THE DEATH OF ECONOMICS: Aircraft design vs flat-lining financial models

Climbing the debt mountain

But what happened when mortgagees were faced with these enormous hikes in their repayments that they could not pay? Did they negotiate with the banks? No, they realised that they had been screwed and many of them decided that as they were going to lose everything they would get their own back. They simply left town, vanished, leaving the property to its fate; property that was worth significantly less than the amount outstanding. And a glut of repossessed property depressed prices, making negative amortisation mortgages even more of a gamble. The rest is history.

So this is a classic and totally predictable example of a divergent system. It was dreamed up by bankers to create debt and it worked. It worked so spectacularly well that the consumer couldn’t support the debt and it rebounded on the banks.

You might think that no-one with an ounce of sense who was in possession of the facts would get themselves into a mess like that, especially someone with a position of responsibility that we are supposed to look up to, like a Chancellor of the Exchequer, for example.

So let’s look at what governments do. Well, if a bank’s purpose is to cause debt, a government’s purpose is to get re-elected and that means lots of public spending to make them popular. Be afraid when a politician becomes popular. If these things cannot be afforded, then the money is borrowed, so the spending costs more because of the interest that has to be paid.

Now this is where the need for growth comes in. First, let’s define growth. It’s usually measured as the rate of increase in GDP (gross domestic product) year on year. A proportion of GDP will be available to the government as taxation. That’s their income, if you will.

A collapsed house

What the government does is to gamble that it can borrow more than it can afford on the assumption that future growth will provide increased tax revenues to pay the interest. The sum that has been borrowed is the National Debt. But it’s reckless because the gamble fails when growth falters. We can re-define a government as an entity that is forced by its own recklessness to stimulate growth.

Spend it like Beckham

The need for growth is behind the creation of the consumer. A consumer is an entity that is either brainless or brain-washed who works so he can pay tax and uses his net pay to buy brand new commoditised rubbish (oxymoronically called goods) on which he will pay VAT, that allows a manufacturer to make a profit that will be taxed.

A good consumer, then, takes that rubbish to the dump: the sooner the better. Really good consumers borrow money to buy even more stuff to take to the dump, so they pay interest as well as VAT and income tax. VAT went up just after the crash. No prizes for guessing why.

If there is another fundamental requirement for growth, I don’t know what it is. I think it is an assumption that has never been questioned, a bit like respect for institutions. Indefinite growth on a finite planet is not possible. I don’t need to explain that. Fortunately the rapid growth which, if sustained, would make Earth uninhabitable never continues because of the crashes.

As living standards increase people become better educated. Educated people understand the need to limit population growth, and access to contraception allows them to choose to educate a small number of children well, rather than a lot badly.

Another factor is that traditionally people had lots of children so they would be looked after in their old age. As people become more affluent they can look after themselves. Thus birth rates fall and we find an ageing population that costs more to look after in pensions and other care, so the tax income available to pay interest goes down. In addition it becomes obvious what was known all along, which is that reliance on fossil fuel is unsustainable and energy costs go up, curbing growth.