greater amount to be returned at a time in the future would be extremely difficult but also to no sensible end.

        Creating multiple IOUs secured by the same the asset on the basis that only a fraction of people will seek to have them honored at any one time is another story altogether.

      • You are missing the point of the Goldsmith story…

        No, I do not believe I am. It is apparent to me that you are focussing exclusively on the mechanics of fractional reserve money-lending – and we are agreed on how that works – but in so doing, you are overlooking the usury component that is added on in the process.

        “The goldmsith having accepted a deposit of actual gold issues a promissory note to the person who wants to borrow gold instead of the gold itself as that promissory note is as good as gold as long as people trust the goldsmith to honor it.”

        In the modern context, the loan comes first. Not the deposit.

        Today, it is not just a “promissory note” (ie, a promise to pay gold equivalent to the face value indicated on the note) that is loaned to the borrower. It is an electronic bookkeeping entry (“money”), + an additional legal obligation (an “interest” charge) to be repaid. But that obligation is not created at the time and given to the borrower – using your example, he gets only electronic digits assigned to his name/account totalling $1000/100g. But is legally required to repay $1100/110g. The only way that additional $100/10g can be repaid, is if the money-lender creates an additional $100/10g “promissory note” .. which also carries a further usury obligation that in turn cannot be fulfilled until another loan is created … ad infinitum. It is why fractional reserve lending at usury is a Ponzi scheme.

      • Usury may magnify the issues raised by fractional reserve money lending (and fractional reserve lending may not make much sense without it) but the primary problem remains fraction reserve money lending.

        One can have usury without fractional reserve money lending and in the absence of fractional reserve money lending I really cannot understand your objection to it in principle let alone the practicalities of trying to stop individuals coming to an agreement to reward one party for allowing another party to use an asset for a period of time.

        But as I am fully on board with your concerns regarding fractional reserve money lending and the need to carefully control who gets to do it, I think we have quite a lot of common ground for the time being. 🙂

        By the way – thanks for those references over the last few weeks. My ipad is groaning with plenty of new reading.

  8. Nothing is so destructive of “growth” of all kinds; population growth, consumption growth, productivity growth, income growth, “GDP growth”; as straight-out sinking and destruction of “earned income” in asset price bubbles.

    We see this by comparing the cities of the USA with affordable, stable urban land prices, thanks to “freedom to build”, with the cities of the UK with relentless housing shortages and unaffordability thanks to 60 years of “planning”. Birth rates. Discretionary incomes. Social inclusion/exclusion. Productivity. The formation of PRODUCTIVE capital. The democratisation of property ownership.

    The measure of “EFFICIENCY” that “urban planners” should be looking at, is average trip-to-work TIMES. And though the US’s low land cost cities have more 2-parent households with children, meaning more compromises in household location due to 2 jobs and schools, these cities have LOWER average trip-to-work times than the UK’s cities with their relentlessly higher density housing that still costs twice as much – and is older, unhealthier, and in less desirable “location” on average.

    THIS is how “Green” “planners” “save the planet”. By making housing expensive and worse, reducing discretionary incomes and reducing social inclusion, reducing property ownership and reducing opportunity for marriage and child-bearing. IF ONLY the voting public was wise enough to see the reality of the “choices” that these planning advocates are forever telling us of.

    And of course the rate of formation of PRODUCTIVE capital is much higher when earned income can be utilised for this rather than for servicing increased debt on existing assets (especially the dirt that the participants in the economy exist on top of) with no commensurate increase in productivity.

    • So Phil, would you rather live in Dallas or Paris? I mean if you and “your kind” prefer Dallas then its all yours. I’ll take Paris — or any compact Euro-city — over Dallas any day.

      • Rephrase that question. If you were going to build a factory making electric automated cars, or indeed anything, where would you be more likely to build it? Dallas or Paris?

        Which economy is going to have money flowing into it from other economies buying stuff from it in a century’s time? There is a great short read that I recommend to everyone, William Fruth: “The Flow of Money and Its Impact on Local Economies”.

        http://www.easternwib.com/The%20Flow%20of%20Money%20%28booklet%29.pdf

        Why is Airbus building a factory in Alabama? OK, they want a factory in the USA. Why not LA, then, or New York City?

        Paris and London are both capital cities and “global” cities as well. So they do have advantages that enable them to overcome “exclusionary” policies. But look at the other cities in growth-containment UK, to see the effect of 60 years of repelling every potential new producer from locating there.

        The people you need to ask whether they would rather live in Dallas, are the people in trendy European and UK cities who cannot get work where they are, and could get it in Dallas. They, and all currently employed lower income workers as well, also need to be asked whether they would prefer a $100,000 older family home on a quarter acre, to the poky, grimy, old row-home that they exist in currently, the rent for which swallows half their income. And it is not even near their job or near a decent school.

        They could also be asked if they would rather own a small used car than undergo their daily 40 minute transit ride plus several minutes walk at each end in all weathers, plus waiting. And trips on foot to the local supermarket with its inflated prices for its captive local populace.

        Bringing the question back to ME; you need to qualify it. Would I, just as I am now, and with no prospects in either place, and reliant on whatever I could find in either place, choose to move to Paris or Dallas? I would have to be mad to choose Paris. IF you were offering me a lavishly-paid diplomatic posting in either place with a diplomats home, servants, and chauffeured limousine laid on, I would be mad to choose Dallas.

        There are 2 papers I could recommend: “Unequal Britain” by Gibbons, Overman and Pelkonen (2010), and “Superstar Cities” by Gyourko, Mayer and Sinai (2006). Both point out that lower income people would NOT be “better off” by moving them to a city with “higher incomes” and MUCH higher housing costs….!!!! And in fact there is no guarantee that work even exists for them at all in the latter…….

      • I don’t think you’re going to find the diregard for cultural issues that The Lorax is alluding to amongst most Dallasites. There are some great close-in neighborhoods in which to live in Dallas which offer a high quality of life, but they are pricey.

        In fact, your take on Dallas is so detached from the reality of Dallas that I’m wondering if you’ve ever lived in Dallas. Have you ever even been to Dallas?

        For instance, you’re not going to find “a $100,000 older family home on a quarter acre” within an hours commute of downtown Dallas that is not located in what is known as “the inner city.” The inner city is made up of neighborhoods like South Dallas, West Dallas, Oak Cliff, Pleasant Grove and Red Bird. See here for more detail http://www.blacksindallas.com/SouthDallas.html

        There are a number of reasons for not wanting to live in the inner city. They range from cultural to pragmatic. On the cultural side, the inner city is populated mostly by people of color, and many white people don’t want to live there for that reason. It’s also populated by working-class people, another type of people many wealthier people don’t want to be exposed to. On the practical side, the inner city also lacks services, things like good schools and high-quality, competitively-priced retail grocery shopping opportunities. Also on the practical side are issues of security and violence, and that’s probably the main reason why most people—-white, black or brown—-get out of the inner city if they can. You have to remember that the United States has an extremely violent culture, with violent and property crime rates many times those of other countries in the developed world. And most of this crime is concentrated in the inner city.

        Sometimes wealthier people move into an inner city neighborhood and repopulate it. This process is called “gentrification.” Normally the first wave of wealthier people to move into one of these neiborhoods are gay people, because their concerns about good schools and security are not as acute as those families with children are. An excellent example of a Dallas neighborhood that has been gentrified is Oak Lawn.

        If you want “an older family home on a quarter acre” that’s within half an hour commute of downtown Dallas, you’re talking neighborhoods like University Park and Highland Park. There that “older family home on a quarter acre” is going to set you back at least a half a million bucks.

        With Dallas’ urban sprawl, I’d say that the only places you’re going to find “a $100,000 older family home on a quarter acre” that are not in the inner city are in distant places like Red Oak or McKinney. But again, these are not the types of neighborhoods that wealthier people typically choose to live in. I think what you’re going to find is that most people in Texas, when they buy a house, buy the most expensive house that they qualify for.

      • Correction, where it says

        If you want “an older family home on a quarter acre” that’s within half an hour commute of downtown Dallas, you’re talking neighborhoods like University Park and Highland Park.

        Should read:

        If you want “an older family home on a quarter acre” that’s within half an hour commute of downtown Dallas and not in the inner city, you’re talking neighborhoods like University Park and Highland Park.

      • You don’t need to be close to downtown Dallas to be close to your job. In fact most cities these days have 20% or less of their total employment, in the downtown, and Dallas, I think, is much lower than this.

        Dallas has far lower average commute times than any UK city, even some much smaller UK cities. Average commute times
        actually tend to correlate to housing median multiples, the dispersion of employment, and average traffic congestion delay. The more “centralised” employment is, the greater average traffic congestion tends to be. Decentralisation is actually the ultimate “congestion reducer”, and is a free market response. No urban planners anywhere have actually PLANNED for it, all planning tends to have been based on a “centralising” mentality. This is mostly what is wrong in all cities, even the dispersed ones where dispersion has occurred in spite of transport planning all being “radial”.

        Frank Lloyd Wright was one of many advocates of planning for “dispersion”; there was a full-on intellectual-ideological debate in urban planning circles in the USA during the 1950’s, that the “city-centre-first” “radial-network” advocates won – sadly. Dispersion has occurred at a rapid rate anyway, just as the advocates of planning for it said it would, only the transport system that has been provided in every case, and often much of the “zoning” as well, is appallingly unsuited to it; this is why we have congestion problems, not because we “subsidised automobile use and automobile based development” or “failed to invest enough in public transport”. (Frank Lloyd Wright is on record as saying repeatedly, “dispersion is going to occur anyway; why not plan for it?”)

      • • PhilBest said:

        The more “centralised” employment is, the greater average traffic congestion tends to be.

        I think that’s only true where you have, as in Texas, an automobile culture. In places where you have excellent public transportation, and most people use it, as is the case in Queretaro where I live, that is not the case.

        • PhilBest said:

        Decentralisation is actually the ultimate “congestion reducer”, and is a free market response.

        Well it certainly is a free market response, but not for the reasons you cite. There are all sorts of cultural, quality-of-life and presitge issues entailed in the desire to move to the suburbs. And owning and tooling about in one’s own car is the ultimate emotional high.

        But decentralization is not the ultimate “congestion reducer” you claim it is. Anyone who has actually been to Dallas, Houston or Mexico City—-places where urban sprawl and the automobile culture are the holy grail—-knows from experience that this is pure bollocks.

      • Lorax have never quite seen you in the Parisian mould – but can certainly see you at home in ‘compact’ Euro-cities like Charleroi or Tirana would seem to suit, even perhaps Bucharest.

        Then again you might find yourself pining for Dallas!

      • R2M – attended a little soiree here in Perth a while back, Monckton the guest of honour. He was intelligent, cheerful and had a wicked sense of humour – Green types could rally benefit by a little emulation.

      • Monckton is simply one of the “dark side’s” worst fears.

        It really, really convinces everybody, doesn’t it, when the dark side’s top people all refuse to debate anyone from the light side, especially Monckton, “because the time for debate is over”.

        Errrr, what debate ever happened, Al et al? This is just classic totalitarian talk.

    • Phil, I think you are confusing the land bankers / developers with the “green” planners here. The land bankers are the ones making the real money, not the salaried folk in the various govt departments. it is far more in the interest of the land bankers to keep the status quo.

      • So what is your solution to outwit the land bankers? My solution: abolish urban growth boundaries and move to a system of easy new municipal incorporation as in Texas.

        Guess who will fight any such proposal tooth and nail? Both the bureaucrats and the land bankers. Well I never.

        There is massive incentive for “rent-seekers” or “crony capitalists” to promote policies such as “smart growth” and conservation and urban growth containment, and that many of these people are in fact clever enough to fund and assist “useful idiot” activists and advocates. There would be literally thousands of investors in property around the world, who would stand to gain literally millions of dollars in the value of their portfolio if certain policies of urban planning were adopted. Growth containment forces up the price of all urban land, and the “gains” are biggest in the centre of cities where land is most expensive. I often point out that CBD apartments in a growth-contained city are even more expensive compared to Houston, than separate family homes are. The separate family homes are 3 times the price; the CBD apartments are 10 times the price. Clever CBD property investors all over the world will understand this. For any such investors to throw hundreds of thousands of dollars at “smart growth” and “conservation” advocacy groups is merely rational self-interest on their part. Get numbers of such investors involved, and where are we likely to be headed?

        I have a magazine article from 1974 that explains that certain Rockefellers were funding “conservation” groups with a view to get “better planning” of “land use”. I am the first to argue against people who maintain that the Rockefellers are members of “the Illuminati” and so on, but I think it would be stupid to ignore basic self-interest on the part of people who are famous for their large property investments.

        These interests unfortunately mesh so nicely with the worldview of certain political thinkers (Greenies) and with the interests of bureaucratic empire-builders, that it is unnecessary for the property investor/rent-seeker to be visibly propelling the process indefinitely: it gains a momentum of its own. An old friend of mine was telling me years ago about certain decisions made by bureaucracies on Transport planning, and I asked him in amazement, why on earth do these people, who work for “us” (i.e. the public), make decisions that are absolutely contrary to “our” interests? He stared back at me and said, “but they DON’T work for the public or for the government, they work for THEMSELVES…..”. That is, the saving or the wastage of billions of dollars of taxpayers and ratepayers money does not matter; what matters is their own job security, tenure, promotion, and expansion of their department, its budget, and its power.

        Of course reams of policy will have been written by people who have graduated from “planning schools” and learned a whole lot of ideology and shallow assumptions; and who also appreciate where their own interests of job security, tenure, promotion, and bureaucratic empire-building lie. It suits them to be stupid and wrong rather than intelligent and right.

        Lee Kuan Yew was a genius among men; he designed the Singapore Public Service to “second” staff in from the private sector and back out again after 3 years, never to return; they were out sooner than 3 years if “performance” was not good enough. That way, no-one was going to have “tenure” to protect and enhance, and everyone was going to work towards making the department as helpful as possible to the private sector. This would avoid a lot of the problem I have discussed above, and much more.

      • Phill, This is very educative. I have only one question. Government departments now are working for private interests, not public and you say:

        “…everyone was going to work towards making the department as helpful as possible to the private sector. This would avoid a lot of the problem I have discussed above, and much more.”

        Isn’t that actually the problem? If the people in city council work for the public good, they would work for private sector interests, e.g. developers and land lords, isn’t that right?

      • Sorry, must be read:

        “If the people in city council work for the public good, they wouldn’t work for private sector interests, e.g. developers and land lords, isn’t that right?”

        Now the public interest, e.g. people’s interests for affordable housing is shattered, because the governments work for private interests, not for the public. If the government agents and bureaucrats work for them selves they still work for some private interests, not for public. It is a great confusion for people not to be able to distinguish properly what is private and what is public interest. For this differentiation the best is to read Joseph Stieglitz. He won a Nobel prize exactly for his concept and analysis of PUBLIC and COLLECTIVE GOODS.

      • The problem is more that the bureaucracy ends up working in favour of “rent seeking” private interests, not in favour of “private interests”, period. Most of those who make up “private interests” are in fact harmed. Or to put it another way, the bureaucracies do not “enable” markets, they disable them so that competition does not enforce fair market pricing.

        If they simply provided, in the case of urban development, a level playing field, “enabling” approach, competition between developers would ensure the lowest possible price, which is what happens in the affordable-housing cities in the USA.

        If, instead, they make it difficult for everyone, development becomes “high stakes” and “high risk” with winners taking a lot and losers losing everything, and the end consumer pays. And when all new development becomes needlessly expensive, all “incumbent” property owning interests benefit, with little or no risk at all. This is probably where the real big vested interest “rent seeking” will be found.

        The “land bankers” and the developers of new property are the ones forced into high-risk gaming just to stay in business, and once they have started playing the game, they too become a constituency against reform. But there are a few developers around the world who, when they have discovered that their competitors have “banked” all the land, become lobbyists for reform.

        Mancur Olson (the famous “public choice” theorist) has written a little bit about the way bureaucracies function in their own quite limited interests at the expense of the wider public, but I am sorry I do not recall the name of the paper concerned, this is peripheral to my core interests.

      • Phill, you are right and I agree with everything you say. The problem with public choice is of cause we haven’t had until now any other reliable method of reflecting the genuine choice of people, but through the political process (election). This is far from democratic, when the bureaucracy holds the knife and the butter (for example “Yes, Minister”).

        Today, fortunately, we have already the technologies to use for applying direct democracy and for cheap referendum on the most important issues in economy and our society. It is only in the people’s power to push this direct democracy from possibility to reality. Then the bureaucracy won’t have this huge power and self-centered interest anymore. This will be the real and fundamental change from the failing system and polarized social structure to genuine democracy and free enterprise for everyone with good productive idea, but not for rent-seekers. The economies have changed dramatically, the technologies have changed and advanced dramatically, but the political process and system is still the old sclerotic one. When technologies start to serve the genuine democratic process, then we will see the bright light in the tunnel. Everything else will be just a palliative medicine soothing the symptoms, but hiding the aggravating disease.

  9. StroppyTheWonderDog

    Thanks again SoN.

    The last part about the ‘real economy’ dominating the debate..

    You know that we cling to narratives as a way to explain the world.

    It is possible to change a narrative but narratives cling largely because they offer a simple but convincing explanation. (Perfect for MSM).

    It will be hard to change the ‘real economy’ narrative partly because it offers a convinving explanation, partly because sometimes it is true, and I think partly because if speculators are mentioned (inevitable?)the question gets forgotten!

  10. Good article, SoN. Some of the comments…not so much. Good that I restrained myself and stayed out of the bun fight 🙂

    • I disagree. I think the quality of the comments made in this article were excellent. I get more “education” from the comments than the article itself and this is why I love coming to MB, not only for the insights from the resident bloggers, but even more important are the ones from the regular contributors of comments. I don’t necessarily agree with their views but certainly nice to get “free education”.

  11. SoN very good work as always.

    I have an image in my head of what I saw the first time in 2008 working in San Diego; we were off to Europe, and on the drive to LAX there were a least a thousand cars/SUV/trucks between Calsbad, and Irvine that were abandoned on the side of the I5 in either direction. I thought then this is the start of something akin to the end of growth.

    For me until we can deal with endless population growth there is no cure. Technology might help, but in countries like Australia to be an engineer or scientist you face restricted job choice or no job in your profession. Politicians talk about a clever country, but it’s a knife in the back to those who chose that path and see the reality.

    Well done SoN, and keep up the great work.

    A discussion on Robert Gordon’s recent paper on this topic you might find interesting.

    http://thebreakthrough.org/index.php/voices/roger-pielke-jr/is-economic-growth-coming-to-an-end/

    • Thanks for that link, a63. That is fascinating. From what I know of Robert Gordon, my money is on him being deliberately provocative.

      Roger Pielke certainly exposes the basic flaws in the interpretation of the underlying data.

      I do believe that there is a strong “cultural” element to technological-scientific progress, and that “the Reformation” and “the enlightenment” had a lot to do with it. Here is a quote from the excellent book, “The Theme is Freedom” by M. Stanton Evans (which is one of the top two books I regard as essential reading):

      “…….The difficulties with the pagan mindset appear quite plainly in the case of Galileo, forced to recant his observation that the earth revolved about the sun, rather than the other way around. This is cited in the usual histories as an instance of Christian
      obscurantism, since the recantation came at the hands of the Roman Curia. Neglected in the standard treatment, however, is that the church authorities of the day were defending Aristotle’s
      ‘Physics’ and ‘On the Heavens’ – the principal sources of geocentric theory in the West – while Galileo invoked the
      authority of St. Augustine in his rebuttal.

      The hostility of pagan animism to ideas of systematic science is further evident in the modern epoch – most notably in disputes about environmental questions. The extreme environmentalists, as has been seen, are essentially neopagan, and
      their attitudes of nature worship result in hostility to science and economic progress – enforced by ever more rigorous compulsions from the state. The more traditional outlook of the West, grounded in the biblical idea of man’s dominion over nature, is hospitable both to new technology and economic freedom. It is Christianity, not paganism, that is congenial to Western science……”

      Also worth a read:

      “The Erosion of Christendom and the Predicament of Science” by Philip Burcham

      http://www.climaterealists.org.nz/node/923

      “The Historical Roots of Our Ecological Crisis” by Lynn White, Jr.

      http://en.wikipedia.org/wiki/Lynn_Townsend_White,_Jr.#The_Historical_Roots_of_Our_Ecologic_Crisis

      White’s essay is 40 years old, and “blames” the Christian worldview of man’s dominion over nature for the technological and economic progress that has led to the modern “ecological crisis”. One of White’s anecdotes concerns the missionary St Boniface, who went round ancient Saxony chopping down groves of sacred oak trees and defying the pagans “gods” to strike him down.

    • On the reduction in driving and the collapse of “sand suburbs” in California, it is worth noting that the more expensive houses are relative to incomes, the more incentive there is for households, especially first home buyers, to locate further away from CBD’s, because the savings on housing costs are greater than the additional cost of travel.

      The term “drive to qualify” is commonly used by the real estate and mortgage industries to refer to the phenomenon that housing tends to get progressively cheaper and hence within the mortgage servicing capability of buyers, the further away from the established centers of cities one gets.

      Anthony Downs discusses this phenomenon in his 2004 book, “Still Stuck in Traffic”. Also, Downs was one of the contributors to the famous “Costs of Sprawl 2000” paper. There is a chapter entitled:
      “The Effect of Lower-Cost, Outlying Land on Housing Costs”:
      Page 448 onwards of the following PDF is highly relevant:

      http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_74-c.pdf

      Dr Kara Kockelman of the University of Texas, some of whose research is referenced in the “Costs of Sprawl” study, has done further research since with the same outcomes.

      So of course it is no surprise that California, with its housing median multiples of 7 to 12 at the height of the bubble, had “sand suburbs” with massive long commutes.

      Ironically, now that property prices have crashed in many cities, and interest rates set by central banks have been lowered to record levels to “stimulate” economies, there has been a major shift in the “cut-off point” in the distance that must be traveled for savings to be made in “housing plus transport costs”. Advocates of urban growth containment of course completely misinterpret the underlying mechanisms that have led to this phenomenon. Policies that require economic disaster to make them work (and indeed are a significant factor in the mix that led to the economic disaster in the first place) should not be popular options.

      The fact that California has non-recourse mortgage laws helped very much too – young people living in sand suburbs simply hand their keys to the mortgage lender and walk away, probably into a much more affordable home far closer to the urban action. Many such homes owned by speculators in the expansion phase of the bubble would have been sitting empty and untenanted. The speculators who own them suddenly become very keen to get rental tenants in them; forced sale becomes highly likely unless the speculator has major backup liquidity and/or income streams.

      It also makes sense for people to be abandoning their cars and SUV’s in the conditions prevailing in California, where the bubble was at its most severe thanks to very strong anti-growth urban policies. It is an ironic unintended consequence that everywhere that such policies inflate the price of housing, ultra-long commutes become a lot more common. Peter Hall et al noted this in their 2-volume study in 1973, “The Containment of Urban England”.

  12. “Most of the economic activity (that which leads to transactions) in developed economies is services and they can consume very few resources”

    Dont try telling that to the monozukuri crowd who normally frequent these comment threads.

    “Manufacturing is macho, services are for sissies” is the answer you will get.

    BS of course.
    A thing is intrinsically worth whatever someone will pay for it. The bread which my baker makes is NOT more intrinsically valuable than the haircuts my barber provides. “worth” is always a relative concept from the viewpoint of the buyer.

    • Yes, but somewhere, wealth needs to be created in the first place via the use of resources, if there is to be any discretionary income in the economy to spend on services. An economy in which everyone is a hairdresser, lawyer, bureaucrat, movie maker, clergyman, broker, etc etc is pure pie in the sky nonsense. It is an interesting paradox that the higher the proportion of a population in a country still working on creating wealth from resources, the poorer that country is. This tends to make us forget about the wealth-creating sectors of the economy altogether, when in reality it is these sectors becoming more and more efficient, that leads to a greater and greater proportion of people earning incomes via roles in “consumption” and “transfers”.

      There is an interesting speech by the philosopher Rudolf Steiner in the 1920’s, on this. He wanted money to be denominated in “resource units” rather than dollars or marks or francs or whatever, to stop people forgetting so easily where the source of wealth really is.

  13. “Yes, but somewhere, wealth needs to be created in the first place via the use of resources”

    Nonsense. Nowhere is it written in stone that “wealth” must be created from the exploitation of resources.

    Take Medeival Venice as an example, obviously one of the richest and most powerful societies of its day.
    The Venetians got filthy rich on a service – logistics.
    They provided value added in the shipping and commercial connection of Western Europe to the Orient.
    You could argue that Singapore has done much the same in our times.

    • Resources have to have been utilised somewhere, for Venice or Singapore to be able to exist on “transferred” wealth. It is impossible for a closed system – the economy of the entire world – to be like Venice or Singapore.

      Read William Fruth, “The Flow of Money and Its Impact on Local Economies”.

      http://www.easternwib.com/The%20Flow%20of%20Money%20%28booklet%29.pdf

      Some lucky local economies (and some super-small “national” ones) do indeed exist mostly on income from “fees” in finance, insurance, accounting, law; or bureaucrats wages paid out of taxes paid nationally. It is one of the greatest failures in “urban planning” today, that such local economies are considered as “models” for ALL cities all of the time.

      Patrick Troy (Australian National University) was quite right to condemn this years ago as “physical determinism”. The notion that having the same buildings and transport system would make every local economy just as “sustainable”. Never mind that Detroit exists on manufacturing cars, which is hardly compatible with skyscrapers.

      This is about as rational as the old famous “cargo cult”: Papua New Guinean savages building airstrips because that would make magical mechanical birds descend from the sky with supplies of food etc. Building skyscrapers and subway systems would make every city in the world both as sustainable and wealthy as Manhattan.

  14. Especially in todays borderless, internet connected culture, any service which can be sold to a foreign counterpart is every bit as “wealth” producing as goods dug out of the ground, grown on the land or pounded together in a factory.

    • Where does the wealth come from in the first place, to pay for the services sold?

      I repeat: the entire economy of the world cannot exist on nations selling services to each other. Someone has to be digging stuff up.

      Otherwise, why could not an economic system (the entire world, or a trade region) just progress straight from “subsistence” to everyone selling “services” to each other? Why bother with an interim phase of specialisation and trade in actual “stuff”, at all? What a pity you can’t travel back in time and enlighten humanity a couple of thousand years ago. But you could try and offer your advice to a severely undeveloped nation – Papua New Guinea, perhaps?

    • You are still confusing wealth consumption and wealth transfers, with “wealth creation”. But it is a common mistake. Dollars spent on one “service” cannot be spent on another service as well. Everything does get cheaper in real terms, this is why more and more people can exist on the provision of consumption and transfers.
      But at root, the creation of wealth has to have involved the use of resources, and the “smarter” the resources are used, the greater the wealth created for the fewer resources used. But resources still have to be used, even if they are used “smarter”.

  15. Hilarious. Written only by an economist!

    Maths and simple physics dictates exponential growth can only ever be short term. And overshoot will lead to exponential contraction. It is unfortunate for utopians that peak oil coincided with the GFC, and that Europe and the US have already shed 10% oil consumption. Wonder what peak coal production in China will do?

    If GDP is only linked to transactions, why is there are 70% correlation between exergy (energy + productivity gains) and GDP growth?

    Why has the world population ballooned from 2billion at the start of the century to 7billion now?

    You are trying to argue an nonsense. So what if transactions can continue to grow? I care whether or not I will still be able to drive a car, go on holidays (not work), afford medical expenses.

    People in the Middle East and Africa would prefer to eat and have clean drinking water. Exponential growth (growth) has not helped these people, rather resulted in unsustainable populations that rely on imported food.

    Growth (especially in population) has to be controlled otherwise expect overshoot and collapse. The 1billion people living in poverty would probably agree with me

  16. @PhilBust Actually my argument was only that the wealth creation of a nation is NOT connected to the exploitation of its own resources. Japan, SKorea, Taiwan are not countries especially well endowed in resources yet they have achieved first world status by providing value added services and importing the raw materials to complete the job.

    Incidentally the whole seperation of manufacturing vs services is a completely arbitrary one. If i employ a local taylor to design, cut and sew a new suit, we call it a “service”. But if i employ a hundred Bangladeshi to make 10,000 suits we call it “manufacturing”.
    Why? It is only a difference of scale, timing and location.
    Yet the nature of the activity is the same.

    Hence my argument that the emphasis on “macho” manufacturing and sissy “services” is moronic. One is as good as the other if it can be turned into an international sale.