The Left Must Find Its Way Back to Science

With President Trump committing himself to reversing most, if not all, of Obama’s progressive environmental policies and having pulled out of the Paris Accords, I think it is imperative that the Left take a fresh, evidence-based look at their boogeymen. The Right may have their climate change and evolution denial, but the Left holds onto their fears of GMOs, conventional agriculture, and nuclear power as if they were afraid to lose them. The civilizational knife-edge we find ourselves atop of, as well the pushing and shoving Trump is adding, demands that the Left right their wrongs. Apparently, the Left is the party of science, and while that has always been a stretch, there’s no better time to make it so.

With the departure of the world’s second largest emitter from the first worldwide accord that attempted to limit climate change to within 2 degrees Celsius above baseline, that means that the rest of the world has to pull up its sleeves to compensate. To get started there are some some low-hanging fruit, and there’s no lower-hanging fruit than to re-evaluate that which is already here and doesn’t require large investments or are far off in the future. I propose we start with the following three sacred cows of the Left, as they have large benefits to climate change avoidance.

#1: Nuclear Power

Yes, we should go full steam ahead on solar power, wind power, and other renewables, and yes, we should combine the above, when possible, with battery power to provide power at times when the Sun doesn’t shine or the wind doesn’t blow. However, that does not mean we should throw all our buckets in with just those fancy new stuff. All carbon-free power sources should be on the table to get us all the faster to where we need to go. Nuclear, therefore, must be on the table.

Continue reading “The Left Must Find Its Way Back to Science”

Europe’s Achilles Heel

This is sub-chapter #15, of Chapter #4, Economics (Three-Quarters of the way there), of my ongoing rewrite and open editing process Random Rationality: A Rational Guide to an Irrational World. Would greatly appreciate any feedback, corrections, criticisms, and comments. If you want the full PDF of the book, then you can download it by clicking here—if you provide constructive criticisms in return, and live in the US, UK, or EU, then I’ll ship you a paperback copy of the book free of charge when it’s published. If you wish to read the previous chapters in one convenient place online, follow this link.


EUROPE’S ACHILLES HEEL

The Euro, the official currency of the European Monetary Union (EMU) has been in place since 1999, and up until 2008/09 was functioning pretty smoothly. Countries that participated in the EMU (seventeen countries out of twenty-seven countries in the European Union) saw their overall GDP during that decade rise, everybody got along, and politicians were celebrating their grand experiment in unification and big government.

Of course, this wasn’t because bigger government is better, but because economically weaker parts of the EU, like Greece and Portugal were able to borrow more money with the ‘apparent’ credit of Germany, allowing for debt-based growth, which is always short-lived. Another factor was in part the removal of congestion and barriers between the EMU nations that facilitated the exchange of goods. There were no more borders and the free flow of goods and people was accelerated, saving huge amounts of time and money.

That party came to a close during the Global Financial Crisis and a fundamental flaw was exposed. To understand the flaw, first we need to understand the EMU.

As part of the makeup of the EMU, national governments keep their national sovereignty, but allow an open border policy with other EU nations and give up their sovereignty to print new money. That last point is the crux of the flaw. You have seventeen nations that make up the EMU that must all use the centrally issued Euro.

Now, the manner in which a central bank sets the price of money, aka the interest rate, goes much like this: The central bank (CB) takes into account the fiscal habits of the nation’s people, and enacts policies that can have the greatest benefit to the economy for the well-being of all, in relation to those spending habits. They do this by setting the price of money (the interest rate).

For example, a nation of savers would have a low-interest rate, and a nation of spenders would have a high interest rate—a drastic simplification, but for the purposes of this example, fitting and easier to digest.

Digging a little deeper: a nation of savers would create excess capital; which can be used to create new businesses, industries, and jobs. Access to new capital from the CB would not be as necessary, and when it would be, the resulting inflation would be manageable growing with economic expansion in the process creating prosperity by naturally increasing as required by the new jobs and businesses brought into existence with the money multiplier effect—win-win for everybody. Another way to look at it is, the low-interest rate is an indicator that the necessary sacrifice and thrift have been achieved that shows that long-term investments can be funded with minimal risk by borrowing; hence the price of money is cheap (low-interest rates).

On the other hand, a nation of spenders could not have such a low price of money as spenders in such an environment would spend beyond their means and create lots of private debt, and pay off that existing debt with new loans and more debt—which is what our governments are currently doing, ramming it into your skull for the forty-fourth time (it’s simple mathematics that is cannot go on forever). In a low-interest environment, this creates a vicious cycle that creates lots of inflation and economic pain for everyone, without increasing the jobs and business that go with it, as it does in a nation of savers, so inflation spins out of control and everyone who hasn’t diversified into commodities (and even they often get the short-end of the stick due to reactive government policies) are worse off. It is in this scenario where totalitarianism usually arises; such was the case with Hitler in the aftermath of the Weimar Hyperinflation. So a nation of spenders would need a higher central bank interest rate to disincentive new loans and the money creation that goes with it.

Here we come to the crux of the problem. There are seventeen countries together in this economic union; countries like Germany, a nation of productive savers who couldn’t imagine life without work, and whom work until the age of sixty-five before retirement. And at the opposite end of the spectrum is a country like Greece, a nation of spenders, some of who retire at fifty, and the majority at sixty, the lowest rate in Europe. Yet both have access to the same line of credit from the European Central Bank, and nobody saw this disaster coming, why? The subprime mortgage in the US that triggered the Global Financial Crisis was due in part, to giving anyone and everyone interest-free loans without even bothering to do credit checks or even see paperwork. Many argued that it was immoral or unfair to not provide such credit, but is it unfair and immoral now that the entire nation (perhaps even world) is worse off?

This caused huge distortions and misallocations of capital, which can’t now be paved over with the current round of bailout after bailout after European Central Bank bailout (not that it stops them from trying), but a problem can’t begin to be solved without solving the underlying cause that begot it.

This gaping, foundational crack in the base of the EU isn’t even being looked at. Brussels is just throwing money at it, hoping it disappears (which it won’t and cannot), essentially trying to solve the problem by doing the same thing that the problem caused in the first place, a misallocation of capital that is only being magnified by these suit-wearing monkeys, further misallocating current savings, and creating future debt burdens in the name of keeping the status quo.

The solution is, or would have been, to charge a variable interest to the varying countries that make up the monetary union depending on the macro-economic behaviors of their people. That is, what would an individual central bank in each of the countries set its interest rates at, so that, to the best of its ability, prices remain stable and the economy remains strong? Then charge that interest rate to each country. Sure, they will cry foul and whine like babies as politicians have a habit of doing, but so what? Let them bitch and cry until their cheeks turn coarse, and eventually they will swallow it up or they’ll end up in their own currency, which may just happen anyway with the current system.

Is it fairer that the now richer, more prudent countries that produced excess capital now have to essentially give free money to these countries whose politicians and people had the foresight of five-year olds at a candy store? It’s fairer to get what you have shown the world you are responsible with. Anything more puts the wellbeing of other people into irresponsible hands, which potential outcomes worse than people or nations making do with what they have. Anything else simply perverts and distorts incentives without the necessary financial intelligence (learned slowly and surely), which all too often, creates more problems than what one (person, country, or supra-bloc) began with, except now they have less wealth with which to deal with the problem, not to mention that it only renews calls for the cycle to begin anew, which again, all too often, historically at least, ends up in totalitarianism. (With the internet-connected world we live in today, this scenario is extremely unlikely but it is enough that economic well-being is so connected to livelihood, quality of life, and cost of living that to embark on such a path regardless of the social cost is utter folly.)

On an individual level, you have to earn other people’s trust before you can be trusted with their friendship, babysitting their child, or taking a loan. The same should be true on an international level, but politicians are the most self-serving people on this planet and they think they deserve everything because we have put them on a pedestal.

Perhaps the monetary union would never have gotten off the ground in the first place, as such legislation required unanimous support from all countries involved. The poorer countries, always wishing to spend beyond their means, would have struck it down immediately. But that would’ve been the first warning sign.

An equal-across-the-board interest rate might seem fair to the socialist-leaning tendencies of the left-dominated societies of Europe, but remember in the real world, life isn’t fair. A wolf isn’t guaranteed a rabbit to eat, the slowest antelope will be eaten, and injured birds are met with the fatal clasp of a cat’s fang.

The only institution we are equal under (or should be, since in practice its fuzzy) is the law. Whether poor or rich, we are to be treated equally in justice. But try going to a bank for a loan with bad credit. You can’t, and for good reason; the likelihood of you paying it back is slim, and the bank, a vital component in society, loses money that than can’t be loaned to a business to build a bakery, a clinic, or an apartment complex that would otherwise increase economic activity, prosperity, and quality of life.

The advancement of society comes only when capital, created in excess [savings], is used to create new businesses, investments, jobs, and the consumption of more products. It may come for a while under such liberal make-believe equality, but that doesn’t last long, and the economic reality of such decisions eventually rears its ugly head and we, the people, usually suffer.

Everything comes down to economics, one-way or the other, whether you acknowledge, understand it, or don’t. Everybody will one day reap the fruit of their economic decisions and if not, then the burden falls to the next generation, much as it is being done so today.

Governments can only temporarily alter this balance, and only to our detriment (by borrowing from the future). This is a big reason communism doesn’t work, as capital is squandered and we are too shortsighted to work for the common good while subsisting on beets.

It’s a European Union of economic failure, of mass unemployment and of low growth.” ~ Nigel Farage (Politician)


Debt Crisis 101

This is sub-chapter #14, of Chapter #4, Economics, of my ongoing rewrite and open editing process Random Rationality: A Rational Guide to an Irrational World. Would greatly appreciate any feedback, corrections, criticisms, and comments. If you want the full PDF of the book, then you can download it by clicking here—if you provide constructive criticisms in return, and live in the US, UK, or EU, then I’ll ship you a paperback copy of the book free of charge when it’s published. If you wish to read the previous chapters in one convenient place online, follow this link.

 


DEBT CRISIS 101

Imagine an eighteen-year-old rich college kid named Jack whose parents are rich. He goes to an Ivy League college with a credit card, and spends his college years buying everything he needs and wants: big screen TV’s, nice furniture, etc. He has his share of parties and his generous parents pay for all of it, no questions asked because their emotions get in the way of their rationality.

Four-to-six years later, he graduates college and becomes an apprentice lawyer, not earning much money at the beginning, though now he has his own credit card and is on his own. What do you think his spending habits are going to be like?

We all realize that most young kids would continue their spending habits as before, and rack up a bit of debt. Even adults do it now. “Oh, he’s just trying to keep up with the Jones, lame.” So Jack racks up a bit of debt, but because he wants to seem independent and show his parents he can take care of himself, he makes the minimum payments each month, which is all he can afford.

Now after a payment or two, he might think his debts are under control; he’s confident and proved that he is independent (to himself.) Jack goes on another spending spree to celebrate. Same process—he might make the minimum payments again or get a second credit card and pay off the first credit card. Rinse and repeat.

Eventually, his initial debts, still accruing interest each month, will no longer be affordable, and he won’t be able to make those minimum payments. Or he might not be able to get a third card due to bad credit. He is not yet making enough money and might not for a few years, but he’s confident that one day he will, so there’s no immediate problem, and he maintains the status quo. Imagine that…

Now look at the American and European governments and ask yourself, what’s the difference? You will realize there is very little difference in how fiscal responsibility works in an individual or in a government. In order to lend to governments; investors, other countries, central banks, or big institutions, need some assurance they can get their capital back with a bit of interest above inflation to turn a profit. If there is no assurance, foreign capital will slowly dry up, as is beginning to happen today.

The credit crisis we found ourselves in a few years ago was, of course, the precursor to this debt crisis we find ourselves in now. As during the credit crisis, all that toxic debt carried by private companies was going to sink the ‘too big to fail companies,’ and so governments bought it all up and carried it onto their books, increasing their own debt portfolio dramatically. But these governments were swimming in debt to begin with and were already running deficits every month of every year, and of course, paying the minimum repayments on their interest and paying off existing debt with new debt. At the prior levels, however, it was manageable, and there was no cause for immediate concern.

Then the constant stimulus and bailouts began, and they continued to accrue ever more debt. When they couldn’t sell enough debt, they printed it. Even money printed out of nowhere is loaned at interest—right now from the Federal Reserve at between 0 and 0.25% and in the EU at 1.5%, as of Jan 2013—and that extra money inflates the currency, robbing people who had the prudence of saving of their purchasing power, and worsening income inequality.

So with all this extra debt streaming in, plus the already running deficits that governments were, and still are running, you begin to see how similar they are to our dear and stupid Jack. Eventually, they will not be able to repay even the minimum repayments as interest rates eventually rise. And then what happens?

This moment could be happening soon. Japan is over 225% debt-to-GDP ratio, the USA is above 100% and climbing each month, and some of the European ratios are well over 100%. What’s going to happen when these governments can’t pay back their debts? That will be a major strike in the confidence of the global economic system, where trillions of dollars of government debt are held around the world in pensions and other benefits.

Trillions upon trillions of dollars are invested in these government debt traps, and the global economy is going to sink if anything ever happens to them. That capital needs somewhere to go, and when it doesn’t have any place to go to, bad things are going to happen (and a lot of it will disappear).

I’m sure that politicians know this; they have legions of economists and other smart people working for them. There is no way for them not to know. Yet, because the global financial system is based on confidence, no politician can tackle any of these problems for the following reasons:

1:

An electorate that will immediately vote them out of office. People know cuts have to be made—well some do—but no one can touch their entitlements, so of course nothing is cut.

2:

Their comrades won’t support them for fear of their electorate voting them out of office, too, which again shows the self-serving nature of politicians. Rather than taking one for the team, they pretend they don’t know.

3:

The global economy and all the stock markets in it, are based on confidence. A company can have great financials, profits to earnings (P/E), and other good financial indicators but still have a poor stock price. Or it can be the other way around; Enron, Lehman Brothers, and Facebook (when it first IPO’ed) make fine examples. Stock earnings and prices are based on future expected growth, so today matters less than tomorrow, or in economic parlance, the (theoretical) present value of discounted future cash flow. The same goes on an international basis and for fiat currencies. The value of a dollar today is based on future value it can bring, with next year’s expected tax revenue to repay that borrowed dollar with interest, along with demand for its bonds; and to make matters worse, emotion plays just as large a part, if not larger, than logic, which throws common sense even further into the black hole of financial markets.

This is a fundamental flaw in fiat currencies and the stock market; confidence is essentially a zero-sum game. There are very few things that we can remain confident in over a long-span of time: the moon, the sun, the stars, the comings and goings of the seasons, our need of food and water and sexual urges. What else can you say with absolute confidence will be around for all time?

So when confidence disappears, and the biggest economies are unable to borrow enough money to fund themselves and their entitlement programs, what will happen?

Look what happened in 2008. Lehman Brothers, which insured America’s mortgages, went belly up, and the global economy was brought to its knees because all the fancy derivative packages they sold couldn’t cover the payouts when growth in the housing market stopped, because the price of oil was too high.

Then western governments picked up all that debt, so what will happen when the government stops being able to absorb that toxic debt? Currently the US government pays $220 billion in debt repayments per year (six-percent of the government budget), and this number may rise to $1 trillion by  2020. (Note: the repayments are artificially small because the Federal Reserve has set its interest rate between 0 − 0.25%. If these rates ever rise, and they must once, or perhaps if, the economy starts recovering, the repayments will become even larger. Keeping interest rates at 0% is not possible forever, so sooner or later, those rates must rise.) In such a scenario, that of the government being unable to finance its obligations; stock, bond, and derivatives markets will tank everywhere. Politicians have shown us repeatedly that they will do everything to keep the status quo going. History is replete with such examples. Thus, we can almost be assured that no course of action will be taken to prevent this calamity until it’s too late to do anything, not that they have many options at this point anyway, short of political suicide, and an economic reset.

At the end of the day, it’s not the government’s fault alone. While they hold their fair share of blame in this circle of madness, we are equally to blame for allowing them to do as they please. Politicians are an extension of the society they represent. They are paid too much, get freebies others slave for, are put on a pedestal, are allowed to receive bribes in the form of lobbying, and are rewarded by the masses for saying what they want to hear instead of the hard truth they need to hear (this is really the only problem that needs fixing). So at the end of the day, the types of people who are attracted to these positions tend to be more leeches than public servants, paint rosy pictures where roses don’t exist and aren’t afraid to lie for the perceived “public good.”

All lies and half-truths eventually see the light of day; it is inevitable (especially with the internet). Lying for the sake of short-term stability forsakes the long-term march of human progress. This is what our civilization is seemingly transforming into: a self-serving, shortsighted engine of crony capitalism barely capable of thinking past the next quarter, long-term prosperity be damned. Our economics, so rooted in political dogma and ideology can, and should do better, but only if politics loosens it grip. As in the past, the separation of Church and State heralded a new era in human civilization, so to will (for the second time no less), a separation of Bank and State. (You’ll notice that the conjoining of Bank and State abbreviate neatly and poetically to BS. Indeed, BS is exactly what follows when the orgy of political malfeasance meets the relentless greed of Wall St.)

If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours” ~ John Maynard Keynes (Economist)


Infinite Growth Fantasies

This is sub-chapter #13, of Chapter #4, Economics, of my ongoing rewrite and open editing process Random Rationality: A Rational Guide to an Irrational World. Would greatly appreciate any feedback, corrections, criticisms, and comments. If you want the MOBI, ePub, or PDF, then please let me know in the comments—if you provide constructive criticisms in return, and live in the US, UK, or EU, then I’ll ship you a paperback copy of the book free of charge when it’s published.


INFINITE GROWTH FANTASIES

Keynesian economics, upon which most public economic policy is based upon (despite it being a distortion of what Keynes himself stipulated),  carries with it, in the hearts and minds of our politicians and central bankers, an illusion of continuous economic growth year upon year. These public officials believe that government intervention only results in prosperity, and that without growth or government intervention, big problems will abound—the latter being true, but only within this model they have created for us. This is not the width and breadth of Keynesianism, but it’s all we need to dissect to realize its futility.

We’ll get into the ridiculousness of the infinite growth fantasy in a little while, but first let’s go over a few things; such as where money comes from, fractional reserve banking, why governments are bailing out the big banks, and why growth is so vitally important in today’s economic model.

Money, as I’m sure everyone knows, doesn’t just pop out of nowhere. Before we had the printing press and Wall Street, we used gold, silver, and various other tangible goods such as tea in Siberia or cheese in parts of Italy way back when. Though they differ to todays fiat standard, as they are naturally occurring and unable to be created at will.

Once the printing press arrived and we moved to the modern incarnation of the fiat standard at the beginning of the last century, we had to have a limit on our ability to create this money, otherwise what was to stop the printing rendering the value of its own money worthless (inflation)? The era of debt-based growth was born.

The modern economic debt instrument was born out of a need to put a limit on how much money could be put into circulation. For a government or private bank to borrow credit from the central bank, it had to be borrowed at interest, whether that interest was one-percent or five-percent made no matter.

So what effect does this interest rate have in restricting the money supply? As we all know, a loan has to be repaid eventually, so you don’t keep taking and taking: the principal and the interest. As the more astute among you may have figured out by now—I didn’t until it was shoved in my face—is that the principal plus interest is greater than the original loan amount of just the principal, and since all money can only come from the central bank, the amount to be repaid is always greater than the amount of money in the economy.

Compounding this, private banks that borrow this centrally issued credit can re-loan and multiply that credit via the process of fractional reserve banking to citizens and private businesses at further interest.

Fractional reserve banking works on the premise that not all people need access to their money all the time. So the bank loans out ninety-percent of your money to other people and businesses while you keep it parked in a savings account—this is where your interest comes from, other people’s interest repayments. This theoretically allows the efficient use of money to expand an economy, and is also why a run on a bank ends in bankruptcy of the bank, as there isn’t enough money to cover all the deposits. This is where confusion sets in as the average person sees terms such as M1, M2, and M3 bundled about in reference to this. Let me briefly explain them: M1 is the total amount of cash/coins outside the private banking system (there is also M0 which includes cash/coins inside the banking system), plus travelers cheques and other checkable deposits. Then there is M2, which is M1 plus savings accounts, money-market accounts, and some term deposits. Lastly, there is M3, which is M2, plus all other term deposits, institutional money market mutual funds, though M3 has not been used in economic analysis since 2006.

As they loan out part of your deposit, the new loan holder deposits his or her new money into another bank account, where it is regarded as an increase in the money supply (M2). This is called the money multiplier effect and is used as one of many signals in assessing the health of an economy. It is theoretically possible to turn $10 into $90 (not that the limit is always reached), which is a reflection of added credit into M2 over M1. (Only central banks can add to, or subtract from, M1 as that is minted cash and coins, and not electronic cash which a bank can create.)

When the money supply is being multiplied, the economy is seen to be expanding, and when it is not, it is perceived as contracting. This is why in a lot of recessions, money seems to disappear, it actually is disappearing. This is also why wealth has become extremely consolidated in the 1%. The fiat system is literally, accidentally or not, a way to funnel money upwards. The poor pay off their loans for their entire lives, while the rich park their money into savings accounts, and the interest from the lower and middle classes flows into it. Of course, they are good economic reasons to do this, but it is easily abused.

Generally, this system works well if left to its independent vices and machinations, as even the money multiplier effect only comes into effect when new businesses and consumption is required, but it can’t work forever, especially with the human desire to meddle. Since the dawn of time, people have always tried to bend their surroundings to their own will, and this may help you to understand why politicians and bankers manipulate the system to favor their friends, donors, and families—worse still, this susceptibility is actually magnified in a position of power, where they delude themselves into believing they deserve such power. (This probably explains why there are so few good politicians, and why politicians are caught, figuratively and often literally, with their pants down.)

The number-one abuse (or distortion) is the bailout system, even when given as a loan. Inflation has a twelve-to eighteen-month lag time once new credit is introduced into the system and all other currency units are affected. So the big banks that get bailout money are essentially getting a portion of it for free (if it isn’t free to begin with), and can turn around and use it to pay down debt, buy smaller banks, etc., before the inflationary effects of this new funny money erodes the purchasing power of every other currency unit in circulation. By the time it has circulated its way to the lower classes, it has lost some of its value as prices have risen while wages have not, hitting the poor especially hard.

The monetary system isn’t fair by nature, and that’s normal because life isn’t fair. Not all lions will be the head of a pride, not all trees will receive the same quantity of sunlight, and some Gazelles are unlucky enough to feel a cheetah’s jaw clenched around their necks. Some people are tall, some have brown eyes, others blue, and a few are born in rich countries, while most are born in poor countries. Nature isn’t fair, and since we are a part of nature, neither are we. (Though we are gradually overcoming this bias, but we shouldn’t try to do it via economics, more on this in Technology.)

This cruelty, if you can call it that, is part of the diversity of life, and without this diversity there wouldn’t be any life to begin with, since diverse conditions are what allowed for the formation of life, and its continuance is an underlying driver of evolution, never allowing the rot of stagnation to creep up. Fairness is not an inherent quality of nature. Although this extra kick in the face to the poor and middle class in a fiat currency system is a step beyond Mother Nature’s system of fairness, which begets change and freshness of ideas through diverse and unequal opportunities. It amounts to a cruel joke making the poor poorer and the rich richer in a system rigged beyond necessity to the upper echelon, and as history has shown us, is one of the biggest contributors to social unrest and revolution, and that’s where we are now. A recent study out of Cambridge has correlated the price of food, as the foundational issue (affected by politics, regulations, and inflation) which has instigated riots all over the world, most evidently in the recent Arab Spring, allowing them in a sense, to be predicted. (It was first published four-days before the start of the Arab Spring in Tunisia.) The study stipulated that when the price of food, by the FAO food prince index is above 210, conditions are fertile for social unrest (Of course, there are dozens of other factors that people will point to; such as freedom, censorship, jobs et al, but a hungry public is, in the words of the lead economist Bar-Yam, leads to the “range of conditions in which the tiniest spark can lead to riots.”)

Moving on to necessity of growth, there is a very specific reason that economies must constantly keep growing. Recessions happen when economies stop growing, or contract due to burst bubbles.

Here I must briefly digress. Sometimes central banks try to preemptively boost the economy in anticipation of worsening economic indicators by lowering interest rates and encouraging increased borrowing, but it only delays the recession, as the new funny money creates a further misallocation of capital, which requires a recession to fix (a bigger one now) than would have otherwise happened. The reason why is it gives false signals to businesses, imbuing them with a false outlook on things like consumer confidence and spending. Lower interest rates allow riskier projects, many of which, in the false environment, are more reliant on increased consumer confidence, and when the delayed recession hits, results in more money lost if the new project/s, contingent on a false outlook, breaks down. In this way, government, or central bank intervention, only delays and intensifies the problem. Just as we saw before with drugs, making them illegal only pushed the market underground and squeezed its undesirable effects invisibly onto a smaller subsets of the population, with larger negative ramifications for all.

This is why governmental intervention into an economy is a drag instead of a boost, as Keynesians boast. How could it be anything but? The politically connected rich get free money, while the purchasing power of the poor and middle class erodes. So left-leaning parties try to redistribute tax-money to the poor to compensate for the rising inequality, coupled with the inefficiency of the government wasting a portion of it. Simultaneous to this, increasingly, money is consolidated in the upper classes vis-a-vie interest, thereby restricting honest economic opportunities for the middle-class and poor, making them dependent on the handouts, which elevates the party politics of handouts for votes, and making the situation ever worse—and round and round the Ferris wheel we go.

The reason that an economy needs to grow is so that new credit can be issued and circulated throughout the economy to pay down the debt of the old credit. Every currency unit in every economy is owed to someone by someone else. So if you have no growth, when loans come due, there is not enough money to pay them down. You must always borrow more new to pay down the old. Depressions happen otherwise.

The Great Depression is the only recession in modern history in which the central bank restricted the money supply thereafter (note that they didn’t do nothing as they should have, but restricted), and the American poor welcomed with open arms the thirty-percent unemployment that came with it. This action, coupled with many other government interventionist policies at the time: confiscation of private property such as gold, constriction of money supply, new tax increases, and a plethora of regulations increasing business uncertainty and thus their reluctance to hire and expand workers, coupled with extreme investor uncertainty, exacerbated the situation and turned what would have been a normal recession into the Great Depression. Gross Private Investment during the thirties did not reach pre-depression levels until 1946-1950. In fact, from 1930 to 1940, net private investment was negative $3.1 billion. This is why the money supply must always grow in order to pay down the old debt, whilst still having an increased money supply—and Keynesians today boast the government saved us from the depression! As the economist Benjamin Anderson wrote in 1949, “The impact of these multitudinous measures—industrial, agricultural, financial, monetary, and other—upon a bewildered industrial and financial community was extraordinarily heavy.”

Finally, we arrive at infinite growth. Most economists’ wet dream is continual five-percent year-on-year expansion, and since humans have the funny habit of thinking that they live at the apex of civilization, especially those of us in the West, as a result we tend to project that our institutions and economic models will be around for all time. So let’s play with the numbers of compounded economic growth and see what happens. The results will definitely surprise you.

For the following example I am going to use two-percent year-on-year growth. Just try to imagine five-percent growth. (Hint: it will be an exponentially higher exponential increase.)

If we had an economy of $1,000,000 at the time of the crusades, approximately 1,000 years ago, and it grew at two-percent compounded year-on-year. Today, that economy would have grown ‘5,368,709,120,000’ its original size. Remember, this is an economy  only 0.00000015% of current world GDP (approximately seventy-trillion dollars). I’m afraid to even run the numbers for today. That’s a five-trillion percent expansion. Today, that seventy-trillion dollars of global wealth is supported by just three-percent equity.

Compound Growth Methodology:

To arrive at that number, you take seventy and divide it by the percentage growth per year, in this case two-percent, so seventy divided by two gets us thirty-five; this is logarithmic math and beyond the scope of this chapter to discuss, but it’s can easily be googled. Therefore, at two-percent yearly growth, the economy will double every thirty-five years. One-thousand years divided by thirty-five doublings means that the economy doubles 28.6 times. Then it’s a simple matter of algebra.

Just to further nail the point home, the following is from an essay by Jeremy Grantham, a hedge fund manager with $97 billion in assets. The scenario he describes is a fictional re-telling on what would’ve happened to the ancient Egyptians if they’d had the same economic fantasy as us.

Let’s try 1% compound growth in either their wealth or their population. In 3,000 years the original population of Egypt —let’s say 3 million—would have been multiplied 9 trillion times! There would be nowhere to park the people, let alone the wealth.”

Raise your hand if you still think we are at apex of human civilization? The very way our economy is designed to work ensures that it either destroys us, or the planet, or both. Though more likely, and luckily one might say, is that it simply fails before either of those scenarios takes place. This model guarantees eventual failure: that’s how not smart we are.

Both Option Status Quo and Option Yes We Can stand in stark contrast to reality. As it stands today, we are reaching the limits of this economic expansion. That’s why, one way or the other, the current status quo of bailing out the banks with taxpayer money is only going to hurt us in the end, and the banks are still going to collapse eventually. So…what’s the point? Why not just reset the system now and save us all the bother. This Keynesianism of public policy is delusional. When people talk about having—or needing rather—a sustainable economy, how about we listen to them instead of calling them tree huggers. Our future well-being depends on it. Without economic well-being, nothing else matters. (Note, this does not mean big numbers in a bank account, but the real, productive capacity of a society to make food, deliver clean water, build shelters, and everything else that contributes to well-being.)

“Depressions and mass unemployment are not caused by the free market but by government interference in the economy.” ~ Ludwig Von Mises (Economist)


Are We Responsible?

This is sub-chapter #9, of Chapter #3, Politics, of my ongoing rewrite and open editing process Random Rationality: A Rational Guide to an Irrational World.

Would greatly appreciate any feedback, corrections, criticisms, and comments. If you want the MOBI, ePub, or PDF, then please let me know in the comments—if you provide constructive criticisms in return, and live in the US, UK, or EU, then I’ll ship you a paperback copy of the book free of charge when it’s published.


ARE WE RESPONSIBLE?

Now that the ‘facts nonsense’ is over with, I can start with the rhetoric, where any opinion can be made to sound right. But before we begin, I’d like to apologize in advance for the overabundance of negativity in the next 8 sub-chapters. I am only calling it as I see it, but it might be difficult to slog through. If you can make it through the seven hells, plus the free bonus hell, then you will be rewarded with an overabundance of positivity in the last 4 sub-chapters, as I’m saving the best for last. With that out-of-the-way, let’s talk about responsibility, personal as well as social responsibility in the context of the question, are we responsible enough to govern ourselves?

Let’s begin with social responsibility. The majority of us are part of the collective called society. We enter into a social contract with our fellow citizens and our government to give up some of our liberties in exchange for certain conveniences—usually by accident of birth.

For example, we allow the government to tax us in exchange for them to build infrastructure. We expect them to pass laws, regulations and statutes that protect us from those who would do us harm, to enforce the rule of law, and to look out for our best interests on the international stage. So while we lose some freedoms, we gain greater freedoms in the form of convenience; that’s the theory anyway, and generally how governments function at a democracies inception, when everybody is an idealist.

Onto responsibility: there was a study some time ago titled, The Bystander Effect. It aimed to clarify what, if any, difference occurred in the response time of normal people giving aid to complete strangers who were in the process of getting, or were hurt, depending on how many other bystanders were present. The final result was quite interesting: the more people watching, and as long as they could see each other watching, the less likely help would be rendered in any form.

What? Common sense should dictate that help be rendered faster, but as usual, the truth flies in the face of common sense. The theory was that because everybody could see everyone else also watching, subsequently assumed that somebody else would dial the police, ambulance, or render aid. Another study take a different approach to the same problem. They put a lone person in a room, and started pumping smoke into the room. Seventy-percent percent of people reported the smoke within seconds. When other subjects  (actors told to ignore the smoke) were present, the number of people reporting the smoke declined significantly, to ten-percent in one scenario.

So what does this have to do with society?

Think, by and large, of Western governments that a lot of us are in this contract with. By now, most of us know that something is wrong. Spending is too high, government meddling in the economy is distorting the marketplace causing the misallocation of capital, we are being endlessly manipulated, and corporations employ armies of lobbyists so democracy is swayed their way, at times, regardless of the social cost.

At times, greater liberties than are required to be removed are being removed, seemingly with no immediate benefit to us, along with an anthology of other seemingly small inconveniences that, when added up, paint a confusing, perhaps disturbing picture.

No one, however, does much of anything to protest it, if they even know at all. We all assume that someone else will do it, and yes, there are those who stick it to the man, but they are few and far between.

The world sits atop a precipice, most importantly, a financial one. (I will goto in more in the chapter Debt Crisis 101.) The Western world is in so much debt that any day now we could plunge into another depression. And if that was our only problem we might be so lucky:

  • Online privacy is a thing of the past. Governments and corporations are increasingly intruding into our private lives, both offline and online.
  • Inflation is accelerating around the world. That is, your purchasing power is being slowly eroded, and the Consumer Price Index (CPI) which tracks inflation often tracks novel and unimportant price increases to underestimate inflation
  • Too Big To Fail’ banks are getting trillions—not a typo, trillions—of free dollars because, apparently, socialism is now ‘in’ for friends of the government
  • The mainstream media seems to be getting more biased by the day, sometimes outright trying to misinform us. Accidentally or not, who knows. (Cough fox news cough.)
  • US politicians are domestically passing draconian laws that other countries might, and usually do, emulate such as the National Defense Authorization Act (NDAA)

The Bystander Effect is also known by another phrase, the diffusion of responsibility. So it’s quite obvious that when it comes to social responsibility, we’ve dropped the ball there, and in most cases, we demand that governments continue on the path to fiscal disaster, which I’ll explore soon.

Onwards and forwards to personal responsibility. We like to think of ourselves as responsible, more so as we age, yet are we really? Using the populations of Greece, Italy and Spain as examples, are they really acting responsibly by protesting the governments’ austerity measures in 2012 that are removing unsustainable programs that can’t be paid for?

‎”It is not the function of our government to keep the citizen from falling into error; It is the function of the citizen to keep the government from falling into error.” ~ Robert H. Jackson (US Supreme Court Justice)

These programs will only make their own eventual situation worse by accelerating their countries’ economic downfall. Sounds silly protesting to keep entitlements that are damaging to your economy, and by extension, your future personal well-being, does it not? We are predisposed to future short-term thinking, and it seems our educational systems are not preparing us to see past this default mode.

Of course, those protesting don’t know this, but it is part of their responsibility, their social contract, to be informed on what does and does not work economically. It’s not good enough to demand something just because it benefits you. Ignorance will eventually hurt you, your fellow citizens, and in a globalized world, the entire region or planet.

It is often said, “Ignorance is bliss,” though it should be said, “Ignorance is temporary bliss.” Those who live this way are leaving their future well-being to chance, or to other less-than-savory characters—in many cases, the politician.

All three of the just-mentioned countries are in so much debt, they run the risk of outright default. In the case of Greece, they can’t even sell debt on the private bond market, relying solely on bailouts from the IMF and ECB. So why are they, and many others, drowning in debt?

One of the reasons is that the majority vote for politicians who bring the most benefits to them, without asking simple questions such as, “Where is the money going to come from to pay for this program?” Or anything remotely resembling a sensible question. And the recently elected politician can’t just raise taxes as soon as they’re elected to pay for their promises, so what is a politically expedient way of getting the necessary money to keep these promises without attracting the ire of voters? Thanks to Keynesianism, the answer is simple: borrow it. Problem solved! Of course, it’s only solved on a short-term basis, and we will be finding out just how shortsighted it really was in the coming years globally, though locally it is being felt in certain areas, as it is in Spain, where the youth have fifty-three percent unemployment, regardless of educational attainment.

There’s yet another reason government debts have spiraled upwards around the world. It’s not just limited to those three countries mentioned above, they are merely the top 3 examples! It is because previous government programs rarely, if ever, get cut as there are people who rely on those programs who won’t or can’t, give them up, and this affects a politician’s chance of re-election, no matter how small a minority it benefits. Just look at corn subsidies in the USA, corn farmers make up less than two-percent of the voting block, yet they receive billions in subsidies that simply isn’t economically necessary (and actually is economically destructive), while also contributing destructively to the entire planet, essentially raising the cost of corn, tying it to the price of fuel (converting it into biofuels with only a trivial 50% energy gain, compared to oil at 500%, i.e., one barrel of oil gets us 1.5 barrels of corn bio-fuel, while one barrel of oil gets us five barrels of oil out of the ground). This negatively affects food prices around the world, thereby increasing world hunger. But they still get their billions of dollars of subsidies without a care in the world, and no politician can touch that subsidy. Democracy was at first, the tyranny of the majority, though it has seemingly evolved into the tyranny of the minority, thanks to the art of lobbying. I need not even discuss the stranglehold of Wall St. Human intuition and shortsighted thinking is becoming so overwhelmed, that in a data-abundant world, it should no longer be used as the basis for democratic decision-making, an important part of it yes, but not the basis or foundation, as we are inherently bias and shortsighted (more on this in Fixing Politics and Chapter 5: Technology).

Thus, the upward thrust of government programs and the bureaucracies that goes with them, which history has shown happens time and time again, happens yet again in the modern-day where apparently we know better. This leads to ineffectual decision-making and government. Politicians are so concerned with keeping their jobs that they don’t do their jobs to the full potential and benefit of the nation. And people are so concerned with their own benefits or entitlements, or self-absorbed ideas that their socioeconomic system is the right one that they won’t allow politicians to do their jobs to their full potential either, even when a change of direction is required, or demanded to avert disaster! Responsibility? More like populist ignorance, with a serving of political cowardice, and a sprinkling of stupidity on both sides. (By stupidity, I mean the inability to recognize the long-term effects of actions.)

“How fortunate that men do not think.” ~Adolf Hitler (Sociopath)

This lack of personal responsibility lies solely at the feet of the populace. Yes, politicians have run up the debt making things unsustainable. They have spent and spend too much, borrow and borrowed too much, and printed and print too much new money—and we are right to blame them for their part in these problems.

But we blame them for the whole problem when we are part of the problem; we, or at least the majority, voted them in based on what they would provide to us. We are to blame for not asking basic questions on how they will fund these generous entitlement programs, and are at fault for not understanding basic economics. We are to blame for leaving to others the responsibility of keeping their actions in check because we were too busy watching American, British, or French Idol. Being social mammals evidently has its drawbacks. Consider the Asch Conformity experiments conducted in the 1950s, and repeated many times since. Seven-to-nine participants (all but one being actors designed to fool the one real participant), when accessing two pictures on a card; the picture on the left is of a straight line, compared to the picture on the right with three straight lines, one of which matches the length of the left line. Cycling through variations of the cards, the actors were on some occasions told to purposefully give the incorrect answer as to which line from the right-side matches the line on the left. The lonely real participants answer, who was made to judge last, was recorded. In one-third of cases, the real participant overrode his gut intuition (the answer was exceedingly simple) and conformed to the crowd. This experiment was repeated over many years, many universities, and hundreds of people. It also found that the more ambiguous a situation, that is, the more uncertain (as we find in public knowledge of politics, economics etc), the greater the conformity effect. Now all those political pundit TV shows begin to make sense on Fox News and others.

We are the instigating factor in the crux of this huge worldwide issue that will come to bear down on us in the ensuing years. There is currently fifty-trillion dollars in debt worldwide, with a global economy of seventy-trillion dollars. (By the way, this is just government debt, and doesn’t include institutional or household debt.) When you take account just the ten largest mature economies, debt-to-GDP is 350%. I’m not playing tricks on you…cumulatively speaking, for the ten most mature economies (Australia, US, UK, Japan, Germany et al), their debt burden is over three  and a half times larger than the size of their economies, and this spread is growing. (This figures does not take into account the derivatives and Wall St investments which notionally total $668 trillion, though they only carry a market value of $15 trillion.) Think about that for a heartbeat, for every dollar in a Westerner’s hand, there is three-dollars-fifty of debt. In a near future coming to you, many won’t get paid their $2. Will it be you? (The specifics of how there is more debt than money will be explained in the chapter, Infinite Growth.)

The USA, the cornerstone of the world economy, now has, at the time of writing, $16.5 trillion in debt compared to a GDP of $15.81 trillion, and that’s just government debt; it doesn’t include household debt, which raises that ratio many times higher. This doesn’t even begin to even image the entire problem. The unfunded liabilities of the US government: Social Security, Medicare, and federal employees future retirement benefits are on the order of $86.8 trillion, as calculated by Chris Cox and Bill Archer, who both served on President Clinton’s Bipartisan Commission on Entitlement and Tax Reform (drawn up in 1994), which of course was never acted on. (An unfunded liability is the amount by which the liabilities of the plan, in this case benefits, exceeds the plans assets at a given date. The reason why it has grown into such a huge problem, is the federal government does not do the same accounting as is legally required of public and non-profit firms.)

“If the economy isn’t growing, it’s not because the government isn’t spending enough to “stimulate” it. Government spending comes from: taxation, which is a burden on the economy; borrowing, which is a future burden on the economy; or printing money – inflation – which is an especially dishonest, hidden form of taxation makes people think they’re richer while they’re being impoverished. No. If the economy isn’t growing, it’s because the government has burdened it with heavy taxation, smothered it with excessive regulation, distorted it with false information (the Fed’s manipulation of interest rates), and replaced real money—gold—with paper.” ~ Doug Casey (Investor)

So, what is the solution to this debt problem? There are no solutions, that I know of, except for a reset, which will happen all on its own as it stands, and anyone saying bailout knows not of what they speak. Creating more monetary debt to solve a debt problem is akin to giving heroin to a heroin addict and expecting it to solve his addiction problem; despite what politicians (pushers) will tell you. It’s only meant to buy them more time, not you. To show to you that is indeed the case: consider the fiscal cliff fiasco, where in 2011, the US budget passed by congress, factored in automatic budget cuts and tax increases (or expiration of tax decreases rather) to take effect by the end of 2012. This was done to ensure they had time to work out which cuts really to be made, with across the board cuts taking effect if no political compromise was forthcoming. At the time of writing this paragraph (Jan 2, 2013), they’d just passed an extension again for two more months while compromising on the tax increases. By the way, that compromise is projected to increase the national debt by four-trillion dollars over the next decade. (Doing nothing would have kept—theoretically at least—the debt-to-GDP ratio constant, but they managed to screw that up too! As journalist John Cassidy on the New Yorker, in an article concluding the deal wrote, “Congress is only buying time—and precious little of it.

So what are some solutions for these political problems that are so endemic? I will get to them in a later chapter, after asking a simple yet elusive question in the next chapter.

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.” ~ Unknown (Unknown unknown)


Note: the book is fully sourced, but because of the writing program I use, the links don’t transfer over to WordPress. At the conclusion of the twenty chapters, I may throw up a post with all hundred-fifty+ sources, but the final book will have all the relevant sources in the proper locations.

The Communist Ideal

I recently completed reading The Communist Manifesto, by Karl Max. At only thirty-two pages long, it was a long and grudgingly boring read. I thought I was reading a book ten times the length, but I do believe I have imparted the general idea of what he espoused. While communism in its many forms that were tried in the 20th century, have failed, often disastrously, with the exception of China (which by opening up ever more aspects of its economy to free-market principles, essentially forestalled the political ramifications a central-command government eventually faces). I don’t believe that communism, as attempted so far, is the communism that Karl Marx proposed. In this post, I am not defending those 20th century communist regimes. In fact, after reading the Communist Manifesto, I do not think they were very communist, and if they were, they may have started out with the best of intentions, but the results, at least in the short-term, were anything but.

The end-result, or logical progression, of Karl Marx’s communism, in essence, was the abolition of government, and by extension, money, and equal status to all people in terms of opportunity (not possessions). What he saw, and wrote, must be understood in context of his time, and realized that the future he envisioned, would not come within his lifetime (though maybe he didn’t know this, I can’t tell). He lived at the beginning of the Industrial Revolution, and saw the rapid industrialization that occurred, and was right to say that capital would flow upwards in the antagonistic struggle between capital and labour, as those lower on the totem pole would eventually be replaced and relegated to a smaller subsection of the populace in an anarchic free-market system, and correctly extrapolated that this trend cannot continue indefinitely. But, he was unable to extrapolate that new jobs would be created to replace old jobs, but the jobs engines that has been continually creating new jobs is finally showing signs of its mortality, and it probably won’t last forever.

In those nations that tried on communism, the age-old dilemma of mistranslation and misappropriation of ideas, coupled with the rarely changing mindsets of people, led to poverty, and sometimes tragedy, where ever communism was exported, as well as in the free-market also (working workers to death, slavery, and unequal pay between the sexes etc.).

But I think that Karl was ahead of his time (perhaps a little too far). Consider where we are now with our current trends racing relentlessly into the future. We are moving towards an increasingly automated future where jobs will become more and more scarce as the law of diminishing returns rears its ugly head (new technologies now are creating fewer jobs than they replace), which will grind away at social stability. Soon, machines and artificial intelligence (AI) will do human jobs better than humans; without lunch breaks, smoke breaks (or any breaks for that matter), insurance, distractions, sick leave, and so many other factors that retard human output as well as increase the cost of labour, and thus goods and services.

We are moving into a future where potentially everyone will have a 3D (additive) printer in their homes, replacing the need for factories and factory workers. You need a new mug, you’ll print it. If you need a new phone, you’ll print it, and if you’ll need a new printer, you’ll print it, and so on. Materials will be assembled into the feed for these printers most likely; inside the countries themselves by automated processes, reducing international shipping and all the jobs it provides. Indoor farms combining aeroponics, aquaponics, and hydroponics will be capable of growing any food from any climate anywhere and everywhere, further reducing trans-city-country-continental transportation. Portable medical devices are on the horizon that will replace your general practitioner (GP) in identifying what type of illness you have, as well as articulate in detail the remedies for the proper healing taken in consideration of your genetic makeup, all analysed in the blink of an eye with 99.99% accuracy (predicted), and the drugs will be printed on an additive printer no lessNanotechnology is on the up and up, and in the coming decades, may release the awesome potential of building everything, anywhere, anytime using any input, at the atomic level with zero-waste. You will literally be able to turn anything into anything else!

How could something as medieval as money survive in a future like this? Money is a physical manifestation of scarcity. Replacing the ancient tradition of trading goods directly and acting as a medium of exchange between all goods, and evolving along with society. In the beginning, predominantly taking the form of gold and silver, as well as dozens of other forms (cheese in some parts of ancient Italy, and tea in Siberia way back when). Then constantly oscillating back and forth between gold standards, silver standards, paper standards, and combinations thereof. Now we find ourselves in the midst of a global paper standard. But because money evolves lineally, and our technology has in the last hundred years, begun evolving exponentially, money will, by necessity, eventually shed the characteristics that necessitated its original conditions because everything else in its environment will evolve beyond a need of it. This is a core concept of evolution, and since technological evolution is an extension of biological evolution: we can think of money in a resource-scarce environment as random mutation in a naturally selecting environment (society). But technological evolution continues, and now, exponentially increases in capacity and capability. Thus the conditions that selected the monetary-mutation are beginning to move beyond scarcity, i.e. money is losing its value (and hopefully will die), and into abundance, soon afterwards, perhaps infinite abundance (nanotechnology, anything becomes everything and trade essentially ceases).

To side-track to biological evolution to try to further the point. We humans evolved with enzymes that could process and digest raw meat, yet we no longer have them because we invented fire and the frying pan; an external stomach that replaced raw-food enzymes (and which by the way, allowed the necessary conditions to grow our brains far in excess to other primates and become the dominant ape by out-eating them). Within just a few tens-of-thousands of years (an evolutionary second), we could no longer eat raw meat (if you ate only raw meat for 90 days, you’d die). Money evolved, i.e., was bought into being as an improvement to the previous paradigm of direct trading, facilitating a division of labour, which amplified co-operation, increased specialization, resulting in technological progression, and societal advancement. Yet in evolution, it is very rare for a trait to outlast for long the conditions that necessitated its creation and subsequent survival, and such will (hopefully) be the case for money soon. Money is subject to the same laws of diminishing returns as everything else. Much as the faltering, or sputtering of the jobs engine of our current economies as they are replaced by technologies that far out-do people in terms of cost, speed, and reliability, in the process, creating fewer jobs than they replace. Yet due to the stigma of 20th century communism, I fear the necessary discourse will never occur, or perhaps occur too late in updating capitalism to keep pace with the continually evolving and accelerating change of this technological century.

Only a simple understanding of ‘Supply and Demand‘ is required to understand this point. If the demand and supply of a product stay constant, then the price remains stable. If demand increases without a comparable increase in supply: that is, demand outstrips supply, then the price rises and vice-versa. If a product has a large unrefined supply, but requires expensive tools of production to bring it to market: then the price is high and vice-versa. So in this future we find ourselves barrelling towards, where both supply is bountiful, or its use so exceedingly efficient as to nullify it, or where any resource can be used to create any other resource as is done with additive manufacturing and nanotechnology, then what possible use will money have? This is not to say it will disappear overnight, more than likely, it will deflate and continue deflating as our technological progress accelerates until we come upon a day where we find it is no longer necessary. Whether that takes 20, 40, or 100 years remains to be seen. That process will create economic pain, even if exponential in nature, because if people still need money to buy food, water, and shelter, and if the majority of the population is out of work; how does taxation, government, redistribution, and public benefits work so as not to antagonize class differences? (The end result of this exponential technological progress is that there are no more class differences or haves / have-nots, but the ramp-up is where the concern lies as the system which will eventually benefit everyone might be dismantled by shortsighted doom-and-gloom thinking)

Providing we can circumnavigate such problems, and arrive to the other side in one piece. In such an economy, where supply and demand become irrelevant, and individual needs and wants take precedence, where government is no longer required as an ‘impartial‘ arbiter, and where people are simply given everything they need to survive and thrive since it costs nothing to produce in terms of human labour, does not the ideal of communism ring true? I don’t mean the central bank that it demands (we still use them anyway), or the agricultural army it stipulated, or any other requirements that served more as a transitory approach, but the overall meaning. That everyone is equal, and we all deserve opportunities, all men and women are given the ability to shine, if they so choose.

I do believe that the essence of the message rings true, despite what other subjects he waxed on about, or didn’t, which seem obvious to us now in hindsight, but which wouldn’t have in his time. A lot of meaning is lost in the translation between German to English, and I imagine even more so, between the 18th century and the 21st. He did live two-hundred-years ago, so the allure of projecting todays moral and ethical framework on to his thinking is tempting, but which, at the end of the day, is only a shortcut to ignorant thinking. To truly understand it, we must flip the polarity of time and study it in that sense, which is what I have attempted to do in this post and distil what he may have meant (of course, I may still wrong).

Looking to history and projecting into the future, we find that most of our descendants views on several issues as immoral. Slavery, segregation, extreme classism, rules of war, as well as acts of war among many others. I see no such difference in today’s morality looking forward and fully expect those in the future to look back upon our own morality as incrementally better than the generations before us. Perhaps they will be as quick to judge us, as we to those that came before us. From our Keynesian fantasies which prolong, expand, and exacerbate the misery of billions (via a central bank and extraction of wealth), along with its isolation, consolidation and subsequent corruption of a few elite bankers who hold monetary power over billions, to those down the lower end of the monetary totem-pole being unable to afford certain necessities; healthy food, healthcare, and shelter, which would otherwise increase quality of life by removing the negative influences that affect mental and physical wellbeing (often diet-related), and which, when removed result in increased cooperation, knowledge-creation, which in our modern society makes it healthier for all involved, rich and poor alike and those who fit snugly in-between.

To use a real example of the potential problems down the road. Studies have shown that it cost society far less money to house chronic homeless people; that is, give them a free home, income benefits, and health insurance, than it is to leave them on the street, or even put them in a shelter. A Boston Health Care study tracked one-hundred-nineteen chronic homeless folk, and found that over five-years, they were admitted to emergency care 18,834 times, and that’s with thirty-three of them dying, and seven placed in a nursing home. A study in San Diego found that putting homeless people in an actual home resulted in a 61% reduction in emergency room benefits, and a 62% reduction in inpatient days over two years, with each visit costing at least $1,000. Putting chronic homeless people in a shelter costs $24,000 per year per person. And during the day, they are roaming the streets and increasingly likely to end up in jail, so that $24,000 does not include the cost of jailing, guarding, and feeding them when they are put in jail, which often occurs as a result of depression, and substance abuse that often accompanies their wandering street-life. What will we do in the future when joblessness is increasingly common, and the tools to create high-quality automated homesautomated medical care, and food are a tiny fraction of todays cost? Will we turn our back on them, because of out-dated free-market-principles? Besides, you can’t have a society that neglects a majority of its citizens without decay and eventually revolution (or in the case of an advanced force against those with nothing, mass-jailing or genocide).

People are created equal, not genetically, nor in their physical or mental ability, but morally in the context of our societies. If we allow any (unfair) inequality to creep in (which for now is inevitable), it slowly but surely grinds away at the fabric of society, only for the potential of violence to rear its ugly head.  In this regard, one of the great moral achievements of humanity is the slowly increasing minimally acceptable status one can have by providing help to those unfortunate enough to be at the lowest of the low (both by free-market economics driving the prices down and public assistance in the form of welfare, which was inspired by communistic thinking). Of course, as many will rightly point out, the latter is easily abused, mostly by political pandering and selfish voting, and we’ve seen the indulgences and problems inherent in an overburdened welfare state, but that in no way undermines its validity in the correct doses.

Nothing is perfect, much as we live today in a bastardized version of the free market, the communism of the USSR in the 20th century turned into a bastardized version of communism (though I’m glad I live in the former). With that being said, what many people overlook, or completely neglect to take into account is both socioeconomic systems are context-specific. In environments of scarcity, the free-market reigns supreme (though without a moral framework, it goes horribly wrong, i.e. slavery). In environments of limitless abundance, money, government, and classes have no place. And in the transition period between the two, ideological and emotionally based, shortsighted thinking tends to outweigh reasoned and objective analysis, potentially turning otherwise fixable periods into disaster due to the nature of democracy and political pandering. In the future when we have the technological marvels that will arise out of today’s inventions, bought into being by the capitalist workings of scarcity, will not the ideal of communism ring true in an age of abundance? (Not its 20th century misappropriations).

The rigidity of our political and economic institutions is what is at issue here; it must evolve and adapt in response to the self-changing environment we created, instead of boxing us into the past. In human history, we have example after example of people and societies holding onto tradition and frameworks for far too long after their usefulness has evaporated, and being unable to let go of the past, they often paid the price, some the ultimate price. Capitalism will be in a similar position soon.

The Fantasy of Infinite Growth

Keynesian economists, whom are the majority of economists, and of whom most government economic policy is based upon, have an illusion of continuous economic growth year upon year, and that without growth, we will have major problems; the latter part of that statement being true, but only within this system we build ourselves into.

We’ll get into the ridiculousness of this perpetual growth fantasy in a bit, but first I want to go over why growth is so vitally important in this Keynesian epoch.

Money, as I’m sure everyone knows, doesn’t just pop out of nowhere. Before we had the printing press, we used gold, silver, and various other tangible goods; such as tea in Siberia or cheese in parts of Italy.

So, once the printing press arrived and we moved to the modern incarnation of the fiat standard at the beginning of last century, we had to have a limit on our ability to create this money. Thus was born the era of debt.

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