What If The (Debt-Based) Economy Never Comes Back?   (July 2, 2009)

The U.S. economy currently has no Plan B in the event the credit/consumer economy never comes back--a scenario which appears not just likely but inevitable.

Frequent contributor Harun I. brought up several interlocking issues which receive little coverage in the mainstream media: what if the "end of paying work" will bring down the entire credit/consumption-dependent economy and the Federal government which depends on tax revenues from all that financial churn? How long can the dwindling "productive few" support the no-longer productive many?

Sears Gets Aggressive With Debt Forgiveness
While economists generally agree the recession has bottomed out, rising energy prices and a high national unemployment rate is prompting the No. 1 appliance retailer in the United States to give concerned consumers a safety net should they lose their jobs.

This and other debt forgiveness programs and your conversation on the end of paying work (EOPW) (Endgame 3: The End of (Paying) Work) cause me to wonder about the meaning of "work" and "money". Money is just a medium of exchange. In a direct exchange economy money is not needed, however, having a good or service to exchange ensures productive output of some degree by all those who wish to consume goods and services they themselves cannot produce.

At the point homes and goods are given away, i.e. a man has nothing of value to exchange, what is the meaning of money and work to the 20 million whom have no access and therefore no inherent value and to those who must engage in productive output to support the growing numbers of the aforementioned?

Is this not what partly spawned the "we pretend to work, they pretend to pay us" mentality?

When a man knows he will obtain a certain basket of goods and services no matter what his productive output, will not other structural social and economic problems arise that will eventually bring on the collapse of this arrangement?

I agree that government will not "want to let" millions go homeless and starve, however, I question the ongoing ability of bankrupt governments to prevent it. It is a very unpopular truth that population is a very serious problem that we have not discussed in any meaningful way. We cannot empty the cities and returned to a Jeffersonian agrarian society as resources are limited and declining. Decisions over who gets what and how much (give-aways) in the days of EOPW may prove destabilizing.

Correspondent Michael S. recommended this story on a parallel line of thinking: Yes, The Web Will Bankrupt The Government:

Long-argument-short: The explosion of the web created so many new non-financial transactions, non-financial markets, and opportunities to create and enjoy oneself that don't cost a penny, that ultimately we'd move decisively to a more dynamic economy, but one with less actual money. And since we can't pay taxes in "attention", this would cause the government to run short of funds.

Going back to Harun's comment:

In a direct exchange economy money is not needed, however, having a good or service to exchange ensures productive output of some degree by all those who wish to consume goods and services they themselves cannot produce.

In other words: is a high-tax/high-cost economy with tens of millions of people with no prospects of formal paid work sustainable? Can an economy dependent on abundant cheap credit sustain itself once that abundant cheap credit is no longer available? Can an economy with far less money churning through the government tax system sustain a vast entitlement/welfare "Savior State" which "saves" everyone from calamity?

Clearly, there is no Plan B for the U.S. economy. If tens of millions have no income, and are bartering and drawing welfare to survive, then the question arises: are the remaining employed productive enough to support the tens of millions already drawing Social Security, Medicare, SSI, disability, VA pensions, etc., and all the other "pay as you go" programs?

What if the Web, which is busily (creatively) destroying print media, the music industry, the movie business, Microsoft and many other rentier-type enterprises, ends up destroying income and profit-based tax revenues? How can the government support a status quo which requires $2 trillion in new borrowing every year just to keep from collapsing? What if that debt load is unsustainable?

It has long been my thesis that the productive few are increasingly incentivized to "opt out" of the burdensome system they are supporting. I call this mechanism When Belief in the System Fades (March 12, 2008).

I updated the concept earlier this year: Survival+ 10: When Belief in the System Fades (April 9, 2009).

Put another way: can everyone drawing an income (job, pension, unemployment, workfare, etc.) from the State (government at all levels) provide the tax revenues needed to pay the interest and all the other costs the government has promised to pay? If not, then who will be left to pay all the taxes if the productive few opt out?

If jobs and money dry up, so too will the Savior State based on jobs and the churn of money. We need a Plan B economy, one not dependent on cheap, abundant credit, high consumption, high taxes and unsustainable promises.

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

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