Archive for January 30, 2010

Minimal Consumption Entitlement: 01

January 30, 2010 22 comments

This post will introduce a concept that I have often briefly mentioned in my replies on other blogs. The idea is both heretical and somewhat hard to imagine, for most people.

I will start by defining my starting point, which are the ideas of Hyman Minsky. He believed that boom and bust cycles were an inherent feature of capitalism. Google the concept of a “Minsky moment”, if you are interested. His most heretical ideas were however two concepts, one of which has already become reality. He believed that the government should become the lender and employer of last resort if a bust paralyses confidence in the private sector. Underlying these ideas is one unspoken concept, namely economies can suffer crises of confidences so severe that it is not possible for the “free market” to reboot the system. Essentially if people lose confidence in the system they will stop participating in it crippling any attempts to re-equilibrate and causing a further wave of bad faith until the system becomes inoperable.

While a simpler system like an Egyptian or Roman level civilization can recover, more complex systems cannot recover if damaged beyond a certain level. Consider the effects of a nationwide electrical grid failure for two months. If you believe that everything will just “come back”, you are dreaming. Similarly cardiogenic shock lasting more than a few minutes will have a lasting effect of the person. Even if you could bring most organs back, the brain would not survive more than a few minutes of total hypoxia, at room temperature.

Which brings us to the whole business of what makes our economy function.. It is the flow of money, rather than the amount of money per se that makes the world go around. Now there are those who believe that only zero sum money, like gold, can survive over the long run. However we no longer live in a zero sum world, indeed every phase of the industrial revolution has made the world less zero sum and more productive than the last, and as Keynes famously said “in the long term we are all dead”.

The high and ever increasing productivity of our world creates some unique problems, not experienced by previous generations. You see, for most of human history productivity was so low that people who consumed but did not produce were rightly considered parasites. However we now live in a world where a fraction of the population can provide all the necessities and luxuries for everyone else. The real question then is: how can the rest of the population pay to buy these products and services. Part of the solution lies in price deflation, I am writing this on a 200$ iPhone, a concept that would have considered almost laughable a decade ago.

However this does not still solve the major problem:

How can you employ most of the people who do not perform any obviously important function?

Some might suggest eugenic genocide, but the problem still remains. A smaller population makes many people with previously useful jobs redundant, as high productivity removes the necessity for most people to work. The logical conclusion would be one human who could produce everything, but had nobody to sell it to. Don’t laugh, it may not be ultimately necessary for humans to do anything to produce everything.

The other option is paying people to consume.

I can immediately see your main objections to this idea, so let me go through them.

1. How do you motivate anybody to work?

A: The answer to this is quite simple. Pay people to work beyond their minimum consumption entitlement. So a person with a job makes x + y, instead of just x. He/ she is free to use ‘ y ‘ any way they see fit, including not spending it.

2. How do you stop this free money from being used for anything other than consumption?

A: In the old days, this was hard to enforce. But interac cards and income tax departments make it possible to track how people use their money. Plus it would be helpful if the true purpose of the free money was explained to it’s recipients.

3. Why should the “undeserving poor” receive free money?

A: Because you are only one job loss or innovation away from losing your fortune and importance for good. In any case, most high earners in society are rentier parasites.

4. How can you motivate people to innovate?

A: Easy! A stable life makes it more easier for people to develop truly revolutionary ideas and concepts. The big jumps in human innovation never came from micro managed projects with job instability. A decent and stable existence might actually help us innovate and dream further than is now possible. Scarcity encourages survivalism over speculative thinking, guess which one leads to big innovations.

5. How do you stop the “masses” from voting more stuff for themselves?

A: This one is easier than you think. Since more demand creates more jobs for producers, I fail to see the problem. Of course, we have to abandon old ideas about money supply, that originated in a gold standard based world.

6. What about inflation?

A: Technology will cause product/ service price deflation. Let me ask you a counter question:

Who does inflation hurt? Does more harm come from deflationary job and income loss or from inflationary destruction of savings? Inflation merely increases the numbers on a price tag, deflation causes misery and deprivation. Miserable and desperate people start looking for and supporting egomaniacal dictators. Read some history!

In any case, fiat money created by a stable government is far less inflationary than debt based money created by banksters. I will explain that concept in another post.

Stay tuned for my next part of this series, hopefully answering some of your feedback to this article. The next part is now up: Minimal Consumption Entitlement: 02

Linkfest (January 30, 2010)

January 30, 2010 Leave a comment

In other news..

Summers, Obama’s econ adviser, says despite recovery, US in “human recession” over job losses Manipulated numbers overrule human misery and suffering. Welcome to the ivy league vision of USA.

“What we see in the United States and some other economies is a statistical recovery and a human recession”. But the level of unemployment in the U.S. is disturbing, with one in five men between the ages of 25-54 not working.

In the Packaging of Loans, a Bust With Precedent Where did the roaring 20s lead to? Never mind..

The original wave of securitizations took place in the 1920s, when the United States went on the greatest building boom ever. Many investors saw how rapidly real estate prices were rising and wanted in on the action. The builders and brokers were only too happy to oblige.

The Tablets of Our Dreams Merge With Reality We are living sci-fi.

Today we have the iPhone, iPad, Tabletop GUIs and we will soon have “project natal” (xbox360). Once we fit a few more modules to the iPhone, we have a tricorder.. The best part is they are cheap enough for the average person to buy and use.

See this video: Link

A Growing Share of Americans’ Income Comes from the Government But most Libertarians and CONservatives will take the money, and blame poor colored people for their misery

As you can see from the following graph, while the relationship between personal income and GDP has not changed all that much over the course of the past six decades, the share of income accounted for by transfer payments has jumped more than 200 percent.

What happens when the world defaults? The one way out of this hole is a debt jubilee, mutually agreed or otherwise!

Taleb vs Asberger’s Syndrome Sorts

Note that the very same people who attack me, on grounds of political correctness, for discussing Asperger as a condition not compatible with risk-bearing, and its dangers to society, would be opposed to using a person with highly impaired eyesight as the driver of a school bus. All I am saying is that just as I read Milton, Homer, Taha Husain, and Borges (who were blind) but would prefer to not have them drive me on the A-4 motorway, I elect to use tools made by engineers but prefer to have society’s risks managed by someone who is not affected with risk-blindness.

Financial Services: From Servant to Lord of the Economy One picture can often say much more than a treatise.

Categories: Linkfest, MSM Idiocy