Monday, December 30, 2013

Weapons of mass distraction

Shortly before the holidays were upon us, I noticed that everywhere, in every media, seemed to be nonstop stories about some sort of character from the TV show “Duck Dynasty,” breathlessly reporting his “shocking, shocking” views.

I had some vague idea about this show, but I knew next to nothing about it, except that it’s apparently America’s latest ridiculous short-attention-span obsession that will be forgotten in a year or so like Honey-Boo-Boo or The Real Housewives or Jersey Shore or Kim and Kanye or whatever new distraction the media throws at us. Apparently it’s about a family of Southern rednecks who made a fortune starting a business selling duck-calls (right?). Why is this such a big deal, so much so that you literally could not go anywhere online without hearing about it? Was this really news?

So my first thought on hearing these supposed comments are, “Looking at the guy, is anyone surprised that he holds those views?” Because you would have to be an idiot if you didn't expect them given the backgrounds of the kinds of people featured on the show. Who, exactly, is surprised that people hold such opinions at this point? But my second reaction was, “It looks like they’re throwing another log on the fire of the culture wars.” But why now? Why has every media outlet decided to focus like a laser and devote massive amounts of time and effort to this obscure buffoon in a world where there are so many serious issues and crises that threaten our very existence on this planet (did you know, for example, that a power station in California was attacked shortly after the Boston bombing? Because I didn't until today. And what about Fukushima? Or drone strikes? Or secession movements in Europe? Or the TPP? Or the Central African Republic and Sudan? Or Peak Food? Or NSA spying? Or...?).

My theory is that the destruction of the middle class and the extreme disparities in wealth and opportunity (and government abuses) are becoming so big and so pervasive that the media is having a hard time covering it up. It’s the elephant in the room that journalists can’t ignore anymore, and the spell of media is starting to be broken. You've even got fast-food worker strikes and back-page editorials about it. Wal-mart and McDonalds are targets of genuine anger. I've noticed a distinct spike in stories about it, even in the corporate-owned media. Even President Obama has had to acknowledge this in his recent speeches. They need a convenient distraction. So, then, time to ratchet the culture war up another notch.

So what does the media do? They scare up some sort of evil bogeyman plucked from flyover country to be a convenient target to whip intellectuals, progressives and urban liberals into a predictable frenzy of outrage. “How dare he hold those views!” scream urban liberals, despite the fact that people in this country have always held views like that in rural areas for as long as this country has existed. Thus, the Pavlovian reactions of predictable shock and outrage stir up the standard-fare hostilites, playing urban against rural, religious against atheist, educated against non-educated, and so on.

Make no mistake, it can just as easily work the other way. The media could find some Hollywood star to say some disparaging thing about the Bible, or some educated urban liberal elite defending gay marriage or abortion to whip up anger and frenzy on the other side right on cue*. We’re just puppets on a string at this point. Either way, the ball starts rolling, and people are sufficiently distracted, and the real stories continue to be ignored. They've got it all down to a science. The usual suspects come out of the woodwork to stand on their soap box and furiously denounce the other side (Sarah Palin, Fox News, Jon Stewart, etc.), and you’re off to the races. It’s as predictable as the sunrise at this point.

As I've said so often before, this is how they operate – divide and rule. Play Americans against each other as the country slowly decays and falls apart and the elites loot and pillage and buy politicians with impunity.

Given the extremely concentrated ownership of the media, I wouldn't be surprised if this playbook were a lot more coordinated than we think. It seems hard to ascribe the all-pervasive and extraordinary focus on this story as mere coincidence, or even follow-the-leader. Ninety-five percent of what we see and hear is controlled by just six media conglomerates, and that includes much of the Internet, too.

My only point is this - these wars of distraction are starting to acquire an air of absolute desperation. Is everyone else sensing it too? How long can they keep it up?

Here’s my first prediction for the new year – you’re going to see the media leaning on the culture war button with ever more fervor and desperation as the nation continues to crumble to the point where it affects too many people to be ignored and brushed aside any more. The only question remaining is who the next bogeyman will be, because mark my words, there will be many more to come.

*BONUS: After I wrote this, I see that Good Morning America host Robin Roberts has come out as gay. Tally-Ho!!!

EXTRA: It's funny 'cause it's true: How The Media Will Report The Apocalypse (Buzzfeed)

PLUS - Have a look at just how concentrated, coordinated and scripted American media is, courtesy Conan O'Brien:

Sunday, December 29, 2013

Where the streets are plowed with cheese


This is actually up the street from me.
Nice to see we made the New York Times:
This month, Milwaukee began a pilot program to repurpose cheese brine for use in keeping city roads from freezing, mixing the dairy waste with traditional rock salt as a way to trim costs and ease pollution.

“You want to use provolone or mozzarella,” said Jeffrey A. Tews, the fleet operations manager for the public works department, which has thrice spread the cheesy substance in Bay View, a neighborhood on Milwaukee’s south side. “Those have the best salt content. You have to do practically nothing to it.”
But in this dense urban setting, Milwaukee officials are reviewing a list of potential problems that come with cheese-coated streets: Would a faint odor of cheese bother residents? Would it attract rodents? Would the benefits of cheese brine, said to freeze at a lower temperature than regular salt brine, be enough to justify the additional hauling and storing requirements?
Pouring Cheese on Icy Roads in (Where Else?) Wisconsin (NTY) The good part is you can scrape it up and put it on your pizza for that gritty, rubbery taste.

UPDATE: Apparently we're in the news for some less pleasant reasons.

Saturday, December 28, 2013

Freedom

Interesting that this appears in a British paper. Would any American news media publish this?
When I'm not traveling, I work food service jobs in Chicago, which, along with food stamps, helps me support my decadent hobby of freelance journalism. Sure, I could probably land some office job, working for the handful of people who own everything. But I'd rather not.

To some, I might seem the poster boy for American freedom, making just enough money to write and travel and seek my fortune. But once the hope for eventual stability is taken out of this formula, which is the reality for more and more Americans, all that's left is the striving. And that doesn't look good for our brand of freedom.

Too often our lives are at the mercy of someone else's interests. A guy who took me from Douglas to Casper, Wyoming opened up about an awfully familiar dissonance in his life. He was around my age, two years of community college behind him, and working for one of the few employers in the desert: the natural gas industry. The problem was, he confided, "I know all about Gasland," the 2010 documentary that helped turn public sentiment against the environmentally destructive gas extraction process known as fracking, now his livelihood. His defense was that "it pays the bills", perhaps the closest thing my generation has to a motto.

I got a ride from a woman struggling with drug addiction, unable to support either her aging father or newborn grandson. I rode across Oregon in a big rig with an ex-cowboy who saw the ranching business automate and get taken over by giant farms, and who subsequently turned to truck driving, hauling freight well into retirement age. Sure, I encountered plenty of uplifting stories as well, sometimes from these same people. And my own experience of thumbing across the west approached, at times, true liberty. But I was surrounded by dissatisfaction and striving – a predicament I felt I was only temporarily escaping. In this tenor, the refrain "at least I know I'm free" sounds less like a line from a prideful anthem than from a sobering prayer.

If I could paint the country in one broad stroke, I would say it's a place where one concept of freedom – used to lobby for private interests and free markets – is at odds with another kind: the ability to lead a life you enjoy. Fewer and fewer seem privileged with this second kind. Not Trayvon Martin, who was a victim of a certain kind of racism which had, as its root, private property anxiety. Not the natural gas employee who has consigned himself to a life of doing something that he feels ought not to be done. Even I – who have managed to escape from time to time – always find, upon return, a cordial invitation to fall in line.
What I learned about freedom from hitchhiking around America (The Guardian) To be 'free' in America is at risk of becoming meaningless. Our choices are often limited to two: to exploit or be exploited

Related: Living in a rich society (Ian Welsh)

Friday, December 27, 2013

Shifting lines


Fascinating article about how the map may be changing in the years ahead: The New York Times’ List of Potential New Countries, and Others As Well (GeoCurrents)
 1. Mali Breaks Up

2. Belgium (Finally) Splits Up

3. Congo Splinters

4. Somalia’s Breakup Confirmed

5. Alawites Go Solo

6. The Arabian Gulf Union

7. An Independent Kurdistan

8. Greater Azerbaijan

9. Pashtunistan and Baluchistan Take a Stand

10. China Gobbles Up Siberia

11. Korea Reunited

Additional suggestions for potential new countries have also been made elsewhere. ComingAnarchy.com lists the following newly independent states that could splinter off existing countries in Europe: Scotland (currently part of the UK), Normandy, Brittany, and Corsica (France), Basque Republic and Catalonia, the latter with or without the Balearic Islands (Spain), Baden-Württemberg and Bavaria (Germany), Padania and Sardinia.

An even more radical map of “Potential independent states in Europe” (whose original author I was not able to establish as it has been reposted on multiple websites without proper reference) lists, in addition to the already mentioned candidates: United Ireland, created by joining together the current Republic of Ireland and the Northern Ireland) and Wales in the British Isles; Galicia and Andalusia (Spain); Trentino South-Tyrol in northern Italy; Republica Srpska and Herzeg-Bosnia (which together currently form Bosnia and Herzegovina); Kosovo and Metohia in southern Serbia; Trasdnistria; North Ossetia, Chechnya, and Abkhazia in northern Caucasus region; Nagorno-Karabakh; and Northern Cyprus.
And see: Spain ‘won’t have enough tanks’: Catalonia to vote on independence, defy Madrid (RT)

No mention of anything in North America, despite secession stories this year about Colorado and California? And I suppose Quebec is still threatening. Maybe Mexico will finally take back the Southwest?  Wildest Secession Movements in The United States (Neatorama) And see this: The New American Nations

How much is due to peak oil/resource scarcity?

And here is a film of changing European borders from 1000AD to the present day:

Fighting food waste

Rub & Stub restaurant in Copenhagen is battling against waste - by serving up food that the supermarkets won't sell. The restaurant offers meals made from vegetables and fruit rejected by the food industry because of sell-by dates and over-buying. The restaurant has two paid employees - a project manager and head chef - but all the other staff are volunteers. It is funded by Danish charity Retro and profits go towards development projects in Sierra Leone.

Chef Ditte Jensen told BBC News why she believes it is possible to make delicious meals from rejected food.
The restaurant that serves up rejected food (BBC)
The traditional way of getting dinner is buy food and cook it, or to go to a restaurant. But what if someone in a nearby street has cooked more than they need and is ready to share it for a small fee? It's already happening in the Greek capital and will soon be starting in London. 

It's time for Marilena Zachou to get up, make a Greek coffee, get the kids fed and off to school. And when the peace and quiet descends at 10am, the cooking begins. Today it is moussaka. She gently fries the onion and minced lamb in olive oil. She reaches for the pepper, salt, paprika and tomatoes and inhales as the aroma fills the kitchen and escapes from the windows and out into the street. She uploads details of the dish and watches the screen as people from the area order their portions.

There will be no wasted food in her household today. At least five other people in the Athens district of Marousi will be sharing her family's evening meal. By midday the entire oven dish has been sold. She notes down the delivery addresses for later. This morning ritual is not unique to Zachou. It is happening across Athens.
Cookisto: A new Greek way of getting dinner  (BBC)
Every day, America wastes enough food to fill the Rose Bowl. Yes, that Rose Bowl--the 90,000-seat football stadium in Pasadena, California. Of course, that's if we had an inclination to truck the nation's excess food to California for a memorable but messy publicity stunt.

As a nation, we grow and raise more than 590 billion pounds of food each year. And depending on whom you ask, we squander between a quarter and a half of all the food produced in the United States. Even using the more conservative figure would mean that 160 billion pounds of food are squandered annually--more than enough, that is, to fill the Rose Bowl to the brim. With the high-end estimate, the Rose Bowl would almost be filled twice over.

If those numbers don't hit home, consider that the average American creates almost 5 pounds of trash per day. Since, on average, 12 percent of what we throw away is or once was edible, we can estimate that each one of us discards half a pound of food per day. That adds up to an annual total of 197 pounds of food per person. Ominously, Americans' per capita food waste has increased by 50 percent since 1974.
Americans Waste Enough Food to Fill a 90,000-seat Football Stadium Every Day (Alternet)

Thursday, December 26, 2013

Bitcoin and other oddities

Why I want Bitcoin to die in a fire (Charlie Stross)

Bitcoin, Magical Thinking, and Political Ideology (Alex Payne)

Time for a little Bitcoin discussion (Digitopoly)

In gold we trust? (MacroMania)

What's interesting to me is that you've got so many different ideas about money all floating around at the same time. I don't think that's a coincidence. I think what it indicates is a profound unease with the complexity and volatility of the system of finance that we are now all yoked to whether we want to be or not.

And what's doubly-interesting is that all of these ideas seem to be joined to certain political philosophies. That is, your preferred "alternative" to money depends on your political views.

So you've got Bitcoin embraced by the libertarian/techno-utopian set that believes that we would all just be better off if centralized governments disappeared from the earth and we built a computer-centric utopia ("all watched over by machines of loving grace"). Then, you've got the Goldbugs, who tend to be the Calvinist/Doomer set who see the nineteenth century as an idealized golden age (no pun intended) that we should return back to. Both of these groups are obsessed with "debasement" as the cause for the collapse of society. Then you've got the more pro-social policies of "community currencies" that allow people to print enough money for various enterprises at the local level without having to sell bonds or deal with the Federal Reserve or any of that stuff (i.e. Monopoly money). This is embraced by the anti-government "local solutions" crowd who believe we can build a parallel society as the old one comes apart. You've also got people recommending "demurrage" currencies, that is, currencies that are specifically designed to lose their value so that people go out and spend them instead of hoarding them (a negative interest rate is based on a similar idea). This means that people will flee from whatever currency you're proposing to use, choosing instead to hold onto other types.

The common theme here is distrust of government. Any attempt at reforming the currency we actually do use every single day - the U.S. Dollar (or whatever you use in your country of origin), is off the table. People believe that their national currencies are under control of the bankers and the bureaucrats for their own benefit and everyone else is screwed. It's sad really. All of this has gotten enough attention to be worthy of a Paul Krugman column:

Bits and Barbarism (New York Times)
[Adam] Smith is often treated as a conservative patron saint, and he did indeed make the original case for free markets. It’s less often mentioned, however, that he also argued strongly for bank regulation — and that he offered a classic paean to the virtues of paper currency. Money, he understood, was a way to facilitate commerce, not a source of national prosperity — and paper money, he argued, allowed commerce to proceed without tying up much of a nation’s wealth in a “dead stock” of silver and gold.

So why are we tearing up the highlands of Papua New Guinea to add to our dead stock of gold and, even more bizarrely, running powerful computers 24/7 to add to a dead stock of digits? 
Here's an alternative view, but it doesn't really contradict the above. There are some good comments too. This one I found especially interesting, in that you can think of money as a stand-in for time:
The value of any object or commodity is a function of its usefulness and rarity. Gold, diamonds, trade routes, waterfront, atomic bombs, dollars, cyberspace are examples of high value to different segments. Amazingly most people resist acknowledging the most truly valuable and finite commodity is time. Money is simply a method of exchanging time.

For example, I can take the time to grow a carrot (2.5 months) or I can go to a grocer and purchase a carrot (10 minutes). I could walk to the East Coast (>100 days) or I can buy an airline ticket saving 99.75 days. Money allows me to control how I spent my time of Earth.

With a finite limit of time available to everyone; how much money is appropriate or even healthy to accumulate? Obviously, that answer will elicit a bell curve of responses. Ask anyone that has suffered a debilitating or life threatening illness; they’ll tell you time healthy is vastly more valuable than any object on Earth. People that accumulate vast stores of objects such as newspapers or cats, are diagnosed as suffering from a hoarding disorder When does the accumulation of wealth tip over from mild obsession to a compulsive illness, $50 million, $100 million, $1 billion, $10 billion, 50 billion?

The dysfunctional performance of our governing bodies, the lack of infrastructure investment to support our future and the massive accumulation of wealth in the hands of so few appears crazy to many of us, maybe it really is.
And I like this statement:
"An economy is an imaginary construct. It is whatever we believe it to be. At this point in America, we are convinced that it is a winner take all game - based on survival of the fittest. And most Americans accept this definition, provided to us by the richest segment of our populace."  
I've expressed a lot of skepticism about all of these alternative currency ideas. In the past, I've recommended the ideas expressed by Chartalism (also called MMT or Functional Finance). I've also recommended a system of public banking. To me, these are the closest we can get under the current system to a resource-based economy as opposed to the clearly dysfunctional system we have now. The unfortunate thing is that for these ideas to grain traction, they need to be applied at the federal level (since only the federal government can issue currency), and the federal government is completely captured by big-money interests. These ideas might work if the United States breaks apart into smaller nations, which might be the best thing overall. But I don't see that happening anytime soon.

Personally, I think the fundamental problem with money is that the rich have too much and the rest of us not enough. People are not getting paid the value of their economic output, and the wealthy are hoarding money which just leads to expenditure cascades and rising prices for everything else in society. All of these alternative money proposals are simply reactions to that. But I don't think any one of them are going to fix that fundamental problem.

Tuesday, December 24, 2013

Merry Christmas 2013

A wonderful Christmas and holiday season to all my readers.







Monday, December 23, 2013

Christmas Tiny Tim reading


How America abandoned its “undeserving” poor (Salon) And, related, The Welfare Queen (Slate)

Is the Safety Net Just Masking Tape? (New York Times)
Konczal described two approaches to the liberal state. In the first, “you would have the government maintaining full employment, empowering workers and giving them more bargaining power.” In the second, “you would have a safety net for those who fell through the cracks.” These two approaches, according to Konczal, should not be looked at as an either-or proposition, but as mutually reinforcing and interdependent: “I don’t believe those two can exist without each other. Without a strong middle and working class you don’t have natural constituencies ready to fight and defend the implementation and maintenance of a safety net and public goods. The welfare state is one part, complementing full employment, of empowering people and balancing power in a financial capitalist society.” In practice, Konczal writes, the political left has abandoned its quest for deep structural reform — full employment and worker empowerment — and instead has “doubled-down” on the safety net strategy. The result, in his view, is “a kind of pity-charity liberal capitalism.”
Related: Report: Most people in poverty have jobs (Salon)

In the War on Poverty, a Dogged Adversary (New York Times)
When President Lyndon Johnson declared his war on poverty on Jan. 8, 1964, almost exactly 50 years ago, 19 percent of Americans were poor.“The richest nation on earth can afford to win it,” he reasoned, as he proposed a clutch of initiatives from expanding food stamps to revamping unemployment insurance. “We cannot afford to lose it.”

A half-century later, our priorities have changed.

In November, food benefits were cut for approximately 48 million Americans by an average of 7 percent, costing the typical recipient about $9 a month, as the emergency expansion of the food stamp program enacted in the depths of the great recession was allowed to expire. Next month, 1.3 million jobless workers are scheduled to stop receiving an unemployment check, after Congress’s refusal to prolong the extension of emergency jobless benefits to up to 73 weeks, from 26. Perhaps as many as five million people will lose their benefit over the next year.

But while politicians’ attention has wandered, poverty remains uncomfortably close to where it was five decades ago.

The official poverty rate today is 15 percent. But by a newly deployed, more comprehensive Census Bureau definition, which provides a more realistic tab on people’s needs and takes into account the effect of government benefits, 16 percent of Americans are poor. This is just 3 percentage points less than in 1967, the earliest year for which the data is available. It amounts to 50 million people. Why so many still? Did the United States wage a war on poverty, lose and move on?
Noam Chomsky: America Hates Its Poor (Alternet) And: David Simon: 'There are now two Americas. My country is a horror show' (The Guardian)

Waiting for the 8th (WaPo)

Poverty nation: How America created a low-wage work swamp  (Salon) And: Breadlines Return (New York Times)
In an article published on Monday, The Times’s Patrick McGeehan described a line snaking down Fulton Street in Brooklyn last week, with people waiting to enter a food pantry run by the Bed-Stuy Campaign Against Hunger. The line was not an anomaly. Demand at all of New York City’s food pantries and soup kitchens has spiked since federal food stamps were cut on Nov. 1. The cut — which affects nearly all of the nation’s 48 million food stamp recipients — amounts to a loss of $29 a month for a New York City family of three. On the shoestring meal budgets of food stamp recipients, that’s enough for some 20 individual meals, according to the New York City Coalition Against Hunger.

The food stamp cuts are occurring even though need is still high and opportunity low. In a report released today, the Coalition estimates that one-sixth of the city’s residents and one-fifth of its children live in homes without enough to eat. Those numbers have not improved over the past three years. The lack of economic recovery for low income New Yorkers is at odds with gains at the top of the income ladder, reflected in soaring real estate prices, rising stock prices and big Wall Street bonuses.

And there are more food-stamp cuts to come. House Republicans have proposed to cut the program by $40 billion over 10 years in the pending farm bill; the Senate has proposed a $4 billion reduction. With Congress framing its task not as whether to cut the program, but how much, is there any doubt that food lines will soon be getting longer — and children hungrier?
It’s Not OK That Your Employees Can’t Afford to Eat (Harvard Business Review)
No doubt the reason low-wage companies continue to pay low wages is because there are plenty of workers willing to take jobs at those wages, and the need to pay more to avoid the risk of being unionized is largely gone. But “can” and “ought” are not the same thing.  Nothing about the minimum wage implies that it is morally ok as long as you pay at least that much. It simply says that the government will prosecute you if try to pay less than that level.

One of the things that I find surprising is how many companies that pay poverty-level wages or thereabouts to their employees spend a good deal of effort to be good corporate citizens in other areas. They try to make their operations “green,” lessening their impact on the environment, some even sponsor anti-poverty programs in Africa, and so forth. They just don’t seem very interested in the poverty among their own workforces.
Republicans: We Were Too Nice to the Hungry, But We’ve Fixed That (New York Magazine)
It’s not baffling, nor is the notion that the Republican Party protects the class interests of the rich a “stereotype.” It’s an analysis that persuasively explains the facts.

Indeed, it’s the only analysis that persuasively explains the facts. I’d prefer to abolish agriculture subsidies completely while keeping in place (or boosting) food rations for the poor. A libertarian might want to abolish both programs, a socialist might want to keep both. I’d disagree but attribute the disagreement to philosophical differences. What possible basis can be found to justify preserving subsidies for affluent farmers while cutting them for the poor? What explanation offers itself other than the party’s commitment to waging class war?
North Carolina Shows How to Crush the Unemployed (The Ticker)


Look at the Stats -- America Resembles a Broken Banana Republic (Alternet)

U.S. Student Homelessness Up 10% Since Last Year (Naked Capitalism)

The typical American family makes less than it did in 1989 (Washington Post) And: Among American workers, poll finds unprecedented anxiety about jobs, economy (WaPo)

Wages Stagnate as U.S. Manufacturers Reap Record Profits (Bloomberg) And Always Low Wages? Wal-Mart's Other Choices (Bloomberg)

The 40-Year Slump (The American Prospect)
What no one grasped at the time was that this wasn’t a one-year anomaly, that 1974 would mark a fundamental breakpoint in American economic history. In the years since, the tide has continued to rise, but a growing number of boats have been chained to the bottom. Productivity has increased by 80 percent, but median compensation (that’s wages plus benefits) has risen by just 11 percent during that time. The middle-income jobs of the nation’s postwar boom years have disproportionately vanished. Low-wage jobs have disproportionately burgeoned. Employment has become less secure. Benefits have been cut. The dictionary definition of “layoff” has changed, from denoting a temporary severance from one’s job to denoting a permanent severance.

As their incomes flat-lined, Americans struggled to maintain their standard of living. In most families, both adults entered the workforce. They worked longer hours. When paychecks stopped increasing, they tried to keep up by incurring an enormous amount of debt. The combination of skyrocketing debt and stagnating income proved predictably calamitous (though few predicted it). Since the crash of 2008, that debt has been called in.

All the factors that had slowly been eroding Americans’ economic lives over the preceding three decades—globalization, deunionization, financialization, Wal-Martization, robotization, the whole megillah of nefarious –izations—have now descended en masse on the American people. Since 2000, even as the economy has grown by 18 percent, the median income of households headed by people under 65 has declined by 12.4 percent. Since 2001, employment in low-wage occupations has increased by 8.7 percent while employment in middle-wage occupations has decreased by 7.3 percent. Since 2003, the median wage has not grown at all.

The middle has fallen out of the American economy—precipitously since 2008, but it’s been falling out slowly and cumulatively for the past 40 years. Far from a statistical oddity, 1974 marked an epochal turn. The age of economic security ended. The age of anxiety began.
Lessons from a history of thought on poverty (VoxEU)
We have also seen a marked transition in thinking about poverty. Observations of poverty have long interacted with prior ‘theories’ (including ideologies) to yield an ‘interpretation’ of the causes of that poverty, with possible implications for action. Two stylised interpretations can be distinguished in past thought, both scholarly and popular.

    In the ‘utility of poverty’ interpretation, some people are poor largely because of the choices they make and there is little reason to think that they have the potential to be anything else than poor;

And their poverty is seen as necessary for the country’s economic success, which requires a large number of people eager for work, and avoiding hunger is seen as a necessary incentive for doing that work. The view of Patrick Colquhoun (1806), the founder of the modern police force, is a fair representation: “Poverty is a most necessary and indispensable ingredient in society, without which nations and communities could not exist in a state of civilization. It is the lot of man – it is the source of wealth”. This appears to have been the dominant mainstream view until well into the 19th century, and versions of this view survive today, though it is clearly no longer dominant.
Poverty used to be seen as a social good (Economist's View)
Prior to the late 18th century, the dominant school of economic thought saw poverty as a social good, essential for economic development. It may well have been granted that, other things being equal, a society with less poverty is to be preferred, but other things were not seen to be equal. Poverty was deemed essential to incentivize workers and keep their wages low, so as to create a strong, globally competitive, economy. Nor did the idea of what constitutes “economic development” embrace poor people as being necessarily amongst its intended beneficiaries. There was also widespread doubt about the desirability of, or even the potential for, governmental intervention against poverty. ...

[There] was little reason to think that poor people had the potential to be anything else than poor. Poverty would inevitably persist, and was indeed deemed necessary for economic expansion, which required a large number of people eager for work, and avoiding hunger was seen as the necessary incentive for doing that work. ... [Beyond] short-term palliatives to address shocks, there was little or no perceived scope for public effort to permanently reduce poverty. And a world free of poverty was unimaginable—after all, who then would be available to farm the land, work the factories and staff the armies?

Hunger Makes People Work Harder, and Other Stupid Things We Used to Believe About Poverty (The Atlantic Cities) Er...used to?

 And God bless us, every one!

Sunday, December 22, 2013

Economic History Roundup

So I thought I'd finish out our latest discussion of the evolution of economics with a few historical articles to bridge the gap between ancient systems and today

Most people in the Middle Ages under Feudalism lived under an economic system called Manoralism. Then we saw how an expanding economy due to increased luxuries imported into Europe during the Crusades, medieval market fairs, paper finance instruments, Lombard banking, and the like, led to increased trade, which led to Arabic numerals and double-entry bookkeeping. What this led to was an economic system known as mercantilism. To some extent, mercantilism made sense. When trading between countries, you can't use you countries' own respective currencies - you can't accept Pounds for British goods in France because you can't spend them in France and vice-versa. So, the mutually-agreed-upon currency was gold. But if you buy more stuff than you sell, at the end of the year you have less gold in your vaults and your trading partner has more. Why was this important? Well, gold was how you raised, paid for, and provisioned armies. So having less gold than your rival (and this was an era of incessant warfare) meant that you were vulnerable (today dollars are used for international trade, which leads to a whole host of issues you may have heard about)
At the heart of mercantilism is the view that maximising net exports is the best route to national prosperity. Boiled to its essence mercantilism is “bullionism”: the idea that the only true measure of a country’s wealth and success was the amount of gold that it had. If one country had more gold than another, it was necessarily better off. This idea had important consequences for economic policy. The best way of ensuring a country’s prosperity was to make few imports and many exports, thereby generating a net inflow of foreign exchange and maximising the country’s gold stocks.

Accumulating gold was thought to be necessary for a strong, powerful state. Countries such as Britain implemented policies which were designed to protect its traders and maximise income. The Navigation Acts, which severely restricted the ability of other nations to trade between England and its colonies, were one such example...One often reads in mercantilist tomes that foreign trade would be more beneficial than would domestic trade. And some of the early mercantilists, like John Hales, were enchanted by the idea of an overflowing treasure chest...on the whole... Few mercantilists were slaves to the balance of payments. In fact, they were alarmed by the idea of hoarding gold and silver. This is because many mercantilist thinkers were most concerned with maximising employment. Nicholas Barbon—who pioneered the fire insurance industry after the Great Fire of London in 1666—wanted money to be invested, not hoarded. As William Petty—arguably the first “proper” economist—argued, investment would help to improve labour productivity and increase employment. And almost all mercantilists considered ways of bringing more people into the labour force.

Mercantilism is thought to have begun its intellectual eclipse with the publication of Adam Smith’s "Wealth of Nations" in 1776. A simple interpretation of the economic history suggests that Smith’s ruthless advocacy for free markets was squarely opposed to regulation-heavy mercantilist doctrine. But according to research by Lars Magnusson of Uppsala University, Smith’s contribution did not represent such a sharp break. The father of economics was certainly concerned with the effects of some mercantilist policies. He saw the damage that overweening government intervention could do. Smith argued that the East India Company, a quasi-governmental organisation that managed parts of India at the time, was responsible for creating the huge famine in Bengal in 1770. And he hated monopolies, arguing that greedy barons could earn “wages or profit, greatly above their natural rate”. Smith also grumbled that legislators could use mercantilist logic to justify stifling regulation.

But Smith points out circumstances in which government interference is necessary. He was in favour of the Navigation Acts. And in Smith’s lesser-known "Lectures on Jurisprudence", he outlines other cases where government intervention in trade is useful. Smith was not opposed to regulation per se, but rather instances where individuals and governments could abuse their position of power for personal gain.

Nicholas Phillipson, who recently wrote a biography of Smith, argues that the notion of “free markets” was alien to the father of economics. Smith made it clear that governments would always play a part in making markets—and could not conceive of a market where the government did not play a crucial role. And in this sense, his contribution does not represent such a sharp break from mercantilist thought. The question was not whether, but how much, of a role the state would play.
What was mercantilism? (Free Exchange)

Following mercantilism, and contemporary with Adam Smith were the physiocrats in France. If you're wondering when economics became codified as a "science", this is it. The Physiocrats believed in universal, "scientific" rules for economic exchange, and believed they should never be violated. Although dismissed now, partuclarly for their notion that only farmers produced suplus, and that manufacturing was a "dead" industry, their thinking still inflicts the economics discipline today - particularly their ideas about universal, unchanging mathematical rules to describe economic behavior and  their advocacy of "free trade:"
Before physiocracy, economics was not a very scientific discipline. As we discussed in a previous blog post, mercantilist thinkers sometimes assumed that amassing gold was the best economic strategy. Economic efficiency was a pretty alien idea.

But Quesnay was a scientist (for most of his life, he was a medical doctor). And he wanted to apply the scientific principles of medicine to the study of wealth. The "Tableau Economique", which shows in a single page how an entire economy functions, is Quesnay's most famous contribution. Quesnay showed that the economy was something to be respected, analysed and understood—much like a human body. It could not simply be moulded to suit the will of a self-important monarch.

This was a hugely important step forward. The Comte de Mirabeau, an important figure during the Revolution, considered Quesnay's Tableau to be one of the world's three great discoveries—equalled only by the invention of printing and the discovery of money.

Familiar notions of contemporary liberal economics derive from Quesnay's scientific approach. The physiocrats, like many other thinkers of the eighteenth century, subscribed to the idea of a "natural order". They showed that unchanging laws governed all economic processes. Consequently, it is generally thought that the physiocrats were opposed to government intervention. The dead hand of the state would only corrupt the natural evolution of the economy. Jacob Viner, the Canadian economist, referred to the physiocrats as one of the “pioneer systematic exponents” of laissez-faire (alongside Adam Smith).

A good example of the physiocrats’ new, scientific approach to economics is found in the writings of a little-known disciple, Louis Paul Abeille. Abeille, writing in the 1760s, discussed the grain trade. He opposed mercantilist ideas of what to do during a period of food scarcity—for example, after a bad harvest. Received wisdom suggested that during a period of scarcity, a government should step in and forcibly lower the price of grain, so that people could afford to buy it. Governments might also choose to ban grain exports.

But Abeille argued that government intervention in the grain trade was self-defeating. With lower prices, he argued, grain producers would produce less. They would also make less profit—and therefore have less money to invest in the next year’s harvest. Government intervention, in other words, would disrupt the efficient working of the free market in grain, which would ultimately turn scarcity into a famine.

So he argued that the government should step back and let local prices rise. Producers in other parts of the country would respond to the high prices, and the area would be flooded with grain. Problem solved. But Abeille recognised that there would be a time lag between the price rise and the demand response. And so according to some writers, the implication of Abeille’s argument is that people who cannot afford grain should be allowed to die. Efficient economic management trumped humanitarianism.

Unsurprisingly, many writers criticised the physiocrats for their dogmatism. Adam Smith, in an amusing passage towards the end of the "Wealth of Nations", reckoned that they were carried away by the desire for perfection. Smith, aware that Quesnay was a medical doctor, argued that:

    Some speculative physicians […] have imagined that the health of the human body could be preserved only by a certain precise regimen of diet and exercise, of which […] the smallest, violation necessarily occasioned some degree of disease or disorder […] however [...] the human body frequently preserves, to all appearances at least, the most perfect state of health under a vast variety of different regimens […] Mr. Quesnai […] seems to have entertained a notion of the same kind concerning the political body.


Smith reckoned that the physiocrats wanted a perfect system of laissez-faire economic management—or no system at all.

But on this occasion, Smith got it wrong. The physiocrats were less dogmatic than most people think. Turgot, for example, subscribed in theory to the idea that free trade in grains was the best way of resolving scarcity. But he was responsible for dealing with an actual famine in south-west France in 1770. And in practice, Turgot supported a variety of programmes that cannot be described as laissez-faire: a programme of public employment and support for imports, among other policies. The Marquis de Condorcet, another writer associated with the physiocratic school, was also in favour of expanding public employment during periods of dearth.
Who Were the Physiocrats? (Free Exchange) To add to that, I recommend listening to this podcast from In Our Time: The Physiocrats (BBC). Some highlights:
Helen Paul: They were the first real school of economic thought. They called themselves the economists, but everyone else calls them the Physiocrats. Their founder is really Francois Quesnay. They were reacting against earlier patterns of thinking called Mercantilism. And they were the first to think in terms of model-building the economy; the kind of abstract model-building the Tableau Economique is about. So in a way, they tried to combine an existing social order with new techniques based on scientific principles, which was their way forwards because science at the time was all the rage, and ordinary gentlemen would be interested in science. They were trying to think about the economy as a scientific thing, as something to be studied in the same way.

What was really new about them was that they had this idea that you could use science to study a thing like the economy, and that was new. Quesnay was a doctor and he understood the circulation of the blood, he understood how the body functioned like that and he thought about the economies almost as a similar type of organism, with a circulation sources flowing from part to part in the economy, from group to group. And that was quite new. Most thinkers before that had used a lot of normative ideas about the economy operating in a particular way.

Melvin Bragg: what does normative ideas mean?

HP: Well, just how things should be based on religious principles rather than how they actually worked... They were different because the mecantilists who  preceded tham had insisted on how to build up, in some cases bullion, but in other cases just resources within...

MB: So the more coinage and wealth that you had in solid form, the more gold and silver and whatsit, the better off you were.

HP: That's a very bullionist idea. The bullionists were part of the mercanilists. Basically, the mecantilists wanted to regulate trade, and try to restrict the amount of imported goods into the economy, all of these things then, their ideas built up a huge nest of regulations and taxes and goodness know what, and the physiocrats wanted to undo all of that and go for a freer trade regime, primarily domestic free trade, they weren't really talking about international trade. But that was new. And it certainly went against a lot of traditional ideas.

MB: We have this tableau economque, economic tablet on one sheet of paper. What were the main points he made and how radical were they?

HP: His main idea, just to make this very abstract and simple, basically, he thought all wealth really sprang from the land, and that the resources used by the people who actually worked on the land, once they consumed everything they needed, the leftover product was what he called the net product or the produit net. And then that itself was shared out between people who owned the land, the proprietors, and what he called the sterile class. They're the merchants and the artisans, these people didn't actually create wealth he thought. He didn't quite understand the added value from manufacture. But the produit net circulated back around this system and it was reproduced every year. So it was very similar if you like to the circulation of the blood or some idea like that. So you could see it - think of this if you like as a model or a diagram, easy to understand. And because it was abstract of course it is a simplification but you have to do that with economic models to start off with in order to have an easy way to understand the economy.

Richard Whatmore: Quesnay's vision is, I have seen the laws of nature. The natural way the economy operates. and in a system where there are blockages and corruptions andall sorts of problems and we need to get rid of those and restore what he later calls the 'natural progress of opulence' where wealth is natural. in order to do that, you have to get away from merchants and bankers who threaten politicians, who corrupt politicians and take their wealth out of the state if the state doesnt venerate them. You want people with a stake in the soil because they cannot take their wealth away. Those are the peole you can trust politically; those are the people ho you want to give a greater voice to  rather than the radical elements that Helen just mentioned.

Certainly it is the vison of Quesnay, there is a special natural order. It comes really direcly from Newton the idea that there are natural laws, universal laws which govern the way the plants revolved around the sun for instance. And one of Quesnays aims really is to try to find out if nautral laws would be applicable to society, particulary civilized society and in doing that he tries to find out which of these basic blocks, if you want, of civilization, consider that simply surviving reproducing yourself is an element of every individual ...
If that's not enough economic history for you, try these:

Budget Wars - 1575 Version (VoxEU) Yes, this kind of stuff has been going on a long time.

Medieval Monetary Practices (VoxEU) and Medieval Regulations Establishing a Sound Coinage (Economist's View)

And finally, Vincent Huang: On the Nature of Money (Naked Capitalism). This doesn't deserve to be at the end, because it's very important. It's a long read, and sometimes slow going, but it's worth it. Basically, what he's arguing is that the "myth of barter" naturally leads to the assumption in economics that totally ignores the role of money. In conventional economics, money is just a "convenience" that facilitates transactions, but its role in the economy is incidental. So it's considered "exogenous," which is economic-speak for anything we don't want to talk about. Put another way, people want to make stuff, not money, so they just use money to facilitate the exchange of stuff.

By contrast, if you think about money as primarily based in social relations based on debits and credits, the role of money in economics is completely different. Since it is government that ultimately requires and validates the use of money, you cannot ignore it in economic analysis. What this leads to is the idea that people want to make money more than stuff, and they sell stuff mainly to make more and more money. That is, they need to make more money than they started with by the sale of stuff, leading to ever-increasing supplies of money (or Capital in Marxist-speak). That is, making money, not making stuff, is the end goal. Thus, money is essential in understanding the economy and how it functions. Interesting stuff.

Saturday, December 21, 2013

Science, finance and magic

It must be something in the air again. Here are some good posts from elsewhere on some of the recent topics we’ve been discussing

First, reader Vera points out the latest Archdruid Report also takes a look at the origin of modern science and the thinking that underlies it:
Quantitative measurement, experimental testing, and public circulation of the results of research: those were the core innovations that made modern science possible. The dream of conquering nature, though, was what made modern science the focus of so large a fraction of the Western world’s energies and ambitions over the last three hundred years. The role of the myth wasn’t minor, or accidental; I would argue, in fact, that nothing like modern science would have emerged at all if the craving for mastery over the nonhuman world hadn’t caught fire in the collective imagination of the Western world.

I mentioned last week that Carl Sagan devoted a passage in the book version of Cosmos to wondering why the Greeks and Romans didn’t have a scientific revolution of their own. The reason was actually quite simple.  The Greeks and Romans, even when their own age of reason had reached its zenith of intellectual arrogance, never imagined that the rest of the universe could be made subordinate to human beings.  Believers in the traditional religions of the time saw the universe as the property of gods who delighted in punishing human arrogance; believers in the rationalist philosophies that partly supplanted those traditional religions rewrote the same concept in naturalistic terms, and saw the cosmos as the enduring reality to whose laws and processes mortals had to adapt themselves or suffer.  What we now think of as science was, in Greek and Roman times, a branch of philosophy, and it was practiced primarily to evoke feelings of wonder and awe at a cosmos in which human beings had their own proper and far from exalted place.

It took the emergence of a new religious sensibility, one that saw the material universe as a trap from which humanity had to extricate itself, to make the conquest of nature thinkable as a human goal. To the Christians of the Middle Ages, the world, the flesh, and the devil were the three obnoxious realities from which religion promised to save humanity. To believers in progress in the post-Christian west, the idea that the world was in some sense the enemy of the Christian believer, to be conquered by faith in Christ, easily morphed into the idea that the same world was the enemy of humanity, to be conquered in a very different sense by faith in progress empowered by science and technology. 
Strip away some of the more abstruse talk about Wolfram, and what his post is, is basically a critique of reductionist science – the idea that we can draw a circle around just a certain area of creation and study it in a detached form from everything else. It's an old complaint, and one that is very valid.

Second, the latest post at Magic, Maths and Money covers similar ground. It posits (to oversimplify) that the difference between religion and magic is that religion is practiced in the open, by everyone, while magic is practiced in secret by initiates. So while we talk about economics as a religion, high finance is actually closer to high magic – it’s an esoteric art practiced by small set of people and is subject to complicated, abstruse rules to make it easy to bamboozle the general public.
In the 1902  Marcel Mauss and Henri Hubert wrote in A General Theory of Magic

     The magician is a person who, through his gifts, his experience or through revelation, understands nature and natures... Owing to the fact that those magicians came to concern themselves with contagion, harmonies, oppositions, they stumbled across the idea of causality, which is no longer mystical even when it involves properties which are no way experimental
The two distinguish magic and science by observing that magic is based on belief in a set of rituals.  A person will only consult a magician if they  have faith in the actions that the magician will perform.  Science is not based on belief in its theorems, the equivalent of magic's rituals, but on a belief in the process by which science is created.  This is a subtle point, but the effect is that magic is necessarily static, a contemporary astrologer would have more authority if they claimed to be experts in ancient knowledge.  Similarly, most religions claim to encapsulate what is permanent in a changing world. On the other hand, science is necessarily  dynamic, we trust modern science's explanations of cosmology more than  those of the Babylonians.

The implication of this  distinction is that either mathematics exists independently of human thought and mathematicians discover theorems,  Platonism or `Mathematical Realism' and  mathematics is immutable, as Augustine claimed, or mathematics is created by living, breathing, mathematicians in response to the world around them.  The advantage of Platonism is that it provides scientists with a stable framework in which they can work, and is regarded as many scientists, such physicists Roger Penrose,  as an invaluable tool.  On the other hand, the implication of Anti-Platonism is that mathematics is dependent on society's attitudes, and its claims to certainty are as strong as the claims to certainty of the social sciences.

While magic and science are distinguished by static or dynamic belief,  Mauss and Hubert distinguish magic and religion by hidden and open belief

    Where religious rites are performed openly, in full public view, magical rites are carried out in secret... and even if the magician has to work in public he makes an attempt to dissemble: his gestures become furtive and his words indistinct.

The suggestion is, for science to be reputable and maintain a divide with magic, it needs to be carried out, like religion, in the open.  As soon as either science or religion takes place out of the public arena, they risk degenerating into magic.  Today, many scientists, in particular social scientists, regard scientific knowledge as 'shared belief', not necessarily 'justified belief', science is less about 'truth' and more about 'consensus' with  an Italian definition of science

    the speculative, agreed-upon inquiry which recognizes and distinguishes, defines and interprets reality and its various aspects and parts, on the basis of theoretical principles, models and methods rigorously cohering

Science is speculative, not certain, and agreed-upon, not secret.  It is on this basis that society can begin to understand the value of science.

So, in response to Stephen Williamson's implication, and it is an implication he does not make the statement,  that finance is more scientific I have two comments.  Firstly I agree that the focus of contemporary finance is about "making money" and this provides a clear objective for the discipline to work towards.  The question I would pose is "making money" a good internal to the practice of finance? I would argue that the good internal to finance is the effective distribution of money to fund economic activities.  The monomania of Wall Street  needs to be challenged and I wonder if a re-orienting of finance to focus on (my view of) its internal goods will result in such a 'scientific' finance.

The second issue is highlighted in the UK Parliament's report on banking.  The document makes few references to the role of mathematics in finance, but where it does it is damning

 89. The Basel II international capital requirements regime allowed banks granted “advanced status” by the regulator to use internal mathematical models to calculate the risk   weightings of assets on their balance sheets. Andy Haldane described this as being   equivalent to allowing banks to mark their own examination papers. A fog of complexity enabled banks to con regulators about their risk exposures:
        [...] unnecessary complexity is a recipe for […] ripping off […], in the pulling of the wool over the eyes of the regulators about how much risk is actually on the balance sheet, through complex models.
The science, the mathematics, is not being used to enlighten finance but to obscure its practices.  Recently the report on J.P. Morgan's London Whale revealed how tweaking their model, the bank could reduce their apparent exposure from around $40  billion to $20 billion.  The Whale report highlights how finance is actually more committed to 'rituals' around risk management than the 'science' of risk management, and this seems to be facilitated by mathematics.

I think there are a variety of factors involved in this obfuscation, not least the culture of associating mathematics with hidden truths: the mathematician has a magical key to financial reality.  There is also a metaphorical issue.  At the start of the seventeenth century Francis Bacon is associated with using the metaphor of Science as masculine probing and taming the feminine Nature. Towards the end of the seventeenth century the metaphor of finance as 'Lady Credit' similarly emerges, and I think there has been a similar sense that a masculine Science can tame the fickle and unruly Lady Credit.  I think both relationships could improve by becoming less dysfunctional.  Ultimately, and untypically, I associate the failures of contemporary finance not with its own unruliness but with the interference by a deterministic scientific ethos.  Economics might appear  incoherent, but it is finance's coherence in the wrong direction, that causes more real problems.
One quibble on Bacon is that there are several phrases in Bacon where he contends that the understanding of nature is to be undertaken so that we can submit to her will, not dominate her. That is, Nature can only be commanded by obeying her dictates. Here are some passages from Novum Organum via Wikiquote:
Man, being the servant and interpreter of Nature, can do and understand so much and so much only as he has observed in fact or in thought of the course of nature. Beyond this he neither knows anything nor can do anything.

Human knowledge and human power meet in one; for where the cause is not known the effect cannot be produced. Nature to be commanded must be obeyed; and that which in contemplation is as the cause is in operation as the rule.

There is a great difference between the Idols of the human mind and the Ideas of the divine. That is to say, between certain empty dogmas, and the true signatures and marks set upon the works of creation as they are found in nature.
 Now the empire of man over things depends wholly on the arts and sciences. For we cannot command nature except by obeying her.

And the human understanding is like a false mirror, which, receiving rays irregularly, distorts and discolors the nature of things by mingling its own nature with it.

There are also Idols formed by the intercourse and association of men with each other, which I call Idols of the Market Place, on account of the commerce and consort of men there.

The human understanding is of its own nature prone to suppose the existence of more order and regularity in the world than it finds.

It is not possible to run a course aright when the goal itself has not been rightly placed.
You might find these same sentiments argued by an ecologist or ecological economist today. Whether Bacon actually meant these things is open to debate, but that's how I interpret him, anyway, and why I think we've actually gone off course from the original intent.

It's possible that reductionist science was a necessary phase we must go through. To get an idea of what the next evolution should be, you may want to look at the work of Kenneth Boulding.

I flagged this article from Slate a while back which takes on the canard bandied about these days that "science is just another form of religion::
So scientists don’t have a quasi-religious faith in authorities, books, or propositions without empirical support. Do we have faith in anything? Two objects of scientific faith are said to be physical laws and reason. Doing science, it is said, requires unevidenced faith in the “orderliness of nature” and an “unexplained set of physical laws,” as well as in the value of reason in determining truth.

Both claims are wrong.

The orderliness of nature—the set of so-called natural laws—is not an assumption but an observation. It is logically possible that the speed of light could vary from place to place, and while we’d have to adjust our theories to account for that, or dispense with certain theories altogether, it wouldn’t be a disaster. Other natural laws, such as the relative masses of neutrons and protons, probably can’t be violated in our universe. We wouldn’t be here to observe them if they were—our bodies depend on regularities of chemistry and physics. We take nature as we find it, and sometimes it behaves predictably.

What about faith in reason? Wrong again. Reason—the habit of being critical, logical, and of learning from experience—is not an a priori assumption but a tool that’s been shown to work. It’s what produced antibiotics, computers, and our ability to sequence DNA. We don’t have faith in reason; we use reason because, unlike revelation, it produces results and understanding. Even discussing why we should use reason employs reason!

Finally, isn’t science at least based on the faith that it’s good to know the truth? Hardly. The notion that knowledge is better than ignorance is not a quasi-religious faith, but a preference: We prefer to know what’s right because what’s wrong usually doesn’t work. We don’t describe plumbing or auto mechanics as resting on the faith that it’s better to have your pipes and cars in working order, yet people in these professions also depend on finding truth.
No Faith in Science (Slate)

I saw a book entitled The Closing of the Western Mind, arguing that the fusion of Christianity to state government suppressed all other modes of thought as well as corrupted Christianity. I wonder if we could argue a similar thing with modern science - the closing of the modern mind happened when science became inextricably fused to large corporations and used exclusively as a tool to further their goal of endless profit. It is this profit-seeking that is destroying the world, not science.

Finally, a podcast from What Now with Fritjof Capra - Learning from Leonardo. A good quote that sums it up:
“I want to come back to what can we actually learn from Leonardo today. I would say there are two things that are important for our time. The first is his persistent endeavor to put life at the very center of his art, science and design. And this is what we need to do now because most of our businesses and our sciences and our technologies are not life-enhancing but life-destroying. So we need to put life into the very center, and this is what sustainability is all about – to live in such a way that we do not interfere with nature’s inherent ability to sustain life. And that’s very much something that Leonardo’s art and science can inspire us for.”

“And the second one, as I mentioned already, is the recognition that all natural phenomena are fundamentally interconnected and interdependent, which is the core of systemic thinking. ..so the energy crisis ,for example, is not just a crisis of energy, it’s also an economic crisis, a health crisis, a food crisis, a climate crisis, and so on. As social crisis. So this is all interconnected. And this is very much how Leonardo worked, and something we can really learn from him.”

“So we see today that our sciences and technologies have become increasingly narrow in their focus and are unable to understand our systemic problems from a larger perspective. And so we urgently need a science and technology that honor and respect the unity of all life and recognize the mutual interdependence of all phenomena. And also a science and technology that reconnect us with the living earth. Well this is exactly the science and technology that Leonardo developed in the fifteenth and sixteenth centuries.”
Finally, I'd recommend the books Voltaire's Bastards: The Dictatorship of Reason in the West, and Straw Dogs: Thoughts on Humans and Other Animals for critiques of the Western World's obsessions with reason and dominance over nature.

Thursday, December 19, 2013

The Invention of accounting

I've occasionally referenced M. King Hubbert's comment that our economic systems have evolved from "folkways of prehistoric origin." I hope the previous article made clear just how true that actually is. They key phrase in that post was, "There is nothing either natural or God-given about the use of money. It's just a historical process, quite a complicated one, that's built up over time." I don't think many people get that.

There is no universal conception of what money is (see this). Money evolves over time and in line with the needs of society. Some of us see fiat money credited to various accounts as simply the next evolution of money. As David Graeber's book "Debt The First 5,000 Years" points out, debits and credits based on faith was actually the original money, so there's nothing "sinful" about fiat money. Fiat money is money, it works as money, the key is that it must be managed properly (which it all too often is not). But that's the problem - and trading with gold coins is not the solution. Money should be a social tool used to mobilize resources, when all too often it's used as a weapon of the wealthy and the bankers to wield against the rest of society. Money can best be seen as a tool, or a kind of technology.

So, the next step on our historical money journey, is from the use of gold for trade to the evolution of debts and credits that forms elementary bookeeping and undergirds all modern economics. This was a product of a trade revolution in Renaissance Europe. Here is a fascinating account of the originator of this idea, Leanardo da Vinci's pal Luca Pacioli:


Episode 407: A Mathematician, The Last Supper And The Birth Of Accounting (NPR)

And How a Medieval Friar Forever Changed Finance (Echoes)
As his encyclopedia was going to press in Venice in 1494, Pacioli added a 27-page summary of a new form of accounting that had first emerged in Italy around 1300 and been perfected by the merchants of Venice. He called the addition a “special treatise which is much needed” to help merchants keep their accounts in an orderly way.

Known in the 15th century as accounting “alla Veneziana,” the system is now called double-entry bookkeeping and is standard practice throughout the world. In 1494, it was exceptional -- and in his treatise Pacioli recommended it above all others.

In their ledgers, Venetian merchants separated debits and credits, dividing them into two columns. As Pacioli wrote: “All the creditors must appear in the Ledger at the right-hand side, and all the debtors at the left. All entries made in the Ledger have to be double entries -- that is, if you make one creditor, you must make someone debtor.”

Pacioli’s system was revolutionary because it allowed merchants to calculate increases and decreases in their wealth, recorded in their capital account. In other words, it allowed them to determine that driver of capitalism: profit (or loss). Pacioli wrote that the purpose of every business was to make a lawful and reasonable profit, which could be tallied with Venetian bookkeeping. And thus the seed of capitalism was planted.
But notice that while Pacioli's accounting innovation of double-entry bookkeeping revolutionized trade, this accounting identity got carried over into the management of the nation-state, when in fact, it actually predates the notion of the nation-state and modern currency. Initially, there were no such things as nations or national budgets. What became national budget evolved out of the king's personal accounts. Eventually this became the concept of a "national debt," also called a "sovereign debt" - see the historical connection there? From the above article:
Both Roosevelt’s program and Keynes’s theory entailed the creation of national accounting systems, a massive undertaking that was carried out using the principles of double-entry bookkeeping.

At Keynes’s instigation, the first British accounts were made during World War II. Following the war, national accounts were created in countries across Europe as part of the framework of the Marshall Plan. And under the aegis of the newly created United Nations, national accounts were subsequently adopted by almost every nation on Earth.

Today, we depend on the numbers generated by the accounts of nations and corporations to direct our governments, businesses and societies. And so it happened that a medieval Italian accounting system codified by a friar in 1494 now governs the global economy. 
A company can be in debt, say, for purchasing new equipment. You and I can be in debt, theoretically for loans taken out of our own free will. But what does it mean for an entire nation to be in debt? Why is this concept even useful? In truth it isn't. It's time to move beyond this. We're stuck with these identities, but there's no reason to tear apart civil society because of them. In fact, it turns out that what the public debt really is is a credit to the private sector. This is counterintuitive, but it's merely a side-product of using accounting identities to manage national finances - a convention, nothing else. But countries aren't merchants. Counties are issuers of their own currencies. Countries can't disband, dissolve themselves, or go out of business. And they cannot become insolvent or be "broke." (see this)

No one's truly "in hock" because of these debts.- it's all just a way to shuffle money around to get some sort of result. But what result - a healthy functioning society, or rich plutocrats in a land of suffering and misery?

Note that "the national debt" is used to justify everything from not constructing high-speed rail lines to eviscerating the social safety net. Note that's never used to argue against going to war with some God-forsaken corner of the planet, spying on American citizens, throwing Americans in jail, corporate subsidies, or bailouts for Wall Street. Who's fooling whom? Why is it that we can ship pallets loaded with dollar bills to an airfield in Afghanistan to be looted by warloads, but if we shipped those same pallets of dollar bills to Stockton, California or Canton, Ohio, the same politicians would be screaming to the high heavens and beating their breasts in anguish? Note that interest payments on national debts are what is keeping many third-world countries mired in poverty and misery.

Thus, to say that the U.S is "broke," or that we're desperately in debt for the money we owe mostly to ourselves and our descendants is nosense. Somehow politicans have convinced us that paying down the debt and letting states and cities go bankrupt, houses go into foreclosure, and millions go without work is "sound financial managment." It's nothing of the sort.

The idea of a national debt has held society back for way too long. Stop listening to the bought-and-paid-for politicians and corporate-owned media and start thinking more deeply about where this arrangment comes from, and who the beneficiaries are.

Tuesday, December 17, 2013

Gold, Gold, Gold!!!



The BBC has a good article on why we use gold for money. It turns out that there's nothing magical about gold that makes it "real" money. Personally, I think it boils down to the fact certain types animals like primates and corvids like to hoard shiny stuff, and our brains are pretty much wired similarly (corvids are among the most intelligent species of birds - crows, ravens, magpies, etc.).

Anyway, it seems gold is just about the only element that will do the trick. It's kind of a goldilocks metal. The article runs down why all the other elements don't work.

1.) Many elements are gaseous at normal temperatures - gas-based currencies carried around in vials would not be a good idea.(argon, krypton, helium)

2.) Some elements are liquid at normal temperatures - and poisonous to boot (mercury, bromine).

3.) Some elements are radioactive. You don't want your currency to give you cancer (uranium, thorium, plutonium).

4.) Some elements are highly reactive with water or the atmosphere. Many decay over time like iron rusting or copper turning green.

6.) Some are very hard to smelt and require higher temperatures than ancients could produce - titanium, platinum, zirconium. Although not mentioned in the article, the smelting of aluminum from bauxite uses electrolysis, a process which was only discovered in 1886 (the Hall–Héroult process). Otherwise aluminum would probably work well - most buildings today are clad with aluminum and glass curtain walls.

7.) Some elements are way too rare or way too common.

8.) Some are hard to chemically distinguish from one another.
Of the 118 elements we are now down to just eight contenders: platinum, palladium, rhodium, iridium, osmium and ruthenium, along with the old familiars, gold and silver.These are known as the noble metals, "noble" because they stand apart, barely reacting with the other elements.They are also all pretty rare, another important criterion for a currency.

Even if iron didn't rust, it wouldn't make a good basis for money because there's just too much of it around. You would end up having to carry some very big coins about.With all the noble metals except silver and gold, you have the opposite problem. They are so rare that you would have to cast some very tiny coins, which you might easily lose.They are also very hard to extract. The melting point of platinum is 1,768C.

That leaves just two elements - silver and gold.

Both are scarce but not impossibly rare. Both also have a relatively low melting point, and are therefore easy to turn into coins, ingots or jewellery.Silver tarnishes - it reacts with minute amounts of sulphur in the air. That's why we place particular value on gold.It turns out then, that the reason gold is precious is precisely that it is so chemically uninteresting. Gold's relative inertness means you can create an elaborate golden jaguar and be confident that 1,000 years later it can be found in a museum display case in central London, still in pristine condition.
Why do we value gold? (BBC)

So, really, the selection of gold is entirely arbitrary. It was just the only element that had all the stuff we needed it to do. But there's no magic to it - it's just a cultural thing. Gold is relatively useless, in fact. It's very softness is a plus - it's soft enough that you can bite it to tell if it's real, and people frequently do. And it's a store of value because it doesn't chemically break down. Coins made of other metals decay over time.

But, like the goldbugs confidently declare, it is "real" money? Let's see:
First off, it doesn't have to have any intrinsic value. A currency only has value because we, as a society, decide that it does.

As we've seen, it also needs to be stable, portable and non-toxic. And it needs to be fairly rare - you might be surprised just how little gold there is in the world. If you were to collect together every earring, every gold sovereign, the tiny traces gold in every computer chip, every pre-Columbian statuette, every wedding ring and melt it down, it's guesstimated that you'd be left with just one 20-metre cube, or thereabouts.

But scarcity and stability aren't the whole story. Gold has one other quality that makes it the stand-out contender for currency in the periodic table. Gold is... golden. All the other metals in the periodic table are silvery-coloured except for copper - and as we've already seen, copper corrodes, turning green when exposed to moist air. That makes gold very distinctive.

But how come no-one actually uses gold as a currency any more?

The seminal moment came in 1973, when Richard Nixon decided to sever the US dollar's tie to gold. Since then, every major currency has been backed by no more than legal "fiat" - the law of the land says you must accept it as payment.Nixon made his decision for the simple reason that the US was running out of the necessary gold to back all the dollars it had printed.

And here lies the problem with gold. Its supply bears no relation to the needs of the economy. The supply of gold depends on what can be mined. In the 16th Century, the discovery of South America and its vast gold deposits led to an enormous fall in the value of gold - and therefore an enormous increase in the price of everything else. Since then, the problem has typically been the opposite - the supply of gold has been too rigid. For example, many countries escaped the Great Depression in the 1930s by unhitching their currencies from the Gold Standard. Doing so freed them up to print more money and reflate their economies.

The demand for gold can vary wildly - and with a fixed supply, that can lead to equally wild swings in its price. Most recently for example, the price has gone from $260 per troy ounce in 2001, to peak at $1,921.15 in September 2011, before falling back to $1,230 currently. That is hardly the behaviour of a stable store of value.

So, to paraphrase Churchill, out of all the elements, gold makes the worst possible currency.
On that last point, see this: Gold Was a Horrible Investment from 1500 to 1965 (The Atlantic)
Ron Paul thinks gold could go to "infinity", which would certainly be a lot of dollars. But it won't be an easy ride into Buzz Lightyear territory for the shiny metal: gold has fallen 8.5 percent since Ben Bernanke started talking about tapering the Fed's bond-buying a month ago.
Of course, that's nothing compared to gold's looong bear market from 1500 to 1965. As you can see in the chart below from Goldman Sachs (via Zerohedge), it lost over 80 percent of its value compared to inflation-adjusted British pounds over those four-and-a-half centuries. That's a lot less than infinity.

Why has gold been such an abysmal investment, if you can even call it that? Well, gold doesn't have any earnings; it doesn't pay out any dividends; and it costs money to store. As Paul Krugman points out, it's only worth piling money into the shiny metal when the opportunity cost of doing so is low -- when real interest rates are negative. Now, that can happen when rates are high, but inflation is higher still, or when rates are low, and inflation isn't quite as low. Britain didn't have negative inflation-adjusted rates for most of the past millennium, because it was on a silver standard from the mid-1200s through the early 1700s, and a de facto, and later de jure, gold standard up until 1931.
For some more fascinating gold history, see: What is Gold Worth? (Engines of our Ingenuity)
Just the other day, Forbes magazine displayed a graph that put those old Saxons in a new light. It showed the price of gold in present-day dollars. The graph starts in the 14th century, when the stuff went for what would be two thousand dollars an ounce today.

Immediately after, the Plague killed off half of Europe's population, and the value of gold fell to a little over one thousand dollars. What gold there was now belonged to half as many people, doubling the amount available. Then, with a shortage of labor, new technologies arose, and capital became important. The price of gold began rising until Columbus claimed the West Indies for Spain. It reached its all-time high of 2500 dollars an ounce.

The Americas became a rich source of gold. As Europe plundered the New World, the price dropped until 1600, where it settled out at about 500 dollars an ounce. It stayed there until the industrial revolution. Then something strange happened.

Gold prices began oscillating wildly, seeking out new lows. Each depression brought the value back up. In the late 1970s, gold rocketed to a brief high of 1400, 1999 dollars. But, by then, we'd separated gold from money. That brief spike represented short-term horse-trading. Gold had reached its all-time low of 200 dollars an ounce just before that. And at this writing it's worth around 300 dollars an ounce.
And A history of the world in 100 objects - Episode 25, gold coin of Croesus (BBC)
We've all grown so accustomed to using little round pieces of metal to buy things, that it's easy to forget that coins arrived quite late in the history of the world. For over two thousand years, states ran complex economies and international trading networks without a coin to hand. The Egyptians, for example, used a sophisticated system that measured value against standard weights of copper and gold, but as new states and new ways of organising trade emerged, coinage began to make an appearance, and fascinatingly, it happened independently in two different parts of the world at almost the same time. In China they began using miniature spades and knives in very much the same way that we would now use coins, and virtually simultaneously in the Mediterranean world, the Lydians started making actual coins as we would recognise them today - round shapes in precious metals.

"There is a continuity between this coin of Croesus and today, and when you look at it, it has concealed in it the entire future, including the bonuses at Goldman Sachs and the career of Sir Fred Goodwin.

"In modern times, what money does is it incorporates a wish, and displays that wish to the world. And in the way that human beings are, they tend to become fascinated by the potential of objects, and certainly it's a feature of the present day that people accumulate fortunes that nobody could possibly spend, and yet people still compete to accumulate ever larger fortunes. But what makes this inequality of fortune possible is having money.

"There is nothing either natural or God-given about the use of money. It's just a historical process, quite a complicated one, that's built up over time. Over that period, money has worked pretty well and has played a very important role in the triumphs of humanity - and also of course in its miseries. But it's allowed the population of the world to expand beyond limits that were thought possible. Since even a few years ago, it's raised the standards of living. All these possibilities are in this little object."

In small societies, there isn't really a great need for money, because you can generally trust your friends and neighbours to return any labour, food or goods in kind. The need for money, as we understand it, grows when you are dealing with strangers you may never see again and can't necessarily trust - that is, when you're trading in a cosmopolitan city like Sardis.

Before the first Lydian coins, payments were made mostly in precious metal - effectively just lumps of gold and silver. It didn't really matter what shape the metal was, just how much it weighed and how pure it was. But there's a difficulty; in their natural state, gold and silver were often found mixed with each other and, indeed, mixed with other metals. Checking a metal's purity was a tedious task - likely to hold up every business transaction, and even when the Lydians and their neighbours invented coinage, about a hundred years before Croesus, this problem still remained. They used the naturally occurring mixture of gold and silver, not the pure forms of the metals.

The Lydians eventually solved this problem, speeded up the market and, in the process, became hugely rich. They realised that the answer was for the state to mint coins of pure gold and pure silver, of consistent weights that would have absolutely reliable value. It was the currency that you could trust in completely and, without any checking, spend, spend, spend!

[...] It was thanks to that wealth that Croesus was able to build one of the Seven Wonders of the World - the great Temple of Artemis at Ephesus. Because people could trust Croesus's coins, they used them far beyond the boundaries of Lydia itself, giving him a new kind of influence - financial power. Trust is of course a key component of any coinage - you've got to be able to rely on the stated value of the coin, and on the guarantee that it implies. It was Croesus who gave the world its first reliable currency - the gold standard starts here

It's an intriguing fact that coinage was invented at pretty well the same time in both China and in Turkey, and it's probably not a coincidence. Rather, I think, they're both responses to the fundamental changes seen across the world around three thousand years ago from the Mediterranean to the Pacific. There were military, political and economic upheavals that brought us not only modern coinage, but something else that's resonated till the present day - new ideas about how people and their rulers saw themselves, in short, the beginning of modern political thinking, the world of Confucius and Classical Athens.