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Questions and Answers:
Financing global developmentThis page gives a summary of the main issues related to the financing of a global sustainable development program, in the form of a series of questions and answers. For a more in-depth analysis, links are given to pages on which these issues are discussed in more detail. A comparable set-up is used for discussing issues related to the problems of ending global poverty and economic stagnation in the rich countries.
Question: A global sustainable development program would cost many hundreds of billions, if not trillions of dollars. Where would the money come from? Can it be financed in the conventional way, i.e., by tapping the world’s current capital supply?
Answer: No, it cannot. Economic and especially, political realities are such that it will not be possible, or only very partially so, to finance a global sustainable development program with existing money. Economically, because there is not enough freely allocable capital available, and because extracting the required large sums from the private sector would create economic mayhem. Politically, because mostly, the have’s who control most of the world’s money have no interest in sharing with the have-nots.
For more click on: Why the use of existing money is not feasibleQuestion: So we can’t generate enough funding for sustainable development in conventional ways. Now what?
Answer: There is only one way to generate the required sums of money: through money creation.Question: But can money be created – just like that?
Answer: Yes, it can. Today, it does not even require the printing of bank notes: already, a large part of the global money supply is virtual, that is, does not physically exist. It exists in the databases of central and private banks and of the international financial institutions. Therefore, in principle money creation is possible through a few keystrokes on the right computers.Question: That sounds easy. Does that mean that it is possible to create limitless supplies of money, just like that, without any consequences? Make everybody rich?
Answer: No, it does not. Money creation will have to be tied to strict conditions to avoid inflation. Two types of inflation can occur. One is demand-driven inflation, which happens if the inflow of new money generates such a demand for goods and services that productive capacity is exceeded. The second inflationary danger is loss of faith in the value of money.Question: How can these risks be avoided?
Answer: To minimize the danger of runaway inflation money creation would have to be tied to strict conditions. The first is that money creation should be limited to what the economy can handle. That means that the demand it would generate upon entering the economy should not exceed productive capacity. Second, money creation should take place in such a manner that faith in the value of money is maintained. Third, money creation should be based, for each nation, on a comprehensive, multi-year sustainable development program. That program should have time frames and cost estimates, and should be made to fit into the overall economy. Fourth, the nations receiving the created funds should accept intensive monitoring: to check inflation and ensure they would spend the granted funds adequately while sticking to sound fiscal and monetary policies.Question: But would governments accept such monitoring? Wouldn’t they consider it as interference in national affairs?
Answer: Yes, very likely. So what? The large majority of people would gladly give up some of the sovereignty of their national leadership in exchange for better public services, a cleaner environment, jobs, and the elimination of poverty.Question: What would be the worst case scenario for money creation?
Answer: The worst case scenario would be a total loss of confidence in money, and the consequent economic and financial collapse. But chances of that happening are remote, and practically nil if the financial, economic and political elite supports the idea. What’s more, chances of a financial and economic collapse are much greater if we do not resort to money creation.Question: How can money creation avoid such a major economic and financial crisis?
Answer: The increased demand for goods and services generated by money creation would lead to the expansion of productive capacity and productivity. Increased productivity will allow fewer workers to take care of growing numbers of elderly people, whereas an increase in productive capacity will lead to more economic growth. More growth will generate more tax revenues for governments, and thus, more money to pay for pensions and growing health care costs.
Money creation would also help in preventing economic mayhem by resolving the debt problem. Created money could be used to pay the interest and principal on public debts of poor as well as rich countries. This would free funds for meeting the increased pension obligations resulting from the retirement of the baby boom generation.Question: Going back to the risks: we’ve had a worst case scenario. What are other scenarios?
Answer: Other, more realistic scenarios are that some measure of higher-than-desired inflation would occur. To avoid this, national social contracts should be made between governments, employers and workers. Those contracts should put a lid on wage demands and price increases. If not adhered to the IMF should reduce or even halt the provision of created funds.Question: What of inflation caused by people loosing faith in the value of money?
Answer: That would happen only if economic leaders and the financial community say it will happen: loss of faith will, in all cases, be a self-fulfilling prophecy. Likewise, faith would be maintained if a large majority of economic and financial experts, politicians and other opinion leaders would emphasize that in spite of money creation money would keep its value.Question: Is there any evidence that money creation, i.e., an increase in the money supply, does not necessarily cause inflation?
Answer: Sure. Take the stock market rally of the late 1990s. Speculation created, in a few years time, hundreds of billions, even trillions of dollars. Consequently, the amount of money increased much more than the supply of goods and services. According to economic theory that should have caused massive inflation - but it didn’t. Another example: countries that have ample natural resources, and sell these in the world market, such as the oil states in the Middle East. According to monetary theory such an enormous influx of money without a matching increase in production should have wrecked those economies. Didn’t happen. Yes, there was inflation, but nothing out of this world.Question: But considering the risks, especially that of inflation, and even hyperinflation, should we try money creation at all?
Answer: Absolutely. Money creation for sustainable development is a moral imperative. At present, billions of people suffer from deprivation that can be remedied. Our environment is steadily deteriorating, endangering the livelihoods and quality of life of further generations. Public services are in decline, and major dangers lie ahead for an already stagnating economy. The productive capacity - technology, labour, and natural resources - to address these issues exists or could be created rapidly.
The prime obstacle to addressing all these problems is lack of money. Doing away with economic dogma that is an item of faith, not an established scientific fact, can eliminate this obstacle. Considering the potential benefits and risks it is a moral imperative, for all citizens with a social conscience and concern for future generations, to push the concept of money creation. In particular, relentless pressure should be put on the global economic, financial and political establishment to accept and implement the concept.Question: Why doesn’t money creation figure as a topic for debate on the sustainable development agenda?
Answer: Because it is an economic taboo, based on economic dogma. Economists, bankers and other financial specialists believe that it is a mathematical certainty that money creation for use by governments will lead to inflation. When involving significant sums of money, as proposed on this site for investment in sustainable development, these economic pundits are certain runaway inflation, and possibly hyperinflation will result. That certainty, as said, is based on faith and dogma, not on scientific research and logic. However, since the general public sees economics as a science, people don’t feel confident to challenge its practitioners or tenets. They therefore accept the taboo on money creation for public investment without further thought.Question: If nobody dares to put the topic on the agenda, what should be done?
Answer: All individuals and groups with a genuine concern for what’s going on in our world should rally into a coalition for sustainable development to argue, jointly, for opening the debate on money creation.
Click on: Action for sustainable developmentFor more on economics and money creation click on:
Lack of money and money creation: the economicsFor a further discussion of the scientific weaknesses of economics click on:
Economics: poor science, strong faith
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