Colin Cook relates a modern-day parable to explain the failures of our economic system.
The story of the Munnies and Wallies
The population is divided in two: five per cent are Munnies, the other 95 per cent, Wallies. The Wallies are the ones that make the ‘stuff’ and provide the ‘services’ that everybody needs. The Munnies are the ones that organize it all – they manage and manipulate so that things happen. To this end, they have a money machine, a system to create money. The Wallies are, of course, paid for their work – not proportional to the value of their output, but sufficient for them, on average, to raise a family in style.
The value of the Wallies’ output is well in excess of their combined incomes and even though the Munnies do help out by some very ‘conspicuous consumption’, there is still a surplus that must be consumed if the system is to keep functioning. But how? Simple. The Munnies crank up their money machine to lend the Wallies the necessary money so that they can buy more goods and services than their income allows. This is fine, though there is a problem: the Munnies’ loans need to be repaid with interest, so that now the Wallies not only buy the extra goods they want (the stuff the system needs to be consumed) but must pay the Munnies interest for the use of the money.
Thus money flows back to the Munnies, away from the Wallies, whose purchasing power is reduced to even less than it was when they first recognized the need to borrow. To keep up their standards, the Wallies need to borrow yet more.
Private equity – public inequity
The Munnies also have a problem: they have more money than they can spend. There is a limit to the number of cars, yachts, cases of champagne a dynasty can use. So they have to buy other stuff – like land, toll-roads, coal fields, houses, public utilities, facilities that everyone uses. They ‘munnitize’ them. Sometimes they pool their money in to Private Equity Funds so they can buy bigger things which once belonged to the Public. Private Equity makes for Public Inequity because the Munnies expect a return on their ‘investments’; paying to use the facilities further eats into the spending power of the 95 per cent. More borrowing is needed but to make this possible, the interest charged by the Munnies is lowered. Nevertheless, it becomes increasingly problematic to keep the 95 per cent employed, paid and, most importantly, consuming.
Debt is building upon debt. Some of the Wallies acquire so much debt they just surrender everything they have to the Munnies. In some cases they promise to give a slice of all their future earnings to the Munnies as well.
The above is a great simplification, for there is another group: ‘The Polimedia’. Members of the Polimedia are also members of the Munnies and the Wallies. While they are generally friendliest with the Munnies, they have some sympathies with Wallies. The Polimedia is very visible – though on the side-lines – for they provide endless entertainment, diversions and illusions.
In their work, the Polimedia make it more difficult for the Wallies to consume as much as they should, by taking a slice of everyone’s income and by taxing everyone whenever they spend money – a 10 per cent take on all spending. They keep a bit for themselves and spend some on diversions such as war and the preparations for war. (War on drugs, people-smugglers, drought, crime, binge-drinkers, tax havens, enemies and enemies of friends). But most of the money that the Polimedia collects goes to the Wallies, to restore their purchasing power (which had been weakened by the Polimedia having taken their money in the first place!) But The Polimedia does help to make the ability to consume more equal among the Wallies – which is kind of nice and sort of fair.
From time to time, everyone gets to choose some members of the Polimedia and this creates the biggest illusion of them all – that who is chosen will make a significant difference to the 5-versus-95 equation.
The money continues to flow from the 95 per cent to the 5 per cent as the 95 per cent take on more and more debt to keep feeling good about themselves, help the economy and keep a roof over their heads. It cannot keep going this way.
Debt is feeding upon itself grotesquely, exponentially. The 5 per cent own more and more; the 95 per cent owe more and more. The situation is heading for disaster; it cannot be sustained.
What is to be done?
Christine Lagarde – who heads the biggest money machine in the world, the International Money Fund (IMF) – has declared: ‘To be sustainable there has to be less inequality rather than more.’ She has since explained that this is so we can get ‘more growth’; in short, more of the money has to go to the Wallies to spend. Lagarde does not explain how this will be achieved.
The start of a solution would be to move the money machine from the Munnies to the Wallies – so the Wallies can generate the debt-free, sovereign, positive money they need* and not be forced to borrow and pay interest to the Munnies. The ‘cash flow’ from Wallies to the Munnies must be reduced – even reversed. The mathematics is conclusive.
* For the full story on such a move, read, ‘Modernising Money’ by Andrew Jackson & Ben Dyson published by Positive Money; see also the website positivemoney.org