The following is an expanded version of my shortened response to Krugman’s column in the New York Times of August 23, 2013. It may also function as the basic information for an OPED piece in the New York Times.
Why did so many bubbles happen during the last couple of decades while they were absent during the 50s and 60s and early 70s? There are many reasons, but the most important one is often not mentioned, let alone studied.
It was during this period that the international monetary system was a stable system, based as it was on the dollar/gold standard. When the Nixon Administration in August 1971 removed that standard, instability started to creep into the monetary, financial, economic and commercial systems. The latter systems were affected because the international monetary system acts a glue of those systems: change that basic monetary system and all other global systems change.
So the question becomes of how we can return to a stable international monetary system in the 21st century. The Stiglitz UN Commission of June 2009 investigating the effects of the financial meltdown of 2008 on developing countries argued that no one country’s currency should be the international transaction currency nor should the currency of a regional monetary union act in that way. The Commission and quite a few other monetary economists starting in the late 1970s came up with the solution of Special Drawing Rights or SDRs. This would a first major step in the right direction.
Given that all global systems, i.e. monetary, financial, economic and commercial systems have to deal with this century’s greatest challenge of a changing climate that affects all dimensions of social and ecological life on this planet, it is my argument that we can use the world’s most basic system of monetary relations to also deal with this climate crisis. Thus, I have proposed the Tierra Solution that would resolve the climate crisis through monetary transformation, i.e. basing the international monetary system on the carbon standard of a specific tonnage of CO2e per person. The conceptual, institutional and strategic dimensions of such transformational change far exceeding the paltry reform efforts of the IMF are presented in a 350 page book published in 2012. Applications of this carbon-based international monetary system can be found at various places on the internet by googling my initials of fcvnyc and on the website of International Institute for Monetary Transformation, i.e. www.timun.net.
In this Age of Bubbles where the future of social and ecological wellbeing is at stake it behooves serious people to consider and debate transformational changes such as the feasibility of carbon monetary standard that would force nations to decarbonize in their pursuit of low carbon and climate-resilient development in the global North and South.