Wednesday, January 27, 2010

Matt Taibbi, David Brooks and the Well Framed Debate

"And even if I were to accept the Brooksian view of an upper class that must be looked to to fix things and take care of the lower classes and create the needed wealth to help us escape our economic crisis, the whole point is that this upper class he is talking about has abdicated that very responsibility — and, perhaps having reached the cynical conclusion that our society is not worth saving, has taken on a new mission that involves not creating wealth for all but simply absconding with whatever wealth is remaining." Matt Taibbi.


Matt Taibbi and David Brooks are enjoying an interesting journalistic spat, but both agree capitalism is the only game in town. One says we have to learn to accept the sometime transgressions of the criminal rich, certainly without losing our heads in populist anger; the other says we have every right to be mad as hell and do something about it. Doing something about it means letting the sunlight in, airing the whole affair, and prosecuting. Initiate a Fedgate, so to speak. Maybe enact some new laws too. Laws are Good.

I love reading Matt Taibbi's work. He writes clearly, is entertaining and passionate, and witty to boot. But the above is for me an example of not stepping outside the parameters of the debate as set out by the current status quo. In tackling the "Brooksian view" by pointing out merely that there has been a crime, and that, yes, naughty people do naughty things (as Brook concedes), we are left only with the possibility of criminal prosecution. There is no attempt to address why these things happen; that is of course explained by our old (unmentioned) friend Human Nature. Only capitalism, or "free" market economics, or enlightened self-interest guided by the Invisible Hand can orchestrate society fairly and effectively, divvy up the finite spoils of humanity's productive capacity appropriately. That’s a given. What we end up squabbling over is how angry we are allowed to be. This is nowhere near enough.

The other assumption, aside from fallible Human Nature, is that there is a separation of powers. I no longer believe there is. Money is power. If you control the money, you control the system. But if you do believe there is a separation of powers, then you can appeal to Law and Regulation to rein things back into some semblance of functioning balance, punish the bad guys and herald a new dawn. Nothing's perfect, there will always be outrageous crimes, and when there is we fight for justice. It's a powerful narrative, chimes harmoniously with the cyclicality of nature, and is a story I believed for a very long time. But money is the blood, the electricity of society, and it is controlled by a single institution; a central bank. You can't get things done unless you have the money to get them done. To get money you have to play the money game, the rules of which are set by those who control the money. Of course there is the market's influence, but the market is not and can never be perfect – monopolies, cartels and oligopolies form. It cannot be anarchic either, there have to be laws to regulate business, so the State is necessarily involved, co-opted if you like. The Invisible Hand is actually quite visible. Indeed, there are laws and bodies that should have prevented the current crisis from taking place, and yet they were ignored. Why? Who is working for whom? What exactly is being protected?

Furthermore, we happen to live on one planet which is itself a system, an ecosystem, which hosts us, which enables us to produce, have money, surplus, happiness, crime and so on. Rampant consumerism is hardly sustainable. This needs to be addressed, and deeply. Measures of happiness are collapsing. Community cohesion is dissolving. Arguing about whether we have a right to be angry is a side-show, a distraction. We should be in the business of altering the system itself, digging down as far as we can and exposing every assumption we find. It is assumptions that need to be exposed to sunlight and aired for all to see and examine, not criminal activities. Corruption is a fact of this system. Money inspires corruption (among other things). What are we going to do about it?

(And I didn't even mention technological unemployment! I must be getting old.)

Saturday, January 23, 2010

It's that old devil called Human Nature again

One of the most stubborn and frequently reoccurring truisms to emerge when people of all ideologies and levels of intelligence discuss what might make the world a better place is that old chestnut “human nature.” Human Nature, that coiled, double-helix curse of imperfection, that ever-present Murphy's Law, that permanent spanner in the works, ruining everything, crushing dreamers, thwarting progress, draining hope. Things can only get worse, because we're human. Human nature gets in the way, and there's nothing we can do about it. We are [fill-in-cynical-list-of-negative-attributes here], always have been, and always will be. Get over it already, wake up and smell the coffee. You idiot.

I am an idiot, I freely admit it. I believe no one knows what human nature really is, in direct opposition to the constant gene-this and gene-that discoveries trumpeted at us almost daily, left, right and centre. There's nothing more idiotic than disagreeing with common knowledge, right? Everybody just knows human nature is what it is, right? I mean, duh. We're all made of genes, they control us, make us do the things we do, and that's that. Case closed.

But please contemplate the following: There is a God and she/he/it causes, on a whim and to see what happens, the behaviour of the planet to change from one second to the next. Suddenly, every act of aggression or violence, every theft, every lie, is returned to the perpetrator or to someone the perpetrator loves, immediately. You shoot someone, a stone shoots out from the soil and shoots you. You punch someone, something from the environment punches you. You torture someone, a member of your family suffers exactly the same fate. You start a war, the people you command suffer exactly the same fate as the people you attack, one for one, and you die too. Not one human gene would be changed, but within days this environmental change would cause us to change our behaviours radically. It would put an end to all war and crime within weeks. We would quickly learn a new way of treating one another under that environmental pressure. Things would get better, for everyone, everywhere.

Please consider this too: A baby taken at birth and placed in a magic box, completely dark, but able to keep the baby physically alive and clean. Keep the baby in the box for 10 years. Then take it out. Would it be greedy? Ambitious? Violent? Would it be able to walk? Crawl? Speak? See? Ever? It could be absolutely perfect genetically speaking, the child of Albert Schweitzer and Marie Curie, or any two people you want to choose, and yet without any environmental input whatsoever the ten year old child would be nothing but a useless, barely-alive collection of flesh, blood and bones.

So, how should we change our environment so as to get the best out of us? I think abundance is the answer, and I've said so before. What do you think?

Friday, January 22, 2010

Should money store value - addendum

I want to delve a little deeper into the following quote from my last entry: “Economic activity does not generate value, it rides on value’s coat-tails.” It’s a very strong statement, stronger indeed than occurred to me at time of writing, and even wrong when taken out of context. This entry tries to expand on that sentence and lend it credence.

Economic activity is only possible after a surplus has been created, which is itself only possible after the technologies for recognizing ownership and generating surplus have been “invented,” e.g. farming and domestication of animals. Surplus is only “valuable” if there are others who can benefit from it, with whom one might trade, who themselves have a surplus they want to trade and you want. (From this perspective we can see how important cooperation is to trade!) Economic activity is not value-generation, it “comes into being” upon the generation of multiple, minimum-two-parties-benefitting surpluses which lead to trade. First come the enabling technologies improving yield from existing resources, after which trade can slowly become more complex, until yet further trading complexity is enabled by an agreed medium of exchange – another technology – which gives rise to the study and tuning of this complex trading, which we have called economics.

So value is actually being generated by technological progress, which enables continuing surpluses, which enable trade, while economics is measuring, steering and understanding it. The market (trading) establishes price with the aid of money, price becomes in our imagination a measure of value; money, because it does not rot and has high utility, becomes a “store of value.” This is something of a slight of hand. We have tricked ourselves into seeing value contained within the tool which establishes a price for various traded surpluses, but the true value resides in the surpluses themselves sustaining value, and deeper still in the technology and ecosystem which allow surplus in the first place. What good a store of value like gold or dollars on a planet like Pluto or Mars? There is no “value” stored in money, nor generated by economic activity. Money is an abstraction of value.

This is somewhat of a semantic argument. Trade, also a technology, generates value in that a broad range of people are able to benefit from each other’s surpluses. As technology improves crop yields and other things, leisure time emerges, adding value to people’s lives. The point is philosophical but important in the context of the larger point, which is that surplus must exist before economic activity can, and the technology (and ecosystem) to create and perceive surplus must be securely in place. Value is generated by enabling technologies plus a sufficiently healthy ecosystem. Economic activity is an expression of this, not an instigator. Money, as an enabler of complex trade, expresses the capacity of society to produce a surplus and consume it.

The slippery danger with money being so effective a medium of exchange, is seeing value “stored” within it, above and beyond the underlying ecosystem fundamentals that make money useful in the first place. Money has somehow become more “valuable” to us than the ecosystem. Evidence of this is discernable in the attitude of: “if it doesn’t make financial sense, it’s not worth doing,” which is itself a reflection of the dogmatic belief that the market knows best. The market certainly knows how to value traded goods and services via the price mechanism, but does not trade the health of the ecosystem, nor monitor it, nor maintain it. All in all this is about not putting the cart before the horse. Ecosystem first, then technology, then surplus, then trade, then measuring trade. We need to learn to prioritize things in that order. Money seems to stand squarely between us and that endeavour, for the reasons listed here, and many others.

Tuesday, January 12, 2010

Should money store value?

A series of powerfully written articles by Charles Eisenstein at Reality Sandwich has renewed my interest in money alternatives, in particular a money-type which by design does a poor job of storing value. This money contains a built-in “rotting speed” in the form of negative interest, or demurrage. Demurrage would mean a money that acted as a very poor store of value, as compared with, say, income-generating entities such as farms or property or corporations. Not storing money to secure against future want would speed up its movement through the economy, thereby improving employment and, hopefully, community bonds. It would help turn money into a medium of exchange pure and simple, not something to stuff under the mattress. A money suffering negative interest was conceived to reflect the fact that value decays over time, like grain and meat for example. So the theory.

At first I was attracted by the idea of demurrage, but more thinking on it has led me to doubt its potential efficacy long-term. Any money, no matter its design, is based on the presumption of insoluble scarcity. If everyone just knows scarcity is insoluble, they will hoard to protect against want. With a money that decays, all that would change would be that which is hoarded.

Hoarding is a problem for two main reasons: 1. it slows the flow of wealth through society; and 2. it gives rise to gross societal imbalances characterized by wealth-gaps, health-gaps, education-gaps and so on. These two tendencies lead to status quos which calcify into inflexible institutions bent on self-protection at virtually all costs. Because hoarding is a fear based mechanism, in the time-honoured tradition it spreads more fear, which exacerbates the hoarding impulse and sets us up for violent collapse.

If we want to address hoarding, we must change our perception of scarcity, at the cultural level, towards a perception of nature as abundant and trustworthy (if we treat the ecosystem wisely). Only thereafter can there be a transformation in where we feel value lies, namely, in a healthy, balanced ecosystem and in sustainability generally, not in accumulated material possessions. We seem to see value in those tools or processes, typically of our making, which enable accumulation and so protect us best from want. We lack faith in nature.

In conditions of scarcity – perceived, real or both – we project value into money, or, if we have lost faith in that, perhaps into gold or silver, or some other commodity that can store “value” indefinitely and be handed down to our progeny. Historically such things have tended to afford us security and, if we’re lucky, a nice life. Everybody wants a nice life. Sadly, because scarcity over-encourages competition, a nice life is currently seen as one characterized by the “victory” of material acquisition. On the other hand, building a socioeconomic system around the presumption of abundance would foster a perception of security and pleasure as necessarily arising out of a healthy ecosystem and a well functioning society. To my mind, the only way to begin such a task is by aiming to transcend all media of exchange. This turns economics upside down and inside out, I know. Nevertheless, we need to consider this analysis.

Our relationship with value is by my lights the principle problem. Because of our unhealthy and monetarily sustained perception of scarcity, we fear the wrong enemy, desire the wrong pleasure, and place our trust in the wrong processes. Scarcity lies at the root of this error, and lies too at the root of money, whether with demurrage or without, whether commodity backed or fiat, whether debt free or as debt.

In economic parlance, value arises from the interplay of supply and demand. As centimetres measure length, so monetary units could be said to measure value. In and of itself this is an elegant measuring system, but nothing operates in and of itself. Everything functions in relationships. Because supply and demand imply market activity and trade, and because, additionally, money is better than barter at enabling market activity, the measure has become confused with the thing measured, and we have lost sight of where value actually comes from. Economic activity does not generate value, it rides on value's coat-tails and measures it to boot.

Due to this false relationship, a relationship which fuses a tool for the mere enabling of trade with the function of storing value (a logical association given the circumstances), divergence between value as represented by money, and the ability of the ecosystem to sustain civilization, grows over time. As our success, fuelled by easy oil, has led to a rapidly growing human population, so economic growth has come at the expense of the health of other supporting systems. One simple function that exacerbates this tendency is that scarcity increases profit. The less freely available drinking water there is, the more money can be made from selling water. The less healthy top-soil there is, the more money can be made from increasing soil’s dependence on petrochemical fertilisers. The less healthy society is, the more money can be made from selling security against crime, and so on. We see value in money and economic growth, but not where it actually lies; in society, environment and healthy relationships.

Furthermore, as labour slowly loses power to extract a wage sufficient to drive “sustainable economic growth” (due to technological unemployment and globalisation), monetary value itself diminishes in a stealthy, non-apparent manner, which is “felt” generally by the population (globally in some measures), leading to a steep rise in the price of gold and other commodities (housing and commercial real estate included). The problem is, value is not added to the economy by rising prices, especially as ownership balloons at the top end. Rising commodity prices seem currently to be evidence of the slow economic panic of people desperately protecting their perceived wealth, which is nevertheless, and indeed because of their very efforts, being eroded. That erosion is sped up by the forces of technological change and capital concentration to the rich over time, both of which are, to a large degree, engendered by the pursuit of permanent wealth. It is a set of vicious, interwoven circles united and perpetuated by fear of want.

Can a correctly designed money stop this? I don’t think so, but it can redirect/slow the process down. Demurrage for example (see Charles Eisenstein and Bernard Lietaer) would likely make housing and land more “valuable” as money ceased to be a commodity, and might increase employment as well as investment in environmentally friendly enterprise. In the meantime, the “value” recent decades have puffed into the economy in the form of positive GDP, MBS, derivatives etc., will be vainly protected with a fierceness directly proportional to the somewhat unconscious perception that “value” is evaporating. The panic is on and growing, but will remain tectonic in speed from the point of view of a general population drunk on the ravings of the mainstream media, who think two weeks ago is old. At some point a global stampede will occur, but sadly there will be nowhere to go. There is no exit door from this one.