David Korten has sunk his stake in the ground and declared that “it’s time we the people declare our independence from the money-favoring Wall Street economy” in his latest blog 10 Common Sense Principles for a New Economy.
Let me just say upfront that I’m a fan of David Korten. He’s a really smart guy – a former Professor at Harvard Business School – and he’s written more books than I’ve grown fingers. So, all props, kudos and respect to him. I really liked the now almost impossible to find 1984 book he co-edited with Rudi Klauss – People-Centered Development: Contributions Toward Theory and Planning Frameworks and his ideas in The Great Turning: from Empire to Earth Community deserve a broad reading. He co-founded YES! magazine that seeks to “reframe the biggest problems of our time in terms of their solutions”… and outlines “a path forward with in-depth analysis, tools for citizen engagement, and stories about real people working for a better world.” This is good stuff! He also lives in Bainbridge, WA, which is infinitely cooler than living in say D.C. or Geneva.
The blog post is linked to the release of the second edition of his most recent book Agenda for a New Economy: from Phantom Wealth to Real Wealth (or A Declaration of Independence from Wall Street.) The basic ides is that America needs a new economy, one that is fair and works for people and the planet.
My response to his blog is one of those instances I warned you about on the About this blog page: “I reserve the right, of course, to occasionally wander off course and comment on other topics related to this blog’s broader theme of international development.” What follows is Korten’s complete blog in red text with my comments inserted in black italicized text.
I find hope in the fact that millions of people the world over are seeing through the moral and practical fallacies underlying the Wall Street economy and—by contributing to the creation of a New Economy—are taking charge of their economic lives.
Here are ten common sense principles to frame the New Economy that we the people must now bring forth:
- The proper purpose of an economy is to secure just, sustainable, and joyful livelihoods for all. This may come as something of a shock to Wall Street financiers who profit from financial bubbles, securities fraud, low wages, unemployment, foreign sweatshops, tax evasion, public subsidies, and monopoly pricing.
I agree with your first sentence, but I think you needlessly demonize Wall Street financiers, few of whom profit from or desire the items on your list. A positive expansion of the opening statement would be more effective and convincing.
- GDP is a measure of the economic cost of producing a given level of human well-being and happiness. In the economy, as in any well-run business, the goal should be to minimize cost, not maximize it.
This is a very intriguing twist on the gross domestic product as an indicator of economic health and progress. Of course, what you are implying by this is the need to monitor a new indicator made of two parts, the GDP as numerator and the GHI (gross happiness index) as denominator. (GHI/GDP). This would measure how efficiently a society can produce well-being and happiness. This would also make a nice proxy to measuring the sustainability of the national economy – a truer measure of economic health and progress.
- A rational reallocation of real resources can reduce the human burden on the Earth’s biosphere and simultaneously improve the health and happiness of all. The Wall Street economy wastes enormous resources on things that actually reduce the quality of our lives—war, automobile dependence, suburban sprawl, energy-inefficient buildings, financial speculation, advertising, incarceration for minor, victimless crimes. The most important step toward bringing ourselves into balance with the biosphere is to eliminate the things that are bad for our health and happiness.
I realize that you’re using “Wall Street” as code for the current economic, political, and social realities in America, but I don’t think it serves you well here. It just doesn’t make that much sense. Looking at three of the things “the Wall Street economy wastes enormous resources on”: 1) War is not a unique feature of the modern American economy. 2) Our penal code has more to do with the way our democratic political system works than how our economy is structured. 3) High advertising expenditures result from the interplay of freedom of consumer choice and firms competing freely in the open marketplace – two freedoms that society will continue to value. Some advertising certainly leads to higher quality of life – consider the advertisements that will make readers aware of your book.
- Markets allocate efficiently only within a framework of appropriate rules to maintain competition, cost internalization, balanced trade, domestic investment, and equality.These are essential conditions for efficient market function. Without rules, a market economy quickly morphs into a system of corporate monopolies engaged in suppressing wages, exporting jobs, collecting public subsidies, poisoning air, land, and water, expropriating resources, corrupting democracy, and a host of other activities that represent an egregiously inefficient and unjust distribution of resources.
I mostly agree with this, but I think the efficiency framework is inaccurate. Market regulation almost always implies a trade-off with market efficiency, but we do it anyway because in return we gain some social benefit. I would rather this principle be housed in a justice framework, as in: “Markets allocate justly only within a framework of appropriate rules…” I think the most important rule you’ve listed here is cost internalization. The failure to accurately allocate the costs of negative externalities (or spillovers) is the primary culprit that makes our current economic system unsustainable. The least relevant rule is balanced trade. (And equality would be somewhat redundant in a justice framework.)
- A proper money system roots the power to create and allocate money in people and communities in order to facilitate the creation of livelihoods and ecologically balanced community wealth. Money properly serves life, not the reverse. Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. Main Street uses money to connect underutilized resources with unmet needs. Public policy properly favors Main Street.
Wall Street would say that it reallocates money from over-financed and underproducing entities (rich investors who otherwise keep their money stuffed in a mattress) to under-financed and highly-productive entities (e.g. Apple Inc., SKS Microfinance, etc.) But, given our recent history and the gouging of my mechanic father’s retirement fund, the expropriation of real wealth from the rest of society sounds more plausible.
- Money, which is easily created with a simple accounting entry, should never be the deciding constraint in making public resource allocation decisions. This is particularly obvious in the case of economic recessions or depressions, which occur when money fails to flow to where it is needed to put people to work producing essential goods and services. If money is the only lack, then make the accounting entry and get on with it.
Disagree. You can create money with an accounting entry, but not wealth. Populist leaders have tried this and discovered that it leads to the devaluation of money (i.e. inflation) and, when taken too far, leads to hyper-inflation, which is catastrophic to society at all level, but especially to the poor. If you increase the money supply without some real underlying growth in the economy, you end up looking like Bolivia in the mid-80s, Yugoslavia in the mid-90s, or Zimbabwe a couple years ago.
Rather than increasing the money supply (adopting an expansionary monetary policy), a more appropriate tool would be an expansionary fiscal policy. Of course, this only really works if you invest in things with real financial and social returns, like education and infrastructure rather than say expanding two wars in the Middle East. And, it is important to note that this implies running a deficit, so this can’t be overused or our grandkids are all screwed…well, they may already be.
- Speculation, the inflation of financial bubbles, risk externalization, the extraction of usury, and the use of creative accounting to create money from nothing, unrelated to the creation of anything of real value, serve no valid social purpose. The Wall Street corporations that engage in these activities are not in the business of contributing to the creation of real community wealth. They are in the business of expropriating it, a polite term for theft. They should be regulated or taxed out of existence.
You unfortunately contradict yourself here. You just suggested in principle #6 that we should use creative accounting to create money from nothing to serve a valid social purpose. That said, I agree that this sort of activity should be and can be reduced through appropriate regulation.
- Greed is not a virtue; sharing is not a sin. If your primary business purpose is not to serve the community, you have no business being in business.
Amen, and amen! Maybe your list of principles should have just been this.
- The only legitimate reason for government to issue a corporate charter extending special privileges favoring a particular enterprise is to serve a clearly defined public purpose. That purpose should be clearly stated in the corporate charter and be subject to periodic review.
I want to agree, I think. But I wonder if economies of scale could ever be reached if all the financial and legal risks of large enterprise had to be carried personally by business owners. The ability to grow a business large enough to produce things like airplanes and computers that common people can afford could be seen as a reasonable public purpose. And how should government decide which businesses or products produce sufficient public good without turning into some kind of politburo?
- Public policy properly favors local investors and businesses dedicated to creating community wealth over investors and businesses that come only to extract it. The former are most likely to be investors and businesses with strong roots in the communities in which they do business. We properly favor them.