31 December 2008

Is this the year of the steady state?

The economy has ceased to grow, in fact it has begun to shrink. Interest rates are now at marginal levels and may soon drop to 0%. Combine this with the falls in stock prices and you realise that it is no longer possible to earn money from having money. These are the very characteristics of the steady state economy that greens have been calling for. So should we be celebrating?

The problem with interest and other forms of using money to make money is that it is mortgaging the future. Since money is expanding goods will need to be increased so that they are available when the people who have that money come to demand them. And all those goods need resources and energy to make them. This is an unsustainable way of running an economy.

Because of this link between expanding money supply and increasing demand for goods, in a capitalist economy unless you have constant and exponential growth the money system will collapse--as it just has done. But rather than try to reboot the money system and desperately try to stimulate more economic activity, wouldn't it be more sensible to use this opportunity to shift our economy onto a more sustainable path?

Herman Daly's concept of the steady state economy is one where you do not take more resources from the planet than can be replenished and where scarce resources are used frugally and recycled. The concept also has significant implications for the population, which needs to be stabilised. He argued that this is the only sort of economy that can be sustainable on a limited planet.

The coming year is going to be a grim and challenging one; we will see the darkest face of capitalism. But it will also offer great opportunities for those of us who have a clear vision and proposals for how to bring it to life to make those arguments.

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