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%