Closed System Economics: An Introduction

Back when I worked on different farms, I spent a good deal of time observing my working environments and considering the degree to which each farm I worked for was a closed or open system. I did this out of a curiosity to better understand what it would take to run any single farm as close to a closed system—as its own ecosytem, in other words—as possible. I would consider what inputs were coming in from outside of the farm itself, what was leaving, what was necessary to run the farm successfully, and where adjustments could be made. It was a good way to evaluate ideas of sustainability within a real world context and gain a better grasp on ecological concepts. Over time, I became adept at seeing the inflows and outflows, and could recognize just how many inputs were required to run even the small scale and supposedly sustainable farms for which I worked.

It’s a big jump from evaluating a small farm in such a way to evaluation an entire nation as such, but I believe a similar exercise has the potential to yield quite a bit of valuable insight into how we might run the American economy in a different way, to our individual and collective benefit. To do that, we need to evaluate our economy within the context of an ecological system, consider its functions within the light of ecological principles, and apply close scrutiny to its inputs, its outputs, its flows of energy and resources, its sustainability, and its overall health and function. We need to evaluate, as well, its organizing principles, and consider how those work with or oppose the organizing principles of a healthy ecosystem.

America in recent times has moved its organizing economic principles towards globalization and centralization. We have tossed open our economic borders and entered into a series of free trade agreements, in the process helping to create massive financial and trade organizations that work at the global level to regulate economic activity and to encourage centralization and corporatism. The results of this movement have been widespread and strikingly disruptive. Here in America, we have engaged our movement toward globalization by outsourcing many of our industries to other countries, increasing our reliance on foreign sources of energy and resources, replacing American labor with cheaper labor abroad, exploiting legal and illegal immigration to depress wages here in America, increasing our export of goods and services, and reorienting our industries that do still exist toward serving global markets rather than national or local ones. Abroad, we have utilized the International Monetary Fund, the World Trade Organization, the World Bank, and other organizations and institutions—all backed implicitly by our military power—to create a massive global wealth pump that has systematically diverted wealth and resources away from other countries and toward the United States, creating our current scenario in which the less than 5% of the world’s population who lives here in America is able to consume about 20% of the world’s energy production and perhaps as much as a third of its physical resources and industrial products.

It’s not hard to recognize the fact that these organizing economic principles work in opposition to the principles of a healthy ecosystem. It is perhaps unsurprising, then, that this global economic system has not created healthy systems (either at global or national levels) and has instead left a path of destitution, destruction, and death scattered across the world. As we have moved toward greater globalism, centralization, and corporatism, we have destroyed a massive amount of economic, cultural, and biological diversity. We have increased our reliance on fossil fuel energy and the use of both renewable and nonrenewable physical resources while simultaneously eliminating the ability of hundreds of millions of people throughout the world to make a decent living—not through shortage of work to be done, but through overreliance on fossil fuels and machines to do it. And as a result of the trend away from human labor and toward fossil fuel exploitation and mechanization, we have created extreme wealth inequality, concentrating the vast majority of the world’s resources into an ever smaller number of hands while destroying the economic livelihood of millions upon millions of human beings.

There is another potential insidious consequence lurking in these organizing principles, as well, and it’s one that is applicable to America specifically. In having put in place a series of global organizations and institutions designed to pump wealth out of countries across the globe and toward one country in particular, we run the risk of having that wealth pump reconfigured against us in the not-too-distant future should our imperial power continue to fail—which, by all current geopolitical indications, appears very likely indeed. While being on the receiving end of that wealth pump has proven far more detrimental than one might expect a flood of unearned resources to be, having that wealth pump leveled against us would certainly prove far more devastating—especially since we have so very far to fall due to our outsized modes of living.

In other words, the ideology of liberalized global trade that has so consumed the industrial world in general and America in particular in recent decades has proven a very significant net negative for this country, and it threatens to become an even greater and far more devastating mistake should we fail to reorient ourselves before our empire fully collapses.

The stark reality is that globalization has passed its point of diminishing returns and is now so deep into the realm of negative returns, it threatens to upend the entire system in a cascade of populist backlash. That could be a good thing, opening up a series of political ramifications that might serve to rebalance the world’s various economic systems in a way that creates greater health and wellbeing for a majority of the world’s population. However, it also runs the risk of straying into some very dangerous and vindictive territory, setting off a series of cascading consequences apalling in their cruelty. In consideration of those varying possibilities, I would like to propose here on Litterfall over the coming months a series of alternate organizing economic principles that I believe could have a series of positive effects, not just for the wellbeing of Americans (and likely the citizens of other industrialized nations, as well) but also for the ecological wellbeing of our planet. I may very well be wrong, but I do think we’re in the beginning stages of a populist political uprising that has at least the potential to install dramatically new ways of political and economic organizing, but getting these ideas in circulation is a critical first step toward actually implementing them at the political level.

Globalization and imperialism have failed Americans, plain and simple. While it has diverted a good chunk of the world’s wealth and resources away from other countries and towards the United States, it has done so by creating an open and imbalanced system of trade whose tendrils extend so far across the rest of the globe that we have lost all sight of them. Rather than creating a tight and efficient economic engine of prosperity, globalization and imperialism has created a ragged and incomprehensible system of wealth imbalance and stratification rife with abuse and corruption, and which is less in our control with each passing year. We Americans increasingly finds ourselves at the mercy of a behemoth that we cannot understand and that we actively rage against, even as it continues to siphon wealth from the rest of the world and into our own insatiable maw. Yet, rather than provide sustenance, it seems only to make us weaker, less healthy, and more distraught. This economic system that ultimately determines much of our individual and collective livings has morphed into a sickness that is reducing our resiliency, reducing our overall health and wellbeing, reducing our independence and ability for self-determination, and all while impoverishing much of the rest of the world and earning us well-deserved hostility and resentment.

Much as I believe this orientation toward an open and globalized economic system has proven disastrous for America in the long run, I too believe that a reorientation toward a closed system economy has the potential to provide multiple benefits and a cascade of positive outcomes. Granted, it will not solve all of our problems, it is not a single solution, and it too will eventually run into the hard reality of diminishing returns. But there is a lot of low hanging fruit of positive returns that could be plucked before that point, and I believe we would be foolish to ignore that reality.

So what is a closed system economy? It is an economy that attends first and foremost to activity within its own boundaries. Its organizing principles are multitude. It attempts to provide as many of its needed inputs as possible from within its boundaries, utilizing its own energy, resource, and labor bases in a sustainable and lasting manner. It produces for the population and markets found within its own borders and looks beyond its borders only once it has satisfied its needs at home. It protects its own industries and markets through strong borders, utilizing tariffs and other forms of economic protectionism as needed and controlling the cross-border flow of labor. It ensures the health of its system by maintaining a balance between different types of economic production, with a heavy focus on goods and services derived from the national resource base and a minimization of speculation and money-based economic activity so as to discourage economic imbalances. It further maintains the health of its system by discouraging significant wealth stratification and inequality. It resists unsustainable exploitation of its resources, particularly from external sources. It provides for its citizens before providing for others.

Of course, there is more to the health of an economy than just following a set of closed system organizing principles and I intend to write about other dimensions of our economic, political, and cultural challenges, as well, from the preservation of internal diversity to basic civil rights for all citizens to the healthy of the citizenry and on to other more specific but critical issues, such as effective and sustainable modes of transport. All of these are critical considerations that cannot be overlooked.

Would running such an economy be easy, let alone implementing it through the clenched fist of our current entrenched interests? No, I don’t imagine it would be. Running a sustainable small farm or an elegant household is not easy, either. It’s a heck of a lot of hard work and it requires constant attention, consideration, and thought. It can be tiring at times, exhausting even, and can feel overwhelming. It requires intelligence, flexibility, dedication, and the willingness to avoid cutting corners and easy “solutions.” If we’re being honest, I think most all of us would have to admit that that is not how we run this country now. We run it fast and loose and shoddy, with little close attention or consideration, and without an honest accounting of cost and benefit. So to run our economy well and to engage a much more closed system that is both healthy and elegant will require a massive amount of hard work and patience.

All of that said, though, running such an economy strikes me as still an easier task than constantly trying to stay ahead of a series of cascading problems by creating new series of cascading problems, all the while holding our breath that the entire fragile system doesn’t come down and wipe us out in one fell blow. Our problems are piling up, the consequences are compounding, and our bills are coming due. Rather than doubling down on a failing system that is immiserating a good chunk of our friends and neighbors, I propose that we take up the challenge of fighting for and then building and maintaining a different economy based on different organizing principles. And I propose we do it not only for our own economic wellbeing, but for the basic dignities of everyone within our borders. The populist backlash building here in America and throughout the industrialized world stems in large part, I believe, from the destructive economic policies and globalization efforts that have been pursued even as they have destroyed the lives of millions of people. Channeled into a reoriented economic system that provides meaningful work and as broad-based and beneficial economy as possible, including through a revitalized wage class and rural economies, this populist movement could provide incredibly beneficial. Ignored and dismissed with a sneering contempt and simplified claims of racism and xenophobia that fail to acknowledge real structural problems with our current economic approach and the very real devastation of largely ignored populations, and the rising populist backlash of our times could take some very dark turns. I do not want to see that happen, and I believe we can avoid it. But to do that, we’re going to have to take a very hard and very honest look at the ways we currently organize our economy, who is winning and losing, and how we can reorganize it to be more fair, more equitable, less intensive, and more sustainable. To do so will take a lot of hard work, but to not do so invites a host of awful consequences that I believe most all of us would rather avoid. Beginning next week, we’ll start taking a look at some of those alternative organizing principles and how they might make our current untenable situation a bit better.

6 Comments

  1. Joel,

    You don’t need to put this through as a comment, it’s just word-smithing:

    “increasingly finds ourselves”-> “increasingly find ourselves”

    “for self-determination, and all while impoverishing” -> “for self-determination, all while impoverishing”

    “and as broad-based and beneficial economy as possible”->”and is as broad-based and beneficial as possible” (although the enclosing sentence is really too long and needs to be split up 🙂

  2. D. Bruce Turton

    October 11, 2016 at 9:36 am

    Does this and forthcoming analysis contemplate the probability that the future will succumb to the law of diminishing returns much more quickly in the closed system than in the current system of “absorption” of the riches of the rest of the world into the U.S., Canada, and Europe?

    • Hi Bruce,

      I would argue that globalization as it has manifested itself has created a system that is far more susceptible to diminishing and negative returns within a low- or no-growth world. Reorienting toward a much more closed system economy would reduce the level of energy and resources available to us, but would open up a wide variety of ways to put those energy and resources to better use, providing a better standard of living for many people in this country.

      Furthermore, the current system of absorption is going away regardless, so that makes this reorientation even more critical. Attempting to maintain our current economic organizing system in the face of major and systemic contraction of wealth, energy, and resources would be utterly disastrous.

  3. Hi Joel,

    A thoughtful post. I suspect that knowing and bowing to various limits (physical and otherwise) is part of the closed system economics you are advocating. Since the limits may be quite different at different scales (what limits me here in the Midwest may not be the same as what limits you in the PNW, and what limits either of us might not be so limiting if the US is taken as a whole and resources allowed to move around rather freely among regions), will you be getting into how we set those boundaries and attend to the questions of scale?

    Claire

    • Hi Claire,

      I’ll be working to do some defining of borders in next week’s post, as well as taking a broader view of the sort of benefits I see potentially arising from these organizing principles. Limits are a key—they’re a key reality to anything, of course—but the focus is not going to be as much on limits as methods of organizing that attempt to make the best out of the limits we face regardless of our choices. I’ll also be talking a bit about nesting of boundaries and so on. Many of these posts, though, are going to be taking a look at our systems at the national scale and proposing national policies, for reasons I’ll write about. The principles, however, could be applied at smaller scales and a long-term movement in that direction would, in my mind, be ideal. (And necessary.)

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