Economy as Biophysical system  Laws of physics  Can’t make something from nothing, or vice versa  Can’t do work without energy  Entropy increases  Laws of ecology  Structure and function

What is a Steady State Economy?  Does not extract renewable resources faster than they can regenerate  Does not emit waste faster than it can be absorbed  Resource and waste stocks must be compatible with provision of vital ecosystem services  Does not extract essential non-renewables faster than we develop renewable substitutes  Must account for all dissipative structures—humans and our artifacts that are maintained by flows of low entropy matter-energy  We are currently violating all of these conditions

 “only two types of people believe in endless exponential growth: madmen and economists.”  Kenneth Boulding

Uneconomic Growth  Rising marginal ecological costs  Diminishing marginal economic benefits  When costs exceed marginal benefits, growth has become uneconomic

How do we achieve a SSE?  Must reduce throughput by 50-80%  Forces us to think about distribution  Why should the poor sacrifice to make the future better off?  Dramatic difference between SSE and failed growth economy  Must redefine recession as increase in misery, poverty, inequality, unemployment

Relationship between SSE and GDP  GDP is reasonable proxy for throughput  ‘Internalizing’ externalities would create enormous number of new market transactions  Reducing supply of essential, non-substitutable resources would increase value of market transactions

Current Monetary System:  Forces us to choose between continuous growth or collapse  Inherently unstable  Systematically concentrates wealth in the hands of the financial sector  Finances market goods and services even when public goods and services provide far greater social benefits

Current System: Vertical money

Current System: Horizontal Money  What if there’s a great lending opportunity, and bank has already lent 19$?  Where do i (interest) and p (profit) come from?  More loans or more vertical money required. ECONOMIC GROWTH (physics and ecology)  What if p<i?  Procyclical monetary system (positive feedback loops)  Inherently unstable

Speculation and Money on a full planet  Essential resources and inelastic demand  Food, energy, water, land  Growing scarcity and inelastic supply  Food, energy, water, land  Stocks (not scarce, but inelastic supply)  Increasing concentration of wealth, hence pool of speculative capital  Speculation drives up short term financial returns on investment, reproduction rates of natural resources can rarely compete

Total US debt

Growth and Inequality or Collapse  Debt is 360% of GDP and growing faster than GDP  Interest on total debt is likely to be 15% of GDP. Direct transfer to lenders

Goals for the Needed Monetary System  Ecological sustainability  Steady state throughput  Just distribution  Fair distribution of wealth/assets provided by nature or by society as a whole (e.g. unearned income), within and between generations  Efficient allocation  Max QOL/sustainable throughput

Sustainable System: Vertical money, 100% fractional reserve, green taxes

100% Reserve Banking  Current account (checking) deposits cannot be loaned  Individuals pay bank to protect money  Money belongs to individual, not bank  Time deposits available for lending during time period of deposit  Depositor assumes risk  No need for insurance or bailouts  No net creation of money  Can be gradual or one-time increase in reserves  Great references available on request

Characteristics of desired system:  Money Creation  Spent on public goods  Easy to target unemployment, misery, poverty  Central bank purchases state/municipal bonds  Decentralizes money creation, fiscal policies  Loaned into existence  Can be deposited in banks that service community, available for banks to lend  Money destruction  Auctioned Environmental Allowances set according to ecological constraints  Tax unearned income  May need net creation to cover currently unpriced transactions, or net destruction as we reduce throughput

Characteristics of desired system:  Countercyclical (negative feedback loops)  Society as a whole benefits from seigniorage  Not dependent on growth

Rethinking taxation  Not required for government revenue  Required to:  regulate resource use  back dollar  achieve desirable income distribution  adjust aggregate demand, reduce money supply

Fiscal Policy  Expenditures  Government can target money to address unemployment, misery, poverty; provide public goods; restore natural capital  Taxation  Tax rent, natural resource extraction, waste emissions  Dramatic income tax increases, asymptotically approaching 100%  How much residual is enough for rich?  $5,000,000=99.9% tax rate  $1,000,000= 99.98% rate  Relative wealth

Marginal tax rates and income share for top 0.1%