Where Did All the Money Go?
Agenda for a New Economy author spells out problems and solutions.
by Maria Reidelbach
by Maria Reidelbach
Then, within the space of a
year or so, that all changed. What happened to all that money? It disappeared
quickly. But what is money? When it's
being used to pay rent or buy food it seems so tangible, but how can it just
evaporate?
I've been reading books on
economics for several years now in an attempt to get a grip on the subject. I
don't know why everyone thinks economics is dry—money is pretty interesting.
There are currently some great books out there. Tales of an Economic Hit Man by John Perkins got me started, with
gooseflesh-inducing personal experiences of being sent to foreign countries to
lure them into taking huge loans so that the money could be funneled back to
big American consulting firms who would badly advise them. His book made the
puzzle pieces of our international relations fit together like no other
explanation I had heard.
I needed to learn more about
basic economics so I read The Undercover
Economist by Tim Hartford—did you know that Starbucks' most expensive drink
(to produce) is black coffee? (Everything they add to it is cheaper, yet they
can charge more.) And from that book I also learned about externality costs—those
are the costs that producers seldom pay, but we do (like paying cost of
pollution coming from cars in the form of health and environmental problems). I
followed that up with Freakonomics,
another very readable tome, by Steven D. Levitt and Stephen J. Dubner, which
has become a franchise with spinoff books and radio, and Calculated Risks by Gerd Gigerenzer, which helps explain statistics
as they relate to real life—did you know that 1 in 360,000 people have the same
fingerprint?
Then I thought I'd switch
the emphasis to no money, and I read Free: How Today's Smartest Businesses Profit
by Giving Something for Nothing, by Chris Anderson, learning about “freemiums”
and other strategic giveaways. Most recently I finished the truly amazing Priceless: The Myth of Fair Value (and How
to Take Advantage of It) by William Poundstone, which uses neurology and
other science to show how numbers behave very peculiarly in the human brain;
for instance, the number 9 at the end of a price actually does exercise a
certain universal allure, and scientific studies show that humans are more
likely to buy an object with a dollar price that ends in 9. Even humans who
consciously round up. Even you, even me.
But the best book about
economics I've read so far, by far, is Agenda
for a New Economy: From Phantom Wealth to Real Wealth by David C. Korten.
This book has a fascinating history of the economic system in place in the US
today, tracing our present system back to imperial times, and agreements that
the monarchy had with pirates and privateers. But more important, it's got an
astounding analysis of our present economic situation and well drawn ideas for
curing the current problems and moving into the future.
Korten is an experienced and
learned guide, with advanced degrees in business from Stanford and 35 years
working in the field, military service in Vietnam, 15 years in Asia as a Ford
Foundation project specialist, and much more.
The concept of phantom
wealth vs. real wealth piqued my interest and I was amazed to learn from Korten
that money is not created by the US government, as I had thought. It's created
by banks when they lend money (and promise to the government to back up those
loans). This arrangement worked for a while, but deregulation allowed banks to
create more money with less insurance, and when the housing bubble burst, they
couldn't back up the number of loans defaulting—that's when the government had
to step in and bail them out.
It's so simple. The banks
created a lot of money that they couldn't back up with their own assets, gave
it out freely to many unqualified borrowers, and of course lots of it went to
bankers in the form of commissions and bonuses. When the banks couldn't collect
from borrowers, they cried to the government to bail them out, claiming that if
they went broke, they'd take the economy down with them. And so the government
did. The borrowers are still on the hook for the money they borrowed. So who
made out from this deal? And who paid? Follow the money.
The housing bubble and crash
were possible, in a nutshell, because they were based on phantom wealth, on
money not rooted in reality. It was a way for Wall Street bankers to suck the
money out of local economies and enrich themselves. To end this cycle and
others like it, Korten makes a compelling case for transitioning our economy to
one based on real wealth, on things that are tangible: food, clothing, shelter,
yes, but also on health, happiness, and the health of our environment.
He talks about the phase
change of world economics that occurred during the 1970s, when we went from a
world with unexhausted frontiers of natural resources to one where the human
population has reached a saturation point and we need to begin husbanding our
resources in a very different way. What he's proposing is revolutionary, but
very well grounded in the issues that are important to all humans, and actually
very practical. Many of the strategies of change take place on a local level,
and immediately benefit local economies.
It's impossible in an
article this short to even touch upon the wealth of information and thinking
that's in this book. I'm interested in reading it again, and if others are
interested, I'd be willing to organize a discussion group around it. If you
want to know more, check out the reviews of the book on Amazon. Be sure to
check out the second edition, which has been greatly expanded from the first.
For discussion group info, email me at maria@hoopla.org,
I'd be interested to hear your feedback.
Maria Reidelbach is an
artist, author, and proprietress of Homegrown Mini-Golf at Kelder's Farm.
–originally published in the January 2011 issue of CWN
–originally published in the January 2011 issue of CWN
Posted by Chris Hewitt
on 11:41 AM.
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