The Great Con

[Denis Frith]

There is a vast amount of material by knowledgeable people about what modern society has done to its life support system and the unintended consequences. These discussions often focus on the role of finances and the decisions made by the powerful in business and governance. They tend to concentrate on the likelihood of the resumption of economic growth. This vast array of seemingly authoritative views are enough to daunt those who wish to gain basic understanding without having to engage in a time consuming learning process for doubtful benefits. Young, concerned people with an inquiring mind may attempt to garner understanding from these often lengthy diatribes. But older people will be less inclined to go to the trouble of thinking through the presented arguments simply to gain understanding of a situation they cannot hope to influence. However, there is really quite a simple basis to the operation of the real economy. This is explained here. The actual operation, especially in recent times, has numerous variations but the basic principle still applies, particularly in the developed economies. Businesses are organizations that have the objective of making a profit by producing goods or providing services that the community are willing to buy. Governments are organizations that employ workers to provide the community with infrastructure and services. Banks and investors provide capital for the money flow needed by the organizations in their operations. The banks charge interest and the investors expect dividends as their share of the success of businesses. The workers use their skill and know how to produce the goods or provide the services that the businesses sell and governments provide. The wage or salary they receive is their share of the value of the goods or services provided to the consumer. Thus three groups gain from the process of meeting the demands of the population at large for goods and services that are deemed to be useful. The goods invariably end up as waste when their usefulness is over, even when they are part of long lasting infrastructure. That is the basic structure of the economy as normally envisaged. The businesses can grow using the profit to add to their capital. The banks and investors become wealthier. The workers can often save some of their income to add to their wealth if they are frugal. That is, all three groups can, as a matter of principle, become wealthier by contributing to the provision of goods and services the community finds useful. That is the return on investment of the three types of input, skill, organization and money flow. This is the process that has produced modern civilization. Its success has varied appreciably for a variety of reasons. The developed countries have led the way and the developing countries are now catching up and even bypassing the aging developed countries. This view of the operation of the economy is a gigantic con. It is a common belief by even the most knowledgeable economists across the globe. But it is based on a false premise so is unsustainable. That is the stark reality that society is going to have to face. There is one crucial factor missing from that picture of the basis of the economy. The goods are manufactured out of mostly irreplaceable natural resources using energy also obtained by using natural resources, fossil fuels being the main source. The machinery was built by using natural resources. This input to the production process is necessary for the outcome of what society uses and the structure of civilization. It is the essential fourth component in the process. The economy, however, does not account for its use. The common view is that we should make use of what is available from nature, especially those materials we extract from underground. They have no impact on how the biosphere operates used to be the common view. We know better now as emissions from the fossil fuels cause rapid climate change. This irrevocable ravaging of the environment, together with numerous others, represent the ecological cost of the production process. That cost is not taken into account. The financial wealth acquired by the three groups is largely at the price of destruction of natural wealth although human skill and know how makes a major contribution to the creation of financial wealth. That is what has happened. It has created or exacerbated nine problems. There is the fallacious global belief in the possibility of continuing economic growth It has enabled industrial food production, transportation and storage by using fossil fuels and other components of natural capital that are running out It has contributed to the explosive growth in the population of human beings while fostering the rapid extinction of many other species There is increasing competition amongst countries, communities and peoples for what remains of many natural resources including oil, water and fertile soil. There is increasing alienation between people across the globe because some have been so successful in ravishing the life support system that many feel that they have been robbed and are striving for their perceived rights. Many of the three groups have financial wealth that gives them the capability to buy goods and services without regard to the ecological cost or what remains of the natural wealth. The fact that it is fiat money created out of thin air does not affect the ability of the owners to live lavish life styles - for now. People, especially in the developed communities, have the belief, fostered by governments and business, that continuing economic growth is sustainable. Many people, organizations and countries are going into debt because they expect to be able to pay it off in the future. People also have faith in the ability of technology to continue to ease problems in the operation of civilization even though technology caused most of the problems. They do not understand that natural forces always determine what is possible. Technology can only realize some of that potential. A vast infrastructure of civilization has been built, especially in the cities, that entails a commitment to use some of the declining supply of natural resources for operation and maintenance. What then is the future for wealth generation of the groups as ecological forces exert more control, so inhibiting the production and maintenance processes? The response is likely to depend on the nature of future developments in the operation of civilization.  There may be traumas or there may be  a gradual decline in what natural capital is available. The response is likely to be a combination of a number of factors with the combination varying appreciably according to the circumstances in the region. The factors include: a reduction in the returns for all three groups but varying across groups according to circumstances and location. Many of those with debt will default with across the board deflation consequences. Wealth creation will, at best, moderate in the most adaptable communities but wealth destruction will become the dominant paradigm adapting mentally and physically to the transition to a contracting economy increasing understanding amongst the educated that the operation and maintenance of industrialized civilization is entering into its senescence an increasing trend to provide useful services rather than the production of stuff out of natural resources appreciable restructuring leading to re-education and re-employment a reduction in the demand for goods as consumers have to become more frugal pressure on workers to make a bigger personnel contribution as the machinery winds down due to lack of resources, including fuel, and declining maintenance degradation of the infrastructure of civilization due to the decreasing availability of many natural resources, including those supplying concentrated energy the emergence of a smart middle class advocating sound measures to adapt to the powering down a resurgence of basic skills including growing and handling of food re-localization and a return to the values of communities a decline in the value of money which, unfortunately, will hit the poorest hardest but many in the middle class will not take kindly to the loss of their hoped for pleasant retirement the loss of faith in the ability of the human species to control what happens It is to be hoped that society at large will respond to the challenge of deciding sound measures to employ in the powering down of the operation of industrial civilization. Denis Frith