Reforming Money and Banking: Keys to Debt and Jubilee
In the face of economic instability, the last thing we need is austerity. We need to consider creative solutions—like Jubilee, public banking policies, and currency reform—that take into account the complexity of the environment, the nature of money itself, and the possibility for social innovation.
The structural instabilities of laissez-faire, market-dominated societies became abundantly apparent during the widespread financial crises and debt-driven credit meltdown on Wall Street in 2008. Instead of addressing these instabilities at their root, however, many governments shredded safety nets, cut jobs, and imposed misguided “austerity” programs, justifying these measures by citing the controversial work of economists Carmen Reinhart and Kenneth Rogoff.
The orthodox economic remedies of “stimulus” to prime the pumps of “growth” or “austerity” to try to reduce government debt by cutting jobs and safety nets severely miss the mark. Political and regulatory responses to the 2008 crisis devastated the lives of millions of citizens in the United States and Europe with job and savings losses and home and business foreclosures. Such theory-induced blindness also distorted and truncated the stimulus policies, such as those of the Obama administration after 2009.
Warring economic ideologies between conservatives and progressives skewed taxpayer-funded government policies. Obama continued Bush administration bailouts of too-big-to-fail Wall Street banks and insurance firms, as well as tax cuts and rearview mirror spending on more roads. These ideological battles between austerity and stimulus spawned both the Tea Party and Occupy Wall Street movements. While the Obama stimulus prevented a deepening depression, it missed the opportunity of investing the $3 trillion still required to repair and overhaul U.S. infrastructure. Yet despite Republican opposition, $75 billion did flow toward building a greener, more sustainable society, as documented by Michael Grunwald in The New New Deal (2012).
Yet all these conventional policies never addressed the deeper structural problems of unstable capital markets, debt accumulation and inequality still with us today, as described by Thomas Piketty in Capital in the Twenty-First Century (2014); Joseph Stiglitz in The Price of Inequality (2012); James Galbraith in Inequality and Instability (2012); and the shelf full of post mortems on the 2008 crisis and its unaddressed causes.
Calling for Jubilee
Clearly we need to explore new options. The movement for Jubilee is pragmatic since history proves that as borrowed money flows upward to the lenders, debts become unrepayable. As in the game of monopoly, the upward accumulation of money, power, and information inevitably ends in “game over.” The calls for Jubilee are a way to restart the game. They also reintroduce the moral component missing from economic textbooks and mathematical models, which have been raised to dangerous levels of abstraction in artificial intelligence and computerized, algorithm-based trading. A moral component is currently lacking in all platforms in high-frequency trading, derivatives, and dark pools in today’s electronic global financial casino. Ironically, these new platforms were all made possible by taxpayers through their subsidization of communications technologies, satellites, the internet, and financial infrastructure, as documented in The Entrepreneurial State (2013). Finance is a part of the global cultural commons. My organization, Ethical Markets Media, emphasizes this reality in our initiative on Transforming Finance.
Jubilee movements are powerful because they take into account the role the environment plays in economics. I have focused much of my writing and speaking on ways to move beyond faulty economic models, illusory GDP growth, and the ignoring of social costs (i.e, costs purposefully pushed off company balance sheets and foisted onto society and the environment).
Economics can never map the multidimensional realities of complex human societies embedded in our life-supporting ecosystems. Human societies are experiencing a 300-year technological and social energy transition from water wheels, wood, whale oil, steam, hydrocarbons, and uranium to today’s growing renewable resources of the Solar Age. The fatal flaw of economic theory’s factors of production was ignoring the energy basis of all societies and the sun’s energy as free daily photons supporting all life on earth.
Even Keynesian guru Robert Skidelsky, as well as Steven Keen and other courageous economists, have openly called for Jubilee. British global economist Ann Pettifor, who spearheaded Jubilee 2000, actually succeeded through a worldwide grassroots campaign to get the World Bank and the IMF to write down significant chunks of debt held by countries in Africa whose high debt levels were considered unrepayable. However, in spite of much recognition of today’s still unsustainable debts of governments, as well as businesses, consumers and students, few have broken out of the prison of obsolete economic theories from left to right.
Publicly owned banks are another creative remedy that relies on deeper analyses. Lawyer Ellen H. Brown presents this idea in The Web of Debt , which examines the role of interest and how it balloons government debt through borrowing from financial markets. Brown’s remedy is pragmatic and viable: return to publicly owned banks like the 100-year old successful Bank of North Dakota, which uses the tax receipts and deposits of citizens to finance democratically approved public investment at zero or low interest. The Bank of North Dakota also finances North Dakota’s community banks—all outside of Wall Street and the Federal Reserve System. Ellen Brown founded and chairs the Public Banking Institute (on whose advisory board I serve), which is reviving proposals for public banks in fourteen states and several cities in the United States. U.S. Senator Elizabeth Warren has joined Ralph Nader, me, and others, including the U.S. Postal Service’s Inspector General, in calling for expanding U.S. Post Offices into savings banks. Post offices already double as savings banks in many other countries.
To address debt holistically, we must also examine the nature and role of money itself, and the politics of money-creation and credit-allocation. Ethical Markets’ TV special “The Money Fix” (available on demand at ethicalmarkets.tv and for educational use at films.com) offer an in-depth examination of this sort. The proliferation of highly localized currencies is one of the best indicators of how poorly a country’s economy is managed. After 2008, these local currencies, like the early pioneer “berkshares” in Massachusetts and “Ithaca Hours” in New York, are proliferating in the United States and worldwide. Britain’s Bristol Pounds, Brixton Pounds, and the venerable WIR currency in Switzerland are just a few examples. These local currencies, along with TimeBanking, invented by lawyer Edgar Cahn, teach that money has been mythologized yet is merely a unit of account—not anything of intrinsic value. They also demystify money and show that creating a currency out of thin air, as our private banks do every day, is a political act with massive consequences of inequality and social injustice.
Building an Economic Commons: From Scarcity to Abundance
Today’s global information age overturns economics—all based on scarcity. If you share information with others, they are richer along with you—a “win-win” game! The “shareconomy” and cooperation offer resources for a new kind of abundance that politicians rarely recognize. At a seminar I attended in Windsor Castle in the 1970s on Automation and Leisure Societies, hosted by Britain’s famed author Charles Handy, there was a trade unionist who exclaimed in the discussion of the envisioned post-industrial world “You’re all mad! The people with the leisure won’t have any money!” We futurists were enthusiastic about information technology and believed that much boring repetitive work could be taken over by robots, as was happening in Detroit’s automating car factories. The United Auto Workers (UAW) leader Walter Reuther agreed, and the UAW spearheaded debates at their Automation House in New York City throughout the 1960s. At these debates, they examined the new possibilities of creating “Leisure Societies”: reduced work weeks, guaranteed incomes, and evolving post-industrial societies toward education and human potentials by investing in people. Social innovation could match the technological innovation. Drudgery would be automated!
Today, this “old” agenda is also the new agenda—guaranteed minimum incomes, local currencies, public banking, public sector innovations in education and health, and the redesign of cities and infrastructure are all on the table again. We are also seeing an upsurge of interest in the sharing economy, open-source voluntarism, and crowdfunding, which are merging with what I have called the “Unpaid Love Economy.”
All of these newer trends are leading to what my friend Jeremy Rifkin calls the “collaborative commons economy” where for-profit, market-based companies will be niche sectors. Rifkin elaborates this idea in The Zero Marginal Cost Society (2014). While guaranteeing minimum incomes is still taboo in the United States and Europe, such incomes have been created in the form of “Opportunidades” in Mexico and “Bolsa Familia” in Brazil. These direct or conditional cash payments brought millions out of poverty. The new paradigms in human development are at last emerging into politics, and those 1960s visions of abundant post-industrial societies are alive. The move beyond ideologically imposed scarcity regimes and fossil-fueled early industrialism cannot be suppressed much longer, even though establishment economists will certainly try.
The movements for currency reform and broader measures of real wealth are now worldwide and ripping away the veil of money. Even Britain’s former top financial regulator, Lord Adair Turner, spilled the beans in his lecture at London’s Cass Business School, calling for the power to create Britain’s money supply be withdrawn from private banks and restored to public sector control. Even the U.S. Constitution gives Congress, not private banks, the right to coin the nation’s money. The Constitution’s plan was subverted by the Federal Reserve Act of 1913 by U.S. banking moguls in creating their privately owned Federal Reserve System. Auditing the Fed was achieved by Congress in 2013, and this issue of reining in the Fed’s money-printing power to prop up Wall Street crony capitalists unites both Occupy Wall Street and the Tea Party. We see this in books favored across political divides, including Debt: the First 5000 Years (2012) by David Graeber; End the Fed (2009) by Ron Paul; and A Heretics Guide to Financial Reform (2013) by Brett Scott. I also summarize this in my e-book Mapping the Global Transition to the Solar Age—a free download for Tikkun readers is available at ethicalmarkets.com. A global paradigm shift is underway! Stay tuned.
(This web-only article is part of a special series associated with Tikkun’s Winter 2015 print issue: Jubilee and Debt Abolition. Subscribe now to read these subscriber-only articles online, and sign up for our free email newsletter to receive links to future web-only articles on this topic, as well! Visit tikkun.org/jubilee to read the other web-only articles associated with this issue.)