Monetary and Fiscal Policies for a Finite Planet

A steady-state economy must follow clear rules: renewable resource extraction cannot exceed the regeneration rate, pollution outflows cannot exceed absorption capacity, neither extraction nor pollution can threaten essential ecosystem functions, and essential non-renewable resources cannot be depleted faster than we develop substitutes. Current levels of throughput exceed all these rules.

A must read paper on the policies flowing from the insights of ecological economics:

* Paper: Monetary and Fiscal Policies for a Finite Planet. By Joshua Farley, Matthew Burke et al.

Abstract

“Current macroeconomic policy promotes continuous economic growth. Unemployment, poverty, and debt are associated with insufficient growth. Economic activity depends upon the transformation of natural materials, ultimately returning to the environment as waste. Current levels of economic throughput exceed the planet’s carrying capacity. As a result of poorly constructed economic institutions, society faces the unacceptable choice between ecological catastrophe and human misery. A transition to a steady-state economy is required, characterized by a rate of throughput compatible with planetary boundaries. This paper contributes to the development of a steady-state economy by addressing U.S. monetary and fiscal policies. A steady-state monetary policy would support counter-cyclical, debt-free vertical money creation through the public sector, in ways that contribute to sustainable well-being. The implication for a steady-state fiscal policy is that any lending or spending requires a careful balance of recovery of money, not as a means of revenue, but as an economic imperative to meet monetary policy goals. A steady-state fiscal policy would prioritize targeted public goods investments, taxation of ecological “bads” and economic rent, and implementation of progressive tax structures. Institutional innovations are considered, including common assets trusts to regulate throughput, and a public monetary trust to strictly regulate money supply.”

Summary

“A steady-state economy must follow clear rules: renewable resource extraction cannot exceed the regeneration rate, pollution outflows cannot exceed absorption capacity, neither extraction nor pollution can threaten essential ecosystem functions, and essential non-renewable resources cannot be depleted faster than we develop substitutes. Current levels of throughput exceed all these rules. De-growth, defined as decreasing levels of throughput, is therefore an essential first step towards a steady-state economy.

The current interest-bearing, debt-based system of money creation stimulates the unsustainable growth economy; it exacerbates boom and bust cycles while systematically transferring wealth and resources to the financial sector. In addition, this system disproportionally favors investment in the creation of market goods and services, while underinvesting in public goods. With interest rates exceeding economic growth rates, this monetary system is inherently unsustainable, even if it existed on an infinite planet.

The restoration of the money creation system to the public sector, with built-in mechanisms for reducing the money supply over time as the economy contracts, is a necessary part of the transition to a steady-state economy. Section 1 discusses the constraints that govern our physical, ecological, and monetary systems on a finite planet. Section 2 discusses the necessary components of monetary and fiscal policy concordant with a steady-state economy. Section 3 discusses transition, while Section 4 concludes with potential areas of future investigation.”

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