Economic Predictions for 2013

TRANSCEND MEMBERS, CAPITALISM, 7 Jan 2013

John Scales Avery – TRANSCEND Media Service

New year speeches, such as the ones made by Danish Prime Minister Helle Thorning-Schmidt or  Germany’s Chancellor Angela Merkel acknowledged that the world is experiencing an economic crisis. According to these speeches and others made by politicians as the old year turned to a new one, 2012 was a year of crisis, but hopefully 2013 will be better. Hopefully economic growth will return in 2013.

What was lacking in the new year speeches, and also lacking in the entire spectrum of the mass media, is a truthful analysis of what has caused the economic crisis and how to deal with it. Politicians, economists and the media say “hopefully growth will return in 2013”. No one dares to say that the world is nearing the time when economic growth will have to end, because limitless growth on a finite planet is a logical impossibility, and because the limitless growth of population and industry is destroying the planet.

Why is economic growth so sacred that it is forever exalted, in defiance of logic? Perhaps the answer can be found in the world’s banking system, which is built on the practice of fractional reserve lending. When you or I deposit money in a bank, the bank keeps only a fraction of this deposit. The rest is lent out. By this practice, the banks are coining their own money.

Apart from the fact that the right to coin money ought to be reserved to governments so that benefits from expansion of the money supply can be used for social services, the practice of fractional reserve banking is dangerous because it only works in a growing economy. If an economy contracts, and depositors ask for their money, banks collapse because they do not have it. They have lent it out. This is the situation that we are facing today.

What happens when the world reaches the limit, beyond which economic growth is no longer possible? (Perhaps we have already reached this limit.) Can we devise a system that works, even without economic growth? This the challenge and opportunity that faces us today. We need an entirely new economic system.

Whether we call it Equilibrium Economics, Ecological Economics or Steady-State Economics, the new system will represent a complete break with the past, and it will require a new system of values. It will need both a social conscience and an ecological conscience.

Instead of being driven entirely by the profit motive, the new economic system will aim for full employment for everyone who wants a job. This employment must be in activities that will not harm the global environment. The shift from fossil fuels to renewable energy represents one such employment opportunity. Others can be found in reforestation, soil conservation, agricultural research, recycling of resources, increasing energy efficiency, and in creative artistic and scientific work. Strong governmental involvement in these activities will be needed.

Since the time of Adam Smith, self-interest has been the mainspring of human economic activity. What is required today is a change of values, so that instead of being motivated by selfishness, people throughout the world will work for the common good.

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John Scales Avery, Ph.D. is a member of the TRANSCEND Network and Associate Professor Emeritus at the H.C. Ørsted Institute, University of Copenhagen, Denmark. He received his training in theoretical physics and theoretical chemistry at M.I.T., the University of Chicago and the University of London. He is the author of numerous books and articles both on scientific topics and on broader social questions. His most recent book is “Crisis 21: Civilization’s Crisis in the 21st Century.”

This article originally appeared on Transcend Media Service (TMS) on 7 Jan 2013.

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