Why the Global Economy Is a Ponzi Scheme and We Are All Bernie Madoffs

By Joseph Romm, Climate Progress. Posted March 10, 2009.

What exactly is a Ponzi scheme? Wikipedia has a good entry:

A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from profit. The term “Ponzi scheme” is used primarily in the United States , while other English-speaking countries do not distinguish colloquially between this scheme and pyramid schemes.

The Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.

In our case, investors (i.e. current generations) are paying themselves (i.e. you and me) by taking the nonrenewable resources and livable climate from future generations. To perpetuate the high returns the rich countries in particular have been achieving in recent decades, we have been taking an ever greater fraction of nonrenewable energy resources (especially hydrocarbons) and natural capital (fresh water, arable land, forests, fisheries), and, the most important nonrenewable natural capital of all -- a livable climate.

The system is destined to collapse because the earnings, if any, are less than the payments.

See, for instance (”Hadley Center warns of catastrophic 5-7°C warming by 2100 on current emissions path” and “Normally staid International Energy Agency says oil will peak in 2020“).

Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities.

Yes, well, the authorities (i.e. world leaders, opinion makers, the cognoscenti) haven’t been doing much interrupting over the past two to three decades since, unlike a typical Ponzi scheme, they are heavily invested in the scheme and addicted to the returns!

As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

Well now I do think that the scheme has come to the attention of many of “the authorities,” at least to many leaders around the world and to progressive ones here at home. Conservative authorities simply have too much invested in the status quo (see here and here).

Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be rational in the economic sense if a government will likely bail out those participating in the Ponzi scheme.

But Friedman quotes Glenn Prickett, senior vice president at Conservation International, explaining, “Mother Nature doesn’t do bailouts.”

We aren’t all Madoffs in the sense of people who have knowingly created a fraudulent Ponzi scheme for humanity. But given all of the warnings from scientists and international governments over the past quarter-century (most recently two years ago with “Absolute MUST Read IPCC Report: Debate over, further delay fatal, action not costly“) -- it has gotten harder and harder for any of us to pretend that we are innocent victims, that we aren’t just hoping we can maintain our own personal wealth and well-being for a few more decades before the day of reckoning.

But it is interesting to see just how clever Madoff was:

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