Sustainable economics vs. proposed Euro cures

In summarising the various responses to the economic crises in Europe there are a number of emerging possibilities. All of these will have the additional impact of  undermining the global economy.

None seem likely to work for varying reasons:

Scenarios:

#1 Euro bonds:

To deal with the sovereign debt issues of several countires (to keep governments solvent so they can pay for Civil Service, nurses, police, teachers etc.).  The consequence of this in isolation is not necessarily bad as some economists say the European Central Bank does not even have to put the money into circulation (avoiding inflation) – it’s kinda created out of thin air.

The reason Ms. Merkel in particular have been reluctant to agree to this until now is because it will rise German interest rates. She and & Mssr. Sarkozy are also worried about letting perceived delinquent countries like Greece off the hook. Also Germans voters don’t like for example how people get to retire so early in countries like Greece and Italy if they are being asked to bail them out. 

If implemented, this solution means loss of severeignity on economic matters and lots of rights lost – but that’s already happening re unelected governments is at least 2 European Countries to date. Alternatively the enforced austerity measures may strike much riots/social/political unrest. Austerity is some Euro states also defeats the purpose of the Eurobonds.

#2 Print more money

Also called quantative easing.  This means the ECB must go against its own policies of keeping inflation below a certain point so they must change their rules and their role (the ECB to date does not have the same role as the Fed in the US or the Bank of England so their role would be adjusted to something similar to their counterparts).

From a saver’s perspective “quantative easing” is a bad thing as it dilutes your money (but it also dilutes the debts of people in debt which is a good thing). If done at an EU scale, it could work out a lot better than scenario 3 below.  Economic think tank FEASTA identified 2 approaches in the 70′s and 80′s which contrasted in their outcome. When the world economic masters let inflation happen rather than try to control it things got better much more quickly. 

The difference today appears to be that personal and mortgage debt are extremely high so it probably won’t cure the economy as it did in the past, just buy some time.  The US and UK have implemented this a few times it since the current crisis began but are just limping along because of the EU crisis but also because private debt in all 3 jurisdictions is far too high. Austerity measures impact on incomes and keep people in debt preventing spending our way out.

#3 Euro breakup

Many pundits across the political and economic spectrum say this will happen because it is not possible to have a single currency with a range of diverse political systems. They could be right. German exports lose out in this scenario as their currency will be stronger than other eurozone states. Weaker countries could face strong inflation and with core countries facing strong deflationary shock. Various analyses go through scenarios from Greece and/or a few other peripheral countries leaving to complete breakup which seems to be the worst case. The timescale is also important with some pundits predicting the long-term benefits being completely wiped out by the huge short-term costs.  Any scary news for the markets tends to end up in a run of some sort, so an EU dismantling would seem likely to cause makor trouble.

#4 Leaders pay heed to emerging alternative economists: Australian Economist Steve Keen is one of those emerging in the global media.  He is saying that the most important debt is private debt and that we must fix that to fix the global economy. He says among other things we effectively need to give people money and mentions wage inflation and citizen payments (which citizens in debt must first use to clear their debts) as ways to do this. The so-called leaders may come to his conclusions but it could take time due to political differences meanwhile the economy stagnates. What is clear from Steve Keen’s commentary is that austerity measures won’t work as people don’t spend.  Steve Keen says most economists fail to understand what money is.

#5  Sustainable economics:

Even scenario #4 doesn’t seem sustainable for long because even alternative thinking economists don’t seem to properly factor in peak resources and environmental destruction. Because the economic system is so complex, it is unlikely that any controlled dismantling of the capitalist system can be achieved.  What is clear is is that we need a system which factors in both the environmental and social costs.  Adding this on top of the existing system would seem preferable to allowing collapse and attempting to rebuild.

Sustainable economics does not obsess about  “growth” because growth with present day economics means rapid depletion of any remaining resources.  Sustainable economics’ difficulty  is the need to get golbal citizens (many are voters) and so-called (political) leaders who do not understand sustainability to buy into it. Growth is not technically possible – an engineer or mathematician knows this but most economists (who should by extension be mathematicians) don’t.  The problem is “failure to understand the exponential funciton”.

One such instrument is called Cap and Share which targets our unsustainable energy usage as the instrument to control. This system can generate much income for citizens (a goal of Steve Keen in scenario 4 above), but the income needs to be targeted at sustainability, and the instrument is likely to need to be expaneded to many other sectors. For example the disposable throwaway attitude to waste needs to be turned around so that upcycling, re-use and recycling are given higher value, creating many jobs.  The cap also needs to contract year on year via a machanism such as “Contraction and Convergence“.  The financial system could adapt well to Cap and Share / Contraction and Convergence mecahnisms because of the certainty it would bring.

Cap and Share evens global inequality somewhat, empowering the poorer who will spend more (the poor spend much more freely than the rich).  Higher income also allows investment in their children’s education and by extension reduces population (education is the most effective means of population control).  It also means various sustainable energy projects gain mainstream traction driving employment and helping save the environment.

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