Saturday, 21 December 2013

What determines the money supply?

The third of our economics reading group occurred on 18 December. The starting point for our discussion was chapter 3: What determines the money supply? (Jackson and Dyson 2012). The previous chapter had shown how the banks create money. This chapter turns its focus to what limits money creation.

What drives the demand for credit? (pp. 82-85)

Our attention turned initially to what drives the demand for credit? Jackson and Dyson provide a number of key reasons. These include lending to invest (pp. 82-83), to expand the business (p. 83), to manage the cash flow gap (something that pay day loan companies rely upon) (p. 83), for property purchase (p. 84), for consumption (p. 84), and for speculation (pp. 84-85). Lending for speculation applies to traders and to those who borrow in order to gain from increasing property prices. The final category is legal incentives (p. 85). This is where the law such as limited liability means that the risk to a business developer is limited to the capital that they invest. Borrowing with the hope of future gains looks more attractive than risking one's own capital. Also the law often treats loans differently to equity financing thus encouraging risk taking through borrowing rather than by raising equity in the business.

The key issue is that the system that we have created places an emphasis on credit in order for the system to grow and for people to be able to purchase the goods and services that are on offer. Through the use of laws, added incentives are given to encourage borrowing. Although the current government in the UK talks of reducing debt, through incentive programmes, they are encouraging the private sector to borrow more for both speculative (house purchase incentives supposedly aimed at first home buyers) and productive growth (business borrowing incentives). The conclusion is that the system as encourages a demand for credit whether by design or simply the way that it has developed.

What influences the demand for money? (pp.85-88)

If credit wasn't available then there would be an increased demand for money. Money has become central to our trading systems but there is also a demand to put aside money because of the uncertainty for future expenditure and income (pp. 86-87). There is also a demand for money as a protection against the uncertainty in the value of other assets.

However, since the banks are the money source of money and credit, there is a structural demand for credit (pp. 87-88). For someone to have money, someone else has to be in debt. There is no source of money that is not associated with increasing debt. To add to the problem, if someone pays off their loan, the money supply reduces. Therefore to maintain a stable money supply, someone has to be picking up the debt that is being repaid as a new debt. All credit incurs interest charges meaning that the system by its very nature requires an increasing money supply and as a consequence increasing credit. Note: Economists prefer to use the term credit rather than debt because it is associated with a positive attitude while the term debt is regarded as a negative attitude. However, in the end credit and debit are the same and it is required in increasing amounts just to keep the system moving forward. Some would argue that this is the reason why the system requires economic growth in order to survive even if this means raping the planet of all its resources.

What influences bank lending? (pp. 88-95)

Since the system is based on increasing debt, what influences bank lending? A bank is motivated like any business to make a profit. Banks profit is obtained by receiving interest on loans. The more successful loans that they make the the greater the profit. There is very little incentive for banks to limit lending. Theoretically, they want to limit the number that will not be repaid. Through securitisation, the bank can sell on a batch of loans and gain an immediate profit. In the process, the risk of the loan not being repaid no longer rests with the bank. The bank also increases its equity potentially allowing it to lend more.

Without securitisation, the bank may limit some of its borrowing simply because the risk of a loan not being repaid would be too high. When a borrower defaults, the shareholder equity in the bank reduces but not the bank's liabilities. This can lead to bank insolvency. If the bank can find a way of ensuring that the liabilities are reduced while retaining the profit margin (i.e. through securitisation of the loans) then it can potentially lend more without risk of becoming insolvent.

The bank is also encouraged to take risks through government deposit guarantee schemes. The government guarantees the deposits but when a bank looks like failing, is it cheaper for the government to prop up the bank or to pay out to depositors? In many instances, it is cheaper to prop up the bank. Added to this is the increasing dependency between banks through interbank borrowing and the uncertainty of the flow on effect should one bank fail. The consequence is that banks can take more risks because they know that if they look like failing, the government will bail them out and take on their debt for them. In effect, the government buys private debt and then through taxes forces the general public to take on more debt in order to reduce government debt. A perpetual cycle of ever increasing debt.

Inflation in property prices caused by bank lending on the surface reduces the risk to the banks should a borrower default. There is no risk to the banks of this inflationary behaviour. Combined with the need to compete with other banks, there is increased incentive to lend.

The end result is that banks in their desire for greater profits cannot and should not be relied upon to “create the socially optimal level of currency” (p 95).

What limits the creation of money? (pp. 95-109)

It is in the interest of banks to create an endless supply of money yet they don't do so. So what places limits in them?

One restriction is the capital requirements set by the Basel Accords. These define the capital to asset ratio that a bank should maintain. However, interest payments retained increase shareholder equity and consequentially capital. So as loans are repaid, banks can increase lending. Capital is not a fixed quantity. Through new share issues, banks can increase capital and thus enable them to lend more. Securitisation also increases the capital. Under the Basel Accords, banks can be allowed to calculate their own capital requirements. In effect, the Basel Accords do little to limit money creation.

The reserve ratio has been seen as a limiting factor. However in the UK, the Bank of England endeavours to create more reserves to meet the requirements for settlement. The consequences is that reserves are an ineffective mechanism for controlling bank lending.

Another mechanism is the interest rate. In theory higher interest are argued to reduce borrowing while lower interest rates are seen as stimulating borrowing. However, higher interest rates put pressure on prices causing increased inflation. The consequence is that the Bank of England moves very slowly to change interest rates. There is also a time delay between the announcing of a change in the interest rate and its impact on the economy. As a mechanism for controlling credit creation it is an ineffective instrument even though it is the one that many central banks seem to rely upon.

The final possibility is regulation. The idea with regulation is that the government can regulate the level of lending and the sectors of the economy that are supported through lending activity. Such regulation impacts the way banks can operate and their ability to decide where to invest to maximise profits. Although many countries have used credit guidance in the past to direct money creation, it has now fallen out of fashion and is seldom used. Instead governments tend to use incentive packages to encourage investment in desired sectors of the economy.

So what determines the money supply? (pp. 109-113)

The major influence on limiting the money supply is the ability of the banks to make a profit from their loans. There is a point where increasing interest rates further reduces the profit that banks make simply because there is a reduction in those who will borrow money. Even though the bank may be making more profit on individual loans, they are lending less and profits begin to fall away.

However, there is another issue related to money creation. This is where the money has been spent into the economy. According to the 2010 figures, only 8% of newly created credit in the UK went into the productive economy. The bulk of the credit creation went into property purchases by individuals (45%) and commercial real estate (15%). This investment in property fuelled the real estate bubble and rapid property price inflation. A further large chunk went into financial markets (20%). The recent quantitative easing also shows this pattern with the Bank of England having to create more reserves than actually entered the productive economy (http://www.positivemoney.org/how-money-works/advanced/how-quantitative-easing-works/).

In effect increasing the money supply did little to boost productivity or an improvement in the living standards of the community at large.

Summary

This chapter portrays a message that leaving it up to the banks to be the primary manager of the money supply almost totally transfers control of the money supply to banks both in terms of how much money is created and into what sectors of the economy this money is invested. Not specifically discussed is the consequence of this new money being created as credit / debt with a consequent interest charge. Some of these issues are dealt with in later chapters.

Although investment in property may enable some people to live in better houses, it also increases the entry level cost to first time home buyers as prices rise. For banks, this isn't necessarily a problem as this provides an opportunity for more and larger loans. The consequence on the economy of a greater portion of the family income going into the purchase of a home or rent is not taken into consideration by banks with their focus on profits.

The real message of this chapter is that managing the money supply should not be left to banks. An alternative strategy needs to be found and implemented.

Reference:

Andrew Jackson and Ben Dyson (2012) Modernising Money: Why our monetary system is broken and how it can be fixed. London: Positive Money.

Saturday, 30 November 2013

The Current Monetary System

The second of our economic reading group meetings happened least Wednesday (20 November). In this gathering, we looked at the current monetary system with an emphasis on how the banking system works with emphasis on the way that it creates money. As well as Jackson and Dyson's (2012) book, we used the videos from the Positive Money website (http://www.positivemoney.org/how-money-works/banking-101-video-course/). The six videos in the sequence cover most of what is in the second chapter of the book.

So what makes something money? Money can be defined as what is accepted for payment of the exchange of goods and what the government accepts as taxes. Jackson and Dyson describe three types of money. These are cash, central bank reserves, and commercial bank money. Cash is manufactured by the Royal Mint and sold to banks. The profits go to the government. Central bank reserves is electronic money held in central bank accounts for each commercial bank. It is created by the central bank and used by the commercial banks to make payments between themselves. These are not counted as part of the money supply since they are not available to the public for transactions. The third type of money is commercial bank money. This makes up 97% of the money supply and is created by the process of making loans or buying assets. How did we get to 97% of the money supply having come into existence through commercial bank money?

Part of it has to do with the way that banks operate. When a person deposits money in a bank, that deposit belongs to the bank. The bank does create an account for the depositor but in its own accounts, it accepts a liability to the depositor agreeing that it will give the depositor that amount when asked. Since the bank takes ownership of the deposit, it also becomes an asset to the bank. This process doesn't cause any change in the money supply. When the depositor withdraws their money, the bank reverses the process reducing the liability and their assets.

However, when a bank makes a loan, it creates a deposit for the borrower and in the process creates an asset and a liability on the banks accounts. In other words the bank has increased its own value by creating what it calls a loan and because the lender can use the loan to purchase goods or services, the money supply has been increased. Can it really be called a loan if the bank isn't actually lending money that it already possesses? It is only a loan in the sense that the borrower is expected to repay the bank at some later date. When the loan is repaid, the bank reduces its assets and liabilities thus reducing the money supply.

There are other implications since the bank has the loan on its accounts as an asset, it is able to sell them on to some other organisation and thus remove the risk from their own accounts. That is they can turn the asset that represents a loan into what appears to be real cash.

In the UK, there is no restriction on how the quantity of loans that a bank can create. The limit is based on the amount of risk that the bank is prepared to accept. If a bank exceeds its ability to settle with other banks using its central bank reserves then it needs to borrow from other banks. If this continues for too long a period then other banks may be unprepared to accept the risk thus causing a bank to default in the settlement process.

There are a number of consequences. Two key issues are that banks can create as much as the wish and they also decide where to invest. This leads to investment bubbles such as the housing bubble. As long as the banks believe their clients can repay the mortgage, they will keep lending. Since this also increases the pressure on prices (increasing asset value) and therefore reduces the risk of lose but the bank, the banks will tend to pump more money into mortgages. The banks interests are in improving their profits while minimising the risk and not the interests of society.

In contrast investing in production has no guarantee of improved income for the business the bank invests in or for the bank. Even if the bank invests more in production or consumption, it investment doesn't ensure improvement in the market. Investment in property therefore appears to be lower risk that investing in production.

Reference:

Andrew Jackson and Ben Dyson (2012) Modernising Money: Why our monetary system is broken and how it can be fixed. London: Positive Money.

Sunday, 20 October 2013

The Origins of Money

This blog partly comes from my reading in preparation for an economics reading group in Birmingham, UK. If you live around the Birmingham area and are interested in joining us then leave a message and I will give you details of the gathering.

Positive Money's book (2012) starts with a chapter on the history of money. In the chapter, they relate two histories. These are the textbook history and the historical reality.

The textbook history assumes that barter preceded the creation of a token of exchange or value (money). Money in this context removed the limitation that both parties had to have what the other party wanted. It also removed the time restriction in the sense that both parties didn't have to have the goods available at the same time. Money supposedly removed the difficulties of the barter system.

The historical reality perspective takes a different line of reasoning. It is argued that historically, people gave goods freely with the caveat or expectation that the receiver would return the favour in the future. To some extent, this practice is still seen in some tribal communities and family units.

The concept of a unit of account for the debts and credits grew out of these exchanges possibly when it was perceived that there was a failure to uphold the obligation or that people felt that they were not receiving what they expected from the system.

My interpretation is that we became protective of what is or was ours and sought to ensure that we gained equivalent in value in return for what we gave away. At some point in the system, we lost a certain amount of concern for the needs of others and our ability to meet those needs and turned to a system of protecting our assets even at the expense of others whose needs might be greater than our own.

The difficulty that we have with any historical interpretation is that we are tainted by our own cultural heritage and to some extent, we read into the evidence values from our culture and not necessarily those of the culture that we are seeking to learn about. All our observations are influenced by our perceptions and it is difficult to cast these off. To some extent, it is easier to see evidence as supporting our perceived theories when they could in fact be pointing to something quite different.

If we take the understanding of historians then the development of a credit system wasn't last in the development sequence. In fact, it seems that the development was possibly in the reverse sequence with the development of a system of credit (virtual money) first, followed by coins (money) with barter being a by-product of the use of coinage.

As I reflect on this development and wonder about the notions of plenty and scarcity, I am wondering when there was a shift from a notion that there was enough to satisfy everyone's needs (plenty) to a notion of limited resources or resource exploitation that needed to be hoarded or protected for personal advantage.

As I turn to look at the section on the history of banking, there seems a lot of uncertainty about the original origins. However there seems to be evidence of debt bearing loans dating back to Mesopotamia but there seems to have been times when these faded in and out of existence.

It seems initially in England that money was in medieval times under the authority of the sovereign. However, goldsmiths began to function in a role of exchanging coinage and then the distribution of notes as a promise to pay. These promissory notes became the means of exchange with the coinage being left with the goldsmiths or banks.

The consequence through a number of historical events was a shift away from sovereign money to money based on the promissory note where there were more promissory notes in circulation than actual coinage produced. In the process, the crown or its representative the government of the day also lost control of the creation of the money supply and the ability to have first use.

Although this history is interesting, we need to explore the way the current banking system operates in order to understand why it is no longer fit for purpose. However, the history shows that alternatives have existed and that to some extent the current system may have grown more by accident than design and that maybe self-interest has taken over from a concern for the welfare of others.

Reference:

Andrew Jacksom and Ben Dyson (2012) Modernising Money: Why our monetary system is broken and how it can be fixed. London: Positive Money.

Sunday, 13 October 2013

Economics Table Talk

In the tradition of our peace church, we held a table talk on Friday, 11 October, around the theme of economics. A table talk is as much about the fellowship of sharing a meal as it is about the theme under discussion. With 11 people attending, we were in for an interesting discussion.

As the starters were served, we started the discussion around looking at what we understood economics to be. This included the ideas that economics is the study of the social interactions of how we exchanged resources, and the examination of how we protected our resources and assets. We also discussed the way we see the current system operating and the development of currency. The question was asked, why did we develop currency and move away from barter or 'gift' economy. It is possibly easier to see why we moved from barter systems to the use of money but why a shift from a 'gift' economy where the focus is on meeting need with the only expectation being that our needs would be meet in return. There was the suggestion that 'gift' economies still operate within the family context where dependants are not able to pay for what is provided by their carers. We didn't look at the wider community and those who were unable to pay for what they needed to survive.

We then looked at what made something a currency. Although the gold standard was raised, it was recognised that this hasn't applied for sometime and that this really didn't influence what society accepted as currency. The argument was raised that a currency is accepted because of trust between the participants but is reinforced by the fact that government accepts the currency for the payment of taxes. This led to the idea of sovereign currencies issued by the state for what they wanted to achieve and collected back in as taxes. A concept discussed by Mary Mellor (2010).

Does this same principle apply to regional currencies? Maybe not. Although some regional currencies (Kennedy, Lietaer, and Rogers, 2012) are supported by local government some seem to rely entirely on the trust of the participants that others will accept the currency for the exchange of goods. Of course the issue was raised as to whether we needed a currency at all (Boyle 2012).

We wanted to go beyond what happens currently in society so we turned our focus to economics and the bible. We found that the bible has a lot to say ranging from the ideas of Sabbath rest (every seven year) for the land, jubilee concepts, the tithe being a shared celebration and not a gift to the priests and levities, Zacheus giving back four fold, Jesus over turning the money table, the early church sharing everything in common, the shared feasts, Paul's working as a tent maker while sharing the gospel, and the idea that he who will not work will not eat. The message seems mixed although coming through is concern for the welfare of others and less about the self interest of gathering wealth for self.

We then turned our attention to issues of how to bring about change. A key issue here was the idea of working locally rather then focusing on global or macro changes. How we interact locally with others was seen as higher priority than fighting for change in the global context. If you haven't changed your own way of operating then you can't really expect to change anything greater. We need to be the example of what we believe should happen at the higher level.

References

M. Boyle (2012) The moneyless manifesto: Live well – live rich – live free. Permanent Publications.

M. Mellor (2010) The future of money: From financial crisis to public resource. PlutoPress.

M. Kennedy, B. Lietaer, and J. Rogers (2012) People money: The promise of regional currencies. Triarchy Press.

Sunday, 25 August 2013

I have a dream or two or three...

I have a dream, well more than one dream but I am conscious that other dreamers haven't seen their dreams come to full fruition. I am thinking particularly of Martin Luther King Jr. whose dream included full employment in the pursuit of peace. Yes, his 'I have a dream' speech was delivered 50 years ago and he lead the civil rights movement. Yes, there have been changes but if you read his full speech and those of other civil rights leaders, you will realise that not everything has been achieved.

My biggest dream is similar to that of the Hebrew Scripture's Daniel or the writer of Revelations. This vision is to do with God's kingdom being put in place on earth. It is easy to say that but what does it mean? My perspective is that it is about establishing shalom (well-being, justice, and integrity) in all relationships. This includes living in harmony with each other and the planet. It isn't about exploiting the planet and others for personal gain nor forcing people into meaningless work simply to earn money so they can live.

Our world has been screwed up by humanity and we have our prioritises completely wrong. When resources are available to do what really needs to be done but we refuse to allow it to be done because the money isn't available then we have things fundamentally wrong. Part of the foundation for my dreams is that money no longer be the driving force for decision making. A starting point for achieving this part of the dream are the proposals of Positive Money. Positive Money advocate a change to the way that money is created and initially spent into the economy. Although they make statements about what they believe could be achieved by this change, they endeavour not to say how the government should use this newly created money. So although I support their vision, I am more vocal about how I believe the money should be used.

This assumes of course that money or some means of accounting value in transactions is required but the problem with accounting in monetary terms is that we begin to value some things higher in monetary terms than others. The planet cannot argue for itself and unfortunately many low paid workers doing essential work are also devalued and in our system have no voice.

Looking at it again from a monetary perspective. Robert Kiyosaki (2011) in his book “Rich Dad, Poor Dad” promotes clear financial management and investment. The clear message is that in order to get rich you need to own the company and not to be just a worker in the company. Your savings and investment plan should be about becoming a share holder or owner. There is a problem though. Companies need workers. If everyone was to become a share holder or owner and retire then there would be no workers. Without workers, there can be no profits. This philosophy pushes toward a non-productive financial economy such as the financial derivatives markets. These are not concerned about the environment or the welfare of society.

The system and our planet cannot be treated as unconnected entities. Systems need to be treated as whole and not parts. Wealth generation depends on owners, managers, and workers. Our reward system does not reward those who enabled the profits to be made, it rewards those who can invest and sit back and watch others work.

My dream is that we change focus to the meeting of needs and away from seeking the fulfilling of personal wants or greed. This means a change of focus away from a perspective of scarcity to a view of plenty and away from exploitation of resource to managed sustainability.

To achieve this goal, I believe that we need to look at sustainable local communities. Transitions towns, possibly regional currencies, and citizen's income may be part of the way to get such communities. Although I see some positives in these approaches, the fundamental change has to come in our individual attitudes and whether we are prepared to trust each other to work for the needs of others.. Cooperation has to be more prominent than competition.

It is at this point, that my dream turns from theory to practical dreams. What I am thinking about are an economics reading group, and economic games. There are other things that I dram of achieving designed to improve learning and change but these are not directed specifically at economic reform.

The goal of an economics reading group is to expand the understanding of how economics works and the changes that could be made to improve the way it operates. We are looking at using a number of different resources depending on the interests of the group. The first is Econo . . . What?. This includes a number of reading resources aimed at understanding the crash and how economics works. The second is the Positive Money resources including their books. My personal interest in the reading group is to encourage reform and to look at local actions that we can carry out.

The goal of economic games is to explore the development of economic games that encourage understanding alternatives approaches to economic thinking. There are many games designed to encourage people to develop ways of surviving in the current economic system but few that actually explore alternatives or show how alternatives might work.

Wednesday, 31 July 2013

Waste and/or Recycle

Having just completed renovations on our house, there are a few themes that we could talk about in terms of the attitudes of British workers. For this blog, I have decided to focus on recycling or avoidance of waste. We were removing walls so I did expect some materials to be discarded but since the walls that were being removed were brick, I was expecting that we might have a pile of bricks to recycle. The worker taking down the wall obviously thought so as well as he put the bricks that hadn't crumbled aside for himself. An interesting attitude in itself. If we are talking ownership, I would have thought all materials on the site belonged to the site owner but ...

However, it wasn't the waste created from the demolition that really concerned me. It was the amount of new materials particularly plaster board, plaster powder, offcuts from the kitchen panels, and bench top that the builders were simply going to discard. It helped us understand why the costs of the change were higher than we expected. Yes, we did attempt to retrieve some of the discarded materials but still the wastage was much higher than we would have expected.

When it came to the carpets, the same applied. There were large offcuts that the carpet layers were simply going to discard. In this case, we made it clear that we wanted the offcuts to make mats so we have rolls of carpet stored in the attic. I suspect that the offcuts would have enabled us to carpet a small room but there seemed little attempt to minimise the waste. It was clear that these off cuts regardless of their size would simply be dumped. In fact, we rescued one piece form the carpet that was discarded in the waste pile of old carpet.

Even though a lot of packaging is labelled for recycling, the UK has very limited recycling operations meaning that most of these packing materials end up in land fills or is incinerated. Only a limited range of plastics are recycled. This makes the whole recycling labelling process a con. If something is labelled as recyclable then there should be an option for recycling hopefully implemented by the manufacturer of the material. What is the point of using a material that is potentially recyclable if there is no option for recycling? It seems to me that a recycling label should mean it will be recycled and not that it could be if the facilities were available.

You would think in a country which is fairly densely populated that there would be some appreciation of the problems of creating waste but there are so many items that are sold on the basis that if anything goes wrong with them then they will simply be trashed and replaced by a new product. Computer printers and scanners fall into this category with a purchase price that is sometimes cheaper than the price of ink cartridges. In order to sustain our business profits, we design computers, mobile phones, many other electronic devices, and vehicles with the objective of regular replacement, yet there appears to be no attempt to ensure there is at least a clear recycling option. The disposable culture is engrained into UK culture.

I suspect that the disposable culture goes wider than simply the UK. At least in western nations, we have developed a culture where goods are designed for short lifetimes and manufacturers take no responsibility for disposing or recycling of the redundant product.

While this wastage goes on, our economic planning assumes scarcity or resources and especially man created money. If resource scarcity is really a problem then surely minimising waste and recycling should have a much higher priority. Yet like many ecological or environmental problems, it is argued that it is uneconomical or not profitable to do. Surely this suggests that our economic thinking is rather twisted since we are prepared to accept the cost of waste resources and the cost of disposal but not the costs of recycling or the reduced costs of reduction of waste.

Our economic thinking doesn't look at the total costs but focuses on the profitability of individual economic units rather than the total costs to society. What are other implications of a narrow economic focus?

Sunday, 30 June 2013

Wicked Problems and Problem Solving

I attended a learning and teaching forum back in April on activity-based learning. Sarah Wilson-Medhurst from Coventry University talked about the concept of 'wicked' problems and the competencies required to solve them. 'Wicked' problems are the types of problems that occur in the real world.

Conklin (2005) defines wicked problems as:

1) You don’t understand the problem until you have developed a solution.

2) Wicked problems have no stopping rule.

3) Solutions to wicked problems are not right or wrong.

4) Every wicked problem is essentially unique and novel.

5) Every solution to a wicked problem is a 'one-shot operation'

6) Wicked problems have no given alternative solutions.

This is quite a contrast to the types of problems traditionally used in education. In education, we tend to focus on problems with known solutions. This is almost expected so we can prepare sample solutions. The problem is that students get the idea when we propose an assessment that what they need to do is discover the correct answer or at least the answer that the lecturer or assessor expects.

Is it possible that some of our politicians are like our students. That is they haven't got past the idea of known solutions or there being a correct answer. It would certainly explain why they claim there is no alternative to their policies. However, it isn't simply the politicians who think this way. The result is advisers who push politicians down blind alleys and the public who vote in politicians who claim to have “the solution”.

The idea is that a wicked problem has the property that they are not understood until after formulation of a solution (Conklin 2005).. It is the process of solving the problem that leads to a clearer understanding of the problem. I wonder though how the perception of the problem, that the person trying to solve the problem has, influences the solution and the understanding. Again, thinking in terms of politicians dealing with economic issues, I can see that their understanding of the problem both feeds the type of solution that they are looking at and their longer term understanding of the problem.

If we are open to the idea that wicked problems are not understood until solved then we should also expect that in the problem solving process, we are revising our understanding and our perception of the possible outcomes. Being open to changing perceptions has to be the core to being able to come to a deeper understanding of the problem and to developing a series solution along a path of appropriate solutions to the problem. Remember there is no stopping rule.

The concept of wicked problems also contradicts the problem solving process that we teach. We assume that it is possible to understand the problem before attempting to create a solution. However, although we may not fully understand a problem at the start, this doesn't mean that we do not understand anything about the problem. Solutions must build from the current knowns (my view) but we need to be open to a changing understanding and maybe a rewriting of our solutions.

It is argued that wicked problems need multidisciplinary teams to solve and that the competencies required are difficult to measure (Knight & Page 2007). These competencies include creativity, teamwork and collaboration, communication, critical thinking, problem-solving, adaptability, working across subject boundaries, etc. It is argued that in order to find a solution to wicked problems, we need to be able to be confident in the solution. However, since we are growing our understanding of the problem along with the solution, then maybe we should rephrase that to being confident about our current solution or the path toward the current solution.

References

Conklin, J (2005) Wicked problems & Social complexity. In: Dialogue mapping: Building shared understanding of wicked problems. Wiley.

Knight, P & Page, A (2007) The assessment of 'wicked' competences. Report to the practice-based professional learning centre.

Saturday, 29 June 2013

Fought in a war that nobody won

Today in the UK is armed forces day and the prime minster, David Cameron, is encouraging people to support the armed forces for the sacrifices that they have made on our behalf. However, as I come to the end of the day, I have a song sung by a New Zealander, Phil Garland, running through my mind. In particular the refrains that go

“When I was a young man,I carried a gun. Fought in a war that nobody won.”

and

“Now I am an old man, I set in the sun, thinking and dreaming of all that I've done. Recalling the good times. Forgetting the pain. If I had my time over I would do it again.”

I will be honest. I don't support war and don't see violence of any form as justifiable. There is no such thing as a “Just” War. It is always just war. I don't have any pride having sent people to fight in wars and I certainly don't see what they are doing as being a sacrifice for me. If anything, I feel sorry for the men and women that are sent to war to fight battles for political leaders who sit comfortably back in their home countries or in wars that are sold as being necessary or “just” only to be discovered later that the justification is questionable (Iraq).

But let's take a look at the words of Garland's song. I am not sure which war he is talking about but I suspect that it was the First World War because the following phrase talks about “clearing the bush where I once used to roam.” This is what happened with returning World War I soldiers in New Zealand. If this is the case, then I find it interesting that the song says “no body won” but I suspect the song writer isn't looking at who surrendered but is looking at the overall outcome and the consequences on all sides. The consequences of war are far reaching having negative outcomes for all sides that are involved.

From my perspective, I am not sure that anyone really wins any war. Sure some seem to have the outcomes desired (World War II, Balkans, and Libya) by the major powers that enter into them (USA and UK) but there are others that never seem to have ended (Israel vs. Palestine, Iraq and Afghanistan) or that have been withdrawn from (Vietnam).

The problem that I see is that we are not learning from our involvement in war or failure in bringing lasting peace. The song says that even as he reflects back, he would do it again. This seems to be happening with humanity as a whole. We go from one year to the next without learning from our mistakes or from history. Even great minds challenge us to rethink but we seem to continue to stumble on with our mistakes.

Albert Einstein said

"Peace cannot be achieved through violence, it can only be attained through understanding"

but are we seeking understanding? It doesn't seem that we are. We seem to hold fast to underlying concepts and principles of arming for defence that have never been proven to work.

Einstein also said

"Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius -- and a lot of courage -- to move in the opposite direction."

Maybe this is our problem. We continue to make things bigger, more complex, and more violent. We don't have the courage to put any resources into looking at things that might take us in the opposite direction. This is possibly not surprising when the UK government keeps saying that there are no alternatives. It is as though there are principles or concepts that are not possible to challenge or change.

Back during the civil rights movement (1963), Walter Reuther said

"If we can have full employment and full production for the negative ends of war, then why can't we have a job for every American in the pursuit of peace?"

Here we are 50 years later and we are still justifying huge expenditures on weapons of mutual assured destruction (MAD) and spending little on the pursuit of peace. Some would argue that the development of weapons as deterrents is for the pursuit of peace but this ignores Einstein's challenge that peace can only be achieved through understanding.

On this day, when we are supposed to be honouring the armed forces, let us step back and consider whether our assumptions are valid. Is it possible that there are other alternatives to our emphasis on using violence. Is it possible that there is a way of understanding that could lead to a more lasting peace?

Sunday, 21 April 2013

Universal Conformist

For some reason I woke one morning with the words of Donovan's song 'Universal Solider' running through my head. The key parts of the song are:

“But without him,
How would Hitler have condemned him at Labau?
Without him Caesar would have stood alone,
He's the one who gives his body
As a weapon of the war,
And without him all this killing can't go on.

He's the Universal Soldier and he really is to blame,
His orders come from far away no more,
They come from here and there and you and me,
And brothers can't you see,
This is not the way we put an end to war.” (Buffy Sainte-Marie, 1964).

The key issues are that the universal soldier isn't aligned with any political perspective or religious view or any nation. He fights on both sides of the battle and “without him all this killing can't go on.”

The universal soldier isn't the mercenary. He is anyone who joins the military to fight for a cause no matter how just or unjust. He accepts the orders to fight for his country. He is taught not to question orders and to conform with military life. He represents all who accept are willing to conform with a cause.

Nonconformity has its costs. Daniel 3 records a story of three Jewish men who stood firm in their faith against the demands of a Babylonian king. Dietrich Bonhoeffer and other plotters against the Nazi regime where put to death. In both these situations, the ruler seeks conformity from their subjects. In the Daniel passage, Nebuchadnezzar sought all people to worship the golden image while Hitler sought people to support his racial cleansing. Like the universal soldier, they are not expected to question. They were expected to follow instructions.

Also like the universal soldier, these regimes would not survive if those closest to the ruler and lower down the ranks did not conform. You could argue that far drove their conformity or an appeal to something that they sought or devised.

Just as the universal soldier enables war to go on so the unquestioning conformist allows regimes or systems to survive. Conformity is easier than resistance. Yet it is the resistance or those who resist who have the higher impact for good.

In terms of economic systems, the large number of people who conform allow it to continue along its road to creating the elite rich and the large group of poor. Without the conforming of the people to the operation of the economic system then the system couldn't go on.

A business man assumes he can have 30 days credit from someone who does work for him because he believed that is how business works. In reality, he is forcing his supplier or provider to take on the credit risk for his business. He assumes all his suppliers will conform to his business model. When someone challenges this he is offended.

Yet we see throughout history, it is those who challenge the system at the risk of their lives who actually have an impact. Teh Daniel passage shows this with Shadrack, Meshach, and Abendigo. Bonhoffer died without seeing the change he sought but there are others like Martin Luther King, and Ghandi who through their opposition brought permanent change. This could also be said of Donovan era war protesters. However, if we don't maintain the nonconformity or the questioning then there is a tendency to fall back into past habits.

If we want the change to happen then we need to be part of the change and we need to consistently work for it. Those who seek us to conform to their way of social behaviour or economics or individual rather than collective ownership should feel the pressure.

My thoughts originally on this idea of collective conformity was to do with economics and money creation through the banking system but I can also see it applying with respect to collective ownership and taking ecological responsibility. We can set the example for change and should actively pursue the systems that we believe should exist.

My message is that we need nonconformists who are willing to stand up for what is right who challenge the very principle that encourages universal conformists to destructive systems. We are the people who usher in the new world.

References

Buffy Sainte-Marie (1964) Universal Soldier (recorded by Donovan in 1965).

Tuesday, 26 March 2013

Why student loans?

Is it logical that students should have to pay increasingly higher fees primarily through loans? Those promoting this view probably never paid fees and may even have received a payment for studying so why do they believe current students should not receive the same benefits?

If we look at the economy, there have been considerable changes in the way that it operates. Most of this change has occurred in the last thirty years. Neoliberal economics gained traction in the UK during the Thatcher lead Conservative government. At the same time other countries introduced similar regimes. New Labour continued the push of neoliberal economics. All the major parties seem to believe that this is the way the economy should run although there are some members in both parties who see alternative economic theories.

The basis of neoliberal economics is that the private sector is the creator of wealth and takes the risks that justify the profits (Boas & Gans-Morse 2009, Thorsen 2011, Mellor 2010). The public sector (government) is seen as a drain on growth and profit so it should not gain the benefits of seigniorage (the value of central bank created cash minus cost of production) and the first use of created money. The consequence is that there has been an increased emphasis on debt (money created by private banks) in the money supply and a decrease of central bank created money. In the UK, only 3% of the money supply is central bank created money (cash). The other 97% is all money created as debt. Over the same period government debt has increased rapidly since there has been minimal seigniorage received by government. With rising debt, the government has look for ways to redistribute the debt or reduce its expenditure. The other problem is that the interest on the debt also takes a larger chunk out of the government income thus reducing what it has available to speed on public services.

If we look at education, especially at university level, who benefits from the education. The argument is that it is the student and therefore the student should contribute to the cost of their education. But doesn't the country and business also benefit? Shouldn't they consider contributing to the cost? Isn't it to the nation's benefit to have educated people?

Since the government is looking at its deficit and growing debt bill, shifting some of the debt to someone else helps control the increasing deficit. If the student picks up an increasing amount of the cost of their education then the government has reduced some of the pressure on its budget. The government isn't concerned about the long term consequences on the student and their future. They argue that the student will be able to pay back the loan from their future earnings.

The neoliberal economic policies promoted cutting taxes for the rich, privatising state assets, deregulating labour, and reducing social security (Boas & Gans-Morse 2009, Thorsen 2011). The private sector and not the public sector is responsible for growth. Their view increasingly tries to lay the blame or responsibility on others as though they have the ability to pay or are not making the effort to advance themselves. It doesn't look at fostering individual potential or ensuring needs are meet. The neoliberal view places emphasis on the individual pursuing their own potential and also paying their own way. But there is a major flaw in this perspective especially when deregulation is removed and any technique for returning a profit becomes acceptable. Any risk becomes acceptable as long as there is a profit to be made. This attitude has seen a shift from a productive economy to an economy based on financial transactions. Productivity or at least financing production was not seen as profitable (Mellor 2010).

The high risk financial transactions has led to the current financial crisis but instead of questioning the neoliberal perspective and changing the economic structure, governments and central banks have continued to pursue the failed policies. As a consequence governments have taken their responsibility as lender of last resort seriously through refinancing banks and then applying austerity measures to recoup the costs from the public. Strangely, the private sector doesn't see themselves as failing to accept the risk of their transactions.

Under the neoliberal economic approach also enshrined in the European Union's Treaty of Maastricht, government spending cannot be directly financed by a nation's central bank (Ryan-Collins, et al., 2011). This forces governments to fund their deficit including the bank bail out funding through borrowing or increased taxation. It also means governments look for ways to remove expenditure. In the case of educational costs, this means transferring costs from the government accounts to those whom the government thinks benefits from those costs, the students.

A fundamental change in the operation of the economy is necessary if we are to stop these reoccurring economic crashes and an increasing burden of costs being transferred to the least able to afford those costs. One of these changes is restoring the right for government spending to be funded through the issuing of money by the central bank. But that is only the starting point. See the proposals of Positive Money.

Capitalism requires growth or expansion in economic activity. This drove the move to financial transactions rather than productivity. There is a need to question this emphasis on growth and look at sustainable communities but this will be the focus of a different paper.

Reference

Boas, T. and Gans-Morse, J. (2009) 'Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan', Studies in Comparative International Development, 44(2), 137-161.

Mellor, M. (2010) The future of money: From financial crisis to public resource, London: Pluto Press.

Ryan-Collins, J., Greenham, T., Werner, R. and Jackson, A. (2011) Where does money come from? A guide to the UK monetary and banking system, London: New Economics Foundation.

Thorsen, D. E. (2011) 'The neoliberal challenge: What is neoliberalism?', Contemporary Readings in Law and Social Justice, 2(2), 188-214.

Thorsen, D.E. & Lie, A. (2006) What is Neoliberalism? Oslo, University of Oslo, Department of Political Science, Manuscript. From: http://folk.uio.no/daget/What%20is%20Neo-Liberalism%20FINAL.pdf

Saturday, 16 March 2013

Who is at fault?

I am strongly biased in favour of monetary reform and a backer of the Positive Money proposals. I see this as a real alternative to the austerity measures being promoted by the UK government and being forced on nations receiving bailouts in the European Union. I object to the theft of depositors money being forced upon the Cypriot people in the bailout package offered by the Economic Union. Was it the depositors who caused the banking problem in Cyprus.

My bias does influence how I read economic material but I notice that there are many politicians and economists who are equally biased in their belief that governments and the people in general should not benefit from the creation of new money. They hold firm to the belief in the market despite current evidence of the difficulties. The question who is really basing their argument on the real evidence and how the system currently works?

One of the positive money promotions clearly emphasises the role of the banks fuelling the house price boom through funding increasingly bigger mortgages for properties. However, there is another two parties to a property transaction and that is the seller and the buyer. When the seller and buyer see the transaction as an investment then they like the banking system are looking for increasing prices and a positive return on the transaction. We look for this gain even if all we will be doing with the return on investment is buying our next home. What influences our attitude in these transactions? It comes back to our understanding of market forces and our desire to move up the property ladder and improve our status in the world. Even when making home improvements, we are encouraged to think of the economic gains and not the improvements in living conditions.

Michael Rowbotham, the author of The Grip of Death in critiquing the debt based money system and the way that it fosters certain behaviours, talks in respect to housing how mortgages moved from being one or two times a person's annual income to being closer to ten times their annual income and how despite having a 25 year term the average repayment period was eight years where now we are enslaved for life to the debt.

For banks or lenders, property was a guaranteed return. Property prices increased faster than the rate of inflation. There was a guaranteed return on investment. Putting money into mortgages becomes almost a certain profitable bet. In contrast investing in a business seems higher risk. There is no guarantee that the business will be a success so why take the risk?

Mary Mellor (2010) describes how even the concept of profit places emphasis on growth or the need for the input of new money and an expanding market for capitalism to survive. She says money is “invested in commodity production with the aim of selling that commodity at a profit, that is, M – C – M+” (p 83). That is more money is required than is paid out for production. This was the argument of C.H. Douglas and the Social Credit movement. When you begin to include financial investment or financialised capitalism, “where money is invested in financial assets to create more money” then we have M – M – M+. That is we invest money in order to obtain more money. Capitalism by its very nature requires growth or at the very least continued expansion of the money supply. If that expansion is in the form of debt then we have to question whether the system can survive?

Rowbotham argues that this profit or growth emphasis causes us to produce cheaper products with shorter life and to export our unwanted surpluses simply to maintain profitability. The consequence is environmental destruction and as reported on a recent news item a desire to mine for what we see as essential minerals from the ocean floor even though this could cause high levels of damage to the environment.

We all behave in ways that are consistent with our beliefs. This is easily identified with politicians who argue that austerity is the only option. This is despite the evidence that suggests a reduction in government spending decreases economic activity. However, there perspective is consistent with the view that governments don't create value and therefore should not be involved in creating money. However, it also leads to governments having to borrow from banks while being the guarantor for customer deposits or in the current crisis guarantors that the banks do not fail. It also leaves banks in the position of creating money and then investing it for a return even though they are also not the generators of new wealth.

Although changing the way money is created and spent into the economy will help, ultimately it is our belief about how we work together and trust each other that will make the difference. Are we here to maximise our own advantage over others and the environment with a consequence of a reduction in trust or are we looking to the interests of others and the environment.

Reference:

Mary Mellor (2010) The future of money: From financial crisis to public resource. London: Pluto Press

Saturday, 16 February 2013

Employability or Freedom to Think Differently

It is over twelve months since I last blogged but that doesn't mean my thinking hasn't been developing or that I have given up on blogging. If anything, I have felt more trapped within a system that I increasingly find pushes me toward conformity, depression and frustration. I have just completed another frustrating week working with students who lack motivation even at the masters level. It seems that if I don't tell them something then it isn't important to learn. As a lecturer, increasingly, I am told this is my fault. I should do more to motivate the students. Increasingly, I feel that I am working in a system that works against motivating students and simply forces people to conform and not to challenge them to think outside the current boundaries of the system. The objective is to gain the highest grade possible.

Some students ask me what I did to learn to program. When I got hooked on computer science, I wrote lots of programs and explored problems that I was interested in. These weren't things asked for by my course. These were problems that I was interested in solving. So am I a typical student? Even now, the things I spend time on are the things that really interest me and not necessarily those that are expected of me.

I went to university to do Mechanical Engineering but it wasn't because I had a burning desire for engineering or designing anything mechanical. I enjoyed what was called applied maths at school (i.e. solving problems that related to real world problems). What is more, I was good at it. My brother built and raced front engined sports cars and it seemed logical that I should use my mathematical skills to design cars but it wasn't what inspired me. It was simply what seemed a logical choice. Not surprisingly, I went riding my motorbike rather than studying and didn't do well in my first year and failed to get the grades to do engineering. I was frustrated as I did quite enjoy playing around with engineering laves and building things but academically, engineering topics never inspired me.

In my second year, I turned to what I was allowed to progress in. Subjects that required maths. Computer science was one of these topics. I had never used a computer and was not that interested in electronics but I was interested in logic and became interested in the way computers worked.

I wrote a program to simulate the operation of car suspension, reverse assembled the machine code for the compiler being used at the university, designed logic diagrams for digital clocks, and explored a range of other computational problems. These weren't problems set by my lecturers. These were things that I was interested to solve with my new learning. My real interest in applied maths was more the computational thinking it fostered and not the problems that I was solving. Computing gave me a tool to express that computational thinking and to explore problems in a new way.

When I graduated, I was offered my first job not because I was a good programmer or knew the programming language being used by the company that I was going to work for. I was given the job because it was assumed as a graduate, I had learnt to think, developed skills to explore problems, and an ability to go on learning. That was what I enjoyed doing and it is that desire to explore problems and to learn that has kept me going back to learn more and explore more.

In society as it currently exists, I wonder whether I am really employable. I don't enjoy the drudgery of repeating what I have already done. I learnt that after being a systems programmer at Canterbury Savings Bank in Christchurch, New Zealand. I went on to another Systems Programming job to repeat the same process and I got bored. I was soon looking for a new challenge.

Now as teaching fellow, I am expected to make minimal changes to what I teach and yet teach it with enthusiasm. But my enthusiasm comes from experimenting and trying new ideas. It doesn't come from repeating what I have done before. But I am also conscious that I cannot just teach any subject that is pushed my way. There needs to be some repetition but to keep it alive, I need to be making changes and challenging myself as well as my students.

Employability is one of the measures used to rank universities here in the UK. It sounds reasonable that we want graduates that end up in jobs related to what they have learnt. However, as I again reflect on my past, I realise that in my first job, I worked alongside people with Arts degrees who had little understanding of computer science. They learnt to program on the job and they came to programming solutions in different ways to me. The company employed them for the same reason that they employed me. They saw these people as able to think and generate new ideas. The subject matter was of less relevance. So I ask the question of what employability really means and whether it should simply mean that they ended up in a job that is related to the degree they obtained.

I also ask this because I have a final year project student who admits that computing isn't what they wanted to do. They ended up doing computing because they were advised at school that they didn't have the academic background or grades to do what they were interested in. The student is likely to pass their degree programme with a reasonable grade although admits that they cannot program. With a student debt, the student is now forced to find a job or incur more debt in pursuing what they are really interested in. Has the student become a slave to the system? I want to encourage the student to pursue their interests but I am conscious of what this will mean in terms of debt should they achieve their dream. However, I fear that if they are not encouraged to pursue their dream then they will become another slave to the system who does not enjoy what they do but sees no way out.

When we talk employability and talk of students not wasting their learning opportunity, are we seeking to make them conform to the existing system or satisfy what we think is important? Are we losing the training of people to think, to explore, and to challenge the way that things are done? Albert Einstein said “We cannot solve our problems with the same thinking we used when we created them.” We need creative thinkers and not people who can just parrot back solutions already given them.

As I work more with groups who seek to challenge the way economics works, I realise how important this is. It isn't just economic graduates who should be involved in the push to reform the system. Often these are the people who are conformed to it and cannot see the alternatives. It seems that the most important thing that I can do for a student is to help them find their passion in life and to develop their ability to think throwing aside the constraints of the very theories and concepts that we teach.