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A mountain lake in British Columbia

economics102

The theology of being good or mean

Do we need religion to tell us to be kind to others or do we need religion to give us permission to be selfish and inconsiderate of others?

This question follows from an article which outlines some of the scriptures used by some North Americans to justify policies which some of us might think are mean.

Shortly after leaving high school this guy came across a book called The Panchatantra which is part of the wisdom literature of ancient India.  One of the verses which has stayed with me through the years is:

Forget you prosings manifold,
the moral law is easily told,
to help your neighbour, that is good,
to hurt him, that is devilhood..

This simple verse is straight forward and one would think  it, or something similar, is all people need for moral guidance.  How ever , at least in our culture, some people follow it some of the time, some people ignore it all the time and some people follow it all (or most) of the time.

It would be interesting to know if this applies to all cultures or are there some in which all people follow the  principle all  the time.  To answer this one would probably have to spend several reincarnations doing field work in anthropology.

Reading the above article I note that almost all the scriptural references provide justification for being mean to others.  Could it be that if one wants to be selfish or nasty one needs divine assistance?  A lot of our economic culture is based on exploiting and taking advantage of other people.  If you are a part or nearly a part of the one percent your fortune and your status depend upon others working hard.

I think we should make a distinction between economic well-being and theological salvation.  It may be that we alone are responsible for our salvation, but people should not have to go hungry.

This blogger believes the technology which allows us to produce so much with so little effort should be a part of our collective inheritance.  The benefits should be shared equally rather than going to  few people.

Regardless of what Christian or other scriptures say, I think we should expect people to follow ancient Hindu moral law.

Guaranteed work or guaranteed income?

As an alternative to a basic income scheme a commentator on Medium is proposing universal guaranteed work.  This writer has put a lot of thought into his proposal and deserves to have it given some consideration.  I have a strong commitment to a guaranteed income scheme and I have some heavy-duty concerns about his work plan.

My first concern is a belief that we do not have enough energy and mineral resources to provide employment for all the people who inhabit this planet.  There are still lots of resources but we have cherry picked the most accessible and those which are left will require lots of inexpensive energy to extract.  Even if the cost of solar energy continues to drop there may not be enough other resources to maintain the economic growth required to provide work for everyone. Topsoil is a major resource which may deteriorate and restrict growth.

The proposal for guaranteed work is probably based on a belief in economic growth and a long tradition that people must “do their share” and work to support themselves.  It may be that some people see a basic income scheme as a way of distributing goods and services rather than as an economic necessity.

Technology has been changing our economy at least since an ancient farmer discovered he could increase his production by using a horse with a collar instead of an ox with harnesses.  This development and all those that  followed allowed fewer people to work the land and more people to do other things such as fight and prey.  (In medieval times there were three classes of people – those who prayed, those who fought and those who worked to support the first two.)  My professor of European economic history spent a lot of time talking about agricultural developments which increased productivity.

Modern technology is an extension of this trend releasing more people to do things other than work to provide food and shelter.  A major question is what is this free time going to be used for.  There are many choices beyond preying and fighting including making more electronic gadgets and performing or listening to music.  Another question is who is going to make the decision about what to do with this time.  I believe individuals should be able to make the decisions for themselves.

My third concern is that a guaranteed work scheme is a continuation of the work ethic which allows a few people to tell the rest of us what to do.  We should consider the agricultural surplus and the benefits of technology an inheritance for all of us rather than a right which can be expropriated by a few.  We should be able to decide for ourselves what we want to do with the free time we have inherited from our ancestors.  That could be drinking beer or creating great works of art.  Who is to say one activity is better than another? We need a leisure ethic rather than a work ethic.

Sadly there are some people who feel they should be able to tell others how to live their lives.  A universal guaranteed work scheme is an open invitation to these people to practice this dark business.

Our civilization has to deal with some serious economic problems.  I fear the work program as proposed would make a lot of those problems even worse.  A guaranteed income program would not be enough to solve all the problems but it would be a start and needs a lot more thought.

 

 

Pensions: Promises and reality

It is difficult for this blogger to get excited about pensions because he grew up to Doris Day singing “Whatever will be, will be“.  I heard that song so many times I still believe it.

There are two things that make pensions difficult.  They are part of a big business and they involve promises to be redeemed  in an unknown future.

This post was inspired by this article in The Economist about pension problems in Taiwan but the ideas here apply anywhere around the world where people rely upon pensions for their future.

Pensions are a problem because we evaluate economic problems in monetary terms and assume there will be no inflation or deflation.  We would get a more accurate evaluation if we did it in physical terms.  The reality is that our future standards of living depend upon the ratio of population to the quantity of goods and services we will be capable of producing. Monetary savings will probably be irrelevant thanks to inflation or bankruptcy.

We know, or we should know, from experience that the economic growth is fractal in nature rather than linear as we learned in university economics.  Being fractal means there are a series of ups and downs and sometimes major changes in direction.  There is some evidence that we are experiencing a major turning down.  This blogger  believes current economic problems are because we have used up the most easily accessible energy and mineral resources.  Yes, there are lots left but they require so much energy to extract they are mostly useless.  Regardless of what financial people say there may  be some grim prospects. If this analysis is correct the best career and investment is a market garden.

Pensions and other forms of savings are a big business in which sales people earn  commissions and profits on current sales.  They are selling promises for a future they probably will not have to keep.  The reality is that there may not be enough resources to keep them.

To believe in pensions one must have a lot of faith that the world is going to continue as it is for the rest of one’s life.  We can sometimes see into the near future but the further out we look the more blurred is our vision.

Back to Doris Day.

 

Solar energy – excitement and challenges

The most exciting, and challenging, economic news of recent days has been that in some parts of the world solar is now lower cost than other forms of energy and that is without subsidies. (One, two, three.) This is exciting because so much of what we call civilization is dependent upon cheap energy.  There are indications that the cost of solar energy will decrease even further and that it will become  available to most of us.

This is also challenging because of the economic changes which will have to be made including the writing off of a lot existing infrastructure.

We must start this discussion by noting that energy is only one input into economic growth.  A shortage of other minerals, agricultural land and over population may make a return to economic growth difficult.

A major problem in adapting to lower electricity costs will be the existing infrastructure. The price of an item is equal to the marginal cost of producing the last unit.  This means that if solar energy can be produced cheaper than other forms of electricity the producers of that energy will have to lower their prices or go out of business.  It may take time to work out but we can anticipate a lot of infrastructure will become obsolete.  Do not be surprised if there are demands for subsidies to protect firms from unfair competition.

The falling marginal cost may be a problem for the production of solar energy.  With fossil fuels we have been used to rising marginal costs which means the owners of cheaper oil have been reaping windfall profits as the price of oil has gone up.  This writer is not aware that much economic thought has been put into dealing with falling marginal costs on this scale but some people will have more expensive solar energy than others or will have to write off their initial investment.

Another interesting feature of solar energy is it is unlikely any corporation will get an exclusive license to use it.  With costs falling to the point where most people will be able afford their own solar collector(s) decision making power will be transferred to individuals.  No longer will bankers and governments be making decisions for us.

I am skeptical that cheap solar energy is going to mean a return to economic growth and the way our economy is currently organized requires growth for most of us to live in comfort.  Changing our economic organization will be far more difficult that introducing solar technology.

Capitalism – a meaningless concept in which we can believe

As one surfs the economic forums of Medium and other media one often sees the word “capitalism” in the headlines but mostly I ignore these items because the word’s definitions are generally so vague the word is meaningless.  Because capitalism is such a meaningless word it is something in which we can believe while ignoring a less pleasant reality.

When we study economics we can try for an honest understanding so we can solve problems and reduce human suffering or we can seek rationalizations for things which will make us rich in spite of exploiting others, destroying the environment and overusing scarce resources.  If I were the chief executive of a large corporation or a politician I would want the second approach to economics.  Guess who pays the salaries of most economists.  This blogger makes no money out of his study of economics, so he can take the first approach.

The main feature of the economic organization with which most of us are familiar is that a lot of it is based on legislation which restricts competition.  Patents, copyright, licensing and subsidies all work to restrict competition  and/or distort prices.  These are so pervasive that we cannot say we have competitive market economy.

The problem with a perfectly competitive economy is that it does not allow for profits.  Competition reduces profits until each firm makes wages and a return on investment but no profits.  If one wants profits one needs government to pass legislation to restrict competition and most current  governments are happy to oblige.  Once upon a time this blogger used to make pottery.  I suggested that in order to make a good living we should form the Canadian Potters Association and get the government to pass legislation that all the people in Canada should eat only from dishes make by members.  Other potters laughed but lots of other occupations have that legislation: teachers, doctors, lawyers, septic tank installers, most large corporations (patents and copyright), etc.

Like lots of other people I would like to see an economy with more equality and less exploitation.  I believe the best way to get it would be to have more competition.  To get there we should repeal or at least reduce copyright, patent and licensing legislation and drop all subsidies.

This would leave many people exposed to economic adjustments which often cause suffering. A guaranteed income scheme would be a better way of coping with these problems than restricting competition.

Money difficulties

The following is my response to an article on natural money posted on Medium.

Dear Christopher

Thank you for your article about money.  I believe money is a major problem in our economy and it is urgent for us to have this discussion.  There are a couple of things I liked in your proposal, however I have some serious concerns.

My qualifications to write on this topic are that I did a degree in economics at the University of British Columbia with an informal specialization in money and banking.  I think I have a good understanding of how the financial system works and an even better understanding of some of the problems. And I have written a book about money.

My first concern is with the six properties of money.  I recognize this is conventional economic thinking and is based on the traditional use of commodity money but I prefer to define money as a tool which facilitates the exchange of goods and services.  It is important to note that tools get their values from how well the do the job.  It is unfortunate that money has a history of values as a commodity.

Another concern is with the idea there are two varieties of money – precious metals and fiat money.  A third type of money is fractional reserve money and is based on loans made by the financial system.  Believe it or not when bankers make loans they are creating money and adding to the total money supply in the economy. If you do not know how this process works there are lots of explanations on the internet and I urge you give it some priority.  It can appear complex but I think it is easy to understand if one takes it slowly.  Approximately 90 per cent of our money supply is this type.

I believe the major problems with fractional reserve banking is that the quantity is not flexible downwards when economic activity decreases and the interest charged on the loans.  If all the loans upon which our money supply is based had to be repaid on the same day there would not be enough money because of all the interest which would also need to be paid.

I am also concerned with the idea of basing money on a commodity – any commodity or even a group of commodities because this limits the total money supply.  When money was based on gold there were some severe recessions because there was not enough money for the quantity of goods and services people wanted to exchange.  Deflation can be a serious problem which limits economic activity. Please do not forget a lot of economic activity is based on services.

Your suggestion that CBC units should be destroyed when redeemed is very important as money units can keep piling up until they cause problems.  A big problem with fractional reserve money is that it does not get destroyed until we have an economic crisis and lots of people lose lots of money.

Your concept of countercyclical is also important because the money supply needs to be flexible in both directions.  If it is not flexible then we have either inflation or deflation both of which devalue people’s  saving.

There is a rather obscure concept called local exchange trading systems (LETS) (https://en.wikipedia.org/wiki/Local_exchange_trading_system) which a few groups around the world have tried.  These groups have not met with much success because they are small and do not include all the goods and services we need to live.  However, they create credits which are in effect money which avoid the problems of fractional reserve money.  If only we could establish a national exchange trading system (NETS) we would probably have fewer economic problems.

This commentator has written an ebook about money, its problems and NETS as a possible solution. You can get a free copy from Smashwords by following this link and using this code:

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Money is extremely important in our economy and causes a lot of problems.  I encourage you to keep thinking.

(FREE! The author of this comment has written an Ebook Funny Money: Adapting to a down economy. Information is on my weblog:https://economics102.wordpress.com/

Bill Gates and vested interests

The world’s richest man thinks robots that displace human labour should be taxed and the money used to fund philanthropic employment in health care and education.  This proposal would suit the interests of the one per cent but there are probably better ways to deal with problems created by the agricultural surplus.

Bill Gates deserves some credit for his philanthropy and for recognizing educational and health care needs although one has to be concerned about the economics of how he became the current chairman of the board of the world’s elite.

To evaluate proposals like this we need to look at the vested interests of the person making them.

Mr. Gates’ foremost interest has to be in maintaining copyright and patent legislation as that is the foundation of his fortune.  If our society did not have that legislation he would be just another clever computer nerd, we would all be using cheaper and better software and there would be a great deal more equality in our society.

His second greatest interest has to be promotion of the social monitoring and tracking industry. The future of his fortune probably depends upon the success of Microsoft in tracking and monitoring all people so the information can be sold to advertisers.  I fear this not so much because of the advertising but because once the information is collected it will also be available to governments and the one per cent for social control.  I switched my computer to linux minx because I figured Microsoft was getting too blatant and too untrustworthy in its collection of information.

Another major interest of this guy is full employment and the work ethic.  He needs for everyone to be working so we can all purchase his software and be subject to targeted advertising.  If that does not happen his position as the richest man on earth becomes precarious.

Another of Mr. Gates interests is the maintenance of poor people in this world.  Without them he would not get brownie points for philanthropy.

Will his proposal help to save jobs?  Probably not because the root problem is that we have used up the most easily available energy and mineral resources.  Those that are left will take so much energy to extract their value is limited.

The development of robots should be seen as part of a long-term technological development which has given us a high agricultural and material goods surplus and which allows all the benefits of modern civilization.  The challenge is to use the technology for the greatest enjoyment of human lives.  It may be the greatest benefit would come from a new emphasis on doing arts, crafts, music  and theatre rather than marketing more elaborate gadgets.

So there are two things which might interfere with Mr. Gates’ desire for full employment and his future.  First is the depletion of energy and mineral resources which will reduce our economic activity and the second is if more and more people get fed up with the marketing conspiracy and reduce their interest in contributing to economic growth.
 

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