CHAPTER
6

MANAGING CONTRACTION, REDEFINING PROGRESS

Only a crisis — actual or perceived — produces real change.When the crisis occurs, the actions that are taken depend upon the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.

— Milton Friedman (economist)

Many analysts who focus on the problems of population growth, resource depletion, and climate change foresee gradually tightening constraints on world economic activity. In most cases the prognosis they offer is for worsening environmental problems, more expensive energy and materials, and slowing economic growth.

However, their analyses often fail to factor in the impacts to and from a financial system built on the expectation of further growth — a system that could come unhinged in a non-linear, catastrophic fashion as growth ends. Financial and monetary systems can crash suddenly and completely. This almost happened in September 2008 as the result of a combination of a decline in the housing market, reliance on overly complex and in many cases fraudulent financial instruments, and skyrocketing energy prices. Another sovereign debt crisis in Europe could bring the world to a similar precipice. Indeed, there is a line-up of actors waiting to take center stage in the years ahead, each capable of bringing the curtain down on the global banking system or one of the world’s major currencies. Each derives its destructive potency from its ability to strangle growth, thus setting off chain reactions of default, bankruptcy, and currency failure.

The likely outcomes of a non-linearity response of the monetary-financial–system to the end of growth thus constitute a wall in our path. Beyond the wall are other challenges and opportunities — challenges like oil depletion and climate change, and opportunities to reshape the economy so as to make it more sustainable over the long run, and to make it better serve human needs.

The depletion of resources and the buildup of greenhouse gases are gradual processes, though their various impacts will be subject to tipping points and will provoke short-term crises. Efforts to deal with these problems — such as building low-energy transport infrastructure and low-carbon food systems — will take a generation or more. That kind of time just won’t be available to us if we can’t get past the financial-monetary wall. If we hit the wall at full speed, our options will be severely and suddenly reduced. The economy, and society as a whole, may undergo an abrupt, dramatic, and chaotic simplification as trade virtually ceases.

So far, we are on course for full-force collision. The fundamental problems with our monetary and financial systems have not been addressed, but only papered over.

Our financial-monetary system is not just vulnerable to periodic internal disruptions like credit crises, it is inherently unsustainable in the emerging context of energy and resource constraints. And if the financial-monetary system seizes up, this will imperil society’s ability to respond to any and all other crises. This means that, whatever our other priorities may be, we must also immediately devote effort to reforming the financial-monetary system.

This chapter is mostly about what governments can do — must do, in fact — to get past the wall of looming financial-monetary collapse. As we will see, there may be more than one strategy that could work. But having averted immediate collision, we won’t be in the clear: this short-term barrier in humanity’s path must be negotiated in a way that also steers us around slower-developing problems such as climate change and resource depletion. If not, civilization will carom from one crisis to the next.

The Default Scenario

Making economic forecasts is always hazardous, as was pointed out in Box I.3 in the Introduction, “The Perils of Predication.” Nevertheless it may be useful to outline a potential default scenario — one way that events could unfold if we continue on our current track. Things need not play out this way, but if we do nothing to alter our current trajectory they very well could.

If consumer spending fails to recover, so that demand for new loans continues to remain low, this will put pressure on major banks’ balance sheets, making the toxic assets still on their books more difficult to conceal among what would otherwise be sounder, newer loans and investments. Unemployment will almost certainly remain high in the US (according to nearly all official forecasts), causing tax revenues to remain low and forcing drastic cuts in the budgets of cities, counties, and states. Other sovereign nations with high debt levels will be remain vulnerable to currency and credit crises. Central banks and some national governments (principally the US and Germany) will be compelled to extend more bailouts.

In effect, the global economy will be stuck with trillions of dollars in IOUs that cannot be repaid. And the number will continue to increase if policy makers continue to demand economic growth, because governments’ attempts to restart growth will require the further expansion of claims in the form of debt.

Under these circumstances, national governments and central banks (including the IMF, which acts somewhat as a global central bank) will be the only entities capable of keeping banking systems, and hence the global economy as a whole, functioning. Governments and central banks will be acting under the assumption that they are merely priming the pump of the economy until conventional consumer-driven growth resumes. But as growth fails to revive, one intervention after another will be required — propping up major banks, guaranteeing hundreds of billions of dollars’ worth of mortgages, or bailing out “too-big-to-fail” businesses. The result will be an incremental government takeover of large swaths of national economies, with central banks assuming more of the functions of commercial banking, and national governments underwriting production and even consumption.

In the US, this process will be enormously complicated by politics. One of the two main political parties is making resistance to expansion of government spending the centerpiece of its platform. Yet, whether Democrats or Republicans hold power in the US, the solution hit upon will eventually be more or less the same (recall: it was Republican President George W. Bush who extended the first round of bailouts and stimulus packages) — though the path toward achieving it is likely to be extremely contentious and littered with casualties. With states, counties, and municipalities nearing bankruptcy, the Federal government’s hand may be forced: It must eventually either bail them out or permit the unfolding of a fiscal and human crisis that could spread to engulf the nation.1

The US government’s expanding role in the economy is likely to be accompanied by greater reliance on the military for attempted solutions to national and international problems, for the following reasons. Cutting military spending will be problematic in a flagging economy, as that would create even more unemployment; substantial spending cuts in this area would likely be politically contentious in any case. Meanwhile, burgeoning trade, currency, and resource conflicts are likely to provoke saber-rattling responses from US adversaries and allies alike. Policy makers in a few strategic countries will be quick to back up tough talk with further investments in arms (though in many other nations military investment rates will fall for lack of available funds). The military may also be seen as the ultimate guarantor of domestic order.

Economic and demographic strains cannot help but stoke widespread dissent and unrest.2 In response, governments are likely to become more repressive. In the US, again whether Republicans or Democrats are in power, this could mean increased surveillance, controls over the Internet, tightening laws governing freedom of expression, and sharp reductions in guarantees of civil rights and liberties — most likely in the name of protection from terrorism and in response to worsening natural disasters. Wikileaks aside, secrecy will be rampant — with the biggest secret of all being that leaders have no viable long-term strategy to stop the economy’s slide.3

With support services (in the U.S: Social Security, Medicare, public schools, the food stamp program) stretched beyond their limits, we could see more public resentment against immigrants, especially in border states. Of course, the economic pain gripping the United States will not actually be the fault of immigrants — or China, Muslims, environmentalists, or even terrorists. Nor is the essential problem Big Government: As we have seen, the desperate effort to inflate government spending and power is more of an effect than a cause of the nation’s predicament. The search for scapegoats will accomplish nothing, but it will consume enormous amounts of effort and produce needless casualties. A sound case can be made that bankers and government officials played key roles in the financial crisis, and these individuals should be held to account. But correctly assigning blame will not make the crisis go away.

Events could continue to play out along these lines for several years, with gradually worsening outcomes. Nationalization of the economy will not constitute a solution to society’s difficulties; it will merely be a reflexive means of averting immediate meltdown. The phrase “bailout fatigue” has already entered the lexicon of policy makers, and will be the subject of increasing worry and controversy in coming years. Even with ballooning deficits and enormous spending programs, economic problems will only fester. Budget-balancing austerity measures will succeed only in reducing economic activity further. In either case, as energy becomes ever less affordable, economic productivity will decline and costs of long-distance trade will rise.

At some point in the next few years, stock and real estate values will plunge, banks will close, and businesses will shutter their doors. Monetary, financial, and social systems built upon the expectation of growth will simply fail in growth’s absence. In the worst instance, that failure could take the form of a nearly complete cessation of trade, as occurred nationally in Argentina in December, 2001. Some sort of new economy would inevitably emerge from the wreckage, but in scale and scope it would be a shadow of the one we knew just a few years ago. Measured in GDP, it might correspond to the world economy of fifty, a hundred, or even a hundred and fifty years ago.

The pursuit of the ideals of fairness, openness, and freedom, and the fights against corruption, greed, and tyranny will of course continue, as they must, but these struggles will play out within the constraints of a shrinking economy. Promises of plenty if only new leaders and policies are put in place will prove hollow. Social progress could yield relative change in economic conditions (advancing the prospects of the poor versus the rich), but not absolute change (the economy will still be contracting); meanwhile, the more intense the conflict, the more resources will be consumed that might have been devoted to helping households and communities adapt.

Sadly, the scenario I have just laid out is not necessarily the worst-case outcome. It is possible to imagine ones in which environmental disasters or energy shortages play more prominent roles, and where collapse comes sooner and is more complete.

Whether contraction is chaotic or controlled, and whether it comes sooner or later, a radical simplification of the economy is more or less inevitable, as systems designed for cheap energy and economic growth slam up against environmental limits. And the risk of uncontrolled, chaotic collapse is considerable. As the 2010 Bundswehr (German military) report on Peak Oil put it: “A shrinking economy over an indeterminate period presents a highly unstable situation which inevitably leads to system col-lapse.... The risks to security posed by such a development cannot even be estimated.”4

I am about to argue, however, that economic contraction need not entail catastrophe and sorrow if the process is managed well.

Haircuts for All...or Free Money?

To get past the wall of potential financial-monetary collapse, governments would have to resort to extraordinary emergency measures. In the best instance, this would create time and space to begin coming up with long-term, infrastructural responses to declining energy supplies and climate change — responses involving the redesign of transport systems, power generation and transmission systems, food systems, and so on. Of course, there is no guarantee that time, once gained, will be well spent. Nevertheless, in principle the wall can be traversed.

The essence of the wall is this: We have accumulated too many financial- monetary claims on real assets — consisting of energy, food, labor, manufactured products, built infrastructure, and natural resources. Those claims, essentially IOUs, exist in the forms of debt and derivatives. Our debt cannot be fully repaid: every dollar saved in the past is owed ever-multiplying returns in the future, yet the planet’s stores of resources are finite and shrinking. Claims just keep growing while resources keep depleting — and real prices of energy and commodities have begun rising. At some point it will become clear that this vast ocean of outstanding claims will never be honored, and the result could be a tidal wave of defaults and bankruptcies that would sweep away most of the economy.

In theory, as Harvard economic historian Niall Ferguson points out, there are six ways of resolving a debt crisis: (1) increasing the rate of GDP growth; (2) reducing interest rates; (3) offering bailouts; (4) accepting fiscal pain — reductions in benefits and standard of living; (5) injecting more money into the economy; or (6) accepting defaults, “including every type of non-compliance with the original terms of the debt contract.”5 If the premise of this book is correct and it has become nearly impossible to grow GDP, then we can eliminate option (1). Interest rates (2) cannot realistically be reduced lower than zero, which is essentially where they are now (for banks — though credit card interest rates are still in the range of 20 percent). As the debt problem worsens, bailouts (3) become more expensive and less effective. The austerity option (4) is distasteful to everyone and can only be pursued aggressively at the risk of a breakdown of social cohesion. Government printing of money (5) is frowned upon by trading partners and inflates away savings. Option (6), widespread defaults, could lead to a broad-scale failure of the monetary-financial system, so it will likely be avoided, except in limited circumstances.

Currently governments are dithering with all of these options, applying them in an ad hoc and piecemeal fashion. However, two of the six have at least a theoretical capability of being implemented in a fairly dramatic, strategic way if and when the crisis becomes otherwise unmanageable. These strategies would consist of a modified debt jubilee (a form of default, option 6), or a bout of inflation through the creation of non-debt-based currency (option 5). Both would come with major risks, but either could, in principle, buy time for the implementation of a more fundamental reform of the entire economic system.

A modified debt jubilee could take the form of a universal “haircut” — a term currently being used in financial circles to describe a situation where the market value of securities being held by financial firms as part of their net worth is significantly reduced. In the strategy being proposed, the “haircut” would apply to all financial claims. Government by edict would reduce all debt by a certain percentage — let’s say, somewhere between 75 and 90 percent. At the same time, all investments and savings accounts above a certain figure (allowance would have to be made for pensioners and low-income individuals) would get the same treatment. The process would be complicated and unpopular, especially among those with the most to lose, but it might help get us past the wall. It would reduce economic activity significantly — that’s going to happen anyway, even in the best instance — but it would also remove the overhang of debt that threatens to bring down the entire economy.

How might this work? Let’s say, as a starting point, that we wanted to protect all assets below a certain level. In the US, perhaps all assets below $25,000 could remain untouched. Then, one simple way to administer the “haircut” would be to slice a decimal place off everyone’s debts, savings, and other accounts. If you had a $250,000 mortgage, it would be knocked down to $25,000 — but your $20,000 savings account would survive unscathed, as it fell below the $25,000 limit designed to protect pensioners and other low-income individuals. Your debt overhang would have shrunk from $230,000 to $5,000. A wealthy person who had gained $5 billion through investing in hedge funds would now have only $500 million. A business that owed $750,000 in loans would now owe $75,000. And so on.

The net result would be a “re-set” in the relationship between claims and real assets, bringing that relationship back into a somewhat more workable balance. Of course, this “re-set” would be hugely controversial, confounding...and painful.

Sound far-fetched? Certainly, an action like this would not be undertaken unless other tactics had failed. It would yield winners and losers: although everyone would feel the effects, the impact would be uneven. At first glance, it seems those with the fewest assets and highest debts would suffer least. A more likely outcome would be widely distributed dislocations, unemployment, and so on, so there would be plenty of suffering to go around. But, this “re-set” would give us the opportunity — if we took advantage of it — to restructure our economic and financial systems to be more sustainable and resilient.

The second strategy would consist of governments or central banks creating debt-free money. This is how economist Richard Douthwaite, founder of the organization FEASTA and editor of the book Fleeing Vesuvius, describes it:

The solution is to have central banks create money out of nothing and to give it to their governments either to spend into use, or to pay off their debts, or give to their people to spend. In the eurozone, this would mean that the European Central Bank would give governments debt-free euros according to the size of their populations. The governments would decide what to do with these funds. If they were borrowing to make up a budget deficit — and all 16 of them were in deficit in mid-2010, the smallest deficit being Luxembourg’s at 4.2 percent — they would use part of the ECB money to stop having to borrow. They would give the balance to their people on an equal-per-capita basis so that they could reduce their debts, or not incur new ones, because private indebtedness needs to be reduced too. If someone was not in debt, they would get their money anyway as compensation for the loss they were likely to suffer in the real value of their money-denominated savings. Without this, the scheme would be very unpopular. The ECB could issue new money in this way each quarter until the overall, public and private, debt in the eurozone had been brought sufficiently down for employment to be restored to a satisfactory level.6

An alternative would be to pass laws against usury (for example, any interest rate greater than 20 percent would become illegal), then print enough money to accelerate inflation beyond 20 percent. People’s debts would decline over time, as would the value of money being held. The government could spend money into existence for social welfare programs, thus ensuring that retirees and other vulnerable groups don’t get hit too hard.

In the US, a version of the “free money” strategy is being advocated by Ellen Brown, author of Web of Debt. Brown argues that the United States Congress has the constitutional authority to coin money, but historically has needlessly delegated the power of money creation to the banking system — and, since 1913, to the Federal Reserve. The Federal government has on occasion created money directly, without borrowing — notably to finance the Civil War. The Federal Reserve’s second bout of quantitative easing, in 2010, was essentially a version of this strategy: the Fed bought government debt with money created on the spot, and interest from the debt will be rebated to the Treasury. However, Brown argues that the best way to pursue this option would be for the government itself to directly issue debt-free money, rather than for the Fed to do it through a more circular means.

The objection usually raised against government “printing” of large amounts of new money is that this would be highly inflationary: the US economy could suffer the same fate as Weimar Germany, with its currency becoming virtually worthless and all savings being wiped out in the process. Brown disagrees:

Adding money (“demand”) to an economy with high unemployment and unused productive capacity serves to increase productivity, increasing goods and services or “supply.” When supply and demand increase together, prices remain stable. And adding money to the money supply is obviously not hazardous when the money supply is shrinking, as it is now.... Financial commentator Charles Hugh Smith estimates that the economy now faces $15 trillion in writedowns in collateral and credit. If those estimates are correct, the Fed could, in theory, print $15 trillion and buy up the entire federal debt without creating price inflation. That isn’t likely to happen, but it does make for an interesting hypothetical.7

Over the short run, emergency measures could include the Fed buying up short-term municipal bonds in order to ease state and county fiscal crises, and the European Central Bank doing something similar with bonds of member nations, creating money to fill the gap left by the contraction in the money supply which resulted from the financial crisis of 2008 and that has led to soaring budget deficits.⁸

Another related, longer-term measure that could help, according to Brown, is the establishment of state or provincial banks. Currently, North Dakota has the only state-owned bank in the US, established by the state legislature in 1919. The bank’s original purpose was to free farmers and small businesses from indebtedness to out-of-state bankers and railroad companies. By law, the state deposits all its funds in the bank, and deposits are guaranteed by the state. The Bank of North Dakota is a bankers’ bank, partnering with private banks to loan money to farmers, real estate developers, schools, and small businesses. It also purchases municipal bonds.

What would be the advantage to the state of having of such a bank? With fractional reserve lending, banks extend credit (create money as loans) in amounts equal to many times their deposit base. If a state owns its bank, it need not worry about shareholders or profits, so it could lend to itself or to its municipal governments at zero percent interest.⁹ If these loans were rolled over indefinitely, this would be essentially the same as creating debt-free money.¹⁰

Clearly, none of these strategies can solve the long-term problems of declining energy and minerals, rising population, and worsening environmental crises. They are merely ways to avert the looming wall of monetary-financial collapse. Once we have bought some time, we must begin to redesign certain basic structures of the economy that currently function properly only in a context of constant growth.

One of these structures consists of the money we use.

Post-Growth Money

Over the past few centuries, with urbanization and the expansion of trade, money has become essential to the functioning of societies. Today even the most remote human communities depend on the vagaries of a technology of exchange that only a few people seem to understand, and that periodically suffers crises of over- or under-valuation.

As we saw in Chapter 1, metal-based forms of money were dominant for more than a millennium until the 20th century, when virtually the entire world adopted debt-based currencies no longer backed by metal. Yet, due to the requirement for interest payments, debt-based currency can only function well in an expanding economy.¹¹ As we’ve also noted, a transition back to metal-backed currencies is problematic. This means we will have to reinvent money in the years ahead.

Given money’s importance, it would be natural to assume that the discussion about currency systems and how they function is robust, featuring a wide-ranging literature, numerous college courses devoted to the subject, and so on. This is far from being the case. The notion that alternative kinds of money may be possible, some of them superior to debt-based currency, has occurred to some (Henry Ford, for example, is reputed to have been enamored with the idea of an energy-backed currency), but only a very few thinkers seem to have explored money systems in depth.¹² The project requires that we start by taking account of genuine human needs and then ask how money can be used to help satisfy them. It also requires a careful examination of our current monetary system and its vulnerabilities and failures. The goal should be to design a system — possibly involving several interlocking currencies to be used simultaneously but for different functions — that would liberate the exchange process from political and banking interests that presently tend to distort and commandeer it for their own ends: a system that could serve the needs of a steady-state or shrinking economy as easily as those of one that is growing.

In the previous section we noted the recommendation by Ellen Brown and Richard Douthwaite that governments (including US state governments and Canadian provincial governments) create their own debt-free money. Economist Herman Daly, author of The Steady State Economy, has mooted essentially the same idea: If there were a 100 percent reserve requirement for banks, this would get them out of the business of creating money; meanwhile government could award lump sums to new entrants into the economy (every 18-year-old would receive enough to pay for a college education) and lend money into existence at zero percent interest for socially worthwhile projects.¹³

Brown and Douthwaite insist that we don’t need banks in order to create money, and money doesn’t have to be loaned into existence with interest accruing. The kind of money we’ve been using for the past century is based on credit — which is helpful because it allows the money supply to expand or contract as conditions require.¹⁴ After all, money is more of a relationship than a thing: it is, in Brown’s words, “a legal agreement, a credit/debit arrangement, an acknowledgment of a debt owed and a promise to repay.”

However, credit-money need not be dependent on bank-generated, interest-bearing debt, if buyers’ and sellers’ credit accounts can be cleared directly. The idea is simple and is already being demonstrated in hundreds of local currencies that are in active use around the world. Many are versions of Local Exchange Trading Systems (LETS), in which each transaction is recorded as a corresponding credit and debit in the two participants’ accounts. The quantity of currency issued is always and automatically sufficient and does not depend on a bank or government for issuance.¹⁵

Some local currencies have no physical representation and consist only of the mutual credit of participants, while others use paper notes representing anything from a number of hours worked (Ithaca, NY, has a local currency known as “Ithaca Hours”) to quantities of food in storage (Willits, CA, has “Grange Grains”). The backing of local currencies with something tangible seems useful primarily as a way of defining the unit of account, and as a way of making the currency more “real” and acceptable to users.

Herman Daly is one of several authors who have advocated for the proliferation of local currencies; others include Dierdre Kent (Healthy Money, Healthy Planet); Richard Douthwaite (The Ecology of Money); Bernard Lietaer (The Future of Money: Creating New Wealth, Work and a Wiser World); and Thomas Greco, Jr. (Money: Understanding and Creating Alternatives to Legal Tender).¹⁶

Among the most successful of US local currencies is BerkShares, traded in the Berkshire region of Massachusetts, launched in 2006.¹⁷

BerkShares are available at five participating banks, where 95 Federal Reserve dollars may be exchanged for 100 BerkShares and then used to purchase goods and services on a one-to-one basis at over 400 businesses. Over 2.8 million BerkShares have been traded at banks since launch.

Complementary currencies are especially useful in situations where the national currency is, for whatever reason, failing to serve the needs of producers and consumers — as occurred during the Argentine economic collapse of 2001–2002, when small-denomination, interest-free provincial bond IOUs issued by local governments enabled trade to continue.

In his book The End of Money and the Future of Civilization, Thomas Greco, Jr. describes mutual credit clearing as both a fundamental monetary advance, and a solution to the basic and irreconcilable problems of debt-based money.¹⁸ Through mutual credit clearing, participants in the economy are, in effect, creating their own currency as needed.

Bernard Lietaer cites as examples credit-clearing systems such as the Commercial Credit Circuits (“C3”) in Brazil that enable small businesses to bypass banks for short-term financing; he points out that Uruguay allows payment of taxes in C3 currency.¹⁹ Greco goes on to offer a regional development plan based on credit clearing as well as suggestions for a complete web-based credit-clearing trade platform.²⁰

The unit of account used in credit-clearing exchange systems can vary. Greco notes possibilities including a basket of commodities, a unit of energy (such as the kilowatt hour), an existing currency unit (the US dollar), or a labor standard (a statistical unit of labor productivity). Even gold or silver could be used as a unit of account — though this would not require stockpiling of metals or actual payment of accounts in coin. There would be a considerable advantage to using the same unit of account globally so as to facilitate trade, but currencies themselves would work best as nested, diverse systems — with local, regional, and national currencies in simultaneous use.

Greco, Douthwaite, Daly, and others agree that governments should support and facilitate the emergence of local currencies. Lietaer notes that complementary currencies “meet unmet needs with unused resources,” and uses the mileage programs of the major airlines as an example of complementary currencies already familiar to most people.

Historically, governments have used their monopoly on the issuance of currency as a way to consolidate state power; legal tender laws, which require citizens to use the national currency, are the primary means of maintaining this monopoly. Greco, echoing Austrian-School economist Friedrich von Hayek, advises rescinding legal tender laws, writing that, “There should be a strict separation between money and the state. Any financial instruments issued by the government must be made to stand upon their own merits in the financial markets.”²¹ If this principle were generally accepted, says Greco, inflation would cease to exist.²²

Given a future of reduced global trade (because of scarcer fuel), and a greater need for resilience (which means more diversity, interconnectivity, and redundancy in basic societal support systems), local currencies would seem to make a great deal of sense. In practice, most local currencies in use during the past few decades have existed on the fringes of national economies, but this is largely because of legal tender laws maintaining the monopoly status of national currencies. As the global economy fails to grow, and as debt-based national currencies therefore become more dysfunctional, local currencies could enable commerce to continue.

For the past several decades the US dollar, created by commercial banks through interest-bearing loans, regulated by the Federal Reserve, and mandated by legal tender laws, has acted as a de facto global currency. It will take a financial-monetary earthquake to dislodge the dollar from that role and function. But pressure is building along the fault lines of the global economy, and even within the US political system. In recent months, US House of Representatives members Ron Paul (by some accounts the member furthest to the political right) and Dennis Kucinich (by some accounts furthest to the left) have both called for the abolition of the Fed; Paul advocates a return to the gold standard, while Kucinich backs the direct creation of debt-free money by the Federal government.

Meanwhile, the use of barter within the US is trending sharply upward.²³ Mutual credit-clearing exchanges and local currencies represent a significant advance over barter, but without the drawbacks of our present national debt-based currencies.

Post-Growth Economics

The past three decades, and especially the past three years, have seen an explosion of discussion about alternative ways of thinking about economics. There are now at least a score of think tanks, institutes, and publications advocating fundamentally revising economic theory in view of ecological limits. Many alt-economics theorists question either the possibility or advisability of endless growth.

The fraternity of conventional economists appears to be highly resistant to these sorts of challenging new ideas. Governments everywhere accept unquestioningly the existing growth-based economic paradigm, and this confers on mainstream economists a sense of power and success that makes them highly averse to self-examination and change. Therefore the likelihood of alternative economic ideas being adopted anytime soon on a grand scale would seem vanishingly small. Nevertheless, alternative thinking is still useful, because as growth ends the managers of the economy will sooner or later be forced to try other approaches, and it will be extremely important to have conceptual tools lying around that, in a crisis, could be quickly grasped and put to use.

As noted in Chapter 1, conventional economics starts with certain basic premises that are clearly, unequivocally incorrect: that the environment is a subset of the economy; that resources are infinitely substitutable; and that growth in population and consumption can continue forever. In conventional economics, natural resources like fossil fuels are treated as expendable income, when in fact they should be treated as capital, since they are subject to depletion. As many alternative economists have pointed out, if economics is to stop steering society into the ditch it has to start by reexamining these assumptions.²⁵

The following four fundamental principles must be established at the core of economic theory if economics is to have any relevance in the future:

• Growth in population and consumption rates cannot be sustained.

• Renewable resources must be consumed at rates below those of natural replenishment.

• Non-renewable resources must be consumed at declining rates (with rates of decline at least equaling rates of depletion), and recycled wherever possible.²⁶

• Wastes must be minimized, rendered non-toxic to humans and the environment, and made into “food” for natural systems or human production processes.²⁷

Further, economics must aim for a dynamic balance between efficiency (maximizing throughput) and resilience (adaptability, redundancy, diversity, and interconnectivity) — whereas today economists focus almost entirely on efficiency.²⁸

The contributions of the alternative economists (via schools of thought known as ecological economics, environmental economics, and biophysical economics) can be divided into three broad categories: critiques of existing economic system, proposals for an alternative system, and strategies for making the transition from one to the other.²⁹

In his book Prosperity Without Growth, British economist Tim Jackson writes: “During the [period since 1950] the global economy has grown more than 5 times,” and economists expect it to quadruple again by mid-century. “This extraordinary ramping up of global economic activity has no historical precedent,” according to Jackson.

It’s totally at odds with our scientific knowledge of the finite resource base and the fragile ecology on which we depend for sur-vival.... Questioning growth is deemed to be the act of lunatics, idealists and revolutionaries. But question it we must. The idea of a non-growing economy may be an anathema to an economist. But the idea of a continually growing economy is an anathema to an ecologist.... The only possible response to this challenge is to suggest — as economists do — that growth in dollars is “decoupled” from growth in physical throughputs and environmental impacts. But...this hasn’t so far achieved what’s needed. There are no prospects for it doing so in the immediate future. And the sheer scale of decoupling required...staggers the imagination.³⁰

The New Economics Foundation in London recently published a book-length study titled Growth Isn’t Possible, which asks whether goals related to mitigating climate change can be met in the context of continued global economic growth. Its conclusion: “Economic growth in the OECD cannot be reconciled with a 2, 3, or even 4°C characterization of dangerous climate change.”³¹

Herman Daly, one of the pioneers of ecological economics (he published Toward a Steady State Economy in 1973 and Beyond Growth in 1996, and co-authored a textbook titled Ecological Economics in 2004), differentiates between economic growth and uneconomic growth.³² For Daly, uneconomic growth consists of GDP gains that are accompanied by static or declining social benefits, as for example when a certain amount of short-term growth is achieved by undermining ecosystems whose services have a greater long-term value.³³

In Europe, a “degrowth” movement has taken root, founded on the ideas of Mohandas Gandhi, Leopold Kohr, Jean Baudrillard, André Gorz, Edward Goldsmith, Ivan Illich, and Serge Latouche.³⁴ The work of Romanian economist Nicholas Georgescu-Roegen (1906–1994) was especially pivotal in setting the movement on its path: his 1971 book titled The Entropy Law and the Economic Process pointed out that neoclassical economics fails to acknowledge the second law of thermodynamics by not accounting for the degradation of energy and matter. Georgescu-Roegen’s thinking had in turn been influenced by that of chemist-turned-economist Frederick Soddy (1877–1956), author of Wealth, Virtual Wealth and Debt (1926), which sought to bring economics into line with the laws of thermodynamics and which critiqued fractional-reserve banking.³⁵ The French translation of Georgescu-Roegen’s book in 1979 under the title Demain la décroissance (“Tomorrow, Degrowth”) spurred décroissance thinking and organizing that eventuated in the first International Degrowth Conference in Paris in 2008 and the founding of a French-language newspaper, La Décroissance: Le journal de la joie de vivre, published in Lyons.

In the United States, the term “degrowth” is seldom mentioned; however, over the past twenty years a similar trend in thinking has spurred the “voluntary simplicity” movement, which questions the environmental, psychological, and social costs of ever-growing consumption. The movement has roots in the ethical beliefs of religious groups like the Amish, but also in the writings of philosopher Henry David Thoreau (1817–1862) and back-to-the-land pioneers Scott and Helen Nearing (1883–1983; 1904– 1995, authors of Living the Good Life).³⁶ The books Voluntary Simplicity by Duane Elgin (1981), and Your Money or Your Life by Joe Dominguez and Vicki Robin (1992), and the documentary film “Affluenza” (1997) helped define this movement, which now also features magazines and newsletters to assist in the formation of local simple living networks.³⁷ Many simplicity advocates promote Buy Nothing Day, which falls on the Friday following Thanksgiving Day in the United States, as an antidote to pre-Christmas shopping frenzy.

The US has also spawned systematic critiques of standard economic theory. Henry George (1839–1897) has been called America’s most important home-grown economist; his writings explored the implications of the principle that each person should own what he or she creates, but that everything found in nature, most importantly land, should belong equally to all humanity.³⁸ Economist Thorstein Veblen (1857–1929) criticized the wastefulness of consumption for status.³⁹ More recently, the book Small Is Beautiful by German-British economist E. F. Schumacher (1911–1977) inspired Bob Swann (an American pioneer of land trusts) to found the E. F. Schumacher Society, which is now the New Economics Institute, one of several US organizations that promote a basic restructuring of the economy according to ecological principles.⁴⁰

If growth is impossible to sustain, what alternative goal should economies pursue? Herman Daly (who was a student of Georgescu-Roegen) has for nearly three decades advocated a “steady-state economy,” which he describes as “an economy with constant stocks of people and artifacts, maintained at some desired, sufficient levels by low rates of maintenance ‘throughput,’ that is, by the lowest feasible flows of matter and energy from the first stage of production to the last stage of consumption.”⁴¹ A steady-state economy would aim for stable or mildly fluctuating levels in population and consumption of energy and materials; birth rates would equal death rates, and saving/investment would equal depreciation.

The goal of a steady-state economy is now being actively promoted by the Center for the Advancement of a Steady State Economy (CASSE), headquartered in Arlington, VA, with chapters elsewhere in the country.⁴² The president of the organization, Brian Czech, is author of Shoveling Fuel for a Runaway Train (2000).⁴³

In his 2007 book Managing Without Growth, Canadian economist Peter Victor presents a model of the Canadian economy that shows “it is possible to develop scenarios over a 30 year time horizon for Canada in which full employment prevails, poverty is essentially eliminated, people enjoy more leisure, greenhouse gas emissions are drastically reduced, and the level of government indebtedness declines, all in the context of low and ultimately no economic growth.”⁴⁴

Some critics of the steady-state economy concept have assumed that keeping consumption constant would require harsh government controls. However, Daly and others contend that such an economy could flourish in the context of a constitutional democracy with a common-sense mixture of markets and market regulations. Markets would still allocate resources efficiently, but some vital decisions (such as permissible rates of resource extraction and the just distribution of resources, especially those created by nature or by society as a whole) would be kept outside the market.

A few nations and communities are already moving in the direction of a steady-state economy. Sweden, Denmark, Japan, and Germany have arguably reached situation in which they do not depend on high rates of growth to provide for their people. This is not to say these countries have only smooth sailing ahead (Japan in particular is facing a painful adjustment, given its very high levels of government debt), but they are likely to fare better than other nations that have high domestic levels of economic inequality and that have gotten used to high growth rates.

Sweden is now home to a number of eco-municipalities. Inspired by economist Torbjörn Lahti and by Karl-Henrik Robèrt, founder of the Natural Step Movement, these formerly depressed industrial towns have made an official and deliberate commitment to “dematerialize” their economies and to foster social equity.⁴⁵ Övertorneå, Sweden’s first eco-municipality, saw a 20 percent unemployment rate during the recession of the early 1980s and lost 25 percent of its population (prior to becoming an eco-municipality), but now boasts a thriving ecotourism economy based on organic farming, sheepherding, fish farming, and the performing arts. The town has reached its 2010 goal of being a free of fossil fuels. Hällefors, a former steel town that also suffered from high unemployment 20 years ago, now has an economy based on renewable energy, organic farming, and culinary arts. Other eco-communities exist in Norway, Finland, and Denmark.⁴⁶

For the world as a whole, the transition from a growth-based economy to a steady-state economy is likely to be far more problematic than the examples in the preceding paragraph might suggest: ecotourism will never be the economic backbone of New York, Beijing, or Mumbai — though organic farming will likely be the main engine for a growing number of smaller communities.

Which raises the question: How do we get there from here? Aside from creating non-debt-based currencies (as discussed above), what strategies could help ease the way toward a healthy post-growth world economy? Herman Daly and other steady-staters advise policies along the following lines:

• A cap–auction–trade (or cap-and-dividend) system for extraction rights for basic natural resources;

• A shift away from taxing income and toward taxing resource depletion and environmental pollutants;

• Limits on income inequality;

• More flexible workdays; and

• The adoption of a system of tariffs that would allow countries that implement sustainable policies to remain competitive in the global marketplace with countries that don’t.

One of the fundamental problems with markets, acknowledged by nearly all economists, is the tendency for businesses to externalize costs (“externalities,” in economic theory, are costs or benefits from a transaction that are not reflected in the price). For example, companies that burn fossil fuels — thereby releasing air pollutants — typically pass the resulting health bills and clean-up costs on to nearby communities, or the nation, or the world as a whole. It is possible to internalize such costs through laws and regulations. One strategy is to collect “Pigovian” taxes from businesses equal in amount to their negative, externalized costs to society. Another solution is to define property rights more carefully (e.g., the right of residents in a community to clean air and water) so that efforts to remedy violations of those rights carry legal weight. Many conventional economists believe that such measures will solve the problem of externalities without need for government intervention in markets, but Herman Daly and Josh Farley have argued that in reality such measures are only partly effective, as the interests of future generations are still not taken into account.⁴⁷ One remedy that Daly and Farley suggest is making the rights of future generations to certain resources, such as to the ecosystems responsible for generating life-support functions, explicit and inalienable.⁴⁸

Henry George championed the idea of a “single tax” on the use of land (while accepting private ownership of land, he advocated the public capture of all value it generates), with the proceeds shared by society; this was a purist solution to the problems of economic inequality, monopolies, and environmental externalities. A partway measure in this direction consists of levying high taxes on land values. Pittsburgh, PA, did this in 1913 by instituting a high tax on unimproved land held for speculation, and as a result land values there have remained far more stable than in other cities.⁴⁹ If the government captures any increases in land values, it eliminates speculative demand for land, thus avoiding speculative bubbles and keeping land cheaper for non-speculative uses. Land equity partnerships and land trusts (including agricultural land trusts) are other proven ways to overcome the landlord-tenant dilemma and remove land from the speculative market.⁵⁰

Futurist Hazel Henderson, author of Ethical Markets: Growing the Green Economy, advises governments to charge a financial transaction tax of one percent or less.⁵¹

This would not affect the trades of 99.9 percent of all Americans. But it would put a major crimp in the games that the big boys play. Let the quants use their brainpower to cure cancer rather than to craft complex computerized trading systems that leave society with less than nothing. A small transaction tax could generate over a $100 billion a year from Wall Street — and in the process, bring those ridiculous bonuses and profits back in line with the real economy.⁵²

Henderson also advocates breaking up too-big-to-fail banks and businesses and fostering non-profit community development finance institutions (CDFIs) to address the capital needs of micro-businesses.

To discourage trans-border financial capital flows that exploit the labor and resources of less-industrialized countries, Daly calls for downgrading the IMF and World Bank into mere clearinghouses that collect fees from countries that run both surpluses and deficits in their current and capital accounts. Daly would also remove price barriers to “non-scarce” intellectual capital — including royalty payments to patent holders. Such barriers often prevent less-industrialized countries from developing the renewable energy technologies necessary to bypass fossil fuels.

One final requirement in the transition from a growth economy to a steady-state economy is the reform of corporate law. Corporations enable individuals to pool financial resources to pursue commercial interests under a legal structure that limits liability for employees and investors. In the US, corporations also enjoy the status and rights of legal persons. In effect, this gives them the financial resources to influence public policy, and to exploit people and nature, without moral or legal responsibility. In fact, corporate officers are virtually required by law to place value to shareholders above all other considerations. University of British Columbia law professor Joel Bakan describes the modern corporation as “an institutional psychopath”; in the documentary “The Corporation” (2003), he claims that if the behavior of corporations were ascribed to ordinary people, the latter would be considered to exhibit the traits of antisocial personality disorder. In that same film, former Republican Party candidate for Senate from Maine, Robert Monks is seen remarking: “The corporation is an externalizing machine, in the same way that a shark is a killing machine.”⁵³ The environmental ethic inherent in the corporate legal structure could be summarized as: “Use resources as fast as possible until they’re gone.”

Alternative economists argue that the genuine benefit of corporations (their ability to pool capital to achieve socially useful purposes) could be better achieved through cooperatives — which have a long history of success. Credit unions are cooperative banks; some utilities operate as cooperatives; and there are also housing, manufacturing, and agricultural cooperatives.⁵⁴ The following seven principles are central to the cooperative movement:

1. Voluntary and open membership,

2. Democratic member control,

3. Member economic participation,

4. Autonomy and independence,

5. Education, training, and information,

6. Cooperation among cooperatives, and

7. Concern for community.⁵⁵

Cooperatives have the potential to avert overuse of resources by placing other values, including the interests of future generations, ahead of profit. Indeed, the organization “Coop America,” which began as a sort of cooperative of US cooperatives, in 2009 changed its name to “Green America.”

Gross National Happiness

After World War II, the industrial nations of the world set out to rebuild their economies and needed a yardstick by which to measure their progress. The index soon settled upon was the Gross National Product, or GNP — defined as the market value of all goods and services produced in one year by the labor and property supplied by the residents of a given country. A similar measure, Gross Domestic Product, or GDP (which defines production based on its geographic location rather than its ownership) is more often used today; when considered globally, GDP and GNP are equivalent terms.

GDP made the practical work of economists much simpler: If the number went up, then all was well, whereas a decline meant that something had gone wrong.

Within a couple of decades, however, questions began to be raised about GDP: perhaps it was too simple. Four of the main objections:

• Increasing self-reliance means decreasing GDP. If you eat at home more, you are failing to do your part to grow the GDP; if you grow your own food, you’re doing so at the expense of GDP. Any advertising campaign that aims to curb consumption hurts GDP: for example, vigorous anti-smoking campaigns result in fewer people buying cigarettes, which decreases GDP.

• GDP does not distinguish between waste, luxury, and a satisfaction of fundamental needs.

• GDP does not guarantee the meaningfulness of what is being made, bought, and sold. Therefore GDP does not correlate well with quality of life measures.

• GDP is “Gross Domestic Product”; there is no accounting for the distribution of costs and benefits. If 95 percent of people live in abject poverty while 5 percent live in extreme opulence, GDP does not reveal the fact.⁵⁶

In 1972, economists William Nordhaus and James Tobin published a paper with the intriguing title, Is Growth Obsolete?, in which they introduced the Measure of Economic Welfare (MEW) as the first alternative index of economic progress.⁵⁷

Herman Daly, John Cobb, and Clifford Cobb refined MEW in their Index of Sustainable Economic Welfare (ISEW), introduced in 1989, which is roughly defined by the following formula:

ISEW = personal consumption + public non-defensive expenditures - private defensive expenditures + capital formation + services from domestic labor - costs of environmental degradation - depreciation of natural capital

In 1995, the San Francisco-based nonprofit think tank Redefining Progress took MEW and ISEW even further with its Genuine Progress Indicator (GPI).⁵⁸ This index adjusts not only for environmental damage and depreciation, but also income distribution, housework, volunteering, crime, changes in leisure time, and the life-span of consumer durables and public infrastructures.⁵⁹ GPI managed to gain somewhat more traction than either MEW or ISEW, and came to be used by the scientific community and many governmental organizations globally. For example, the state of Maryland is now using GPI for planning and assessment.⁶⁰

During the past few years, criticism of GDP has grown among mainstream economists and government leaders. In 2008, French president Nicholas Sarkozy convened “The Commission on the Measurement of Economic Performance and Social Progress” (CMEPSP), chaired by acclaimed American economist Joseph Stiglitz. The commission’s explicit purpose was “to identify the limits of GDP as an indicator of economic performance and social progress.” The commission report noted:

What we measure affects what we do; and if our measurements are flawed, decisions may be distorted. Choices between promoting GDP and protecting the environment may be false choices, once environmental degradation is appropriately included in our measurement of economic performance. So too, we often draw inferences about what are good policies by looking at what policies have promoted economic growth; but if our metrics of performance are flawed, so too may be the inferences that we draw.⁶¹

In response to the Stiglitz Commission there have been increasing calls for a Green National Product that would indicate if economic activities benefit or harm the economy and human well-being, addressing both the sustainability and health of the planet and its inhabitants.⁶²

One factor that is increasingly being cited as an important economic indicator is happiness. After all, what good is increased production and consumption if the result isn’t increased human satisfaction? Until fairly recently, the subject of happiness was mostly avoided by economists for lack of good ways to measure it; however, in recent years, “happiness economists” have found ways to combine subjective surveys with objective data (on lifespan, income, and education) to yield data with consistent patterns, making a national happiness index a practical reality.

In The Politics of Happiness, former Harvard University president Derek Bok traces the history of the relationship between economic growth and happiness in America.⁶³ During the past 35 years, per capita income has grown almost 60 percent, the average new home has become 50 percent larger, the number of cars has ballooned by 120 million, and the proportion of families owning personal computers has gone from zero to 80 percent. But the percentage of Americans describing themselves as either “very happy” or “pretty happy” has remained virtually constant, having peaked in the 1950s. The economic treadmill is continually speeding up due to growth and we have to push ourselves ever harder to keep up, yet we’re no happier as a result.

Ironically, perhaps, this realization dawned first not in America, but in the tiny Himalayan kingdom of Bhutan. In 1972, shortly after ascending to the throne at the age of 16, Bhutan’s King Jigme Singye Wangchuck used the phrase “Gross National Happiness” to signal his commitment to building an economy that would serve his country’s Buddhist-influenced culture. Though this was a somewhat offhand remark, it was taken seriously and continues to reverberate. Soon the Centre for Bhutan Studies, under the leadership of Karma Ura, set out to develop a survey instrument to measure the Bhutanese people’s general sense of well-being.

Ura collaborated with Canadian health epidemiologist Michael Pennock to develop Gross National Happiness (GNH) measures across nine domains:

• Time use

• Living standards

• Good governance

• Psychological well-being

• Community vitality

• Culture

• Health

• Education

• Ecology

Bhutan’s efforts to boost GNH have led to the banning of plastic bags and re-introduction of meditation into schools, as well as a “go-slow” approach toward the standard development path of big loans and costly infrastructure projects.

The country’s path-breaking effort to make growth humanly meaningful has drawn considerable attention elsewhere: Harvard Medical School has released a series of happiness studies, while British Prime Minister David Cameron has announced the UK’s intention to begin tracking well-being along with GDP.⁶⁴ Sustainable Seattle is launching a Happiness Initiative and intends to conduct a city-wide well-being survey.⁶⁵ And Thailand, following the military coup of 2006, instituted a happiness index and now releases monthly GNH data.⁶⁶

Michael Pennock now uses what he calls a “de-Bhutanized” version of GNH in his work in Victoria, British Columbia. Meanwhile, Ura and Pennock have collaborated further to develop policy assessment tools to forecast the potential implications of projects or programs for national happiness.⁶⁷

Britain’s New Economics Foundation publishes a “Happy Planet Index,” which “shows that it is possible for a nation to have high well-being with a low ecological footprint.”⁶⁸ And a new documentary film called “The Economics of Happiness” argues that GNH is best served by localizing economics, politics, and culture.⁶⁹

No doubt, whatever index is generally settled upon to replace GDP, it will be more complicated. But simplicity isn’t always an advantage, and the additional effort required to track factors like collective psychological well-being, quality of governance, and environmental integrity would be well spent even if it succeeded only in shining a spotlight of public awareness and concern in these areas. But at this moment in history, as GDP growth becomes an unachievable goal, it is especially important that societies re-examine their aims and measures. If we aim for what is no longer possible, we will achieve only delusion and frustration. But if we aim for genuinely worthwhile goals that can be attained, then even if we have less energy at our command and fewer material goods available, we might nevertheless still increase our satisfaction in life.

Policy makers take note: Governments that choose to measure happiness and that aim to increase it in ways that don’t involve increased consumption can still show success, while those that stick to GDP growth as their primary measure of national well-being will be forced to find increasingly inventive ways to explain their failure to very unhappy voters.

Our Problems Are Resolvable In Principle

We’ve just seen how the economy could be put on the right track. But sorting out the economy is not enough to save the world; that would be just the first step.

The world’s environmental dilemmas are likewise amenable to resolution, at least in principle. As support for that statement one can point to piles of “how-to-save-the-world” environmental articles and books — in fact I can point to literal piles of such books here in my little home office. Which suggests a way to approach writing this section of the book: rather than painstakingly assembling a balanced overview of an immense and wide-ranging literature, perhaps all that’s really needed is for me to look around and grab a few titles off the shelves.

The first one that comes to hand is Lester Brown’s Plan B 4.0: Mobilizing to Save Civilization.⁷⁰ In some ways we need go no further: Brown has provided a masterful overview of the world’s 21st-century threats (oil and food security, rising temperatures and rising seas, water shortages, etc.) and the ways to contain or overcome them — by eradicating poverty, conserving resources, reforming the world’s food system, raising energy efficiency, and developing renewable energy. There it is, folks: that’s all you need to know. Just go out and do it. (Brown’s very latest book, World on the Edge: How to Prevent Environmental and Economic Collapse, which I didn’t have at the time of this writing, appears to be an updated and improved version of Plan B.)⁷¹

Ah, but how could we stop with just one book? Next in the stack is one I couldn’t resist: my own largely neglected previous volume, The Oil Depletion Protocol: A Plan to Avert Oil Wars, Terrorism and Economic Collapse. It outlines a simple framework for guiding world policy regarding oil — and, in principle, all other non-renewable natural resources. Since we know that we cannot continue increasing rates of extraction forever, it makes sense to conserve such resources by deliberately reducing extraction rates now. If we did this in a coordinated way, we could keep resource prices from fluctuating destructively, reduce the incentive for nations to compete for dwindling supplies, and help jumpstart the inevitable transition to renewable alternatives.⁷² What’s not to like about that?

A third book that comes easily to hand is Albert Bates’s The Biochar Solution: Carbon Farming and Climate Change. Bates has long been a prophet regarding climate change and is a veteran organic farmer; in this book he provides an excellent overview of a widely-researched technique for removing carbon from the atmosphere while building soil — a win-win solution if ever there was one.⁷³

But wait — there are some problems we haven’t addressed. How about transportation in an oil-constrained future? Take a look at Transport Revolutions: Moving People and Freight Without Oil, by Richard Gilbert and Anthony Perl, or An American Citizen’s Guide to an Oil-Free Economy by Alan Drake, a veteran proponent of rails as being far more efficient than highways.⁷⁴ The problem of overpopulation must be mentioned again here — but we have already discussed the admirable and effective work of Population Media Center in Chapter 5; for more on solutions, see Bill Ryerson’s chapter “Population: The Multiplier of Everything Else” in The Post Carbon Reader.⁷⁵ Conflict resolution methods and new governance models are covered in Roy Morrison’s Ecological Democracy.⁷⁶ And the crisis in biodiversity is addressed an article in a recent issue of Solutions magazine — “Facing Extinction: Nine Steps to Save Biodiversity,” by Joe Roman, Paul Ehrlich, et al.⁷⁷ The looming crisis in the world’s food systems is tackled in a report I co-wrote with Mike Bomford a couple of years ago, “The Food and Farming Transition.”⁷⁸

I could keep going. The list of critical problems facing civilization is nearly endless, but each one of those problems has been addressed with proposals and model projects aimed at mitigating it. These are the tools we want to have lying around as crisis hits, though they’ll only be useful if we actually pick them up and learn to wield them.

This chapter began with a rather dark “Default Scenario,” yet we went on to see that there are solutions to the economic problem it portrayed; moreover, as we’ve just noted, there are potential answers to all our other critical problems as well. If civilization fails, it won’t be for a lack of good ideas. Some of these have been around since the 1970s — a few since the 1870s. Which brings up the question: Why, if so many solutions are available, does my “default scenario” for the future look so dreary?

Perhaps the suggestion that “Our problems are resolvable in principle” needs to be followed by an “if ” clause and a “but” clause.

The “if ” clause: If we are willing to change our way of life and the fundamental structures of society. Many people assume that solving our problems means being able to continue doing what we are doing now. Yet it is what we are doing now that is creating our problems. Every “solution” mentioned above comes at a cost in terms of fundamental changes in individual and societal behaviors and priorities.

The “but” clause: But our society as a whole is not inclined to do what is required to solve them, even if the consequences of failing to do so are utterly apocalyptic. This statement seems bizarre on its face. Who would prefer to see economic collapse, the exhaustion of precious natural resources, the disappearance of millions of species, the failure of food systems — and resulting misery and death for millions upon millions of humans? Well, no one, if we put it that way. Yet the choices are not always so clear-cut, and we humans are hard- and soft-wired with genetic and psychological programming that can make it very difficult for us to undertake costly short-term behavioral change in order to avert future catastrophe.⁷⁹

It may be cynical to say that policy makers will do the right thing only after all other alternatives have been exhausted.⁸⁰ But for the solutions we have been discussing, this does seem to be more or less the case. And this is true not just of policy makers, but the majority of us worker bees as well.

Paul Ehrlich and Robert Ornstein made a pioneering effort to understand our species’ inability to pre-respond to impending, foreseeable crises in their book New World New Mind (1989), which describes the mismatch between the human nervous system and the complexities of our modern world.⁸¹ While early hunter-gatherers evolved quick reflexes to cope with immediate threats in a limited environment, people in modern industrial societies face long-range problems not readily apparent to the five senses — growing population, climate change, resource depletion, and proliferation of debt. At their cores, our fight-or-flight brains just aren’t up to dealing with these kinds of slowly developing dilemmas, even though our more advanced cerebral faculties enable us to define both challenge and potential solutions.

A more recent book, American Mania: When More Is Not Enough, by neuroscientist Peter Whybrow, digs deeper and reflects more recent research.⁸² Whybrow notes that evolution equipped us to seek status and novelty, and to engage in conspicuous consumption. In our species’ past, there were perfectly good reasons for these tendencies: they helped us survive and achieve reproductive success. But today, in a world of over-consumption, they keep us locked into behaviors that actually undermine our survival prospects.

Within our brains, dopamine plays a key role in governing motivation and stimulating the senses of reward and pleasure. On the primordial savanna, we got a hit of dopamine every time we discovered a tasty root or bagged a prey animal; today, stock trading lights up the same brain circuitry. But what helped us survive in one situation imperils us in the other. On the savanna, our early ancestors always needed the next meal, and then the next, and so the dopamine response evolved to be transitory.

But today this means that, for the stock trader, no amount of profit is ever “enough.” When we modern urbanites get a dopamine “hit” from a new car, a bigger house, or an end-of-year bonus, we may know intellectually that Earth simply can’t keep supplying us with ever-increasing flows of such goodies, but it’s hard to stop. We may even say we are “addicted” to shopping or some other aspect of consumption — but what we are really addicted to is the feeling it gives us.

According to Whybrow, Americans are particularly susceptible because they are descended from immigrants with a higher frequency of the “exploratory and novelty-seeking D4-7 allele” in the dopamine receptor system; these immigrants, after all, were individuals who were willing to cross an ocean to pursue opportunity. Americans, he argues, are therefore disproportionately prone to impulsivity and addiction. Whybrow doesn’t condemn Americans, whom he describes as “a self-selected group of hardworking opportunists with an insatiable hunger for self-improvement”; he merely points out that consumerism got its start in the US for reasons that have to do with biology as well as history.

Addiction is closely related to habituation: repeated use of an addictive drug typically leads to higher levels of tolerance. The same is true of dopamine-generating activities. Withdrawal from those activities leads to lower dopamine levels, so continuous acclimation to those activities is required to keep dopamine at normal levels, while a higher “dose” of activity is needed to get achieve the “high” that came the first time around. In his article “The Psychological and Evolutionary Roots of Resource Over-consumption Revisited,” Energy blogger and former hedge-fund manager Nate Hagens writes:

After each upward spike, dopamine levels recede, eventually to below the baseline. The following spike doesn’t go quite as high as the one before it. Over time, the rush becomes smaller, and the crash that follows becomes steeper. The brain has been fooled into “thinking” that achieving that high is equivalent to survival (even more so than with food or sex, which actually do contribute to survival) and the “consume” light remains on all the time. Eventually, the brain is forced to turn on a self-defense mechanism, reducing the production of dopamine altogether — thus weakening the pleasure circuits’ intended function. At this point, an “addicted” person is compelled to use the substance not to get high, but just to feel normal — since one’s own body is producing little or no endogenous dopamine response. Such a person has reached a state of anhedonia, or inability to feel pleasure via normal experiences.⁸³

Just as our brain circuitry can addict us to overconsumption, it also keeps us from responding to slowly accumulating environmental threats. Hagens points out that our brains are adept at calculating risks and rewards, and at applying discount rates according to the timing of events. We give the present predominantly more weight than the future when making decisions: an immediate reward is worth more to us than one promised next year, and an immediate threat will provoke more avoidance effort than one certain to emerge down the line. So even though the cost of averting climate change (in terms of loss to GDP) would be less than the eventual cost of climate change itself, we are generally unwilling to pay that smaller, immediate cost.

The limits to our ability to change behavior to avert crisis come not just from our individual brain wiring but from the psychology of organizations. While people within organizations individually have the characteristics we have been discussing, organizations themselves tend to develop their own defenses again change.

Political organizations, for example, tend to foster a culture in which insiders (politicians) are encouraged to tell outsiders (the people) what the latter want to hear, while withholding information about problems that cannot be solved without substantial sacrifice, or problems that cannot be blamed on other, competing politicians.

Both political and commercial organizations tend to elevate short-term priorities. For corporations, quarterly profits are the prime motivator, while politicians make decisions based on the next election cycle. Ironically, however, absent an immediate military threat, government policy tends to evolve very slowly, regardless of the urgency of the environmental or economic issues facing it.⁸⁴

On top of all this, there are entrenched interests — people and institutions that profit from the system the way it is, don’t want to give up those profits, and have the means to shape policy and public opinion. This is hardly a trivial point: billions of dollars are spent strategically in lobbying and public relations by corporations and wealthy individuals with the goal of shaping, delaying, or eliminating environmental legislation or reforms of the financial industry.

All of this would seem to suggest that human beings are simply incapable of conserving resources and that we are genetically wired to use the planet up and drive ourselves to extinction. But that’s not entirely true. There are countervailing human tendencies exemplified in the traditions of indigenous peoples who made decisions based on the likely impacts on the seventh generation yet to come. Traditional societies planned ahead, made a virtue of thrift, and in many cases even held voluntary poverty as an ideal.⁸⁵

These kinds of cultural values evolved slowly in response to environmental limits. During the past two centuries of rapid economic growth, such values have tended to be lost and forgotten. Peter Whybrow explains why:

Selfish behaviors are reward-driven and innate, wired deeply into the survival mechanisms of the primitive brain, and when consistently reinforced, they will run away to greed, with its associated craving for money, food, or power. On the other hand, the self-restraint and the empathy for others that are so important in fostering physical and mental health are learned behaviors — largely functions of the new human cortex and thus culturally dependent. These social behaviors are fragile and learned by imitations much as we learn language.⁸⁶

All of the solutions to our growth-based problems involve some form of self-restraint. That’s why most of those solutions remain just good ideas. That’s also why we will probably hit the wall, and why the outcomes described in the previous chapters of this book are likely. The sustainability revolution will occur. The depletion of nonrenewable resources ensures that humankind will eventually base its economy on renewable resources harvested at rates of natural replenishment. But that revolution will be driven by crisis.

The crucial question is, how serious will that crisis have to be to get our collective attention and force us to change our behavior? Will the crisis be so severe as to destroy the very basis of civilization? If so, we will have lost everything worthwhile that human beings have achieved during our past few centuries of struggle, invention, and inquiry. It need not be so, and by working now to ensure that the tools that are needed to enable the economy and society to adapt to the post-growth era are sharpened and available, we can create the conditions for a rapid response when our collective internal discounting mechanisms finally adjust to the scale of the crisis facing us.

Nevertheless, if some scale of impact is inevitable, this poses profound immediate challenges for individuals, families, and communities. How should we be preparing?