We Are the Fox!

 We are the proverbial fox guarding our hen house -- the Earth -- it’s no wonder we’re losing egg production. What the hell am I talking about? Let me connect the dots. Our planet is deteriorating rapidly. Without humans, it would probably rebalance itself just as rapidly, but we’re not planning on going anywhere. While the population is declining in places like the United States, elsewhere, no such decline exists.

Our strategy seems to be to consume our way out of this problem. We’re building newer and more efficient stuff. We blame big corporations for pumping greenhouse gases into the atmosphere and using vast resources and energy. Corporations make an easy scapegoat. We envision a few cigar-smoking men in suits laughing as they destroy the planet.

In reality, we are the cigar-smoking suited men. Most of us work for those companies, or they are the largest customers of our smaller companies. We don’t want to lose our jobs. And, while we may not smoke cigars, we are them! While there are a few “tree-huggers” out there who have dedicated their lives to bringing down “the man,” we are, for all intents and purposes, “the man.”

Consumers control everything. Without us, there are no corporations. Want to put Amazon out of business? Stop buying stuff from them. Don’t just buy it somewhere else -- give up the stuff! What’s that? You don’t want to? I get that. You’d rather just keep feeding the machine that is destroying our home.

To be completely transparent, I’m “the man,” too. If you are reading this, it is because you are using the internet, one of the largest energy consumers on the planet. And hold onto your butt because AI is poised to jack those numbers up tenfold. Nobody wants a return to the old days when we didn’t need the internet. We are the fox. Maybe our technology can save us somehow. More likely, we’ll go on raping and pillaging our planet until some cataclysm wipes out a large portion of humans. Those who remain may be returned to the dark ages.

They may learn from the horror that they experienced. But we humans are good at forgetting. If the solution to sustainability requires self-control, I’m not optimistic. As is often the case, what makes us great is our greatest Achilles heel -- we want more eggs! 

AI & Capitalism: On a Collision Course

First we had self-scan checkout lanes, now we're facing down self-driving vehicles. IBM's Watson AI can predict cancer better than the best oncologist. Ultimately, few jobs are safe from automation. Should this scare us? Maybe.

We face a social conundrum. Capitalism, by its very nature, seeks the most efficient use of capital to produce an optimal economic outcome for shareholders. Technology doesn't require benefits. It doesn't get sick. It doesn't spend 30% of its work day socializing. Technology is efficient. Thus, it is always a natural choice for executives to invest in technology which will eliminate people -- that is, if their objective is to optimize the use of capital.

While there are certainly social-minded organizations that consider it part of their mission to employ people, most for-profit companies seek more profits. Technology is the best way to do that. Heretofore, white collar jobs that required people to "think" for a living were safe. We could retrain people who had used their hands to use their minds. Now, artificial intelligence (AI) threatens those jobs too.

Nobody really knows where the tipping point is, but we do know that there are certain types of phenomena that have tipping points. A tipping point is a specific condition that causes an abrupt and often dramatic change. A good example would be the housing bubble that manifested in 2006. In 2007, in a very short time, we reached a point that caused housing prices to drop sharply and quickly.

It is reasonable to suspect that at some point, AI and other related automation will eliminate enough jobs that the economy will become dysfunctional. Companies want to reduce cost and improve output, but they need customers to take advantage of those efficiencies. Customers are people with disposable income. Income is money earned from work. Do you see the conundrum?

Prospects for Change

There are alternatives. Unfortunately, they will all require strong political leadership. If we've learned nothing, we now know that any self-promoting gasbag with enough social and economic resources can claim the mantle of leadership, even having never demonstrated any evidence of real leadership.

What is a leader? There are many books on this topic and I have read some of them. My takeaway is that leaders are those who can create a clear vision of the future and empower people to execute plans to achieve that vision. We don't have many of those in Washington these days.

National politicians are convinced that they need huge amounts of money to win elections. As we all know, huge amounts of money come from places that have huge amounts of money. Common sense would tell you that these are not the people who are worried about losing their jobs to technology. They're the ones BUYING IT! In other words, the people who are taking away jobs are those who have the most influence on our "leaders."

There are three ways in which the major changes necessary can come about:

1. Total collapse of the system
2. Revolution
3. Courageous leadership that can sell tough love

I numbered these because I believe this is the order of likelihood that the necessary changes will come about. People are basically problem-solvers. It ought to be clear to anyone with a brain that the folks who have influence in Washington don't have any major problems with the current system right now. Thus, they will not be inclined to take steps to avert the onset of the tipping point discussed earlier.

Choices

So, let's assume that we eventually arrive at #1 - total collapse. The big problem here is we end up with the same crappy [lack of] leadership we have now. The first and most important thing will be to prop up the people who own Washington -- rich people (remember corporations are people too). In the past, this has meant printing money and giving it to them, so that their wealth wouldn't be diluted. This worked okay when they used the money to buy things that created demand for products and services that required more employees to deliver them. What happens when more people aren't needed to do this? We've already noticed a trend in the last few business cycles that the recovery is much slower. There has even been mention of a "jobless recovery." This sounds as strange as a "money-less economy." What is THAT!

Therefore, even if they try to prop up rich people first, that won't be the end of it because that won't do anything. Next, they will try traditional means of putting money back in the hands of consumers. This has typically been done with tax credits. Tax credits work great for people paying taxes. However, people with no income don't pay taxes...and there's going to be a lot of those.

Finally, we get to the only real solution: handing out free money. There's one big problem with free money. Since our capitalist system puts economic value on money by evaluating its productive power in the marketplace, free money is ultimately worth nothing. On a small scale, free money can be covered by other economic activity, but on a massive scale, the economic value would be gone.

This is right where our current government taps out. I can't imagine them overthrowing the very system that they control. It would take an incredibly strong and visionary leader who could reach the people, thereby bypassing the power elite to sell and idea on a massive scale. I can't imagine anyone like that coming to power now, but maybe in a crisis we could garner such a leader.

Assuming we could, what's the answer? I believe it is socialism. Socialism has gotten a bad name for two main reasons:

1. People don't like to work to support other people who are just sitting around
2. Socialism generally requires centralized control and this means central power, which becomes corrupt every time

In the past, #1 has been a problem, but in the future it is likely that people who don't want to work won't have to. Thus, nobody should be complaining about working to support the masses. If you don't like your work, turn it over to a computer or machine (or both); or the 100,000 people lined up to take it off you (some people actually like to work - even if they don't get paid).

The second problem is trickier, but not insurmountable. How can we decentralize socialism? The answer is to use open source algorithms that are democratically modified to alter decision parameters. If decisions are not "black box," the logic behind them can be examined and justified. I wrote a post about the distributed system problem that you can read here. The point being, the very technology that put us in this situation can be used to fix the traditional problems of socialism.

The Future

Nobody knows how the future will unfold. What we do know is that it will unfold. Sometimes it is relatively easy to extrapolate certain changes. They may not be inevitable, but it will take an intervening disruption for the course of major events to be altered. Assuming that doesn't happen, eventually we won't need near as many people to work as we have. We can't keep warehousing a growing population that is just not needed in the workforce. When the tipping point comes, it may likely come in the form of a seemingly normal business cycle. However, none of the old tools will fix it and as it deepens, it will drag more of us down with it. If we are ready with new options and strong leadership, maybe we can avoid much pain and suffering. I sure would like that. How about you?

Bitcoin: A Bloodless Revolution

I have written here about economics, government, the corruption of power and revolution. I spend a lot of time reading and thinking about the symptoms of a system in decline. History tells us that no matter how good a system is, it will ultimately be co-opted by those few people who are the best at exploiting its rules. Humankind has always prospered on the backs of the working class. The masses are the engine of material prosperity.

Those in power ultimately have no obligation to the masses. At some point, their power becomes so entrenched that they forget about sacrificing for the greater good. This is not conjecture or opinion. This is an historical fact.

Einstein famously said: “Insanity: doing the same thing over and over again and expecting different results.” Are we doing anything different this time around? Has our global civilization made some fundamental shift that puts us beyond the reach of history? I suspect not yet.

There are two fundamental changes that could make the difference this time around:

1. We are now all part of a single interconnected global economic system
2. We have computer algorithms capable of surpassing human capabilities

The first change means that we are capable of fixing or destroying our system on a global scale. Something we’ve never been able to do before. The second point suggests that we no longer need to leave major economic decisions in the hands of humans.

Every time I pondered ways in which we could take back an economic system that has become increasingly corrupt, I came up with the same answer -- revolution. Most revolutions are messy, protracted and bloody affairs. Nobody really wants one, so they endure the status quo for as long as they can. Since I couldn’t see a way to avoid a revolution, I started to think about the possibility of a bloodless revolution.

To my knowledge, there has never been a true bloodless revolution. Even England’s hand-over of India came at some human cost. The Glorious Revolution of 1688, which saw the removal of King James had minor violence followed by even more death. Could it be possible to engineer a truly bloodless revolution?

What if…

As I see it, the main problem is that extremely wealthy people have the ability to use their wealth to create additional wealth in a way that has no impact on the real economy of regular folks. For a better understanding of this, just read this post. What would happen if us regular folks started converting our liquid assets to bitcoin? Bitcoin is the first successful attempt at what has come to be called a cryptocurrency. The main hallmark of bitcoin is that there are no intermediaries to tamper with transactions or supply. It is algorithmic and the code is open source for all to see (i.e. transparent). You can read more about bitcoin here.

Let’s play out one possible scenario. Suppose that millions of average folks with under $100,000 in savings were to move their savings into bitcoin. As this movement takes hold, the price of bitcoin starts to go up. Suddenly, early holders of bitcoin receive newfound wealth. Before long, wealthier individuals start moving larger portions of their wealth to bitcoin in order to diversify their portfolios. This will drive the price up even quicker.

The effect of people all over the world switching their holdings to bitcoin will be the decline in value of other currencies. This will also encourage better tools and supports for bitcoin such that people will be able to transact even more seamlessly than they can now. During the global transition to bitcoin, there will be new winners and losers. Fortunes will be disrupted. As with any major market correction, some people will suffer more than others.

The Net Effect

Some of the same rich and powerful people may still be rich when the dust settles, but they will find their power significantly curtailed. As George Gilder points out, $5.3 trillion worth of currency is traded daily. This is approximately 25 times the amount of goods and services. This means that far more wealth is being created (and lost) by manipulating currencies that real economic activity.

A bitcoin economy eliminates anyone’s ability to manipulate the currency regardless of their power and wealth. It is hard to even imagine the direct and indirect effects of this, but one thing is certain: nobody will ever again be able to cut your wealth in half by doubling the money supply. Digital currencies can be held online or offline in as complete security (maybe more) than your bank. Banks could decide to give you a haircut by confiscating 30% of your money, which seems increasingly likely in Greece. If you hold a digital currency, nobody can touch it without your permission.

Other Possibilities

If this sort of algorithmic solution can work for economic security, what other areas where human power corrupts can we implement it? Open source programmatic solutions to social, environmental and resource issues could be next. This does not need to be big brother. Smart people working together can come up with good solutions.

Every time a new system goes online, there will be new winners and losers. If the system is properly designed, those who are doing the most good for society will be the winners. If the system is not properly designed, we can fix it incrementally like we do other software. The key is these changes will be transparent. With open source, there can be no backroom manipulation to trick people into compulsory sacrifices for the benefit of the few.

What I propose is not intended to bring equality to capitalism. Capitalism is based on human nature and it works because it creates a space for people of all levels of ambition and drive. There may come a time at which our level of technology precludes anything close to full employment and we will need to rethink capitalism. For now, what we need to do is make sure that all capital is working for the markets we all live in and not some metaphysical currency or derivative market that is only for the ultra rich and powerful. I dare to dream!

Taxtion

I spend a lot of cycles on this blog writing about things people could do. Some of the things to do that I write about need to be done by specific people -- usually those who are in power. There are still plenty of things us regular folks can do. Sometimes I feel as though the greatness of the United States is currently predicated on a great push downhill that we got in the 1940’s at the inflection point of the industrial revolution.

This was a time before the “New Deal” had its full effect. It was a game changer for us because for the first time, our government provided a safety net for those who would fall. Trying the high bar without a net causes people to be more focused, evaluate risks more carefully and work much harder to stay aloft. With a net, preparation can be compromised and effort suspended if it becomes too uncomfortable.

The philosophy of life is ultimately altered forever. We can see those changes in the attitudes of people today. Individuals no longer seem to concern themselves with others in society because “the government will provide.” Before the New Deal, people with the economic power to do so had to think about the effects of their actions on others. There was no safety net, so if their actions would bring others down, personal sacrifices were in order.

This could be seen in the rationing during WW2. Mostly, it was a simple reality that doing anything to earn was necessary for survival. The effects of our modern government may seem subtle. Because they “take care of us,” we have come to see “them” as a service provider. This was never the intention. We were to have a government “of the people, by the people and for the people.” Career politicians and social programs have changed everything. Now, we pay taxes and expect services. Politicians are “them.”

In 2013, less than 1% of Americans were lawyers, yet Congress was comprised of 41%. Maybe this is appropriate in a land with a tangled web of laws that no untrained person could be expected to navigate. However, it is clearly not representative of “the people.” This helps create the disconnect in which we no longer see ourselves as participants of government, but rather clients of it.

The Fix

The problem with the current tax and spend economic model for our government is that it is incongruous with the system our forefathers designed. We want to keep what we earn, but if we need to give some of it away, we expect the government to take care of all social responsibilities in return. What is needed is some sort of compromise between the old and new system.

I propose that people should be allowed to choose between service and taxes. Allowing people to offset their tax burden by performing social services would reconnect them to government. It would allow people with low incomes to contribute equally to wealthy individuals.

People would simply report both time and monetary payments on their tax forms. I call this “taxtion” thus combining “tax” with “action.” The organizations such as the Department of Transportation and the Environmental Protection Agency would provide a list of work assignments that people could sign up for. They would then issue work completion documents for time spent on the assignments that would act as a W2 for actions.

These services would include required efforts that lack funding from the taxes collected. It would give citizens the option to support the government in the areas that matter to them rather than leaving the distribution of funds completely up to career politicians. There would presumably still be plenty of people with the means to avoid direct social action by serving their obligations 100% financially.

Not Socialism

Some might cry “socialism!” While this plan is not pure capitalism, neither is our current system of government. It is unrealistic to expect that we could ever go back to a system of pure capitalism, if we ever had one. Ayn Rand and her ilk may be right, but the world will never know. The invisible hand of capitalism will never be fully unleashed. In this context, we must decide the most effective blend of capitalism and socialism.

I suggest that asking people to contribute socially in a more material way with time and effort will bring them closer to a government “by, for and of the people.” That has to be a good thing. Right?

But it Costs Too Much!

It may be time to start examining some very basic assumptions about the way we live. Anyone who is paying attention knows that our species is facing some existential threats. I believe the Earth is a self-cleaning oven. If we trash the place enough, it will clean us off and continue on with the next wave of life on Earth. Maybe the next dominant species will fare better.

But wait! There may still be time for us to save ourselves. How you ask? I’m sure I don’t know. One thing I do know is that “it costs too much” is a crappy excuse for not doing the things we need to do. Let’s stop and examine this idea.

Maybe the best way to do this is with an example. Most of the planet currently meets its energy needs by burning fossil fuels. Most of the electricity comes from coal-fired plants that are over 70 years old - an eternity in the technology space. The carbon dioxide that comes out of these coal burning facilities can be either:

1. Released into the atmosphere
2. Captured and “sequestered” (stored) someplace
3. Converted to some other chemical

As you might imagine, #1 is the cheapest. It is also destroying our atmosphere. We are designed to exist in a very narrow band of chemical and thermal balance. If our atmosphere changes too much, our biology will not adapt quickly enough. Bye-bye homo sapiens. Don’t worry though. There are plenty of microbial lifeforms that can adapt quickly enough. All is not lost.

Now, #2 is more expensive, but very economically feasible. The problem is, we’re only deferring the problem because sooner or later, gases like CO2 have a way of getting out. The biggest sequestration system on the planet is our oceans. They have been collecting excess CO2 from the atmosphere for a long time. Unfortunately, as we heat up the planet, the polar ice caps are melting at an incredible rate. This will ultimately raise the temperature of the oceans. When the temperature rises enough, much of that stored CO2 will get released back into the atmosphere. Then, it will be time to welcome our little protozoan friends to the top of the food chain.

This brings us to #3. This solution requires some very new technology. It may not even be ready for primetime just yet. That means we’ll need to throw lots of money at it before we even incur the likely high cost of implementing it in a production environment. The alternative is to build new plants that use nuclear energy. There is a new generation of fission reactors that are much safer and more efficient than those like Fukushima. There is also progress being made with fusion reactors that use plasma. These plants cost billions of dollars and can take over a decade to build.

Those in the energy industry tell us that these last alternates are just not “economically feasible.” There’s no return on investment. These men and women are essentially saying to us, “our lavish lifestyles should not be compromised just to save humanity.” Hmmm. I can only speak for myself here, but this does not seem like a particularly sound argument. Can we blame them? They are simply playing the game by the rules set forth by those who came before them.

Unless we want this thing to end badly for us humans, we need to start thinking about how we can change those rules. Economics is ultimately an artificial construct that we have devised. There are no natural laws of the universe preventing us from fundamentally changing them. I proposed some moderate changes in a two-part post, which you can find here and part 2 here. Of course, how we change our economy is up for discussion. “That” we should change should not be. Our current economic system is self-destructive and thereby unsustainable. The choices seem simple: fix it or die.

Wasting Money on Money

Some estimates put the daily trading volume of currencies at $5.3 trillion. This means that every day, the people who are buying and selling money (preferably for a profit) are transacting 25 times the amount that is traded globally for goods and services.  Let's look at that in graphic form.

What is wrong with this picture? Well, I'll tell you: every dollar that isn't invested in goods and services takes away from social progress, jobs, and technological advancements that could save our planet.

What could we do if all that money was working for "we the people" instead of bankers enriching bankers?  For starters, how about solving our energy problem? If we used a couple day's worth of that volume on fusion reactors, we could chip away at the energy problem that is consuming our planet faster than anything else. We could build desalinization plants that utilize that fusion power to pump fresh water into California, which is a desert that happens to also be the bread basket for much of the United States.

The thing is, the technology for all of these things exists. The problem is funding. While trillions of dollars are tied up in markets that do nothing but enrich the traders that are participating in them, companies and research entities that are attempting to improve the human condition are starving for capital.

Let me be clear about something. This is not a condemnation of all bankers. Most smaller banks make an honest living by making loans to real businesses. Every day, they take calculated risks on real people who are providing real goods and services in the marketplace. Without them, capital would not flow and new businesses could not flourish.

If we simply eliminated derivatives and currency trading and forced investors to take the same risks on real companies providing real goods and services, the amount of money that would flow into the marketplace is hard to fathom (well, look at the graph above to get some idea).

Maybe it's time to stop the madness. We cannot expect the power brokers in government to do this.  They are part of the system that created this mess. It would be like asking the fox guarding the hen house to please stop eating chickens. Good luck with that! No, "we, the people" are going to need to rise up and demand this.

I can hear the currency traders now. They will tell us that without them, currencies would become unstable and economies would collapse. They are right. As long as we have a global currency system based on nothing, this juggling act must continue. However, if we were to go back to the gold standard or some sort of cryptocurrency like bitcoin that cannot be manipulated by monetary policy, currency would become a stable variable in the economy.  This would force actors to manipulate other aspects of the system. This would be a good thing. To learn why, you'll need to do your own research or wait for another post. Special thanks to George Gilder for sparking some of the ideas herein.

When the Punch Bowl Gets Stolen

Someone once defined the role of the Federal Reserve Board as the ones who job it is to steal the punchbowl just when the party really gets started.  The reason for this is because "The Fed," as they are oft referred, has one primary job -- to protect wealth.  You see, if inflation gets out of control, then people who owe money, which is most of us, get a break because the money we use to pay back our debts is worth less than the money we borrowed.  Unfortunately, lenders (like banks) get screwed.

Since bankers and other rich people mostly control the government, it should come as no surprise that policies designed to keep inflation down are paramount.  What's happened recently seems to be some sort of selective inflation.  The basics, housing, energy and healthcare are all getting very expensive.  The only thing that has been protected is food.  Our government knows from history that if food gets too expensive, revolution isn't far away.  So, they keep food cheap along with smartphones and cable TV. These rising costs are small for rich people, but represent a large portion of the bills us less wealthy people pay.

In the past, when the economy struggled, The Fed would lower interest rates.  This made it cheaper to borrow money and that helped get the economy going again.  Now, interest rates so close to zero that they don't matter to the types of people who borrow to help stimulate the economy.  So, when the banking industry got caught with their pants down in 2006-2007, lowering interest rates was not an option.

The Fed also has the ability to print money.  In the past, when they printed money, they had to be careful not to cause inflation (remember, that's bad for them).  Keep in mind that The Fed is not the government.  They are bankers.  Bankers print money as a last resort because of the risk of it causing inflation, so when they do it it's because they're trying to avert a rather large economic disaster.

When the housing bubble burst, they tried something that seemed new.  It's called Quantitative Easing.  Given that the vast majority of money is now electronic, printing money is no longer the answer.  Everything is done by computers.  Quantitative Easing (or QE for short) is a way to make money just by changing the electronic balances on certain accounts.  So, when The Fed "buys debt" from banks who have bad loans, they are using their power to magically make money appear out of nowhere to reduce the debt balance at the bank and thereby "give" them more money to work with.  That's QE!  The money comes from "The Fed."  Where do they get it?  They make it up -- that's where.

So, why wouldn't this cause inflation the same as printing money?  Excellent question!  The answer is that our economy is based on nothing but faith.  Our economy is the same as a religion.  You don't need hard evidence to know god exists; you just need faith.  And, that's all you need to believe that our economy is solvent.

As long as rich people don't panic, the system is essentially safe.  Here's the thing -- our system is really messed up.  Our actual reserves are way way lower than they should be and investors have made margin bets with money they don't have.  These bets on derivatives and stocks and bonds, are backed by nothing.  If something happened to cause the market to crash and all of these bets were called, there just isn't enough money to pay them off.

Unfortunately, since it is bankers making these bets, they have also taken the liberty of writing laws to ensure that they get paid first if money is owed to them.  Given the size of these debts, there won't be any money left for us regular folks.  The only option is to print more money to pay everyone off and hope that nobody complains.

That's what the bankers have been doing lately.  When things get bad, they print money (or QE it into existence) and hope that nobody notices.  So far, they haven't.  How long will this charade continue unnoticed?  It's impossible to predict.  If you asked an expert 100 years ago about the three trillion dollars that were made up in the last crisis, they would have said there's no way it would go unnoticed, but it did.  How big will the next bailout be?  Can it go on forever?  I don't know, but I do know that there is $3,000,000,000,000.00 more out there than there was 10 years ago and nobody earned it.  No company made it in profit. There was no economic activity in the "free" market that created it.  That, my friends, is not capitalism.  I don't know what it is.

QE is the only trick The Fed seems to have left.  Let's hope it keeps working, because if it doesn't, our whole economy is going down.  That's what I call stealing the punchbowl!

One final note, if you want to hedge against a potential collapse, consider buying some bitcoins.  The supply of these is controlled by an computer algorithm that no government controls and cannot be manipulated.  When rich people start running for the door, this is probably where they will run to.  If you think bitcoins are expensive now, imagine what the price would be if billions of dollars (and Euros and Yuan...) were flooded into them in the early hours of an economic meltdown.  Sooner or later, even rich people may stop trusting The Fed to protect their net worth.  Then, we'll have real trouble on our hands.

The Dollar - Ripe for the Picking

In recent times, there have been several popular books about events that cause significant change.  If you've read The Tipping Point by Malcolm Gladwell or The Black Swan by Nassim Nicolas Taleb, then you already have some understanding of how some events can be predicted even when the timing is elusive.

Since the United States abandoned the gold standard in 1971, the U.S. dollar has been based exclusively on  the faith and credit of our country.  Initially, the dollar maintained some pace with our gold reserves and people had confidence that the value of the dollar was backed by tangible assets.

Since that time, the global economy has changed dramatically.  The once powerful U S of A finds itself buying many of life's necessities and niceties from foreign economies.  Our trade deficit continues to climb even as we loan money to other countries.  Every country on the planet has substantial amounts of debt both public and private.

Were all this debt to be fully reconciled, we would all quickly learn that the global economy isn't solvent.  It is based entirely on debt and there isn't enough money in the world to pay it all off.  Again, this is not a distribution problem.  We have created a fiction with no controls to ensure its stability.

So, what does ensure its stability?  Answer: belief!  As long as we all believe that the global economic system is sound -- it is!  This brings us to the tipping point and black swan events.  What would it take to destroy our belief in the system?  In all likelihood, not much.  It is impossible to predict who, how, or when such an event might occur.

When it does, the evidence to support the claim will be overwhelming.  It already is.  Banks are over-leveraged, personal debt is high, and even gold is now being leveraged with metal funds sporting minimal reserves of actual supporting gold and silver.

There are powerful forces attempting to ensure that our economy remains stable.  When the interest rates were dropped to zero, the Federal Reserve lost its main lever for controlling the economy.  As a result, they switched to buying debt (quantitative easing).  The problem with this is the Federal Reserve actually doesn't have any "reserves."  When they buy things, they pay with money they print (they are after all the only ones who can print money).  Quantitative Easing I and II were both designed to stimulate the economy by pumping huge amounts of new money into the economy.

What is the effect of putting so much money into the economy?  The history on this action has not yet been written.  If it does not end in disaster, will the Fed do it again?  How much money can be pumped into an economy before disbelief sets in?  In all likelihood, we will find out eventually.  When that day comes, I hope you've made yourself Antifragile.  You'll need to read Taleb's sequel to The Black Swan to find out what I mean by that.

Technology: The Job Killer!

Once upon a time, there was an argument that technological breakthroughs actually created jobs.  The argument was so compelling and replete with empirical evidence that most people accepted this as a fact.  The automotive industry created millions of jobs as did the modern textile industry.  The industrial age was good to the average worker.

Then came the information age.  Technological breakthroughs came fast and furious.  The industry was born out of nothing and it created plenty of new jobs.  When a few people started to suggest that maybe some of this new technology was stealing jobs from humans, Those responsible for the health of the economy trotted out the old argument that technology creates more jobs than it eliminates.

That may have been true at one time, but technology has reached a tipping point.  With so much of our manufacturing capability being highly automated, new breakthroughs aimed at "increased productivity" are really targeted at maximizing the use of capital -- and I don't mean human capital.

Let's not kid ourselves.  Technology doesn't need a vacation.  It doesn't need time off for a sick kid or a death in the family; and its maintenance contract is undoubtedly far cheaper than the healthcare for the workers it replaced.  Technology that replaces people almost always increases the efficiency of capital.  This is the embodiment of maximizing profits -- the goal of any economic endeavor.

So, as robotics and mechanical systems have gotten more sophisticated, more and more blue collar labor jobs have been replaced with technology.  What about sales jobs?  Well, now we have integrated voice response systems, interactive websites and stay tuned for chat-bots that are almost impossible to tell from a human.  We may still need good salespeople, but not near as many of them as we once did.

 "Get an advanced education," is the cry of our beloved leaders.  Just be careful which path you choose because those jobs aren't safe anymore either.  There are now artificial intelligence algorithms that can write world class classical music, diagnose disease better than most clinicians, and invent new interesting chemical substances faster than any chemist.

Our government hides the truth from us in their unemployment numbers.  Many families have given up on two incomes.  Many children continue to live with their parents well into their twenties and even thirties.  Our economy is being hollowed out by technology.  If you don't think your job is in jeopardy, just keep watching.  New technology is coming to get ya!

Pretty soon, business owners will hire employees just to keep them company.  People won't need to do any work.  They can just watch it being done by technology.

Trajectory: Transparent Distributed Networks

History has a strange way of showing up after it becomes obvious.  Sometimes, events are spontaneous, like 911 and other times they are gradual like the industrial revolution.  One thing should be clear by now, history is speeding up.  The time between major social evolutionary stages is shortening.  This compression helps us see around the corner a little bit better.

The Internet hasn't been around that long, but its effects have been profound.  Many people sense that the Internet is responsible for a fundamental shift in our reality, but it's hard to grasp exactly what that shift is all about.  There are so many aspects to life on the Internet that the big picture gets muddled.

Nonetheless, many of those who are attempting to tease out the big picture are starting to converge on a common theme.  The Internet is driving two fundamental changes that are inextricably tied together and seemingly inevitable: transparency and decentralization.  Let's start by looking at each of these separately.

Transparency

In the age of the smartphone and Google Glass, everyone has a camera with them at all times.  They are able to provide full audio visual capture of just about any event -- public or private.  This makes secrets increasingly difficult.  Furthermore, sites like Facebook, Reddit and Digg make it easy for anything of significance to "go viral" within hours or even minutes of the event.  Whether from groups like Wikileaks and Anonymous, or individuals such as Edward Snowden, no secret can be too well kept.

Our love affair with secrets and privacy runs long and deep.  Yet, we are increasingly opening our lives to each other and this trend sees no signs of abating.  Technology will continue to evolve to make surveillance of every aspect of our lives easier and more accessible.  Drawn to its ultimate conclusion, it is not impossible to imagine a time when our very thoughts will be linked through some future incarnation of the Internet.

Decentralization

One of the other gifts of the Internet is built into its initial design.  The Internet was originally conceived as a communications network for military applications that could not be destroyed by attacking a central point.  This design has allowed anyone with a persistent connection to publish their own content.  One of the initial uses of this capability was music file sharing.  The music recording industry quickly came face-to-face with the full force of decentralization.  Without some central authority to pursue, they were forced to find ways to add value in order to get people to pay for music they could easily get for free.

Recently, the crypto-currency Bitcoin has emerged as another decentralized powerhouse.  Again, anyone with a computer can become part of the Bitcoin ecosystem.  In addition to being decentralized, Bitcoin is also transparent.  Its underlying algorithms are available for all to inspect.  Governments don't like Bitcoin.  Were it to become a standard global currency, it would eliminate their ability to manipulate it.

The latest edition to decentralized structures is Ethereum, which promises to go beyond crypto-currency to provide an open decentralized platform for creating any type of contract between multiple individuals.  Systems like this will allow any individual with a good idea to start a distributed ecosystem that is free from centralized control or interference -- even by its creator!

What Does it All Mean?

Governments have always been controlled by a few rich and powerful people.  In the past, socialism has been attempted to counter this trend, but it has always been corrupted by the powerful few due to lack of transparency.  The Internet and associated technologies offer a means to truly democratize decision-making.  Rather than basing choices on the whim of people, algorithms can be created that are decentralized and transparent that allow them to be optimized for the greater good.

This may seem idealistic.  One could easily argue that any system is corruptible.  Maybe so.  However, with transparent distributed systems, corruption is more difficult due to the risk of exposure caused by transparency and the logistics of co-opting widely distributed systems.  When attempts to do so inevitably fail, algorithms can be modified to eliminate future threats along the same lines.  We already do this with our computer operating systems and anti-virus software.

What if we could all purchase a power plant for the price of a car that would provide us with all the energy we would ever need?  What if we had autonomous flying vehicles that required no navigational infrastructure other than the ability to communicate with the vehicles around them?  What if we had a 3D printer (i.e. replicator v1.0) that could make many of the items we need?  And, what if we all got our food from our own garden and local farmers?  Do you see the pattern here?  Technology enables us to be increasingly independent.  

The less we rely on corporations and governments, the less power they have over us.  As their power diminishes, so does their relevance.  Ultimately, they will need to redefine themselves or fade into the dust heap of history.  If there is one great irony it is that a government funded program and a few huge corporations may be the primary enablers of their own demise.

Capitalism With Limits Part 2

In my last post, I finished by leaving lots of money in the hands of government.  The challenge with governments is they encourage the consolidation of power.  Unfortunately, those who seek power are usually the first to be corrupted by it.  Our government is no exception.  We are not drawn to great leaders.  We are drawn to charismatic orators who have a knack for appeasing the largest number of likely voters.

If government is to succeed in supporting people, it must become more distributed.  Distributed structures are much more difficult to corrupt.  Transparency is only a good start towards making shared systems work.  They must also be based on algorithms.  Bitcoin is a good case in point.

There are lots of powerful people out there who would like to see Bitcoin fail.  Why?  Because is is a currency with no central control.  It operates on an algorithm that is available for anyone to understand.  It's functioning is transparent.  There are no backroom boys pulling levers to affect its supply or demand.  It is not subject to fiscal policy or monetary policy or the whims of governmental meddlers.

Governments already use algorithmic controls for things like traffic. Projects like Google's driverless car show that algorithms can be used for highly sophisticated problems.  The system is both adaptive and heuristic.  So, to conclude, creating transparent algorithmic solutions to any governmental management problem is within our technological reach.

This begs the question: what is the optimal distribution of wealth?  The following chart from the Center on Budget and Policy Priorities tells the tale:

After the great depression, lots of personal wealth was wiped out.  The result was unprecedented equality in income distribution.  The U.S. economy has never been stronger before or since. However, the insidious nature of capitalism to concentrate wealth once again took hold.

In 2006, we were due for another reset, but the government forestalled the inevitable by printing money -- lots of money.  This works for us because oil, still the #1 source of energy, is traded in dollars.  So, there's little incentive for anyone to see the dollar tank.  This won't be the case as we move away from an oil based economy -- another good reason to step up domestic oil production.

Back to my wealth distribution algorithm.  Clearly, we have data to support at least a starting point for good calculations.  By creating a system of distribution based on math rather than power struggles, we can ensure a vibrant economy.  But, what about jobs?  Clearly, the most efficient use of capital is to invest in the reduction of humans -- the most expensive asset a business has. We cannot expect the capitalistic markets to support work for all citizens.

Fortunately, our aging infrastructure needs lots of help to bring it into the 21st century.  There are lots of jobs available.  They just aren't commercially viable.  With all the new-found wealth in the hands of government, these infrastructure projects could be funded.  People who can't find jobs in the commercial sector will work for the infrastructure sector.  Of course, this means deciding once and for all which parts of our society constitute "infrastructure."  Some things should be easy: roads, power grids, water and waste.  Others may be more difficult to decide: space exploration, transportation and mail delivery.

What seems clear is that our aging infrastructure is bankrupting our country, the commercial markets are not creating enough jobs for full employment, 99% of the population are fighting rising costs and diminishing income, and those in power are doing nothing about it.

A redistribution of power means a redistribution of wealth.  The United States is a very wealthy place, if we can build a controlled and sustainable form of algorithmic sociocapitalism here, maybe the rest of the world would follow suit.  This will be essential if we are to keep capital from seeking environments where extreme greed is tolerated.

Capitalism with Limits

I was watching a movie the other day and one of the characters said the top 84 wealthiest people in the world control more economic power than the poorest three billion.  I don't know if that's true, but if the chart on the left is accurate, it's probably not far off.

We talk a lot about growing income disparity in the United States, but the insidious nature of the global economy is that income disparity is now a global problem that cannot be solved by national initiatives.

If one government attempts to choke off the wealth creation abilities of certain individuals, they will simply seek residence elsewhere.  There will always be some country willing to allow individuals to accumulate as much wealth as possible.  Our history as a species has retold this story many times.

1. A society is born
2. Everyone feels good about it and everyone pitches in to make it work
3. Society prospers and life is good
4. A powerful wealthy class emerges
5. The power class consolidates power and wealth at the expense of all others
6. All the others finally get fed up with their condition and the disparity with the power class
7. Revolution!

This story is so common in our history that it is far more difficult to find examples of smooth transitions of power.  If you're looking for a smooth transition that doesn't involve an external colonial power, the search will be even more difficult.  Why?  People with power never seem to want to lower their standing for the greater good.  They always believe in their own legitimacy, no matter how stacked the system may be in their favor.  

Is it possible to have an effective redistribution of wealth without a revolution or other form of massive social upheaval?  Maybe.  I have a simple idea that just might work.  It would require a global treaty, but it could be implemented by individual countries.  The basic premise that one must accept before seeing the value of this idea is simple:  taxation is ultimately a form of wealth redistribution.  When kings taxed the peasantry, they were redistributing wealth to themselves.  In the U.S. we use tax money to pay government workers, contractors and welfare recipients. 

So, if the tax code can be used for that purpose, why not be clear about it?  To make this work, we eliminate corporate taxes.  We eliminate the current income tax code and replace it with a progressive tax rate.  The rate is progressive, but based on income ranges.  The dollar amounts would need to be worked out, but it might look something like this:

• $0 - $20k/yr. = 0%
• $20k - $50k = 12%
• $50k - $100k = 25%
• $100k - $250k = 40%
• $250k - $1m = 60%
• $1m - $10m = 80%
• +$10m = 100%

Again, these numbers are just an example, but the concept is simple.  Your effective tax rate goes up on incomes a higher levels.  So, nobody (even rich people) pay taxes on their first $20k of income.  If you make $50k, you will pay no taxes on the first $20k, but you will pay 12% on the next $30k.  Eventually (whether it is $10m per year or $50m), there needs to be a point at which income is maxed out.  The system has given all it can to one individual.  Live with it!

Not fair, you say?  Here's what isn't fair: people with lots of money have a steady stream of opportunities to use their wealth to increase it.  People without wealth must be creative, hardworking and persistent; and then there's no guarantee of success.  No, the world is not fair.  Why should it be more fair for rich people?  Their power has corrupted them into believing that they have legitimacy to decide the fate of society writ large.  If history is a good judge, they will eventually discover that power is ultimately granted by the masses and it can be taken away by the same.

Of course, giving the government all that money is concentrating power elsewhere.  This is another problem.  One which I will discuss in my next post about infrastructure and welfare.

Economic Fiction

What is money?  Seems like a straightforward question, doesn’t it?  It’s not.  The only money the U.S. government actually creates is coins.  The Federal Reserve prints bills.  They are not the government, but rather a corporation consisting of heads of large multi-national banks.  If ever there were a case of the fox guarding the hen house – this is it.  So, the source of creation notwithstanding, what does all this add up to?  Answer: 3% of all of the “money” that is credited as wealth by all the holders of wealth in the United States (individuals and corporations).

Where is the other 97%, you ask?  It’s data.  That’s right; it doesn’t really exist except in computers.  If all the computers were to shut down, 97% of our “money” would spontaneously disappear.  Where did all this “money” come from?  How do you create so much wealth out of thin air?  The answer is simple: loans.  When banks make a loan, they don’t put a freeze on the funds in your savings account.  They just create new money out of thin air.  Of course, most of it is just in the computer. 

You spend your new money using your checking account or credit card and this causes computer records to reflect the transfer of the “money” from one bank to another.  But, unless you withdraw money in the form of cash, it’s all part of the 97% fiction.

The great thing about the 97% fiction is: as long as everyone believes it is based on a true story – it is a true story!  Our problem is that it is getting increasingly difficult to believe the story.  Once enough suspicion arises, the story starts to fall apart.  This can only result in tragedy.  So, our leaders need to keep selling us the validity of the story.

This is one more example of how are lives are marching inexorably towards complete virtualization.  Our economic lives increasingly live in the net.  Our social lives are increasingly lived in the net.  For a growing number of us, our work lives live in the computer if not the net.  Video conferencing is a way to project yourself digitally to another place.  Most new laptops have a built-in camera for this purpose.  Do you see the pattern?  Our digital lives are slowly taking over as what matters in the world becomes increasingly online.

We will continue to find better ways to plug ourselves in.  The digital world will continue to become a richer, better place to be, while we continue to degrade the physical world around us.  Eventually, the 97% fiction becomes the stronger reality – the better reality.  Now, THAT is stranger than fiction!

The Case for Space

People really seem to like capitalism. Even relatively poor people like it. I think they feel that if others can make it big, as long as the system is in place, maybe they can too. They wouldn’t want capitalism to be replaced by something else before they got their chance at fame and fortune. Sadly, the system is stacked against them. Anyone with lots of money knows that it takes money to make money. What about good ideas, you ask? Good question. The answer is: you’re going to need to sell your “good” idea to someone with money. And guess what? They’re going to make more off your good idea than you will. Yeah, yeah, there are exceptions, but the system grows more stacked against them as the wealth and power in the world gets more and more piled in the hands of the few.

Am I bitching about rich people? No. Hell, just read my last post – I’ve got nothing but respect for rich people (in general). Nope, I’m just pointing out that capitalism is probably here to stay until the whole thing falls apart. It will fall apart, too. It’s inevitable. Okay, so I had better explain that one. Let’s look at some facts about capitalism:

1. Capitalism is based on a consumption model – people make things and other people buy them
2. The success of capitalism requires continuous growth in consumption
3. Consumption requires resources
4. This rock we call Earth has finite resources
5. When growth is no longer possible, capitalism fails

There is a solution. It’s called space. Basically, we need to get off this rock. This task will require vast amounts of resources. The more we deplete our finite resources, the less able we will be to accomplish the task. So, we had better start soon. Oh, but there’s a problem – no return on investment. The largest companies in the world are publicly held and anyone who studies those companies knows that they operate on a quarter by quarter basis. Their stockholders demand it. Hell, if a public company plans out six quarters, their stock price will probably go down. The return on space initiatives will be measured in years of not decades. So, the obvious choice to spearhead such an effort would be the government. Awe! Too bad. They’re out of friggin money. Why? They spent it bailing out an already failing capitalistic system.

We live in interesting times. The inevitable failure of capitalism could open doors to massive initiatives like space colonization. Or, it could lead to something less positive, like war, famine and widespread poverty. Jeff Bridges played an alien being in a movie called Star Man. He was trying to understand the word “beautiful.” When he finally figured it out, he said “you humans are beautiful. You are at your very best when things are worst.” That could be good news.

The Cost of Money

Money is a burden. I know, I know, you wish you had that sort of burden. Think of money like having pets. If you have one pet, there can be great enjoyment and the care of the pet takes up a minimal amount of your time. But what if you have three pets? Now, you spend a lot more time caring for them and, the odds of one of them being sick goes up. Ok, let’s say you had 50 pets. This is a full time job. You will even need to hire people just to help you care for all those pets and now you not only have to worry about the pets, but also the people taking care of the pets. Are they doing a good job? Are they stealing the pets?

Money is just another high maintenance possession. If you own a home, you’ve probably felt the stress of the possibility that you won’t be able to pay the mortgage. Imagine that your mortgage was $50 million. If you are unable to continue earning the income you need to support that mortgage, the loss could be devastating. People at that income level can fall very fast and very far.

To me, the best situation is like I always say about pools. The best pool is your neighbor’s. Sure, you don’t get to use it any time you want (unless your neighbor is really nice), but you get to use it once in awhile and you don’t have to care for it the rest of the time. I have a few family members who have a lot of money. Every once in awhile, they let me take a dip in their pool. I am forever grateful for their generosity and also for sparing me the stress of worrying about all that money.

So, next time you come across a rich person, who is living in the lap of luxury, tell them, “I feel your pain.” Hey, rich people need love, too.

Time to Pay Up

In my last installment, I talked about “we, the people” and what we’re not getting from our friends in Washington D.C.  This time, I’d like to take that topic on a somewhat different tangent.  I spoke of courage.  I guess you can spin courage a lot of different ways.  Some might say that standing up to big spending bureaucrats it courageous.  I say “bullshit!”  Courage isn’t standing up to the other political party.  Courage is standing up to the citizens of this country and calling them out on their faulty expectations.

The last president to do this was John F. Kennedy, when he infamously said, “ask not what your country can do for you, but rather, what you can do for your country.”  He was pointing out that a great nation is made up of great citizens, not great politicians.  Americans are willing to pitch in when they are asked.  Unfortunately, nobody in Washington has earned the right to ask us to do anything.  We pay our tax bill and expect them to do everything for us.
Well all the things we expect of our government cost money.  Since Reagan, raising taxes has been political suicide.  As a matter of fact, tax cuts seem to be very popular.  Of course government isn’t getting any smaller.  When was the last time you heard of a massive layoff in the federal government?  Yeah, me either.  I don’t know how a service organization saves money without layoffs.  Well, the federal government did figure out one trick – they stopped sending money to the states.

This was a neat trick because it came along with something called the “unfunded mandate.”  They just told the states they had to pay for things the federal government used to pay for.  What with all the extra money the states didn’t have, it should be no problem, right?  I guess it’s no coincidence that several states are fighting bankruptcy and most of the others are trying to figure out which services they “must” keep in order to remain solvent.  You see, states don’t have something the federal government has – printing presses.  When the federal government wants to start a war or something, they just fire up the presses and sell it to the Chinese.  Kind of strange really – we’re fighting an enemy funded by the Chinese government (indirectly) with money from the Chinese.  I’m sure Dick Cheney and his pals don’t care, they’re getting all the money that isn’t going to China.

Meanwhile, back in the states, they started borrowing a trick from the federal government.  They started pushing expenses down to local governments – like education, roads, and law enforcement.  A byproduct of this is that poorer communities have bad schools, bad roads and excess crime.  Welcome to the legacy of trickle down economics.

If It’s Broken, Break It

“We, the people” are being slowly cut out of the system.  Our forefathers were revolutionaries.  They demanded change and they were willing to take to the streets to get it.  They could have never anticipated the current state of their invention.  To be sure, money has always been a part of politics in this country.  Washington, Jefferson and the Adam’s boys all had personal wealth to varying degrees.  But, back then, candidates told “the people” what they thought and if “the people” liked what they heard, they elected him.  That newly elected official owed “the people” his victory.  There was no confusion about who he served.

Today, there’s lots of confusion.  Big business has replaced “we, the people” as the primary constituents.  Spin doctors craft sound bites for major news outlets that are designed to “sell” a candidate to the electorate.  What thin veneer of integrity that was expected of candidates has been slowly stripped away by an election process that is so refined, an election team’s ability to execute is more important than the candidate’s beliefs.

Look where that has gotten us.  In 1928, approximately 25% of the gross national income was earned by the top 1% of the population.  Need I remind you what happened a year later?  The economy collapsed.  That transfer of wealth to the top was caused by the industrial revolution and the exploitation of workers, not yet protected by laws or unions.

In 2008, approximately 25% of the gross national income was earned by the top 1% of the population.  Sound familiar?  The outcome is quite different.   Back then, the government recognized that rich people’s greed was to blame for the whole thing, so they punished them by allowing them to be turned into poor people by the very market they created.  This time, our government printed money and replaced the losses, so rich people haven’t suffered.  Oh, the poor and middle class have suffered.  They have lost their jobs and their savings, respectively.  The government has no plan for them.

This current trend all started with Reagan’s “trickle-down economics.” The idea is: if the government makes it easy for rich people to get richer, they’ll carry poorer people along with them.  The problem is: it doesn’t work.  It’s what put us where we are now.  Greed is a trait we all possess.  Rich people are just better at it.  Now, they control the government.  Hell, they ARE the government.  Furthermore, with our new election process, they don’t even have to give a crap what the rest of us think.  They can just “craft a message” to lead us to believe what they’re doing is right, when they know full well that “we, the people” are getting screwed.

Which brings us back to the beginning…  The founders of this country were revolutionaries.  I fear the saviors of this country will need to be revolutionaries, too.  The current system is not conducive to repairing itself.  It will either need to fail so completely that it must be replaced (a distinct possibility, but not so good for “we, the people).  Or, it will need to be replaced by force.

How much abuse can U.S. citizens take?  If history is any judge of what citizens can take, the answer is hard to predict.  Revolutions have been started over much less abuse of power.  However, we are still the richest country in the world – for the time being.  We no longer have the best infrastructure, the best educational system, the most productive workforce, the most innovative people.  China’s military and economic powers are growing fast.  At the current rate, they will pass us soon.  Asymmetric warfare strategies have all but rendered our military strength useless. We’ve been propped up only by the U.S. dollar remaining the international currency of choice.  Once this situation changes, the dollar’s value can tumble as far as it wants, without other, more prosperous countries having a care about what happens to it.  That day may not be too far away.

What will “we, the people” think then?  How much can we take?  When will one voice, heard above the din, be enough to bring down a broken system?  I suspect that most of us will find out in our lifetimes.  It ain’t gonna be pretty – revolutions never are.