Economics for a Sustainable Future

An article by Robert J. Samuelson in the Oregonian (February 15) asked whether debt (government, business and household) helps economic growth and reduces unemployment, or the opposite. He concluded that it stimulates growth in the early stages of the business cycle, and often reverses it in the later stages. As a consequence, we have booms and busts.  He ended the article with a tantalizing idea, ". . .  what the world really needs is another brand of economic growth, one less dependent on debt and more effective in increasing jobs and income . . . "

In the early stage of our own personal financial well-being, we borrow money to get an education. With that in hand, we get a good job. Unemployment in the general economy goes down. We make money and begin paying down our loans. Our credit rating improves. The economy improves. We start thinking about buying a house.

Now we enter the later stage of the boom/bust cycle. We buy the house. We have more debt (student loan, car loan, mortgage) than our income can justify. We cut back on our spending. Other people do the same. The economy slows. Employers lay off workers. We lose our job and file for bankruptcy.

Nations, unlike individuals, can't erase their debts through bankruptcy. Paul Krugman, the Nobel Prize-winning economist, argues that nations should borrow more money to keep the economy humming, piling debt on debt forever.

Krugman's model works so long as the world's economic machine keeps expanding: more people, more houses, more gadgets, etc. But his model falls apart once we realize that the world is over-populated and that 'stuff' has become a problem.

In our present economic model, most jobs, in one way or another, involve stuff - making stuff (clothes, apartments, airplanes, bombs), using stuff, transporting stuff, marketing stuff, fixing stuff, keeping track of stuff, storing stuff, disposing of stuff, etc. In effect, or economy pays people to do work that damages the planet and makes it less livable for our children.

An economic system based primarily on making stuff has limits.  First, it relies on using up limited resources, and therefore is limited. Second, we already own more things than most kings and czars throughout history dreamed of. We have excesses in garages, attics and storage lockers. If the economy slows it's because our demand for stuff diminishes.

Samuelson hinted at an economic system less dependent on debt and more capable at creating jobs.
You and I know it must also be better at preserving the natural world.

The shift to a service-based economy is a big step in the right direction. Another large step would be a tax on fossil fuels - a carbon tax. Not only would this make the production and use of things more expensive (therefore reducing the desire to borrow money to buy them), but also it would generate revenues from those who consume huge quantities of natural resources. That money could be used to create the 'job' of living small, that is, for the hard work of self-restraint.

A carbon tax in conjunction with other taxes produces the economy Samuelson asked for, one that depends less on debt, and that also employs more people. As a bonus, it saves the natural world for our kids.