A growing economy is what almost everyone expects. But a growing economy is exactly what our system cannot honestly deliver, due to resource limits. This makes both business and political fraud much more likely.
Donald Trump’s unfortunately brilliant slogan, “Make America Great Again,” encapsulates this expectation of economic growth perfectly. It has brought this dishonest bully uncomfortably close to the levers of ultimate political power. But the natural resources to make the economy grow like we want it to just aren’t there. Our resource situation today is noticeably worse than it was just two decades ago, at the end of the twentieth century. Climate change is the most obvious environmental problem that we face, but others are waiting in the wings — peak oil, mass extinctions, deforestation, antibiotic resistance, the Zika virus, and others.
Even all this environmental stress has given us at best just anemic growth. The Federal Reserve is anxiously considering whether raising interest rates (which are practically zero!) just a teeny little bit might crash the economy. In the meantime, too bad for the elephants, too bad for the desperate immigrants, and too bad for the climate.
What happens when economic growth is no longer really possible? What happens when the expectations of economic growth collide with the reality of resource limits? One plausible result is fraud — an economy built on fraudulent expectations, and a political system scrambling to keep up. In other words, business leaders and political leaders will promise what they cannot truly deliver because they have no choice: anyone who is competent and honest will be quickly weeded out. The obvious answer is that we need to change our expectations and squarely face resource limits — but the obvious answer is not something anyone wants to hear.
According to James Galbraith’s book The End of Normal, this dynamic of fraud is the real cause of the 2008 financial crisis. In other words, honest paths to economic growth were closed off due to resource limits, but the times seemed to demand economic growth, so dishonest paths were used instead, in the form of fraudulent mortgages. Just the verbiage surrounding the huge quantity of these housing mortgages is telling: “NINJA loans” (no income, no job or assets), “liar’s loans,” “neutron loans” (loans set to explode, destroying people but not buildings), “toxic waste,” and so forth. When the mortgages finally started failing, the banks started failing also, and nearly brought down the whole financial system.
Fraud is a logical solution to unrealistic economic expectations:
When resources to fuel economic growth are abundant fraudulent activities are not generally tolerated. There are opportunities for “honest profit” . . . However, when resources become scarce or expensive, opportunities for large profit for honest business are few. If the expected rate of profit — the rate that financial markets insist on as a condition for providing loans — nevertheless remains high, then fraud becomes a main channel to profitability, and fraudulent activities become part of standard practice. (The End of Normal, p. 164)
Contrast the 2008 financial crisis to the savings and loan scandal of the 1980’s and 1990’s — a time when modest economic growth was still possible. In the aftermath of the savings and loan scandal, more than a thousand industry insiders were sent to prison because of fraud. But so far, how many senior bankers have gone to prison as a result of the 2008 crisis? Zero. (p. 163)
As we moved into the 21st century, resource costs rose, but the expectation of steady growth and high profitability was still there, “powerfully embedded in the national psyche” (p. 166). There is no honest way to make the economy grow. The appearance of growth requires fraud. The bankers simply looted the institutions which they controlled by rolling up profits fraudulently.
. . . the collapse is definitive. . . . The car does not have magneto trouble . . . it has suffered a transmission failure. A meltdown. More gas in the engine will not make it go. (p. 168)
The same principles that caused fraud in the financial system also cause political fraud. We’re not talking about whether the ballot boxes have been stuffed or the election hacked (though, who knows, this may be involved too). We’re talking about the most basic election issue of all, the economy. If “the people” want plans for economic growth from their politicians, but the resource basis is lacking, they are not going to get an honest answer. The occasional honest politician will be quickly buried. In 1984 presidential candidate Walter Mondale honestly said that he would raise taxes, and was buried in a landslide.
Most people agree with Trump — that America has lost some of its former greatness. When was America great? While America for nearly fifty years after the Second World War clearly had flaws (blatant sexism, racial segregation, and Vietnam come to mind), it did have a growing and prosperous economy. Even if Trump loses by a landslide, this issue is not going away, and the possibility for a future demagogue is wide open.
If we insist on economic growth, but the resources just aren’t there, we’re going to get dishonesty at some level, possibly at many levels. Until the country can face the central fact that our economy cannot expand without destroying itself and the planet, we will not be able to deal with our real problems. Perhaps when we are peering out over the wreckage of industrial civilization, we will understand this fact.