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Steps Toward a Pay As You Go Economy
in the news: The cover of the current issue of The Economist boldly identifies tax free debt as "a dangerous flaw at the heart of the world economy." It follows a short editorial with an in depth article: "Ending the Debt Addiction: A Senseless Subsidy".
commentary and analysis (by Stephen P. Cook, project Worldview, www.projectworldview.org): Despite the initial reference to "ending the debt addiction" The Economist is hardly calling for that! Its statement "debt has many wonderful qualities" reassures readers in this regard. Rather, it forcefully argues that the time has come for rich economies to phase out subsidies chiefly in the form of tax breaks governments give to individuals or corporations borrowing money. It points outs that in 2007, before interest rates fell, the loss in tax revenue to the American economy from individuals deducting interest on home mortgages and corporations writing off payments on borrowing was a staggering $725 billion per year (5% of GDP). With most economists projecting a coming rise in interest rates, the magazine argues the time to act in phasing out subsidies is now—before rates rise and the transition to a tax free debt economy is more costly and thus more difficult.
While many economists would applaud The Economist for identifying this "dangerous flaw at the heart of the world economy" and its call to action, many environmentalists note its blindness to what they see as two even bigger flaws: that 1) prices generally fail to account for depletion of natural capital (soil, biodiversity, fish, non-renewable resources including fossil fuels, etc.) and don't factor in other environmental costs behind economic activity, and 2) the economic growth most economists so fervently promote today with their short-term thinking is unsustainable over the long haul.
In worldview theme terms, the battle lines between the pro economy and pro environmental camps can be crudely drawn as follows:
Obviously the above characterization is too simplistic—but it provides a starting point for discussion. That discussion (as relevant here) might begin by asserting that generally The Economist magazine editorials are based on a worldview that values the "pro economy" themes of the table's left hand column rather than the "pro environmental" themes in the right hand column. With respect to evaluating proposed projects that have economic and environmental impacts, environmentalists prefer avoiding ecological debts that disrupt natural cycles and leave future generations with damage to repair. Rather they embrace a more sustainable / recycling / renewable energy based "pay as you go" approach. While most think of the "borrowing mentality" in economic terms, some environmentalists argue that this mind set subtly encourages contracting not only monetary but also ecological debts. They might therefore applaud The Economist magazine's call for ending tax free debt as a step in the right direction—that is, away from totally embracing the borrowing mentality.
But most environmentalists would rather see progress
in fixing those two (previously identified) dangerous flaws in the world
economy. In this regard they'd recommend two important first steps. First,
they'd like to see America get stalled efforts going to enact a tax on
carbon dioxide pollution that fossil fuel dependent activities of people
and business put into the atmosphere.
Besides addressing global climate
change concerns, they'd tell you such a carbon tax would be a key
step in factoring environmental costs into market system pricing.
An attempt is made to capture the feelings behind the economic expansionism vs. sustainability conflict in a song I've written. Its called “Economic Growth Will Lift Us All” and its sung to the tune of the Led Zepplin classic “Stairway to Heaven.” (see note 1 below) The climax of the song involves pondering what will happen if "you get what you wish for." Seems the folks at The Economist lament one or even two percent per year growth as anemic. So...what if the world economy grew at a "healthy" four percent a year rate for the next ninety years? Mathematical calculation tells us that, ninety years from now, such growth would result in world economic output at thirty two times the current level. My seven verse song notes this and ends:
Our planet can’t take it some fear
Others see the promised land:
Poverty is gone, life is grand
And economic growth will lift us all
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