“Is the global economy a Ponzi scheme?” - and what it means if it is

I’m normally a bit sceptical of grand metaphors, but Joe Romm makes a convincing case that our current economic growth model is, in fact, a giant Ponzi scheme.

What exactly is a Ponzi scheme? Wikipedia has a good entry:

A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from profit. The term “Ponzi scheme” is used primarily in the United States , while other English-speaking countries do not distinguish colloquially between this scheme and pyramid schemes.

The Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.

In our case, investors (i.e. current generations) are paying themselves (i.e. you and me) by taking the nonrenewable resources and livable climate from future generations. To perpetuate the high returns the rich countries in particular have been achieving in recent decades, we have been taking an ever greater fraction of nonrenewable energy resources (especially hydrocarbons) and natural capital (fresh water, arable land, forests, fisheries), and, the most important nonrenewable natural capital of all — a livable climate.

Here’s the thing, though: what’s often forgotten about Ponzi schemes is that not everyone who buys into them gets shafted. If your money is still in there when the thing falls apart, then yes, you’re in trouble. But get out while you can, and you can do very well. Lots more people made money out of Madoff than were defrauded, just like you could get very rich out of the dotcom bubble if you left it to the last minute - but no later - to get out.

The problem is that the incentives for humanity to get out of this particular Ponzi scheme are all wrong. Even if we know that that’s what it is, we also know it’s not going to come crashing down for a few decades. For most people in a position of power, the negative effects of climate change will come after they die.

Romm rages, “Madoff is reviled as a monster for targeting charities. We are targeting our own children and grandchildren and on and on. What does that make us?”

But I don’t think grandchildren are enough to motivate people. I think when people see climate-induced chaos as ten or fifteen years away - when they can imagine their young children’s adult lives being ruined - only then will we see decisive action. And by then, of course, it’ll be too late.

(Source: thinkprogress.org)