How we are financing the end of modernity

Free silhouette oil field pump image, public domain CC0 photo.

How financialisation heralds the end of the industrial age‘ is the name of a piece published by The Honest Sorcerer: A critic of Modern Times – offering ideas for honest contemplation. It’s well worth reading:

Western neoliberal economies are on the brink of a steep economic decline. Barring an energy / productivity miracle a prolonged and deep recession is clearly on the horizon. While mainstream pundits keep ‘informing’ the public how GDP was actually growing in the past decades (except for a few brief moments), and how the G7 is still the top economic power block, the real economy of goods and services tells a completely different story. Growth — in the sense of real economic output — has stopped 18 years ago in the West, and conditions are now ripe for a rapid contraction. A sobering assessment of the real economy — in which your humble blogger is still actively involved — has become due. Buckle up.”

As long time readers might already know by heart: money is not the economy, energy is. Money is but a claim on energy and resources. Everything we mine, grow, manufacture and consume takes energy to produce. No energy, no production, no services.

The more we produce or consume, the more energy is used up. And while it may seem like that rich countries have somehow decoupled their economies from energy use – managed to grow GDP much faster than energy consumption – in fact, the opposite is true.

All they did was send their high energy intensity manufacturing and mining abroad, then imported all they needed using their overvalued currencies, thus becoming more independent on foreign trade than ever.

The public, together with it’s ruling elite, was led down the primrose path with GDP, and now a reckoning is in short order.It must be stated loud and clear: Gross Domestic Product (GDP) is an entirely artificial and misleading metric.

Contrary to common wisdom it is not a measure of real economic activity, only the amount of financial transactions taking place. There is a world of difference between the two.

Sure enough, with the inclusion of finance, insurance and real estate – the so-called FIRE sector, all inflated by ballooning debt levels – there is an ever increasing amount of money changing hands these days… Too bad, though, that these entirely fictional activities do not add a scintilla of value to the economy. Quite the contrary.

What the recent fixation of our elites on GDP really shows is how we have switched from a real economy based on value added work to an entirely fictional financial economy based on rent seeking. Did you know, for example, that penalties on late credit card payments count as GDP? Well, it’s euphemistically called ‘providing financial services’.

Or how about the entirely fictional increase in the rental value of the home you actually occupy? If you had rented it out, you would’ve received an ever growing sum, right? Oh, you didn’t get a penny for living in your own house? That’s your problem, we will still count it as GDP growth.

Or how about systematically under-reporting inflation? So any additional money you spend (above official inflation levels) on the same product or a service you used to by much cheaper yesteryear now counts as GDP growth. Clever, huh?

This post first appeared at

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Radix is the radical centre think tank. We welcome all contributions which promote system change, challenge established notions and re-imagine our societies. The views expressed here are those of the individual contributor and not necessarily shared by Radix.

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