Wednesday, March 11, 2009

A hurried, half-considered question to the reader

There's been a great deal written about Ponzi schemes over the last few weeks, as the case against Mr. Madoff (and potentially others) unfolds. In very brief (for those unfamiliar with Mr. Ponzi's legacy), this scheme is fraud in which a financial advisor collects money from investors, does little or nothing with it (and probably spends a lot of it), and pretends to be making a killing. The financial advisor touts his fake success to attract new investors who add new money to the scheme, thereby creating the illusion that it's actually making money. Investors believe that they'd be stupid to take their money out of a "fund" that's making so much money, so they simply keep reinvesting.
The party eventually runs out when the criminal advisor dashes-off with the money, or it becomes painfully evident that the "fund" is insolvent.
So that brings me to my hastily concocted questions to the reader:
Is a growth-only economy just a giant Ponzi scheme? Is a mindset that falsely pits economic well-being against environmental and human health a Ponzi scheme? Is reliance on increasing consumption of finite resources to run the economy a Ponzi scheme? Would a sustainable economy right the books?


Chris Crawford said...

I don't think that a growth economy is necessarily a Ponzi scheme. Consider this scenario: a society invests a certain percentage of its output in research and technology, permitting it to create wealth at lower costs than previously. The economy is growing, but there's no Ponzi scheme -- everybody is better off. Done properly, a rising tide really does lift all boats. It's just that we've been sold yacht-lifting as a rising tide.

E. R. Dunhill said...

I don't necessarily disagree, but consider another scenario:
For whatever reason, millionaires and billionaires start cashing-out in droves. People of inordinate means begin turning the abstract numbers in their accounts and portfolios into stuff. Could we really cash them all out, or would that break the bank? In truth, I think the question drifts from economics into philosophy. But, the question ultimately boils down to the question of how much (and what kinds of) wealth represents something tangible, and how much is Monopoly money?
I increasingly feel that we need to promote the value of creative pursuits as a central piece of a sustainability strategy.