Compassionate economics

Are the words compassion and economics compatible?

Absolutely. If we were to exchange goods and services without interference from legislation which restricts competition we would have an economy with a high degree of equality, fairness, environmental sustainability, peace and compassion.


Major evidence for this comes from the hunters and gatherers who used to inhabit this planet and especially the bushmen of the Kalihari Desert who lived a peaceful and sustainable lifestyle for close to 200,000 years


This writer has come to this conclusion after a lifetime of interest in current affairs and relationships, through a first class degree in economics from the University of British Columbia and lots of informal reading in economics, economic history, history, ancient history and anthropology.


That I feel it necessary to start this book with this question indicates how poorly so many people, including economists, understand economics and money. At least since Marx many people have equated economics with the evils of the current economic system and shut off whenever the word economics is used. This is sad because economics is about the relationships involved in the exchange of goods and services and most of us have to exchange with at least a few people. Money is a tool to facilitate this exchange. Both economics and money involve a lot of distortions of the truth which makes it easy for some people to exploit the rest of us.


team-spirit-2447163_1920As we work through compassionate economics the issue of the resource base hangs over us and makes life difficult for all of us.

Economics professors often start their lectures by drawing a simple x graph on the black board. One line represents the physical side of the economy and the other line represents the financial side of the economy. This is a very important distinction as ignoring it diverts our attention from the reality of economics.

As we mostly discuss economic problems in terms of money we ignore the physical side of the problem. For example, pensions are very important for most of us but we always talk about saving enough money rather than having enough energy and mineral resources. Two things could and probably will happen to most of the money people save for their retirement – inflation or bankruptcy. Our standard of living in retirement will depend upon the quantity of goods and services we are capable of producing relative to the number people making demands on that production. A key factor in this ratio will be the energy and mineral resources we have. There are still lots of these on the surface of our planet but we have consumed the most easily accessable.Those that are left will require a lot of energy to extract and may not be feasible.


The cost of solar energy has recently been falling quickly and has some potential. I also like that solar has the potential for each of us to make decisions about adopting it. It is great that individuals can make these decisions instead of bankers. The down side is that most of our money supply is based on debt and will disappear if a lot of loans have to be written off. I fear a lot of our money is based on loans made to support petroleum.


We need to exchange goods and services because we are social creatures. It may be this is what distinguishes us from animals. In some circumstances it may be possible for an individual to live alone but for most of us we must live with at least one other person and this means living in a relationship. On the Canadian Prairies the early explorers found they needed a female partner for survival because the division of labour was too much for one person. Later the settlers found that during harvest labour requirements were such that they needed to help each other and took turns at several farms. Now, with modern equipment one person can seed, fertilize and harvest up to 7,000 acres. But he still needs a huge support staff of suppliers. These he pays in cash rather than return labour. Economics is about how we exchange goods and services and the relationships which are a part of these exchanges.


Decision making is an important part of compassionate economics. When we make decisions for others we can and often do make those decisions by what is best for us rather than them. As there is no place for exploitation in compassionate economics we should as much as possible exchange goods and services so that individuals can make decisions for themselves. In capitalism bankers and government make decisions about what and how much is to be produced. In socialism bureaucrats in the form of central planners make those decisions. The only way I know to allow individuals to make economic decisions is the perfect competition model upon which the formal study of economics based.

At least since Marx economics has been defined as either capitalist or socialist. Both of these are very vague terms which is good for people who want to control or exploit others but meaningless for those of us who want to understand how we exchange goods and services. The main feature of capitalism as we know it is that governments pass legislation which restricts competition and we call it a market economy. The main feature of socialism is a matrix known as central planning and they say it is “by the people and for the people”. Both concepts are the idealogical equivalent of the stuff through which one would walk if one visited a cattle feed lot.

For four years this guy lived on a British Columbia coastal Indian reserve. One evening a old timer told us about the time consuming process his people used to make themselves a sweet treat,

“Do you still do this,?” I asked?

“No,” he replied. “It is a lot easier to go to Dairy Queen.”

These people did most of their hunting at the local supermarket but they still fished and they still had a few of their old traditions. One of these traditions was the sharing of fish and we had a lot of salmon, halibut, crab and oolichans (a very small, oily and smelly fish.)

It appears that in a lot of hunting gathering cultures sharing mostly with family or clan members was the predominant way of exchange. This is a major difference from our culture where it is assumed the exchange of goods and services should yield a profit. I would like us to plagiarize the hunters and gathers and make sharing the key concept in our economy. This is somewhat radical and would open the door to some major changes in our economy – a guaranteed income policy, a new way of creating money and a zero growth economy. All of these are important for resource and environmental concerns. All of these are important if we are to have a compassionate economy.

One of the major issues we have to deal with is the incompatibility of economic growth and environmental issues such as global warming, pollution, mono culture agriculture, health and overpopulation. The need for economic growth is sold as a fix for unemployment although its main purpose may be to further increase the wealth of the one percent. As compassionate economics is based on sharing rather than profits there is no need for further economic growth. With a guaranteed income scheme people will not need jobs to survive and we can deal with environmental concerns. We will also no longer need to support the greatest of all make work schemes, the arms industry. Lets opt for peace and sharing with all peoples. The goal of compassionate economics is to get the population to a sustainable level and live in peace.

Compassionate economics will allow us to replace our commitment to the work ethic with a commitment to a leisure ethic. In future we should get our self identity from the leisure activities in which we engage whether they be acting in a play, writing a book or even drinking beer.It is relatively easy for me to sit here in a comfortable chair and a nice view out the window and think out solutions to economic problems. But economics involves people with emotions and special interests. A lot of people will find it difficult to see the need for changes and those with special interests will be very vocal in protecting themselves. However I believe the future of most of us is seriousl

It is a pity that so many people shut off when they hear the word “economics.” A few years ago I read a book on green economics which promoted small businesses. I laughed and cried because economic theory is based on the concept of small businesses. One of the key assumptions of economics is that no firm is large enough to influence prices by restricting production and by restricting the quantity purchased.

A key feature of a true market economy as described by economic theory is that there are no profits. If there are profits to be made in an industry new firms will enter until prices drop to the point where there are no more profits. Firms can make wages and a return on investment (maybe) but there will be no profits. Thus a perfect market economy with competition is what is needed for a compassionate economy. A lot of people need to be studying formal economics.

It is relatively easy for me to sit here in a comfortable chair and a nice view out the window and think out solutions to economic problems. But economics involves people with emotions and special interests. A lot of people will find it difficult to see the need for changes and those with special interests will be very vocal in protecting themselves. However I believe the future of most of us is seriously threatened and we must at least try for compassionate economics.

 

Fake promises in the next presidential election

It appears the next American presidential election will be a battle of fake promises as Donald Trump and a left-wing democrat appeal to American emotions.

Trump will almost certainly bases his campaign on the formula that worked last time; vague general promises (make America great again) and some easy to keep promises that appeal to his core supporters (move embassy to Jerusalem.). Most of his promises will be appeals to emotions.

White House Flag Democrates RepublicanThe democrats will base their campaign on a promise of full employment as reported in this recent article in The Economist. Full employment has been an American policy goal for a long time, If it were possible it would have been attained a long time ago. To promote it now is an emotional appeal to counter Trump’s emotional promises. And it is destined to failure and will probably destroy the economic future of a lot of Americans.

One could probably predict that both Trump and the democrat will come out of the election with DBS degrees. (The D stands for doctor and the rest all English speakers should know).

The main issue, which will not be acknowledged during the campaign, is the size of the resource base for future economic activity. This blogger believes there are loads of energy and mineral resources left on the planet. However, we have cherry picked those which are readily available. Those which are left are so difficult to extract they are for the most part useless for future economic development.

If this analysis is correct then promises of full employment will be impossible to keep. Attempting to keep them will accelerate the use of the remaining energy and mineral resources and bring forward a major economic collapse.

Another factor when employment is an issue is our commitment to the work ethic. Some people believe their salvation depends upon their working hard and others worry that some people will receive benefits which they have not earned or to which they are not entitled. Everyone must do their share.

This blogger believes the material standard of living to which we have become accustomed is based on the agricultural surplus which allows a few people to produce enough food for everyone. As this surplus is the result of several millenia of technological development it should be a part of our inheritance. All of us should be entitled to a standard of living equal to everyone else regardless of what we do with our time.

With our standard of living dependent upon jobs and with our psychological well-being also dependent up on our having a job, promises of full employment will have a very strong appeal to many Americans. The success of the promise depends upon the ability of the economy for even more growth. This blogger has serious doubts about that. I am old enough to remember when people were saying we will just have to get used to an unemployment rate of three per cent.

The economic challenges facing the people of this world are overwhelming. Solutions will required a major rethinking of values about work and economic growth. An American presidential election would be an ideal time for a serious debate about the economic future.

The toughest part of this issue is how to deal with it. In the past I have voted for candidates with the least chance of winning because they have been the most honest. I have also deliberately spoiled by ballots. Both of these seem like a cop-out. I do not have the personality nor the skills to be a candidate let alone convince people of my economic policies. I do not even have the skills to go to election meetings and challenge the candidates. I also believe any candidate who tried to be honest would be nailed to the cross by fake election promises and appeals to emotions.

 

 

 

 

 

Self-driving cars: promises and some problems

Self-driving cars will be an incremental but disruptive step into science fiction in that we will be abandoning a major part of the economy and replacing it with something different. Science fiction will become a reality. Do we really want to go there? Probably we have no choice but to drive down this road.

A recent special report in The Economist discusses some of the technology and outlines the promises of autonomous vehicles. There are also some economic problems of which we should be aware – the resource base, marginal cost and potential disruption in the money supply.

driving-clipart-45The promises are mostly based on a continuation of the North American growth economy. We will be continuing to use machines to move individuals or small groups mostly to places of employment. Probably self-driving vehicles will be used in combination with mass transit, especially if vehicle sharing comes into its own. Great benefits will accrue to a lot of people in the form of greater inexpensive mobility which will also allow us to contradict Facebook with more direct social activity.

Self-driving vehicles may add to the over population problem if there are fewer accidents and fewer fatalities.

One of the problems will be the availability of resources. This blogger figures the economy is currently on a down trend because we have used up the most easily accessible energy and mineral resources. Sure, there are lots left in the crust of this planet but the amount of energy required to retrieve them makes them mostly useless.

The exception is solar energy, the cost of which has been dropping and will probably continue to drop. This could mean a major change in economic power as it appears solar will become cheap enough for individuals to make their own decisions about using it. No longer will bankers and governments be deciding which power provision projects go ahead and by whom.

The replacement of the current fleet of internal combustion vehicles with electric and driverless vehicles will probably mean a lot of the current infrastructure will need to be replaced. This will require large quantities of mineral resources which may be very expensive. Henry Ford realized that in order to sell automobiles they had to be inexpensive enough for working people to buy them. Since then we have extracted a lot of the most easily accessible mineral resources. It is not clear we will able to retrieve or recycle enough resources for the transition.

The economic concept of marginal cost creates a couple of problems for the introduction of self-driving vehicles. This states the price of an item is equal to the marginal cost of producing the last item. As the cost of solar energy is falling and is likely to continue falling at some point solar will determine the price of electricity. When that happens all those firms currently producing electricity from hydro, gas or oil will find their facilities and investments worthless. Not good news for bankers or for the rest of us when all that debt has to be written off.

Recycling may be another source of problems. Most of us accept that recycling is a civil responsibility and believe that doing so will help to save the environment and the economy. However we may find marginal cost interferes with some things. Suppose a pound of copper can be recycled for half the cost mining new stuff. Does this mean manufacturers will be able to purchase recycled copper for half the cost and their customers will benefit from the cheaper prices? Not likely. Copper prices will be set by the last pound mined and the recycler will make a windfall. So the benefits of recycling will likely go to the recyclers rather than the rest of us. This is what happened in the oil industry as prices rose. We all paid higher prices and those producers who could extract the stuff at lower cost did very well. Recycling may be a joke on us.

Most of us know how to manage our money but few understand how money is created in our economy. Most of the money we use to exchange goods and services is based on the debt created when bankers make loans. This works so long as the economy is growing and bankers make more and more loans.

Economists seldom if ever talk about what happens when the economy stops growing and loans have to be written off. Loans are being written off all the time but so long as the economy is growing they are replaced with even more loans. However, when large amounts have to be written off such as the recent mortgage crisis the money supply goes down and without money it becomes difficult to exchange goods and services and lots of people lose their savings and their employment. Because of the fractional reserve system we use the money supply goes down with a multiplier effect.

I do not know how much of the current money supply is based on debt to the automotive and energy firms. The introduction of self-driving electric vehicles could hit the banks and us with a double whammy if firms in both industries cannot repay their debts. We could lose a lot of the money supply as well as a lot of people losing their savings and pensions.

A lot of changes are likely to be forced upon us. Some of those changes we may not appreciate.

Through the millenia of history when there have been major economic upheavals up to 90 percent of populations have died. If something like that happens in the near future, the technology of self-driving electric cars will not be lost and the promises may be available to the survivors.

Daydreaming reform: basic income, money and work ethic

To say we face an economic crisis is hardly controversial but the crisis is so severe that the reforms needed make Karl Marx look a part of the establishment.   The changes needed are radical beyond the comprehension of many people as they require more than just tweaking what we already have.

The basic problem is that we have used up most of the easily accessible energy and mineral resources.  Those that are left require so much energy to extract that they are almost useless.  There have been other times in economic history when humans have had to cope with resource shortages but these were temporary as more resources were waiting to be discovered.  This time the problem is not knowing where the resources are located but the cost/energy required to extract them.

The three basic changes are a basic universal income, the way in which we create money and overcoming the work ethic.  To accomplish anything all three reforms will be needed at the same time.  As there are so many conflicting vested interests this will be an impossibility.  Prove me wrong.  While these appear to be radical ideas, this writer did a degree in conventional economics at the University of British Columbia and has a strong commitment to a market economy.   The radical comes from wanting a market economy when a major feature of the current economy is that competition is restricted by government legislation.

The basis for an income scheme is the agricultural surplus resulting from all the technology which has developed at least since a farmer discovered he could produce more by using a collar on a horse rather than a harness on an ox.  Through the centuries the elite have confiscated most of the surplus with the use of force. Since the industrial revolution psychological tactics such as legal restrictions on competition,patents, copyright and the work ethic have been less messy.  The need for labour to man the empires has allowed workers to claim a share of the surplus.  As robots replace workers it will be interesting to see what happens to the agricultural surplus – and workers.

This writer would like to see the agricultural surplus treated as an inheritance to be shared equally by all the people of the world.  The way to distribute this inheritance is with a basic income scheme.  Some ideas as to how to do this are in the free e-book, Funny Money: Adapting to a Down economy, available from this weblog.

One of the advantages of an income scheme is that individuals would be able to take action on social and environmental issues related to their employment.  Workers would no longer have to work for exploitive employers and people who disagreed with a firm’s social or environmental policies would not have to bite their tongues for the sake of a pay check.

There is an old saying that money is the root of all evil.  When I studied the economics of money and banking I decided it was the lack of money that is the root of all evil.  I now think the way in which we create money is the root of all evil.

In most of the world’s economies money is created when the banks  make loans and because banks are generally required to keep a fraction of their deposits on reserve most loans become additional deposits in the banking system.  This is called fractional reserve money.  It is a problem because loans that have to be written off reduce the amount of money available, with a multiplier, and because interest is charged on the loans.  A sudden reduction in the money supply is the most difficult of all economic crises.   If all the loans outstanding had to be repaid at the same time there would not be enough money to repay the principle and the interest.  We would recognize the problem as a financial crisis.  This is why I titled my book Funny Money.  I encourage you to get a free copy from Smashwords for an explanation of this problem.

Money is useful because it is a tool which facilitates the exchange of goods and services especially when a lot of our exchanges are with strangers.  We have traditionally used gold or other material items as a basis for money.  Some people still talk about the gold standard although fractional reserve money is based on faith rather than gold.

A few small groups around the world have established what they call Local Exchange Trading Systems.  These people base their exchanges on credits.  You get a credit when you sell a good or service to another member and use credits when you purchase something.  I like this system because the credits are a form of money without the problems of fractional reserve and interest.  In my book I propose we adopt a national exchange trading system and combine it with credits from a guaranteed income scheme.  This would be using money as a tool rather than a commodity.  See the book for more details.

Adopting this system would be revolutionary because it would be a transfer of decision making power from bankers to individuals.  Under fractional reserve bankers get to make decisions about what projects get funded and who gets to do them.  A National Exchange Trading System would allow individuals to make these decisions as they decided what to do with their share of the agricultural surplus.  Some of us would use our share to vote for zero economic growth and more leisure activities.

Many people feel guilty if they do not work continuously.  The work ethic and a distribution of the agricultural surplus via employment are the main motivators that keep our economy going. But the truth is that we do not need everyone to work full-time to provide foods, shelter and entertainment to everyone.  Most of the work people do is work for the sake of work and to maintain the empires of the one per cent.

The bushmen of the Kalahari desert in Africa are/were known for not being interested in material things and for not working hard.  But as hunters and gatherers they had no need to store food.  Any day of the year they could go out and collect the food they needed for that day.  When our ancestors moved to agricultural pursuits, they had to store food and this meant working at least at some times of the year.  We have now taken this need to an extreme.

One of the reasons work is so important is that most of us get our self-identity from our employment.  To save our resource base and to preserve the environment we will have to get our self-identity from other activities.  How about a leisure ethic which encourages people to perform operas, write poetry, write economic weblogs or many other useless things.

This blogger keeps by his computer a little statue of the Laughing Buddha to remind him not to take life too seriously.  Most of the time it works but when thinking about the current economic outlook it is hard to laugh.  Most of us think and act in our own short-term interests as opposed to the long-term in interests of our selves or our communities.  So long as that holds true the outlook is for a lot of human suffering.  But  what does it matter.  To quote a famous economist, in the long term we will all be dead.

 

The next economic crisis: financial or real?

A few people are prepping themselves for the next economic crisis and speculating about what will cause it.  This blogger thinks there are several possible causes.  It is about 99.99 per cent certain there will be another crisis.

Even if somebody does make an accurate prediction it will probably do no good because there are so many vested interests there will be no consensus about the cause and about what to do to prevent it.  However, for some of us there is some fun in trying to think out economic problems and we might be able to improve our understanding of economics.  So, here goes.

The possibilities are for the cause to be within the financial system or for the cause to be within the physical or real side of the economy.  As the two are interconnected it may be difficult to determine just what is happening.

Problems within the financial system relate to money. Either there is too much money or not enough.  Ideally the available money supply needs to be just right for the quantity of goods and services exchanged and as this varies it needs to be flexible.  When there is too much money available there is potential for inflation and this is a problem for people with invested savings as they lose some of their purchasing power.  Deflation is a problem for lenders as the money they have loaned out will have less purchasing power when it is returned, if it is returned.

The really serious problem comes when there is not enough money as this curtails economic activity.  Most of the money supply is based on loans made by the financial industry and involves a multiplier.  When the industry has to write off a large quantity of loans, as with the recent subprime housing crisis, the money supply goes down, again with a multiplier effect.  Without money the exchange of goods and services becomes difficult and lots of people lose their jobs. Big time suffering.

Currently it appears there is lots of money floating around the economy.  Lots of firms are reported to have piles of cash on hand and are probably unable to see investment opportunities.

On the real side of the economy, many people assume there are lots of energy and mineral resources available and therefore no physical restraints on the exchange of goods and services.   This may not be true.

A common argument is that as resources are consumed higher prices will bring on a greater supply which happened with oil and lots of minerals.  The problem is that they also require more energy to extract which reduces the energy available for other activities and at some point the value of the energy exceeds the value of the resources.  This blogger figures there are lots of energy and mineral resources available on the earth’s crust,  but the cost of getting them makes them useless.  This could be changed by technology and the decreasing cost of solar energy will make the high cost of oil irrelevant.

Children, workings in a vegetable garden.

However there may be some economic  disruptions in the transition.  How much oil infrastructure will have to be written of and what would that do to the money supply? Also there are all the other minerals for which there are no clear cheap substitutes.

This guy fears the greatest threat to our economic well-being is from resource restrictions on the physical side of the economy.  An even greater threat is that too many people will not see the problem because they analyse problems only in financial terms and will be looking for solutions on the financial side.  Changes in how much money is available or even in the way in which we create money will not add to the resource base or make it cheaper to extract them.

I fear for the future of my grandchildren.

 

 

 

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.

 

 

Economic problems: Labour, capital – and resources

How can we understand what is happening to the economy if some of the basic principles are incomplete.  I am thinking of the idea that there are two factors of production – labour and capital.  I believe we also have to take into consideration the resource base.

This note was prompted by an article on Bloomberb  by Satyajit Das titled Productivity Won’t Save the World in which the focus of the analysis is labour and capital.  I do not know the origin of this idea but I understand Karl Marx promoted it. Neither a shortage of labour or a shortage of capital are satisfactory explanations for current economic problems.  There are a lot unemployed or underemployed people  and there is no shortage of bank credit which makes up most of the capital we need.

It seems current economists sometimes give lip service to the concept of scarce resources and then assume we have available unlimited energy and mineral resources.  This writer believes current economic problems are because we have used up the most easily accessible resources.  Yes, there are lots of energy and minerals on this planet but the cost of extracting them reduces their value.  It is little wonder the economy is going down.

The focus on labour and capital is convenient for those who want government to control the economy.

Mr. Das starts his article with the old line that Thomas Malthus was wrong because we have survived more than 200 years since he made his dire prediction and then proceeds to point out it may now be coming true as increases in productivity are declining.  Some years ago this writer took an industrial first aid course which was focused on a written and practical exam.  “If the examiner asks if your patient requires rapid transport to hospital,” said the instructor, “an appropriate answer would be ‘not yet’ to show that you are monitoring the situation.”

Since  Malthus made his forecast other people have warned of problems with the resource base and so for they have not happened.  The lesson from the first aid instructor is valid here too.  Not yet.

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