The environmental consequences of monetary dysfunction
Dysfunction of the money-system underpins the problems of the world’s multiple converging crises. Discuss.
Might that assertion be taking an ideological position, encouraged by the echo chambers of like-minded twitterati? This piece is an attempt to tease out the nature of the underlying connection, and in doing so describe some of the attack surfaces that are available to those bent on change.
From an environmental perspective the most damaging money-system dysfunction is the misallocation of credit. Commercial banks have been given the responsibility of deciding who should receive loans – for capital investment, mortgages and asset purchases for example – and the privilege of charging interest on those loans. They are largely unconstrained in this process – while there are theoretical constraints, in practice their main concern is making sure they get their full whack of interest due over the term of the loan. They therefore generally prefer lending secured against an asset that they can repossess if necessary than against the uncertain (and difficult to assess – at least for today’s disconnected and centralised account managers) future productive capability of entrepreneurial projects. This is borne out by figures for productive investment which tend to show lending for productive use at about 15%.
The first consequence of this preference is that the banks find themselves in an unholy alliance with asset owners, with a joint interest in ever rising asset prices and a reluctance to moderate activity in asset markets lest their loans lose collateral value. They all know in their hearts that this will eventually mean painful busts. But they also know that when the time comes they will be bailed out by the government, that many of their more savvy and comfortably-connected friends will have disposed of their assets ahead of the peak, and that the greater part of the associated pain will be experienced by less well connected ‘outsiders’. There is no real sanction on the banks or their senior management from buying into this toxic cycle. So we should not be surprised when it repeats. They operate in any case with a sort of herd mentality, and taking a heterodox stance would fail the wine-bar peer-reviews. There is no way that this cycle can avoid the progressive concentration of wealth. (In passing we might note that this in turn puts a misplaced emphasis on philanthropy and volunteerism as means to address society’s ills.)
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