System Failure? Look Upstream

Why is our economic system consigning billions of people to degrading poverty, destroying Earth's ecosystem, and tearing up the social fabric of civilized community?
Looking Upstream, Photo by Stu Mayhew

It's easy to fix the symptoms of a problem, but finding a real solution involves looking upstream to figure out what's causing the problem in the first place.

Photo by Stu Mayhew.

This is the fourth of a series of blogs based on excerpts adapted from the 2nd edition of Agenda for a New Economy: From Phantom Wealth to Real Wealth. I wrote Agenda to spur a national conversation on economic policy issues and options that are otherwise largely ignored. This blog series is intended to contribute to that conversation. —DK

Many years ago a wise Canadian colleague, Tim Brodhead, explained to me why most efforts to end poverty fail. “They stop at treating the symptoms of poverty, such as hunger and poor health, with food programs and clinics.” They never ask the obvious question: “Why do a few people enjoy effortless abundance, while billions of others who work far harder experience extreme deprivation?”

I realized it was the same lesson my business school professors had drummed into my head in my student days. “The visible problem—a defective product or an underperforming employee—is a symptom of system failure. Look upstream to find and fix the problem at its source. Step back and look at the big picture.”

Tim summed up his observation with a profound lesson, “If you act to correct a problem without a theory about its cause, you inevitably treat only the symptoms.”

The consequences of acting on a bad theory based on a false premise can be even worse than acting without a theory. Indeed, it can lead to collective self-extinction.

I soon found myself asking a yet larger question: “Why does our economic system consign billions of people to degrading poverty, destroy Earth’s ecosystem, and tear apart the social fabric of civilized community?”

It turns out that the consequences of acting on a bad theory based on a false premise can be even worse than acting without a theory. Indeed, it can lead to collective self-extinction.
Cultural historian Jared Diamond tells of the Viking colony on the coast of Greenland that perished of hunger next to waters abundant with fish; it had a cultural theory that eating fish is not “civilized.”

As we are perplexed by the foolishness of the Viking colony, future generations may be perplexed by our equally foolish devotion to an economic theory that using borrowed money to speculate on financial bubbles will eventually result in prosperity for all. No need for concern that in the process we are trashing Earth’s life support system and destroying the social bonds of family and community. Eventually, or so the theory goes, we will have enough money to heal the environment and end poverty.

As I looked ever further up-stream I was startled to find that the source of our foolish behavior is an illusion: the belief that money—a mere number created with a simple accounting entry that has no reality outside the human mind—is wealth—indeed the standard against which all other forms of wealth are properly measured.

Money, photo by Earl
Time for a New Theory of Money

Ellen Brown: When we recognize that money is simply credit, we can unleash it as a powerful tool for our communities.

Because money represents a claim on so many things essential to our survival and well-being, it is easy to confuse it with the things for which it may be exchanged. From there, we easily slip into evaluating economic performance by the rate at which it is growing phantom wealth financial assets. Focused on returns to money, we embrace GDP growth, essentially a measure of the rate at which human relationships are being monetized and commodified and real assets are being converted to financial assets, as our primary measure of progress.

Once the belief that money is wealth is implanted firmly in the mind, it is easy to accept the idea that money is a storehouse of value rather than simply a storehouse of expectations, and that “making money” is the equivalent of “creating wealth.”

This misdirection ultimately explains why we tolerate an economy that cycles violently between boom-and-bust; decimates the middle class; forces families to choose between paying the rent, putting food on the table, and caring for their children; and wantonly destroys the relationships of community and Earth’s biosphere.

It explains why we have allowed Wall Street to assume control of our most powerful economic, political, and media institutions to make financial speculation, accounting fraud, and the inflation of financial bubbles our national economic priorities. It explains why we allow the perpetrators of this fraud to reward themselves with obscene bonuses for creating phantom financial assets that inflate their claims to the real wealth created by others—an act that in a slightly different context would be considered counterfeiting, a form of theft.

The Wall Street edifice sits on a foundation of a false theory grounded in grand illusion. Spending trillions of dollars to renovate the edifice is a fool’s errand. Our best hope for a viable future is to build a New Economy grounded in reality-based theories and devoted to the sustainable production and exchange of real goods and services to meet the real needs of our children, families, communities, and natural environmental systems. [Next: Money from Nothing?]

The ideas presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine web store — where there are 3 WAYS TO GET THE BOOK and a 22% discount!


3 WAYS TO GET THE BOOK with a 22% discount

  • Real wealth or phantom assets? David Korten explores the difference between the kind of wealth that makes life better and the phantom wealth created by financial speculation.

  • Each of us can help build a resilient financial system that will serve real people in real communities.