System Failure? Look Upstream

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."

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.

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.

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