It’s inequality stupid!

26 02 2011

Here are ten charts that summarize what’s wrong in America today.

US Democracy Perverted by Wealth

12 02 2011

The Egyptians inspire me to see through and act to change the unfairness of our system.

Thinking Outside of the Box to Fix the Money Function in the US Economy

16 01 2011

I’m involved in various grass-roots initiatives around complementary currencies, local-investment mechanisms, a national credit system, and a State Bank for Oregon. The common objective of all these is to allow economic exchange, including putting people to work and investing in new enterprises. These have been stopped recently because of a lack of US dollars (the credit freeze). A bigger theme to which I am also fully committed is to create institutions that prevent concentration of economic power in this country and in the world.

Consequently, I am listening to a lot analysis and solutions that economists and other thinkers have put forth on these issues. As those of you who are like me and following this focus, you know that there is a fervor of activity and suggestions happening right now.

The exciting thing today is that there is a widespread willingness among people to entertain major changes to the architecture of banking and the money-creation function (i.e. the Fed) in the US economy. The band-aids and bail-outs have taken place. Now, it is onto getting real about lasting reform. The willingness to re-design our money institutions is a very profound development, and one that promises to deliver a qualitatively different kind of economy in the future.

There are three developments that are exciting to me right now:

  1. First are the proposals that are actually making it to Congress. In December, Dennis Kucinich put forth a bill to abolish the Federal Reserve. The US Treasury Department, in his bill, would take on the money-creation function for the country. When money was created by the Treasury, there would be no interest charge on it as there is today when the Fed buys government bonds to create money and when banks simply lend out as loans with interest the newly created money. Debt money, as this particular design of money is often called, has a built-in requirement for the economy to continuously grow which is bad for the environment. Just like a Ponzi scheme, ever higher levels of GDP must be attained in order to meet the debt service on the money created at earlier periods. Also last year, Ron Paul introduced a bill that requires the Federal Reserve to be audited so that its balance sheet and income statement is fully transparent to the American people.
  2. Second area of interest to me are the assessments by more conventional economists of the financial reform that is taking place. Prominent here is Paul Volcker who advocates separating banks into two wholly separate types of companies: one that takes deposits and makes loans; another type that invests and speculates on its own account. Along with Volcker is Simon Johnson, at MIT and former IMF Chief Economist, who is loudly calling for size limits on banks. Banks should never become so large that should they fail, the whole economy fails. Volcker and Johnson are certainly right about these important architecture issues.
  3. The third and most exciting area to me is the work of Bernard Lietaer and Robert Ulanowicz. Lietaer is an economist, Ulanowicz is a theoretical ecologist. In the past two years, they have come out with papers that show how the design of the money-creation function in an economy contributes to the systemic performance of the economy. With a good design of money, the economy can be resilient to shocks. With a bad design, it will collapse.  Their main point is that an economy needs more than one currency. It needs multiple complementary currencies: a national currency, local currencies, currencies for education, for resource management, for international trade, and potentially many other sector-oriented currencies. Multiple currencies create the diversity that is needed to give a system resilience. While the efficiency of a single currency is sacrificed, the ability to bounce back from shocks and to act in a counter-cyclic fashion is what is gained from using multiple currencies.

What is most satisfying and “break thru” in Lietaer and Ulanowicz’ thought is their framework, primarily Ulanowicz’, on how to measure the sustainability of a system. They claim that it is a balance between the two poles of efficiency on one hand, and resiliency on the other. A system should not be completely one or the other. It needs to be a careful blend in order to operate in the optimal “window of viability.”

A really eye-opening and well written paper on this is here:

A system is composed of agents and connections between the agents. When the system is efficient, this means it moves energy, material and information through it quickly. But to do this, only a few agents and by only a few connections will be needed. Efficiency, therefore, necessitates a reduction in diversity and connectivity. On the other hand, with lots of agents and every agent connected to the other, there are a lot of behavioral options for the system to take in any circumstance. But too many options can be stagnative. In other words, too much diversity and interconnection will lead to stagnation.

Lietaer and Ulanowicz’ framework for evaluating systems sustainability is ideal for designing monetary systems. More importantly, however, it gives us a framework for understanding and dealing with concentration in the economy. If poorly designed money systems, such as a debt currency, fractional reserve banking, and a monopoly on the money-creation function (characteristics of the US dollar and all world currencies) are to blame for at least part of the inequality of incomes and wealth in our country, then fixing the money architecture will go a long way in making a better society to live in. And furthermore, by adding “resiliency” to the framework of evaluating an economic system, we will get away from the mono-centric value of “efficiency” as the sole measure of performance. This too will help produce a new quality in our standards of living.