Saturday, 28 November 2015

War or Peace?

I write this as the UK goes through another debate about whether to the UK military should bomb targets in Syria. The prime minster, David Cameron, this week delivered a speech supposedly providing justifiable cause for the bombing. The Labour leader, Jeremy Corbyn, despite protests from members of his shadow cabinet, is saying the justification wasn't there. So who is right? Has David Cameron provided reasoned justification for bombing and I suspect what will be or is World War III.

My reading of the reports leaves me confused about the size of the ISIL forces but clear that ISIL is growing in wealth and in access to willing volunteers and military equipment. Despite their central base being in Syria and not having large armies on battle fronts in other nations, the seem to cause havoc in Europe and Africa almost at will. What evidence that I can obtain from reports suggest that the current bombing campaigns are helping strengthen ISIL and not destroy it.

This makes me wonder whether we are attacking the symptom and not treating the cause.

When I read the reports, it seems to me that the wars in Afghanistan, Iraq, and Libya have left political vacuums and unstable government rather than bringing stabilisation. The support of the opposition to Assad in Syria has simply lead to another unstable environment in which the less moderate group, ISIL, can thrive.

With Russia treating any opposition to the Assad government as terrorists and the Western alliance backing the removal of the Assad regime, it seems that we have a receipt for disaster. The 70,000 fighters on the ground backed by the Western alliance are equally likely to be destroyed by Russia and the Assad forces as they are by ISIL. I am not convinced that the Western alliance really knows what it is really trying to achieve.

This isn't a war in Syria, it is a war being fought on an international stage. Yes, most of the destruction is in Syria and Iraq but ISIL is able to cause destruction almost anywhere in the world and the nations that are being drawn in to the conflict are coming from all corners of the globe. We have World War III and all I can see is that another set of war planes bombing in Syria are going to extend the field of war. However, this claim possibly has as much validity based on data as David Cameron's appeal to support bombing in Syria.

If we really want to resolve international conflict then we need to look at the causes of why some people are disenfranchised and do not have access to the apparent wealth of the the western nations. We need to understand how people feel excluded and why they feel a need to “catch up”. Western nations have to stop pandering after their own wealth acquisition and energy requirements and find ways of balancing access to wealth and progress that do not rely on poorer countries becoming indebted to the wealthier nations or the banking system.

If we really want peace, and I am not convinced that our leaders do, then we need to look at ways of transforming our economic thinking. This is both on a local level and a global level. “Hard working families” simply means those who are prepared to enslave themselves to get richer while having no hope of doing so. It means conforming to the modern systems of slavery to work for minimal return while the coffers of the 1%, primarily financiers, grow bigger. It means increasing inequality, greater dissatisfaction by those left behind, and more opportunities to encourage more radical or violent solutions. ISIL and groups like it survive and thrive because we are unwilling to ensure that all have access to what they need to survive and we are prepared to waste huge amounts of resource to fuel an economic machine that has no understanding of sustainability and sharing of resources.

Humanity is supposedly the intelligent species but its individualistic rush to getting ahead of others simply fuels destruction of the planet, hatred, and ultimately destruction. It also encourages an education system that is focussed on passing through conforming rather than learning, innovating, and understanding others.

Humanity is not an intelligent species. Humanity is a destructive species that implements programmes such as mutual assured destruction (MAD) and self-assured destruction (SAD) as defence strategies or strategies for peace, that sees destruction of the other as advancement, that sees continued growth and expansion consuming limited resources as a round to prosperity, and that sees enslavement of the masses as fulfilment in life.

Humanity doesn't need the hand of god to bring judgement and destruction to this planet. Humanity is doing that quite well for itself.

I am sorry, David Cameron and other political leaders who support increased bombing and destruction in Syria, who seek the removal of Assad through force as a condition of peace, who focus on deficit reduction rather than need or equality, who …, I cannot accept your line of argument as soundly reasoned. It sounds more like the adhesion to a framing story that has no validity but that fulfils a dream of self-assured destruction (SAD).

War is not a solution. It is a symptom of a failing of a framing story that favours the few and the expense of the masses. Changing the underlying story of western civilisation is required if we are to see any resolving of the problems of this world and any concept of peace.

Sunday, 20 September 2015

Cloud Computing?

Are we really ready for cloud based applications and data? In this blog, I am gong to argue that we are not. I have a number of concerns but the primary ones are network reliability, security, and data ownership. These issues are often not discussed and there is an assumption that because we can do it, it is what we should do.

The push toward mobile applications on tablets and smart phones has increased our dependence on the internet and the cloud space. Most apps for smart phones or tablets are downloaded to the device but many depend on a data connection or if you want to share data then the cloud comes in to play. Purchasing apps is cloud based. All this works reasonably fine when the data is also stored on the phone or when there is a reliable data connection.

My experience is that I can't guarantee a reliable internet connection everywhere that I might want access to my applications of data. The only places that I am confident of a connection is my home, those of friends, and the wired connection in my office. Wireless connection in large public buildings such as workplaces is problematic. This includes some workplaces that claim some level of dependence on network access. Being dependent on a cell connection is still totally unreliable and the speed is still too slow for any data intensive application. When travelling, wireless access in hotels proved unreliable to the point that we treated it as none existent. Even at a conference venue, you had to be in the right places to get a reliable signal. Supposedly, these are in first world locations so what of the options for other nations? If the assumption of the design of our applications and data usage is that we have reliable network access then I would contend we are not in that position yet.

My second concern is security. From the level of spams that I now receive, I am not convinced of the security of our data networks or servers. Many running servers don't seem to understand issues of ethics or data ownership. As a user, I don't want to have to be verifying the security and ethics of every server on the network but the nature of the internet is that the user doesn't control the path of messages nor their data once it enters the cloud. The routing is dynamic but we want to be sure that the nodes or severs that our messages are likely to pass through are secure. We also want to know that systems that we become users on are not sharing our data with those whom we don't want it shared with. Personally, I have no confidence in many of the social networks or of many other services offered on the internet. It seems to be too easy for anyone to obtain and misuse personal data.

Another aspect of security is access to systems within our home. I have tried to ensure that our internal systems are not accessible from outside the house. The router is the gateway but it should be for us to reach out into the internet and not for others to reach in. Supposedly, the firewall stops others reaching in. I am conscious that our network and cable TV provider seem to be able to reach in and manipulate the router and TV box. If they can manipulate the router, can they also see what devices are attached and from that reach the devices. Although the firewall restricts access, it won't stop someone who has access to management functions on the router.

This comes to my third concern, and a reason why I reject the internet of things, is the question of whose data it is. We installed solar panels and the installing company installed power monitoring equipment. The selling point for this monitoring system is that I can access the generation, import, export, and usage data from anywhere but who holds the data and who else has access to the data? We don't hold the data. In fact, we have no direct access to the raw data. We can download data after the fact but I have discovered that last year's data was deleted from their servers before I had ensured that we had a copy. It wasn't our decision to delete it. The decision was made by the supplier of the system. At the moment, the data is so unreliable that anyone else having access does't have accurate data to work from but should they have access to the data in the first place? My investigations of smart energy metering suggest the same applies. The energy company sees the data as their data primarily for billing purposes. Our access or use of the data is secondary. Yet that data is related to our generation and usage. Shouldn't we be given at least equal access? Yes, I can see that the energy company wants to ensure that the data cannot be manipulated but why can't we have access to it to manage our energy usage? More importantly from my perspective is why can't I get access directly to the data rather than pulling it back in form the cloud.

If I am using cloud based applications, where is my data stored? If it is on the cloud then who manages that data and ensures it is backed up? Do I have the ability to define the backup cycle and what access I have for recovery of files from backups. If I don't have access to the backups run by the server provider, am I able to backup the data onto my own local systems? Can I get the data in a form that I can do something with it? It is my data and I want to ensure its security but I may also want to do other processing of that data to obtain different outputs. Can I trust companies who operate for commercial gain to keep my data secure and in a state that only those I want get access to it?

If you get the impression that I don't think we are ready for cloud based computing, you are correct and I would say that I am only scratching at the surface of the potential problems. Those promoting cloud based computing have a long way to go to convince me that I should rely exclusively on cloud based applications and data.

Tuesday, 15 September 2015

Conformity More Important Than Principles

The election of Jeremy Corbyn to the leadership of the Labour Party highlights one of the major problems with British politics, news media, and possibly society. The criticisms of Jeremy Corbyn have less to do with the principles that he stands for and more to do with his lack of conformity. Let us look at some examples.

  1. It is more important that he wears a tie at the shadow cabinet meetings than that he stands up for the principles which saw him elected to the leadership. In the news broadcasts at the end of the day this was almost the first item about the shadow cabinet meeting. In not wearing a tie, he was not conforming to the rules of the position and therefore could not possibly be good material for leading the country.
  2. Will he wear a white or a red poppy to the remembrance services? The assumption here is that a white poppy dishonours those who died in the wars to defend this country. But is that the real meaning of the white poppy? Should Jeremy Corbyn abandon his principles of seeking peace through peaceful means and not military means? It seems that we don't want to look at the legacy of war and on going conflict and ask whether there isa better way. Those who believe in restorative justice are being told that conforming to the military regime is more important. Was the South African truth and reconciliation commission of no value in bringing change and peace to that country? Are similar attempts at reconciliation thropugh dealing with the underlying issues of no value?
  3. It is more important that he steps away from his economic principles rather than standing firm. After all his economic principles don't agree with current practice but wait, what has changed since the economic crisis that will ensure that another crisis won't happen again? Conforming to a failing system seems to be more important that exploring alternatives and questioning the validity of the failing systems.

I am sure if I explored the critiques of Jeremy Corbyn, the message would be clear. Mr Corbyn needs to abandon the principles that saw him get elected and conform to “accepted” norms even though the evidence suggests those norms are failing. This is also in spite of the evidence that many distrust politicians because they don't stand by the principles that saw them get elected.

My advice to Jeremy Corbyn and the new Labour shadow cabinet is listen to the people who elected Corbyn. Fail to do so and “Yes,” you will remain in the political wilderness. After all, if you don't stand by those principles, it will be another ten years or more of Tory rule simply because you will have conformed to their story and forgotten the roots that saw the Labour party formed.

British news media needs to learn how to accept questioning of the status quo and stop being the bastions continuing a push for conformity. Britain has no future without innovative ideas some of which will challenge those foundations currently being seen as the core to critiquing Jeremy Corbyn and his core supporters.

Sunday, 13 September 2015

Who is to blame?

Dominating the news for some weeks now has been the refugee / migrant crisis in Europe. I believe that most of the people endeavouring to come to Europe are refugees but there is a broader view that freedom and progress are to be found in certain countries and that others are backward. I have talked with students who came to the UK to study and have sought to stay. Their view (this isn't an accurate survey or study) is that there are more opportunities here and that it will take some time before their home countries catch up. Yes, some of these students come from countries that are in political upheaval or war but many are from countries that seem to be politically stable and making progress in the prosperity stakes. So shouldn't we be asking why this movement of people and how do we correct the underlying issues?

I do agree that the answer is difficult and there is no simple solution especially in war torn regions such as Syria and Iraq. However, I also believe there is a wider problem that the countries that dominate the big economic gatherings ignore. I am thinking wider that the G7 (Germany, France, US, UK, Italy, Japan, and Canada).

I see a lot of our world problems coming from the attitudes that fuelled colonialism and empire building. Where it used to be control of countries, it is now control of the economic resources. Some might say it is corporatism. Allowing the major economic units to flourish despite the nationalism associated with political boundaries.

However, it is easy to place the blame on others for the displacement of people and the economic, educational, and general inequality that exists in our world. I have struggled with my response to the people seeking refugee in European countries. Yes, these people need a place that is safe and access to the normal things of life but is migration to other countries the solution and what pressure will it put on the resources of the destination countries? Are these issues that we should be taking into account?

Brian McLaren (2007) describes the interlocking systems that he sees make up the world societal system. These are the prosperity system, the equity system, and the security system. All of us has a desire to be prosperous. We all seek security and strive for at least equality with others. As I reflect on the refugee crisis, I find myself seeking to provide equality for the refugees but I also want to retain my own prosperity and security. Putting up barriers to entry helps retain my prosperity and sense of security but it does nothing for those who have lost or never had prosperity and security. As to equality, how does that apply across international boundaries? I have already talked about the search for somewhere better in a previous blog (5 September 2015). However, inequality is more than economic equality.

In the end most of us want to have a “business as usual” situation. We don't like things that change the way things are done. We want stability. As a result, we seek to protect what we have and that means not giving access to what we have to those who don't have what we have. Our desire for prosperity drives our desire for security and overrides any feelings that their should be any form of equality. We play a certain amount of lip-service to equality providing opportunities to others as long as it doesn't impact our prosperity and security. These attitudes exist on a personal level, a community level, a regional level, a national level, and at an international level. I would contend that these are part of the framing story that we live by and that I personally struggle with.

If we are to see an end to the problems that disturb our world then we need to ask questions about what we need to change personally, what we need to change locally (community or workplace), what we need to change regionally (town or city or district), what we need to change nationally, and what we need to change internationally? The starting point is with ourselves and what we are prepared to accept and not accept. Are we in this world for what we can gain for ourselves or are we in this world for what we can contribute to the lives of others? When our prosperity improves, how do we pass the same benefits on to others? On an international front, how do we spread economic prosperity to all nations in a way that ensures equality especially when we see concentration of ideas and wealth in a few nations?

I am struggling with writing this because as soon as I ask a question, I am asking whether it is the right question. For example, if I was to ask why I wouldn't live in certain countries or places, and then say if I helped that country to remove that obstacle then we would have solved the problem, have I asked the right question and obtained the right answer? I suspect not. To some extent, trying to resolve the answer to that question has caused some of the problems as we have hoisted our ideas and solutions onto others. Providing our solutions, rather than letting them develop their solutions has caused more problems because we have destroyed some of what they already had that we didn't see as important. But if we say it is their problem to resolve then we may not be ensuring that they have access to the resources that they need in order to be able to resolve the problem.

Who is to blame for the refugee or migrant crisis? We are all to blame and we are all part of the solution but it has to be done with the people and not just for them or by them. We have to listen and work with them but we have to also be willing to let go of some of what we have in order to bring equality and stability to all.

Reference:

McLaren, B. D. (2007). Everything must change: when the world's biggest problems and Jesus' good news collide. Nashville: Thomas Nelson.

Who is the mysterious public?

I write this in the wake of a landslide victory of Jeremy Corbyn for the Labour leadership. There are a number of issues that show the blindness of politicians and BBC news reporters. It is their assumptions about the voters who backed Corbyn in this election and the “public” whom they assume won't back Corbyn in a general election. It raises the question who are these members of the Labour party who voted for Corbyn and who is this mysterious “public” referred to by the news media. First of all, I am not a member of the Labour party and probably never will be so I didn't vote in this leadership race but I am of the view that Corbyn and his supporters are saying some things that need to be heard and listened to.

What disturbs me is the way that Corbyn supporters and those who might vote for him are being written off by many senior political figures and the BBC news reporters. According to the news reports, this was the largest number of voters who voted in a Labour leadership election and that a staggering 59.5% of these Labour party members voted for Jeremy Corbyn. I don't know enough about the change in Labour party membership leading up to this election but I don't believe the Labour party membership more than doubled in the lead up to the vote. This means there must be a reasonable amount of support from existing party members for the Corbyn views or maybe an alternative view to that dominating politics.

Let me turn my attention to the reporting and in particular to the way that the Labour party voters are referred to and the way that the media refers to a mysterious group called “the Public.” The media seems to be saying that “the Public” wouldn't vote for Jeremy Corbyn and his policies so does this mean the 251,417 of the 422,664 votes cast in the Labour leadership election are not part of “the Public”? If they are not part of “the public” then who are they? Where did this huge number of eligible voters come from that stands opposed to the view of “the Public”? After all, the way the term “the Public” is used, I am supposed to know who they are and that they wouldn't tolerate Corbynomics so these supporters of Jermey Corbyn must be some terrible infiltrators of the system who must be stopped.

But wait, I don't agree with “the Public” view as expressed. In fact, I wouldn't vote for anyone who stood for what “the Public” is supposed to believe even if I wouldn't vote for Jeremy Corbyn. Does this mean that I have been disenfranchised? My vote and possibly thousands and possibly millions like me are excluded from “the Public”? Should we have no voice? Rather than asking who these mysterious people are who voted for Corbyn, I should be asking who this mysterious “public” is who wouldn't back his policies or policies that disagree with the current minority Conservative government. Yes, they have the majority of the seats but they won less than 50% of the vote. At least Corbyn can clam a majority of those who voted for the Labour leadership.

As I listened to last night's news reports on the BBC, I wondered how they would refer to me and people like me. We don't believe in austerity. We challenge the current economic thinking. We don't back the arms industry. We show compassion to the poor and disadvantaged. We might be a minority but are we not part of the wider British Public?

The use of the word “public” in these reports implies that there is some group of people who hold to a particular view of how things should be and should work (a framing story). This is not the framing story that Jeremy Corbyn holds but I am lead to believe by the reporting style that if I am a member of “the Public” then I should hold this view. My problem is that I don't so I am not part of “the Public” and neither are the 251,417 people who voted for Jeremy Corbyn. My vote and their votes don't count. I and they have some weird view of how the world should be and we need to be told so.

Maybe the BBC and the politicians need to wake up that a quite percentage of “the Public” have spoken and that they don't actually agree with the framing story being sold to them by politicians, business leaders, and leading news media outlets. Maybe, there is a greater percentage of this mysterious public who disagree with the direction our economics is charging in and who want to see an alternative. Are the politicians and news media ready to listen and to allow this disenfranchised minority or majority to have a voice?

Saturday, 5 September 2015

In Search of Somewhere Better

How do we respond to the migrant or refugee problem? What causes this mass migration of people? Why do people move to certain countries or cities?

The reality of inequality became very obvious to me as we travelled to Cyprus and observed patterns within that country. Cyprus has a very long history reflected in the many archaeological sites scattered around the island but it isn't the history that I want to focus on. It is some very simple observations that hold true in many countries and cities around the world. Is it possible that these simple observations reveal a lot about humanity, inequality, and human migration.

The observation that I want to make relates to centralisation of prosperity. On a journey to the Troodos mountain and the Kykkos Monastery, we stopped at a small village, Omodos. It like many other small villages has its monastery with its painted icons. Although the district produces wine, what dominated the shops was lace and embroidered fabrics. The things that tourists would purchase. We could have been like many tourists and walked through the main square to the monastery and then back to the carpark. Two bus loads did this while we were there but we were interested in the lace so explored some of the side alleys.

Here we were enticed into a shop run by an elderly couple who seemed to be well into their retirement years. We were the tourists with the money they needed to survive or at least that was how it felt. There was almost the appeal of “buy this” as we looked around. Although we brought a small item, I couldn't help feeling that our miniscule offering didn't really add anything to their prosperity or ability to survive. They weren't on the main street although they were not far from the main entrance to the monastery. Most of the shops and cafes that we walked past seemed more geared for the tourist than the local citizens so I wondered how these people survived away from the tourist trade. Troodos Resort at the top of the mountains also had this feel but maybe we never really went into the village. Even at Kykkos monastery, this feeling of tourist focus seemed obvious. The community seemed to rely heavily on what came from outside and not what was produced locally. How really did these communities operate? Was there an envy for the tourist who spent in their shops? Could these people afford to travel as we were? Could they enjoy some of the items that I carried with me as I explored their streets and enjoyed their produce? How would I feel if my village was invaded by bus loads of tourists seeming to have what I didn't have access to?

Although that journey left lots of questions about the local economy, it was the difference between the area around our hotel and the old city around the castle that really made me think. We had two meals in the cafes around the castle but we tried to support the local restaurants around our hotel. One small shop that made crepes and sold ice cream seemed to be very popular with the locals. Around this shop, there seemed to be some a community spirit which was enjoyable to experience. But in other local restaurants, we seemed to be the only customers and we wondered how they survived. There was no brisk tourist trade here or even local trade. How could they survive on serving one or two meals per night?

In contrast, on the nights when we went to the restaurants around the castle, they were packed with people and the trade seemed really brisk. It seemed obvious that this area around the castle was the place to have your restaurant business if you wanted to survive but this left me thinking about migration trends and the way some areas of a city or some cities seem to be the focus of growth ahead of others. I am not going to argue that all businesses around the castle prospered in Limassol but it seemed rather obvious that if you wanted a prosperous business then this was an area of the city where you needed to be. You might get more open views in the restaurants away from the castle. It might even be quieter and more relaxing but you didn't get the patronage, the flow of money that would make your business prosper. Is this difference the quality of food or service? There was better food presentation in the busier restaurants but that small crepe restaurant served good food and had a much nicer atmosphere and a patron who was more welcoming, friendly, and remembered you from your last visit. The outer restaurants simply didn't get the patronage and financial rewards of those much busier inner city restaurants.

But we have these patterns where humanity centralises activities. In New Zealand the most popular city is Auckland and in the UK, it is London. This centralisation is reflected in costs, including house prices, the size of the population, and businesses. People flock to these cities believing that there they will have greater opportunity. These are the hubs of activity. Sometimes, you don't have to go far from the centre of these cities to see the inequality generated. In fact prosperity and poverty seem to develop side by side. Although other cities have some degree of prosperity, it is clear that there is a huge centralisation of wealth within these key cities and in the nations.

What about the more major migrant or refugee problem? Why isn't resolving the conflict or just getting away from their war torn countries enough? Why do they seek to migrate to other countries such as Germany or the United Kingdom? It isn't any European country but rather specific countries that are the focus of the migration. The wars and instability in the home countries of the migrant people certainly makes it easier to consider packing up and risking all for what seems like greater prosperity in western nations. However, the basic problem is that of inequality whether financial, educational, or in opportunity. In the same way as there is more likelihood that a restaurant situated around the Limassol castle will prosper or there is greater chance of prosperity in a major city, so there is apparently a greater chance of prosperity in certain countries (US, Germany, UK, ...) around the world and these countries that appear prosperous fight to retain their status and position. They seek to shut out those seekign the benefits of this perceived prosperity.

If we want to resolve the world's problems, the international refugee / immigration crisis, or the local centralisation of wealth, we have to change the way we think about prosperity, economics, and equality. We also need to reconsider what prosperity or a quality of life really means.

Monetary reform alone won't solve these issues. Monetary reform may make it easier for governments to fund activities in struggling communities. Monetary reform may even allow governments to address environmental issues. But if we really wish to have permanent solutions to the problems that surround us, we have to consider our framing stories that drive our understanding of prosperity and wealth distribution.

Inequality isn't new. Migrant's fleeing war torn countries or persecution are not new. Even some of my ancestors fled persecution in Europe for a better life in America. There have been the poor houses or work houses for the poor and outcastes of society. Those that ended up in these didn't do so because they lacked skills. Some ended up there simply because their skill or trade was seen as no longer needed. I have personally experienced this insult from recruitment agents as the computer industry moved from mainframes to personal computers, only for me to prove to them that their attitude is wrong and that despite learning my computing craft in Fortran, COBOL, and other long forgotten languages, I could adapt my skills and knowledge to the new environments, languages, and paradigms. Yet, I know our current graduates run into the same barriers that I have experienced in forty years of involvement in a supposedly changing computer industry. Humanity has a habit of framing someone's value by their current job or situation and not by their potential.

We also reward people not by their need but some formula of greed or perceived value. As a result in an organisation, a CEO can be earning hundreds of times more than the worker who actually delivers the product. Is the CEO more essential that the worker on the shop floor? Is such disparity in incomes really justifiable? Why do we think a sports or entertainment star or fashion model is worth millions while a farmer or farm labourer or factory worker who ensures there is food on our table or produces the goods we desire isn't even worth what they need to live?

These disparities are the result of our framing stories. The stories that help us to decide what is valuable. They are not the result of perceived differences in skills or some unchangeable force of nature. We don't seek to reward for the ordinary or the essential, for what people need to do in order for others to live. We see value rather in entertainment, gambling in financial markets, and other parasitic industries that deliver no real value but help turn the wheels of money and debt.

If we return to the refugees, those living outside the major cities, those running their businesses away from the central business district, the couple who would seek to retire, we don't see these people as being of value even though they are necessary for all of us simply to survive. Rather we focus on earning money, protecting what we have from those who haven't. We in effect race to our own self destruction.

Sunday, 9 August 2015

Economic Problem Representation

Background

Over quite a period of time, I have been thinking about and reading about alternative economic models. This has included some reading of how the economic system developed including Graeber (2011) and Mellor (2010). This has led me to the writing of journal entries on economic issues and in particular “Money as a result of lack of trust” (Thompson 2015). Although I believe that blog lays out some of the issues, I have been thinking about how we might represent this development so that others have a much better understanding of the possible options. Vickers (2009) emphasises the importance of problem representation in the process of understanding and solving problems. If we want everybody to understand economic problems so they can make reasoned decisions about the importance to change certain structures (Jackson & Dyson 2012, Jackson 2013) then we need ways of representing the problem that drive home the importance of change.

Representing Economic System Development

The development of an economic system occurs over a long period of time but to some extent, the time line isn't what is important. What is important are the changes in the way people exchange goods and services, and begin to account for those exchanges. It is this focus that I want to look at in this blog. I am not going to argue for historical accuracy because I don't have the data to verify my views. This is my interpretation of things that I have read and what I see as the implication of these changes. If we take an evolutionary approach to the subject then we have to assume that at some point living beings (I don't want to rule out the possibility of other animals or species having an exchange system that we haven't understood) began to exchange items with or do things for each other. We can only speculate as to why this might have occurred but we know that it is this exchange of goods and services that dominates our economic system although we might ask what some of these exchanges are with some current economic activity but I am jumping ahead in the story.

Gift or free exchange

From my reading of Graeber (2011) and Mellor (2010), I understand that the first exchanges of goods and services were based on a free or gift exchange. Graeber does talk about an obligation to return a gift. I am going to represent this economy with the economic entities represented as circles and the arrows representing the exchanges. The size of the arrows is indicating possible imbalance in the exchanges but as there is no record keeping or value attached to the exchange, this initially didn't impact the system. However, we might guess that some felt that some benefitted from these exchanges more than others or maybe some where seen as taking more from these exchanges than they appeared to be giving.

As skills developed to keep a record of the exchanges, there may have been a simple accounting introduced based on the number of exchanges. This may initially have been a single individual accounting for what they have given and what they have received. At this point, there may still be no expectation of equal value in terms of numbers of exchanges but the individuals doing this accounting wanted to know whether they were receiving a fair deal (whatever that might mean in their interpretation). It is like me accounting for the hours that I work for my employer knowing that my employer isn't interested in how many hours I work provided I am seen to be doing the work expected of me.

The thing is that these exchanges continue despite any accounting for the exchanges that might be occurring and there are few disputes. We can still see this happening in some families or communities where money or accounting for exchanges hasn't become part of the family or communities operation.

Accounting for exchanges: IOU

The breakdown of the gift or free exchange economy begins when an individual begins to withhold their goods or services because they feel they are giving out more than they are receiving. When this starts happening others either have to pick up the shortfall in the meeting of needs or some people find their needs that used to be meet are no longer being meet.

Because this withdrawal of goods or services is impacting the community, an individual decides to introduce an IOU (I owe you) as a way of accounting for each exchange or possibly the value of the exchange. When they issue the IOU, the person may not have already produced the goods and services needed to clear the IOU but are simply making a promise to clear the debt at some later point in the exchanges. Others in the community may begin doing the same or they may use someone else's IOU to complete an exchange. Initially all of these IOUs may have had the same value (i.e. an exchange of a good or service). If a person has given out an IOU then they now have an obligation to clear that IOU or to obtain enough of another person's IOUs to be able to clear their IOU debt. The IOU process has the additional benefit that it isn't necessary to obtain an equal trade with any particular individual in the community.

The IOUs are cancelled when the IOUs are returned to the issuer or when two issuers agree to exchange each others IOUs as a way of clearing a mutual debt. However, potentially, IOUs could simply keep building up in the system until it is clear that an issuer can not meet the obligation of their issued IOUs. At this point, the IOUs are cancelled and the trading continues. Would this cancelling of IOUs caused the system to collapse? Probably not although there may be some individuals who are now questioning the value of some of the IOUs they still hold.

If we think about the starting point when the first IOU is issued, there is no certainty that there was any equality in the exchanges. Previously, there was no account to be cleared and no knowledge of whether the exchanges all balanced out. They simply occurred and people got on with their lives.

The introduction of the IOU changes the dynamic in the community. Initially, it may have been accepted that someone may issue more IOUs than others but as long as these facilitated trade amongst other members of the community, it wasn't a major issue. With so many IOUs in circulation, it may have been difficult to actually work out whether an individual had really cleared their IOU debt or maybe some IOUs were lost. Some may be holding IOUs in excess of those that they have issued. Does any of this make a difference? Some would argue that it does.

Centralising accounting

The issue with everyone issuing their own IOUs is that there is no control over the number in circulation and definitely no certainty about whether they will ever all be cancelled out. There is also no guarantee that one person's IOU is worth the same as another person's IOU. There is also no easy way of confirming how many of these IOUs are in circulation.

Possibly there were also signs of inequality occurring in the system as some people's IOUs were ignored in favour of others simply because it was observed that some people never seemed to clear their IOUs while others regularly meet their obligations. Maybe there was also an element of whose goods or services were more desirable so people wanted IOUs to give them more access to these desirable goods and services. This may have lead to debates about the relative value of IOUs. Are all IOUs of equal value?

If the accounting for IOUs was centralised within a community then maybe these dependencies could be managed. Rather than everyone issuing their own IOUs, a central organisation issues the IOUs. This ensures consistency in value of the IOUs but there are problems with centralised issuing and accounting.

In the original system, the number of IOUs outstanding that had been issued by an individual depended more on the difference between what the person needed and what they currently had produced and sold. The system of exchange may have meant that they were accumulating others IOUs rather than cancelling those that they had issued but through a bit of accounting, an individual could possibly work out whether their outstanding IOUs exceeded or was less than the IOUs that they held from others. As long as they felt comfortable with the deficit or surplus of IOUs, they would continue to trade. Some individuals may never have issued their own IOUs. Instead, they had received and trading using the IOUs of others.

The transition to centralised issuing and accounting may have occurred because one individual's IOUs were considered of more value than those of others. As a result, their IOUs became the dominant IOU used in trading. Recognising this, the individual may have begun to act as a bank issuing IOUs for others based on the perceived value of the trade (Vivian & Spearman, 2015). The issuer didn't need goods or services to back the issuing of the IOU because it was the value of another's transactions that supported the IOU. For the privilege of using their IOU, the issuer may have sought compensation since they were providing an accounting service for all of these IOUs and enabling the transactions to occur in society.

These issuers of IOUs would then settle transactions between themselves based on an agreed value of exchange for comparable IOUs. You could trade within your own community using the IOUs issued by your issuing authority and if you wanted to trade with another community then you could purchase the other community's IOUs through your issuer (bank).

Those most likely to be trusted as issuers of these common IOUs were likely to be the ruling classes (i.e. the sovereign) and they could use these to fund their own activities in the community and collect back at least some of the IOUs through a tax for the services that they supposedly provided for the community. There would be other advantages for the sovereign to issue IOUs as this would allow them to coerce others to serve in their armies or support their campaigns. The IOUs become an instrument for pursuing political objectives and fostering conformity within the community.

Nationalised money – Central Bank

With centralised accounting that is managed by one individual or the sovereign then that individual or the sovereign begins to determine what are valid transactions to be funded by the created IOUs. If it is a sovereign creating the money then who is able to control the sovereign's desire to go to war or for self aggrandisement? Shouldn't the sovereign be accountable to the people? Shouldn't the sovereign have to raise funds for their grand schemes in the same way as everyone else? Why should the issuer of the IOUs (currency because that is what the IOUs have become) have a special privilege over what really is a national resource?

There are also issues between local community IOUs and the exchanges between communities. Wouldn't it be a better option to have these IOUs managed from a central point and issued as needed to maintain the transactions of the community? Nationalising the supply of currency or money fulfilled this objective. The only currency in circulation could be that issued by the central bank. Those who distributed the currency (i.e. the original local issuers (banks)) could purchase IOUs (money) from the central bank and distribute them on to those who required currency.

The central bank has to decide how much currency to issue and to whom yet the local distributors (banks) are more in tune with the needs of their communities. As long as the local banks had to issue the national currency, their distribution activity would depend on what funding they could obtain from the central bank or from people who would ask them to account for their money (IOUs). Some of these local banks worked out that they they didn't need to hold all the money placed with them by depositors. Not everyone wanted their money at the same time so as long as you hand sufficient money to meet demands by those who wanted their money and to settle the exchanges with other local banks then you could lend out these saved funds to those who needed funds in the local community. The constraint was the overall balance of the money flow between what they distributed and what they collected in. As long as they were able to meet any deficit in this exchange that might occur, they were not constrained by the issuing of money (credit) by the central bank.

Although some trading is conduced in hard currency (centrally issued money). A lot of the trading is now by other forms of promises to pay (i.e. a cheque or values held on bank registers). If two customers of the same bank complete an exchange, the net impact to the bank is zero. They just transfer the numbers from one person's record to another's record without any physical or central bank money being involved. If they need to exchange with another bank then they either need physical money or central bank money. The end of this process is that for any local bank, there are two types of money involved. The money issued by the central bank which may be asked for by their customers and the money represented by numbers in their ledgers. The two do not need to be equal as long as the local bank can satisfy the demands for the real currency of exchange, the money issued by the central bank.

In this dialogue though I have also introduced a third type of money, central bank money as opposed to physical money. Why am I making a distinction between physical money and central bank money? Just as the local bank realises that it doesn't need to have physical money to back all the numbers in its ledgers, the central bank which holds an account for each local bank doesn't need to hold physical money to the equivalent of all the money that the local banks hold in their accounts.

The central bank acts as the bank to the bankers and as such settles the payments between banks. In order to achieve these payments, the central bank simply needs to transfer numbers between local bank accounts and not transfer physical money between accounts. The central bank can also now act as a lender of last resort by providing short term funding to balance the surpluses and deficits in the inter-bank exchanges. A local bank may have a short term liquidity problem (inability to cover the inter-bank transfer) but based on its transaction data feels it will be able to satisfy its obligations in a following day, it may seek a short-term loan from the central bank. The result is a tow tier monetary system, the base money (balances with the central bank) used for interbank transfers and the broad money (balances in the local banks) used by everyone else in the economy.

The nature of money or lending

If you followed this line of reasoning, you may have noticed that the local banks regained the ability to create money to enable lending activities to their clients. Not all of this lending activity is backed by physical currency or balances held at the central bank. Some argue that this is local banks creating money out of nothing (Jackson & Dyson, 2012, there are others who have also supported this view). This line of argument says that the banks don't require deposits in order to create loans hence they create money out of nothing.

There is a contrary view which to some extent is where I argued money or IOUs started. That is the IOU was issued to facilitate a transaction so the value of the transaction is what gives the loan its value and not the underlying currency or money (Vivian & Spearman, 2015). Without the loan or IOU, the transaction would not occur. If the system is too rigid in terms of creating loans and IOUs then the transactions slow down possibly leading to recessions. If the system is too flexible then there are few limits to the creation of loans and IOUs potentially leading to inflation (property bubbles). Controlling the rate of money creation through local bank loans is a key issue in managing an economy and inflation.

The creation of money out of nothing perspective (Jackson & Dyson, 2012) views the banks as intermediaries between depositors / lenders and borrowers. Since the bank doesn't need a deposit in order to make a loan then the bank must be creating money out of nothing. The money supply expands with loan creation and shrinks as loans are repaid. The banks control how much money is created and how that money is first used in the economy.

The alternative view of money creation (Vivian & Spearman, 2015) argues that the decision about the value of the loan is made in the exchange between a buyer and a seller. You could argue this is what the original IOU was except it was the buyer who accepted the debt and the seller who took the risks on payment. All the bank is doing is funding this transaction taking on the risk of the seller and managing the debt obligation of the buyer. As such the bank simply takes on a role of facilitating transactions through creating money to enable them to happen. It could be argued that the bank is less concerned about how much money to create and more concerned about managing the risk of purchases not meeting the IOU obligations. As such, they then decide on the level of risk of the transaction and not necessarily the necessity of the transaction.

Funding Required Transactions

Regardless of how you view local bank loan creation, what you do see is that the local bank is influencing what economic transactions will be funded. The statistical data suggests that this tends to be property transactions since if the borrower fails to meet their payment obligations, the bank can claim the property as a substitute for the money. This tends to inflate property prices.

It also has the negative impact that socially desirable projects are not funded. Banks don't want to take risks on projects that have no guaranteed return on the investment. Often these projects land up in the hands of local or central government. Just like any other economic unit in the economy, the government has to fund the deficit in its transactions by raising appropriate loans (IOUs). If the government has to do this through the banking system then it has to convince the banking system of the value of its social or infrastructure programmes and particularly for commercial banks or private investors what the rate of return on the governments programme is.

If the central bank is seen as the banker to the government then should it create funding for the government as needed just as the local / commercial banks fund create funding for private transactions? On what basis should it make these decisions? Should it apply the same risk management as private banks, the possible inflationary influence of the project, or on the necessity of the project to meet society needs? Is it possible that even this decision making is giving central bank bureaucrats too much control over government programmes?

In a needs based economy, if the government programme was satisfying a need then provided the resources where there to complete the programme, it would be carried out. There would be no accounting as to whether it was affordable or whether funding was there. The need and availability of resources to meet that need was the priority.

Even under a simple IOU system, the government would simply have issued its own IOUs to complete its programme. It may be that government IOUs (sovereign money) would have flooded the economy rather than those of any particular individual. If necessary, the government might write-off outstanding IOUs since it was recognised that these were what was required to complete government programmes. In effect the government deficit would simply be seen as what was necessary to maintain a healthy society. I am not saying economy because economy tends to move away from a need focus.

The problem, as I see it, is that under our existing system, the focus is on balancing the books and the central bank although being the banker to government, it is not the funder of government. As a consequence, it seeks funding from the wider community through mechanisms managed by the central bank. Government policy is dictated less by what the electorate desire or need (democracy) and more by what those providing funds to government require.

Conclusion

Regardless of whether I understand commercial banks as creating money out of nothing or funding transactions between buyers and sellers, we need a mechanism that funds the meeting of need rather than the wheels of an economy. When large percentages of the population can be driven into poverty because of economic requirements or the environment can be destroyed in order to promote profitability, the economic system needs to be questioned.

Would it be possible to return to a gift economy? Maybe not but we need to ask questions about why money restricts dealing with problems for which resources exist? We need to ask why government deficits shouldn't simply be funded by central banks rather than crippling economies by the demands of a banking system or corporate giants?

This blog is not intended to be an accurate history of the development of money. Rather it is intended to raise issues for thought and consideration. I partially expect it to be torn apart but I hope that my readers will ask the critical questions about the system that we have allowed to come into being and whether this system is meeting the planets needs.

References

Graeber, D. (2011). Debt: The first 5,000 years. New York: Melville House.

Jackson, A. (2013). Sovereign Money: Paving the way for a sustainable recovery. London: Positive Money. From: http://www.positivemoney.org/our-proposals/sovereign-money-creation/

Jackson, A., & Dyson, B. (2012). Modernising money: Why our monetary system is broken and how it can be fixed. London: Positive Money.

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

Thompson, E (2015) Money as a result of a lack of trust. From: http://kiwi-et.blogspot.co.uk/2015/02/money-as-result-of-lack-of-trust.html

Vickers, P. (2009). How to think like a programmer: Program design solutions for the bewildered: Course Technology: Cengage Learning.

Vivian, R. W., & Spearman, N. (2015). Some clarity on banks as financial intermediaries and money 'creators'. Johannesburg, South Africa: School of Economic and Business Services, University of the Witwatersrand.

Sunday, 12 July 2015

A Greek Tragedy or A Global Tragedy

I write this in the context of the ongoing dispute between the Greek people and their European Union co-members. Probably more accurately between the recently elected Greek government (Syriza party) and the Troika (European Commission, European Central Bank, and the International Monetary Fund). The Greek people voted in an anti-austerity government but Greek creditors (the Troika) seem to totally discard the will of the Greek people and insist that austerity is the only way forward. However, that is what Greece has suffered under with the previous government and if the information is correct then Greece is worse off and not better off. The austerity experiment as a way out of the economic crisis seems to have failed.

Wren-Lewis (2005) asks whether the Greek government and people are being blackmailed to conform to the wishes of the Troika. The Troika hold all the cards being both the lender of last resort through the European Central Bank to the Greek banking sector, and a party to the negotiations with the Greek government. To add to the confusion, it looks like the Greek government don't have a plan B since it would appear they have never talked to the Greek banking sector about an exit from the Eurozone and the creation of a new Greek currency (Preston 2015).

So how do we describe the Greek situation? Why when a political party puts itself forward as an anti-austerity party does it not have a workable alternative to the current economic blackmail of its creditors? But is this all a problem with the Greek government or is there an more serious underlying issue that needs to be addressed? Is it really a Greek tragedy caused by their unwillingness to change or a global tragedy caused by holding on to a failed economic framing story?

As a supporter of economic reform primarily focused on monetary reform, I lean toward a global tragedy played out in most nations around the world. At the core is the understanding of money and the way that it comes into existence. Positive Money (Ryan-Collins, Greenham, Werner, and Jackson, 2011) contend that banks create money when the create loans. They would argue that this is done out of nothing (ex nihilo). This view seems to be supported by McLeay, Radia, and Thomas (2014A, 2014B) and further reinforced by Jakab and Kumhof (2015). All of these would argue that they are no intermediaries between borrowers and lenders. That is they don't need to have someone who wishes to lend money in order to issue a loan.

Vivian and Spearman (2015) would agree that they are not intermediaries between borrowers and lenders. However, they argue that the loans do not create money out of nothing. The bank acts as an intermediary between a buyer and a seller. Without a bank, the buyer would have to create an IOU which they would give to the seller. If the IOU was then able to be used by the seller to complete other purchases or to pay taxes then it could be argued to be money. Vivian and Spearman argue that this is the role that the bank takes on by creating a deposit in the sellers account and a claim against the buyer. Vivian and Spearman acknowledge that when it comes to government borrowing the mechanism is different. Governments through treasury create bonds which are bought by the central bank and possibly sold on to commercial banks or other investors. However, what is clear is that money is created in order to fund transactions between buyers and sellers or to fund government expenditure. Any countries central bank has the ability to create money either to fund government expenditure or to enable commercial banks to meet their obligation to the deposit holders.

What is also clear to me is that there is a need for new money creation to keep the world economy growing. I accept Vivian and Spearman's argument that money creation is based on the value of the underlying transaction. However, who decides on the value of the transaction and whether that value is reasonable. When it comes to funding government expenditure who really has the decision making power and is it possible that some government expenditure should be seen as what is necessary to maintain the infrastructure for the economy?

If we think about a transaction between seller S and buyer B, they agree on a price and then decides whether to fund that transaction at that value. Does the bank have any impact on the value of that transaction? If they show willingness to fund ever increasing property values because they believe if the buyer defaults, they will be able to recover the lose through the rising value of the underlying property asset then who is to blame if suddenly there is an unwillingness by buyers to keep paying ever inflating prices?

So what is the real problem with our economies and in particular the Greek economy? Is there corruption among the wealthy in that they exploit the system for their own benefit or are we all endeavouring to get an advantage over our neighbour? Why does a nations internal economy grind to a holt simply because of issues around the supply of money? We can argue over the mechanics of the system and whether a government should be allowed to run a deficit but isn't it strange that the resources can be there to meet a real need and we will fail to meet that need because what is missing is money? Or we allow a company to gain a strangle hold over an essential and often natural resource and hold a nation or the world to ransom for access to that resource?

I want to argue that the foundation of our problem is in the framing stories that we use and many of us take for granted. We don't question the idea that a government, country, company, or individual (economic individuals) must live within their means (i.e. their income) but what are the implications of that assumption? Fewer might question the idea that economic units should be able to earn a profit.

If we want to understand the Greek situation, we need to understand the technical mechanisms of the economic system but we also need to understand the framing stories or what we believe about the way an economy should work. Above all, we need to ask whether our framing story is reasonable and what the implications are when we use that framing story to influence the way we use the technical mechanisms of the economic system.

I am not convinced that the Greeks are responsible for the problems that they now face as their economy grinds to a halt. I agree with the view that the Greek government and people are being blackmailed to conform to an austerity message that is destroying the very survival of the country. How would you react when you are pushed back into a corner and given no room to define your own future and direction? Political and democratic power is being taken away from the Greek people and many other nations by economic power.

This isn't simply a Greek tragedy played out before the nations of the world. This is a world tragedy in which we are all players.

References

Jakab, Z., & Kumhof, M. (2015). Banks are not intermediaries of loanable funds - and why thus matters. Retrieved from: http://www.bankofengland.co.uk/research/Documents/workingpapers/2015/wp529.pdf

McLeay, M., Radia, A., & Thomas, R. (2014A). Money in the modern economy: an introduction Quarterly Bulletin (Vol. Q1): Bank of England. Retrieved from: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q101.pdf

McLeay, M., Radia, A., & Thomas, R. (2014B). Money in the modern economy. Quarterly Bulletin (Vol. Q1): Bank of England. Retrieved from: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf

Preston, R. (2015) Could euro survive temporary exit of Greece? Retrieved from: http://www.bbc.co.uk/news/business-33497877

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

Vivian, R. W., & Spearman, N. (2015). Some clarity on banks as financial intermediaries and money 'creators'. Johannesburg, South Africa: School of Economic and Business Services, University of the Witwatersrand. Retrieved from: http://www.econrsa.org/system/files/publications/working_papers/working_paper_523.pdf

Wren-Lewis, S. (2015), The non-independent ECB. Retrieved from http://mainlymacro.blogspot.co.uk/2015/07/the-non-independent-ecb.html

Sunday, 26 April 2015

Lairs or Slaves

Are our politicians liars or slaves to an economic framing story? Many of us possibly accept that our politicians don't always tell us the whole truth. They will tell us what they think will put them in a good light while hiding the real truth from us. This year's UK election campaign is possibly more blatant in this half truth telling than any other that I have observed. Maybe I am more aware of it because I am now focused on economic reform and changing the framing story that we live by.

I can possibly pull many examples from the election campaign but the one that I want to look at relates to the cause of the economic crash. The Conservatives stand on the election platforms claiming loudly that Labour caused the crash and that Labour can not be trusted to manage the economy. Labour doesn't stand up and deny this claim and instead focus on the impact of Conservative policies while still believing that if they become government, they will have to continue a regime of austerity but just at a different pace. The minor parties all tell their own perversion of these pronounced truths that fit with their policy objectives.

So what caused the economic crash that gave the Conservatives justification for their austerity policies? Wasn't it sub-prime lending by American banks and the purchase of these high risk debts by British banks or the interconnectedness of the banking system? How could the behaviour of these banks be blamed on any political party? Yes, Labour was in power when the crash hit and it was the Labour party's decision to bail out the banks rather than let them fail but what were the alternatives. If the banks had failed how much would the government had to pay out in the deposit guarantee system? Regardless of which political party was in power at the time, they were going to incur a large hit on the government accounts to either support the banks so they didn't fail or to meet deposit guarantee requirements. If the government (possibly more accurately the poor people) is the guarantor of last resort then what are the financial mechanisms available for it to raise funds to meet its monetary obligations?

To try and understand this, we have to look at what led to an environment where banks could lend at high risk without feeling under any obligation. History shows that it was the previous Conservative government under Margaret Thatcher that deregulated the banks removing the reserve ratio requirements. The following Labour government never took any action to address these regulation changes and neither has the current Conservative / Liberal Democrat coalition. From a political perspective, none of these three parties can side step blame but neither can the minor parties who also ignore the problem caused by this deregulation. Only the Green party has anything in its manifesto that addresses the power of the banking system but even they are not standing on the hustings shouting this message for all to hear. In fact, I wonder whether their candidates really understand what their manifesto says.

So what was or is this deregulation that undermined our economy so badly? Removing the reserve ratio meant that there was no restriction on how much money banks could create through lending. Banks no longer had to hold any deposits or reserves to lend other than what was required to maintain liquidity and to settle with other banks with their reserves at the central bank. Don't be fooled. The reserve ratio didn't mean that banks had to have the reserves to back their lending either or that somewhere there were resources to back all the money in circulation.

Let me explain. If you deposit with my bank £100 and I then lend out £50 of your deposit, I have increased the money supply by £50 unless I restrict you from withdrawing more than £50 of your deposit. If you can still spend all of your deposit and the person who lent can do the same then I have effectively increased the amount of money in circulation. You could argue that I will take in from other depositors enough deposits to cover my loans but the reality of the reserve ratio is that as a bank only needs to hold enough reserves with the bank of England to cover the reserve requirement. They rely on the principle that not all of their depositors will want to withdraw all their funds at once. We should note that in making a loan, I create a new deposit for the person taking out the loan. It is likely that they will spend it immediately but then that payment is likely to return in full to the banking system so effectively the amount of deposits has increased by the loan amount. Even with this reserve ratio, the possibility of a banking collapse is quite high but this reserve ratio was removed by the previous Conservative government and some would argue making the banking system more fragile.

Taking away the reserve ratio and now I don't need your deposit to create a loan or deposit. You have to trust me that I have the funds to give you when you go to spend the deposit. I can start the process without any reserves. The problem is that if the borrower spends that money in a way that it doesn't come back to me immediately, I don't have any reserves to payout that money. So in order to ensure that I can meet my obligation to settle with other banks, I will impose my own reserve ratio but it will be based on what I believe I need in order to settle and not on what I hold in deposits. In effect, if I was the only bank in the world, I can survive because all deposits come back to me and ultimately cancel out when all loans are paid off. People will be trading with my IOUs. I get the additional bonus in that I get to say who gets the initial use of my IOUs.

We have an environment that is intrinsically unstable by the very nature but this story has been compounded by a second strongly held belief that governments should not be able to create money. This belief argues that governments should only be able to obtain the money they require through taxes or through borrowing. This is not enforced by law since the Bank of England can create money and put it into government accounts. In fact the profit from the printing and selling of currency already does this. The government effectively owns all printed currency and when more is printed, it theoretically increases what the government has available to spend. However, we don't use printed currency for most of our transactions. Printed money is sold to the banks with the funds from these purchases going into government accounts. Since only about 3% of the money in circulation is printed currency, this makes minimal difference to government accounts.

There is an interesting question here since so little of our money supply has been created by printed money, we have to ask whose IOUs are we really trading with? Electronic or digital money is not government IOUs, yet through the deposit guarantee, it is backed or guaranteed by the government when it is held as a deposit. If this is the case then why doesn't the government get to say how many IOUs are created and why doesn't it get to say how its IOUs are spent initially into the economy?

There are calls for the power for money creation to be removed from the banks (Jackson and Dyson, 2012) or for money to be created and given to the government to spend into existence (sovereign money (Jackson, 2014) or helicopter money (Wren-Lewis, 2014)). Many reject these proposals and most political parties ignore or are ignorant of them. Now, Iceland is looking at sovereign money (Sigurjónsson, 2015). So what is holding the UK or other countries back from taking up these proposals?

It comes down to the way we believe things should work or the story that we live by, our framing story. There are many people who say that we can't trust our politicians to create money and spend it into circulation responsibly but they are prepared to leave it the hands of bankers who through their money creation policies (lending decisions) brought the economy down and history shows have regularly done so. We believe politicians are less trustworthy than bankers but there is more to it than this simple belief. At the heart of our framing story, we have given money power over our lives. A power that enslaves us to a work ethic, that encourages to sell ourselves to the highest bidder, and that drives our education focus so our educational institutes become exam factories (Coffield and Williamson, 2011) and subservient to the needs of the economy (employability measure).

This framing story becomes visible when we look at the words used by our politicians, in our news reports, and in the way we communicate and interact with one another (Stibbe, 2015). It can bee seen in the way we organise our society and interactions. Ellul (1984) talks of how we have given spiritual power to money so that our buying and selling transactions enslave and entrap us. They define our value and our relative position within society. They cause inequality and drive us apart. The heart of the matter is that we have created a destructive framing story or as McLaren (2007) says a suicidal machine.

So are our politicians liars or slaves? They rewrite their interpretation of the story to satisfy their own objectives, the retention of political power, and in that sense, I believe they are liars but they are also enslaved to the societal framing story. A framing story that they do not always make explicit because they know that part of that framing story isn't acceptable to a large percentage of the population but they cannot break loose from that framing story because it removes their claim to power and service. Predominantly, they are slaves to the framing story and the only way to overcome this enslavement is to challenge and change the framing story. Other changes will have some impact on society but unless the framing story is changed, we will keep coming back to a story that enslaves and leaves money with the spiritual power to enslave individuals, corporations, governments, and this world. The ultimate destination of the framing story is self destruction in a suicidal rush.

The question is are we prepared to change direction or are we going to rush to self-destruction holding firm to the myths that drive our framing story? I am seeking change and I hope that you re considering change as well.

References

Coffield, F., & Williamson, B. (2011). From exam factories to communities of discovery: The democratic route. London: Institute of Education.

Ellul, J. (1984). Money and power (L. Neff, Trans.). Eugene, Oregon: Wipf and Stock Publishers.

Jackson, A. (2013). Sovereign Money: Paving the way for a sustainable recovery. London: Positive Money. From: http://www.positivemoney.org/our-proposals/sovereign-money-creation/

Jackson, A., & Dyson, B. (2012). Modernising money: Why our monetary system is broken and how it can be fixed. London: Positive Money.

McLaren, B. D. (2007). Everything must change: when the world's biggest problems and Jesus' good news collide. Nashville: Thomas Nelson.

Sigurjónsson, F. (2015). Monetary Reform - A better monetary system for Iceland (1 ed.). Reykjavik, Iceland. From: http://www.forsaetisraduneyti.is/media/Skyrslur/monetary-reform.pdf

Stibbe, A. (2015). Ecolinguistics: Language, ecology and the stories we live by: Routledge.

Wren-Lewis, S. (2014). Helicopter money. Retrieved from http://mainlymacro.blogspot.co.uk/2014/10/helicopter-money.html

Saturday, 4 April 2015

Economic Growth Implications

I have been playing a thought experiment with my problem solving students in relation to determining the impact on resources of constant growth. The scenario that I presented was:

Martha is concerned about the rate at which natural resources are being used and wants some way of being able to calculate when a particular resource might run out. She wants to base her calculations on knowing what the current rate of usage is in terms of units of the resource, the available units of the resource, and the rate of growth for the resources usage. The rate of growth for the resources usage should be fixed at a percentage of usage of the current year's usage.

To improve her understanding, she would like to include a rate at which new resources are discovered and to allow this rate to decline over time. Like the growth in resource usage, the rate of resource discovery should be based on the current year's available resources. Her argument is that when the resources are plentiful, the resource discovery would correspond in some way but would decline as resource availability begins to shrink. The decline in the rate of discovery is supposed to indicate the increasing difficulty of discovering new resources.

As well as calculating how long a resource will last, she would like a to have a graph that shows each years resource usage, the available resource and the rate of discovery of new resources. She believes this will help her understand better the issues around resource usage.

To try and solve this problem, I created a spreadsheet that would give me the amount of resource required for each year, the know available resource for that year, and the amount of new resource discovered during that year. I also calculated the declining rate to resource discovery for each year. By providing the initial seed values for the key variables, I can quickly plot what will happen for a resource over a set period (experiments reported here range over 100 to 500 years). That seems reasonable since we have managed to do most of the damage to the environment and diminish the resources in the last 100 years, in fact I would say in the last 60 years (i.e. in my life time).

Before I carried out this experiment, I was aware that a growth rate for resource usage of 1% required only 70 years for the resource requirement to double. That is if you start requiring 100 units of the resource in the first period, you will need at least 200 units by the 70th year, 400 units by the 140th year, and 800 units by the 210th year. With a 2% growth rate in resource usage the requires would double every 35 years. With a 10% growth rate the doubling of the resource requirements is approximately every seven years. Regardless of the rate of growth the result is an exponential growth curve. It is simply the slope of the curve that is the focus of the growth rate required.

It was this exponential growth curve that I hoped I would help my students discover. However, by trying to graph resource availability, I realised that the growth curve didn't tell the story as quickly as the diminishing resource curve. In a journal that I wrote for the students related to the development of my solution, I started with the simple case: a fixed amount of resource consumed at a constant rate. The time until the resource is fully utilised is easy to calculate (i.e. the initial quantity of the resource divided by the annual usage). Add in a simple growth in resource usage (an exponential curve) and it is now lasting less time. The decline in resource availability is dramatic compared to the growth curve. Resource consumption is cumulative while the resource requirement is simply increasing at the growth rate. After two years the available resource has reduced by double the requirement plus the additional requirement of the growth rate so the decline in resource availability is quite dramatic and becomes increasingly dramatic.

Lets use a simple table to illustrate this:

Resource RequiredAvailableGrowth RateTime to extinction
100 units10,000 units0.00%100 years
100 units10,000 units1.00%< 70 years (doubling period)
100 units10,000 units2.00%< 56 years
100 units100,000 units0.00%1,000 years
100 units100,000 units1.00%< 241 years
100 units100,000 units2.00%< 154 years
100 units1,000,000 units0.00%10,000 years
100 units1,000,000 units1.00%< 465 years
100 units1,000,000 units2.00%< 268 years

What this table seems to be showing is that even a very small growth in the resource usage causes quite a significant reduction in how long the resource lasts. The dramatic reduction is caused by the exponential nature of a percentage increase in resource usage. Below is the graph for the last line of this table. What is notable about this graph is the way that it drops away sharply as the resource approach extinction. This is something that people who talk about exponential growth comment on. They say that once 50% of the resource is gone, it only takes one more doubling period for the remainder of the resource to be used. As stated above, for a 2% growth rate in usage the doubling period is 35 years so in those last 35 years, 50% of the available resource is consumed. In the previous 35 years, 25% of the resource was used. So during the early years of a resources usage, there doesn't seem to be a problem. It is much later on that the problem reveals itself and by then it can be too late to find more resource or to find an alternative.

In reality, we often don't know how much of a resource actually exists hence in the original problem it specified the requirement to allow for the discovery of new resources in the model. If we assume that the discovery rate is based on the currently available quantity then what is the impact on resource depletion? What new resource discovery rate is required to ensure that the resource will never run out for the period that we seek to be able to use the resource?

With this approach to modelling, as long as the available resources for a each year are increasing so does the quantity being discovered (i.e. discovered is greater than used). As the required amount approaches the new discovery amount for any given year then the discovery amount begins to decline. In theory modeling a fixed discovery of new resources doesn't reflect either a limited supply but for discovery rates less than the growth in usage demonstrate the impact of a limited resource since once the known available resource begins to fall so does the quantity being discovered. This effect increases the decline in available resource leading to an earlier extinction of the resource.

Let's assume that we have 1,000,000 units of our resource available, we are using it at 100 units per year. and we think we only want it to last 300 years. What discovery rate do we need to ensure that the resource lasts for that period of time? We know from that without an increase in consumption it will last 10,000 years but we are going to have a modest growth of 2% per annum. The graph above showed that this would last for just short of 268 years. Experiments with the model in the spreadsheet show that a 0.1% growth in the available resource pushes the extinction point to 280 years, a 0.2% growth in the available resource pushes extinction to 291 years, and a 0.3% growth the available pushes the extinction point beyond 300 years. That seems achievable (see graph below).

What is dramatic about this graph and all of the graphs including a growth in finding resources where the resource runs out within 300 years, is a rapid decline once the available resource reaches its peak. For this example the peak availability was 1,524,425.95 units at 194 years. By 300 years, the available resource has dropped to 234,066.7 units and would be extinct by year 309.

We started with a healthy difference between the current usage and what was available (10,000 years supply if no growth). What happens if we start with a known 10 years of supply (i.e. a known availability of 1,000 units)? We will continue to use the modest 2% growth in usage so without a growth in supply, the resource will last just over 9 years. We have to find new resources to meet our requirements especially if we want this to last 100 years never mind that 300 years. At a find rate of 11.9992%, the resource will last 101 years as shown below.

Change the growth rate in discovering resource to 12% and the resource almost 385 years That doesn't seem a big difference but it is around this point that we seem to be discovering enough new resource to be able to make the supply sustainable but is it really? Look at how the graph dips as the available resources peak. There is little warning that we are no longer finding resources quick enough.

Reality differs from my simplistic model. Including the decline in the discovery rate does further highlights the problems. The desire to include a decline in the discovery rate is that as a resource becomes scarce, it becomes more difficult to find. The following graph is based on starting values of 10 units available and consuming 1 unit per year with a 2% growth rate in usage and an initial rate of 13.8% for find resources that is declining by 1% per year.

Up to year 279, everything seems fine but by year 349 all the resource is gone. Change the decline rate in finding new resources to 2% and the starting find rate percentage has to be 21% for the resources to last as long. The graph has an even more dramatic shape although the warning of decline in availability comes earlier.

How does reality match these models? These models are very simplistic where the rates of usage of any resource will vary while it is being used and so will the discovery rate. However, we already have evidence of the decline caused by over fishing (i.e. the catch rate exceeding the rate at which fish breed) or the decline in the discovery of gold once the easily accessible gold has been recovered. For renewable resources such as fish, there is potentially a sustainable level of use but other resources, such as fossil fuels, where there is a very low production rate, there may be no sustainable level of use. In fact with most resources, we are only guessing how long they will last.

The problem is that our growth mentality and desire for the latest, drives a growing need to obtain more of increasing difficult resources to find. What adds to the difficulty is that in order to satisfy the increase in the need for one resource (i.e. housing), we are reducing the ability to produce another resource (i.e. food). In some many ways we treat the planet as limitless when it really is a finite resource. What is more our awareness of our rate of consumption has become more obvious in the last 50 years when the period of growth in resource consumption has possibly been at its highest. The questions that we should be asking are whether continued growth is really possible and whether it is possible to build a community that is sustainable?

It isn't a natural disaster or the hand of an unseen god that will destroy us. It is our own greed, our lack of awareness of the limits of our planet, and our fear that others will take what we believe we need that will destroy humanity and the planet that we live on.

Saturday, 28 February 2015

Money as a result of lack of trust

The normal convention is to see money as being based on trust in the sense that we trust that others will accept money as part of transactions for goods and services. In this article, I want to turn this premise around and argue that money has its origins in a lack of trust and that it is about being able to enforce obligations and possibly slavery.

Why do I think that I can challenge the dominant theory of the origins of money and replace it with an alternative theory? The standard theory of the development of money is that it developed as a result of the division of labour and as a way to get around the difficulties of a barter system (Smith, 1776). However, this has been challenged by Graeber (2011) who contends that it developed as a way of accounting for debt obligations. What Graeber is contending is that early communities freely gave in order to satisfy need but there was an understanding that there would be a reciprocal gift when the giver had a need. In his study, Graeber contends that token began to be given as a way of reminding recipients of the debt obligation.

I want to pursue this idea further and argue that these token were given not as a sign of trust but rather as a sign of lack of trust. What I am arguing is that the giver was not convinced that the receiver would return the obligation so sought a means of accounting for the obligation. By creating some token that symbolised the obligation and the size of the obligation, the giver now had a claim over the receiver. When these claims begin to be enforceable within the community then these tokens begin to take on value. If these tokens of obligation begin to be traded as a way of passing the obligation to another party then we have the making of money. Some would argue that this trading of tokens of obligation is when trust comes into the system since the secondary recipient is now trusted to fulfil the original obligation. If instead of the token being given as a reminder of an obligation but rather as a reminder of a claim then we have the making of a modern money system and of the desire to have these tokens backed by some tangible value.

So much of our monetary assumptions are based on the idea that money is a form of trust that these tokens of money will retain their value and be accepted as payment for goods and services. With currency that was backed by a precious metal (i.e. gold or silver) or some other resource, then the recipient of the currency has the expectation that the original issuer will redeem the currency tokens for that resource on demand. However, when the amount of currency in circulation exceeds the backing resources then it is no longer possible for the claim to be honoured. Now most currencies are not backed by tangible resources and are instead honoured by a countries central bank as the issuer of the currency. However, this is beginning to be eroded with the development of complementary currencies and digital currencies.

My contention is that even now, a person holding money is more about a claim that the person has to resources or services offered by a community because of resources and services that they have made avail;able to the community in the past. It is a symbol of a lack of trust in the community to provide such resources or services and in a person being willing to offer their resources and services to the community when a need is identified. The offer of a debt token for resources and services is a way of enticing a member of society to participate in the sharing to meet the needs of the community.

Because we have turned it around from an obligation to return the favour to a payment for resources and services rendered, the system has removed the obligation to meet need and a greater mistrust of those who find themselves unable to compete or without access to resources or services to trade in the community. Further I would contend that the emphasis on having to offer a resource or service that others are prepared to pay for enslaves people into a system of work dependency and removes the freedom to explore their use of talents in other areas that may not have the same financial return.

Returning to a currency backed by a resource may reduce the trust that is required in a system where the token of exchange is based on a willingness to accept it as a token of exchange. However, the underlying need for the tokens in the first place is based on a mistrust of others and their willingness to meet needs that they have the resources to satisfy.

References

Graeber, D. (2011) Debt: The first 5,000 years. New York: Melville House Publishing

Smith, A. (2005 [1776]) An inquiry into the nature and causes of the wealth of nations. Electronic Classics Series, Pennsylvania Stats University. Available from: http://www.rrojasdatabank.info/Wealth-Nations.pdf or http://www2.hn.psu.edu/faculty/jmanis/adam-smith/wealth-nations.pdf

Have we been here before?

I have been rereading Brian McLaren's (2007) “Everything must change.” He finishes chapter 10 by talking about “Jesus resituated.” Basically, he describes the context in which Jesus lived, that is the Roman empire which promoted wealth and peace for all but in reality this was wealth and peace for a small elite while the rest were enslaved, taxed, enlisted, or treated as production units for empires prosperity, and security systems. The Roman empire framing story was about the benefits for those in the empire except for those who were on the margins. The surrounding countries were either in fear of the empire or they hoped to join it so that they could share in the perceived prosperity of the empire. The empire enlisted young men to defend its boarders and treated women as production factories to supply the needed men for the wars. McLaren also talks about how it was dangerous to speak out against the imperial machine.

It seems that there are some parallels with our current rumbling societal machine with its so called prosperity through growth framing story. We are called to endure austerity (except for the wealthy elite, corporate executives, and wealthy sports stars and celebrities) to ensure that we share in the later prosperity of the new juggernaut. To protect, the prosperity especially for the elite, the rest must pay their taxes, see their incomes squeezed, and be enlisted in the fight against those who would see to oppose the stumbling juggernaut.

We see immigration as an increasing problem as people outside the juggernaut perceive the relative prosperity of those within and nations on the boarders struggle to become a part but are excluded if they don't measure up to the stringent economic standards of the juggernaut.

Radicals and terrorists operate in marginalised countries attacking resources that the juggernaut needs for survival. Young people are not yet being conscripted but they are being encouraged to join the military machinery to defend the juggernaut from these rebel factions. New laws and agreements are introduced that maintain the rights of the wealthy and corporates at the expense of all others.

It couldn't be possible in the framing story that those who are being conscripted could possibly be radicalised by a system that promised prosperity for all except the poor, the middle class, those who did not agree with the framing story, those who questioned the direction of the juggernaut, etc.

Like the Roman empire, this modern age juggernaut will continue to rumble along as long as the majority of it citizens will accept the dominate framing story despite the hardship they endure and the growing inequality in society. After all it is the juggernaut that enables them to meet their needs and provides their security. Does it matter that a few who are cast out on the fringes become radicalised and fight against the juggernaut? The juggernaut is superior and can bring down these radicals.

But wait, what happened to the mighty Roman empire? What happened to the empires that European nations built? What happened and is happening in the nations they once colonised? Surely, we can't question the imperial mandate and its story that we have repeated throughout generations?

References

McLaren, B. D. (2007). everything must change: When the world's biggest problems and Jesus' good news collide. Nashville: Thomas Nelson.