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Population, Environment, and Economics



Nested pyramid schemes

by David Sirkin

December 29, 2008

The Bernard Madoff Ponzie scheme was a pyramid scheme that was a small part of the meltdown of US and then world financial markets. The housing market bubble, of which the highly publicized sub-prime mortgage debacle was a part, was also a kind of pyramid scheme. It burst when the supply of potential home-buyers started to dry up. As prices started to level off or fall the pyramid started to collapse for new owners who had depended on prices continuing to rise, so they could sell at a profit if they could not make mortgage payments. The Madoff pyramid scheme unraveled when the stock market started to fall and nervous investors wanted to cash out.

It is too easy to see these two cases as anomalies: one a simple case of criminal fraud, and the other a peculiar perfect storm created by an insatiable investment climate, together with a dangerous combination of government guarantees and inadequate regulations, plus the evolution of complex financial instruments that were incomprehensible to banking professionals at even the highest levels. In actuality, these are not anomalies; the US economy is full of pyramid schemes of various sorts, starting but not ending with direct marketing businesses, and the entire US economy as a whole is broadly a pyramid scheme, as is the global economy that contains it.

The more long-lasting pyramids that are ubiquitous and are taken for granted to the point that they are not recognized as pyramids are the ones that depend on population growth. The population of the US has never stopped growing for any significant length of time; nor has that of the world, except during the time of the bubonic plague. The value of land increases as long as there is population growth, creating a seemingly perpetual real estate investment pyramid (only temporarily interrupted by corrections such as the one we are now experiencing). The general tendency for businesses to grow when population grows creates investment and employment pyramids. When births and immigration exceed deaths and emigration, the economic strata naturally take on a pyramid shape (since new entrants to the work force tend to have lower incomes and tangible assets than do those who have been working longer).

The population-fueled economic pyramids, like all pyramids, will ultimately fizzle and collapse. The reason is the finite amounts of land and other natural resources of the planet, as well as the limit of the environment to heal from the damage caused by human consumption and activities. Yet it is not only investors and business owners who resist ending population growth and slowing economic growth. It is also most of the economists, who are the professionals to whom government policy makers turn for advice and guidance. They continue to see a non-growing economy as an unhealthy or “stagnant” one, even if the population of the country has stopped growing.

While pyramids created by population growth facilitate the making of fortunes for a few, just as ordinary Ponzie schemes do, they are actually even worse for the prosperity of nations and the world than are the ordinary pyramids. For while the latter are zero-sum games that concentrate wealth in the hands of a few, while having no effect on the average, or per-capita, wealth of the group, population growth actually causes a decrease in per-capita wealth (see “Recession does not make us poorer; population growth does”). Economists, policy-makers, and the citizens of democratic countries around the world have to recognize that we need a a new outlook, or even a paradigm change, for a country, and ultimately a planet, with zero population growth. It will not mean that economic growth will have to end, but it will mean that it will be slower, and that there will be periods of no growth or shrinkage, especially in rich countries, that should not be considered unhealthy. Perhaps only after such a change in the way we judge economic health, can we expect a consensus and a concerted international effort to end population growth soon and gently, in order to halt its progressive damaging effects on prosperity as well as on the health and beauty of the natural environment.



Population, Environment, and Economics
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