The Rules HAVE Changed (longer version)

“The rules have changed,” said President Obama in his recent State of the Union address, referring to the loss of job security for American workers. No longer is the willingness to work hard a guarantee of a stable job, decent benefits, vacations and a pension. More and more workers, having played by the rules their whole lives, having gotten an education and lived responsible lives, find themselves unemployed. Today the official U.S. jobless rate hovers at around 9%, while the real figure is much higher — over 22%, including short- and long-term discouraged workers.

That rate is not so different from the shockingly high rates in much of Europe, such as the 22% unemployment rate (and 45% youth unemployment rate) that has sparked demonstrations across Spain. No wonder politicians everywhere,, on both sides of the political spectrum, are talking about creating jobs. Though they disagree on how it is to be done, they agree on the necessity of boosting economic growth to increase employment.

But given that the best efforts of economists and policy-makers have failed to stem a steady deterioration of the economy in recent years, perhaps we should begin interrogating some of their basic logic. Adopting the naivete of a child, we can start by questioning job growth as a long-term goal. Ideally, shouldn’t the rise of technology alleviate the exigency of human labor, and allow us to enjoy more leisure? Instead of enduring a 20% unemployment rate while the other 80% work ever-harder out of fear of losing their jobs, why couldn’t everyone simply work 20% less? (Economists: yes, I am aware of the lump-of-labor “fallacy”, a critique of which is beyond the scope of the present essay, though implicit within it.)

I would like to point out a little bit of insanity. On the one hand, most people don’t really like their jobs; at least, they wouldn’t do them unless they were paid to. On the other hand, we are seeking to create yet more of these jobs — not because we need more stuff on this earth, but simply in order that they have money to live. We already have enough stuff. Why is the only way to distribute it seem to involve the production of even more of it?

Naive or not, this question taps into a paradox that has been with us for several hundred years. After many centuries of invention of labor-saving machines, why does the typical employed person still work longer hours than the high Medieval peasant or the stone age hunter-gatherer? As recently as the 1980s, futurists such as Alvin Toeffler were predicting an imminent age of leisure. It was obvious: the computer and automated manufacturing would soon reduce the workweek to 25 hours, perhaps 20, with 150 vacation days per year. It was the same promise that we heard from the first days of the steam engine: a machine could do the work of a thousand men; therefore, each man would soon only have to work one-thousandth as hard.

What happened instead was that rather than working less, at every juncture we as a society chose to produce more. Today, indeed, at the zenith of the age of the machine we consume a thousand times more than our peasant ancestors did: a thousand times more energy, ground water, minerals, and atmospheric capacity to absorb waste. For centuries, the concern of economic policy-makers has been how to increase demand — how to consume even more in order to absorb the ever-growing capacity of industry to produce. Economic ideology says that this is good — the more we consume, the higher GDP, the better off we are. But there is also a very practical reason to constantly increase consumption: as soon as demand falls behind, businesses suffer falling profits and must cut wages and workers in order to compete. The laid-off workers consume even less then, leading to a vicious circle, deflation, and a Marxian crisis of capital.

How did we get stuck in such a trap? Why are we compelled to always choose consuming more rather than working less? Will we ever reach a point where all human needs have been met, and we can finally relax and work less? Under the current money system, the answer is no. We will never be able to work less. The current money system compels us to grow, exponentially, forever. And so we have, whether by creating new demand through the ideology of consumerism, or by exploiting more natural resources through technology, or by extending the money economy to new parts of the world through colonialism and empire. We have thus preserved the money system, and the institutions and power relationships built upon it. The economic tools we keep hearing about in the news, things like quantitative easing and fiscal stimulus, are all ways to keep the economy growing.

It is becoming obvious now, though, that the effectiveness of these tools is waning. The reason it is waning is that the rules, indeed, have changed, and this rule change goes much deeper than Obama or almost anybody else thinks. What is changing is the deepest ground condition upon which our economic system depends: growth.

As I shall explain in a future post, we are nearing the end of growth. The argument is quite involved, going beyond the usual bogeymen of Peak Oil and environmental collapse, so I will provide the barest summary of it here. It has two aspects. First, I frame growth — the expansion of the monetized realm of goods and services — as an unsustainable depletion of the social, natural, cultural, and spiritual commons. Today, when there is little more of nature to convert into goods or relationships to convert into services, growth is impossible to maintain. Secondly, the ideology of endless growth assumes an infinity of human needs and wants; in particular, an infinity of needs and wants that are quantifiable. This assumption is false: in fact, the only quantifiable thing for which our desire knows no limit is money itself. Why does money have this peculiar property? It is because it is both a medium of exchange and a store of value superior to any other. This insight is key in envisioning a different kind of money system that, by decoupling these functions, no longer compels endless growth.

In any event, without growth, a money system based, as ours is, on interest-bearing debt quickly disintegrates. In a stagnant economy, the owners of capital will refuse to lend it because the risk-free interest rate (say on government bonds) is higher than the average return on capital investment (i.e. the marginal efficiency of capital). The monetary authority can mitigate the situation by lowering interest rates, but it cannot lower them below zero (well actually it could, in theory — more on that another time).

Without lending to businesses and consumers, money does not circulate, because they are not expanding employment or making purchases. It remains in the hands of creditors, circulating perhaps within the small domain of commodity speculation and equities markets, but not creating demand for goods and services. The wealth of those who possess money continues to increase at the rate of interest, however low that may be, while the aggregate wealth of those who depending on selling goods and services, including their own labor, stagnates or shrinks. The rich get richer and everyone else gets poorer. More and more of borrowers’ income goes to servicing debt, until finally they can no longer make their payments. First their assets are collateralized, then their future income pledged; eventually they have no choice but to default. As a stopgap measure, the creditor can lend them even more money to make payments on their existing debt, but unless the borrower has a sudden change of fortune, that only worsens the eventual default.

Let me summarize the problem so far. Without growth, there is little lending. With less lending, there is less money to invest in new production. Without new production, there are no new jobs and no room for raises, so income stagnates. Without income growth, there is no growth in demand. Without growth in demand, there is no economic growth.

We live in an economic paradox: those in greatest need cannot afford to buy, and therefore cannot generate “demand” and hence increase employment; meanwhile, millions cannot find jobs because those who DO have money have few needs to be met, and would rather save than spend. There is, after all, no lack of money in the system. After two rounds of quantitative easing, the base money supply is at unprecedented levels. The problem is that the money is not reaching those who need to spend it: poor people for one, but also such things as ecosystems, the oceans, and the atmosphere that lack economic agency.

One solution to this problem is to give money directly to those who will spend it, whether businesses or consumers, so that demand no longer depends on private investors lending at interest. This solution is known as fiscal stimulus — government jobs programs, tax breaks, debt relief, and the like — which seeks to increase demand by putting money in the hands of those who will spend it, and at the same stroke to alleviate poverty and create social benefits that, because these benefits accrue to all, would never attract private investment. It reverses the lack of purchasing power the deflationary trap described above and enables the economy to start growing again — provided that there are no other constraints on growth.

Politicians representing the interests of the wealthy, such as today’s deficit hawks, typically oppose fiscal stimulus, because it dilutes their supporters’ relative wealth, either by increasing the effective money supply and causing inflation, or by shifting the relative tax burden onto the rich. Their opposition is short-sighted, however. Unless economic growth is extremely high, as in a frontier society or newly industrializing country, the interest rate always exceeds the growth rate, leading to concentration of wealth and the debt crisis described above. If debtors — people and nations — cannot pay, then eventually they will not pay. At some point, the authorities will have to choose between catastrophic system-wide defaults and transferring wealth to the debtors, either directly through relief payments, or indirectly through government jobs programs. This was essentially the solution of the New Deal in America and the social welfare state in Europe: transfer the minimum amount of wealth to the debtor class so that they can continue servicing their debts.

Yet this solution too only works in an underlying context of growth. That is because of the way money is created to begin with — even for the federal government, it comes into existence as interest-bearing debt. That means that the new money the government gives directly to workers is actually just another loan, in this case from bondholders and, ultimately, from the Federal Reserve. As with any other debtor, the government can repay these loans either from income, assets, or with new loans. These correspond to taxation, privatization of government assets, and deficits. Unless the economy grows by at least the interest rate on government debt, taxes will lag behind spending growth and, as privatization and spending cuts are exhausted, deficits will eventually spiral out of control. This is why the Keynesian solution offered by left-leaning economists cannot work in the long run. It works fine to reignite growth after a bubble collapse, but only if renewed long-term growth thereafter is possible.

As a matter of fact, Keynes never advocated fiscal stimulus as a permanent measure, but only as a short-term device to escape a deflationary spiral. If deflation, or at least a non-growth economy, is to be permanent, then we need another kind of money system, one not based on interest-bearing debt. This is one of the primary themes of my book, Sacred Economics. Would non-growth really be that bad? Would it be so bad if we held consumption constant henceforward and worked less and less?

Until we have such a system, or unless I am wrong and there is still some new dimension of nature, culture, or relationship that can be turned into money, the unemployment problem will not go away. It can be alleviated in the long run only by a return to growth, which is one reason why every politician calls for growth, glorifies growth, and celebrates growth. If we are indeed nearing the end of growth, then, absent radical monetary reform, we are also in an era of high and growing unemployment. It is no accident, and no temporary glitch, that the unemployment rate is so high. It is symptomatic of a profound shift in human economy and our relationship to the planet.

Ultimately, we need to reframe the whole question of labor. Another word for unemployment, at least when it is distributed evenly and dissociated from economic survival, is “leisure”. if only money were not an issue, I am sure many working people would welcome a bit of unemployment. And better even than leisure would be the freedom to pursue our noblest and most generous impulses to heal the hurts of the planet and its people. The high unemployment rate is a harbinger of a transition in the nature of work.

While fiscal stimulus under present circumstances doesn’t address the deep issue, it does point toward a deep solution. Stimulus can create jobs doing things that don’t bring a positive return on capital — such things as intensive recycling, restoring wetlands, cleaning up toxic waste, caring for the indigent sick, teaching people to garden, beautifying the urban environment, holding free music and arts festivals, and so on. Happily, these are the things we want and need more of, as opposed to more sprawling suburbs, electronic billboards, coal mines, trash incinerators, nuclear weapons, and plastic bags. When economists speak of (on the Left) increasing demand or (on the Right) increasing productive investment to stimulate growth, aren’t they essentially calling for even more of the things of which we already have enough? Today, every sign of a recovery in housing starts is celebrated as great economic news — all at a time when, in the United States, 19 million housing units stand vacant!

Quite evidently, increasing consumption, increasing demand, and increasing production isn’t going to make us any happier or improve the quality of life. Even in Third World countries, this is truer than most people realize: poverty there comes more from disruption of subsistence farming and networks of social reciprocity by global economic forces than it does from any underlying lack of life necessities. Can you see the insanity of endlessly seeking more, more, more — for the sole reason of keeping people employed? Couldn’t all that labor be better allocated, on this planet in crisis?

Common sense tells us it should be possible: if 80% of the workforce can already fulfill and overfulfill society’s existing needs, the remaining 20% could do other work without any sacrifice of our material well-being. Essentially, the 80% of us who are producing salable product will have to fund, directly or indirectly, the 20% who are not. Today we can only fund them with debt, pretending that one day that debt will be redeemed, and all the while allowing the proceeds of its interest to accumulate in the hands of the few. But we could also, in principle, fund them with taxes on the wealthy, or simply by printing new, debt-free money outside the central banking system. Yes, this would be inflationary, though not hyperinflationary (hyperinflation results not from monetary expansion, but from supply shortages). Such inflation acts very like a wealth tax, but it harbors many dangers. There is a much better solution: a direct tax on liquidity coupled with physical currency that carries a depreciating nominal value. I discuss this at length in my book and will do so again in future posts.

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About Charles Eisenstein

I am the author of The Ascent of Humanity and Sacred Economics. I am also a public speaker and member of the faculty of Goddard College.
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9 Responses to The Rules HAVE Changed (longer version)

  1. Robin says:

    I have no comment other than to say, thank you. This conversation is long overdue. I am not an expert in the field of economics and find myself a bit intimidated by the topic, however, clearly its time has come. It will take me awhile to let the ideas sink in, but I am excited by your attempts to be a thought pioneer and enjoy the mental stretching.

  2. John Doe says:

    As someone who’s followed your work for some time and is in the position you described of “not just unemployed” but experiencing the “freedom to pursue our noblest and most generous impulses to heal the hurts of the planet and its people” category, I have a question. We are enduring daily increasing pressures from every direction to “get responsible” and “get a job”, even from people who we thought were allies in the creation of the more beautiful world.

    Sometimes I say that my “job”, besides all the work and research I do towards healing, is fielding and dealing with the constant lectures to get a job, since it is the people lecturing us who are also providing us with much of our food and shelter. I have been trying to discuss the ideas of long term responsibility and interdependency, but it doesn’t seem to get through. It isn’t easy work, and it just keeps getting harder and more stressful, and at this point has some of my family “so worried about us” that they are essentially refusing to talk to us or support us any longer, and I’m so frazzled I don’t really want to see them any more either. My wife and I feel judged and belittled, and who wants to keep exposing themselves to that? But we live with them, and can’t afford to live anywhere else unless we listen to them and get a job, so we’re stuck in it, and at this point we just want to hide in the room and avoid them because it feels like all our interactions are either awkward silences or lectures on what we’re doing wrong.

    My wife said “This doesn’t feel like ‘living in the gift’ anymore”, and she’s right. It feels like living in the judgment. What started as incredibly generous gifts–my sister gave us a lot of money and offered two rooms in her home to us–quickly transformed into something else–once she saw how we were living and spending our time, she no longer wanted to be generous, and the things she offered came with strings and stipulations and judgments, and eventually she simply asked us to leave. We didn’t push our way of life on her, we didn’t lecture her, we didn’t even talk much to her, mostly listened to her gripes about work and her friends not being reciprocal in their relationships. We didn’t do anything to offend her or belittle her, but just being there we made her so uncomfortable she didn’t want us in her house and hasn’t spoken to us since except in terse ‘this is what’s happening’ texts to let us know when is good for us to get some of our things, and then angry silence towards us when we’re there.

    So now we’re staying with my parents, who are upset about the situation with my sister and seem to see it as mostly my fault, that everything would be fine if I would just get a job.

    So I’m wondering if you have any ideas about how one could navigate this difficult realm.

    • I loved your description of your “job” as listening to the lectures of people telling you to get a job. Funny!
      To answer your question, it is quite true, as your wife says, that you are no longer living in the gift if what is being given you is actually an attempt to “purchase” different behavior on your part. It sets up the same energy you would feel if you were working at a job and, because you didn’t really want to do that job, were doing as little work as possible. The boss says, “Hey, I’m paying you, do as I say!” Resentment builds; eventually he asks you to leave.
      Instead, find people who want to give to you because they feel aligned with what you are doing.
      On some level, most of the beautiful, healing things we want to do on this planet must be funded by gifts of one sort or another, because such activities do not contribute to the conversion of the world into money. In our current money system, money will therefore not go toward supporting such activities. Originating as interesting-bearing loans, money abides by the maxim, “Money shall go only to those who will produce even more of it!” Maybe I’ll write a new blog on this topic today.
      Charles

      • John Doe says:

        No. You’re wrong on this. The answer isn’t “find someone else to support you”, and it isn’t “wait for the world to change.”

        By forcing my family to deal with these uncomfortable issues, I am changing things. Whether I am shoving the issue in their face by saying they are wrong (which I’m not) or by just being myself at a vibration which resonates dissonantly, I am taking them down into deep emotional blockages and bringing fallacious thinking into the light.

        I am going to stay here. I am going to stay here and rewrite the norms of financial dependence and independence. I am going to stay here and change the whole fucking symphony by being a dissonant note.

        Find somewhere else is not the answer. There is no one else who is aligned with what we are doing. There is no one else who is aligned with what you are doing. They have too many fallacious beliefs. By being here I am bringing them into the light. There is no where else.

        Whether it feels like we’re living in the gift or not, the difficult messages we are receiving are gifts, and if you don’t have any ideas on how to navigate this difficult realm, I will figure it out on my own.

        This response was way off target. What I’m doing here is important. I asked to change the world, and this is where the cosmos led me. I am here for a reason, and I’m not going to run from it.

      • Maybe you misunderstand. What I am saying is that, one way or another, if you are doing things in the world that do not contribute to its conversion into money, then you will be living off gifts. Someone will be giving you money without generating even more money in return. Personally, I prefer receiving gifts that are given without resentment or strings attached.
        I hope no one interprets my writing as advocating waiting for the world to change.
        What you are doing might work — I hope it does. Sometimes indeed the symphony will change around the dissonant note. Other times the dissonant musician gets removed from the auditorium. I think it depends on whether the symphony is ready to enter into a new movement. I don’t agree with those who say, “Only teach or heal when asked.” Sometimes, the asking is unconscious. Sometimes people want and need to be challenged, disrupted. Other times, if challenged they only retreat farther into their corner. How to know? I look within myself to see whether my challenge is just my way of affirming my own identity, or whether it comes from being unable to tolerate a wrongness or a lie.

  3. John Doe says:

    I should add that this fielding of lectures IS a full time job, because for every hour we spend talking, we have 6 to 8 hours spent recovering, feeling the resentment, frustration, hurt, abandonment, and all the other emotions that well up in response to the things they say. Which leaves no space for the other projects we are working towards, which are big and important.

    • Zay says:

      Hey John!
      You’re in a challenging situation that I do not currently share. So, respect to you for actually being in the testing ground of experience. That being said, I’d like to offer some ideas about living in the gift that could help. While I have not been in your specific situation, I do have some experience with gifting. I offer this advice as a gift that you are not obligated to take.

      First, I’ve found that one of the best ways to live in the gift, let alone to live, is to start with gratitude and appreciation. These are the the spirit of the gift and the magical tools that all of us have to powerfully change our reality. Spending time being thankful for what we DO have, focuses our attention on what IS and dramatically changes our mood and perception of the world. This practice clears our perception to discover the next step.

      As I said, your situation is a challenge. But that in itself is gift. There is immense potential for testing ideas against experience and learning about yourself and learning what works! You could find valuable skills that help thousands of other people in your situation. Be thankful for that opportunity you’ve received that is so relevant to the current situation of humanity!

      Also, take some time to sit in gratitude of your family for who they are and for the things they’ve done for you. Take a break from focusing on the disagreements and conflict and just appreciate them. Many people don’t even have families or families that help them out. You do, and that’s pretty cool.

      Once you’ve appreciated them fully (not just for what they’ve done for you), reframe the situation as Charles suggested in the original post. Rather than your family being the haves and you guys being the have-nots, reverse things. You have immense free time and leisure. That is incredible wealth! Their time is indebted to others. That’s slavery. It’s understandable why your wealth might be so irritating in the face of their slavery! Spend time sitting in deep compassion and empathy.

      Then from your position of wealth, and filled with gratitude, appreciation, and compassion for your family, think of the gifts you can give THEM! Don’t think about what else they can give you or what you’d like them to continue to give you. Think about the gifts you have and the needs they have and how you can benefit them with your wealth….with NO expectation of return! And I’m not talking about gifting them difficult lessons either. You can gift them lessons without adding stress to their lives. I’m talking about finding what you could do to make their lives easier. They are poor in time and many aspects of their lives are monetized. How can you give them more time and help de-monetize more areas of their lives? How can you help them in their daily lives to give them more leisure like you have and to reduce the things they have to spend money on? How can you be a BLESSING to them and thus transform the situation as a powerful gift-giver?

      I wish you much success in tackling your challenge! You are a pioneer, exploring a new way of living, before many more of us. I would love if you gifted us with the things you learn along the way!
      Peace
      –Zay

  4. Josh Sha says:

    Nice Charles. I’m looking forward to seeing you in Atlanta at the EvolverFest. I’m a bigger fan of scrapping the old rules and trying out new ones that we ALL consent to. Create the new system that makes the old one obsolete.

  5. Zay says:

    Hey John!
    You’re in a challenging situation that I do not currently share. So, respect to you for actually being in the testing ground of experience. That being said, I’d like to offer some ideas about living in the gift that could help. While I have not been in your specific situation, I do have some experience with gifting. I offer this advice as a gift that you are not obligated to take.

    First, I’ve found that one of the best ways to live in the gift, let alone to live, is to start with gratitude and appreciation. These are the the spirit of the gift and the magical tools that all of us have to powerfully change our reality. Spending time being thankful for what we DO have, focuses our attention on what IS and dramatically changes our mood and perception of the world. This practice clears our perception to discover the next step.

    As I said, your situation is a challenge. But that in itself is gift. There is immense potential for testing ideas against experience and learning about yourself and learning what works! You could find valuable skills that help thousands of other people in your situation. Be thankful for that opportunity you’ve received that is so relevant to the current situation of humanity!

    Also, take some time to sit in gratitude of your family for who they are and for the things they’ve done for you. Take a break from focusing on the disagreements and conflict and just appreciate them. Many people don’t even have families or families that help them out. You do, and that’s pretty cool.

    Once you’ve appreciated them fully (not just for what they’ve done for you), reframe the situation as Charles suggested in the original post. Rather than your family being the haves and you guys being the have-nots, reverse things. You have immense free time and leisure. That is incredible wealth! Their time is indebted to others. That’s slavery. It’s understandable why your wealth might be so irritating in the face of their slavery! Spend time sitting in deep compassion and empathy.

    Then from your position of wealth, and filled with gratitude, appreciation, and compassion for your family, think of the gifts you can give THEM! Don’t think about what else they can give you or what you’d like them to continue to give you. Think about the gifts you have and the needs they have and how you can benefit them with your wealth….with NO expectation of return! And I’m not talking about gifting them difficult lessons either. You can gift them lessons without adding stress to their lives. I’m talking about finding what you could do to make their lives easier. They are poor in time and many aspects of their lives are monetized. How can you give them more time and help de-monetize more areas of their lives? How can you help them in their daily lives to give them more leisure like you have and to reduce the things they have to spend money on? How can you be a BLESSING to them and thus transform the situation as a powerful gift-giver?

    I wish you much success in tackling your challenge! You are a pioneer, exploring the path of the gift, before many more of us. I would love if you gifted us with the things you learn along the way!
    Peace
    –Zay

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