Via ClubOrlov blog,

[This week's guest post is by Scott Erickson, who is an award-winning humor writer and the author of a satirical novel titled The Diary of Amy, the 14-Year-Old Girl Who Saved the Earth. I liked it. It is entirely disarming and strikes a good balance between humor and seriousness. There are enough jeremiads and diatribes and rants on this topic out there. Luckily, this isn't one of them because Scott's scathing social critique and mordant wit are delivered via a charming narrative device: a smart, earnest, precocious 14-year-old girl.]

A 14-YEAR-OLD GIRL EXPLAINS HOW WE CAN STOP THE ADDICTION TO ECONOMIC GROWTH THAT’S DESTROYING THE EARTH



Hi! I’m Amy Johnson-Martinez, the 14-year-old girl who’s saving the earth from environmental destruction. A lot of people don’t understand how the destruction of the earth is connected to our addiction to economic growth. Actually, a lot of people don’t even realize that we’re addicted!



Personally speaking, I think it’s kind of weird that economists don’t tell us about this. So I guess it takes a 14-year-old girl to tell you about it!



Economists always say, “The economy has to keep growing or else it will collapse.” But it can’t grow forever, because the earth is running out of resources. Actually, it’s already starting to happen. That’s a big reason why the economy is getting worse.



Our economy is giving us a totally stupid choice: Save the economy or save the earth. It won’t let us save both! I personally think that’s pretty crazy!



On my journey to save the earth from environmental destruction, I figured out pretty quickly that the main problem is the economy. Pretty much every time there’s an idea that would make things less destructive and more sustainable, the argument against it is always: “It will be bad for economic growth.”



That’s when I found out the economy has to grow or else it collapses. But when I asked why, nobody knew the answer. So I had to figure it out myself.



I looked at a bunch of economic books, but none of them said anything about why we’re addicted to economic growth. I couldn’t even find out how the economy could grow. That’s another basic question: How can money grow?



Isn’t that an interesting question?



This led to another question, “How is money introduced into the economy?”



The answer wasn't easy to find. At first I thought the answer was that the government prints it, but that was back when I was young and naive. It turns out that the government prints only a tiny percentage of the money in circulation, and the rest is just promises, based on future growth (which is kind of weird if you think about it.)



Then I found out about “quantitative easing,” which sounds intellectually sophisticated. But it’s not the “real” answer, because quantitative easing only creates more promises. And the only way to live up to these promises is by overall growth of the economy. So we’re back to where we started: How does the economy grow?



Since I couldn’t find any answers in books about contemporary economics, I tried looking at books about the history of economics. I focused a lot on John Maynard Keynes, who was from England and invented the basic economic ideas we still use.



I found something interesting that he wrote in 1933. It’s the first thing I found that talks about economic growth. Basically, he thinks it’s important to have the economy grow, but when everybody is doing OK then growth should stop:

Suppose that a hundred years hence we are eight times better off than today. The economic problem may be solved.



The economic problem, the struggle for subsistence, always has been the primary, most pressing problem of the human race. Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to live wisely and agreeably and well.



When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. The love of money will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.



I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanor, and the love of money is detestable.

But the prediction that economic growth would end poverty hasn’t happened. In fact, even with all the economic growth that’s happened since then, poverty is getting worse. Obviously, the idea that economic growth will end poverty isn’t right.



I had to look up what the word “avarice” means, and basically it means “greed.” I also had to look up what “usury” means. It means to charge interest on loaning money. It’s a religious word and at one time all religions were against it as unethical.



Even though the quote was interesting, it didn’t answer the question about how money can grow. So I had to go back even farther. The ideas of John Maynard Keynes were influenced by another guy – John Law.



What a weird person! According to one book, in addition to being a banker and an economist he was “a gambler, swindler, rake and adventurer forced to flee the British Isles after killing an opponent in a duel.” This kind of person helped invent our economic system?



I found something in a book about John Law that seemed important: “Law made clear the distinction between a passive treasury, where money just accumulated, and an active bank, where money was created.”



Banks create money? That was news to me! I thought they just kept money and loaned some of it out.



The answer has to do with the “fractional reserve system” which started in the 1700s. It used to be that money was sort of a “receipt” for gold. The receipt was called a “banknote,” which was printed by the bank. But then some bankers figured out they could print more “receipts” than the gold they had, therefore they only had a “fraction” of the gold compared to the “receipts” (actual money).



That explains how it came to be that banks could create money, but it didn’t explain how money could “grow” – since banks were only allowed to print a certain percentage extra.



Then, some bankers figured out a way to become even more wealthy with this “extra money” they could print themselves. What they did is to give out the money in the form of a loan. Since they charged interest on the loan, they would get back more than they gave out. This next part is where the addiction starts.



Let’s say you get a loan for $100, but because of the interest you pay back $110. Here’s an interesting question: Where did that extra $10 come from?



It didn’t come from you, since you can’t create money. Only banks can – by making loans. So the extra money could only come from one place: More loans! If you trace money to where money comes from, it almost always comes from a loan.



People can get personal loans, but what’s more important for the economy is business loans – loans to start or expand a business. Of course all the loans have interest, which means paying back more money. But we’ve already figured out that money is “created” by banks issuing loans. So to pay off past loans, somewhere else in the economy there has to be new loans which create more money. But then THOSE loans have to be paid off with money, which means MORE loans.



It always comes back to the banks making more loans to pay off the existing loans. This has been going on for hundreds of years, which is how the economy “grows.”



Economic growth needs more money, but more money needs more economic growth, which needs more money. And it doesn’t stop. It can’t stop.



That’s not only how the economy grows, but why it HAS to grow. We can never get to a point where growth is “enough.”



This is why we’re addicted to economic growth. We’re not creating money; we’re creating debt!

Like with any addiction, we keep doing it even when it’s not working any more. This is why even when it’s obvious that economic growth isn’t solving unemployment or ending poverty or doing any of the other stuff it says it can do, we keep trying it anyway. It’s why even though we have more money than ever before in history, we still need more.



The funny thing is that the solution is super-easy. All we have to do is stop the banks from creating money as debt.



You know what’s really interesting? I discovered that our greatest president Abraham Lincoln figured this out and tried to stop it. Lincoln tried to fix the problem by having the government print a kind of money called “greenbacks”—$450 million of interest-free money. But the banks did NOT like this because they wanted to create all the money themselves! So they bought up all the “greenbacks” and forced the government to buy them back in exchange for gold.



Lincoln had the right idea, but he didn’t go far enough. We have to eliminate interest on ALL money. The answer is actually super-easy.



To end the addiction to economic growth and save the earth, this is what we need to do: End the creation of money as interest-bearing loans. Put an end to fractional reserve banking and make it so banks can’t create money. Then give the U.S. Treasury the exclusive right to issue U.S. currency free of debt.



Of course, the big banks won’t like this, because they make money from keeping us addicted. But as I learned in school, we live in a democracy which means companies aren’t the boss of us; we’re the boss of them. Yay for democracy!



Let’s stop the addiction before the economy collapses and destroys the earth, which is very beautiful. In fact, it’s my favorite planet!