This is exactly what today’s economics is unprepared to do, however. Like the lowland Mayan elite at the beginning of their downfall, our political classes are trying to meet unfamiliar problems with overfamiliar solutions, and the results have not been good. Repeated attempts to overcome economic stagnation by expanding access to credit have driven a series of destructive bubbles and busts, and efforts to maintain an inflated standard of living in the face of a slowly contracting real economy have heaped up gargantuan debts. Nor have these measures produced the return to prosperity they were expected to yield, and at this point finger-pointing and frantic pedaling in place seem to have replaced any more constructive response to a situation that is becoming more dangerous by the day.
The sheer scale of the debt load on the world’s economies is an important part of the problem. Right now, the current theoretical value of all the paper wealth in the world — counting everything from dollar bills in wallets to derivatives of derivatives of derivatives of fraudulent mortgage loans in bank vaults — is several orders of magnitude greater than the current value of all the actual goods and services in the world. Almost all of that paper wealth consists of debt in one form or another, and the mismatch between the scale of the debt and the much smaller scale of the global economy’s assets means exactly the same thing that the same mismatch would mean to a household: imminent bankruptcy. That can take place in either of two ways — most of the debt will lose all its value by way of default, or all of the debt will lose most of its value by way of hyperinflation — or, more likely, by a ragged combination of the two, affecting different regions and economic sectors at different times.
What that implies for the not-too-distant future is that any economic activity that depends on money will face drastic uncertainties, instabilities and risks. People use money because it gives them a way to exchange their labor for goods and services, and because it allows them to store value in a relatively stable and secure form. Both these, in turn, depend on the assumption that a dollar has the same value as any other dollar, and will have roughly the same value tomorrow that it does today.
The mismatch between money and the rest of economic life throws all these assumptions into question. Right now there are a great many dollars in the global economy that are no longer worth the same as any other dollar. Consider the trillions of dollars’ worth of essentially worthless real estate loans on the balance sheets of banks around the world. Governments allow banks to treat these as assets, but unless governments agree to take them, they can’t be exchanged for anything else, because nobody in his right mind would buy them for more than a tiny fraction of their theoretical value. Those dollars have the same sort of weird half-existence that horror fiction assigns to zombies and vampires: they’re undead money, lurking in the shadowy crypts of the world’s large banks like so many brides of Dracula, because the broad daylight of the market would kill them at once.
It’s been popular for some years, since the sheer amount of undead money stalking the midnight streets of the world’s financial centers became impossible to ignore, to suggest that the entire system will come to a messy end soon in some fiscal equivalent of a zombie apocalypse movie. Still, the world’s governments are doing everything in their not inconsiderable power to keep that from happening. Letting banks meet capital requirements with technically worthless securities is only one of the maneuvers that government regulators around the world allow without blinking. Driving this spectacular lapse of fiscal probity, of course, is the awkward fact that governments — to say nothing of large majorities of the voters who elect them — have been propping up budgets for years with their own zombie hordes of undead money.
The only response to the current economic crisis most governments can imagine involves churning out yet more undead money, in the form of an almost unimaginable torrent of debt; the only response most voters can imagine, in turn, involves finding yet more ways to spend more money than they happen to earn. So we’re all in this together, guiding our actions by superstitions that no longer have any relation to the world in which we live. Everybody insists that the walking corpses in the basement are fine upstanding citizens, and we all pretend not to notice that more and more people are having their necks bitten or their brains devoured.
As long as most people continue to play along, it’s entirely possible that things could stumble along this way for quite a while, with stock market crashes, sovereign debt crises and corporate bankruptcies quickly covered up by further outpourings of unpayable debt. The problem for individuals and families, though, is that all this makes money increasingly difficult to use as a medium of exchange or a store of wealth. If hyperinflation turns out to be the mode of fiscal implosion du jour, it becomes annoying to have to sprint to the grocery store with your paycheck before the price of milk rises above one million dollars a gallon; if we get deflationary contraction instead, business failures and plummeting wages make getting any paycheck at all increasingly challenging. In either case pensions, savings and insurance policies are as good as lost.
The act of faith that leads policy makers today to think that policies that failed last year will succeed next year is only part of the problem. The superstitions that lead so many intelligent people to think that our problems can be solved by pursuing new and expensive technological projects are another part. There are technologies that can help us right now, as I hope to show later on in this book, but they fall on the other end of the spectrum from the fusion reactors, solar satellites and plans to turn all of Nevada into one big algae farm that get so much attention today. Local, resilient, sustainable and cheap: these need to be our keywords for technological innovation just now. There are plenty of technological solutions that answer to that description, but again, our superstitions stand in the way.
In an age after abundance, the most deeply rooted of our superstitions — the belief that Nature can be ignored with impunity — is also the most dangerous. It’s only fair to point out that for most people in the industrial world, for most of a century now, it has been possible to get away with this kind of thinking more often than not; the same exuberant abundance that produced ski slopes in Dubai and fresh strawberries in British supermarkets in January made it reasonable, for a while, to act as though whatever Nature tossed our way could be brushed aside. In an age after abundance, though, this may be the most dangerous superstition of all. The tide of cheap abundant energy that has defined our attitudes as much as our technologies is ebbing now, and we are rapidly losing the margin of error that made our former arrogance possible.
As that change unfolds, it might be worth suggesting that it’s time to discard our current superstitions concerning economics, energy and Nature, and replace them with a more functional approach to these things. A superstition, once again, is an observance that has become detached from its meaning, and one of the more drastic ways this detachment can take place is through a change in the circumstances that make that meaning relevant. This has arguably happened to our economic convictions, and to a great many more of the commonplaces of modern thought; it’s simply our bad luck, so to speak, that the consequences of pursuing those superstitions in the emerging world of scarcity and contraction are likely to be considerably more destructive than those of planting by the signs or leaving a dish of milk on the back step.
The remaining chapters of this book will attempt to sketch out some of the ways our current economic superstitions might best be replaced with more productive ways of understanding the production and exchange of goods and services among human beings. To make any progress toward that goal, however, it’s necessary to realize that the production and exchange of goods and services among human beings is a subset, and a fairly small one, of a much larger economy that embraces the entire natural world. To grasp that, it’s necessary to take the challenge to conventional economic thought a good deal deeper than we have taken it so far.