General · 14th June 2010
Economics eventually connects to philosophy. Follow an idea about money far enough – whether it be buying, selling, trading, saving or investing – and the subject eventually moves from the territory of the economist into the realm of the philosopher.
This is not to diminish the importance of economics as a serious and important study but simply to argue that all our searching through the details of monetary matters invariably leads to the more fundamental issues of values, beliefs and meaning. Indeed, the more attention we give to the minutiae of economics, the more likely we are to get lost without the guidance and perspectives of philosophy. So, the worldwide financial mess that has been developing since the autumn of 2008, together with its latest iteration as the euro crisis, invites a step beyond derivatives and hedge funds to deeper and wider overviews.
Historians have noted that since the beginning of modern capitalism, three major economic crises have occurred: the so-called Long Depression of the 1870's, the Great Depression of the 1930s and now the Great Recession, as the current financial turmoil is now being labelled. All seem to have been caused by an "irrational exuberance" that lured consumers and investors beyond prudence – too much optimism and too much borrowing on the prospects of tomorrow. "Here's a farmer," cautioned Shakespeare ages earlier, "who hanged himself on the expectation of plenty."
Debt is essentially a mortgaging of the present to the future, an ominous pact with destiny that is reflected in the etymology of "mortgage" as a combination of "dead" and "pledge". Despite this implicit threat of "pay or die", indebtedness has become the essential structure of world economies in numbers too big to easily comprehend. The US annual structural deficit is about $1.3 trillion, or about 11% of its GDP – $1 trillion, in graphic comparisons, is a pile of $1,000 bills 109 km high.
The US dilemma is not unique. Many European countries are in a similar and habitual deficit predicament. Greece's deficit to GDP ratio of 12.2% just happens to be one of the most extreme, a harbinger of the fatal fate awaiting its neighbours. Spain's is 10.4%. Portugal's is 8.8%. Ireland's is 12.2%. Great Britain's is 11.4%. And Canada, which prides its 4.6% debt to GDP ratios as one of the lowest of the industrialized countries, just happens to have one of the world's highest levels of personal debt – a record and worrisome $1.4 trillion as of October of 2009. All this debt compounds over time and few countries have credible plans for reducing it.
So nervous investors, looking desperately for a safe haven for their money, vacillate erratically between precarious dollars, insecure euros and unstable commodities – unstable because their value is based on demand that is dependent on economic confidence build on stable currencies that are no longer stable. In an attempt to steady the value of these currencies, countries and agencies such as the World Bank and International Monetary Fund are spending trillions more to support them. More mortgage. The result is gyrating stock markets and record high prices for gold, the investment of last resort.
While economists are desperately trying to stabilize a leaking ship in a great financial storm, philosophers are considering the awful possibility that the cost of making our societies humane, just and equitable may be more than we can afford. Or, alternately, perhaps our entire monetary system is dysfunctional. Even worse, in order to maintain the economic activity that we need to provide ourselves with the materials, affluence and comfort we believe we deserve, we must consume resources at a rate that the planet cannot sustain. In brief, we are too numerous and we want too much.
Ecologists estimate that our present environmental overdraft is at least as great as our financial overdraft. In other words, we are consuming more biological product than our planet's biosphere can replace. This expresses itself as shrinking forest cover, declining natural habitat, collapsing world fisheries, rising atmospheric carbon dioxide, increasing ocean acidification and miscellaneous forms of pollution. Species loss and climate change rather than stock market instability and currency fluctuations are the environmental equivalents of our monetary crises. The same instability we are noting in our financial systems is echoed in unusual weather and resource shortages. And, just like our deficits, we have no credible plans for balancing our ecological budget.
So, just as desperate investors who are eager for adequate returns on capital are lured into increasing risk, our resource demands lure us to pristine wilderness, remnant forests, deep-water drilling, oil tankers, run-of-river hydro projects, salmon farming, industrial agriculture, coal mining and other ecologically hazardous activities. Each comes with increasing environmental risk, our fundamental strategy for dealing with increasing ecological debt. Borrowing from the future by living beyond our planet's ability to sustain us today compels us to push the boundaries of reason, caution, safety and wisdom.
In the pact of "dead" and "pledge" we call a mortgage, payment must eventually be made. With monetary debt, the rules are of our invention so the dates and methods of repayment are negotiable. Although financial chaos provokes social chaos, the damage is ultimately repairable. But with ecological debt, the laws of nature are wholly unforgiving and implacable, with terms of payment that are far more sobering than the prospects that haunt our present economic plight.