A healthy economy should be designed to thrive, not grow!

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My own interest in economics began sometime in my late forties, I don’t know exactly when. I have always been curious about how things work and eventually it turned to the economy. What I noticed is that predictions by mainstream economists rarely came true, so I started to dig deeper to satisfy the question of why? I always felt something was missing in the explanations of how the economy works. The main reason they err in predictions is that many cling to the macroeconomic textbook description of how money is created through the fictional fractional reserve banking system and the money multiplier model attached to it, in addition to treating banks as simply intermediaries. There are other problems with neoclassical economists and some of it is just plain hubris. If you ask a neoclassical economist why his models do not reflect reality and he will probably say there is something wrong with the economy. The most dangerous people on the planet are those who sincerely believe something that is false.

I was first introduced to the concept of fractional reserve banking in a video titled “Money as Debt.” Digging further I discovered that fractional reserve banking no longer exists in Canada and hasn’t since July of 1994. Although even when there were reserve requirements which were supposed to restrict the amount of money that a commercial bank could create through the loans process, operationally it did not work that way. Reserve requirements meant that commercial banks were required to hold a certain percentage of reserves relative to the amount of liability deposits which is consistent with the money multiplier model in macroeconomic textbooks and is still taught the same way today! However, empirical research initiated by Basil Moore (Moore 1979, 1983, 1988a, 1997, 2001) and later independently corroborated by numerous researchers, including Kydland and Prescott (1990) discovered that banks extend credit first and then go looking for reserves later, exactly opposite to what is suggested in the textbooks.

Understanding real economics became clearer to me after reading Steve Keens “Debunking Economics.” Arguably the most difficult read in my life as I hadn’t taken any previous economic courses and was unfamiliar with the jargon. It motivated me to enroll at a local college and take both micro and macro economics thereby confirming the nonsense taught in these courses, mind you not all of it. I was lucky enough to have an economics professor that was open to challenges of the status quo and he even allowed me to speak in front of his own classes directly challenging the money multiplier model and the myth of fractional reserve banking.

What I have come to understand, is that if one does not understand how the money creation process works and the debt relationship tied to it, one can never fully understand how the macro economy works, even if that is at all possible. However, in all I have read the most inspiring and innovative way of moving forward into the future is an economy based on the ideas put forward by Kate Raworth in her book “Doughnut Economics: Seven Ways To Think Like a 21st Century Economist."

We need a paradigm shift in the way we see ourselves, our relationships with people, and the environment on which we depend.  

• GDP (Gross Domestic Product) has long been used as a leading indicator of economic health. Kate Raworth answers the question why we have accepted this cuckoo in the nest and why it shouldn’t live there.  

• Debunking the circular flow of income as stated in macroeconomic textbooks and the neoliberal narrative of laissez faire (free markets which don’t exist and cannot exist when humans are involved, no government involvement, and deregulation).