Posts Tagged ‘Keynesian’

An Energy and Carbon Monetary Unit: A Realistic Money to Replace Fiat Currency “Optimism”

Sunday, March 8th, 2009

Money is “a medium of exchange, a unit of account, and a store of value.”

However, absent from the view of Monetarists and Keynesians (and the “money” Wikipedia page), is an additional role for money, a role that’s given an important place by Austrian Business Cycle Theory. Money should be a measure of the aggregate of society’s savings– its future capacity for growth.  Unless someone tries to force it to tell lies, money, in its interaction with other goods, gives both the society as a whole and individual entrepreneurs a measure of the society’s ability to take on new projects (or not).

There’s a good reason why Monetarists/Keynesians won’t consider this.  A money that measures wouldn’t support their fantasies of what “monetary policy” is expected to accomplish.  To them, money needs to be a vehicle that government can manipulate to “stimulate” economic activity and create “optimism”.

Repeat that last sentence out loud once, and for most of us that’s enough to appreciate the fundamental dishonesty of the concept.  Still we could throw that out, stipulate to the erroneous “greater good”, and simply look at the effects after decades of manipulated money, credit and financial opinion– the “greater good” is itself in ruins.

The criminality (the Madoffs et al) is a red herring– only a fraction of the waste from a process that was natural and inevitable under artificial credit creation.  The Federal Reserve and the government got exactly what they asked for— if more and more credit is created, with more and more “stimulus” and “optimism” to get us all moving and spending, could there be any doubt that the average modern society will have no shortage of people willing to get “creative” in order to soak this up?  The exact path of the creativity is difficult to know in advance, but nothing will stop a party like that, other than the eventual clear vision by a critical mass of economic actors of the scary, unsustainable wasting of our limited resources.

Since it’s the normal and predictable side effects of fiat money credit creation, not spontaneous greed, random mistakes, or insufficient “stimulus”, that is the primary cause of these bubbly, wasteful financial disasters, what form of money could stop the cycle?

A gold standard ranks well on measurability– just flop it onto a scale and there it is– a measure.

And Monetarists generally don’t like gold, which you’d think would be a perfect recommendation.  However, while many Monetarists have used a need for monetary expansion as an excuse to be profligate morons, there’s a little kernel of real world worry at the twisted heart of the issue.  A gold monetary standard has an eventual problem– once the standard is generally established, the modern trend wouldn’t take more than a century or two before there’s a strain to find new sources of money, a strain that would continue ratcheting up until loans at interest become impossible. Someday, there would be “peak gold”.

It’s a distant flea of a problem compared to the immediate brontosaurus that Monetarists saddle us with daily.  However, a few centuries can pass surprisingly quickly (especially for the unborn, who have very little concept of time).

So we’re looking for a money that is non-static, but nevertheless a real measure of a society’s ability to create new goals and move forward, or conversely, would appropriately stall us out when we’re not ready.  We need a limitless limitation.

A few thousand years ago, a food backed currency– stored food, if absent the problem of spoilage– would have taken a good rough reckoning of a society’s future capacity.

Today we need to be able to do a lot more than eat in order to accomplish our work.  But I’d suggest that energy would be a good measure for today’s economies, since we need it in pretty much anything we do.  If we have sufficient energy stored to take on a project— it’s as safe as it can estimably be to take it on.  If not, then we know we’d get stuck with a half finished project and the waste and risk associated with that— we would have to wait.  (The way we needed to wait on “improving housing affordability”.)

We can also theorize that the payment of interest will never be a problem with an energy monetary unit.  Until we’re capable of building a “Dyson Sphere” enclosing the solar system, we won’t run out of energy potential (and who knows, even that might be a pit stop on the way to the stars?)

Is it a little odd to propose that we literally have money to burn?

Comparatively, no, it’s not.  How much stranger that for money we’ve chosen an unmeasurable paper standard. We measure anything and everything.  People have even tried to figure out if a human soul has weight, but for money, of all things, we’d rather pretend?  The one thing that we think we don’t need to measure is our savings versus our consumption– our stored capacity to use resources– our future on earth?  (If I didn’t know how inherently trustworthy government is, I’d suspect we were being manipulated or something.)

A currency that can be spent literally, or saved literally, is a chance to stop pretending that savings, or lack thereof, has nothing to do with our future.  A chance to uninduce the self-induced march of the bubbles.

Let’s go back to optimism for a moment.  As you can perhaps tell already, I’m not entirely a fan.

President Obama has “The Audacity of Hope”, but the implied rarity of hope in the political sphere is a little disingenuous.  The value of “optimism” is unquestioned in politics, especially if it’s yours.  You can pretty much imagine any president saying when criticized something like: “Look, any plan will be criticized, but I believe in optimism– you can’t always listen to the naysayers.”  (Maybe there’s a reason there’s always naysayers– maybe all the plans have sucked?  We are, after all, where we are, and didn’t get here overnight.  Every presidential plan is a central plan, with a clear theoretical basis for sucking.)

Optimism isn’t just the universal political habit of mind, but the most common in general.  Perhaps optimism deserves some of its boosterous reputation, but in the end as a mass state of mind, it can turn very quickly into an excuse for lazy thinking.  Money and economics in particular have been heuristically much too glib, and not to be too dramatic, it’s conceivable we could pay for it with our lives.

It isn’t only that we’ve managed to stupidly fool ourselves into underestimating the savings we need for our own not much more than day to day living, and then, what’s needed to have a future equal to or better than the past.  It’s not just that we’ve decided, out of nothing, that doing nothing is not an option, while spending trillions of dollars is a must.  (Mandatory trillions spent on something somewhere– we “know” it must be spent, but how, where, what– that we don’t know.)

To me there’s still much more, as long as we’re throwing our fiat currency habitual non-measurement of resources into the mix.  We also appear to be underestimating by many orders of magnitude the level of saving that we need to give us a near certainty of sustaining a human civilization indefinitely.

We’ve added a lot of dependencies in our modern system that haven’t even been tested by an historical sized natural disaster— a San Francisco earthquake, or a Krakatoa.  What about something many orders of magnitude bigger, which might have a very high probability over a period of a thousand years or so– the natural disasters that we know have happened in early or pre-history?  (If a thousand years seems like a long time, consider that that still gets a double digit percent chance that it would occur in the lifetime of yourself, your child, or your grandchild.)

These, along with potential manmade disasters (where perhaps rightly, many people would place even more emphasis), put us on the footing of “it’s a matter of when, not if”, a place that I’d contend we wouldn’t be if we had a hundred or so times our current savings.

(Say for example that most countries had started work on an energy currency system 50 years ago, had because of this perhaps developed more advanced energy accumulators, and now had the above type magnitude of real savings in energy.  Say further that tomorrow someone is able to prove that pollution caused global warming is real, with a best model estimate 90% certainty of ending modern civilization.  With that evidence, and those usable savings, then these countries would have potential to mothball most industry for a decade or more, working instead entirely on changing the outcome, rather than just waiting for a civilization ending catastrophe.)

A long, long time ago (in the title), I mentioned “carbon” in the monetary unit.

Now, I’ll carefully disappoint half the readers who were waiting for the good stuff, while providing (temporary) relief to the other half, who had probably been saying, “Carbon? Is this idiot one of those “cap and traders”?

To be continued in Part II…

By Les Lafave

Monetary and Banking Reform – themaestrosrep.org

Public Works (and Won’t Works)

Friday, December 19th, 2008

The unknown cost of economic stimulus is somewhere down the unmeasured road, while stimulus’s close cousin, public works, would appear to be the next Keynesian cluster bomb to be fired at the yet defiant real world.

Illusion enablement aside, a public works infrastructure concept is a modest improvement over raw stimulus.  In public works there’s at least tangential acknowledgement that it may be a good idea to have some sort of output– contrasted with stimulus which has an even closer cousin, the broken window fallacy.

Public works has a more hopeful sound.  Stimulus could be just a giveaway to Wall Street.  Public works is stuff—concrete and steel. If Wall Street is going to get hold of public works money, at least they’ll have to work to come up with a twisted scam– it won’t be just “injected” onto their balance sheets.

But if we can’t keep that concept of output always uppermost– and the evidence so far is that we can’t– the happy, hopeful sound of public works will be another money pit.

The base assumption is already glib– that public works are just something the government does in tough times (and easy times and medium times), to create jobs, stimulate the economy, build infrastructure and give people hope.  But what are we talking about?

It’s not like we can put together teams of unemployed stock analysts and drywallers and send them off to build bridges. Subtleties like this can get lost in politics, but bridges, I’d point out, are best built by those who know how to build them. Most such people are not hanging around the donut shop waiting for Congress’s call– they’re out there now, building and repairing bridges at the rate society had previously chosen.  Stomping on a bridge building accelerator will have a lot of slippage– as for example, when a previously active engineer is lured away to teach due to an accelerated demand for new engineers.

If there’s a big ramp up, someday there will be a ramp down.  Some of the “created” jobs will be uncreated, and ripple effects will cause other loss.  (And we shouldn’t get too excited that only some of the created jobs will be lost.  We can’t know if it’s a gain over jobs that would have been created by some other plan, or by no plan.  However, the more splashy and political a job creation plan becomes, the less probable the sustainability becomes.)

A subtle ramping up in infrastructure isn’t going to be the payoff that politicians will be looking for.  They’ll want a voter attention grabbing splash.  The reaction in politics to a slower than wishful expectations infrastructure start will be to stomp on the accelerator even harder.  (Hopefully in the case of bridge building, we won’t get the splash literally.)

New projects have an unfortunate high profile over repairs and maintenance.  It seems rather muddled to consider ourselves caroholics and in need of more road infrastructure at the same time, but contradictory rationalizations are becoming an American specialty.  Thinking about interest groups now fine tuning their “infrastructure” proposals is frightening.

Congress appears to be at least as confused as anyone else.  And we can always be sure that whoever they decide to listen to, it will be based not on common sense persuasion, but on political connectedness and popularity.

Robert Poole in a Wall Street Journal piece, “Stimulus Shouldn’t Be an Excuse for Pork”, focused on U.S. Conference of Mayors requests, and concluded that, “It is clear that any infrastructure stimulus money given to the country’s mayors will lead to thousands of tennis centers to nowhere.”  Other advocates, public and private, aren’t going to have any more trouble than the mayors in seeing their porkish proposals as “infrastructure” and “job creation”.

That tradition– incorrectly considering pork spending as if it’s economically additive, has moved from the realm of the disgusting to the dangerous.  (Especially if all those tennis courts distract us from the study of safe, proper food rioting techniques.)

Consequences for off the charts government spending and borrowing are somewhere between uncertain, and certainly bad– so justifiability for public works projects on their own merit, ex any consideration of “stimulus” or “job creation”, should be a bare minimum for any infrastructure proposal.

By Les Lafave

Abolish the Federal Reserve – themaestrosrep.org