Politicians and the business press are looking for signs that the economic crisis is over and we’ll soon be back on track. Federal Reserve Chairman Ben Bernanke speaks of “green shoots” of recovery. President Obama sees “glimmers of hope.” All the massive infusions of borrowed stimulus and bailout money are aimed at the dream of getting us back to where we were during the recent “boom.” Do we really want to go there? And even if we do, is such an economy realistic today?
Yes, the bubble economy of the ’00s created mountains of paper wealth. Between tax cuts for the wealthiest and increasingly exotic (and risky) forms of investment, the richest fraction of Americans did very well, indeed.
But during that boom, incomes stayed flat for the overwhelming majority of Americans even as productivity soared, millions lost health-care coverage, costs of energy, housing, food, and education climbed, and debt reached record levels.
If economic recovery means returning to those times, there’s no reason for most of us to want it. This economic crisis may be the best opportunity in our lifetimes to shut down the unfair and destructive Wall Street system and reboot with a values-based operating system for a new economy designed to support social and environmental balance and the businesses that create sustainable and fair prosperity.
We have seen what happens when government and big business operate in secret. The new system must be open to public scrutiny. It must be locally rooted in strong communities, distribute wealth equitably, and balance public and private interests. Society is better served by a system that favors productive work and investment, limits speculation, and suppresses inflation in all forms – including financial bubbles.
Here’s how we can get there.
1. Responsible Enterprise. Service to the community, rather than profit, is the primary justification for a business to exist. Enterprises are most likely to serve their communities when they are human-scale and owned by responsible local investors with an active interest in their operation beyond mere profit. No corporation should be too big to fail. The new economy will use anti-trust to break up large corporations into their component parts and sell them to responsible local owners, including family, worker, and community owned enterprises, and cooperative alliances among locally rooted firms.
2. Community Banking. The government is buying ownership shares in failed Wall Street banks with the expectation of eventually reselling them to private interests. A better plan, as many economists are recommending, is to force bankrupt banks into government receivership. These banks should be broken up and their branches sold to local investors. These community banks, credit unions and mutual savings and loan associations should be chartered to serve Main Street needs, lending to local manufacturers, merchants, farmers, and homeowners within a strong regulatory framework.
3. Real Wealth Investment. Contrary to the claims of Wall Street, financial speculation does not create real wealth. Since it serves no public interest, is predatory, and causes instability, it should be strongly discouraged. The money that has been used for speculation must be redirected to productive investment that meets our essential needs responsibly, equitably, and sustainably using green technologies and closed-loop production cycles.
4. Middle-Class Fiscal Policy. It is time to reinstitute the policies that created the American middle class after World War II. Restore progressive income tax with a top rate of 91 percent as under the Republican Eisenhower Administration; favor universal participation in responsible home ownership and a family wage. Because no one has a natural birth entitlement to any greater share of the real wealth of society than anyone else, use the estate tax to help restore social balance at the end of each lifetime.
5. Government-Issued Money. The government can and should issue debt-free money to create living wage jobs, rebuild public infrastructure, and restore domestic productive capacity. Properly administered, this money will flow to community-based enterprises and help revitalize Main Street market economies engaged in the production of real wealth. It is folly, however, for government to finance those projects by borrowing money created by the same private banks that created the financial mess.
Current proposals for dealing with the economic collapse fall far short of a real solution to the current economic crisis. We face an urgent need to expand and deepen the debate to advance options that can build sustainable prosperity for all our children and grandchildren.
David Korten is author of Agenda for a New Economy, and the lead article in the summer issue of YES! Magazine. Doug Pibel is managing editor of YES! Magazine.