Economic growth; flawed capitalism

Cash flow vs cash grow- economies survive by circulating money around an economy, not by creating minority clusters of wealth. Like it or not, we're all in this together.

"Momma said there's only so much fortune a man really needs and the rest is just for showing off." Forest Gump.

How do multi millionaires and billionaires spend their money? The truth is that they can't. Microsoft's co-founder Paul Allen (estimated to be worth $21 billion) has spent around $20 million collecting and restoring WWII-era planes, SAC founder Steven Cohen ($11.4 billion) spent $137.5 on de Kooning’s Woman III  and Ronald Lauder ($3.2 billion) has an art collection valued at $650 million.

The problem is that these cash-drenched hobbies (although in themselves a societal problem) don't even scratch the spending power of these people, which is a big problem for the global economy. Mr Allen spends 0.09 per cent of his wealth on old planes, Mr Cohen 1.24 per cent on the second most expensive painting in the world and Mr Lauder let go of less than a quarter of his fortune on his art collection. It's hard to think of a healthy economy without thinking of economic growth, but in reality, that isn’t how it functions.

Like a business an economy functions on cashflow, i.e, by circulating money. I would argue that those with multi-millions and billions of pounds are as detrimental to the economy as those who receive state benefits, because their expenditure as a percentage is what really matters and those who spend 80 per cent of what they earn are more valuable than those who inject less than 10 per cent of their wealth back into the economy.

True progressivism

The Economist has recently released a special report on the world economy which argues that inequality isn’t an inevitable component of capitalism. Zanny Minton Beddoes proposes that we require a fundamental political shift to resolve the growing problem that has captured 99 per cent of the global population, heck, even the one per cent may have put their claret down long enough to observe the unbalance of wealth.

Here are his solutions in a nutshell: A Rooseveltian attack on monopolies and vested interests; targeting government spending on the poor and the young; reforming welfare states and changing how we tax in order to raise money more efficiently or progressively.

But I think we need a deeper re-think all together in order to develop solutions that won't just last this term or the next, but through decades of governments. Hard to imagine I realise, but capitalism as we know it now is unsustainable and as Mark, Engels and many other political minds of the past centuries have mooted, this economic system has an expiry date.

Dead money

'Economic growth' as a concept will invariably lead to processes of wealth imbalance- it is simply greed. Economic growth is the reason British Gas have recently put energy bills up by nine per cent despite turning over hundreds of millions of pounds in profit, it is also the reason banks gambled more than they ever should pushing us towards the economic abyss we currently face.  

Even the Economist weren’t quite brave enough to exclude economic growth from their visualisation of a fair society, but I for one am struggling to visualise one with it. Only when the last tree has died, the last river has been poisoned and the last fish has been caught will we realize that economic growth is not sustainable.

A cheeky native American borrow I know, but they show brilliant foresight of how greed can kill an economy rather than sustain it. So those with flash bank accounts and a suit for every day of the week, and those who outbid a rival on a classic piece of art or furniture, your negligent spending and hording of cash is what is really making our economy fail.

An economy that supports cash flow would be both more effective and sustainable. That doesn’t mean eliminating profit or reverting to a communist system, but rather initiating procedures where wealth doesn’t mean an excess of cash, but enough cash. We want spend, but we won't get spend if our economic goal is to create invisible wealth that manifests itself in bonds, shares and fat bank accounts.

There will be no quick fix solution here, but what we can do is to start thinking about it. As Einstein once said, "The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking."

By Jack Peat