Sustainability, The Economic Crisis and Other Topics

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OVERVIEW: An economy is a network of value transactions over time. It consists of transaction nodes representing exchanges of goods, services or other items of value between parties, or economic actors. In most but not all cases a node represents a two way exchange of vaulted items generally for the benefit of the economic actors who exchange them.

The whole idea of an economy is to distribute valuated goods from actors where they have less functional value to areas where they have more. Generally this is because goods production tends to be concentrated in production areas but used in more distributed areas. thus the exchange of goods tends to maximize the usage value of all goods across the system. However distribution costs also play a role so that the exchange value of a good must be calculated minus its transpiration cost to the consumer location. Additional costs such as taxes, time deterioration etc. also must be considered.

In the ideal free market situation the exchange value of any goods at any node is determined by agreement of the two parties involved. This determines how much of each good one party is willing to exchange for the other.

Every exchange determines an exchange value of one good in terms of another. Values of goods are not absolute or fixed, but are dynamically determined by the individual actors who conduct transactions. There is no intrinsic 'real value' to any good, only the exchange value it has in transactions which can change from transaction to transaction.

The reason that exchanges are made is that the value of a good is less to the seller than the buyer. Thus the effect of the economic network is to maximize consumption value to all parties in the network. In this way the society as a whole maintains maximum value.

The result is an economy that consists of a large complex ad hoc network of exchange transactions through time that theoretically (with certain constraints) maximizes value to everyone in the network.

MONEY: Money is a fungible non-consumable standard good designed to facilitate the exchange of other goods. It enormously facilitates exchanges over barter because it is freely exchangeable in any transaction. The seller who receives money rather than barter goods he may not need can be assured he can in turn use the money in any subsequent transaction to purchase goods that he actually needs. With money a buyer can purchase any good that he wants without having to have an exchange good the seller wants. This frees up an economy by making every good independent of every other in exchanges. Economic actors can simply buy and sell what they want without worrying about what goods the other actor in the transaction needs.

Thus a monetary economy consists of a complex closed network of transaction nodes through which money flows in the opposite direction to goods and services.

PRICES: The available supply of any good relative to its aggregate demand tends to set its price relative to the similarly determined price of all other goods. However actual prices are determined in individual transactions by the relative value each actor in the transaction attaches to the goods involved.

Assuming a fixed money supply, the value of money (buying power) tends to remain fixed, and only the supply and demand of goods enters into the equation of value in transactions. However if the money supply changes one needs to consider money as one does all other goods whose supply and demand varies.

INTEREST: When an economy includes interest transactions things change. For interest to be paid back the money supply must increase and thus the value of money must decrease. The total amount of interest over time determines the eventual required increase in the money supply for the interest to all be repaid. For example, starting from a money supply M0 and no outstanding interest, if 50% of M0 is then loaned at 10% annual interest then for it to be repaid at the end of the year the money supply would have to grow to M1 = M0 + (0.5 M0 x 0.1) = 0.05 M0, a 5% increase.

There are other possibilities. One is defaulting on a loan where the interest due is not paid. Default does not require an expansion of the money supply. The other dynamic is to continually roll over loans by taking out loans on the some part of the total principle + interest due. This will temporarily avoid default and even the necessity to increase the money supply. However the more this is done the more unstable the whole system becomes because it is more subject to the shock of larger and larger defaults due to not enough money available in the system to repay larger and larger loans.

On the other hand if more and more money is pumped into the system to facilitate repayment of more and more loans then the purchasing power of money declines at greater and greater rates. Typically in modern oligarchic economies this is what happens. Corrupt corporations take larger and larger loans they cannot repay. The Government steps in and pumps large amounts of new money into these companies to avoid their defaults. However this greatly increases the money supply and significantly diminishes the purchasing power of ordinary persons finances. The net effect is a massive redistribution of wealth from the middle class to the super rich. This is but one of a whole set of methods by which this enormous income inequality is actively fostered by a government bought by the oligarchs. And more importantly money buys power, and control over government, thus the march towards ultimate wealth and power of a very few super rich over all other peoples is accelerating to the point that if it is not reversed a very few super rich will obtain absolute control over the entire rest of the population with that absolute power over everyone else enforced by an increasingly totalitarian government they control.

The only way debt (interest) works period is for more money to be printed to cover the interest otherwise it could never be paid off. That is Econ. 101. If you have more money in circulation and the amount of goods and services doesn't grow at the same rate to compensate then your money is worth less and you have inflation. Since the amount of food and energy, and thus all goods produced, can't possibly grow at the same rate as our hyper-debt compounding interest will, hyper-inflation is the reasonable expectation for the future.

The only way to survive in such a situation is to have constant increases in income equal to the rate of inflation, this has to be either through salary increases or investment income. Since only the already super-rich can accomplish that and the common man can't, the % of wealth will continue to go more and more away from the common man to the super-rich. The super-rich who run things know this full well. They have purposely mortgaged our future so we will be poorer and poorer and they more and more obscenely rich.

ECONOMICS: Economics is surely the Queen of sciences because it is where all the other sciences maximally interact with each other. It takes an elegant and complex and mathematically precise dynamic network of all the other natural and human networks and then adds a dash of quasi-rational decision making at a subset of the nodes (the human ones). Imagine God putting the laws of physics into place and then appointing a myriad of little daemons to alter them slightly based on their own local whims at every event.

Calling Economics the dismal science as some from other disciplines do is unfair. It is the most elegant and complex as it incorporates all the others. It just simply hasn't been mastered yet due to human intellectual limitations.

Certainly it is no more 'dismal' than evolution (actual evolution - not theoretical). Actual evolution depends on which individuals reproduce or survive in which environmental circumstance. That is extraordinarily complex based largely on chance and the impinging actions of other organisms and natural processes. It is absolutely beyond human computability to precisely determine that for any individual organism, much less the whole interacting network of organisms. Yet no one would argue that evolution is a 'dismal' science. The basic laws of the network are known though not the decisions at every node and that is all that EPer's require to say they understand it and that it is a 'real' science. In contrast they demand much more of economics, that not only that the basic laws be known, but that the aggregate decisions at all the nodes must also be known for economics to qualify as a science. By their own criteria, evolution would not qualify as a science - or at best a 'dismal' one.

SUSTAINABLE ECONOMICS: The ideal situation is efficient sustainable production of just what is necessary for happy healthy lifestyles without all the unnecessary consumer goods. The facts are that it is possible to produce that with only a small % of people actually doing the work. That's good not bad because it allows everyone to work only a few hours a week to produce everything society needs. The problem is how to allocate that minimal work among the population so that everyone can have the income to purchase it.

It's a difficult issue to transition to from the current system in which most salaries are paid to produce products that no one really needs and that drain environmental resources. However if we don't manage that transition we will eventually collapse back to pre-industrial conditions in which nearly 100% of labor time is necessary to produce that same amount of really necessary goods.

I am assuming some continuing energy source to assist in production and transport. The great majority of energy sources are currently being used other than to produce true essentials such as food. If those uses were to be discontinued there would be plenty of energy of one sort or another.

Exact % I'm not sure but my general estimate is that 95% of all work is done to produce non-essentials. Not to say that some of that is not positive like many aspects of science, but still non-essential.

GOVERNMENT SPENDING: Many believe that 'the government must act to stimulate demand'. NO! That is just more government spending money they don't have and increases the debt which is the root of the problem. And of course it will raise taxes. Demand should find its own level based on what people need and are willing to buy based on how much disposable income they have.

Government spending should be extremely minimal, sufficient only to provide minimal required services. Other than that the primary direction of government spending should be such as to incent sustainable long term progress and well being by encouraging new technology. The primary function is to offset the private sector's natural concentration on short term profit.

CAUSES OF THE ECONOMIC CRISIS OF 2008: There has been much discussion of the causes of the economic collapse and what to do about it. My basic take was that it was/is an unsustainable house of cards and a complete collapse resulting in vastly less consumption and thus much less production was natural and the best thing that could happen as it would greatly reduce exploitation of unsustainable resources.

The root cause is trivially simple even though no economist seems to note it: That credit issued for interest necessarily requires enough new money to be printed to cover the interest payments when they come due or they must default. The economic collapse was caused by an enormously inflated amount of credit and thus the due interest injected into the economy. There was simply much too little money available to pay it when it came due and thus the economy must collapse (since interest bearing loans default and thus don't have to be repaid) down to the level at which there was enough money to pay the the remaining ones off.

However rather than letting this natural event happen which would have rightly bankrupt many of the special interests, our government created new money to cover their losses by borrowing even more from future generations, i.e. basically borrowing more from the future to cover the present losses of their buddies. The result is that either we must have hyper inflation to create a great increase in money to repay those loans when they come due, or we will have an even more catastrophic collapse in the future.

The basic problem is that the super rich oligarchs can personally profit enormously in both power and wealth by looting the system and destroying the country's future. How do we stop that when they are able to buy our politicians? One dollar, one vote!

A SOLUTION TO THE ECONOMIC CRISIS OF 2008: Essentially the economic system is a highly leveraged house of cards that is beginning to collapse under its own weight and the actions currently being taken by governments are simply propping it up with more cards, with more borrowing = more leveraging. Their actions may be sufficient to temporarily keep it from collapsing but unless the pyramid is significantly deleveraged it will inevitably collapse.

Allowing the collapse to occur instead of taking action would perhaps be more severe in the short term but it would certainly deleverage the system and likely lead to a swifter recovery and much less pain in the long run. The basic problem is far too much borrowing (leveraging) and in that the government is the main culprit.

The main fix must be to ban outright or regulate most of the derivative instruments which allowed to house to be extended higher than its weight could bear. And to reduce the national debt and government borrowing against the future to an equivalent equal to the real growth in GDP. But that of course would mean that all the super rich who profited from the overleveraging would lose out so that is unlikely to happen to the extent necessary to produce a healthy stable and sustainable economy.

First, let all the banks that have mismanaged their assets fail and go through bankruptcy. The argument that the whole economy will collapse is nonsense because the Fed can step in and become the bank for everyone. It has zero problem with having enough money to lend. To immediately solve the credit crisis simply let the Fed which has unlimited funds become the lender of last resort to everyone in the country from businesses to individuals. That is the myth, but really they are being propped up because of the super rich who would lose out if they weren't. The Fed could easily step in a make all the loans they do with no problem at all as its money is endless. If they were allowed to fail and the Fed filled in for them that would quickly solve the credit crisis and things could start getting back to normal. That is the way the market is supposed to work - the incompetent fail and that solves the problem. US gov solution is to reward failure by making taxpayers pay for the loses of the incompetent.

The Fed can give loans (sound loans only) to any reasonable risk at a reasonable rate provided real collateral is available. Eg. not corporate stocks or bonds which could become worthless anyway if the company fails, but actual physical plants, properties etc. which could be sold in case of default. That way the taxpayers cannot lose and will actually gain on the interest on average.

This solution has many advantages. It is simple in concept and directly and immediately incents investment in the future which is what is needed for a strong future economy rather than spending. And the government can directly influence future developments by preferentially providing loans to 'green' and high technology businesses with maximum projected future benefits. Also by adjusting these interest rates and the amount of loans made the Fed has a great deal of control over the economy as a whole.

The solution to the economic crisis is really rather simple. Just let the banks fail while the government issues credit to all creditworthy borrowers for real collateral to fill the gap and keep the economy going. Only those who took bad risks will lose, not the taxpayer and not sound institutions and banks of which there are many. In addition let the economy contract as it should to more sustainable levels where it produces things that are actually needed rather that the myriad of unnecessary consumer goods and luxuries which harm the environment and use up energy resources.

It is very simple to implement, will work without a doubt and actually will make money for the taxpayer when the loans are repaid as they will since they will all be secured by real property. If that had been done promptly last year the economic crisis would have been over by now and we would be well on our way to a stable long term sustainable economy.

As it is we are trying to solve the problem of debt by recreating it. A huge collapse is nearly inevitable and with it the future of our country which has been caused by the greedy megarich. I foresee them being guillotined in the public square if the masses ever figure things out.

There should be absolutely no spending stimulus. That is the worst thing that can happen, as overspending on credit is the root of the problem. The current large contraction in consumer spending is absolutely the best possible thing that can happen and it should be encouraged because now consumers are buying more of what they actually need rather than discretionary spending on things which they don't need and which just depletes non-renewable resources. It also causes the companies that produce the essentials to grow stronger and those producing frivolous items that are not really needed to grow weaker. That is exactly what we need for a sustainable future. A prime example is the sharp decline in gasoline which is entirely positive as it is a significant elimination of unnecessary use of declining oil reserves.

So all in all the current economic contraction is absolutely the best and most natural thing that could be happening. Let the chips fall where they may with no bailouts and the healthy businesses that produce what the future needs will survive. Meanwhile the government can easily keep the entire economy from collapsing by providing credit to anyone, individuals and businesses alike, who is a reasonable credit risk.

Those workers who lose their jobs are by and large those who are performing non essential services. They will receive unemployment benefits while they are retrained to work in essential jobs. At that point everyone can work much less of the year, receive much less money but have equal spending power for the much fewer goods that are the essential ones rather than the frivolous and unnecessary conspicuous consumption on credit that is ruining our country.

The result is that the country as a whole will be much closer to a sustainable society and a sustainable stable economy as it will use much fewer natural resources.

the optimal solution is to let the credit house of cards collapse under its own weight globally down to reasonable levels with enough credit ensured by having all central banks provide sufficient loans to all reasonable risk borrowers to keep a reduced economy going, and to secure those loans with real collateral with real value such as property so the taxpayer can't lose and will actually profit.

The result is a reduced leaner more efficient economy that produces only necessary goods rather than all the unnecessary consumer goods the previous economy depended on. That is better for the planet and precisely what is needed for a sustainable long term economy with minimum use of non-renewable resources.

Thus the current economic collapse is the best possible thing that could be happening. It is the natural global system attempting to reach a sustainable equilibrium on its own. All bailouts and interferences are simply going to perpetuate the problem and make it much worse in the long run.

However since the rich run the world (1 dollar 1 vote) this will not happen. They will lever up again and continue to loot the global economy until the collapse is cataclysmic, final and ushers in a new dark age.

As an example, everyone says that the housing crisis precipitated the economic collapse. It did trigger it certainly, but the lesson here is simple; there were far more houses being built than actually needed for people to live in at the prices they were offered. That is essentially why prices collapsed which is exactly what should happen. The solution is not to build more houses, nor more unneeded cars (there were far too many of them too) etc. That will simply create the same problem over again.

As I've said before the basic problem is that the US economy is efficient enough to produce far more than people actually need with far fewer workers than the employment force. Thus the economy had to produce all manner of unnecessary goods to fill in the gap and give everyone a job, but this won't work because it unnecessarily depletes natural resources on a massive scale.

The solution is everyone works far fewer hours to produce only the necessary goods and both people and the planet win in that scenario. Man must live in harmonious equilibrium with his environment like a normal body cell does, not be a cancer cell that insists on maximizing its growth at the expense of everything else, and eventually destroying the body it grows upon, and itself in the process.

Comments welcome - especially interested to know why people think this wouldn't work (except for the political reality that the US oligarchs would lose out big time. The whole idea of the 'bad bank' idea is for the government (you the taxpayer) to buy the oligarch's worthless assets for more than they are worth so they won't lose on them.).