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Pyramid-Scheme Economy

I’m of course not the first to say that the “growth economy” is very much like a giant pyramid scheme (so are pension programs, but that’s another story). And I’m also not an economics expert, but I can see three main engines that have so far kept the scheme going.

Just as you need to keep bringing in more people/money to maintain a pyramid scheme (which of course will inevitably crash), constantly increasing inputs are needed to maintain the infinite-growth economy — which of course will inevitably crash for the same simple reason: infinite growth is impossible.

First, you have to keep more people and their money coming into the system. These people become the “consumers” and “taxpayers” who keep buying stuff and paying taxes. Their consuming and taxpaying pump up the financial and commercial systems, and keep tax revenues flowing. Taxes allow governments, both local and national, to keep growing in size and complexity, providing more “services,” and building more infrastructure. Cities keep ballooning, suburbs are created and grow, more malls and factories are built, and more farms and forests are razed to make room for all of this. Such activities are now slowing, and you can see the devastating effects.

I remember when I was a kid, people were saying how much money could be made if we could just sell an aspirin to each Chinese. Visions of bringing more new consumers into the scheme are nothing new. Now of course everyone is excited to the point of orgasm because all those Chinese and Indians are eager to join the scheme and get their payoffs, too.

Second, the system needs to be fueled with cheap and plentiful energy. Oil has been the Great Provider in this area, with coal and natural gas also playing big roles. Now that oil is lagging in this respect, there are great hopes that coal, natural gas, and renewables will take up the slack. But if oil gets more expensive, everything gets more expensive. The days of cheap and plentiful energy are coming to a close.

Third, the system requires debt. Lots of it. Especially because the energy engine has begun to sputter, we’ve been trying to pick up the slack with debt. And we’re all up to our eyeballs in it — individuals, businesses, governments. Debt’s running out our ears. The cool thing about debt — in terms of the pyramid-scheme infinite-growth economy — is that it allows us to vastly accelerate the consumption of resources and energy. For example, many of us Little People would ordinarily not be able to buy big-ticket items like houses and new cars. And many of us even borrow to buy cheaper consumer goods. Using debt allows us to access resources and energy that would ordinarily be used by future generations, little by little. Of course it’s not just individuals, because businesses and governments also make heavy use of debt for their day-to-day operations. After all, stocks and bonds are ways of borrowing money, and borrowed money is debt. Using credit cards (which should actually be called “debt cards”) creates debt. So you can easily imagine that the world would be a much different place without debt. It certainly would crimp the infinite-growth economy.

That should make it pretty clear why the economy, shall we say, lacks vitality. There are still lots of people who want to join the scheme, but the other two factors — energy and debt — are dragging on the system because the world has entered energy decline, and because the system is saturated with debt. If there were still lots of cheap energy, it might be possible to goose the system and keep it going for a while longer, but it appears to be too late for that.