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.

 

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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.

Health care – a complex issue

The provision of health care in contemporary society is almost as complex as the human body.  As the economy continues its decline health care will probably become an even more emotional and difficult issue.

There are three things that make health care complicated.  The consequences of poor health are generally pain and discomfort, a lot of us expect the government to take responsibility for our well-being and there are lots of other claims on scarce resources..

We all know that eventually we are going to die, but that does not stop most of us from trying to prolong life as much as possible, even if it means living in pain or as vegetables.   Some years ago The Economist stated in an article that 80 per cent of health care spending is in the last six months of life.  If this was true, if it is still true, then there is a lot of potential to reduce health care spending without sacrificing much human enjoyment of life.  But how is one to make the decisions to terminate health care. One has to note doctor assisted suicide is becoming more prevalent.

Medical  care is ideal for insurance although who should run it is open for debate.  We never know when we may face a medical crisis which could bankrupt us.  Sharing the risk makes a lot of sense.  A problem with most insurance schemes is some people have higher risks than others.  We all have to cope with the stresses of living and sometime the coping mechanisms are detrimental to our health and increase the risk we will need medical attention.  To what extent should we be responsible for other people’s lifestyle issues?  There may be no satisfactory answer to that question.  Maybe insurance should be for people with equal risks.  For example people who smoke could be in one insurance pool.  That sounds like a can of worms.

Some people believe governments are better at providing service than private businesses as they do not have the profit motive.  I disagree because there are no profits when one has a truly competitive market and because people in government have lots of other interests which override the interests of their customers – like staying in power.  I believe the best way for health care would be private coverage with lots of competition.  Governments can ensure everyone is covered by making it mandatory.

Health care is further complicated as it involves the allocation of resources.  Most of us make a variety of demands upon the resources available to us.  As well as health care we want education,  housing, defense, environmental protection, vacations, libraries, entertainment and cultural activities.  All of these compete for resources with help of powerful lobby/marketing groups.  As a lot of us expect government to help with some of these, governments have difficult decisions to make.  This writer would prefer most of these to be provided via competitive markets so that most of the decisions could be made by individuals.  A guaranteed income scheme would ensure everyone has the opportunity for the same standard of living as most other people.

Health care is a highly emotional issue which touches on human existence.  This writer tries to live a balanced life – some things which are good for my health and some things which are less good.  When my turn comes I hope I will be able to accept it gratefully.

Emotions and denial in the U.S. election

Some of us were raised to believe elections should involve a rational discussion of issues and voting for the candidate which best represents our point of view.  The current U.S. election appears to ignore this tradition and be based mostly on emotion and denial.

I believe the major economic issue facing the world today is that we have used up the most easily accessible energy and mineral resources  Yes, there are lots left but they are so difficult and expensive to extract that they are probably not useful to us.  The result is that we are heading into a prolonged period of economic decline.

Lots of people recognize we are experiencing some serious economic problems although very few understand the problem or agree with the above explanation.  Too many people, especially economists and politicians believe  with the right policies we will soon return to economic growth.

From where this blogger lives, about 200 miles north of the Canada-United States border, it appears one of the candidates is basing his campaign mostly on a strong appeal to emotions, especially fear.  This is a problem as generally emotions overrule rationality.  All the rules of managing an election and predicting its results are out the window. Rational responses to outrageous statements are meaningless to those swayed be emotion.

The outcome of this election is very uncertain.  Most if not all writers have biases even if they think they are being objective.  Therefore we need to be careful in evaluating analysis of this election.  A lot of what is being written many be wishful thinking.

The other side of this election is based on denial that there is an economic problem.  They want us to have faith that she will be able to solve impossible economic problems.

This guy has written a book about how to adapt to a down economy.  (See the top of this weblog.) It will be difficult and a lot of people will have to accept a lower standard of living.  The fear is justified.

Whoever wins this election the economic problems will still be there along with all the emotions and denial.  Not a promising outlook.

Incomes keeping up with cost of living

“Can someone explain to me why it’s so hard for companies to increase wages in Vancouver?”

This question was asked recently on the Reddit Vancouver forum.  I suspect it is a question which could be asked in many cities across North America and around the world. The question was asked because for many people the cost of housing and the cost of living in general has been rising faster than incomes.

A number of reasons were given in the discussion – maximizing profits for shareholders, a cultural shift towards laziness, in some fields there is a conspiracy to drive down wages by saturating the field with desperate new grads willing to work for peanuts, foreign buyers are driving up the cost of housing, and supply and demand.

Having studied economics this blogger prefers the last one, supply and demand for bodies, but also believes it is a symptom of a much larger problem.

For the most part wages are, with some exceptions,  determined by supply and demand. When unemployment rates were low, workers were able to demand and receive a living wage.  As there have been more and more unemployed people we are seeing more people not keeping up with the cost of living.  Some employers have learned they can do well by paying higher than going wages.  But this works because they can attract the best workers and probably would not work for all firms.

The exceptions to the law of supply and demand are those occupations which are protected from competition by government legislation such as licensing requirements.  Very often licensing is said to be required to protect standards of service to the public.  Doctors must be licensed to ensure we get quality medical care but the licenses also restrict competition and keep doctors incomes high.  Teachers are paid well because they have licenses and strong unions in a legal monopoly.  People are required to send their children to school and mostly the schools are operated by the state.  Government employees also have strong unions and employers that have a monopoly.

The moral of the story is that if you want to have the wages to support a good standard of living, choose an occupation that is legally protected from competition.

Most of us are aware the economy is going through a difficult time but believe it will return to continuous growth.  This blogger is an exception.  Our economy is in trouble because we have used up the most easily accessible energy and mineral resources.  There are lots left but the energy and effort required to extract them make them mostly useless.  If this theory is correct, then we are probably faced with a long period of economic stagnation during which the standards of living of a lot of people will go down.

The answer to the question is that it is hard for companies to increase wages in part because wages are determined by supply and demand and in part because the economy is started into a period of decline during which it will be hard for companies to even stay in business.

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