Mother Pelican
A Journal of Solidarity and Sustainability

Vol. 11, No. 10, October 2015
Luis T. Gutiérrez, Editor
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Where is Pope Francis on Economic Growth?

David Kane

Originally published in The Daly News, 2 September 2015
under a Creative Commons License

For more information about steady-state economics, visit the CASSE website

For the complete text of the Laudato Si encyclical on human ecology, click HERE

Those who believe that there is a fundamental conflict between economic growth and environmental protection will find Pope Francis’ recent encyclical, Laudato Si (Praised Be), a welcome addition to the literature; as well as an important tool in helping others, especially Catholics, to understand and accept the limitations of economic growth. Pope Francis explains how the environmental and social crises we are experiencing will require “profound changes in lifestyles, models of production and consumption, and the established structures of power which today govern societies.” Few in the world have as large a reach as the pope, so it is encouraging to hear him speaking so clearly on these crucial issues.

Environmental and Social Crises

Pope Francis begins by describing the many ecological crises ravaging the planet today. While the media have focused almost exclusively on his inclusion of climate change, referring to it as the climate encyclical,” he actually discusses a host of other ecological crises as well, from the loss of biodiversity and forests, to water and air pollution.

"The earth, our home is beginning to look more and more like an immense pile of filth."

He then delves into a number of social crises, including inequality, societal breakdown, and declining quality of life, directly relating them to the ecological crises.

"Human beings too are creatures of this world, enjoying a right to life and happiness, and endowed with unique dignity. So we cannot fail to consider the effects on people’s lives of environmental deterioration, current models of development and the throwaway culture."

"The human environment and the natural environment deteriorate together; we cannot adequately combat environmental degradation unless we attend to causes related to human and social degradation. In fact, the deterioration of the environment and of society affects the most vulnerable people on the planet."


Technocratic paradigm


The pope suggests some fundamental causes of these crises including a very interesting discussion around technology. While some have accused Pope Francis of being against, or at least afraid of, technology, that is far from the truth.

"Technology has remedied countless evils which used to harm and limit human beings. How can we not feel gratitude and appreciation for this progress, especially in the fields of medicine, engineering and communications?"

The problem for Pope Francis is not technology per se, but “the way that humanity has taken up technology and its development according to an undifferentiated and one-dimensional paradigm.”

"Men and women have constantly intervened in nature, but for a long time this meant being in tune with and respecting the possibilities offered by the things themselves. It was a matter of receiving what nature itself allowed, as if from its own hand. Now, by contrast, we are the ones to lay our hands on things, attempting to extract everything possible from them… [h]uman beings and material objects no longer extend a friendly hand to one another; the relationship has become confrontational. This has made it easy to accept the idea of infinite or unlimited growth, which proves so attractive to economists, financiers and experts in technology. It is based on the lie that there is an infinite supply of the earth’s goods, and this leads to the planet having every last drop and more squeezed out of it."

In a thoughtful conversation around this technocratic paradigm and its effects, Pope Francis laments how this paradigm tends to dominate economics and political life, degrade the environment, benefit small sectors of society, magnify humanity’s effects on Earth, and create overspecialization, obfuscating the bigger picture.

Culture of relativism

A culture of relativism in which “human beings set themselves at the centre [and] give absolute priority to immediate convenience and all else becomes relative” is another root cause of our crises, according to Pope Francis.

" [The culture of relativism] is also the mindset of those who say: Let us allow the invisible forces of the market to regulate the economy, and consider their impact on society and nature as collateral damage."

"This same ‘use and throw away’ logic generates so much waste, because of the disordered desire to consume more than what is really necessary."

Growth and consumption

Another fundamental cause of today’s crises proffered by Pope Francis is the almost exclusive focus on economic growth and ever-increasing consumption as solutions to social problems.

"Social exclusion, an inequitable distribution and consumption of energy and other services, social breakdown, increased violence and a rise in new forms of social aggression, drug trafficking, growing drug use by young people, and the loss of identity. These are signs that the growth of the past two centuries has not always led to an integral development and an improvement in the quality of life. Some of these signs are also symptomatic of real social decline, the silent rupture of the bonds of integration and social cohesion."

"Since the market tends to promote extreme consumerism in an effort to sell its products, people can easily get caught up in a whirlwind of needless buying and spending. Compulsive consumerism is one example of how the techno-economic paradigm affects individuals…That paradigm leads people to believe that they are free as long as they have the supposed freedom to consume. But those really free are the minority who wield economic and financial power."


"If we acknowledge the value and the fragility of nature and, at the same time, our God-given abilities, we can finally leave behind the modern myth of unlimited material progress. A fragile world, entrusted by God to human care, challenges us to devise intelligent ways of directing, developing and limiting our power."

On an individual level, Pope Francis speaks of the importance of people experiencing an “ecological conversion” in which they develop a deepened appreciation and love for life in all its forms: “a loving awareness that we are not disconnected from the rest of creatures, but joined in a splendid universal communion.” It becomes clear to them that “nature cannot be regarded as something separate from ourselves or as a mere setting in which we live. We are part of nature, included in it and thus in constant interaction with it.”

Fortified by this conversion, people become more active in their communities usually through one of the “countless array of organizations which work to promote the common good and to defend the environment, whether natural or urban.” Actively engaged citizens are more likely to become environmental educators at their school, in their family, at church, and elsewhere. This education includes “a critique of the ‘myths’ of a modernity grounded in a utilitarian mindset (individualism, unlimited progress, competition, consumerism, the market without rules)…and helping people, through effective pedagogy, to grow in solidarity, responsibility and compassionate care.”

On a societal level, Pope Francis lays out some principles to guide our actions into the future. He says that for too long, political decisions have been made based on outdated economic ideologies and by specialized technicians seemingly incapable of seeing the bigger picture.

"Politics must not be subject to the economy, nor should the economy be subject to the dictates of an efficiency-driven paradigm of technocracy."

"Today, in view of the common good, there is urgent need for politics and economics to enter into a frank dialogue in the service of life, especially human life."

Another of Pope Francis’ guiding principles is the need for more long-term thinking. He believes that politics and business have been dominated by short-term thinking for too long, making important changes difficult. He speaks often of intergenerational solidarity and the need to consider future generations in our decisions today.

"The myopia of power politics delays the inclusion of a farsighted environmental agenda within the overall agenda of governments."

"Caring for ecosystems demands farsightedness, since no one looking for quick and easy profit is truly interested in their preservation."

Pope Francis says that it is wrong to believe that market-based solutions are always the best solutions.

"Environmental protection cannot be assured solely on the basis of financial calculations of costs and benefits. The environment is one of those goods that cannot be adequately safeguarded or promoted by market forces."

"We need to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals. Is it realistic to hope that those who are obsessed with maximizing profits will stop to reflect on the environmental damage which they will leave behind for future generations?"

As an alternative to market-based solutions, Francis suggests treating the climate and other important aspects of nature as common goods (a term he repeats twenty times throughout the document). Nobel economist Elinor Ostrom has documented hundreds of examples of communities organizing their resources as commons. For this to work, another important principle that Pope Francis stresses throughout Laudato Si is the need for subsidiarity—that people affected by decisions should be involved in making those decisions. Too much environmental and social destruction has been caused by decisions being made by people thousands of miles away who will never live with the results of those decisions.

Laudato Si is an important document written at an important time in the history of the cosmos. With the vast reach of the papacy, I hope it and Pope Francis’ exhortations will serve as a wake up call for many and a manual for change for those dedicated to changing the world. He is clear that it is important that we act now.

"The pace of consumption, waste and environmental change has so stretched the planet’s capacity that our contemporary lifestyle, unsustainable as it is, can only precipitate catastrophes, such as those which even now periodically occur in different areas of the world. The effects of the present imbalance can only be reduced by our decisive action, here and now. We need to reflect on our accountability before those who will have to endure their dire consequences."


David Kane (João Pessoa, Brazil) is a researcher for the Faith-Economy-Ecology project of the Maryknoll Office for Global Concerns (MOGC). As a Maryknoll lay missioner from 1995 to 2012, he served in Brazil working with recyclers in city dumps and with the Jubilee Brazil campaign, as well as in Washington, D.C. Dave helped found Faith, Economy, Ecology, Transformation, a group of mostly faith-based organizations and individuals inspired to assist in the transition to a more sustainable and equitable economy. Currently, Dave educates and advocates for economic justice, particularly around trade, Latin America, and ecological economics.

What is Wrong with a Zero Interest Rate?

Herman Daly

Originally published in The Daly News, 16 September 2015
under a Creative Commons License

Zero interest promotes an infinite demand for savings with zero new supply.

Zero interest rate is equivalent to saying that a hypothetical stream of income into the infinite future is all totally available today.

Zero interest rates encourage aggregate growth in scale of the macro-economy to ecologically unsustainable, as well as uneconomic, levels.

The stock market took a dip, so the Fed will likely continue to keep the interest rate at zero, in conformity with its goal of supporting asset prices by quantitative easing. What is wrong with a zero interest rate? Doesn’t it boost investment, growth, and employment?

There are many things wrong with a zero interest rate. Remember that the interest rate is a price paid to savers by borrowing investors. At a zero price, savers will save less and receive less return on past savings. Savers and pensioners are penalized. At a near zero price for borrowed funds, investors are being subsidized and will invest in just about anything, leading to many poor investments and negative returns, furthering the economy’s already advanced transition from economic to uneconomic growth. Zero interest promotes an infinite demand for savings with zero new supply. But the “supply” is provided artificially by the Fed printing money. The infinite demand would be checked by the rising costs of natural resources and environmental damage if those costs were internalized, but they are not. Yet the environmental costs are real and do not disappear just because they are not counted. With free money and uncounted environmental costs, why not invest heavily in fracking? A very unequal distribution of income does check demand, at least for non-luxury goods. Rich people have an increasing surplus of money to invest, which also helps hold down the interest rate. Yes, mortgage rates fall, and that benefits citizens as home buyers, but they lose more in terms of their retirement accounts. And there is still a significant spread between the zero rate paid to savers and the positive rates charged on credit card and other debt, so the banks are doing quite well.

Also think for a moment about the calculation of present value in finance—a perpetual stream of future income divided by the interest rate gives its capitalized value. If the interest rate is zero, then the capitalized present value of any positive perpetual income stream becomes infinite. To put it another way, a zero interest rate is equivalent to saying that a hypothetical stream of income into the infinite future is all totally available today. Supply of financial capital in terms of its present value is infinite. But financial capital is supposed to be a measure of real capital, which is not infinite. Furthermore, the interest rate, to a significant degree, reflects the risk of loss. With infinite capital it matters little if you lose some, so risk too is uncounted.

Source: Wikipedia Commons.
The balloon analogy is explained here.
Zero interest rates encourage aggregate growth in scale of the macro-economy to ecologically unsustainable, as well as uneconomic, levels. Zero interest rates also neglect risk of loss, while encouraging microeconomic misallocation to stupid projects. At the same time, it redistributes income inequitably. Does all this make you think that something might be screwy with the policy of zero interest rates? Economists pride themselves on their knowledge of advanced mathematics, but they don’t seem to mind the fact that their policies imply dividing by zero!

Granted that with severe unemployment it is worthwhile, as Keynes said, to hire people just to dig holes and fill them up again in order to increase spending. However, this would better be done by the Treasury paying the hole diggers with new Treasury money than by the Fed doing it by distorting the scale, distribution, and resource allocation of the whole economy with zero interest rates in order to create new bank money. Also, the money created by the Treasury costs no interest to the public, while the money created by the Fed costs us the positive rate charged to borrowers, not the zero rate paid to depositors. Money is a public utility like a road. Should private banks be allowed to set up a tollbooth and charge us for using public roads? By the way, the Fed is owned by its member private banks.

How does the Fed keep the interest rate at zero? By printing money—quantitative easing, so called. Some hyper-Keynesians want a negative nominal interest rate (we already have a negative real rate when corrected for inflation) because we still don’t have full employment even at a zero interest rate. But this is so crazy that it requires a separate discussion of its own.

Why has this huge monetary expansion not led to more inflation? For one, because the dollar is a reserve currency and other nations hold large dollar assets. Also, other major currencies, following the same expansionary policy, have been depreciating relative to the dollar. This will not likely continue. Furthermore, there really has been inflation, but of a hidden kind. Instead of stimulating new production and employment, the new money has increased the demand for existing assets such as stocks, houses, art, etc., providing little employment and leading to speculative bubbles. The Consumer Price Index (CPI), the official measure of inflation, does not include capital assets. And concurrent cheap-labor policies—off-shoring of production and tolerance of illegal immigration—depress wages, holding inflation in check. In addition, the externalization of increasing environmental costs keeps prices lower than they should be. Further, as any consumer can testify, the quantity per package of food is getting less, and the quality of service of airlines, internet providers, public utilities, etc. is deteriorating. Our leading newspaper, the New York Times, now repeats many of the same articles over and over for weeks at a time. Getting less quantity or quality or more repetition for the same price is equivalent to a price increase—hidden inflation. So the claim that quantitative easing has not yet led to inflation is at best only half true—it has certainly led to inflationary substitutes not measured by the CPI. Some official versions of the CPI even exclude such basics as energy, food, and housing (too “volatile” is the excuse). Do you ever feel that you are being lied to?

It is a bad idea to manipulate the interest rate as a policy variable—it has too many side effects cutting in too many different directions, especially in a fractional reserve monetary system. Better to control the money supply directly by moving to a full reserve banking system. We should abolish the Fed, let the Treasury directly control the money supply, constrained by avoiding inflation, not by a budget. An entity that can create money does not face a budget constraint, and has no need to borrow. But it does have a price-index constraint, and must be disciplined by avoidance of inflation (or deflation). As long as the public wants to hold more money, the Treasury can keep creating and spending it. When the public wants to hold more real goods and less money, they will exchange money for goods driving the price index up, which is the signal to the Treasury to stop issuing money, and if necessary to withdraw some. Money, in a full reserve banking system, becomes non interest-bearing government debt rather than interest-bearing private debt. Seigniorage (profit from creating token money at negligible cost and receiving its face value in exchange) will go entirely to the government, not largely to private banks. Also, banks no longer have the extortionary power to crash the entire payments system that fractional reserves gives them. The interest rate, like other prices, can take care of itself, determined by supply and demand. The policy focus should be to manage the money supply, constrained by a constant price index. In effect, the real value of the dollar is backed by all the commodities in the price index, rather than gold, or the “full faith and credit of the US government.” (See Nationalize Money, Not Banks)

Policies of this general kind, but elaborated on in much more detail, are currently suggested by the British NGO known as Positive Money. They are reviving and updating the sound monetary economics of Frederick Soddy, Irving Fisher, Frank Knight, and other leading economists of the 1920s. Fractional reserve banking supports the whole pyramid structure of Ponzi finance, and we badly need to move toward a full reserve banking system to escape instability.


Herman Daly has received numerous significant awards (e.g., the Right Livelihood Award and the NCSE Lifetime Achievement Award) that recognize the value of his ideas for making this world a better place. For decades, he has been an inspiration to students of economics and public policy — how often do you see students lining up at the end of the semester to have their professor sign their textbooks?

Over his career, Herman has taken a courageous stance, swimming upstream against the currents of conventional economic thought. Not content to bequeath his ideas on economic development solely to the academic realm, he did time at the World Bank to change policies in the real world. He also has written books that are popular with citizens around the world.

It’s a rare combination indeed to have keen insight, kindness, razor-sharp analytical skill, wit, amazing capacity for work, humility, and an uncanny way with words all rolled up into one human being. It’s a good thing, too — the planet needs Herman Daly. His books, lectures, papers, and essays are filled with ingredients for cooking up a better economy and better lives.

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Carl Jung (1875-1961)


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