By David Korten
As part of the New Economy 2.0 series
The first reaction of most people to the call to shut down Wall Street is one of jubilant enthusiasm. The second reaction is, “But what about my 401(k) retirement account?” The same question might be raised about our credit cards, mortgages, and medical, homeowners and auto insurance.
Money may be nothing but a number, but survival in a modern society is impossible without basic financial services. There are, however, better ways to deal with our very real financial needs than those presently offered by Wall Street. Here are some examples.
Credit Cards. Credit cards have two distinct functions: a convenient means of clearing transactions and an open line of credit. The first is a straightforward and beneficial service if properly regulated and transparent. The second is an enticement to debt slavery and predatory lending.
The solution to wages inadequate to provide for daily needs is not easier, cheaper or fairer credit; it is to restore living-wage jobs, tax the rich to provide a floor of essential public services and reduce household expenses by restoring the household as a unit of production. Financing for large durable purchases like a home, car or major appliance can be arranged on a case-by-case basis with a local bank, savings and loan, credit union or even the local merchant from which the purchase is made.
Home Mortgages. The purpose of a mortgage is to finance homeownership, not to create a foundation for loan pyramids, fuel speculation, inflate a housing bubble or a substitute for a paying job. We best advance the goal of broad participation in responsible homeownership by measures that increase job security, raise wages, maintain stable housing prices and restore a system of member owned mutual savings and loan institutions like we once had that extend and hold mortgages for local home buyers under a system of state and federal supervision.
Insurance. Insurance involves a pooling of risk by which a group of individuals who guarantee one another against individual ruin from a catastrophic illness, disability, fire, flood or other random unavoidable event. Private for-profit insurance companies are an inherently problematic instrument for pooling risk, because they create an inevitable conflict of interest between the insured and those who agree to bear their risk for a profit.
The more appropriate mechanisms are nonprofit member owned mutual insurance associations and federal programs like Social Security or Medicare, in which there is a strong commonality of interest. Public programs have the added advantage of assuring universal coverage, spreading the risks over a large number of people and minimizing the costs of recruitment and administration.
Retirement. The idea that a generation of workers can secure its retirement by storing numbers in an individual retirement account on the computer hard drive of a Wall Street financial institution is a cruel illusion. Retirees cannot eat financial bubbles. Numbers stored on a computer drive will not nourish them even if the institution remains solvent. They need real food, shelter, medical care, clothing, recreation and other goods and services—all of which must be produced and provided by working people at the time the retirees’ needs are presented. Furthermore, it is impossible to know how long an individual will live or what his or her health needs will be. It is therefore impossible to determine the individual savings required to be secure.
For a society, retirement is inherently an intergenerational contract between retirees and the working adults much like the U.S. Social Security program in which working people agree to commit a portion of their labor to providing for the elder care needs of those who nurtured them during their childhood. They expect the next generation of youth will likewise care for them in turn.
The threat facing future retirees is not insufficient money – which government can easily create with an accounting entry – it’s demographics. In 1960, there were five working people per retiree. Because of longer life spans and the greater percentage of people reaching retirement age, that ratio was 3.3 to 1 in 2004. Unless the retirement age changes dramatically, it will be down to 2 to 1 by 2040.
Those of working age best secure their elder years by investing in the productivity of those who will follow them by investing in the education, technology and infrastructure required for the next generation of workers to provide for their own future nutrition, shelter, health care and other essentials, while doing the same for those who can no longer provide for themselves.
Wall Street financial scams and phantom wealth financial assets will not feed us or provide us with essential shelter and health care. We had a system of institutions that effectively met our need for the basic financial services required by a real wealth economy – until Wall Street dismantled them. We can rebuild them.
About David Korten
David Korten (livingeconomiesforum.org) is the author of Agenda for a New Economy, The Great Turning: From Empire to Earth Community and the international best seller When Corporations Rule the World. He is board chair of YES! Magazine, co-chair of the New Economy Working Group and a founding member of Business Alliance for Local Living Economies (BALLE).
About New Economy 2.0
Visionary economist David Korten introduces a national conversation series, New Economy 2.0, on CSRwire Talkback based on his acclaimed book, Agenda for a New Economy, 2nd edition. For the next several weeks, Korten will summarize the main points and key lessons of each chapter of his book, leading from a dissection of what went wrong in the “phantom wealth Wall Street economy” to the presentation of a vision of a world of real wealth Main Street economies that support strong middle class societies, honor real market principles and work in partnership with Earth’s biosphere.
New Economy 2.0 envisions an economy in which life is the defining value and power that resides in people and communities. It contrasts with the popular New Economy 1.0 fantasy of a magical high-tech economy liberated from environmental reality and devoted to the growth of phantom wealth financial assets.
This exciting, new series is co-published by CSRwire and YES! Magazine.
The arguments presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine Web store.
Readers: How can we rebuild a financial system to effectively meet our needs? Share on Talkback!