Personal finances: Potential for global crisis mitigation

The primary aim of the One in a Billion project is to contribute to the mitigation of the multifaceted sustainability crisis bearing down on us (summarized here). As discussed in the first action plan post, each of the ten major categories covered in the One in a Billion project will be closed by three posts discussing the potential for crisis mitigation, the benefits to individuals implementing the strategy and the primary resistances to change that individuals are likely to experience. Five categories for potential crisis mitigation will be briefly covered in this first post:

  • Climate change – carbon footprint reduction
  • Resource depletion – ecological footprint reduction
  • Economic crisis – sovereign debt reduction
  • Social inequality – increase in social mobility
  • Societal complexity – reduction in interdependence and increase in adaptability

The estimates given below represent the potential impact if the average American began saving 10-20% of their monthly income and began investing and borrowing more responsibly. As shown in the graph below, however, Americans will have to do a complete cultural U-turn in order to achieve this. (American statistics are used simply due to the large pool of available data.)

Climate change

Do you know what the primary cause of climate change is? Burning fossil fuels, right? Well, actually not… The primary cause of climate change is consumerism – rich people leaving carbon footprints of 20, 30 or 50 tons of CO2 equivalent per year (the sustainable limit is 2 tons/year). Burning fossil fuels in itself is not a problem – after all, CO2 is a crucial ingredient in the great carbon cycle which makes all life on earth possible – the problem is just burning fossil fuels at the enormous rate we do. Currently, the earth manages to absorb about a third of our CO2 emissions, implying that we are overshooting the mark by close to 70% – just about the CO2 share of the richest billion people. If the richest billion therefore cuts consumption by saving and investing 10% of their income, they could cut CO2 emissions by 7%. Naturally, if these savings are invested responsibly (e.g. in the green economy), the potential for climate change mitigation grows even larger.

Resource depletion

The potential for ecological footprint reduction through reduced consumption is also about 7%, but such reductions can have much broader implications as well… Let’s take oil for example. Up to 2004, we got by primarily on cheap conventional oil – stuff that was easy and resource efficient to extract. But as consumerism swept the world in the buildup of the 2008 financial crisis, we hit “peak conventional oil” and prices started spiking like never before (500% jump in five years). Now that oil prices are five times that of the norm, it is economically feasible to extract oil from shale fields and tar sands – methods that use orders of magnitude more resources in the extraction process than that used by conventional oil. This results in vicious cycles of price inflation and environmental degradation which are especially ridiculous if you realize how tiny the percentage of unconventional oil production (the only reason for the entire price spike) really is. A simple 10% reduction in consumption from the richest billion people can easily wean us from unconventional oil, bringing tons of environmental and economic benefits.

Economic crisis

As discussed in more detail elsewhere, the economic crisis we face today is simply a symptom of the fundamental forces working to re-balance the incredibly lopsided global economy of today. This rebalancing will certainly be painful for many people, but we can make it a whole lot worse by our continued attempts to perpetuate this great imbalance through more borrowing, spending and money-printing. Yes, sharply increasing savings rates will slow down the economy and lead to temporary job losses in our total consumer societies, but we can either take a little pain now or massive pain later on. Really, greater savings rates among the richest billion is vital to avert a truly catastrophic economic disaster.

Social inequality

This point is tied very closely to the previous one. The temporary economic slowdown brought by the significant decrease in private consumption required for saving 10-20% every month will result in a period of job losses which tend to hit the poor the hardest. But again, this pain is nothing in comparison to the turmoil that could result from something like a full blown American sovereign debt crisis. In addition, reduced consumption will bring prices down (such as the oil example given above) which will greatly benefit the poor. And finally, the poor remain poor simply because they never start saving and investing. A new culture of saving and investing across the income spectrum will therefore do wonders for social mobility.

Societal complexity

Our enormous appetite for consumption has made our world incredibly complex. Massive multinational corporations now rule the world simply because consumers value low cost products far above environmental, ethical and community considerations. Due to the power given to these corporations by consumers, they are continuously growing in influence and complexity. Through the resulting global web of complexity, the gas you put in your car might tie you to massive bloodshed in the Middle East, the shoes on your feet might tie you to child labor in China, the medicine you pick up at the pharmacy might tie you to the gradual destruction of public health and any consumable you buy comes with an enormous CO2 pricetag. Cutting down on consumption can alleviate all of these grave problems.

Summary

The potential impact of greater responsibility regarding personal finances can therefore be summarized as follows:

  • Climate change – >7% carbon footprint reduction (and much more from ethical investments)
  • Resource depletion – >7% ecological footprint reduction (and much more from avoiding expensive unconventional resources)
  • Economic crisis – Prevention of a full-blown Western sovereign debt crisis
  • Social inequality – Protect the poor from the disaster of an economic meltdown and greatly increase social mobility
  • Societal complexity – Reduce the power and influence of big multinational corporations

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s