The Path to a Future: Flat Sharing

For my entire working life the conventional wisdom seems to have been that only a mug would pay their full share of taxes, and that it was every citizen’s duty to reduce their responsibilities in this area to a minimum. Those who succeeded in paying the least amount of taxes have generally been lauded as heroes.

Continue reading “The Path to a Future: Flat Sharing”

#OCCUPY the Ballot Box

The conundrum of the Occupy movement’s “missing list of demands” is the key to understanding what has to be done.

Protest in a democracy represents a conundrum. Do we want change or do we want to complain?

Who doesn’t realize that our modern world is not serving the majority of us? Probably not even 1% – do you know anyone? We all know the banks have gotten away with theft. We all know politics has been, and is being further, corrupted by money. It’s not difficult to understand that burning millions of barrels of oil into the air every day and dumping tons of man-made chemicals into our waters is affecting our environment detrimentally. Let’s not do ourselves a diservice: we all know that “things ain’t right, and something’s gotta change”.

Our predicament is not in dispute. The solution is.

The fundamental obstacle to a solution is complexity. The reality of our modern world is that it is complex: the banking system is complex, sovereign accounting is complex, the interdependencies of our environment are complex. To understand why writing down half the value of some debts in one of the smallest economies in the modern world could affect the political stability of the largest country in the world is complex; to understand why the largest country can’t just step in a fix that problem is even more complex.

There’s a perfectly natural resistance in the Occupy movement to adopting a “simple set of demands” because, consciously and unconsciously, we all understand that our predicament will not yield to a simple solution or short list of demands. Matt Taibbi, one of the most dogged and brilliant journalists on the financial beat, recognizes this even as he offers a short list of key changes that could be made to address the specific problems resulting from casino capitalism in our overweight financial sector; but, good as his list is, it does not address why we have an overweight financial sector in the first place.

The Occupy movement is a protest movement. It takes its name and its inspiration of the occupation strategy employed by the revolutionaries in Egypt this spring, and it is stirring the wider public to more open consideration of changes that seemed inconceivable only a few years ago. But the difference is that the Egyptians were revolting against a dictatorship and they could coalesce around the simple demand that the dictator be removed; in contrast the Occupy movement is almost exclusively active in wealthy democracies, and cannot reasonably demand the removal of a government chosen by the people a few years ago and available for replacement in a few years time.

The lack of a simple set of demands is not a purposeful tactic of the Occupy movement, it is the manifestation of an understanding that the problems are more complex than a simple list could address. Housing, healthcare, tax policy, the environment, social security, employment and inequality are all prevalent issues expressed in the Occupy protests, and such a broad agenda does not lend itself to a simple list of demands. The protestors can point to the simple manifestations of the problems in their lives, but they also know that any real solutions are going to be complex.

To move forward we need to remember that what appears as complex is in fact just lots of simple things seen at once. And while you cannot solve a complex problem with a simple solution, you can solve a thousand simple problems with a thousand simple solutions. This is the key to system change: it’s not one big solution, it’s a million small solutions.

Self-evidently: every aspect of human society has been created by us, and so it can be re-created by us. But we did not arrive here in one stroke, we are where we are as a result of the culmination of millions of small and simple decisions taken by people like us. When democracy arose it was the next vital step in enabling the broadest possible collective application of decision making to complex problems; and it lies before us now with the same urgent potential that drove its early advocates with such zeal. The short list of demands can be replaced with one: “Occupy the Ballot Box!”

We do not need anyone’s permission, we are not dependent on anyone else’s favors or attention – we are the ones who can bring about the changes we need, one decision at a time. We already have what the Egyptians in Tahrir Square died for: the right to select our own government.

If you support the Occupy protests you must take the next decision and vote for real change. If there’s no one to vote for, you must stand for change yourself – you don’t have to be perfect, you don’t have to know it all, you just have to care enough to be one of a million decision makers who will contribute to the long list of solutions. If you want to stand for election but need a broad platform that fills in and addresses the complex issues raised in the Occupy protests, take what you want from the Standards of LIFE and make it your own. We will vote with you, we will stand with you and we will bring change to our world together.

More money is not the answer

We need to occupy our communities and demand less money, rather than occupying corporate spaces and demand more money.

More money for banks. More money for governments. More money for small businesses. More money for social services. More money for everything – who could disagree with that!?

Apparently the US and the UK are so short of money that their central bankers have had to print trillions more just to keep the wheel of society turning. Banks whose capital base consists of nothing more than bits of paper have apparently run out of the ability to write more bits of paper and now need others to print paper for them. Whole nations that voluntarily gave up the right to print their own pieces of paper are apparently on the brink of collapse without someone else lending them more bits of paper.

This situation is evidently insane. The problem is NOT too little money! The problem is TOO MUCH MONEY!

We talk of not being able to provide for our old age security without money… horse shit! You’ll only need money if no one else will help you. We talk of unemployment, when there is evidently so much basic work to be done around us building and maintaining and improving our communities. We have come to conceptualize ourselves as living in a world of individual separateness in which transactions can only occur when greased by the flow of printed pieces of paper. But this concept does not withstand even the merest scrutiny, in fact it requires deliberate denial all the time. We all know that we are people, living with others and largely dependent on each other to get through any single day. We are dependent on each others good graces, compassion, empathy and generosity – even for the most basic restraint of not running us down with their car in the carpark!

We have not run out of money, we have just run out the capacity for money to substitute for reality.

The frail reality of the theater set we have built to act out our life-play in is upon us. Soon it must surely become too obvious to ignore: neither we, nor our world, are built from money. We are flesh and bone progeny of the earth beneath our feet, and “our world” is but a social construct designed by us to support our huge number.

Money has a role, an important role, but it is just a role in the wider context of our society. Enterprise is a natural aspect of human society, and business is a good thing. But lack of money and lack of economic activity are not what ails us – there isn’t enough money in all the world to fix our social disconnectedness. Money cannot be used to pay for everything, it is an instrument for the exchange of surplus value and if we try to use it as a substitute for the value of life it loses its value, and its role collapses. This is the lesson of our times: we must learn to see the reality of our mutual interdependence and lose the illusion of separateness that our plunge into industrial capitalism pulled over our eyes.

We need to occupy our communities and demand less money, rather than occupying corporate spaces to demand more money. When we start giving ourselves the right to live in the reality we are already in we will not need to protest others to give us permission.

LIFE SPAN – 2011.08.20 – Europe’s Future

Special edition of LIFESPAN : A LIFE Plan for Europe.

LIFE SPAN 2011.08.20 – Europe’s Future

Situational Policy Analysis & News from LIFE

Situation – Debts and Dangers

Like the rest of the industrial world, the only way forward for Europe is to “grow” its economy, otherwise it cannot sustain repayment of its debts. Those debts in the short past are national debts, that were inherited in the medium past from profligate banks and governments, and in the long past belong to everyone in Europe because in the aggregate everyone was supping at the same table and gave their permission to those that sat at the head of the table.

While the discussions now are centered around the €uro as a currency and how to prevent individual countries inside the €urozone from going bankrupt; the real, underlying, critically important issue is how to foster growth. By “growth” what is meant is an increase in the economic activity that creates wealth, because if the interest on what you owe is greater than your rate of wealth-growth (which it is in pretty much every European country) you can never get out of debt.

All of these currency and growth issues are exacerbated by the fact that today’s practice of the European social model in not yet fully mature (see Policy below for the mature model) and so the European countries are continuing to rack up more debt every year!

If your situation looks like this (which it does in pretty much every European country), you’re in serious trouble:

  • Debts are already > 80% of your annual output
  • Interest on your debts is > 2.5%
  • Growth is < 2%
  • Annual additional borrowing is > 5%

But what comes next is the REALLY dangerous stage for Europe. This is not a prediction of what will happen, but it is a picture of what could happen if we don’t work to change course soon:

  1. In order to stave off the collapse of regional economies that would result from the failure of the Euro currency: the larger, more export-orientated countries will have to assume responsibility for the debts of all EU countries.
  2. Ironically, because the EU was not built on firm democratic ground there will be political backlash across the continent against a political class making fundamental decisions about what Europe looks like and works like, without gaining the support of their citizens for such moves. The “leaders” making the decisions lack the legitimacy of pan-European democratic representation.
  3. Despite the best attempts of Europe, America and China to maintain the financial world order, they will fail to achieve sufficient growth to make the system financially sustainable; never mind the fact that they aren’t even focussed on making it socially sustainable.
  4. European politics will polarize and degenerate to reactionary stances with insular perspectives, all the while sucking on the teat of petro-energy and destroying each other and the planet.

The situation is serious and dangerous. Serious because without growth in demand, there cannot be growth in the economies; and without economic growth pretty much every nation’s debts are unserviceable and, therefore, so is the entire world financial system. Dangerous because the collapse of the world economic order will result in conflict, and distract everyone from the urgent task of reaching sustainable balance. If we don’t want the middle of the 21st C to look like the middle of the 20th C, bathed in the added stench of climate rot, we need to come to grips with the situation we are in, and devise a path out of here that serves our most civilized intentions. The European model MUST succeed, and show the rest of the world the path away from conflict, towards sustainable prosperity – this is Europe’s responsibility and opportunity.

Policy – The LIFE Plan for Europe

The LIFE plan to get us from where we are now to where we want to be, consists of three major milestones:

  1. Re-establish the proposal for “Europe”, with a clearly laid out structure and schedule that leads to voluntarily unified social, political, fiscal and monetary union(s).
  2. Stabilize the short term, by defining the intermediate status of the currency, the nation states and all debts.
  3. Initiate the rapid re-democratization of regions and nations on the continent with the goal of being able to have pan-continental elections of voluntarily associated states within 7 years.

This ambitious plan is substantially more achievable than you might at first imagine. The nation states that make up the vast bulk of the European content already have well established democratic systems that allow their populations to make informed choices, so they can all reasonably conduct their normal democratic schedules and elect representation that can express their desires for or against specific unifications with other nation states, and do so within the given timeframe.

The dire need to stabilize the current situation makes a clear annunciation of intention in everyone’s interests, including all of the bond holders. The proposal is not complicated, it is simply that: the communities, regions and states that comprise the continent of Europe will freely choose their association, and in so doing create one or more transterritorial, integrated socio-political-fiscal entities which will in turn assume the assets and debts ascribed to them under the constitution, Section 1.

In the meantime, all existing bonds will be guaranteed in full and attract interest at their current rate or 2.5%, whichever is lower. Any bonds falling due between now and 7 years will be automatically rolled over for 5 years from their date of maturity. This protects the interests of the bond holders while removing the Sword of Damocles from the existing sovereign states.

The proposal for “Europe” shall be the creation of one or more Transterritories, each comprised of no less than 3 States, each of which shall be comprised of no less than 3 Regions. A skeleton Constitution will be universally adopted at the outset to provide the framework for the formation of the new, freely-associated memberships. Upon the election of each transterritorial Assembly, that Assembly will be at liberty to amend their constitution according to the wishes of their citizens.

Crucially the new Europe will be based on a new citizen contract in which the social welfare model is transformed into a wellfair model that provides comprehensive and universal social services, instead of the cash grant system in place today. That every citizen is endowed with access to basic services that support life and opportunity is maintained, but that such support is a mutual gift provided to the extent that it is affordable for all. This maturation of the empathic social model resolves the fundamental unsustainability of the cash welfare system by absorbing the hygiene portion of labour costs into the society and liberating the commercial economy to deliver on its full potential.

The growth that will make the inherited debt burdens sustainable will come from the unleashing of the latent microeconomic potential that industrial capitalism stifles. This large engine of wealth is obscured by the immature practice of both economic and social policy that is the norm in current European societies. It will require effort and diligence for Europeans to meet their obligations, but it is most definitely an achievable task within the standard timeframe for sovereign debt (i.e. 20 to 30 years). And at the same time that Europe is proving that it understands responsibility, it will also be proving that sustainability is achievable.

Analysis – A Light for the LIFE of the World

Change is not an option, it is a requirement. The truth is that the situation in Europe is not merely a circumstance that provides an opportunity for change, it is the eventual destination of all societies with immature social and economic systems. The confusion at the root of the industrial economic model and the arrogance of early democratic models means that they were fatally flawed from the outset. They were never capable of being permanent structures for a sustainable world, and yet we have persisted in their agenda beyond the end of their useful remit. Now we must face our responsibility to refine and develop our social and economic structures, to advance them beyond the visions of our ancestors, to fashion human civilization that honors, justifies and respects the influence over all life on Earth that the development of our species has imbued in us.

The achievement of a civilized and peaceful resolution of Europe’s problems, through the creation of freely-associated populations, working peacefully together for our mutual prosperity, while laying a sustainable foundation for our societies and our economies, will provide a shining beacon of light to the whole world that progression out of the darkness of conflict and the misery of crony industrial capitalism is not only dreamable, but is also practical. The whole world looks to Europe to show what they know is possible, and the people of Europe are ready to meet the challenge and shoulder the responsibility of demonstrating that sustainable peace and prosperity are the inalienable rights of all.

All of the great civilizations that proceeded Europe have enjoyed extended periods of peace and prosperity, some lasting for 100s of years. Europe has not competed a single century in the last 2,000 years that wasn’t defined by conflict and war. The modern world is a cake largely baked by Europeans, and now it is time to complete the process and ice the cake. Talk of Europe’s fading relevance and ossification are but excuses, it is plain to see that people in the rest of the world look to Europe to prove that the model they are adopting can be made to work.

News – LIFE Party launching in the UK in 2012, and the rest of Europe in 201… ?

Starting next year the LIFE Party will launch in the UK to run for the 2015 General Election. We can start LIFE Parties in every European democracy during 2012 to bring responsive politics to every corner of the continent that is the cradle of democracy. To make that a reality and be part bringing sustainable prosperity to your part of the world, send an email to start@lifeparty.org and we will help you get started with tools, frameworks and campaigns.

This the third issue of the newsletter from LIFE: Situational Policy Analysis and News (SPAN). LIFE SPAN is published online and provides more in-depth coverage of situations at the forefront of public policy at the current time.

To keep information flowing we encourage you to sign up for direct delivery of LIFE SPAN to your mailbox, so that any disruptions in the availability of Facebook, the blog site or the web wiki site do not affect your ability to get the latest news and updates from LIFE. Just subscribe to this website, you can always unsubscribe at a later date if you want to. We will never share your email with any other organization.

LIFE SPAN – 2011.08.10 – Fire, Riots & Remedies

LIFE SPAN 2011.08.10

Situational Policy Analysis & News from LIFE

Subscribe at lifespan@standardsoflife.org


Situation – No Growth without Fire

The industrial world is trapped, surrounded by a ring of fire. The only way forward for them is to “grow their economies”, but they are finding that they cannot grow. They cannot grow for two reasons, a double ‘liquidity’ trap:

  • Their economies are based on oil, and every time it looks like growth might be picking up, the price of that liquid shoots up and sucks the gas out of the engine, so to (s)peak.
  • There is insufficient ‘demand’ (i.e. people can’t afford to, or won’t, buy).

Today’s industrial economies everywhere are hydro-carbon economies: they are reliant for the majority of their power on oil, gas or coal (except France at 78% nuclear – see SPAN 2011.05.01). The supply of these non-renewable resources is constrained and possibly dwindling, so whenever the expectation is that industrial economies will grow the price of these energy resources goes up, the higher the expectations are for growth the higher the price of the energy. Basically we are in a trap, the cost of growing is too high and any wealth generated by growth is syphoned off to the sellers of oil, gas and coal.

Demand growth is non-existent because wealth-creating production has been separated from wealth-spending consumption. Production is now located in economies that cannot afford to consume the output, and the proposed consumers are located in economies that are no longer producing sufficient wealth because the production has been relocated to somewhere where people can afford to consume even less. This is true of Germany, USA and just about every other industrial “economy”. So, on top of the heavy debt burden that people (aka “consumers”) in the developed nations have assumed, their means of wealth generation has been removed.

There are two options proffered by the old, left of center traditions: increase government spending and borrowing to increase aggregate demand, and increase the supply of money so that money is so cheap it will be worth investing in almost anything rather than have it lying idle. Both of these have been tried in the current situation and both are failing. Governments and people are already so debt laden than they cannot borrow any more without reaching evidently beyond their capacity to repay, so they cannot spend any more without raising taxes, meaning that they would not be increasing aggregate demand. The second option of increasing the money supply has already been done as much as it possibly can be, and now central banks are tapped out and in a ‘liquidity trap’ (where printing more money does nothing, and interest rates cannot be lowered because they are already at 0%).

The situation is terminal. Without growth in demand, there cannot be growth in the economies; and without economic growth pretty much every nation’s debts are unserviceable and, therefore, so is the entire world financial system. This is a serious situation: for the last 100+ years we have been investing the security of our civilizations in the development of an internationally and intercontinentally accepted trading system (aka ‘finance’). We need a way out of this before too many people notice the emperor has no clothes, otherwise our common advances in civilization will be set back by more than a few riots. This is not to say that we should save the bankers, far from it! But we can transition peacefully to sustainable prosperity, if we decide to – it takes more work and greater courage than sitting back and watching it all burn down, but that’s what being civilized is all about.

Policy – Fighting Fire with Water

There are two ways to grow without running straight into the fire:

  • Unleash the internal markets in our local and regional communities.
  • Decarbonize our infrastructure.

Deliberate policies focused on these two objectives will deliver wealth-producing growth in the economies and societies that have the foresight to enact them. And the industrial societies are best placed to engage in them.

The water that will nourish our local communities is symbolized by water itself: water is a natural resource that everyone recognizes as being the free entitlement of everyone else, to procure in sufficient quantity to sustain their life. Through this easy example we reveal to ourselves that we all believe that everyone else has the right to the bare necessities of life. Now if we take that insight as a principle, we can easy develop a social structure that embodies it as policy, and in so doing we unleash the natural microeconomic potential of our societies to generate wealth. There is no such thing as unemployment, there is only wasted time.

The most urgent task in front of us is also where we will be able to generate the greatest wealth: developing and modernizing the infrastructures on which our civilization stands. We have much work to do to simply achieve the basics of clean water for everyone and renewable energy for all; these two endeavors will keep a generation busy in productive work.

But both of these simple turns require that we deliberately develop policies in our societies that make them a priority and a reality. That means having governments aligned with them, and that means electing representatives who will ensure they are the priorities. Are you waiting for someone?

Analysis – A Bonfire of the Polities

The riots in London, the student protests in Chile, the drug wars in the Americas, the uprisings in the Middle East and the protests in China all point to the same chasm separating the ruling polities and the politics of the people. Even in the most established democracies we have disjointed the interests of the ruling classes and the interests of everyone else. To see the politicians consistently and continuously act against the interests of the great majority of the people they purport to represent, you’d think that they’d have to lie to get elected!

Here’s a sampling is widely held opinions in the populaces of today’s industrial ‘democracies’ that the elected politicians don’t seem be able to bring themselves to enact:

  • we shouldn’t be imprisoning people for taking drugs
  • better quality education needs to be more widely available and more accessible by all
  • nuclear power is just too dangerous and too badly managed to be better bet than renewables
  • we need to do big things to decarbonize our infrastructures now
  • the banks should be working for the people, not the other way around
  • banks that go bust, should go bust
  • there should be more social services universally available, especially medical care
  • more local control
  • more responsive, accessible and accountable politicians
  • no wars, no arms trading, no nuclear weapons
  • more freedom and better information

There is a basic disconnect between the people and their politicians, and lot of that has to do with scale – the world’s population has multiplied many times over and we are still using the same government structures we were 100 years ago. Without multilayered democratic structures we cannot have accountable representation.
Fixing the disconnect is going to mean making big changes to the way we organize ourselves and our politics, so we have to be prepared to make big changes. We are going to have give up on our “not as bad as the other guy” voting, we are going to have to accept that we are all in this together and we are going to have to grow into our full responsibility for each other and the planet that homes us. Many of our tired attachments will have to go onto the bonfire if we are to escape the backdraft. Burn, baby, burn! It’s OK, it wasn’t working any way… time to try something new.

News – LIFE Party launching in the UK in 2012

Starting next year the LIFE Party will launch in the UK to run for the 2015 General Election – to win! We will be looking for strong local candidates to stand in every constituency on a LIFE Party ticket to bring responsive politics to every corner of the land that is the grandmother of democracy. To be part of the movement that will bring sustainable prosperity to the UK and then the rest of the world, send an email to uk@lifeparty.org and we will keep you informed of developments as they happen.

This the second issue of the newsletter from LIFE: Situational Policy Analysis and News (SPAN). LIFE SPAN is published online and provides more in-depth coverage of situations at the forefront of public policy at the current time.

To keep information flowing we encourage you to sign up for direct delivery of LIFE SPAN to your mailbox, so that any disruptions in the availability of Facebook, the blog site or the web wiki site do not affect your ability to get the latest news and updates from LIFE. Just send an email to lifespan@standardsoflife.org and we will add your email address to the distribution list, you can always do the same to unsubscribe at a later date if you want to. We will never share your email with any other organization.

LIFE SPAN – 2011.05.01

LIFE SPAN 2011.05.01 – First Edition of the new LIFE newsletter – subscribe now!
Situation – Nu-clear Power. Policy – No Alternative to Voting. Analysis – The inflation tiger is out of it’s cage and walking around the world economy with a gaggle of central bankers holding onto it’s tail.

LIFE SPAN 2011.05.01

Situational Policy Analysis & News from LIFE

Subscribe at lifespan@standardsoflife.org


Situation – Nu-Clear

Even before you factor in the pollution, proliferation and profligation of nuclear power, the most important thing to understand is the distraction that nuclear power represents.

The situation at Fukushima in Japan has brought the world’s attention to one aspect of the dangers of nuclear power generation, without even touching on the dangerous pollution resulting from mining and producing the nuclear materials in the first place, or dealing with the storage, recycling and disposal of nuclear waste at the other end of the cycle. But these dangers are not even the most dangerous thing about nuclear power, the most dangerous thing about nuclear power is that it distracts us from investing in the development of really sustainable renewable power generation.

Every single dollar invested in nuclear power could be used more productively invested in renewable power or improving efficiency. Every single physicist researching nuclear power could be more productively researching sustainability, deep chemistry or efficiency. The time for stop-gap measures has passed, we must aim straight for the finish line now.

Last month the world also committed to spending $1Bn on putting another protective cap over the leaking Chernobyl nuclear reactor. That has to be done, but it is just another example of time, money and effort that cannot now be spent on developing the sustainable energy infrastructure we need. Will we need to the same thing to Fukushima in 25 years from now?

A new clarity is developing in which we can see that any power source that is not re-newable is going to have insurmountable waste problems providing the energy we need to run a planet with 6, 7 or 8 billion prosperous people on it.

Now we can see Nu-Clear – we don’t want nuclear!

Policy – No Alternative to Voting

This week the UK will hold its second national referendum ever to decide whether to change the vote counting process used in national elections from decrepit to deprecated. It’s a miserable choice that incorporates almost nothing learned from the last 100 years of democratic practice. If the “no” camp wins it will probably be the end of the Liberal-Democrat Party in the UK, but, other than that, either result will make almost no discernible difference to the quality of democracy in the UK. Minority political parties will still be able to win elections, safe seats will remain safe and the diverse, multi-layered needs of citizens will remain unrepresented.

Citizen empowerment through democratic process is at the root of dealing with the most pressing issues we face, and apathy about how our votes are counted and who gets to vote for what betrays a complete failure to grasp the importance of this subject. Voting is not a dry subject for “policy wonks”, it is the most vital issue at the heart of our evolution! Efficable democracy that harnesses the collective wisdom of everyone’s input is the vital building block on which we can make the changes necessary to move to a sustainable prosperity. This is too important to be be left to the whims of incumbent politicians, so the citizenry must take the lead on moving to the best available models for voting and representation.

If we are to retool our civilization for sustainability, the extent, depth and breadth of the changes we need to make to our economic and social structures will require us to have a massively more participatory and effective political structure than we have today. The politics we need must include:

  • self-selected constituency boundaries defined by the resident citizens, not by the politicians
  • multi-layered, multi-constituency, multi-member democratic structures that reflect all the glorious diversity of humanity spread across the surface of the planet
  • bottom up power structures that allow jurisdiction to originate at the bottom and move up and back down the layers, locating decision making power at the appropriate layer for the scale of the decision

These are not difficult structures to imagine or implement, but they will only come about when we, the citizens for whom democracy is supposed to work, take control of the agenda and require proper, modern and comprehensive change. A referendum proposed and framed by incumbent politicians is not the way to change this properly, real change will come as part and parcel of the policy framework of a government specifically elected to make the changes. Over to you, citizens.

Analysis – Tiger Tails

Inflation. Inflation is the increase in prices without any corresponding increase in value, i.e. when the same thing costs more. There are three possible causes for an increase in price: an increase in the underlying cost of producing the thing, an increase in the demand for a thing that is constrained in supply, or an increase in the price just because there’s so much money lying around. The first two cases are not within the control of bankers or politicians and are simply a fact of life as materials, products and services become more or less available, and demand for them falls or rises. The important thing about the first two types of price changes is that they represent real changes in wealth, in other words the price changes are aligned with the change in the value of the thing. It is the last case, the one where the price of something changes without any change in its value, that presents a real problem for capitalist economies and politicians. This kind of inflation can only occur in a “capitalist” economy because the value of the currency in a capitalist economy is not based on anything real – the money supply is managed by special banks called “central banks” who are also responsible for minting the paper/coin money we use to pay for things and controlling the credit which commercial banks use to lend out.

The job of a central bank is manage the amount of money that is flowing around the economy such that it is roughly equal to the amount of value, or wealth, that is recognized in the economy. As you might imagine, this is a pretty tricky thing to get right because the central bankers have to have a really keen grip on the state of the economy, the quantity of transactions and the amount of wealth being generated. If central bankers print too much money, or allow commercial banks to lend too much money, and that money is not matched to real increases in wealth, then the wealth that does exist simply gets revalued in terms of how much money is available: this is called “inflation” because the price of the same thing gets inflated over time without any real change in the value of the thing itself. If the central bank doesn’t print enough money or allow commercial banks to lend enough money, then the economy cannot grow at its natural pace and the lack of money can gum up the works. Not having enough currency can even lead to the strange situation where the price of a thing goes down even though its value remains constant, because the currency has gone up in value to reflect an increase in wealth that has not been matched by an increase in the supply of available currency. In fact, to stop this kind of problem happening, central bankers err very slightly on the side of extra money and allow for a minimal rate of inflation as normal, typically this inflation is considered controllable when it is less than 2% a year.

There are two tools in the central bankers’ briefcase that have proved invaluable for getting this tricky balancing act right: caution and confidence. Normally central bankers are very cautious about increasing the money supply and spend most of their time trying to make lots of small changes over time in response to continuous monitoring of the state of the economy, changes in wealth, and keeping a really keen eye on what the commercial banks are up to. The central bank controls the commercial banks by forcing them to keep a certain amount of cash on hand, as a deposit against what they are lending out – these are called “reserves”. Also, because in a capitalist system the commercial banks can lend more money than they have taken in deposits, there is always the risk that they might get asked by their deposit customers for the return of more money than the bank has on hand; so commercial banks can always turn to the central bank and borrow the money they need at an interest rate set by the central bank. This interest rate, that a commercial bank may at any time have to pay for money they borrow from the central bank, effectively sets the floor on interest rates charged by the commercial banks on loans they make to their borrowers, and in this way the central bank controls the “cost of money” in the marketplace. If the central bank is cautious in managing the supply of money, and keeps the commercial banks on a tight leash, then everyone’s confidence in the ability of the whole system to properly represent their real wealth in paper money is maintained and everyone stays calm.

Now, if things start to go wrong they can head south pretty quickly: prices inflate, depositors loose confidence in the value of their savings, they withdraw their money from the banks, more customers get worried about the ability of the banks to give them their money back; traders lose confidence in the ability of the currency to represent their wealth and start jacking up their prices, or start asking to be paid in other things that they think will maintain their value, like gold or some other country’s currency. It can get really messy really quickly and will cause an economy to collapse with wholesale destruction of wealth and confidence. It is the job of central banks to stop this from ever happening, and that’s why they typically operate independently of politicians so that they don’t get asked to do silly things like just start printing money to pay for things the government wants but doesn’t have any real wealth to pay for. Caution and confidence, caution and confidence: the watchwords of effective, modern, monetary management.

When caution is defrayed, confidence is sure to follow at some point, and that is what happened in 2008. After a couple of decades of deprecated caution, a sudden fall in the perceived value of assets on which the commercial banks had staked their reputations led to an almost complete collapse of confidence overnight. The commercial banks were bankrupt and the central banks were on the hook for keeping the whole system running – the massive fall in real wealth was absorbed by the taxpayers, in the form of loans and gifts to the commercial banks, to stop the commercial banks from actually going bankrupt. At this point in the debacle there was a choice: recognize the loss of wealth and reorganize the banking system, or try and cover the bases until the loss of wealth was regained. The central bankers and politicians chose the latter, and that is the world we live in now. Money was printed and credit expanded on a massive scale to shore up commercial banks around the world, especially in the US and Europe, on the grounds that the depreciated assets would regain their value and any permanent loss in asset value would be made up for by increases in wealth derived from other activities in the economy. In the meantime there shouldn’t be an inflationary risk because all the extra money printed was just going to be absorbed by the balance sheets of the commercial banks and wouldn’t leak out into the rest of the economy. In theory, as assets values recovered and economic activity picked up, the commercial banks would re-establish their balance sheets and the central banks would simply draw back in all the extra money they had printed, so that some time down the road the total wealth and the total amount of money sloshing around would be back in equilibrium again. Neat, tidy and easy, eh? Not quite so much.

In other parts of the world, like China, that weren’t directly affected by a collapse of their commercial banks, they did still feel a pinch from the slow down in economic activity that occurred. In those places they increased the money supply by letting their banks lend out tons of extra credit so that people and business could spend lots to make up for the lost demand that previously came from the economies that are now having banking problems. In these countries they figured they could control the inflationary risk of printing all that money by making sure that the money went into activities that resulted in real increases in wealth, like railways and other infrastructure investments. The trouble with that plan is that real increases in wealth only occur naturally with the development of better things and ways of doing things, wealth does not simply increase in response to expanded cash spending. Just boosting the amount of cash in the system leads to people making silly decisions about what to spend that money on, and too often those decisions fail to generate any real increase in wealth; so the money is wasted and sloshes around looking for a quick bet, like the “inevitable and certain” rise in the price of property or other assets like gold.

Now its 2011 and here’s a summary of where we have ended up. The commercial banks have taken all the cheap money the central banks gave them and used it make huge “profits” using activities that do not create any additional wealth, often by lending the money back to the government at a higher rate than they borrowed that same money from the central bank. There has been no re-appreciation in the value of the assets that lost their value in 2008. The extra money injected into the system by the central banks has found its way into “quick bets” on assets around the world, jacking up the prices of property in Asia and raw materials in developing countries. One intended consequence of the rescue plan has come true: there has been relatively little fall in overall demand, a few percentage points here and there but nothing like the 20% revaluation that the other choice in 2008 would have required. Lastly, we live in a very financially orientated world because we are trying to use money to provide for the future security of our old age, and that means that we have a lot of wealth tied up in financial investments we call pensions. All these investments are effectively part of the overall money supply, and in places like the US the total of these investments is greater than the total annual GDP of the country – that’s a lot of free-floating money in the system.

Now, before we bring the strings of this story together, I want to remind you of the other types of price increases that occur naturally in markets: increases in the demand for constrained things (‘materials, products and services become more or less available, and demand for them falls or rises’). We live in a world where demand (population x aspiration) is increasing faster than we are developing new ways of meeting that demand, so the demand for the materials that drive our current way of life (food, oil, metals) is increasing without a commensurate increase in supply. This means that we are living in a world where the price of basic inputs is rising naturally, and will continue to rise until we retool for sustainability. The more successful we are at raising living standards (aspirations) the greater the increase in demand, and the higher the prices go. It is important to recognize this because the effect on the economy of naturally rising prices is the same as the effect of inflationary price increases: workers demand higher wages to allow them to maintain the same standard of living. This is the “price-wage” spiral that central bankers have learned to fear, because once it starts it stokes inflationary price rises through cyclical reinforcement, and it is really difficult to control without severely affecting living standards, which often results in social unrest and upheaval.

Think of money supply management as the tiger than drives the incredible development of wealth in a modern economy; so long as the tiger remains in a cage, or at least on a leash, the economy grows and wealth can appreciate naturally as a result of everyone’s efforts to add value to each other’s lives. The growth in wealth is not constrained by the availability of some fixed material, like gold, and every contribution by every participant can be recognized at the point when value is created. But if the tiger gets out of its cage and off it’s leash, it marauds around the economy spreading destruction and fear. Then it becomes the problem that has to be dealt with, instead of the enabler of greater good.

The inflation tiger is out of it’s cage and walking around the world economy with a gaggle of central bankers holding onto it’s tail.

While we would all like to wish the central bankers the very best of luck in their attempts to hold on to the tiger’s tail, the following factors suggest that they will not be able to hold on for long:

  • demand for finite resources is increasing naturally (outside of their control) and that will result in price increases
  • price increases will lead, and has already, to demands for increases in pay
  • the imbalance in the ratio between available cash and real asset values remains uncorrected from 2008
  • the socio-political system of attempting to provide social security using financial instruments (i.e. pensions) means that there is a lot of money floating around the system that cannot be controlled without degrading the social security that that money is supposed to provide; i.e. in a capitalist economy where social security is provided by pension investments, it becomes politically unacceptable to properly manage the money supply in line with real asset values if the value of those assets falls, effectively quashing the independence of central banking and degrading the ability to keep the true value of monetary investments in line with wealth
  • democratic politics and capitalist economics both require processes for orderly failure, a “permanent” political power structure cannot accept failure so it will inevitably intervene (unsuccessfully and counterproductively) in monetary management to preserve its political hegemony
  • the money in the current system is controlled by a very small percentage of the population who are already wealthy and who do not see the need to maintain the ratio of money to wealth, they simply seek to increase the quantity of money they have; remember that money affects the human brain the same way that sex and drugs do, it acts on the most primitive reward structures of our brain, overriding the newer “thinking” parts of our brains

The benefit of a capitalist economy is the near universal and instant recognition of value added as wealth; the condition of that is the requirement to carefully manage the money supply. If the social security of the people or the political power of the rulers is dependent on the preservation of wealth, then the necessary leeway to control money supply in line with wealth will be degraded and the economic system will collapse. Capitalist economics requires the ability to recognize wealth destruction, and that in turn requires a political system that allows for the destruction of power and a social system that survives the destruction of wealth.

In the end the only way to maintain monetary credibility is to be able to adjust money supply in line with wealth, both up and down, and that will require that we decouple social security from financial investments. In the meantime we/they will try and make the current system work for as long as we/they can, and so we are in for a spectacle of monetary gymnastics over the coming years as the bankers of the world try and keep the tiger from running loose.

News – SPAN gets wings, fly with us!

This the first issue of the new newsletter from LIFE: Situational Policy Analysis and News (SPAN). LIFE SPAN is published online and provides more in-depth coverage of situations at the forefront of public policy at the current time.

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Wake up!

Sleep-walking would be a particularly tragic way to go. After all that evolving, developing and civilizing, to just sleep walk into oblivion would hardly seem to do those millennia justice. The good news is that there some fairly sharp jabs to the collective ribcage happening, and there seems to be some awakening.

America makes for a good example because its big, and when a giant is sleepwalking, you can see the others in room scurrying to get out of the way. Mr Obama is a nice enough guy, and that guy Ryan looks decent, but they are both selling a load of twoddle. A 10% cut or a 20% cut? Either way the giant’s pants will fall down, and he’ll trip. Last week Obama warned the good people of the USA that in 14 years from now (2025) the amount of taxes paid would only be enough to cover pensions and medical costs for the poor and the elderly. Wow! Except that: the taxes paid today (2010) are only enough to cover pensions, medical costs for the poor and the elderly, interest on the debt and the other mandatory programs – the entire military and discretionary budgets of the US are uncovered! No education, no transport, no infrastructure, no defense! See for yourself.

This economic model doesn’t work, it simply cannot add up; no matter how many cuts are made or how many taxes are raised. Total Economic Awareness (TEA) is bust – not everything can be priced in dollars and paid in dollars. The TEA Party are the only honest ones about this: their solution is to disband society, every dog for itself, and devil take the hindmost. That’s the only economic model in which TEA works, and it’s not a world I want to live in, do you?

“Can’t we just go back to where we were a few decades ago?” (Old liberals ask some version of this simple question, born of a lifetime fatigue of fighting the good fight and a nostalgia for less urgent times.) No, we can’t. We can’t because we no longer live on borrowed infrastructure, with swollen productive demographics, and easy exploitation of a ‘third world’. Sorry, those times have expired and now we have to deal properly with billions of people, a finite planet and honest respect for everyone’s rights.

We didn’t pay for what we’ve got.
We’re not paying for what we’re using.
We haven’t saved for what we need.

This not a budget balancing problem, this is a philosophical realignment problem.

If we don’t want to live in a TEA-dog-devil world, what’s the alternative? The only real option is a universal-social-love world. It so happens that that is also the cheapest, most sustainable and funnest world to live in!

Let’s get some clarity about the world we do actually live in, so we can be clear about why TEA economics doesn’t and won’t work. We live in relative peace, with fairly good healthcare and decent nutrition: that means that our society has a “balanced demography”, in which less than half the population is out of school, able bodied and under retirement age. We live on a warming planet, on which the next 50 years of climate instability are already locked in by our actions during the last 100 years: a healthy, sustainable society has to have the kind of infrastructure that we will have to work really hard for several decades to build. In a multi-polar, mutually-respecting world, a prosperous economy cannot be dependent on the exploitation of other people, stored energy or the waste of resources: that is going to require a really fundamental reorganization of our society and its economy. We need to be able to rebuild our global infrastructure for sustainability while we support a majority of our contemporaries, without exploiting each other or the planet.

Is it starting to get clearer now? Are we going to get to where we need to go, in the time we have available, with spending cuts and tax rises? No, tinkering with the percentages simply won’t do it. Universal Social Awareness (USA) is the route to understanding how we can rearrange our social and economic structures to achieve what must be done in the coming decade or so. As we wake up we will start to see that our mutual promise of social support is not properly represented in a cheque, and when it is delivered in kind instead it liberates our economy, empowers our democracy, and liberates our nature.

Go to the wiki and read about how simple changes to the way we deliver social security, organize our democracy, and pay for it all, provide a path to a future we want to live in.

Peace, love and awakening.