Is Economics Waking Up?

This week's missive is a collection of quotes from a brace of German economists, as well as Rob Parenteau, a political economist and editor of The Richenbächer Letter, as well as Yves Smith, whose "Econned" contains the Parenteau quote I use.

I think it plain that economics having a — what seems to be deliberate — blind spot in the area of money, is akin to physics refusing to study force, or biology refusing to study blood circulation and its effects. Again and again I find that people simply do not know how money is created. Pointing it out to them, even in the midst of a deep financial crisis many are calling the worst in history, results in angry incredulity. They have a deep sense of money 'just being there,' almost as if created by God, to be the wealth we are rewarded with for our work. This is such a deep assumption one can only marvel at how brilliantly those who benefit from it have seeded it throughout the world.

Uprooting it takes effort. When I first watched Money as Debt, then Zeitgeist Addendum, it took me a further year of reading, discussing, writing and pondering, finally to get how the debt-money system works as an inverse Robin Hood Vacccum Cleaner, stealthily sucking money up from the poorer towards the richer. Bernd Senf says the effect is exponential, perpetually increasing in speed and intensity. To ignore this is to ignore the very roots of injustice.

Of similar importance and of particular interest to me are the assumptions that underpin economic theory. Prof. Götz Werner is very eloquent in this area.

On to the quotes.

Yves Smith: Orthodox economics is peculiarly silent on the subject of banking and finance. Neoclassical models do not even assume the existence of money; they simple postulate a barter system. Macroeconomics, the study of the operations of the economy as a whole, has a similar blind spot here.

Rob Parenteau: General equilibrium theory, the intellectual pinnacle of the profession, has no room for money. Real business cycle theory has no room for finance—negative shocks to productivity, virtually from out of the blue, are the stated source of recessions. The Taylor rule, which essentially guides central bank policy rate setting, has an interest rate but no room for either money or finance, unless it is packed away in the error terms of the canonical equations. Recently, the Henry Kaufman Professor of Financial Institutions at Columbia University and his co-authors concluded the US housing bubble had little effect on consumer spending patterns. Huh?”
Econned, pp203-4

Bernd Senf: When my generation were children we asked, “Where do babies come from?” and got the answer, “From the stork.” Since those times there's clearer information on this topic available to children, thank goodness. Regarding the question, “Where does money come from?” (should the question be asked at all) a large part of the population are still positioned firmly in the fairy tale of the stork. And even economists offer little by way of an explanation of the basics.
Source.

Strangely, these matters and points which I have just mentioned [the dynamics of interest rates and money creation by central and private banks], are hardly ever a subject of public discussion, and also do not take place in economics discussion generally. Students of economics learn nothing of any thoroughness in this area.
Source (YouTube, around minutes 3 to 4 (German))

Prof. Götz Werner: The economy does not have the role of creating jobs. On the contrary. The role of the economy is to free people from jobs. And that is precisely what we have managed to do wonderfully well over the last 50 years. [snip]

No businessman wakes up in the morning wondering how to stuff more employees into his business. The very idea is absurd. The question should be asked the other way around: How can I, with as little effort and as few resources as possible do as much for the customer as I possibly can? How can I better organize my business? And better organized always means: minimize work. This is a foundational business principle. [snip]

Indeed a fisherman told me that Icelanders today, thanks to factory-ships, can catch four times as much fish with four times fewer fishermen than 30 years ago. Do you see? 75 percent of people are simply no longer needed. There are such examples everywhere. Our ability to produce things exceeds our need to consume them. This is a simple fact, and no job market reform can change that. [snip]

We really have to ask ourselves: What is the real role of the economy? There are two. The first: It must supply people with goods and services. Never in history has the economy fulfilled this role as well as today. In fact we see a massive oversupply. Even though most factories are by far under-utilized, we can produce everything we can desire. [snip]

We're moving into a society in which jobs are disappearing. The simple question is what all these people are to do with all their time, which is a cultural question. The problem we have does not lie in the jobs market, but in the culture. Sadly, this subject is barely visible in society today. And yet it is precisely here that we have work to do.
Taken from an interview in the Stuttgarter Zeitung, 02 July 2005.

Prof. G. W. Werner / Dr. L. P. Häussner: Our social awareness is lagging a long way behind the possibilities opened up by the worldwide division of labour and the resulting rise in productivity. [snip]

The dictum that technological progress and productivity increases create and destroy jobs in equal measure no longer applies today, and large sections of the population will become poor if we do not put earned incomes, which are diminishing because less and less labour is required to produce goods, on a new footing. As Goethe put it in Faust, "We are starving in abundance".
Source: "The unconditional basic income - from an industrial to a culture-based society"

Professor Götz Werner's words speak for themselves.

Werner is a rare economist who is also a very successful businessman. He owns and founded Germany's most successful chemists (“dm dorgerie”), a chain with hundreds of outlets across Europe and a 2008/9 turnover of 5.2bn Euro, and receiver of multiple awards. Since he founded the business in 1973, its focus has been on minimizing environmental impact and maximizing sustainability. One of his current ambitions is to introduce a guaranteed income, a reform which would include scrapping all taxes except for a sales tax, which he estimates could go as high as 48%. I never agree with anyone on everything, but find his honesty, plus his combination of academic acumen and deep success in the real economy, gives his words a particular gravitas. I have yet to see him mention monetary reform, which Bernd Senf calls for. Prof. Senf is co-founder of an initiative in Germany to reform the money system ("Monetative") along similar lines to those proposed by The American Monetary Institute, including 100% reserve banking.

The more I look, the more German economists and other academics I find who, at least taken together, are building a set of proposals which would put society on a path pointed quite accurately towards a resource-based economics, an economics which places the reality of the environment and human needs above the medium of exchange, whatever that might be. I have a strong suspicion there are other European countries hosting similarly minded economists. Any pointers would be very welcome (though I can only speak German!).

(All translations by me.)

Austrian Economist says Money is Obsolete

The sharp-eyed will already have noticed I changed my tag line yesterday. My daughter's discovery of a free magazine in a 'green' store in Berlin has lent me the strength to be bold.

On this blog I've questioned economics' domain assumptions to the best of my ability, written oodles about them and the discipline's controlled refusal to deal with its base assumptions scientifically and openly. I have concluded it is so deeply flawed, so irretrievably rotten, the only way forward is to redefine the way humanity operates on planet earth as a species capable of civilization. Furthermore, Charles Eisenstein has convinced me with his writings that the depth we must go to in order to properly clean out our Augean stables is right to the notion of ourselves as separate beings isolated among 'other' separate and beings. The 'I'm alright Jack,' or 'me against you' core of our entire philosophical inheritance is wrong, not because it never made any sense – it did – but because we are writing a new story. Defining the way forward is our task now, as the old way rapidly collapses. The revolution is now, and is not being televised. It is, however, turning up here and there, and gathering momentum.

So, what is this magazine? It's called “Sein” (“To Be” or “Be”), and December's issue (no. 184) is called “Eine Zukunft ohne Geld?” (“A future without money?”) There are many articles for me to read, but I wanted to share with you (via my translation) the one that excites me the most. So, without further ado:


“Crash as liberation – life after money

The renowned Viennese professor of economics Franz Hoermann criticizes the economic sciences as political propaganda, says the current system has failed and expects a fundamental system change. The professor of the University of Economics of Vienna is respected by his peers, and a member of, among other institutions, “The Testing Committee of Accountants” [not sure about this translation – “Pruefungsausschuss fuer Wirtsschaftspruefer”]. Nevertheless, he has dared, in an interview with The Standard, to call our current financial and economic system obsolete, the economic sciences unscientific and “political propaganda” and banking a con game. Last but not least, Hoermann believes the final system crash is right around the corner, perhaps as early as next year.

Florian Roetzer interviewed the lateral thinker for Telepolis, and the interview appears here in a shortened form with friendly permission of the author.

Florian Roetzer: You say the current financial crisis is different from its predecessors.

Franz Hoermann: What we currently observe developing in the global economic system represents no single, unpredictable catastrophe which can be overcome in some foreseeable time frame, after which the old rules of the so-called free market system would work again. It is far more the case that the multi-millennia old monetary control of individual humans and whole societies can no longer be kept upright. I believe we are in the midst of the final systemic crisis, not merely weathering some temporary storm with standard political and financial skills. We therefore desperately need other base assumptions for a global, sustainable society.

The economic sciences don't offer these base assumptions, they would in fact be a “Great Scam” and an instrument of power of our Overlords?

Franz Hoermann: Sadly, the economic sciences have often been exposed as mathematically faulty, and therefore as unscientific and a pure propaganda tool of the financial elite, by, among others, Nobel Prize winner George Stigler 50 years ago (by the way, the details on this can be read in “Debunking Economics: the naked emperor of the social sciences” by Steve Keen). All these competent rebuttals were simply suppressed or ignored. Their logical consequences were never followed through, because such would have meant the end of an entire, and very politically powerful, profession.

What could replace the present system?

Franz Hoermann: The Internet, and the innovative transaction models enabled by it, are inexorably displacing the traditional money system. In our society money is becoming, increasingly quickly, obsolete – goods and services could be distributed in totally new and innovative ways, in which possession of a standardized medium of exchange would no longer be necessary. The possibility of (almost) instantaneous contact with (almost) any person through modern communication technologies, combined with the emerging spirit of cooperation rather than competition, further combined with continuously improving production technologies targeted to environmental health, can raise human society, sustainably, to their next developmental stage: peaceful coexistence on the basis of spiritual rather than materialistic evolutionary models.

The money masters are not going to be pleased with that.

Franz Hoermann: Of course. Since societal power in free markets traditionally lies, first and foremost, with the money masters, the financial elites try desperately to sustain the appearance of the necessity of money's continued existence – in the most extreme case even by reference to the ongoing global crisis, the very crisis so visibly raising questions about money worldwide. But since money is really only about the rules of distribution of goods and services in a society, and since these rules are made far simpler and more flexible through modern technologies such as internet-based databases, as opposed to the use of metal coins feigning intrinsic value, even this threatening scenario will not deeply unsettle ever wiser communities. Flowing on from simple changes in decision making structures, these communities will reorganize their provisioning of goods and services in the most efficient, fair and flexible manner possible.

That sounds like a soft transition and is very optimistic. How might such a smooth transition look, which preconditions would have to fulfilled.

Franz Hoermann: The most important precondition for this is first an honest and taboo-free information exchange between the financial elite and the wider public. On the one hand, the fear of loss on the part of society's pyramidal tip must be understood and soothed, and on the other hand we must try to prevent the broader public from suddenly seeing the elites as con artists and liars, then erupting into violence.

It's absolutely true that many members of the (political and financial) elites could not have foreseen the so called crisis, because their very education blinded them to it, an education which has for many decades now guaranteed that these people could not recognize the absurd basis of our economic system (money is only created as unbacked debt, 'out of thin air', which must then earn the banks profit through interest, interest which is not present in the money supply).

Is it not far more likely that a “final collapse” of the ruling system would lead to chaos, violence and the collapse of most production infrastructure, and worst of all the Internet?

Franz Hoermann: That depends on how the majority experience this collapse. Will the majority experience it negatively, as a collapse, or can the crisis initiate the freer development of creativity, individuality, and spirituality? If we can show ordinary people that cooperation yields better results than competition, as well as give them more freedom to decide for themselves (e.g. time management, how we do what we do, shaping of the social and technical environment etc.), then we really can see the opportunity in this crisis, and complete the long overdue transformation of western society.

You expect the ultimate crash next year, what will happen?

Franz Hoermann: When the US-Dollar can no longer fulfill its function (the Euro too by the way), the US will break down into individual states, as did the Soviet Union. They will then try again to introduce local currencies. Should you search the Internet for long enough, you will discover that the Deutsche Bundesbank allegedly has provisions for printing a new D-Mark, which some representatives from politics and economics have already openly called for. Whether a return to the old system (state-level currencies still created as debt by private banks) would be better (which we had before the introduction of the Euro), or if we'd just be going in circles, each can decide for himself.

As we've seen, a real systemic collapse would require the insolvency of the big banks. But can't this insolvency be continually prevented by governments and central banks?

Franz Hoermann: That's not entirely correct. There are two conditions, which, when they strike at once, can and will initiate systemic collapse. First, the states' or currency zones' money supplies must visibly come only from central banks, through the buying of bonds, the so called monetization of debt. The FED has been practicing this actually for a long time now, totally unabashed, and behind the scenes the ECB is already embarked on the same course.

This shakes the faith in the affected currencies so deeply and finally, that it can only be restored (if at all) through a consequent currency reform. The second condition lies in the inability of the indebted nations to make any more interest payments. This situation will arrive, viewed mathematically, in 2011, in the large indebted nations. When no more interest can be earned, and the central banks keep on printing money for government bonds, then the entire world will recognize those bonds as worthless, and simultaneously also money itself – this is precisely the situation central banks have wanted to avoid for decades, but they have nevertheless got themselves exactly there!"


That's my translation, word for word as it seems best to me.

Another thing I want quickly to mention from the magazine is 'Give and Take Centers' ("Gib und Nimm Zentrale"), shops where you go in and take what you want for free. You also deposit there what you no longer need. There are 3 of them in Berlin, and 50 in Germany. I had no idea, but think it is a wonderful idea, and embodies the nature of the gift as a flow from person to person, place to place.

I shall be writing more on this in due course.

Humans Synthesize Happiness

What would make you happier, winning the lottery or becoming a paraplegic?

Even though we all "know" the answer to that question, the results of people measured for happiness one year into their respective experiences showed very little difference between the two, with paraplegics actually showing marginally higher happiness levels than the lottery winners. Without going into too much detail, the reason for these surprising results (though I imagine I am not alone in thinking, after seeing the data, "you know, that kinda makes sense"), is that humans can synthesize their happiness, somewhat along the lines of "Love the one you're with."

I recommend Dan Gilbert's talk (all of it) for those interested in learning more about this than I divulge in this brief blog entry. What interests me most of all here is the extent to which such revelations should fracture, even shatter, economics’ core beliefs, were it ready to listen and learn. We too, at a cultural level, need to pay close attention to such information, since the energy we spend chasing illusive “success” is indeed, as wise men through the ages have said, wasted, because most often it’s right in front of us, and not “somewhere over the rainbow.” But of course, this wisdom is one the current system does not want us to learn. Dan Gilbert puts it very well:

"What kind of economic engine would keep churning, if we believed that not getting what we want could make us just as happy as getting it!?"

Of course, we cannot realistically expect to be happy with every life circumstance. Our ability to synthesize happiness is constrained to some degree. Interestingly, there appears to be a degree of material comfort we all “need,” which once achieved serves as a good bedrock for progress along other lines (perhaps artistic or intellectual). It looks almost certain that we won't get more and more of what we chase (happiness) if we expend our limited energies climbing the greasy monetary pole in pursuit of it:

"Below $60,000 a year people are unhappy, and they get progressively unhappier the poorer they get. Above that we get an absolutely flat line, I mean I've rarely seen a line so flat." Daniel Kahneman (www.ted.com)

Such findings are, taken together and in terms of their combined gravity and relevance, fatal to orthodox economics. Any socioeconomic model predicated upon the untested assumption that the pursuit of happiness, and indeed even freedom itself, is somehow about the accumulation of money and material goods, about earning more than your neighbor, with totally insatiable yet calmly rational market participants everywhere you look, is not remotely in line with what science shows us, nor can its narrow prescriptions ever make proper use of humanity’s great subtleties and wonders. If we are to set our civilization on a course which has a half-way decent chance of approaching our creative potential, it will be by listening closely to what science tells us, and in being fearless when it comes to reassessing all the things we think we know.

My personal reading of this is that we’re here, the train’s arrived, we’ve solved the material problems of shelter, food, water, warmth and transport. More and more of each per rich person yields nothing extra, in fact does serious harm as income inequality grows and our priorities remain sick and unwise. Now that we have a very good idea of what makes us healthy and happy, we owe it to ourselves to deconstruct the system that got us here, and prepare a new one to take us forward. As I’ve said before, we have the know-how and the resources to do this. For the moment, however, a tool we made earlier, money, is in our way.

A scarcity of unfettered thinking

Economics is not a science, it is an art. Its pioneers may have had noble intentions, such as the most equitable and sensible distribution of goods and services possible, they may have wanted to maximise the good and minimise the bad, but there seems to have been a collective failure in the predictive power of economics in recent years, or at least, perhaps thanks to the internet, such failure is now more famous than ever before. Physical laws tend not to undergo such perturbations (quantum mechanics aside). Economics seems to have become the art of obfuscation in the way philosophy can be, in the way religion can be. Centuries ago great minds debated how many angels could dance on the head of a pin. Today economists debate how many derivatives can dance at the head of an economy.

We have a problem, do we not, when something as simple as direction of price, that is inflation and deflation, cannot be predicted. The experts of this dismal science cannot agree; is inflation coming, or is it deflation, or is it both at the same time, or maybe stagflation? Surely this is a sign that something is very wrong in the kingdom of Denmark.

The typical reaction to this pressure is to prove ever more strenuously that one’s own opinion is the right one, to shout louder in more and more complex terms why it is that one has been right all along. A lifetime of effort and study have been invested. This is not a small matter of betting on the wrong horse at the tracks. These are career defining times for many, and the pressure is intense. The punter wants to know why the experts screwed up. Even the Queen of England has asked her pointed question. Why did economics experts fail?

So what qualifies me to take a stab at this most difficult of questions? Absolutely nothing. I am a two-time university drop-out, a daydreamer, and a poet/novelist of questionable skill. But I am also a concerned and interested human being, who has come to believe, passionately, that it’s up to “We The People” to chance our arms and help the experts out, whether they like it or not. I am prepared to risk opprobrium, or worse, ringing silence, in the faint hope that my own small effort here helps in some tiny way to clear heads, and focus attention on the right areas. This is my take on what is wrong with our kingdom.

Folks, we need to get back to basics. If the big guys and girls can only squabble like children, and make mistake after mistake, when it is unclear what mistakes even are, what latitude predictions must be granted, we’re not going to find the reasons for this chaos at the top end of this discipline. We have to look at its foundations. To my inexpert eyes the whole structure is wobbling. There can only be two possible explanations for this: 1. it wasn’t put together right, or 2. the real world out there is so full of unknowable and uncontrollable variables theory can’t keep up with it. Either way, by my lights we are obliged to focus our attention in the basement. Economics 101 needs to be revisited.

There are two main foundation stones to consider in such an exercise, one is scarcity, the other is ownership or private property. Both are assumptions. My question here is this: are they justified?

I’ll start with scarcity. Economics defines scarcity as infinite wants versus finite resources, which sounds like an eternal problem where there can only be too many people competing over too few things. It’s insoluble. People are greedy, insatiable even, and there’s only so much stuff out there. Hence we need the clean and cold arbitration of a medium of exchange – a prerequisite for the market place – so that a price mechanism can, in a totally impartial manner, distribute the scarce stuff amongst the greedy competitors. The market may well be hard, even cruel at times, but life is like that. Take a look around you. Nature is competition. Unfair in the particular, certainly, but fair over time.

And yet I am not insatiable, and neither is my wife. All joking aside, I don’t know any people so greedy they can’t be satisfied. In short, I don’t think wants can be infinite. Not only can there only be a finite number of people on the planet, this finite number of people cannot exercise the finite total of their wants simultaneously. Wants are brought to the market place in fits and starts, over whole lifetimes, finite lifetimes. The load is always changing. Furthermore, should there be some people incapable of “having enough,” whatever that really means, they are physically constrained from exercising their endless greed, from bringing it to bear on the market place in totality, by the limits of their purchasing power, by the size and number of their homes, by the size of their stomachs, their need for sleep, recuperation, indeed by their very mortality. Wants cannot be infinite. They can change, they can exceed supply, but they cannot be infinite. This, to me, is very important.

It therefore makes sense to define scarcity as finite wants versus finite resources. That sounds like a totally different type of problem to the classical definition. I’m not implying scarcity is not a problem, rather that economics has defined it badly, and this fallacious definition adversely effects the entire structure. The definition needs to be reassessed, and the following types of question asked: Is scarcity a design problem, i.e. solvable? Can humanity’s incredible ingenuity produce goods and services in abundance? What does abundance do to economic theory? Is scarcity a good or a bad thing? For example, technologies such as cold fusion, radiant energy panels, and the STAIR battery could make clean and renewable energy abundantly available to everyone on the planet. (As an aside, this need not be about peak oil, but simply about new technologies making old ones obsolete. The Stone Age did not end for lack of stones!) What effect would clean abundant energy have on the energy industry? On tax revenues? On centralisation itself? Establishing a sensible definition of scarcity, dealing with it thereafter as a design challenge, has profound implications.

On to the second foundation stone. Ownership is an idea, albeit one that seems to be natural; tigers with their territories, for example. But, because ownership is a very old human word drenched in a particular history, a mountain of law, and deep entanglement throughout economics, politics and culture generally, we need to subject it to closer inspection.

Tigers have no clue about ownership as a concept. They simply operate in a particular boundary, inside which the amount of prey necessary for the tiger’s ongoing survival can be sustained. That is not ownership in the legal sense, that is an operational function of tiger-type living. Tigers cannot want more and more territory because scarcity increases value, nor hoard to take care of themselves in their old age. Humans, on the other hand, both understand and are vulnerable to ideas, unlike other animals. This is a crucial distinction. Human behaviours change according to the type of society in which they are raised. A quick look at hunter-gatherers, at the Alouette Eskimos, at the history of the people of St Kilda demonstrates this.

Ownership is an idea that effects human behaviour, not a part of our biology which effects our behaviour. A better word for it might be “access.” Ownership affords exclusive access to a thing. Exclusivity, in this sense, means, at least functionally, “sufficient.” Ownership affords the owner sufficient access to the thing owned. Ownership is furthermore a necessary legal concept because of scarcity. Without scarcity the need for ownership vanishes, transforms into abundant access to that which we need and want. Functionally speaking, it is the access that is important, not the paper actuality of the legal sense of ownership. If you have ownership without access, you have nothing. Access without ownership, on the other hand, is not a problem. Renting a home, for example. Or borrowing a friend’s book, or hiring a car, etc. To collapse the above into one sentence: The idea of ownership has a particular utility (sufficient access) whose importance is dependent upon the conditions (scarcity) in which it operates.

Private property, it turns out, is an anomaly in our biological history. Of course there are for hunter-gatherers issues such as mating partners and the whole “selfish gene” meme (a gene cannot be selfish, it has no sense of self!), and yet doesn’t private property, as a defined and understood concept, really have its roots in farming? Farming is a technological solution to some of the negatives of hunter-gathering, a way of coping with the uncertainty of weather and other natural challenges. My point here is that a human technological development gave rise to the need for the legal concept of ownership. Might further technological development give rise to its demise? If the arc of our development is currently towards abundance and away from scarcity, could ownership become a redundant concept? What effect might this have on economics?

Because I don’t want to write a hugely long tract, I will close with some further, brief points. Technological unemployment is real and not a lump of labour fallacy as orthodox economics posits. It describes the slow, ongoing trend of replicating human abilities via mechanical means. Human abilities are finite. Therefore, due to our technological progress, we are rendering human labour progressively less necessary to the economy. This has a negative impact on purchasing power, and on money itself, since money derives its value ultimately from human labour, whether it be sweat-of-the-brow grunt work, or high level creativity. This is a problem economics must address, unblinkered.

Economics should not lock itself away from physics, sociology, psychology, history etc. Economics is central to society because money is central. It is too important to leave alone, to rot incestuously in its own unexposed juices. Because the things we really value – after the material side of things have been taken care of – cannot be valued monetarily; friendship, trust, the ecosystem, family, community, love; and because money makes revenue generating parts of society more “important” than non-revenue generating, we have a built-in problem with money’s relative importance. That is, it tends to concentrate to itself and cause overly powerful, monopolistic power accrual whereby “business” and “politics” necessarily fuse (as if they were ever separate!). Because perfect competition is impossible (another foundation stone of economics), because rational and perfectly informed market participants are impossible, excessive profits are systemically unavoidable.

Competition over scarce resources is a monopoly-creating mechanism, an inherent property of markets, “free” or otherwise. Economics must address this problem honestly and openly. After all, money is less important than we are; without humans it has no meaning or use. This logic needs to find a place in economics, before we experience global civilizational collapse, due to generations of irrelevant education, eroding topsoil, diminishing drinking water, less and less healthy air, etc. For these reasons and others, money must be demoted. We need a new economics capable of coping with such a concept, capable of coping with reality as it is, not as we theorise it to be. Establishing a new economics is up to us. All of us.

Impressive stuff from the experts...

"Office for National Statistics said yesterday gross domestic product unexpectedly shrank 0.4 percent in the third quarter. None of the 33 economists surveyed by Bloomberg predicted a contraction." Bloomberg

Nuff said.

It's not working. We must keep doing it.

“The world has witnessed a proliferation of financial bubbles and extreme economic instability that cannot be explained by any of the established macroeconomic models. Minsky is about all we have.”

Financial Times

Above yet another example of the degree to which economic orthodoxy fails to be able either to explain or accurately predict events. After decades of preening self-confidence bordering on insanity, we have a state of affairs described by increasing numbers of well-versed commentators as “out of control” and highly unstable.

“Minsky is about all we have.” To paraphrase Minsky; capitalism is doomed to self-destruct, and yet it’s the only way open to us, the only system that “works.”

Even now, with the previously faithful scratching their heads or wringing their hands, there seems no willingness to look at the cumulatively corrupting influence of money and its insoluble link with scarcity, nor at the effects of technological unemployment. Instead of studying these things over two decades or so, we need to be parsing centuries of data to determine the relevant patterns. Why is nobody doing this?

“For all we know, there may not be a safe way down.”

There is, but the vast majority of people see it as preposterous even to contemplate producing an abundance, to draw up plans to get us off our systemic addiction to economic scarcity. A resource-based economy offers the only lasting and comprehensive solution to the quandary we are in. Not only has money become too powerful an influence in our global cultural development (a cyclical occurrence), but the economic value of human labour has sunk to an unsustainable low. Our labour is simply too replaceable, too unwanted by the economy, and this situation is only going to get worse. There’s no stopping technological development; it’s what humans do. As highly intelligent and highly social animals we seem compelled to tinker and improve, to experiment and develop. It therefore makes perfect sense to construct a socioeconomic model capable of using this aspect of our nature to maximise benefit to all, not just a few. Technology, which is nothing more than human ingenuity made real, needs a new harness: a resource-based economy.

Anti-disinflationary inflation spiral to deflate global economic balloon, soon

Is this brutal?

I have taken it that economics is a science in the eyes of its high priests. Since science is the process of testing hypotheses by way of making falsifiable predictions, economics should be reluctant to show its face in public.

A debate rages about inflation and deflation. What is coming, which will it be? How high, how low? How quick, how slow? No one seems to know, and a deep ideological divide separates the opposed camps. Even within the camps agreement on the details bedevils the fragile harmony. How can this uncertainty be? How can there be so much opinion about something as fundamental as price?

I shall be cruel. Economics is not a science. It is a jargon factory whose sole purpose is to squirt the black ink of complex mathematical equations into the eyes of inquiring minds, so as to keep the Oz wizard hidden from view for as long as possible. Economics is the art of obfuscation.

Any other discipline incapable of predicting direction would be laughed from the room. It is only money’s central role in society that keeps economics central. Demote money, demote economics, demote the high priests.

Or am I brutally ignorant?

I am. And I therefore want to see the base tenets of economics proven:

1. Rational market actors
2. Perfect information
3. Perfect competition
4. Scarcity (infinite wants versus finite resources)
5. Greed and selfishness as primary motivators of market participants

Anyone?

Econosophy, my desired baby

Philosophy and economics need to get it on and have a baby. The baby would be called Econosophy. It would grow up dedicating itself to the study of value and wealth. Only after it had made a sensible and sound pronouncement, one upon which we all agreed, would economics finally have a serious chance of being anything other than smoke, mirrors and obfuscation.

Do not contemporary elites have two preferred tools for perpetuating their status quo? One would be standing armies (force), the other economics (jargon). In this regard, economics could be said to have replaced religion as a choice tool of the elite.

Just my two cents. Or three. Depends on the value of the Euro today. And on what value you place on my pondering.