by Daniel Wortel-London

New economic paradigm—and policy—needed in the U.S. Government.

What U.S. federal agency is responsible for identifying and reducing the environmental and social costs of economic growth? None, really. The government has plenty of agencies and programs devoted to conservation, natural capital accounting, “green” industrial policy, and just transitions. But none address the elephant in the room: economic growth. Growth is what causes a nation’s ecological footprint to exceed its biocapacity.

To address this issue, in 2020 CASSE proposed a Full and Sustainable Employment Act (FSEA). Central to the FSEA was the establishment of a Commission on Economic Sustainability. Consistent with steady-state principles, the Commission entailed no net increase of bureaucracy. Rather, the Cabinet-level commissioners, led by the Secretary of the Interior, would simply refocus some of their duties on the matter of sustainable population and GDP.

The paradigm-shifting FSEA has evolved into the plainly titled Steady State Economy Act, carefully pieced together with “feeder bills.” The bill I introduce herein is the Commission on Economic Sustainability Act (CESA).

Growth is the Footprint

Economic growth results from the combined effects of changes to a country’s population and per capita consumption. Economic growth correlates tightly (and causally) with a higher throughput of materials and energy. Therefore, the overall size of an economy as represented by GDP gives a good indication of its broader ecological footprint.

More growth, more waste. (Ryan Brooklyn, Unsplash)

Since the 1970s, the resource demands of the U.S. economy have overshot the country’s biocapacity. This “overshoot” threatens human wellbeing and the foundations of economic development more generally. To address the social and ecological perils connected to the swollen size of our economy, we must slow economic growth. And we must reduce the economy’s size to be consistent with our environment’s biocapacity.

For this reason policymakers need to focus on GDP in developing our nation’s sustainability strategy. In particular, they should understand what drives GDP growth and what could reduce it. This is because analyzing GDP reveals, in ways that analyses of natural capital or “ecological footprints” do not, the specifically economic drivers behind our ecological crises.

When combined with analyses of the nation’s biocapacity, we can evaluate how much we need to shrink GDP to fit within a “safe operating space” afforded by nature. GDP is already a familiar yardstick to policymakers and the public, and economists calculate it with exceptional rigor. Thus, GDP should be the prime metric for sustainability analysis and a key guide to sustainability initiatives in the United States and elsewhere.

Missing the Target

Most sustainability strategies do not identify the costs of economic growth, much less scale this growth back in a just way. Instead, they focus on reducing the symptoms of growth and advocate for actions like de-carbonization and “net-zero” goals. Others measure overshoot using natural capital accounting and by incorporating “planetary boundary” frameworks into policy planning decisions.

Missing are initiatives that forthrightly address a key driver of our ecological crisis—the economy’s unsustainable size. Nor do we have initiatives that identify viable and just strategies for reducing it. To be sure, scholars like Daniel O’Neill, Peter Victor, and Tim Jackson have developed models proposing policy routes toward a steady state economy. But these paths are generally developed in an academic context. They incorporate only a limited suite of policy tools. And they don’t address the full range of levers driving growth, from federal fiscal policies to planned obsolescence and bank-created money. They generally focus on “ideal-type” policies, rather than those that can be developed realistically within existing national legal landscapes.

More solar panels won’t help much if consumption inside is growing. (Christine Westerback, Creative Commons 4.0)

Here is where a Commission on Economic Sustainability comes in. The Commission’s founding premise—a conclusion really—is the fundamental conflict between sustainability and growth. It would identify the federal policies and initiatives that promote this growth. It would calculate an optimal size for the economy as measured by GDP, based on the ecological requirements of the country and its citizens’ social needs. And it would develop a whole-of-government, 25-year strategy to reach this target in a way that maximizes fair redistribution and efficient allocation.

There are, of course, great difficulties involved in identifying the targets and strategies mentioned here. In part these difficulties are technical, including the challenge of identifying drivers of economic growth that are both granular and comprehensive. Others are ethical, such as identifying the material needs of the population while accounting for ecological health and personal freedom.

These difficulties, however, should not discourage us. We can tackle the ecological emergency only by addressing the forces driving it: the growth and size of our economy. The issues involved in tackling our civilizational challenge can be addressed through science and political debate. The Commission on Economic Sustainability is the agency that will keep us on track.

The Commission on Economic Sustainability Act

The Act establishes a government body responsible for measuring, monitoring, and coordinating federal efforts to reduce economic growth to environmentally and socially sustainable levels.

Section 2, “Findings and Declaration,” states that there is a fundamental conflict between economic growth and environmental protection. Because this conflict threatens both the economy and security of the United States, it is necessary to reduce growth through concerted federal activity. The section therefore declares that establishing a Commission on Economic Sustainability is in the interest of the United States.

A good Secretary of the Interior has the background, resources, and independence required to chair the Commission on Economic Sustainability. (U.S. DOI)

Section 4 establishes the Commission. The Secretary of the Interior will chair it, and members will include the Administrator of the Environmental Protection Agency and the Secretaries of Agriculture, Energy, and Commerce.

Section 5 directs the Commission’s Chair to produce a report identifying all federal activities that incentivize economic growth. Among the activities to be identified are funded and unfunded rules, regulations, policies, programs, laws, and initiatives implemented by all federal commissions, agencies, and departments.

Next, section 6 requires the Chair to produce a report identifying environmentally sustainable levels for the growth of population and GDP for the United States.

Section 7 directs the Chair to produce a report identifying a 25-year plan for establishing a steady state economy at the optimal levels of population and GDP established in Section 6.

Section 8 requires the Chair to produce a report summarizing the Commission’s activities and proposals, and to submit it to Congress annually.

The CESA is designed as a stand-alone bill and as a key component of the larger Steady State Economy Act. It addresses, as no other federal body currently does, the unsustainable growth that threatens national prosperity and security alike. And by identifying the drivers of this growth and coordinating government-wide strategies to reign them in, the CESA will help ensure a better, steady-state future for our people, nation, and planet.

Daniel Wortel-London is a CASSE Policy Specialist focused on steady-state policy development.

The post Introducing the Commission on Economic Sustainability Act appeared first on Center for the Advancement of the Steady State Economy.

by Dave Rollo

Farms and forest occupy Rappahannock County. The Shenandoah Mountains lie to the west. (Wikimedia Commons)

It would be difficult to match the pastoral majesty of northwest Virginia, with its rolling hills covered in forests and prime farmland at the northern foot of the Blue Ridge Mountains. The region boasts the Shenandoah Valley to the west and Shenandoah National Park (SNP). Sitting at the eastern doorstep of the Park is Rappahannock County, part of the Piedmont region of the state, which lies between the mountains and the coastal plain.

Rappahannock is unique among the counties of the northern Piedmont for its careful approach to conservation. Unlike neighboring jurisdictions, Rappahannock County has carefully guarded its rural character and natural beauty—an astounding achievement given its proximity to the Washington, D.C. Metro (less than 50 miles away). Missing in Rappahannock are the big box stores, strip malls, fast food restaurants, and sprawl that are common outside the county’s borders.

Threats from Exurbia

“Super commuters” and telecommuters have created great demand for land in the counties west of Washington, D.C. Extending beyond the coastal plain cities of Washington, Arlington, and Alexandria, whose combined population is 5.5 million, the Piedmont region and the mountains beyond have felt the effects of this hunger for land.

Rappahannock County lies on the periphery of the exurban D.C. metro area. (Wikimedia Commons, modified).

The population of suburban Loudon County has increased more than tenfold in 50 years, to 440,000 people. Fauquier County, sandwiched between Loudon and Rappahannock, has tripled since 1970, to 76,000 residents. Fauquier is now considered part of the 22-county D.C. metro area, out on the exurban fringe.

Yet despite growth pressures—actually, because of active resistance to them—the population of Rappahannock County has held nearly steady over the past half-century, at 7,500 people.

Growth pressures have intensified over the years and are now on Rappahannock County’s doorstep. The county has successfully staved off most conversion of land to housing tracts, but neighboring counties have approved large development projects within a few miles of the county line.

In Culpeper County, immediately southeast of Rappahannock, the County Planning Commission granted unanimous approval of a massive development at Clevenger’s Corner. The development consists of 774 homes and a 144,000 square-foot commercial center. The approval was consistent with the county’s “growth centers” vision described in its 2005 comprehensive plan. To the people of Rappahannock County, Clevenger’s Corner is an object lesson in the type of development to avoid. They point to it when they complain to their elected representatives about the consequences of loosening zoning restrictions.

Pressures of Growth Tested

Rappahannock residents’ preference for conservation was put to the test recently, as was Rappahannock County’s 2020 Comprehensive Plan, by two controversial development petitions in the villages of Sperryville and Washington. The proposal in Sperryville was denied, while the one in Washington was approved, but they both reflect a cautious review of development that is more or less consistent with a steady state economy.

Sperryville, with more than 350 residents, has a vibrant village center. At the boundary of Shenandoah National Park, it benefits from significant tourism, and is buoyed by visitors frequenting the handful of shops, galleries, and restaurants. It is unincorporated, and development decisions are made exclusively by the County Board of Supervisors.

In Washington, by contrast, commercial and cultural activity has waxed and waned over time, and population has fallen from a high of 250 residents to 86 today. The mayor has set a goal of increasing the town’s population to roughly its former high. Unlike Sperryville, Washington (and most towns and villages in the County) is incorporated; development within its boundaries falls under the purview of the Town Council.

The Sperryville development proposal was for changing the density requirement of a local parcel from five acres per home to two acres (referred to as “upzoning”). This proposal generated a great deal of public opposition. In response, environmental restrictions on the parcel were introduced, which reduced the developable area and the number of homes. However, a petition of nearly 400 signatures urged the Board of Supervisors to reject the rezoning request outright. Ultimately, the Board agreed with the opposition to the proposal and kept the current zoning, at five acres per home.

View of Main Street, Sperryville, Virginia (Wikimedia Commons)

Meanwhile in Washington, the Rush River Commons project consisted of a mixed-use (commercial/residential) proposal on 5.1 acres that featured slope constraints and environmental challenges. The Washington Town Council viewed the project as valuable for shoring up town commerce. They also liked its inclusion of space for nonprofits and 20 units of affordable housing, a key consideration in their comprehensive plan.

After approval of the first phase by the town council, the developer offered a second phase that not only entailed additional building but required expansion of the town boundary by three acres. This required approval from the County Board of Supervisors. County residents pushed back on the proposal, and it was only after the developer removed the residential component and met twenty-five other conditions that the Board approved the project.

Thus, although the Board of Supervisors finally approved the Washington development, it imposed a high degree of stringency in the review process. Concern over the town’s loss of 60 percent of its population was likely a key reason for the decisions by both the town and county governmental bodies.

In the Sperryville and Washington cases, meeting records, public comment, and letters to the editor of the local Rappahannock News illustrate a substantial degree of public input from throughout the county. Civic involvement explains, to a large degree, Rappahannock County’s success at preserving land and resisting growth pressures.

Comprehensively Speaking

The Rappahannock Comprehensive Plan of 2020 updated the previous 2004 plan in significant ways. The Board of Supervisors implemented a downzoning (an increase in minimum lot size) of approximately 90 percent of the county’s land. Current zoning allows only one housing unit per 25 acres. This check on development is popularly supported and was reflected in elected leadership and appointments to the Planning Commission.

The opening statement of the comprehensive plan emphasizes the value that residents find in the county’s undeveloped lands: “When asked what brings the most pride related to Rappahannock County, there were various answers generally related to the unique viewsheds, the rural nature, the preservation of land and open spaces, and the citizens that help keep it that way.”

Popular support for constraints on development is clearly evident: “When asked what should never change about Rappahannock County, responses generally referenced the natural beauty and the zoning restrictions that control development.” Clearly, residents prize the natural attributes of the county over proposed alterations imposed by development.

Fortunately, Rappahannock County can draw on state-level policy to limit land conversion. For example, a foundational element in Rappahannock’s success in farmland preservation is the State of Virginia’s 1971 LUVA (Land Use Value Assessment) law allowing local governments to assess land by its “use value” rather than its typically higher market value. Through LUVA, real estate taxes are lower for lands that are useful for production of food, fiber, or timber. This creates an incentive to keep land rural and productive. The policy is effective: Ninety-eight percent of farms in the county are still family-owned, and 80 percent are smaller than 179 acres.

Rappahannock’s permanently protected land. (Piedmont Environmental Council)

The Piedmont Environmental Council, a regional environmental organization founded in 1972, has played a significant role in environmental protection and conservation for more than half a century. It promotes parks and trails, supports the local food system by connecting consumers to producers, encourages an active civic culture, and builds on land conservation successes.

The PEC has permanently protected more than 420,000 acres through the use of conservation easements. In Rappahannock County, conservation easements total approximately 34,000 acres, 20 percent of the county’s area. These are held by a consortium of organizations, including The Land Trust of Virginia, Virginia Outdoors, local and state governments, and the PEC. Together with the Shenandoah National Park, conservation easements cover more than 38 percent of Rappahannock County.

The PEC goal is to place 50 percent of the privately held land in the Piedmont region—a million acres—into permanent conservation status. The PEC has determined that the 50 percent goal is the minimum area required to preserve species diversity in the region. The secondary goal is to create a vibrant rural economy.

The PEC is in the process of targeting farms in the upper Rappahannock watershed that could also provide an anchor for the rural economy. Farm Bill programs through ALE (Agricultural Land Easements) provide grants—up to 50 percent of the land’s fair market value—to farms for placing their land in easements, with tax benefits on the remaining land value.

The Need for Vigilance

The inclination of town and county residents alike is to resist sprawl, as reflected in the 2020 comprehensive plan. The Land Use section provides that ”…we the people of Rappahannock County declare it to be a ’scenic county‘ and all goals, principles, and policies will reflect and devolve from this fundamental recognition.” The  “Principles” section includes six that are directed toward land conservation. Two principles pertain to economic growth and development. However, they call for maintaining “growth areas” of urban infill for commerce and affordable housing. Economic growth is allowed only when it “assists in maintaining our existing balance and is compatible” with the natural and rural nature of the county.

Principle 10 promotes the philosophy that “land is a finite resource and not a commodity” and needs protection. Principle 9 encourages “citizen involvement in the planning process,” citizen education regarding the value of the natural and rural environment, and provision of an avenue for citizen participation in the oversight of development proposals.

The Rappahannock Comprehensive Plan’s “Goals” section is likewise explicit regarding land conservation. Seven goals require protection and preservation of the natural attributes of the county. Only one goal entertains prospects for further economic growth. It includes the directive to “Define the future boundaries of growth in village and commercial areas necessary to preserve our community character and to maintain the balance that exists today.”

Since growth is constrained by restrictions and within discrete physical boundaries, what level of growth is likely, especially given the demographic and affordability challenges of the county? The Board of Supervisors recognizes that as the county ages, gentrification prevents younger and poorer community members from living and participating in the county. Yet younger residents are usually needed to work in agriculture.

The remarkable success of protection by conservation easement within the County. (Piedmont Environmental Council)

The comprehensive plan anticipates population growth of 0–1 percent per year. This is not a goal, but a response to a variety of causes. The plan indicates that infrastructure such as schools are adequate to accommodate an increase of 750–1,500 county residents. This means a total projected population of 8,800 people, similar to the County’s population in the year 1900.

Rappahannock’s comprehensive plan embodies a limits-to-growth ethic that is consistent with the county’s legacy of resisting development pressures. The use of conservation easements and support for an agrarian base with ecological integrity is also consistent with a steady state economy. However, conservation easements are vulnerable to violation, the doctrine of changed conditions, and other legal challenges in a nation pursuing economic growth. Vigilance will be required to maintain the terms of easements. Ideally, these easements would be bulwarked by a sturdy framework of conservation lands owned by the county or a fee-title land trust.

Continued advancement toward a steady state economy could also be encouraged by replacing references to quantitative “growth” in the comprehensive plan with principles of qualitative improvement. And because the county’s population growth has long fluctuated within a small range and at a low level, the county could explicitly aim to maintain this dynamic equilibrium for the purpose of protecting its biocapacity. With these moderate changes, the plan could serve as a model for keeping a county great by maintaining a steady state.

Dave Rollo is a Policy Specialist and team leader of the Keep Our Counties Great campaign at CASSE.

The post <em>Keeping</em> the County Great: Rappahannock’s Steady State appeared first on Center for the Advancement of the Steady State Economy.

By John Haly and Dr. Martha Knox-Haly, originally published at Auswakeup Media.

We now go on to part two of our discussion of the concept of a “Mismatched Unemployment Inflationary Rate” (MUIR), which would use a federal job guarantee to bridge the gap between full employment policies and the inflationary risk associated with mismatched skills driving up production costs. We now look at how the components of a full employment policy can offset the inability of western governments to end needless unemployment.

[Here’s a link back to part one.]

When governments do facilitate a full employment approach, it is appropriate to implement an employer-of-last-resort policy. A Job Guarantee can address the inflationary risk that may arise as unemployment falls below 2%. The Job Guarantee can also address educational lag-time (the time it takes to train someone). Instead, in the decades since the advent of proto-neoliberalism in the 1970s, the neoliberal agenda has decimated unions, fragmented labour markets, and deprived workers of agency, rights, skills, engagement, and purpose (Humphrys, 2019. Pg 76-77). The dysfunctionality of the modern capitalist workforce is outlined in David Graeber’s book “Bullshit Jobs” (Graeber, 2019).

Focusing on a regionally driven Job Guarantee should not precede Western economies failure to resolve to labour market wastage. Currently western economies have not even approached the point where the MUIR point is reached (Richardson, 2019). To achieve sustainable employment, we must expand job opportunities in the labour market to the point where the MUIR point is relevant. To understand the actual size of unemployment, we must first measure true internal domestic unemployment in ways other than the subset represented by International Labour Organisation (ILO) guidelines (Haly, 2022).

To achieve employment sustainability and equity, governments must prioritise employment options that meet the needs of individuals and the labour market. Then, when unemployment is low, we address mismatches between individuals and jobs. There will be an inevitable education lag as we retrain people to fill vacancies. Government intervention in the private and public job markets to maximise participation opportunities ensures that the “gap” filled by a job guarantee is quite small. While providing work at a minimum wage for a job guarantee is still required, otherwise misallocated people must continue to be served with pathways to better job opportunities. The Job Guarantee works well when everyone else is fully invested in the labour market’s long-run potential.

Due to a lack of a strong skills base, integrated career plans, and ongoing investment in training, Australia is severely disadvantaged compared to other OECD countries facing a green transition (OECD, 2023). We need better Federal and State engagement in developing National Qualifications Frameworks before we even consider locally-based initiatives for work (UNESCO, 2023).  This is where future job growth will occur, as the labour force requires extensive STEM (Science, Technology, Engineering, and Math) skill training at both the TAFE and university levels (National Skills Commission, 2022). We must make more drastic changes to ensure our species’ survival in the face of catastrophic climate change, biodiversity loss, water scarcity (except when it floods), land degradation (especially when it burns), pollution, and waste. There are local conservation needs, but we must prioritise larger mission-based projects with local support that are funded by the federal government and ultimately guided by citizens (Gould & Mazzucato, 2021).

Sustainable Full Employment

A sustainable foundation for employment necessitates a focus on the components of a sustainable economy. This means sustainability must be promoted at the national, state, and local levels. Sustainable infrastructure projects are typically implemented at both the federal and state levels. Because of the vast geographical distances between Australian capitals and regions, Australians urgently require functional National Broadband, functional national transportation systems, and mega-projects to generate sustainable renewable energy.

The neoliberal zeitgeist portrays the government as incapable, fallible, and unworthy of investing in new industries (Monbiot, 2016). During the postwar decades, Australian public sector industries produced that critical trade workforce. Deregulation of the financial industry is to blame for the pitifully unstructured job market we now face. It means that businesses in Western democracies are having difficulty obtaining the consistent and long-term financial resources required to fund lifelong employment, integrated career paths, and ongoing training investment. So, the process must begin with re-regulating the finance sector and restoring it to its proper place in society, which is in support of the actual production of goods and services.

Skills required for future employment

Work-for-dole programmes, akin to those used by conservative governments, in which employees are forced to rake leaves in the neighbourhood park or remove playground graffiti, should be abolished (Patty, 2014). To achieve a national economic transition to sustainability, significant investment is needed to develop deep-level skills and integrated career paths. Many people should be encouraged to pursue STEM-related careers, skill development, and public employment as that is where future growth is (Steel, 2021). (see Figure 4)

We’re in this predicament because Western governments have long opposed the establishment of an integrated labour market. Their preference is to foster a fragmented labour market conducive to the “McDonaldisation” of employment (Crossman, 2020). This strategy ensnares young people in low-wage positions in the hospitality and service industries, with minimal opportunity for promotion. In the USA, Australia and the UK, this burden is exacerbated by the specific despair of college debt, which shackles people for decades and severely restricts their economic mobility (Sullivan, Meschede, Shapiro, & Escobar, 2019). We must reverse the “McDonaldisation” and fragmentation of our labour markets. We want to demonstrate to job-seekers how their participation in local, state, or federal-level work can fit within the national qualifications framework that most Western democracies can produce. This improves people’s ability to transfer their skills and credentials to more functional work environments. Without the ability to relocate, people trapped in one local community are more vulnerable to exploitation and nepotism. Even if we meet “fuller” employment targets, incentives must be in place to prevent people from becoming trapped in a local job guarantee and seeking alternative careers. If those connections to the National Qualifications Framework are not articulated, The task of cleaning graffiti off playgrounds is valuable to a community, but without credentialing, it is not portable. Many people seek genuine professional opportunities to improve their chances of success and determine where future job opportunities will exist. Governments must constantly adapt public job markets to skill mismatches and provide unimpeded training where needed to limit the population size of a necessary job guarantee.

We need STEM career paths that are technically oriented and integrated, starting on the shop floor and ending in the boardroom. We should develop a technical common language for labour involvement to increase the chances of successful collaboration. Everyone with similar high-level training can understand each other’s concerns, reduce ignorance and build empathy. This training would also alleviate the marginalisation, alienation, and frustration of technical employees servicing a less skilled population.

An employment programme must be robust and flexible, provide ongoing training and educational benefits, and have no entry or relocation barriers. This is how to address the issue of long-term unemployment and better match skills to opportunities. The programme must offer opportunities for deep and articulated skills along distinct career paths, as well as multiple entry points into an integrated labour market. As evidenced by 25 years of Australian history, the inflation risk for reduced unemployment should be well below 2% – everyone who wants a job, or a different job, should be able to get one. So, the Reserve Bank’s claim that 4.5% represents “full employment” and 3.7% represents “insufficient unemployment” is complete nonsense (Haly, 2024a). Significant infrastructure and energy transition projects require employment and educational opportunities at the state and federal levels. We have so much to do, and with the looming poly-crisis, there is little time for the necessary employment revolution (Whiting, 2023).

by Brian Czech

Concern over mushrooming debt is growing. Click on the image to see the casino-like tumbling of national debt “clocks.” (US Debt Clock)

If you recognize the damages done by a bloating economy, you’ll be alarmed by the global GDP meter, which hit the existentially menacing threshold of $100 trillion in 2022. If that doesn’t give you a dose of distress, try the global debt clock. Then, for a dizzying dose indeed, check the casino-like combination of debt and GDP maintained by “US Debt Clock.”

Almost all readers, bearish and bullish alike, can sense the unsustainability of skyrocketing debt. Even wild-eyed growthists, who see no problem in a perpetually growing GDP, can’t abide a perpetually growing debt. Yet very few critics of debt can articulate, with economic fundamentals, why such debt is so unsustainable.

Sadly absent from the discussion of debt is the ecological underpinnings of money. As long as these underpinnings remain overlooked, the money lenders will be overbooked. Deficit spending will rule the day, and global debt will continue rocketing into the stratosphere, heading for the sun like a pecuniary phoenix.

Let’s have a closer look at the debt problem, with a focus on global and U.S. scenarios. We’ll consider the relationship of debt to deficit spending, along with inflation. Finally, we’ll bring in the ecological basis of money, and hope our policymakers grasp and apply it, lest our money supply—not to mention the planet—turn to ashes.

Deficits and Debt: Global and U.S.

As global GDP was ramping up to the planetarily punishing $100 trillion level, global debt was already surpassing $300 trillion. It reached that dubious distinction in 2021, just one year after reaching the previous record of $226 trillion. It has since come down from the peak, but still stands around $238 billion, and the reduction is surely short-lived.

The majority of global debt is private, especially corporate but significantly household debt as well. Public debt—money owed by governments—makes up about a third.

In the USA, those proportions are roughly reversed. From the county commission to Capitol Hill, American politicians have ambitions that far exceed government coffers. When they’re not spending money to “stimulate the economy,” they’re trying to spend their way out of the social and environmental problems caused by an overstimulated economy. They spend money they don’t have; that’s deficit spending and it adds to the public debt.

Deficit spending is a way of political life in the U.S. Government. (Image snipped from 2024 Budget of the U.S. Government.)

At this point in fiscal year 2024 (October 1, 2023 through September 30, 2024), the U.S. government deficit stands at roughly $532 billion, contributing another two percent to the federal debt of $26 trillion. The deficit may lessen as taxes are collected in the coming months, but then it will shoot back up for the remainder of the year. Even the figures provided by the Administration (probably rosy figures) acknowledge that the deficit is expected to be a whopping $1.8 trillion by the end of fiscal 2024. That’s nearly seven percent of the 2023 GDP ($26 trillion).

The USA is particularly relevant to the global debt; its debt is bigger than any other. In fact, U.S. entities—government and private combined—carry a debt burden nearly the size of the global economy!

Only Japan and China have joined the USA in the club of over $10 trillion government debt. France, Italy, the UK, Germany, India, Canada, Spain, and Brazil all have debts exceeding a trillion dollars.

In terms of relative debt (ratio of debt to GDP), Japan is at the top of the list at 255 percent. Greece, Singapore, Italy, Bhutan, and the USA (123 percent) round out the top six.

Deficit Spending: Getting Dumb and Dumber?

Deficit spending has a long history in American policy. The fiscal exigencies of war have triggered deep deficits, with World War II as the classic case. But huge deficits were already incurred during the Great Depression, coinciding with the influence of the British economist John Maynard Keynes. In the General Theory of Employment, Interest, and Money, Keynes prescribed a liberal dose of deficit spending to spur the western economies out of recession.

But Keynes never said to go hog wild, much less stay that way. So, for many decades now Americans have heard the debate between fiscal conservatives and “deficit-spending liberals.” They both want growth, but conservatives think a persistent deficit and ballooning debt is more burden than boon for GDP. They typically only abide a big debt for hawkish military purposes. Otherwise they’re “budget hawks.”

Alexandria Ocasio-Cortez, are you sure about MMT? (Wikipedia)

Inveterate deficit spenders, on the other hand, think they can stimulate the economy by picking the winners and funding the right programs.

Into this old debate comes “modern monetary theory,” centered around the idea that deficit spending is generally fine, and policymakers needn’t worry too much about a growing debt, as long as the economy is also growing. Beyond that, “MMT” seems to mean many things to many people and has polarized the economics community. Even pollyannish growthists like Paul Krugman find MMT “obviously indefensible.” Another growthist (aren’t they all?) at the dark-monied Mercatus Center calls MMT “a bizarre, illogical, convoluted way of thinking.”

MMT does, however, provide some political cover for politicians hunting pork. The late King of Pork, Senator Robert Byrd, would have championed MMT all the way to the bottom line. But MMT has persuaded some presumably more fiscally innocent members of Congress, most notably Alexandria Ocasio-Cortez, Senator Bernie Sanders, and even John Yarmuth, past chair of the House Budget Committee.

In any event, it’s hard to tell what’s so “modern” about MMT. It has a few new wrinkles—it picks them up as it goes along—but basically it’s just another phase of Keynesian thought on deficit spending. And, as President Nixon said a half century ago, “We’re all Keynesians now.” He could have added, “We’re all growthists, too!”

And so, the first subheading that appears in this year’s federal budget (page 5) is: “GROWING THE ECONOMY FROM THE BOTTOM UP AND MIDDLE OUT.” We could add: “WITH A SHOT OF DEFICIT STEROIDS.”

Money Supplies: Warranted vs. Inflated

In 1939, one Sir Roy Forbes Harrod wrote “An Essay in Dynamic Theory,” published in the stately Economic Journal. Until then, little had been theorized about the process of economic growth, and rarely with such nuance. Harrod’s approach is considered a leading precedent of growth theory.

Harrod spent much of his 20-page essay contemplating three kinds of growth rates: warranted, natural, and actual. Our charge here is not to dive deeply into Harrod’s thoughts on growth rates, but to see where they take us on debt and inflation. In particular, I propose we have three levels of money supply: warranted, real, and nominal.

Economists are familiar with the latter two. The real money supply has been adjusted for inflation, typically by pegging to a particular year. The nominal supply is expressed in terms of face value in real time. For example, $1.38 trillion today—the nominal money supply of a hypothetical country—is only one trillion real dollars, if we’re pegging to 2010.

It’s the “warranted” supply I’m proposing here. The concept stems from the trophic theory of money, which is that money originates via the agricultural surplus at the base of the economy. Not agricultural surplus in the sense of grain going to waste in the fields, but surplus in the sense that one farmer can grow enough to feed many people.

It is that surplus—more broadly, a food surplus but for all practical purposes the agricultural surplus—that frees the hands for the division of labor. The division of labor, in turn, allows for the exchanging of goods and services. All this calls for an efficient means of exchange, store of value, and unit of account: money, in other words.

Money is warranted, then, by the division of labor flowing from agricultural surplus.

Money didn’t just originate historically via agricultural surplus—as it did in Mesopotamia, Lydia, and the Yellow River Basin of China—it originates each year in the breadbaskets of the world. Actually it originates twice a year as these breadbaskets are found in Northern and Southern Hemispheres. North America (prairies and California), China, Southeast Asia, Brazil, and Chile come to mind, plus of course the contested confluence of political Europe and Russia, centered in Ukraine.

You might say money gets “printed” into circulation with each perennial pulse of wheat, rice, corn, oats, barley, and soybeans. Massive harvests free billions of hands for a spectacular division of labor and the exchanging of trillions of dollars of warranted money. Lenin was right on the money (so to speak) when he referred to grain as “the currency of currencies.”

Wheat combine “printing money” in North Dakota. (Flickr)

Think about it: How would money remain relevant in a world of agricultural collapse? Everyone would be occupied with growing, gathering, catching, or commandeering their own food. No one would be producing other types of goods and services, much less bringing them to market. Money would be worthless; it wouldn’t be warranted.

Not so with the collapse of massage services, NASCAR, hip hop, or even Taylor Swift. Nor with the disappearance of boats, guns, electronics, fur coats, or perfumes. A thousand container ships of manufactured dreck could be dumped in the Panama Canal, never to be seen or sold again, and the economy would persist. Plenty of other goods and services would remain. Money would still be meaningful, relevant, and valuable.

It’s an entirely different story with the world’s soy, root crops, poultry, livestock, finfish, and, above all, grain. Burn those up like some omnipotent, omnipresent Putin, and watch the economy come tumbling down in days.

That is why, in a fundamental sense, it is agricultural surplus that “prints” money into circulation. The warranted money supply, then, is that which reflects the amount of agricultural surplus. Lots of surplus warrants lots of money; little surplus warrants little money.

The trophic theory of money doesn’t explain every possible aspect of monetary economics, at least not directly. For example, how big a role do livestock and fish play in food surplus and therefore warranted money? What’s the linkage of food surplus to energy inputs? What about other natural resources at the trophic base of the economy such as heavy fiber and timber? (It takes clothing and shelter to subsist, not just food.)

The trophic theory of money generates plenty of research questions, but it provides plenty of insight as is. Take inflation, for example. That’s when the nominal money supply exceeds the warranted supply.

Limits to Warranted Money

While it is helpful to think of money as being “printed” into circulation with agricultural surplus, it is even more helpful to think of money being “footprinted” into circulation. There’s no way to produce an agricultural surplus—or a warranted money supply—without a heavy ecological footprint. Not for a population of eight billion people.

It takes a lot of inputs to grow a lot of food, so the ecological footprint of agriculture reaches far beyond the field. (Flickr)

Each parcel on the planet has a biological capacity. So, given limits to agricultural efficiency, we know that the ecological footprint of agriculture can only reach so far (or sink so deep, if you prefer). Then it exceeds the biological capacity, agricultural surplus plunges, and the warranted money supply drops like a shot.

The pre-existing, nominal money supply remains, but to what avail? With no agricultural surplus, businesses big and small disappear—banks, too—and the government defaults. All but the most civilized (or uncivilized but ethical?) polities descend into some sort of chaos. The nominal money supply might still be in the trillions of dollars, but it’s neither warranted nor real. It’s like the gold supply of King Midas. It’s hyperinflated, not because of an “overheated” economy and the pull of demand; quite the opposite. It’s devalued by “cost-push” inflation, the relentless price increases due to diminished stocks of natural capital.

What the Fed Needs Now

The Federal Reserve, U.S. Treasury, Budget Committee(s), World Bank, and all the other fiscal, monetary, and financial institutions need a reality check in the form of basic and applied ecology. They need to learn especially about the concepts of trophic levels and carrying capacity. Otherwise they won’t be able to sufficiently connect the dots among deficits, debt, and cost-push inflation.

Right now, the Fed’s approach to curbing inflation is the ham-handed raising of interest rates. But raising interest rates only works (sometimes) for the “demand-pull” form of inflation, where prices rise due to an increasing propensity to consume, or due to an injection of nominal money (as with deficit spending). It’s no remedy for cost-push inflation stemming from limits to growth in the real economy.

The Federal Reserve needs ecological training to manage inflation. (Wikipedia)

I’m not saying these accomplished folks—geniuses in other ways—have no sense of economic capacity. They most certainly do; they monitor and talk about it all the time. Unfortunately, they have essentially no knowledge of ecological capacity, so their notions of economic capacity are flawed. They tend to think of capacity in terms of financial capital, labor, manufacturing facilities, infrastructure, and new technology. It’s reminiscent of Herman Daly’s lament about focusing on the kitchen and the cook, with little thought to the ingredients.

When is the last time you heard a Jerome Powell or a Janet Yellen utter a word like “soil” or “water” or “forest” or “fishery”? Yet those are the stocks of natural capital at the very base—the trophic base—of the economy they preside over. They should be intent upon conserving those stocks, if not for purposes of long-term human wellbeing (which would be nice), then at least for purposes of fighting inflation!

Brian Czech is CASSE’s Executive Director.

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