As the federal government doles out trillions of dollars in its CARES Act Stimulus Program – mostly to American corporations, leastly to deserving citizens, we might ask, “What kind of ‘economy’ is this?”
Like a tide going out and coming in, money has melted away – in a 10,000 point stock market drop, and returned – led by the U.S. Treasury, creating a 5,000 point stock market rise. Stock market observers have seen this epidemic effect before, and think it’s worrisome. Basically, the U.S. Treasury is borrowing against future U.S. tax revenues and paying itself interest on the loan, exploding our national debt, to print money for Americans who will owe nearly $70,000 per person to the U.S. Treasury.
Economists agree it’s a problem. David Wessel, Director of the Hutchins Center on Fiscal & Monetary Policy explained, “No one really knows at what level a government’s debt begins to hurt an economy.” If interest rates stay low, the government can handle a heavier debt load than anyone thought possible. But federal debt “cannot grow faster than the economy indefinitely.” Eventually, federal borrowing will crowd out private borrowing, and “Something has to give.”
A current Internet meme describes CARES like this:
“It is a slow day in the small Iowa town of Pumphandle, and streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit. A tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night. As soon as he walks upstairs,
. the motel owner grabs the bill and runs next door to pay his debt to the butcher.
. the butcher takes the $100 and runs down the street to retire his debt to the pig farmer.
. the pig farmer takes the $100 and heads off to pay his bill to his supplier, the Co-op.
. the guy at the Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her “services” on credit.
. the hooker rushes to the hotel and pays off her room bill with the hotel owner.
. the hotel proprietor then places the $100 back on the counter so the traveller will not suspect anything.
At that moment, the traveller comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves. No one produced anything. No one earned anything… However, the whole town is now out of debt and looks to the future with a lot more optimism.”
The Pumphandle story says our economy is built on the movement of capital. But what if each person in Pumphandle owes more than $100? Most Americans live paycheck to paycheck – money flows in, money flows out, and an unexpected expense can bankrupt them. Like the airlines and airplane manufacturers: they can’t make expenses because air travel has nosedived. American petroleum and tar sands companies are going bankrupt because the Saudi Arabia-Russia oil price war has created an oil glut and tanked per barrel income. Food suppliers, farmers and ranchers are dumping produce and killing livestock because restaurants, foodservice, hotel and cruise ship patronage has dropped to a trickle. Wen should create a new bankruptcy category: Chapter 19.
At this point, we might long for the good old days, when there was no such thing as money. Bands of our hunter-gatherer ancestors followed seasonal game and food plants, and even when they settled down 10,000-odd years ago to grow food and tame livestock, they still didn’t need money. They traded and bartered with other settlers and nomads. Labor predates capital by a million years.
But the Ag-Rev fed people, populations and tribal areas grew into territories, more people produced more goods and services, more trading occurred and more market centers appeared. People invented bookkeeping and accounting to keep track of transactions, and markers – money, to represent value and promises to pay. If you didn’t want a cow in trade for 30 clay urns, you could take an agreed weight in silver or gold to represent the value, then trade your silver for food or wood.
Governments appeared and grew; chieftains and warriors evolved into kings and armies; administrators appeared to manage growing realms and empires. Less and less money circulated amongst mid- and low-level tradespeople, farmers, ranchers and service providers; more and more flowed to the king’s coffers and the military – much like today.
Credit – loaning money to finance ventures – came mostly from the king and those connected to him. But expanding trade routes and more available wares to buy and sell encouraged commercial ventures, and helped entrepreneurs make fortunes. Commercial bankers arose to hold money securely. They lent it to finance regents’ adventures, finance new industries and research, and to make money on money. From the 1600s Enlightenment onward, the power of capital began to eclipse the power of monarchs.
Fast forward to today: We may love watching TV programs about hardy homesteaders and off-the-grid survivalists, but they’re just acting out nostalgic hunter-gatherer, or apocalyptic fantasies. With more than seven billion people on a planet running an $80 trillion globalized economy, they need this economy to finance their fantasies.
So, “What kind of economy is this?” All the world’s religions say it should be guided by a Golden Rule: “Treat others as you would treat yourself.” But most every empire has lived by another version: “Whoever’s got the gold makes the rules.” That approach “can weaken even the firmest ethical backbone,” wrote Eduardo Porter. And every empire has fallen, as greed for wealth has financed absolute power, and “absolute power corrupts absolutely,” (Lord John Dalberg-Acton, 1887).
Greed is really the source of all evil, not money. Food, shelter, security, love, and community appear in Maslow’s hierarchy; money doesn’t. Chief Sealth, surrendering his tribal lands to white settlers founding Seattle warned, “You may divide and sell all our land, but what will you do when you have nothing left to eat but your money?” Money is not political, religious or ethnic; nor moral or immoral. It’s amoral; a tool of commerce, a lifeblood of modern society. It’s like condensed energy, able to finance good and evil.
U. Mass. Boston economics professor Julie Nelson asserts that ethics must be a part of economics. “We undermine the ability of the economy to do its job — to provide for the sustaining and flourishing of life” if we imagine economics as “an ethics-free and care-free sphere.”
Labor may predate capital, but Oxford economics professor Bob Smith says they’re partners now – “complementary factors of production.” “In an industrial and post-industrial economy, you literally can’t produce (create, manufacture, distribute) without capital.”
The COVID economic jolt provides a good time for us to reimagine our economy as more than just the flow of money. Money is an agreement about the trading value of goods and services. Its value rises with optimism, falls with pessimism, spikes with euphoria, plunges with panic. If the U.S. Treasury can print money and call it valuable, then we can re-imagine the role of that money for supporting Americans’ aspirations. We should be looking at money in terms of what we could do if money were no object.
During the Great Depression, American infrastructure got built while America supported its artists and culture. We can do that today, too. When someone says we can or can’t “afford that,” it’s usually a statement of political expediency or lack of imagination.
For three years now, the Trump Administration has shown us how not to run a government. Meanwhile new, more cooperative form of financial and political systems have taken shape. While political leaders have locked their borders during COVID, scientists have opened theirs. While the current administration says it’s every man for himself, experts say being part of a cohesive community is the best way to survive disaster. On the business side, buying from or being part of a member-owned cooperative, like Darigold, Tillamook, R.E.I., Costco & credit unions, is more sustainable than with a standard structure business. In the U.S., cooperatives generate $652 billion in annual sales, and employ more than two million people. Worldwide, Certified B Corporations like Patagonia, Seventh Generation, and 3000 other companies are transparently verifying their business, social and environmental performance, working globally to build a sustainable and inclusive economy, and sharing the wealth to encourage more of it.
The models are there. It’s time we demand that our federal governments use them to run a better kind of economy now, and for our future.