digital, agencies, life, and other stuff

Time for a new economy?

Posted by Lee on May 10, 2009

great-depression-soup-lineI’m no economist and have been waiting to see how the world’s leaders and their band of advisors are looking to fix this broken mess called the global economy.
However, I’ve yet to read anything that looks like an attempt to build a new economic model. Instead, and in desperation, all we keep hearing about is how governments are pumping more and more ‘money’ into the fatally damaged system.
It seems a little like giving numerous blood transfusions to a critically ill patient without first finding out where the patient is bleeding from, nor attempting to stem the flow.
We’ve endured month after month of media onslaughts telling us the sky is falling, but now all of a sudden, the same media sources are telling us that there’s a glimmer of hope on the horizon, that things are starting to improve – and like drowning men, the stock markets of the world have eagerly jumped on this news and because of this confidence booster, the markets have indeed started to rally.

What troubles me is that things have not actually improved, the fundamental problems with the world’s economic markets still remain, major banks and other global corporates continue to collapse and some are only limping along because of the continued ‘cash injections’ from governments.
As for the stock markets, well it just goes to show how divorced they have become from the realities of economics, and they seem to purely trade on the ‘confidence’ of the wider market, something easily manipulated by the media and the wildfire spread of rumours through the Internet.

Surely it’s time for a new economic model, rather than continuing to pump more and more money into a failed system?
And while I’m thinking about a subject that I confess I know little about, what is ‘money’ anyway?
In far simpler times, bank notes were actually promissory notes, “I promise to pay the bearer…..”, and were far easier to carry than the pieces of gold they represented when transacting or purchasing goods and services.
However, over the years, currencies became de-linked from the ‘gold standard’ as the economic affairs of the world became more complex. Even if the world did want to go back to a gold ‘standard’, there’s now more ‘money’ in circulation than actual security against it, gold or otherwise.

It reminds me of the children’s story, ‘The Emperor’s New Clothes’. What’s been really strange is that nobody has been prepared to point at the USA or the UK and shout, “the emperor’s got no clothes!” Perhaps that’s because it’s not in any country’s interests to imply that these nations are, if not actually insolvent, then almost bankrupt – why isn’t anyone crying out? Well, like it or not, in the case of the US$, it has become the defacto standard for currencies, and if the USA is ‘broke’, what does that mean to other economies who’s currencies are intrinsically tied to the US$, and to those countries who’ve experienced economic growth on the back of consumer demand from countries like the USA?

So, without a ‘gold or other precious mineral standard’ with which to anchor the value of ‘money’ against, what is ‘money’ anyway? De-linked from anything of value,  it is an abstract concept, anchored in a myriad of mathematical formulas and equations.

What if the current mess is really a massive opportunity to create a new economic model, one where we can find a new universal ‘standard’, globally recognised as something of immense value to all?
What could we use as this new universal standard? What is there that all countries would agree is of value for now and in the future, and most importantly, what new economic ‘standard’ would allow every country in the world to participate, where their current ‘lack of wealth’ would not be a major impediment to participation?

One answer could well be ‘Planet Earth’ (Quick admission – I am not an active ‘Greenie’, and have no affiliation with any ‘Green’ organisations)
Imagine an eco-nomic ‘monetary’ model that established a country’s standard  ‘reserves’ based upon the magnitude of negative effect that country has on the world’s dwindling resources.
I’m not talking about another Kyoto treaty which is considered by many to be another taxation system. I mean a new global economy where the international ‘standard’ is balanced with some kind of eco / sustainability unit of measure. A new eco-nomic measure that provides a multiplier effect upon the current currencies in use around the world? We could still use our existing monetary systems for normal trading and transactional activities, however on a global ‘standards’ basis, these currencies would be multiplied by a positive or negative factor based upon the ‘damage impact scale’ applied to that country.

What this will mean for different countries of the world?

Many of the poorer nations of the world (currently described as ‘3rd World’) may find that due to their lack of industrialisation, their ‘eco-reserves’ may become quite high on a per-capita basis precisely because their lack of industry and consequently lower damage impact to the ecology of the planet.
So, in traditional monetary terms these countries may have a low GDP, but when their ‘global damage’ multiplier is applied, their new eco-nomic universal standard value would be higher.

Some of the ‘new’ industrialised nations, would be driven to clean up their act to increase their ‘eco-reserves’, and countries like the USA, currently the largest ‘polluters’ in the world could use their sizable ‘old economic wealth’ to dramatically reduce their own ‘damage impact’ – there’s something tidy about the idea of using the ‘spoils’ of the old economic order to rebuild the new.
Countries like the USA could use their considerable power, resources, influence and R&D skills to boost their economies and number of jobs by investing in these initiatives in their own back yard, and then exporting  this knowledge and techniques to those nations we currently identify as ‘3rd World’. They in turn will be able to pay for access to the clean technologies to develop their own nation because of their new found wealth,through their eco reserves.

Could it be done?
Who knows, but it would require a transition period of say 10 years in which the world’s monetary systems would convert to the new ‘standard’, allowing the wealthier nations to pay for the improvements to their position on the eco-standard index, in effect a dynamic monetary exchange from old to new based upon what they did to clean up their act.
Today’s poorer countries currencies would be converted over earlier because their ‘eco-reserves’ on a per capita basis would be higher, and consequently their ‘wealth’ would be increased from day one.
These countries would then be in a position to more fully participate in the global economy and start projects that would improve the standard of living of their people domestically, to create employment opportunities and commence a ‘clean industry’ development programme.
Eventually the people of these countries would actually become consumers of goods and services from throughout the world, creating yet more demand.

I’m sure that many smarter people than me will be able to drive massive holes in my ‘Utopian idea’, and demonstrate how  little I know or understand about economics, monetary policy, global politics,  eco-systems and sustainability.

All of that is without doubt, true. However, ideas are just that, but even if unrealistic, they can spark another more achievable idea. All I hope is that the best minds in the world  are looking for a new way forward, and not just putting a band aid on an old economic model that may limp along for a while before finally collapsing dead, in the next adverse economic cycle.


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