Thinking about Evolution & Economics and Some Notes on the Natural Selection of Ideas
Part 15 - Creating Money out of Nothing -
Evolutionary Economics & Complex Adaptive Systems
Understanding Modern Monetary Theory - an alternative to Economic Growth?
Once upon a time a mere mortal uttered something like -
Economic growth depends upon the defence of excellence against the ceaseless attacks of the envious bureaucrats, the eradicators of excellence and the midwifes of the second-rate! 1974
Elton Musk uttered something similar a generation or so later -
Senators basing their scams & schemes on confiscation of other peoples money will soon run out of cash. The punters don't like it! 2021
... and lovely folk in rural Mouldsworth confronted the local squire with verbal pikels -
He's only screwing us to make his dirty profit !
We met Adam the Smith on Gilmore Hill and watched his pioneering work in his forge.
We also wrestled with the Strange History of Money.
We tried to teach about the foibles and vagaries of money in The Wealth Machine underneath the soap pans in Apapa.
In desperation we attempted to rise above the fray and get back to basics in The Case for Business at the Open University.
We failed miserably ...
By 2016 Democracy itself was broken and in danger of destruction as one dictator after another generated hatred as they tried to get their smutty mitts on money by an endlessly practised process of - tax, borrow & print. But the crock of gold at the end of the rainbow was elusive ... a ephemeral figment of deluded imaginations.
Was all this an ingenious effort to outwit evolutionary economics and create
wealth out of nothing. As the next election loomed the arrogant celebrations
proved a tad premature - 'Ding Dong the witch is dead' - 'Mission
Accomplished' - 'Impeach' - 'Filthy Lucre' ...
but the juggernaut relentlessly continued ...
With a bit of effort we could concoct a 'flow of funds' in our imaginations but ... where, when, how & who could detect by ... seeing, hearing, tasting, smelling or feeling the ... speed, distance, direction & timing of any movements ... especially when the whole shebang & caboodle was immersed in complexity, change, conflict & scarcity?
On the shores of Lake Malawi in 1977 Dick Stevens opened metaphorical eyes to Adam the Smith's notion that the reality of 'moral sentiments' ... empathy ... was a flow of promises ... a promise made and a price paid ... but this whole shebang & caboodle had to balance? Pacioli saw to that?
But how do we measure such figments? ... and can you own a promise? We knew such figments actually really really existed ... we remembered our vows in Norley in 1965 ... an we knew for sure who made and owned such figments ... but ... and it was a big but ... we also new for certain about broken promises ... everybody knew about them. And ... we had also leaned a bit about the 2nd Law of Thermodynamics and how happenings never ever 'balanced' 'cos entropy always flowed in one direction?
And we learned underneath the soap pans in Apapa how hard work, honesty & thrift really did build some innovations & new wealth which helped to pay the bills and save Unilever from bankruptcy? ... this whole shebang & caboodle was growing?
But the only mention of 'profit' was the yellow arrow flowing one way to the Government!
Wot on earth was going on? For sure something else was going on that wasn't in the picture?
Wot a mucky mess!
After the crash Sam Bankman Fried @ FTX in Florida had a go at innovation -
... not Bitcoin, token gold, but rather Blockchain, valuable gold. Not lethal debt but ownership of collateral PQ = MV. Margin calls as prices fluctuated were not leveraged debt but mutualised collateral. FTX was 24/7, instant automatic liquidation of collateral ... real time ownership change of real collateral ... colateral was the gold flowing thru the plumbing, continuously instantly deleveraging & adjusting to price changes. No collateral position is closed out at Monday morning opening, no systemic risk?
But Minsky moments were always instant flip flops in the brain ... remember Long Term Capital Management who found instantly that there was no market and no buyers ...
Some said 'money was the root of all evil' and most folk knew what they meant but few folk had the time to think about the strange history of money ... and the history of evil wasn't strange at all as perfidious Albion was schoolboy stuff ... and only one or two folk ruminated on 'Modern Monetary Theory' ... it all sounded a bit arcane and even bumptious. Evolutionary Economists reckoned the last time they looked happenings were a tad more complicated than a concoction and were a bit discombobulated and miffed. Wot about complexity, change, conflict & scarcity?
The flow of funds certainly looked like it was an evolved complex adaptive system of natural selections which outcomed survival value ... economic growth from synergies of specialisation & scale ... a two way balance of trust. But trust was painstakingly built up but easily destroyed when the red dictates raised their ugly heads and all semblance of balance collapsed? We suspected the rumble of thunder we heard when MMT was mentioned was Pacioli was turning in his grave?
It was all very difficult for us 'cos we learned from Charlie Darwin. He explained that outcomes came from bottom up physics, chemistry & biology and the arms race against the top down poisons, parasites & predators who always tried to manipulated the system to thieve stocks ... and unbalance the balance.
Evolutionary Economist were naturally interested in the evolution of money and the evolution of money started with the thorny question of how to measure figments?
This was a thorny question for Michael Brooks ... after all figments were mere notions, abstractions, ideas without physical substance ... 'The Art of More' ... turned out to be essential for survival and the 'fantastical opportunities' for creation of civilisation ... social activity, trade and synergies of specialisation and scale!
Unfortunately such figments also nourished parasites & predators ... and thieves, taxation & fraud?
Arithmetic - 1, 2 many - 1,2,3,4,5 one hand 6,7,8,9,10 two hands - negative numbers & debt - fractions & division of wholes - zero & physical & imaginary abaci - 'lots' of 10s and 60s - Accounting and Balance Sheets
Geometry - triangles
Imaginary numbers -
Information Theory -
Money evolved as -
- transferable debt
- medium of exchange
- unit of account
- store of value
Real money, the real McCoy, was our tool for measuring, storing and exchanging our very own perception of value.
McCoy was born free in Canada on 2 May 2 1844. His parents were former
slaves. They escaped from the America to Canada. In Canada they discovered
When Elijah was three the family moved back to the US and discovered opportunity.
Elijah was passionate about mechanical devices and developed a special talent with tools and machines.
At fifteen, his parents sent him to Scotland to study mechanical engineering where he built on the legacy of Jimmy Watt and learned everything there was to know about thermodynamic engines.
After he graduated in Scotland, he sailed back to an American Dream.
But in the United States, the only job Elijah he could find was shoveling coal into fireboxes on the Michigan Central Railroad.
Undaunted, he picked himself up, dusted down and went on to invent a means of lubricating the steam engine while the train was running and super-charged transportation around the world.
That's the Real McCoy!
But why lethal debt?
The nature of value was a whole can of worms or was it a Pandoras Box ... this 'perceptions' malarkey was real difficult as it seemed to depend on different worms in the heads of different folk, at different times, in different places, with interacting with different others.
A global balancing act with no orchestrating designer? Give me a break!
We had also learned from Adam the Smith on Gilmore Hill -
Adam the Smith, who contrary to popular belief never ever suggested folk were greedy parasites & profiteers ... taxes were necessary for many 'public' goodies ... what was taboo was spending hard earned savings on crap the customers didn't like it
And at The Open University we met up with Maynard Keyes -
Maynard Keyes, who contrary to popular belief never ever suggested bills shouldn't be paid and balances shouldn't balance ... nevertheless Keynes was always called in to justify the big spend ... which always seemed to transmogrify into the big print when the confiscation of rainy day funds never covered the cost of the waste, fantastical pipe dreams ... and bureaucratic kluge
The Economic Consequences of Peace by John Maynard Keynes, 1919 ... worth a read? -
was certainly right - the best way to destroy the capitalist system was to
debauch the currency.
Inflation - governments secretly, arbitrarily & unobserved, confiscate the wealth of their citizens ... impoverishing many, enriching some ... a rearrangement of riches strikes at security and confidence in the equity.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'Profiteers' and become the object of the hatred for the impoverished bourgeoisie.
Real value of currency fluctuates wildly, relations between debtors & creditors, become utterly disordered & meaningless as wealth-getting degenerates into a gamble & a lottery. A process which not one man in a million is able to diagnose.
Governments of Europe seek to direct on to 'profiteers' the popular indignation against the more obvious consequences of their vicious, weak & incompetant methods.
'Profiteers' the entrepreneurs, the active & constructive elements get rich quick whether they wish it or desire it or not. If prices are continually rising, every trader who has purchased for stock or owns property and plant inevitably makes profits.
By directing hatred against this class, the European governments further the fatal process.
The profiteers are a consequence and not a cause of rising prices.
Incompetant governments, unable or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.
These currencies enjoy a precarious value abroad, they have never entirely lost their purchasing power at home. A sentiment of trust in the legal money of the state is so deeply implanted in the citizens of all countries that they cannot but believe that some day this money must recover a part at least of its former value. They do not apprehend that the real wealth, which this money might have stood for has been dissipated once and for all.
Governments endeavor to control internal prices by the force of law, and preserve some purchasing power, spurious value, for their legal tender. But if a man is compelled to exchange the fruits of his labors for paper which he cannot use to purchase what he requires at a price comparable to that which he has received for his own products, he will keep his produce for himself, dispose of it to his friends and neighbors, or relax his efforts in producing it ... leading to the waste and inefficiency of barter. The worthlessness of the money becomes apparent, and the fraud upon the public can be concealed no longer.
The effect on foreign trade of PRICE_REGULATION and PROFITEER_HUNTING as cures for inflation is even worse. Currency must soon reach its real level abroad, with the result that prices inside and outside the country lose their normal adjustment.
The price of imported commodities, when converted at the current rate of exchange, is far in excess of the local price, so that many essential goods will not be imported at all by private agency, and must be provided by the government, which, in re-selling the goods below cost price, plunges thereby a little further into insolvency....
It is a hazardous enterprise for a merchant or a manufacturer to purchase with a foreign credit material for which, when he has imported it or manufactured it, he will receive mark currency of a quite uncertain and possibly unrealizable value....
It may be the case, therefore, that a German merchant, careful of his future credit and reputation, who is actually offered a short-period credit in terms of sterling or dollars, may be reluctant and doubtful whether to accept it. He will owe sterling or dollars, but he will sell his product for marks, and his power, when the time comes, to turn these marks into the currency in which he has to repay his debt is entirely problematic. Business loses its genuine character and becomes no better than a speculation in the exchanges, the fluctuations in which entirely obliterate the normal profits of commerce....
Thus the menace of inflationism described above is not merely a product of the war, of which peace begins the cure. It is a continuing phenomenon of which the end is not yet in sight....
Inflation - asset prices rose as consumption suffered and societies fractured into 'haves & have nots' and 'profiteers became the object of hatred' 'overturning the existing basis of society' ... a now familiar polarisation 50% v. 50%.
Life's a sod then you die and there's nowt certain apart from death & taxes. Death was understandable when you ran out of energy. But the world over ... folk hated taxes 'cos different folk at different times in different places had their very own pipedreams and how best to go for longevity. So way back to the Rosetta Stone it was the Bishops were first in line for tax breaks. But the Princes, Generals & Bureaucrats soon learned it was easy to be top peck by bribing folk with their own money ... generous free lunches paid for with other people's money ... someone else would pay the bills.
Tax company profits leave folk alone? ... but and it was a big but ... companies also have to pay their bills ... there was no escape ... as costs went up prices customers paid must go up otherwise ... bankruptcy ... a foul predicament.
And there was more to avoid bankrupcy taxing companies resulted in customers paying one way of another as there was no free lunch ... and, a double whammy ... as prices increased there was an 'xs burden' as output reduced.
The need to pay back the lethal debt later was often overlooked ... rebalancing the balance of promises was a problem for future generations.
Sure we were a somewhat biased we believed in strange happenings like -
1 - Creative Destruction of Short Necks, Complex Adaptive Systems & Empirical Science -
2 - Natural Selection of Know How, History Cycles & Miracles of Economic Growth - 3% compound growth
3 - This Time is Different, Fatal Conceit & Arrogance of Coin Clippers & Know How -
4 - Trumpting Brexit, Fish & Fake Noos - false narratives & imbalances - spend, tax & print bubbles boom & bust and the iron laws of moral sentiments, supply & demand, comparative advantage, total factor productivity
5 - Zombification, Creating Money out of Nothing & The Big Print - MMM - money measures value but not values
6 - Business synergies, Innovation & Excitement or Bureaucratic Kluge & Project Fear -
7 - Secular Stagnation -
8 - Structural Reforms -
9. Whose tax is it anyway? Inventing the ownership of new money? Who owns my Bitcoin Code?
So where to start -
In our state of abject ignorance the 'I know how' claimants were fatally arrogant ... the Bishops, Princes, General & Bureaucrats couldn't cope with crowd trouble
... but the 'he knows best' believers were pitifully naive ... there was no God behind every tree, just more complexity, change, conflict & scarcity
So be careful what you believe ... go for longevity in your own way, you have the legacy of your ancestors ... a capacity for personal responsibility for hard work, honesty & thrift.
Darwin's process was unequivocal - folk have intentions but it is their interactions with all other happenings that determine outcomes.
Creative Destruction of Short Necks, Complex Adaptive Systems & Empirical Science
We were in awe of Charlie Darwin and we couldn't help but notice that day by day the evidence mounted ... all the double blind randomised control experiments in Scunthorpe which were repeated in the Antipodes 17½ nights later with the same peer reviewed results became meaningful irresistible evidence which could never be ignored ... the giraffes grew long neck simply because short necks died out.
Real Money was the greatest thing sinced sliced bread, real valuable 'cos real money was trusted for exchange, accounting & investment & saving for a rainy day.
Everybody wanted money it was needed for everything of value ... gold, fiat, credit, trade, defence, indulgences, friends, picking winners, usury, taxes, profit, regulation ...
All based on trust, wot an outrageous gamble ... why on earth did folk trust
cowrie shells? Gold was much easier to understand but bits of papers receipts for gold
in safes? ... and than it got hairy when folk started to exchange deposits
owned by other people? ... and then deposits of strangers? ... gambling that
debts would not be called in simultaneously?
... Bank runs & crashes relentlessly followed as trust collapsed ... time after time after time ... 1637 tulip mania, 1725 south seas, 1929 great depression, 1972 great inflation, 2001 dot.com, 2008 real estate, 2020 covid ...
Due Diligance? Caveat Emptor? Too big to fail? Do whatever it takes?
Wotever happened to learning?
Natural Selection of Know How, History Cycles & Miracles of Economic Growth
A History of Business Cycles.
The market search for clearing prices which eliminated expensive gluts & queues was particularly difficult because it was new fangled innovative technology which was driving evolutionary change. And innovation & evoluion were not facile processes ... but fickle ... capricious ... vacillating ... with hitherto unconnected connections ...
As long ago as 1942 Joseph Schumpeter had sussed out economic growth and the associated cycles of booms & busts, Kondratieff Waves and Business Cycles, he called it 'creative destruction' ... but perhaps the ancient Greeks had cottoned on to the process years ago as the phoenix rose from the ashes? ...
So it came to pass, as they struggled to solve the puzzle of wealth creation & economic growth, some economists changed their focus from the static equilibriums of neo-classical theory to progressive change and creative destruction ... they opened up the road to Paul Romer's 'Endogenous Growth Theory' of the 1980s ... perhaps endogenous was just another name for natural selection? ... perhaps neo-classical analysis using exogenous variables was a misleading simplification which introduced new distortions as theory effected policy? ... for sure economists themselves & their theories were part of natural selection as everything interacted with everything else ... so nothing could be exogenous ... could it? ... think about it ...
Evolutionary scientists & economists began to suspect that Schumpeter's cycle of creative destruction involved real energy flows which generated real emotions which mediated real decisions which created real innovations which were accompanied by real money flows ... the whole shebang & caboodle from genes, to brains, to theories, to policy, to actions was an evolving interconnected whole ... emotional cycles, activity cycles, business cycles, credit cycles ... nothing new ... just one damned innovation after another ...
The deep point about the evolutionary process of creative destruction, was that the cycle of boom & bust was the result of a cycle of emotions ... a cycle of chemistry in the brain ... a heady mix of testosterone & dopamine, in diverse proportions, a chemical cocktail which triggered the firing of neural networks ... choices of behaviour to try out ... deep deep down in the skull there were competitive emotions of excitement & fear as neural networks & circuits drove emotional flip flops which generated a diversity of ideas, which resulted in innovation actions some of which were successful as old 'know how' was replaced by new 'know how' ... endogenous emotions created diversity ... this was not about exogenous plans & instructions, but better described as Keynes' 'animal spirits', Greenspan's 'irrational exuberance' and FDR's 'nothing to fear but fear itself' ...
Here then was the essence of the evolutionary reality of economics, cycles of emotions inspired cycles of innovation -
Optimism - Excitement - Thrill - Euphoria - Suspicion - Anxiety - Denial - Fear - Desperation - Panic - Capitulation - Despondency - Depression - Hope - Relief - Optimism ...
Crucially the emotional cycles were way beyond the control of Bishops, Princes, Generals & Bureaucrats ... all these soothsayers were, of course, an integral part of the evolving whole shebang & caboodle, influencing activities and creating waves but all the time they were ignorant of outcomes ... the powers that be just trialled & errored like everyone else ... not easy to accept, is it? ... after all some folk had sound judgment? ... sound judgment about the future? ...
In this way folk were driven to experiment, 'to truck, barter & exchange', whenever & wherever they saw an opportunity to discover & accumulate synergies ... whenever & wherever there was an opportunity for specialisation & scale ... whenever & wherever they found market clearing prices which avoided expensive gluts or queues ... whenever & wherever there were different opportunity costs for comparative advantage ... whenever & wherever they discovered better total factor productivity ... and whenever & wherever they discovered a new mouse trap which folk found exciting ... whenever & wherever company failures released resources for better alternatives ... whenever & wherever there was creative destruction ...
The crunch was that adaptations depended on differential survival of behavioural traits as everyone rushed around trying to survive ... there was no slothful indifference ... and perhaps the evidence was in the history of the industrial revolution? ... did self sustaining economic growth result from synergistic deals, underpinned by the rights & obligations of Tort Law, controlled by invisible hands, where everybody traded their technological innovations and where failure & cycles were manifestations of Darwin's natural selection? ... a far cry from 'fixing prices', 'beggar-thy-neighbour', 'picking winners' and 'moral hazard' ... and was it the history of the industrial revolution which suggested self sustaining economic growth was measured by the audited Balance Sheets of competitive companies? ... measured by money balances?
Money facilitated & measured cash deals, but there were also credit deals which provided money now for repayment later ... then there were deals in money to make more money ... continuous innovations ... one money substitute after another ... cash, credit, bonds, stocks, shares, insurance, options, puts, hedges, derivatives, credit default swaps ... all at a cost, there was no free lunch ... but money was a superb product, everyone wanted it ... what excitement!
But money was always painful to produce because money was all about trust & confidence and trust & confidence had to be earned ... discovering value was hard work ... accumulating value was hard work ... everyone enjoyed instant gratification (ask the boys?) ... saving & investment was risky (ask the girls?) ... no wonder some folk went for short cuts and tried to steal ... as soon as their were stocks there were thieves ... as soon as there was cooperation there were predators & parasites ... as soon as there were coins there were coin clippers ... immunity from this treachery was impossibly difficult, it was a never ending arms race, eternal vigilance was always required ... a strong dose of 'caveat emptor' & 'due diligence' ... what fear!
did it always go in cycles of success & failure? ... could the banks ever hope to cope with those wretched business cycles and the short term hysteria of boom & bust? ... how did the banks cope with the greed, bribery & corruption of political intrigue and government default & inflation from the king's printing presses? ...
This was evolution, all about inheritance with random modification and differential survival, but it was the random modifications which caused the trouble. Folk could get a grip on inheritance but randomness was bewildering ... but it was the random mutations that created the new survival value ... and the random mutations were completely unpredictable, nobody knew where the next good idea was coming from. In such abject innorance about the future new ideas had to be discovered and then accumulated by testing against the rigors of reality ... this trial & error process was spurred by the flip flops in the cycle of emotions, instinctive excitement & fear ... and excitement & fear were both contagious ... the trial & error process must have resulted in cycles ... mustn't it? ... think about it!
In this way the pricing of technological innovation was scary, nobody could predict what the best product would be never mind its future price. Sure, the pricing of potatoes was a little less difficult as it always seemed that when prices were too high there were gluts, and always when prices were too low there were queues. Cycles were the only way survival value and associated clearing prices could be discovered. This was a search ... heuristics with an emergent outcome ... there was no way the immensely complex synergies of specialisation & scale and comparisons of opportunity costs & marginal utilities could be calculated ... but this never stopped the soothsayers from trying to fix prices and then blaming the adaptive process when their arrogant designs failed ... some folk got it ... survival came not from soothsayers but innovative technology ... so folk were in a cleft stick! ... folk were stuck with cycles!
It was a hit & miss affair, everybody was guessing, nobody knew what was happening, but there was always excitement & fear ... and business cycles. 'Kondratieff Waves', booms & busts, as well as runs on banks, stock market crashes, asset bubbles, currency crises, sovereign defaults ... and lynch mobs, riots and crowd trouble ... how many cycles? ... all cavorting in a mad dance one on another, one with another ... crazy bewilderment ... in different folk, in different places, at different times, at different speeds with different outputs ... as cycles interacted there were amplifications & suppressions, combinations & displacements ... big booms & busts and small booms & busts ... overshoots of euphoric experimental discovery... undershoots of odious experimental failure ... one damn cycle after another ... prices of coffee influenced prices of tea ... and some even suspected the price of potatoes influenced the price of holidays in Benidorm ... prices seemed to be all over the place ... especially after a failure of the rain dances ... and what of the stupendous puzzle of money itself, and credit, and new cowry shells and coin clipping inflation? ... no wonder it all went wrong so often?
Immense complexity, layer after layer, distortion after distortion, impossible to simplify ... but each distortion presented an arbitrage opportunity which tended to push prices to a clearing level like a strange mimic of Le Chatilier's Principle ... and then each discovery added further complexity ... as entropy increased ... oh gawd ...
However there was some good news ... there was a growth trend ... it seemed, relentlessly (some said paticularly since the industrial revolution) technological innovation produced an underlying growth trend of around 3% pa. Business cycles were manifestations of creative destruction, of markets coping with the perpetual change of technological innovation by discovering clearing prices in new situations. There was no efficient market theory, no market equilibrium of classical economics orchestrated by the mythical Walras auctioneer.
Increased 'know how', technological innovation, grew steadily as folk learned from the cycles of discovery & accumulation. Economic growth averaged of 3% pa not in spite of cycles but because of them!
The ubiquitous inevitable cycles were easily recognised in the history of economic institutions, companies and banks all over the world ... but the cycles of discovery always seemed to be associated with knee jerk hysterical responses, which often seeded & fuelled the next cycle ...
The hysteria was not mal intent it was ignorance of diverse complexity!
1972 Oil Price boom ... Port Sunlight ran out of phosphate as inflation roared and products were sold below real cost ... 'price on replcement costs' or ran out of cash and go bankrupt ... !!!!!! M F A Jones was ecstatic everything went through the roof at give away prices and the raw material stores were MT ...
2001 DotCom Internet Boom - innovative technology bubbled & crashed - the response was an attempt to blame regulators & auditors as they lost their underpants by failing to spot troublesome valuations on Balance Sheets ... was this an attempt to replace the principles of 'caveat emptor' & 'due diligence' and bankruptcy with another layer of regulation (Sorbane / Oxley)?
Evolutionary economic growth from technological innovation could not be regulated, the next crisis always involved a different innovation.
Governor of the Bank of England, Mervyn King -
'Regulation is a delusion'.
So many questions ... all that anguish & hysteria ... but bubbles burst, what else were they expected to do? ... it seemed business cycles were part & parcel of a common pattern of technological evolution which involved -
natural cycles of emotion - deep down in the skull
decisions were being driven by ancient neural survival circuits which generated
excitement ... and fear...
frantic activity - most folk were going for betterment by chasing profits & cutting losses ... some folk were stealing ...
herding instincts - folk everywhere were social animals and ignorant, it was only hindsight that exposed which deals were daft ... everybody wanted to keep up with the Joneses ...
bottom up innovations - different products or service opportunities were involved each time ... old technology was replaced by new ...
top down regulation - each new crisis brought new regulations justified by 'market failure' ... Bishops, Princes, Generals & Bureaucrats had a vested interest in preserving their old technology by 'fixing prices', 'beggar-thy-neighbour', 'picking winners' & 'moral hazard' ...
eventually prices adjusted to the new reality as the bubble burst - nobody was willing to foot the bill for those wretched gluts & queues ... Balance Sheets had to balance ... there was no way round that ...
After all this contorted history of complexity, change, conflict & scarcity it came to pass that the soothsayers couldn't manipulate the future ... perhaps Adam the Smith got it right ... hubris / nemesis / catharsis ...
Natural selection delivered the flip flopping emotions of excitement & fear which created the randomness in the muation essential for trial & error learning.
But in between crashes strange happenings seemed to work? ... for a while? Why? How?
Think & focus on the company Balance Sheet which tries to account for 'money'. Think risk & uncertainty ... think time shifts for anticipated future income streams ...
Tom wanted a loan and young Jessica was asked by her boss in the bank to type in some digits on both sides of his Balance Sheet ... that's it ... job done.
The Liability seemed to be clear enough ... but who said the the balancing loan Asset was valuable?
And both sides of the Balance Sheet required a reliable measuring system.
No wonder bad debts & cons & Ponzi Schemes were born as trust collapsed ... time after time after time ...
The fatal flaws - 'do whatever it takes to keep interest rates low'
low productivity - production of obsolete zombies 'hog resouces'
inequality - the hunt for yield asset prices rise 'sugar highs' 'crowd trouble' 'let them eat cake' 'bribery & corruption'
risk assets - 'cash at risk' wot was the point of saving for a rainy day to pay tax again as unearned income or wealth taxes
bounce back loans essential? - folk had to eat - hospitals had to treat patients - folk had to discover, test & produce a vaccine - business supply chains we're kept alive with the big print TINA
as soon as there were stocks there were thieves - £50,000 (or a quarter of
turnover) loan free for 12 months then 2% interest fixed for 10 years (lots
of companies suddenly had turnovers of £200,000)
No Due Diligence & Caveat Emptor = fraud without banks 'loaned' to fraudsters who then went filed for bankruptcy 12 months later when the Porsche had been purchased ... then same loan from the bank across the road ...
Nigeria - free loan for cement - then free loan for spends ... why bother to order cement the ships & revenue never arrived
China- when money comes out of your ears it goes into a real estate bubble ...
some were taking the £50,000 and investing in equities ... within the law! The money was to tide over not for specific bill paying
and MMT demands 'understanding' of effective 'demand' ... jeez ... without trust and moral sentiments the system collapses.
Why gold standards? Why reserve requirements? Why stress tests? Why responsible lending?
Why borrow? Why tax? = to create demand for $s !
Excess $s ruins the game!
Why bother to work? - invest? - defend stocks? - steal stocks?
An annual wealth tax was undesirable, being extremely expensive and difficult to levy, while also damaging incentives to save and giving a huge boost to the wholly unproductive industry of tax avoidance.
Maslow answed that folk ache for money, 'fake' or real, to exchange for crumbs, to fund rainydays, to buy trinkets to impress, and to buy 10,000 hours time to invest in an apprenticeship for future productivity ...
Money which was then taxed & spent, borrowed and printed by the Bishops, Princes, General & Bureaucrats up there to maintain grip and suppress crowd trouble.
A new justification for the big print - stimulous, pump priming, flattening the curve, ... but delaying economic growth and 3% pa compund.
Glib Folk suggested ordinary folk demanded fiat $s to pay their taxes? (Why not Bitcoin or Facebook Libra?)
Naw ... flawed motivation ... after tax income matters! Why did you rob the bank Mr Smith, 'cos that where the money is ... jeez I didn't rob the bank to pay my taxes!!
1. to pay taxes - avoid jail?
2. to store value - avoid inflation? but commercial banks also create excess $s = how to 'control' money supply ?
3. to procure iPhones and a cure for cancer - amass katundu ... more relish ... and smiles at the brie on the khonde with the greens ...
4. emerging economies demand $s to buy oil et al ...
... and for 1 2 3 4 5 above
Not top down but botom up
Propert Rights Tragedy of the Commons Price Mechanisms waste is a cost ... but Elinor Ostrom had a point?
Bitcoin? Unilever Shares as money it need not be fiat?
and the fiat print does not deliver iPhones or cures for cancer ... innovation and 'know how' = profitable projects / productivity / economic growth / synergies of specialisation & scale = global demand for $s.
Burundi can't print Burundies because folk have to pay taxes !
USA can do it because it is 'backed' by a productive economy ... and taxes OR excess $s kill productivity !
Tax evasion deprived governments of revenue. Money laundering was the other side of the same coin.
Tax evasion sucked money out, money laundering pumped money in.
Dirty money was just another source of investment into otherwise declining economies.
Capillary systems ultimately benefit ordinary people, turning many into the devotees of autocrats and thus corrupting entire societies.
This Time is Different, The Fatal Conceit or Command & Control of the Future
Same parade different clowns?
The typical arrogance of POTUS as Biden announced on 9 Sept 2021 the astounding rejection of the 10th and 14th amendments -
'our patience is wearing thin!'
One thing was certain when the clowns departed, the acrobats still jumped through hoops and the magicians still faked it.
When Trump & Brexit passed from memory, the swamps of Washington, Brussels & Westminster retained their inevitable bureaucratic kluge and had a new reinvigorated life of their own -
as soon as there were stocks there were parasites & predators, bribery & corruption, tyranny & oppression
plus ça change, plus c'est la même chose ... tax, borrow, print ...
As history perpetually indicated two very different narratives polarised the beliefs of ingenious folk who manipulated & distorted their perceptions to fit & justify their favoured story which, when confronted & challenged, soon became burning passions of hatred
Empirical Science provided evidence for the resolution of some disputes but not definitive answers ... always leaving wiggle room for sceptics.
1859 was chosen to illustrate a fascinating birth of a new story based on Empirical Science which blew away the all pervaded water of creationism. Top down intention became bottom up natural selection ... fundamental destruction ... shattering.
Crowd Trouble forced attacks on the Gini Coefficient. It would be a brave politician to allow a wave of insolvencies to occur on their watch particularly in an election year ... even if the result was manipulated.
Impossible odds more and more inequality as diversity resulted as evolution speeds up -
2nd Law of Thermodynamics dictates diversity / random mutations / natural selection
left brain right brain
girls & boys
profit & loss
torts trade technology - education
digital divide - AI
weeding out failures
Curiosity ... why did two old men with polarised beliefs resort to blame & burning hatred? As usual there were two narratives, Honest benevolence or Conspiratorial deviousness. Beliefs polarised and folk who bothered to vote split 50% / 50%. Take your pick!
But two sides of polarisation were command and control autocrats ... uber alles ... hubristic narcissists !
Old men messing with our minds? Each trying to out spend the other on election bribes? Messiahs never win but failures do lose? ... if you get the drift of natural selection weeding out?
Every day the evidence mounted, Darwin was right the mutations were random, selection was natural.
So it did not matter which of the old men with a plan won an irrelevant election ... blame & hatred were cul-de-sacs.
How to protect minorities ... women and children, native aborigines and slaves ... and all other folk with a different plan?
Jefferson saw problems of bureaucratic kluge, parasites & predators, tyranny & oppression, bribery & corruption - rent seeking greed in centralised bureaucracies
Hamilton saw opportunity for enterprise & surpluses - diverse wealth creating commercial companies
The Constitutional triumph was separation of powers and checks & balances on autonomy of Administration, Judiciary & Legislature. The 10th and 14th Amendments.
Everyone and anyone could be an inspiring leader but only one could be a dictator.
The man with a plan was lethal when confronted with an unknowable future.
'The king is dead long live the king' 'Hope springs eternal' 'yes we can' 'make America great again' 'get it done' ... we search for leaders in the wrong place ... maybe everyone should 'stick to their own knitting' ... maybe the leaders to watch were the empirical scientists like Dan O'Day and Pascal Soriot who 'get on with the job' of discovery & accumulation? ... and clearly they were only passing through the institutional hot beds of innovative technology ... commercial businesses who paid their bills and searched for betterment know how through human capital ... helped by torts, trade & technology.
'plus ca change plus la meme chose'
Who do you blame for Covid? - Why warp speed?
Who do you blame for Brexit? - Why Brussels bureaucracies?
Who do you blame for economic activity? - Why obesity epidemics?
'thank you for the seeds, we're too old to plant trees for our own gratification, but we shall do it for posterity' 'minorities possess their equal rights, which equal laws must protect'
Just sayin' ...
This time was no different ... remember the coin clippers? The trouble was that 'normal times' was hardly the test. The test was what happens when the bureaucracies make a quite exceptional bid for power. Under such duress, Britain’s tolerance of whimsy norms may not quite enough by way of counterbalance. But will the enshrined laws in the US constitution better withstand the excesses?
This time was not different ... the patterns were unmistakable.
Money was presented as an object which was so culture-free that financiers
became used to modeling it with equations drawn from physics
in the wake of the 2008 financial crisis, even mainstream economists are grappling to find new frameworks to describe money
First - individuals do not act in isolation we are social animals.
Second - individuals are ignorant grappling with uncertainties 'cos knowledge is dispersed, tacit & incomplete.
Third - wealth is 'know how' = sustainable production of social & human capital
Dynamic - 2nd law
Changing - Measurement system - fast cash & slow investment
... but we'll all be either rich or wrong ...
Happenings were momentous, but there were glimmerings of understanding of adaptive immunity?
Trumpeting Brexit, Fish & Fake Noos?
Delusion & Illusion?
The Twin Narratives? Top Down & Bottom Up?
Incities & Outs (Jonathan Larson & 'Superbia' & 'Rent') - transfixed with Fake Noos 'entertainment' from their iPhones in their couch cocoon! Puccini 'La Boheme' again ... wot news on the Rialto? Not haves & have nots but rather them & us!
Endless attempts to right the world thru tax, borrow & print time to try -
hard work, honesty & thrift ...
torts, trade & technology ...
Folk were like fish living in a false reality called water, so familiar, all pervading, transcendent & immanent it became unnoticed, unremarkable ...
The false reality we called human intention. It's easy to run the narrative ... so obvious that we never choose to think about the opportunity costs. The closure of the mind to alternatives ... arrogance ... 'you are the center of the universe' ... choose a different narrative.
We called it 'the echo chamber', endless repetition of the same viewpoint became a permanent 'intentional stance' ... until the Necker Cube' fliped.
The most obvious, ubiquitous, important realities were often the ones that were the hardest to see and talk about ... then came the realization that the source of the echo never really existed in the first place! Wot then?
Unconscious Default Mind Set - the all pervading Intentional Stance - continually reinforced as transcendent & immanent - unimpeachable
Choice over what You Think - Behaviour can be Enforced but Imaginations are Free to cogitate - learning that the paradigm can shift
Think About It - intention cannot control future outcomes because we never know which of the multitude of random mutations will survive to interact with other happenings ... scepticism there maybe alternative facts ... it is not good luck I wish you far more than luck!
The real economy was about values not about valuations and money printing.
Values were independent of money but intrinsic to the asset.
When the collective consciousness stopped believing that growth can be created by money and debt expansion the entire medium must fall apart.
Value was generated from the money, an asset was worth what different
folk were willing to pay for it at different times in different places.
Passive investment momentum overloaded the system as a self fulfilling whim of the moment maintaining existing businesss in unison and squeezing out innovation.
Contrary to the usual way of thinking
human intentions (intelligent design) rather than natural selection (Darwinian evolution) = Price Fixing
fiat money rather than balanced Balance Sheets = Zombies
value rather than values = Reith Lectures
Imbalances in -
supply & demand =
too much money (zombies) & too few innovative goods = stagflation
too little money (austerity) & too many obsolete goods = secular stagnation
savings & investment =
rainy day funds (fear) &
profitable projects (excitement)
values & value =
long term sustainability &
short term hysteria
Buying time v. pulling the plug. Flattening the curve! Adjustment to change.
Zombification - Creating Money Out of Nothing & The Big Print
The big print had a big problem - too much money was jammed up in inefficient bureaucratic kluge as grandiose programmes satisfied elevated egos and sidestepped hard work, honesty & thrift as the scams were funded with the money confiscated from other folks at no risk ... coin clipping.
Of course, spent wisely, by picking winners, wonderful excellence from much needed essential infra strure projects could be secured along with jobs & prosperity for all.
But we all remember Thomas Telford's foray into the Caledonian Canal ... a splendid public investment into obsolete technology ... and Concorde ... splendid purposeless technology ...
The experts at wot? Chose wot? The wot that mattered was the next good idea, the next bit of innovative know how that worked ... and, of ourse ... nobody knew what which why how or where the next good idea was coming from.
But wot was modern monetary theory?
A subversion of money’s role as a token of reciprocal altruism that allowed large and diverse societies to function.
MMT was economic suicide, fiscal and monetary largesse.
In the 1980s globalisation and the entry of China (+ Russia) into the world economy (India & Africa to follow). But Doha failed to cement advantage as China manipulated DFI and FX and purchased American real estate. The big money print to sustain growth & zombie jobs (in the face of lack of demand for zombie penny farthings) flooded into inflating asset prices. Surging debt on Balance Sheets which was not inflated or taxed away.
In 1970 an ounce of gold would cost you a little under $40. Now it costs a little under $2,000. A 50x debasement of currency in 50 years. There has been enormous inflation in stocks, property, works of art and all other investment assets = rising domestic inequality, falling global inequality.
The fallacy of the economists is to think that the velocity (and quantity) of MONEY is the economy but money is only the MEASURE of the economy. It is the velocity of goods and services which is the economy - economic activity, productivity.
Young 29% to 19%
Retired 10% to 17%
Immigrants ? to ?
From zombies to waves of defaults from extended State & Corporate Balance Sheets.
Worker 'power'? Or robots, AI, 3D Printing, photosynthesis ... do the heavy lifting?
Demand is NOT weak for economic growth = iPhones and mRNA!
Completely discombobulated? Yes avoid the 'global domino run' but speed up 'weeding out failures' ... understand the deep difference between liquidity & solvency.
Four straight decades of growing government intervention in the economy have
led to slowing productivity growth - Keynes never said spend constantly
through the business cycle ... 'fine tuning' involved spending during
downturn and saving during upturn but politicians spend all the time to
justify their existence! - voters are justifiably befuddled by the claim
that governments can borrow without limit or any consequences - cumulative
impact of constant - low rates liberate governments to borrow and spend in
unlimited amounts for the foreseeable future. But this claim gets the story
backward. Instead of a path to freedom, low rates are a trap. They encourage
more borrowing and rising debt, which drags productivity lower and slows
stimulus - forcing central banks to keep rates low - asset prices and inequality grow - linking falling productivity to easy money - big spending governments tend to suffer slower per capita GDP growth - result weak growth, financial instability and rising inequality
Going all out hell for leather to PREVENT bankruptcy & restructuring! Prevent mass corporate extinction causing the loss of millions of jobs as workers moved to more productive jobs. Freezing activity into obsolete companies, thus stopping in its track economic growth which depends on weeding out failures rather than reinventing the wheel.
zombie companies are unproductive, invest less and suck up resources that could otherwise be redeployed in more dynamic areas
If it doesn't make sense, it doesn't make sense!
Bond-buying programme - accept
bonds as collateral - lending money to banks at rates as low as minus 1 per
plus fiscal stimulus = discourages consumers from spending & working and businesses from investing = why bother if prices will be lower in future = even more?
when you're in a hole stop digging!
A new word appeared regularly in the FT 'zombification' !
Companies kept alive artificially by the repeated extension of credit.
Many blame on the Central Bank’s aggressive QE which stymies long term growth because it keeps capital & labour locked into inefficient parts of the economy and chokes innovation.
Covid relief made things worse, keeping more zombies alive!
Suspension of the obligation to file for bankruptcy ... insolvent companies continued to trade, no need to pay the bills .. wot a gas!
Other factors were also at work regardless of QE, inherent structural shifts & distortions in the economy from torts, trade, technology, leading to lower productivity/profitability.
The way to fix the problem, they say, is not to raise rates, but to pass structural reforms.
Zombification was not just a physical experience, it was also psychological.
We learned about Voodoo and jazz in New Orleans. Psychological or cultural predisposition was imperative.
After being buried alive, the victim’s reawakening as a zombi involved a new mind set. The victim had to reconstruct their identity as a zombi induced by the psychological trauma. To survive zombies developed their own strong beliefs & culture ... which 'controlled' perceptions and future actions.
Social reinforcement of beliefs further secured their zombie identity and 'club' membership. Psychiatrists emphasized the connection between social & cultural expectations and emotional compulsion ... dysthymia.
Low nominal interest rates led to two problems - (well understood by SJ who studied biology AND psychology at Leicester - and JP who played jazz with his right brain, studied thermodynamics with his left brain but underneath the soap pans in Apapa he needed BOTH to survive !)
1. physical = hogged scarce resources – capital & labour – When they should be employed more productively elsewhere. The process of creative destruction stops. Low interest rates keep ‘zombie’ businesses alive thereby obstructing structural reforms - weakening economic growth, which eventually led to a vicious circle of low growth and low interest rates.
2. psychological = why bother to saving &
investment & innovation - zero interest rates, no taxes, no innovation, no
investments ... no structural reforms. Fears of inflation and financial
bubbles and financial collapse encouraged pre-emptive interest rate
increases which scupperded investment.
Evolutionary Economists proclaimed - The long neck of the giraffe resulted from the death of the short necked variety. Natural selection.
Evolutionary Economic growth results from the death of zombies not from the intelligent design of wealth ... money printing pushed up the value of real income streams ... think business, think evolution.
Abenomics owns 50%, B of E owns 44% Fed owns 22% of Government Bonds = zombification.
Abenomics (3 arrows in the quiver) and EU Recovery Fund $750bn and Biden
Wolfgang Schäuble told the Financial Times 25th Jan 2021 -
There is a lack of real progress, a lack of efficiency in the execution of in the member states. These difficulties worry me. The EU had spent too much time arguing about the size of the 'stimulus' fund and how the money should be distributed, and not enough thinking about what to spend it on. We should long ago have defined what areas the member states should be investing these funds in — artificial intelligence, digitisation, policies for tackling climate change. His remarks chime with those of other European officials who worry that member states are dragging their feet over submitting detailed proposals for how they intend to spend the money from the fund on structural reforms.
The recovery fund cash was for economic reforms designed to deliver lasting improvements to the growth prospects of recipient countries, and to boost innovation, digitisation and facilitate the shift to a green economy. We know very well what urgent steps each country must take to make Europe’s economy stronger, more innovative, dynamic and better able to compete globally -
There are blockages and that all this is too slow, that we need to accelerate and that if we want to emerge from the economic crisis in the best conditions, the European money must arrive as quickly as possible. We didn’t expend all that political capital only for the plan to be delayed for technocratic reasons . . . It’s too slow and it’s too complicated, we have the highest debt levels in our history, the lowest interest rates in our history, and the largest investment needs in our history - Bruno Le Maire added.
EU Stability and Growth pact limits annual public sector deficits to 3 per cent of GDP and debt to 60 per cent of GDP.
On 6th November 2014 the headlines raged - 'Auditors Refuse to sign off EU Spending for 20th year in a row' - 19th Feb 2019 - 'EU said, a farmer was granted a special premium for 150 sheep. The Court found that the beneficiary did not have any sheep. The corresponding payment was therefore irregular (not fraud)' - spend/tax/print was not a one off never be repeated ploy.
Spending was not for the production of Zombies and bailouts for bankrupt States!
Of course Brussels had 'suspended' the enforcement of the Stability and Growth Pact. Or was it a 'Hamiltonian moment' which created the American fiscal union by taking on the debts of the states in 1790. Strengthening the resistance of those who fear their independent identity would be lost in European integration!
It is a one off for emergencies ... as it always had been at the bottom of the business cycle ... but this time was no different ... the debt was never paid off at the top of the cycle ... and always erroded away by inflation ... but inflation had to be balanced by innovation ... which must speed up thru 'structural reforms' ...
markets are driven by flows and investor positioning, rather than by the underlying fundamentals of businesses
passive investing and leverage enabled by low interest rates
In 2008 a new series of splurges started under the shadow of necessity ... grotesque distortions ...
nobody knew whether the big print would be able to perpetually bail out markets
Ever-rising share prices that had no basis in fundamentals birthed yet another meme, 'Stonks!', which fed frenzied retail speculation.
Markets Do Not Represent Information, They Represent Transactions
unprecedented growth in passive investing
current prices don't reflect all available information
(in the real world transactions costs, information costs, diverse expectations, and irrational investors)
how do you invest in the index you are trying to beat when prices in the index are changing every second? How to cope with momentum trade?
systematic volatility selling, passive investing and illiquid markets are going to disappear anytime soon
pork from Washington to expand the regulatory advantages of passive index investing
Market meltdown will never lead to calls for reduced regulation and a reintroduction of contractual market making operations for individual securities?
the dire need for strategies to express humility about certainty in the underlying direction of markets
Stimulus, in simple terms, is the transfer of public wealth to private sector balance sheets.
History doesn't repeat itself but it does rhyme.
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Get it done! Grasp opportunities! 'Comparative Advantage' 'Total Factor Productivity' and 'Unilever Sustainability'!
Profitable projecs are discovered in the unknown unknowns; picking winners is a mugs game, we're 'Open for Business'!
Economic growth came from synergies of specialisation & scale. Productivity. Innovation. Natural selection of 'know how'.
Constant bias to the downside Torts (freedom to experiment without harms to others), Trade (synerdies of specialisation & scale) & Technology (Empirical science 'know how' compound growth @ 3% pa)
Companies discover &
accumulate valuable real income streams thru innovation, survival know how,
despartely seeking difference, diversity, new niches, higher income &
profits to survive bankruptcy. increase
real jobs economic growth
Free & fair trade = global sustainability (economic liberalism) maximum cross-border economic exchange (no protectionism) where everyone pursues whatever activity they can do best to secure synergies of specialisation & scale.
Our market research suggests that global customers don't want production moved in order to circumvent regulations that codify existing democratic preferences -
treat workers fairly (not slave labour)
protect the environment (not plastic fishes, city smogs, Covid evil)
bills paid by innovative, efficient production (not protectionism, unlevel playing fields)
Unilever's long term sustainability depends on satisfying global customers ... and global customers indicate they wish for free & fair & sustainable trade which does not abuse human rights to choose without harming others.
equity prices in tech and other niche sectors are the 'short-term' trade of
the crisis, says Mr Rochat.
'Longer term' many investors are realising that — even more than in 2007 and 2008, when we started playing with these EXPERIMENTAL FISCAL ECONOMICS. It is triggering a lot of questions now about what lies in the future . . . how inflation might make a comeback. Swiss bank UBS asked investors to pay it to hold their cash
Modern monetary policy is likely be adopted to inflate away the real value of the vast government borrowings.
Inflation must rise at a higher rate than government borrowing rises, which means holding interest rates lower than inflation. 2020 FED commitment to a zero-interest rate policy until inflation reaches an average of 2 per cent. But Abenomics has tried to get inflation going again for a generation by printing money but the third arrow 'structural reforms' stayed stuck in the quiver.
Albert Einstein described compound interest as the 'eighth wonder of the world' ... 'He who understands it earns it; he who doesn’t pays it' ... Paul Polman called it Unilever's 'compounding model'.
NB compounding works both ways ... losing just 1-2 % on cash in real terms 'compounds significantly on the downside' = opportunity cost.
Cash is only needed to fund immediate consumption to avoid a fire sale of income gemerating assets .. if and when borrowing becomes more expensive.
Under the soap pans in Apapa ...we learned our economics in the hairy 1970s ... we learned about the big inflation first hand ... from Brazil ... from Derek Holdsworth ... and from the leading Educational Charity ... the IEA ����
Who owns Unilever's tax revenues? What an unseemly charade ... an ugly tax grab. Solvent competitive companies have to pay their bills. Unilever built an Inflation Accounting Manual mantra -
product pricing based on replacement costs
- the alternative of running out of cash and bankruptcy
investment decisions based on after tax discounted
- tax increases costs, prices must rise to pay the bills. Standardised tax rates lowers output everywhere as 'productive work' pays the wages of defensive warriors & unproductive bureaucrats.
DH used to ask, 'Where's my money?' ... and 'Who's money is it?'
Pacaoli's Double Entry Balance Sheet was all well & good but only a snap shot in time of a dynamic CAS of albeit audited judgments -
a trend is a trend just a trend ... but the question is, will it bend? ... will it alter its course through some unforeseen force and come to a premature end?
mark to market ... but valuations? timings? measurement system? currency? ... were US$s better? ... did we need a 'blockchain' of ownership?
In the UK a vicious spiral of high inflation, wage controls and labour militancy characterised the decade. In January 1974, in response to a strike by coalminers, Edward Heath, the prime minister, even declared a three-day week. First, came the inflationary fiscal and monetary policies of the late 1960s and early 1970s, the surge in the price of oil, labour unrest, failed controls over wages, price controls, and squeeze on profits, made worse by the failure to adjust taxation for the impact of inflation. Later, came the tight monetary policies of the early 1980s of Paul Volcker, chair of the Federal Reserve, in the US and Margaret Thatcher and her chancellor Geoffrey Howe, in the UK
The notion that inflation was a price worth paying for lower unemployment was rejected as a failed theory. central bank independence, to much of the world, notably including the UK.
The successful control of inflation
coincided with the beginning of a prolonged and remarkable boom in asset
The extended bull market in bonds was an automatic consequence of rapidly declining inflation. The success in controlling inflation was far from the only force driving this great bull market. It was part of a broader swing away from the regulated post-second world war economy towards free-market economics: the weakening of trade unions; tax cuts; trade liberalisation; financial deregulation; and the opening up of capital flows.
In a classic analysis, published in 2004, Harvard University’s Kenneth Rogoff argued that this increase in competitive pressure, some of it coming from China’s entry into the world economy, was a key factor behind the success of the disinflationary policy.
expanding debt structurally weak demand across the world economy. In
2005, former Federal Reserve chair, Ben Bernanke, called this phenomenon
'the savings glut'. More recently, former US treasury secretary, Lawrence
Summers has termed it 'secular stagnation'.
Premature fiscal tightening and a weak monetary policy response, especially in the eurozone, led, instead, to a disappointing recovery and persistently sub-target inflation in the US and eurozone.
The lesson learned from this disappointing experience was that the response must be quicker, bigger and more determined next time. Covid-19, a quite different kind of shock, turned out to be that “next time”. It was met by extraordinary fiscal and monetary action, to stabilise the economy and people’s incomes.
with higher inflation and inflation expectations, they would be able to raise interest rates well above zero. This would give them more room for manoeuvre in future, in response to negative shocks.
run economies 'hot', with little fear of an unduly strong rise in inflation.
Politics has changed, too, especially in the US, with the election of Joe Biden as president. The ideas of “Modern Monetary Theory” — the view that the only constraint on monetary financing of government is inflation, which, in turn, is best controlled by fiscal policy — has won much intellectual favour on the left. So, too, has the conviction that there must be a rebalancing of the relationship between labour and capital, in favour of workers.
High inflation tends to distort the economy, partly because taxes are imperfectly adjusted for inflation. It will raise long-term interest rates. That will undermine the solvency of many debtors, including corporate debtors, as debt is rolled over.
Above all, an inflationary overshoot will trigger a disinflationary response from central banks. That will mean much higher policy rates. That could lead to waves of default
Japan, where decades of easy money has failed to ignite inflation
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Stein's Law, 'If a thing can't go on for ever it will stop'.
Mark Carney, 'If it doesn't make sense, it doesn't make sense'.
European Central Bank Governor, 'we will do whatever it takes'
... to keep interest rates low to balance the books and keep zombies in business.
The EU books have not been signed off for years and years.
Fiscal & Monetary illusion of Command & Control.
Evolutionary Economics explains the idea of Structural Reforms - manipulation & distortion of prices cannot change folks minds ... production and labour have to be innovatively flexible ... 'micro dynamics' not 'macro statics' ... who pays? Winners & losers ... rewards AND compensation ... ?
Not gluts or queues for macro production / labour but rather micro gluts & queues for innovative production / skilled labour ... the measurement system could by anything from cowry shells to gold but it must be trusted ... and trust has a 'tipping point' ... instantly broken but painstakingly built.
Financial Repression & Austerity
Financial repression, a governments policy which channel funds from business to themselves to reduce debt. The overall policy results in the government being able to borrow at extremely low interest rates, obtaining low cost funding for government expenditures on grandiose schemes and stimulus.
Why save for a rainy day?
Secular Stagnation & Stimulus
Secular stagnation is a term coined to describe a prolonged period of lower economic growth. Secular stagnation is related to the concept of a liquidity trap. ... The idea that in certain circumstances low interest rates are insufficient to boost demand because of structural issues.
Economic growth driven by money or structural reforms ... or Three Arrows in Abenomics Quiver?
Abenomics did the easy bit; the big print. But there were three arrows in the quiver. The 'intention' was to pump money into the system to drive structural reforms not crate zombies. Slowing growth not increasing growth. The sequence was hubris, nemesis, catharsis ... necessary cycles on the path of 3% pa compound.
Six headwinds to growth - demography, education, inequality, globalization, energy/environment and lethal debt? ... was there a problem of maintaining adequate aggregate demand when growth was insufficient to reach full employment? when folk were less motivated/incentivised to spend due to fear (rainy day funds) or lack of excitement (obsolete products, commoditisation, running out of ideas, obsolete intra-generational jobs), inequality (no middle class bulge), inadequate infrastructure & education, longevity, old folk don't produce, 'limits to growth' as fossil fuels run out or degrade the environment.
Mellon 'purge the rottenness out of the system' Joseph Schumpeter’s theory of 'creative destruction', he argued this was the way evolution worked and the best way to ensure a recovery. Instead, the Mellon Doctrine helped turn the crash of 1929 into the Depression.
The miracle of natural selection is 3% pa compound not the ups and downs of the election cycles. Learn from Business synergies & Bureaucratic tax burdens
The Jargon -
'stimulus' = 'pump priming', 'savings glut' = 'idle balances' = animal spirits, fine tuning, elastic bricks
'secular stagnation' = monetary excess, easy but largess goes into asset bubbles not 3% comp.
'Abenomics' = 3rd arrow after Monetary (easy the big print) & Fiscal (culturally abhorrant, save for a rainy day) was Structural Reforms (hard, work, honesty& thrift, innovation)
'go big' = 'don't let a crisis go to waste' = '1st 100 days', 'there's an election coming up', last time waasn't big enough
'laser focus on growth' = by pass the blockages & let the blood flow
'get inflation going' = the hidden tax to avoid the impossible costs of raising interest rates & balancing the books, kills the productive effort and investments in profitable projects as Net Present Values of Discounted Cash Flows dwindle, messing up the measurement system.
'structural reforms' = long term health spending in obesity & sloth or short term palliative interventions,
Trade Cooperation (synergies of specialisation & scale) not
War Compromise (zero sum destruction)
False Narratives resulted in imbalances. Torts, Trade & Technology solved problems
- drain the swamp - bribery & corruption - reform UN agencies - IMF, World Bank, WTO, WHO - funded with US $s became politised stinking with foul infestations - restrictive practices and restraints on trade -
Nikki Haley (UN ambassador) go for liberal democracy
mutual benefits of gains from trade
- confront China - tyranny & oppression - no price fixing manipulation - imbalances $s surpluses - Hong Kong
- confront Iran - Arab Israel peace treaties
- confront France - protectionism
Peter Navarro (Death by China) go for Doha
- economies of scale - middle class bulge & equality
Larry Kudlow (free trader) go for synergies
business investment in comparative advantage
- synergies of specialisation & scale - low tax & principled regulation
Steven Mnuchin (Goldman Sachs)
trade trumps war - confront Iran & North
Korea & French protectionism thru trade tariffs -
Middle East trade cooperation
Jared Kushner (Middle East peace) go for trade deals
free & fair trade
update the global rules WTO ~
Wilber Ross (Business Man) go for fairness of shares
illegal aliens - border security - Mexico
General (USA star General) go for law enforcement
patient choice - disruptors - project 'Haven'
Jeff Bezzos (Amazon) Jamie Diamond (J P Morgan) Warren Buffet (Berkshire Hathaway) go for innovation
defence and law & order
General Flynn (USA star General)
sustain essential cooperation thru good behaviour & moral sentiments help those adversely affected with jobs from business investment
Fraud allegations will continue to be pursued - relentless implacable resistance was out of bounds nadir baseless accusations of colusion with Russia - strongest and most resilient economy unprecedented progress - restored military strength - historic peace deals in the middle east - curbed illegal immigration & enhanced security of borders - advanced the rule of law appointed a record number of judges - operation warp speed deliver a vaccine in record time - tackled violent crime drug cartels Chinese exploitation - defended competition in market place - supported law enforcement men -
... all in place &
unimpeachable since day one ...
why the false narrative? ... Barr & Pompeo
Economics 2016-2021? Trumpeting Brexit !
The wasted years, an absurd ginormous effort to reverse polarised 50/50 results of broken parliaments & voting systems thru the 'law of the land'.
Meanwhile - problems didn't go away? - opportunities were moribund?
Sumption - the law of the land cannot resolve 50/50 polarised beliefs. The Story of Charles I in 1649.
Carney - the manipulation of fiat money cannot drive real economic values. The story of Edward III in 1345.
Staring us in the face was the obvious fact of ignorance ... nobody knows whether the money print will be able to perpetually bail out markets? With interest rates already 0 per cent, the traditional levers of monetary policy may not be able to drive anything ... particularly caveat emptors ... and folk markets ... you can con some of the people all the time, and con all of the people all the some time but you can't con all of the people all the time?
The patient must be kept alive until the operation is
but the long term plan is not a reckless scalpel but rather relentless evolution - speeding up adaptation to change.
Folk aren't daft, print fake money and the real value of real income generating companies will rise.
Rainy Day Funds are taxed twice? Print? Asset prices rise! = inequality?
Crisis - folk will give not exchange vaccines as love & empathy?
Trust - national currencies yes - but payment in Nairas?
Tax not needed?
Free Lunch! Each to his own needs each from his own capacity
Why go to University and swot when we could be playing cricket??
There is no God behind
every tree to help us. So forget all the shenanigans in political bubbles
and stick to the knitting ... get on with the job ... learning ... but 'know
how' is diverse, dispersed, tacit & incomplete. Empirical Scientists
discover & accumulate 'know how' through hard work, honesty & investment.
1 The Knowledge Base grows @ 3% pa compound but cycles with experimental discoveries & failures, excitement & fear, Hubris, Nemesis & Catharsis,
2 Tax discriminates, increases costs and reduces output
4 Zombie companies distorts, increases costs and reduce output
3 Supply & Demand measures cost / benefit
Drain the Swamp Get Brexit Done
'restrictive practices' 'restraint of trade'
'resentment of cheats' 'fairness of shares'
2 + 2 = 5
Discovery & Accumulation of Synergies of Specialisation & Scale
Personal Responsibility for Social Synergies
‘the powers that be’ the Bishops, Princes, General & Bureaucrats
communicate thru simple slogans regurgitated in the BBC News & Daily Mail.
Very few folk will read the long complex mathematics?
Fewer still will understand it?
Structural Reforms Focus on the real economy not the measurement system ...
3% p a compound! Get growth done! Balance Balance Sheets! Eliminate bureaucratic barriers to trade! Innovation!
Structural Reforms = free & fair market economy = creating wealth for health, education and investment in 'know how'?
Torts, Trade & Technology!
'Know how' evolves, discovered & accumulated through Empirical Science - observation, maths theory, hypotheses, experimental validation, peer review.
Their red ink is our black ink. But 'you' can't manage the rent seeking parasites and predators - the Chinese currency manipulators and the Washington Swamp.
Keynes spent during the downturn BUT saved during the upturn (cycle control) but MMT is spend spend spend with no 'austerity'.
'It’s helpful advice for some political universe that I’ve never visited' Krugman said.
However 'know how' cannot be stopped or 'controlled' by nation states and stopped at the borders.
Ideas travel at the speed of light, innovation requires hard work, honesty & thrift.
Pascal Soriot AstraZeneca CEO said, 'our company has close to having capacity to produce 3 billion vaccine doses at sites set up around the world to prevent governments restricting distribution'
You can con some folk in some places for some of the time but never all folk in all places all of the time.
But don't despair ... of change, conflict, complexity & scarcity ... the dice are loaded ... synergies can be discovered & accumulated ... zero sum compromise and winner takes all is trumped by co-operation.
Contact reality and learn that Tit for Tat leads inexorably to cooperation.
Asset prices rise for companies with income streams generated from profitable innovation.
The bills must be paid.
You can't create money out of nothing.
Evidence from audited accounts of track records but -
Profit & Loss - timing?
Balance Sheet - valuations?
Cash Flow - investments?
Share price -
Growth - compound interest - but if a thing can't go on for ever it will stop you can't stop innovation
Future - non-linear maths - but if everything affects everything else you can't solve the equations
Four questions -
Are obvious realities often ignored?
David Foster Wallace ! This is water ! Something big has happened !
Do all realities change in different places, at different times, in
different ways with different folk at different speeds?
Herbert Stein ! If a thing can't go on for ever it will stop !
How does the maths of realities work?
Paul Seabright ! Children are less intelligent and Grandchildren more intelligent than you !
Is the maths of realities always non-linear?
Michael Green ! Beating the Index ? You can can discover the patterns, you can't solve the equations !
print money to help the kids get a job (wot a good idea! or is it simply
bribing the kids to vote for you ����)
but then the kids spend it to keep zombies alive
Perhaps the search for the next Apple or Amazon ‘disruptor’ is impossible (too many candidates ����) ?
Wot about searching for the company that is ‘indisruptable’ ?
We wrinklies remember Theodore Levitt – ‘Marketing Myopia’ 1960 -
“Myopic cultures pave the way for a business to fail. The short term, short sighted, mindset. The illusion of a company in a 'growth industry'. Such companies focus on the original product and don’t adapt directly to the needs of customers.”
Folk need - Transportation NOT railways - Energy NOT oil – Communication NOT iPhones – Pictures NOT silver halide films etc
And in the case of Unilever NOT ‘Lux Toilet Soap’ nor ‘Magnum Ice Cream’ nor ‘Weetwoods’ but something that ‘tickles fancies’?
I guess hearing, seeing, touching, smelling and feeling are all fancies that will always crave to be tickled ����
I’m off for my morning coffee ...
please let me know if you find a good tickler ... CONTINUOUS innovation ... commodities are cheap as sh1t.
(removal of pain qualifies as a tickle so pharma companies with pipelines are OK)
We didn't want a big print all we wanted was to escape from hunker in our bunkers and get on with the job ... jeeze ...
furlough schemes, fuel stagnation, evolutionary economists suggest greater
urgency in seeking work in other industries.
We know the argument, its like income tax ... just temporary until the panic is over ... same as 'fine tuning' used to be ... spend at the bottom BUT tax at the top ... the result is always distortion!
Big print increases asset values and thus discriminates against the poor = inequality!
Big print distorts all incentives for innovation and commoditises productive outputs = Marxist myth the production problem has been solved!
Zombie companies avoid bankruptcy and hog resources which could increase
Lethal debt as the tax system targets immoral equity. Equity financing has double taxation: you pay corporation taxes, and then shareholders pay tax on the dividend.
The value of stock 'rises if when a risky project pays off, but cannot fall below zero if things go wrong, so the CEO has a one-way bet'.
By subsidising the debt markets, we were able to avoid a liquidity problem becoming a solvency problem, says Mr El-Erian. That’s exactly what central bankers will tell you: we’re going to keep finance going through higher debt — and we hope that higher debt will be validated by growth coming back.
If everyone prints the same quantity the $ exchange rate stays the same?
Trade & Production continue!
Nobody balances their budget.
'Know how' continues to be produced by science and USA but China ??
Politicos and Politicking involve processes of hierarchical decision making intended to control the behaviour of members of a particular group or club.
A supernatural distribution of power and resources the antithesis of natural selection.
Results in zero sum compromise not positive sum cooperation.
Natural selection doesn't work that way. The mutations of change are random. Some differentially survive.
Natural Selection, the only game in town. There is no God behind every tree.
Evidence of Empirical Science. Suck it & see ... and remember
"From each according to his ability, to each according to his needs" Karl Marx 1875. The principle refers to free access to and distribution of goods, capital and services.
Or the Law of Supply & Demand.
Marxist view - the industrial revolution solved the production problem; an abundance of goods & services.
A communist system will develop unfettered production, there will be enough to satisfy everyone's needs.
Five Myths -
conspiracies - the antithises of ignorance & natural selection
Innovation - 'time fraught with combating stupidity, jealousy, inertia, venom, furtive resistance and open conflict of interests, an appalling time spent battling with people, a martyrdom to be overcome, even if the invention is a success'
incremental, gradual, serendipitous and inexorable. It is not so much about one eureka moment as thousands of trial-and-error experiments. It is far more about natural selection than intelligent design.
Freedom to express counter-intuitive opinions and experiment
Very easy to find the failures in the hottest areas of tech investment, vertical farming, fusion energy, quantum computing, brain-computer interfaces and artificial intelligence, are all subject to healthy and informed scepticism.
Innovation captured by the powers that be and turned into an instrument of control? Rent seekers?
The celebration of difference & diversity is a core Darwinian concept not a Marxist Myth white bourgeoisie conspiracy.
We each choose where to invest-
#DefundThePolice and #InvestInCommunities
QE has wrought havoc on our economy and now the MMT response to Covid is using up our national balance sheet in further propping up the past. It was likely the best option in the initial stages given the uncertainty on how things would unfold but we now need to face the structural facts and spend the money on training, investment and frankly anything that helps create the future even at the expense of un-employment.
The IMF is clear that spending should focus on protecting the most deprived (ZOMBIES) as well as so-called 'high multiplier' areas (TECHNOLOGY), such as infrastructure, where it will boost growth prospects, in effect eventually paying for itself (GROWTH).
1 ... 2 ... 3 ...
trade imbalances (WTO failure) ...
polarising crowd trouble (Broken Parliaments) ...
covid panic (WHO failure) ...
excuses for continuing big prints before deficits were inflated away ... asset prices rise ... anything with a real income stream zoomed.
Result = Demographic Reversals - Democratic Deficits - Health & Education Crumble ...
Chi, Putin, Farage, Len Pen & Washington, Brussels and Westminster ... trouble emerged from beyond the pale, unedifying, narcissistic & ignorance, started to upset the status quo of self serving Bureaucratic Kluge, polarising democracies as winner takes all uber alles broke politics ... and the law of the land ... as freedoms & minorities were trampled underfoot ... the big print tax grab.
Censorship, Amendment 1 free speech and Cancel Culture were triggered following an unexpected outpouring of hatreds as 51% tried to screw 49% with the big print.
Top down elites clung on as dictators in Russia & China were exemplars but crowd trouble emerged as bottom up Joe Sixpack grew in confidence. Elites had unbelievably shallow victories and were scared, top down would fail.
Reversing the standard model as Dems & Big Tech went elitist and Republicans went Joe Sixpack.
Censorship was just plain wrong ... who decides? ... Who guards the Guardians? Darwin's insight was censored for 20 years!
Debate and await the evidence! Computer says no didn't cut the mustard ...
Demographic shifts as a new global middle class emergence; African baby booms, changing nature of ageing & retirement; rise of women as entrepreneurs and leaders; challenges to cities; cooperative economy; future of money.
The inspiring idea was that humans were first and foremost social animals, as Aristotle argued. Successes always depended on synergistic co-operation.
Globalisation as China joined the WTO and USA middle class bulged with productive innovations AND rent seeking monopoly positions.
Deglobalisation & ageing reversed, generating inflation, higher interest
rates, rising wages and falling inequality.
The 2021 Tax Grab !
Steve Forbes - 'Don't fret about my wealth. I will do OK under any system because I own the 'know how' other folk desire. Focus on the poor'
'Restraints on Trade' - 'Restrictive Practice'.
Who owns the tax revenues?
Pillar 1 = stop the tax havens protecting filthy rich Americans. .
15% minimum tax for everyone to stop costly manipulation of registration location.
- % rate on wot? Profit judgment - asset valuations - depreciation - IP, goodwill, brands, human capital, amortisation, timing.
Definition of 'big' 'multinational' 'digital' companies.
Pillar 2 = discriminatory digital tax on filthy rich Americans.
Top Up corporation tax based of national sales at national rates. Needs agreements on 'double taxation'
All corporation tax increases costs and reduces output so reducing wealth & growth.
As 'big tech' was chased ... what about Unilever & HSBC? Intellectual property resides in the interactice hub bub in Unilever House and the networks of services and agencies ... IP had a 'physical presence' in the pubs and coffee houses of Canary Wharf and Silicon Valley? ... but sales were in China & Brazil eager to tax profits? Offsetting allowances for losses on investment? Patent protection of IP?
Open for business = competition for loopholes!
No profit, no investment, no innovation ... ? ... bills must be paid?
So we switched off the fake noos from the BBC and shut off the broken bureaucrats in Westminster, Washington and Brussels. We smelt a rat so followed a strategy ...
Us evolutionary economists guessed that it was 'know how' itself that was evolving so backing ignorance was a much better bet than blame ... especially about the future ... strewth we didn't even agree about history ... interpretations of happenings seemed to be many & varied & different for different folk at different times in different places ... and even the same folk seemed to flip flop between excitement & fear on a whim ...
'know how' was slippery ... complex, changing, conflicting & scarce ... diverse, dispersed, tacit & incomplete ...
Personal Responsibility from Empirical Science and Liberal Democracy was our only hope -
checks & balances
separation of powers
Bill of Rights, UDHR, Amendments 1 (free to choose) - 10 (lawful protection) - 14 (subsidiarity)
and evidence from Scunthorpe -
It seemed to us that if you did a double blind randomised control experiment in Scunthorpe which was repeated in the
Antipodes 17½ nights later with the same peer reviewed
results ... such was meaningful evidence not tittle tattle ...
and there was more everyone could discover evidence and accumulate 'know how' ... there were no restrictions on learning, there was no privileged access to 'know how' ...
Vote with your feet & join a club of your choice - discover & accumulate synergies of specialisation & scale from experimental hard work, honesty & thrift in a chaotic frenzied cacophony of happenings inspired by a 'free press & free association'
... but don't get it all wrong ... as soon as there were stocks there were thieves and parasites & predators abound ... defence and immunity from treachery did not result from creating money out of nothing!
we were fed up with folk, who in their ignorance, arrogantly claimed to know what was best for us & for others ... and ...
we were more well fed up with folk, who in their ignorance, naively expected someone ‘up there’ to know what was best for us & for others ... and take decisions for them absolving them from personal responsibility for a contribution!
In the end we knew everyone was bent on going for longevity in their own autonomous way with the help of family & friends. In the end it was the same for every country & every global company with operations across North America & Europe.
Personal responsibility and crowd trouble reverberated round the globe!
The horse has bolted
john p birchall
back to some fun