Peter Schiff was right, and is. Paul Hawkens was right-er.

The stimulus Obama is proposing is not going to work. The problem is much deeper. This article predicted in detail what is becoming clearly visible in 2008 and 2009. Between 1980 and now, the propping-up that Hawken predicted was attempted over and over again by U. S. Presidents and Congresses led by both parties, as well as other governments. But the trend, as he explains, is inexorable.

After this prescient article appeared, Hawken was invited to write a book expanding his argument, The Next Economy (Ballantine 1983).
Find out more about Paul Hawken at: http://www.paulhawken.com

from:The CoEvolution Quarterly Summer 1980

Bold and colored formatting added. Note that solutions are possible, and will come - despite government, not through government.

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What's Economical?
by Paul G. Hawken

What we have now is a credit crunch. Look for a credit collapse in 1983. Both are the expectable stress of transition from one economy to another.

Two different economies exist in tandem in the United States: the mass economy, the mass production and consumption of material goods — the economy of the industrial age; and the informative economy, an economy in which the amount of materials that are personally consumed is reduced and the quality of goods and services is enhanced. In this article we will look at what the mass economy is, why it is beginning to both contract and distort, what the effect of this is on individuals, how it is affecting the total economy, and, finally, what the informative economy is and how to make the transition to it, both personally and on a larger scale.

The past decade has witnessed the culmination of the mass economy. Over the past 200-300 years, a vast world-wide (and imperialist) network of governments, corporations and financial institutions has been created with the purpose of moving, mining, exploiting, digging, cutting and cropping vast amounts of material in order to manufacture and assemble it into products which are then sold all over the world. Minerals, rubber, lumber, foodstuffs, oil, coal are reconstituted into a plethora of products, including cars, plastic toys, stereos, houses, appliances, factories and gumballs. Stuff. There really is a lot of it around. Basically, the way to make money for centuries has been to obtain a good supply of stuff at low cost and sell it for a higher price. It worked for Imperial England, for Carnegie, for Rockefeller, Onassis, Getty and the Hunt brothers. It still works.

While this orgy of mass shuffling has been going on, two important factors have changed the game: the world population has galloped ahead; and some of the resources that we have long depended upon for creating the mass economy are coming into short supply or are located in remote or "unfriendly" places, which is tantamount to being in short supply. The twin effect of these events is to radically alter the (mass) economy in quick, almost startling ways, and the results of these changes are being felt by virtually everyone in the civilized world today.

Although there were predictions as early as 1950 that there would be large resource shortages within ten or twenty years, most warnings were ignored until the 1970s when OPEC made the point simply and forcefully. A cartel depends on one assumption — that it can control enough of a resource to insure a quasi-monopoly. Nothing has successfully challenged the OPEC assumption yet, and the world has painfully grown to accept the notion that the materials from which the mass economy created prosperity might indeed be limited.

Up until this time, the leading theory governing the mass economy was Keynesian economics. Original Keynesian economic theory (which even Keynes had doubts about) said that the government could manage a mass economy by stimulating or restricting demand for products through the control of credit. If our economy becomes sluggish, the U.S. government loosens up on credit through the Federal Reserve Bank. Money is easier to get (and spend), production rises, goods flow out, employment increases and prosperity blossoms. When the spending spree gets out of hand and people begin to spend more than they are making, prices go up, inflation starts, and the government tightens credit so that it is harder to borrow, harder to spend, and the economy slows down, usually into a recession with its accompanying unemployment.

Since 1973-4, however, Keynesian economic theory has not accurately predicted economic events. It was and is a system imposed upon a culture through government, and now the culture is resisting the system, in large part because the culture knows what the theory doesn't know — that we are coming to an end of an era of cheap resources. What our government has tried to do since the so-called oil crisis is to impose Keynesian theory ever more forcefully and fitfully, feeling (I suppose) that if a light tap didn't work, a good knock would. And what the government has accomplished in trying to apply Keynesian economics in a time when the principles are no longer applicable is to create uncontrollable inflation and an economy which also seems out of anyone's control. Why?

Up until recently there was a certain logic and balance to the way capital translated into mass and mass into capital. This was called the "return on investment" (R.O.I.). As long as capital "grew" at a steady rate every year, it was considered a sound investment, and as long as resources were plentiful, only moderate amounts of capital were required in order to make the mass economy grow. This was because growth was slower and because profits were sufficient to generate cash internally without requiring great amounts of outside capital. However, during the past decade the ability of the economy to grow with conventional amounts of capital has lagged considerably, thus producing lowered productivity and higher inflation.

As the mass economy culminates, there are fewer resources to supply a world of exponentially growing popular demand. The price for goods starts to rise, not only because demand rises faster than production, but because governments, especially the U.S. government, are continually priming the growth pump by supplying large amounts of capital through credit and government spending, creating too much money. So while natural resources tarry, if not dwindle, consumers flush with excess cash buy, and the two meet inexorably in inflation. As inflation increases in rate and percentage, currency goes down in value. At our present rate of approximately 20% inflation, a dollar is worth half as much in 42 months. If currency goes down by half in 42 months, what is a "good" investment?

Some people have come to me, heirs and heiresses, who want to invest, preserve or increase their capital. People who have made their money usually know what to do with it, but people who have been given capital sometimes don't. Those I talk to are torn between doing "good" with their money and making sure they keep the stuff. Most end up trying to keep it on the rationale that if they preserve its value, it will be around to do "good" later. They are trying to get their money through the eye of a needle which they sense up ahead.

These people, heirs of the mass economy, know that the mass economy is coming to an end, and they know that different alternative structures have to be created if we are going to have a sustainable social order on the other side of the needle. But how to do it? What do you do? Do you try to "prosper during bad times?" Or do you attempt to create a new era of "good times" and maybe go broke in the process?

When my grandfather, who was a conservative Republican executive, invested his money, he thought he had made a pretty smart move when he earned 2 - 3% per year on his investment. In 25 years, if he earned back the amount of his original investment, he had a good thing going. After all, the 26th year was all gravy. And, of course, he had that kind of rhythm and approach to life. He walked to the train. He walked to his steel and cable company even though he was a vice-president and could afford other means of transportation. And he always talked slowly and in measured terms. I suspect that he and all his Mason brethren who captained much of San Francisco business acted pretty much the same. Conservative. Cautious.

Ironically, such conservativism and caution is what we need now in the economic climate in order to create a sustainable, conserver society. Instead, we have exactly the opposite situation. A go-go economy that is within a few years of blowing oft, a time in which inflation will worsen and a time in which there will be fewer and fewer intelligent things to do with money. The velocity of capital is matching the psychology of the times. As money moves into shorter-term securities, it turns over faster and faster, moving to gold one month, then to equities, then to money market securities, followed by a quick run up in English bonds, back to the play in platinum, into South African gold stocks, and then over to wheat futures as you've just heard that Argentina is having a terrible drought. For some people, all that is fun. But for others, it is a hair-raising excursion.

I am reminded of the two children in La Doice Vita who, on the circus grounds at dawn, "see" the Virgin. They run to one place pointing to this invisible entity which only they can see, and when everyone has run over to look, they run off, saying, no, she is over here, over here. . . . Read any investment advisory, and there they are — running after the Virgin. If it seems illusory and bewilderingly complex and irrational, it is. The mass economy is reaching a climax stage, and in the process, the bodily fibrillations can be seen in the volatile and unusual oscillations of capital through the system.

The mass economy is peaking in size and at the same time beginning to break apart; in order for it to grow, it has to spin faster and faster. This velocity is the result of the rate at which capital must be fed into the mass economy in order to make it grow at all. There comes a point at which increasing amounts of capital have decreasing results, and we have long reached and passed that point. Instead of seeing growth, greater mass, we are seeing critical mass, the point at which the economy begins to break apart and a new economic order must begin to arise. Since the only response governments know is to throw greater amounts of capital at the economy in order to makeit. grow; again, the in flow of capital is producing worldwide inflation. In other words, a throw-away economy is throwing itself away.

In March, 1980, the Carter administration, fearing this breaking apart of the mass economy, decided to apply economic correctives. [1] This was done largely through the most restrictive credit controls the nation has seen since World War II, which in turn has resulted in a classic credit crunch. When prices are rising, we are in a greed cycle, and when they drop — as they have in the past few weeks — we are seeing a pole shift to the fear cycle. The greed cycle peaked toward the end of last year with the rapid rise in silver and gold. It was a good old-fashioned rollicking speculative run-up with the two Hunt brothers from Texas leading the way as they cornered one-third of the free world's silver. When the Federal Reserve Board increased interest rates to their recent highs, speculators who had borrowed to participate in the gold and silver frolic had to start selling. As they did, the prices fell. It is what happens in a credit crunch, and this one was no exception.

As the prices fell, the Hunts, who had borrowed deeply on their expensive silver, found themselves asked to cover the margins on their own speculative purchases of silver. At one point they were being asked for $100 million a day to cover their silver losses and had to sell stocks and some oil properties in order to do so, putting pressure on • the stock market as a whole. When they could no longer come up with that kind of cash, their broker, Bache, sold many of their silver contracts in one day, and produced the silver crash of 1980. I mention all this in passing because it illustrates what will trigger the end of the mass economy: credit. Even the Hunts, considered to be some of the shrewdest financiers around, got caught by the credit squeeze and lost in March, on paper, somewhere between two and four billion dollars because of it.

This particular credit crunch was a mild one because there is only a mild case of fear right now — at least at this writing (April). Also, with the exception of silver and, before that, bonds, most of the markets had not been run up to historical highs from which they could crash. If this is all that happens in 1980, it will be merely a credit crunch and the economy will skip gaily on. But in the past few weeks, we have been given a shadow glimpse of what lies ahead, a credit collapse.

Although the selling of metals, stocks and bonds has depressed prices and produced real deflationary signs which could lower the rate of inflation to one digit by the end of the year, this lowering of secular inflation does not cure the fundamental causes and forces behind inflation, nor can it cure the deep underlying contraction of the mass economy. What we will probably see this year is inflation and interest rates backing off for awhile. Analysts will interpret this as bullish signals. Bonds will go up, stocks will soar, commodities will also rise. But within 18 to 24 months, we will also see cyclical inflation take hold again, with oil leading the way to at least $50 per barrel. As the inflation heats up, the inflationary psychology will take an even firmer hold, and once more we will see a flight from dollars to fixed and hard assets, a move which always exacerbates inflation.

The question that needs answering is how deeply has inflation turned the American citizen away from productivity and toward speculation? If there were a profound recession now, it could reorient the average citizen toward saving, frugality and lowered spending, particularly since inflation is cutting real income. But if the recession is short-lived and mild, and inflation begins again, John and Jane Average are going to have a tough time believing that the economy as we know it will survive. The continued debasement of currency has caused the average person to turn away from productive investments such as tools, machinery, and new plants, toward real estate, metals, and "collectibles," convinced by the Howard Ruffs and Harry Brownes that a rerun of post-World War I Germany is in the offing. Anyone who bought something a few years ago — a good car, a house, a piece of land — came out looking like a hero. Anyone who scrimped and saved and faithfully put his money into a savings account looked like a fool. If inflation begins again, and everyone tries to look like a hero, we will have a steep run-up in just about every type of market or investment vehicle, and it will all be self-fulfilling in its correctness and soundness. The stock market could rise to 2000 on the Dow-Jones commodities could easily double or triple, real estate could continue its dizzying spiral, and the population would feel flush in its "growing" assets.

But what has to be remembered in all of this is credit. There is a widespread belief in America that the government can "print" money and then spend it. That is not the case. Unless a madman seizes power or the rules are changed, currency cannot be issued by whim. In order to increase the supply of money which circulates throughout the economy, the Fed increases the funds available which can be borrowed at the discount rate by member banks. The banks, in turn, loan this to their corporate and consumer accounts. Thus, more money circulates in the system and the economy heats up, but not without a hook. The hook is that, technically, this money has to be paid back. Consumers have to pay their bills, their credit cards and their loans, as do corporations. And banks, in turn, have to "pay back" their loans, which means, in effect, that they must constantly recycle this money back through the Federal Reserve.

As long as the economy grows, credit also grows, and no one worries particularly about the ability of the whole to service its debts, whether those debts be consumer, governmental or corporate. But a look at the figures for debt show us a rather startling pattern. In 1970, the G.N.P. was $982 billion. By 1978 it had grown to S2.1 trillion. If you subtract from this total the portion due to service industries, the actual growth in the industrial portion of the economy, that portion which produces goods, was 35%. During that time, our total debt as a nation grew in the following manner:

During the time that industrial production rose 35%, debt climbed 138% and the consumer price index increased by 68%. So the result is that debt grew at roughly twice the rate of inflation and four times the rate of real growth. And these three are now very much related, for the only way we can fuel and sustain economic growth in the mass economy is by both inflation and credit, increases which make it increasingly difficult for us to service our debt if ever the economy should stop growing or contract.

Conversely, if credit should contract, the economy would move quickly into a negative growth spiral which might take many years to bottom before ending. This is what lies ahead for the mass economy, given the forces which are presently in place, and there is little, if anything, on the horizon which will or could change this now. Such a rapid contraction of credit, whether it is occasioned by a sharp downturn in the economy or whether it is caused simply by a shift to the Fear Cycle, would be a massive credit collapse in which enormous changes would be wrought in our economy, changes bigger than those experienced in any previous panic or depression since this country began. And since we are presently on the verge of such a collapse (if I were to predict a date, I would say October, 1983, or October, 1987) prudence would dictate that we look at' what exactly the results would be.

A credit collapse is simply the opposite of a growth economy. Since the table above illustrates that credit has to be expanded faster than the rate of inflation or real growth rate, a point will soon be reached when our ability to service our debt will be outstripped by the inflationary demands of the economy. We simply won't be able to pay our debts, either as consumers, governments or corporations, and at that point the whole economy exists only by a gentlemen's agreement: I won't call my debts if you don't call yours. But there are unfortunately few gentlemen in the world of business who don't think about their own interests first, and so we can reasonably expect in the future a time when the credit marvel begins to unravel. How it will happen is unknown. It could be triggered by a Saudi coup and a severe reduction in our oil supplies. It could be caused by a financial panic, the exact mechanism that drove the price of silver down from its historical high of $50 to $10 in two months. It could be a round of protective tariffs instigated worldwide. Any and all of these could lead to a credit collapse. [2]

But when a credit collapse does happen, all of the mechanisms that presently inform and move our inflationary economy will reverse. During inflation those who have debt generally do better than those who do not, since they are always paying back in cheaper dollars. By borrowing, small amounts of capital can be leveraged and can double or triple within a year in many markets. Dollars which could go to increasing productivity and jobs go instead to non-productive assets. There is a premium for consuming immediately, since prices will surely be higher later, and a penalty for saving, since money is worth less later, interest included. The more people consume, the faster prices rise, confirming everyone's suspicions, and so people buy now for fear they might not be able to later. They may be right.

The viciousness of this cycle can only be appreciated when one imagines its reversal. Since total debt now exceeds $4 trillion [2008: 10 trillion], while the basic amount of money around to service that debt is about one-fifth that much, any collapse of credit or asset values will cause default on debt, bankruptcy both personal and corporate, and a spiralling round of deflation. Those who have cash (not gold) at the end of the spiral will look pretty good. But that won't be easy. [3]

As deflation sets in, the squeeze on credit will cause massive unemployment, closings of companies and factories, reductions of government employees to skeletal staffs. There could also be default or suspension of government-backed bonds, sending tremors through the banking community which could cause depositors to demand all of their money at once, resulting in illiquidity and the closing of some bank doors. This has happened before, here and abroad, but never to the extent possible now, because never before has any country incurred so much debt as has America.

In deflation, everyone wants cash; and assets, including gold, silver, and urban real estate, plunge in value. Since there are mostly sellers and few buyers, prices naturally plummet, and oftentimes they go lower than the money which is owed against them, as with mortgages, for example. Everything that worked in an inflationary economy proves to be a curse in a deflationary economy. And making the transition from one to the other is usually quite a ride for most, if not downright painful and wrenching. The way to avoid most of the impact of such a reversal is so old-fashioned that few people will do it: stay out of debt and save. Try to own your home, buy nothing on credit, and live well within your means. That, of course, is not the kind of economic wisdom that is flowing from the media. Even the airline magazine, I read the other day, had an article entitled "Everyone's Guide to Speculation." The best way to envisage what it would be like after a credit collapse is to imagine your monthly income cut in half and see if you can meet all of your expenses. Then try it with one-fourth your income. Then imagine what would happen to your assets if you were unemployed for a year or more.

The purpose of this exercise is not to plunge you into gloom, nor am I playing Chicken Little. The breaking apart of the mass economy will not happen all at once. It may very well pick itself up and try again over the remaining two decades of this century. But whether it does or not, there is more good news than bad news for in the broadest way, it lays the groundwork for an ''informative" [4] economy.

In a mass economy, the goal is to produce the greatest amount of mass (products) with the least amount of labor. In an informative economy, the goal is to produce the greatest amount of information with the least amount of mass. Labor is information: it informs mass. What the informative economy recognizes and encourages is the understanding that it is labor that brings worth and intelligence to mass, not capital as has been thought for these past centuries. But [it] is not labor per se, but intelligent labor, work which "imbues or inspires" mass with a higher quality or nature. While the mass economy is an economy ruled by entropy, the informative economy is dominated by the one anti-entropic agent around: intelligence.

The transformation to the informative economy would mean that capital's role would be to make itself less necessary. In other words, capital would be used to create businesses that ultimately do not require outside capital nor large amounts of internally generated capital. That means that although new businesses and enterprises would "grow" just as any business to a certain size, they would do so at considerable expense to larger industries which they would supplant. So the informative economy would be an overall contraction of capacity in order to create an overall increase in quality and intelligence in products. But this contraction would not he as large as it might appear on the surface.

The mass economy hides everyone's function within the folds of large industries, all of which seem as important as the next. It is hard to get reliable estimates, but it seems that in the food industry for example, we are told that the average American farmer feeds fifty people, making him the most efficient fellow in the world. There is much crowing about this, but it obscures the fact that an estimated 18 - 20% of the population in America is directly or indirectly involved with food in some way, which means that the ratio is more like one in five to feed the populace. That figure is not so unusual and throws the productivity of the food industry into a new light. In the informative economy, this ratio may change very little. Twenty per cent of the populace might still produce our food, but in a very different manner. Now we have people drilling oil which is trucked to refineries where it is made into fertilizers which are sold to distributors who sell the fertilizer (and a machine to apply it) to a farmer who uses it.

In the informative economy, there would be more farmers with smaller holdings. Fertilization would be by crop rotation and manure, and since the farmer would or could not rely on outside agents for fertility or in the case of pesticides, crop protection, he would build up his soil to make his plants stronger, choose more resistant varieties of seedstock, plant hedgerows around the edge of his orchard to insure a good bird population to fight insects, and constantly learn how to make his farm work more intelligently. His sons and daughters would learn from him and hopefully make improvements. If this sounds like a flight to the past, it is so only in quality. The farmer would also use all of the knowledge that is current concerning weather, soil science, trace mineral deficiencies, and animal husbandry.

In terms of labor skills, there is a pronounced shift from a mass economy to an informative economy. In the mass economy, differences in skill and ability are leveled by machinery, automation, computerization, and the bureaucratization of institutions. However differences in levels of skill and service become rapidly apparent in a decentralized economy, where goods and services tend to be deployed on a more one-to-one basis. There is also a shift in the value of labor. In the mass economy, labor has gone higher in supposed value, while the goods that labor can buy have gone down in quality, durability, and workmanship. The reverse means that more labor will go into each item at a lower cost or value (in classical economics that would mean that productivity has gone down; informative economics would say that the amount of information per product has gone up) meaning that relative value between labor and material is radically altered. A person will be able to buy fewer objects, but the objects will be of higher quality. All of this suggests a simple, albeit simplistic, formula following upon the Fullerism that "Less is more." Mass diminishes intelligence, whereas intelligence enhances mass. In other words, when we are surfeited with a glut of goods, there is little motivation to inform those goods with intelligence.

In an informative economy, we switch from an '"affluent society to an influent one. [5] If you are affluent, goods and services flow toward you; if you are influent, the information and meaning contained within goods flows into you. Affluence amasses, influence processes.

How does an informative economy use less mass than the mass economy? Taking tools for example, which are dear to my heart, compare a low-line spade from the mass economy which you can pick up at the discount store for $7.99 with a forged spade made of high carbon, hand-tempered steel which costs $25.00. If used a lot, the first tool will last less than a year. The second will last between fifty and one hundred. Using the lower figure, that means that there is l/50th of the mass in the forged tool as in the consumer tool. There are Japanese chisels made by masters which can last through two centuries of hard use. I have heard of old tools being returned to Sheffield Steelworks after ninety years because the handle broke. In contrast to the mass economy, an object made in the informative economy is characterized by intelligent design, and durable materials. It is built to last longer, constructed to work more appropriately and efficiently, and reflects the care and ingenuity of the maker. The formula amounts to fewer resources and more information — defining information to be skill, durability, design, care, craftsmanship, and utility.

I often make lists in my mind of businesses which relate to one economy or the other. It is hard because most are not national businesses and are only known locally. But compare the magazines In Business (informative) and Venture (mass), the clothing of L.L. Bean and K-Mart, or the tools of Woodcraft Supply and Ace Hardware. It should be mentioned that Herman Kahn has already beat me to noticing this economy, recognized at least the soft edges of it many years ago, and thought it to be essentially a tertiary economy since it still relies heavily on the mass economy for raw materials and manufactured parts and tools. That's true — now. But I do not think that the mass economy will be the body for long, but rather the tail.

The mass economy requires people to make choices which always lead to fewer choices, reinforcing the power of the mass economy as a dominant social force. What the informative economy does is create choices which lead to more and more choices. Mass has inertia but lacks intelligence. It will be the intelligence of the Informative economy that will eventually lead it away from being a subordinate tertiary economy. It is the ultimate deployment of goods that decides what and how much the primary and secondary economies produce. The tertiary economy has always been the head, and within the informative economy it is starting to think. That portends vast changes for the present economic structures, particularly since the larger enterprises are highly dependent on an increasingly shaky world economy. The primary economy will always be "bigger" than the tertiary economy, but like the body, that does not mean it will run the show.

Kahn has also described this sector of the economy as neo-epicurean and therefore ultimately elitist, with not too much relevance for the masses. I think we are seeing something quite different, what Yankelovich called the Europeanization of America. For example in the area of food, people are going to spend more money as a percentage of their income on food, not because they are gourmets but because they are beginning to appreciate what the French and Chinese cultures have known for years — that a good meal is life itself. Until the Americanization of Europe took place, the average French peasant ate better than 99% of the people in the United States. Hardly elitist. Cultural. For different reasons, people will begin to buy objects that promise to last and endure. Again, not elitist. The reason we are moving toward an informative economy is because it works better. It is only when the expansionist bubble of the mass economy is pricked, either by resource shortages, massive inflation or by a credit collapse, do we begin to see what is and isn't working. As long as the mass economy worked, there were few who would question it. As its flaws are more evident, there is a distinct move toward the informative economy.

What makes this transition difficult, at least economically, is that many businesses, enterprises and activities that are struggling to start up and survive right now are often judged and seen through the criteria of the mass economy. As we saw earlier, when inflation is romping freely along, there are few if any investments that are "economical." What is cost effective if money can no longer be depended on as an accurate mediator in the relationship of goods and services to mass? Many of the moves toward sustainable sources of energy, agriculture, and resource management are dismissed because they are not economical. Precisely. But it must be understood that they are uneconomical within the mass economy, and that the mass economy itself is now uneconomical. It can only create inflation, confusion, polarization of the rich and poor, and further inequities in resource allocation. "Economy" is derived from the Greek word for someone who manages a house household, i.e., a steward. The word grew to mean "careful management of resources, as to make them go as far as possible . . . (implying) frugality, thrift, saving." This means that the informative economy is the only true economy around, and what is economical now is to participate and create goods and services which adhere to the true meaning of economy. •

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ADVICE TO CARTER
Although part of Carter's anti-inflation program is credit controls, the other part is the restriction of money supply through Chairman of the federal Reserve Board, Paul Volcker. If Carter and Volcker persist in trying to control the money supply, they will be the first to do so in over twenty years. Many presidents have promised to control the money supply, but none have had the courage to do so at election time or when a recession started to bite too deeply. Since October Volcker has pretty much stuck to his monetary reduction, but any number of conditions including a "small" war in Iran could completely alter those intentions. In order to finance a rapid buildup of the defense budget, money would have to flow again into the banks from the Federal Reserve. To avoid a credit collapse, I offer the following suggestions to Carter or his replacement:

1. A three-year, phased-in 15% cutback in government spending followed by real growth matching population growth. The size of government spending is distorting the economy since it is non-productive spending. Almost half of the Federal budget is for transfer payments back to individuals and it goes to 45% of the population. As government and transfer payments grow. opportunities for people to work and support themselves will wither. (This excludes revenues from item No. 8.)

2. Not only a balanced budget, but a reduction of national debt. Carter has not so much balanced the budget as he has raised taxes. This year, primarily because of inflation, taxes will increase by $100 billion, the largest increase in the history of the United States. The irony is that if inflation were to stop tomorrow, the government would have tlie largest deficit of its history. Carter has balanced a budget, to slow inflation, which absolutely depends on a high rate of inflation in order to balance.

3. Federal income taxes sliould be in indexed, as they are in California, to remove part of the vested interest government has in maintaining inflation.

4. Instead of withholding taxes from savings, as Carter suggests, savings interest should be tax-free up to a reasonable amount so as to encourage savings rather than spending, investment rather than speculation. Because of taxes and inflation, all who save lose at present.

5. Same with dividends, up to a reasonable amount.

6. There should be a tax write-off of 7% of the purchase price on American made cars which get over 35 m.p.g. now, and higher mileage figures as the years go on. On cars that get under 20 m.p.g., there should be a 7% tax.

7. Federal lands contain nearly 50% of the potential gas and oil reserves. A National Energy Company should be created to explore and develop those lands. Profits should go directly toward renewable energy sources. [I disagree! Leave the wildlands alone.]

8. Instead of a 50 cent per gallon gasoline tax as Anderson suggests, we should do something more radical. Firstly, the President should set both monthly and yearly goals for a massive reduction of domestic dependence on OPEC oil. And these goals should be as widely publicized as the Dow-Jones, and for good reason. If the goals are not met, then taxes are slapped on until consumption falls to that level. If it takes $3 per gallon to reduce our foreign dependence to 25% of what we import today, that would be the tax. The revenues from these taxes would take $60 billion out of overseas hands (a continuing source of dollar weakness and inflation) and keep them home. These dollars, along with the money earned from the National Energy Company, would also be recycled into sustainable sources of energy, primarily by tax incentives for consumers who retrofit, or conserve, as well as a conservation rebate.

9. A conservation rebate from gas taxes. This would amount to several liundred dollars per person. A conservation rebate would reward conservers and penalize flagrant consumption. After setting national goals for energy consumption, 50 cents per gallon of the overall tax would be considered paid in by every user into the conservation rebate. The tax would be returned to all according to the per capita goals established. Those who use less would be getting a refund, those who use more would have paid more. It is fair, encourages conservation, and would bring some of the "underground economy" back onto the tax rolls since they would be getting a refund overall.

10. Defense spending should shift emphasis from nuclear and sophisticated aircraft toward "precisioned guided munitions" which could empower a decentralized militia, both here and abroad along the "Brossollet Concept." Smaller weapons in the hands of smaller groups of people, particularly in Europe, would be a more effective deterrent than any megakill. Nuclear weaponry is already overbuilt, and the U.S. defense budget should be shared with the countries it supposedly is protecting, further reducing defense costs and the budget.

11. Finally, to increase overall efficiency, the breaking up of large businesses and the formation of smaller companies should be encouraged through tax incentives. U.S. Treasury Department statistics have shown that small businesses are three times more effective in deploying their assets than are large businesses. The myth of efficiency in large-scale operations is one we can no longer afford. People who invest their own money in their businesses or employees who invest in employee-owned businesses should get 100% writeoffs for those investments, while larger corporations should be progressively taxed according to their lack of efficiency in terms of capital, assets, and resources. Inefficient giants would be forced to sell off their less efficient units, making them available to smaller groups and former employees who could buy these factories through government guaranteed loans. Meanwhile, smaller businesses and farms would flourish. We would be using our diminishing resources and assets three times more efficiently. ###

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1. The last engineer in the White House was Herbert Hoover, and engineers, like most economists, are prone to see and treat the economy as if it were some kind of machine. If something goes wrong or gets squeaky, you adjust it mechanically. There is nothing inherently dismal about the science of economics, but there is something rather dismal about the world view of those who call themselves economists and, in the case of the President, those who have ultimate responsibility for its care and functioning. What economists, and Carter, fail to see is that the economy is not an abstract sort of collection of credits, debits and quanta but a real living entity invested with all the qualities and attributes we associate with human beings. It is volatile, mysterious, fearful, aggressive, tremulous, uncertain, etc. The economy is the collective conscious of our society and represents the sum of every citizen's decisions in a most precise and democratic manner. It must be treated, therefore, as a living entity, not as a machine.

2. Much of the national debt is now held in foreign hands. If confidence in American ability to service or repay that debt should weaken, we could see a sell-off of government-backed bonds which could collapse the bond market which in turn would pull all other markets, including the stock market, with it. The U.S. seizure of Iranian assets last year did nothing to instill short-term confidence in the "good faith" of the American government. While it represents a short-term gain in internal prestige for the Carter administration, it is a serious long-term weakening of national credibility overseas. It should also be noted that many of the American dollars that have gone over-seas to pay for our OPEC oil have been re-deposited In American banks and then reloaned to Third World countries, most of which have used the money to buy OPEC oil as well. This recycling of Petrodollars has left the American banking community extremely vulnerable to any default of debt on the part of these countries. At this writing some of them cannot service their existing debt and are trying to borrow more. There are other countries, like Iran or Peru, that may choose, due to political or nationalistic reasons, to default on the debt, saying in effect that it is a sign of imperialist or capitalistic intrusion into their own country's assets. Irrespective of the mechanism, it is doubtful that the U.S. government could insure the loss of deposits sufficiently to prevent a series of major bank failures, leading in turn to many smaller failures nationwide.

3. Howard Ruff contends that the government will issue fiat money at that point, making the dollar almost worthless. He recommends metals as a hedge. I contend that it will happen so fast that the government won't have time to, and that metals will sink in value just as they have within the past two months.

4. Why the word "informative" to describe an economy? To inform does not mean merely to supply data. Webster's defines "inform" as "to give, imbue, or inspire with some quality or nature."

5. An "influent" is also defined as an organism that interacts within the ecosystem without dominating it. The influent economy likewise interacts with its social and eco-systems interactively while the affluent economy has tended to dominate both societies and the environment.

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Practicing what he preaches, Paul Hawken deals in fine tools. Smith & Hawken, Palo Alto, California, imports such durable items as this garden fork from the 200-year-old British firm. Bulldog (they invented the spade). Years ago he was the founder of Erewhon, the most successful mail order supplier of natural foods. He was Jerry Brown's economic adviser during the recent Presidential campaign. - SB

The CoEvolution Quarterly Summer 1980

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