In so many ways,we could hardly be called a sane species. We have devised ingenious systems to contain our technological growth and through the wonders of our planet and the universe we have managed to keep a foot hold despite almost mathematical certainty that we are not sustainable at our current level of consumption or systemic structure. Yet we are still here and are doing some things right.
The definition of insanity is, doing the same thing over and over again and expecting different results. While we are ‘kicking the can’ in relation to our increasing debt, we have also made sure that certain mistakes have not been repeated
It’s not yet clear how the approach we have taken will impact human civilisation in the annuls of history. Some boldly claim that we are heading towards deflation and then into a period of high inflation or hyperinflation. Some say a sustained period of deflation over 10+ years. Others believe (rather foolishly) that we will be back on the road to growth and are already recovering from one of the worst instances of overextended economic activity in human history. I am not entirely convinced either of these three outcomes are likely in the final analysis.
Instead I am taken in by some of the sane approaches that have been proposed so far and am hopeful that those in power will see correctly that the uncharted territory we are in is less to do with mistakes and things that we have done wrong but instead things that we have done right in response to these mistakes. The attempt to rectify the situation by doing something that was not previously done before could be seen as a sign of sanity and also as a glimmer of hope for our species to continue to exist on this planet.
While I do not want to get involved in the wider discussion of symbiotic existence on earth (a much more important debate) instead I will focus on a viewpoint that was made apparent to me in an outstanding talk by the historian Liaquat Ahamed – ‘learning from the great depression’
According to Ahamed, three main mistakes were made during the great depression which have so far not been repeated are:
1. During the great depression, banks were not bailed out. Depositors money was not guaranteed so savers lost their money as banks went bust. Banks were not recapitalised so any recovery using the existing banking models were doomed.
2. Debt was completely written down and deficits were cut as quickly as possible. Under these conditions the contraction of the economy was certain and a depression kicked in rapidly. In our case, we have increased our debts since we entered the financial crisis and are continuing to increase them.
3. At the time we were tied to a gold standard which meant leverage on capital was impossible. With the constraints of fixed, tangible money, the economy was unable to grow its way out of the depression with equal magnitude that it entered it. We are on a purely fiat currency at present and have no constraints as to our ability to dilute, fraction or leverage our currency.
Not repeating the mistakes from the past could best be seen to have occurred less by the central planners ingenious strategies but more likely due to the nature of the market that has evolved from such constrained periods of world history. While this double-edged sword is also the reason we are in this mess to begin with, all three points made by Ahamed could be seen as the solution to fixing the economy – leaving us with the harsh reality of too much debt and a decade or so of suffering to climb back out of our current predicament. Yet there are those who propose combining moderate use of this necessity with a different strategy in order to achieve prosperity.
Steve Keen has presented a debt jubilee as a panacea for our economic ills for some time. Numerous critics of this approach cite the unfairness presented to those who have saved prudently and are not in debt. Bailing out individuals who have not saved could be seen as anti-capitalist or socialist and Keen’s rebuttal is everyone will receive the debt jubilee – debtors and creditors alike – so there will be no unfairness in reciprocity from both parties. Jim Rickards has also presented this as a sane and logical approach to dealing with deflation and public caution to spending and indebtedness. Both Keen and Rickards are very intelligent and knowledgeable economic figures whose opinions should not be dismissed idly.
Our ability to progress as a species depends on our ability to move into uncharted territory and navigate without records of trial and error to guarantee success. As much as this is not ideal, it is all we have to go on and we should be wise enough to encourage this discourse to make wider public appeal of this solution acceptable and palatable. This is why, in the end, I am idealistically hopeful that our “dear leaders” will see this truth and will attempt to steer us out of our current dire predicament. And besides which, who wouldn’t want to see human society prosper and to have a tax-free gift of 20,000 pounds/euros/dollars to spend on ‘reviving the economy’?