We're in for a wild ride. Exponentially accelerating technological, cultural, and socioeconomic evolution means that every year will see more developments than the previous one. More change will happen between now and 2050 than during all of humanity's past. Let's explore the 21st century and ride this historic wave of planetary transition with a confident open mind.

Friday, December 24, 2010

Sound Money and Deflation

"With the enormous leaps in industrial productivity over the 20th century, shouldn't a penny now buy me at least 10 Snickers bars instead of nothing?" 

(Or how fiat money serves to prolong the life of capitalism while libertarians are ironically fighting to make capitalism disappear)

A great question, considering world's population rose 4.2 times from 1900-2010, annual copper mining output rose 30 times in same time period, and industrial/agricultural mass production technology (for making candy) has made exponential efficiency leaps. To investigate this serious matter lets look beyond the screams of "federal reserve and fractional lending robbed us all with depreciating overprinted fiat currency!" and delve into the underlining physical dynamics.

A one ounce Hershey's bar cost 3 cents (9 grams of copper) in 1918 whereas a 1.45 oz Hershey's bar in 1982 (last year to have 95% copper pennies) was 20.6 cents/62 copper grams per chocolate ounce. As of 2010, the Hershey's bar approximates 65 fiat cents an ounce but since the imperial authorities diluted the penny with mostly zinc (making current pennies a harder to quantify mix of zinc and copper), I'll use the 1918-1982 period for simplicity.

If one adjusts for inflation, 3 cents in 1918 is 19 cents in 1982 (539% depreciation in purchasing power). An 80 year old, lets call him Bob, getting his favorite childhood candy treat would have seen his under the mattress savings buy 6.3 less Hershey's chocolate. Now this may not seem too bad IF Bob was in a theoretical situation where his real income growth was pegged to inflation the entire life and his fiat currency grew in a bank under inflation pegged interest throughout the 20th century. Considering the candy's probable mild price buoyancy due to brand recognition, on the surface it looks like the company is only charging Bob 8% more than they did in 1918 (20.6 cents to 19).

Looking through an Austrian economics lens of inflation being an increase in the money supply, since most people do not have their finances perfectly adjusted to inflation, Bob is being continuously ripped off and impoverished via inflation tax. He may not get exactly 6.3 times less chocolate but even 2-3 less Hershey's towards the end of life is a criminal swindle.

A defender of the socioeconomic status quo in 1982 may partially agree but counter this via a pseudo-Austrian angle, "If anything Bob is lucky to only be paying 62 grams of copper per ounce instead of 9 grams in 1918 since copper is mined faster than people are breeding. He looks like he is getting a deal when using this depreciating physical metal! Copper is as fiat as paper!" (Authorities saw the copper content in penny spike more than a fiat cent in 1980-1981 period and thus changed the content, the price of copper in penny then collapsed to just under 1 fiat cent again in 1982-1984).

This is an interesting response and lets take a look at it without distracting ourselves with multitudes of other serious issues such as the government ending the use of silver in currency, going off the gold standard, stagnation of real incomes, etc. Some of these issues will begin to be resolved indirectly by the end of the article.

If one tries to look at Bob's situation via Marxist economics lens of commodity exchange, then we see that the poor fellow is being swindled in another way. This investigation is a little trickier considering technological productivity cannot be readily quantified and since the concept of productivity itself is culturally determined. What is very safe to say is that mechanical efficiency in producing an ounce of Hershey's has risen a lot more between 1918 and 1982 than the 260% rise of human population in same time period. That is, if copper production/demand magically froze in place, a 1982 Hershey's chocolate ounce should cost not 9 grams but substantially less. Surely, they've figured out ways to stamp out these chocolate treats by the millions in ways not dreamed of before (even taking into account employee salary operating expenses).

Of course copper dynamics were not frozen but they also end up benefiting Bob. If you consider the borderline exponential and evolving industrial demand for copper for electrical/water purposes throughout the 20th century, then it is clear that the 530% rise in copper production in 1918-1982 does NOT devalue 62 grams (needed to buy one 1982 Hershey's ounce) by half.

In other words, even though the copper money supply rose at twice the rate of human population, we did not see 100% inflation of the penny since the industrial demand for copper kept up pace with the human population at the very minimum. Therefore, a Hershey's bar ounce in 1982 should have cost at most 6 cents (1918 price * population growth) instead of 20.6 cents. Therefore, Bob doesn't just get ripped off through expansion of the fiat money supply but by value of goods not reflecting the breakneck pace in development of production and distribution of Hershey's bar. Considering a pre-1982 copper penny is approaching 3 fiat pennies in worth at the end of 2010 (and many countries having pulled copper from their currency in last 30 years), it may well be that a Hershey's bar should cost a lot less than a copper cent today. This makes more sense if one remembers that a silver dime from 1964 is worth over 2 dollars presently (even though annual silver output expanded 35 times in 1900-2010 period).

It appears safe to say that fiat currency was haphazardly introduced by business leaders in first half of the 20th century (via their political appointees) to prolong the life of capitalism via inflation. Ironically, the financial robber barons ended up doing the same thing that rural agricultural interests wanted in late 19th century America. 19th century saw various deflationary collapses and farmers wanted silver/gold bimetallism since rapid mining of silver would have introduced inflationary pressure on the dollar and thus prevented profit loss. Banksters 100 years ago were gold bugs since they made money from loans and deflation benefited the loan sharks. Since financial capitalist take over of industrial/agricultural capitalism was mostly complete by 1900, bankers tended to win political arguments.

During the great depression, there developed a compromise and some convergence of thought between financial, agricultural, and industrial interests concerning the benefits of inflation. Biggest bankers by that time, found a way to profit while expanding the money supply via modern money mechanics and farmers ended up getting governments to pay them to not produce too much and thus prevent deflationary profit loss. FDR managed to reconcile the key parasites, preserve capitalism, and artificially prolong the profit taking of major monopoly industries at the long term expense of the consumer (in a very humane developmental manner). Yes, he also did a lot of great things and is one of the kindest masters people saw in the last century (no sarcasm).

If the price of an 1982 Hershey's bar reflected the real amounts of hard money (commodity) availability PLUS availability of Hershey's ingredients (commodities) PLUS the cutting edge technological ability to produce and distribute the Hershey, then we'd see the company experience the periodic deflation born crisis of overproduction that the communist manifesto summarized. One can imagine what will happen to corporate bottom line if a copper/silver/gold/rare earth metal commodity money coin buys more consumer goods every year than the previous one. On paper, Austrian utopian capitalism is too efficient and benefits the consumer too much (so much in fact that it quickly implodes in deflationary collapse horror show, massive unemployment, and technologically driven socioeconomic evolutionary leap towards post-scarcity society).

It is little wonder that Trotsky sided with Austrian economists when he wrote of pre-requisites of United States going communist. They being commodity backed hard money utilized to barter for consumer goods. This is especially true for gold since gold production only rose 5.5 times in the 1900-2010 period, barely above population growth. Ironically, the current wave of libertarians are fighting to make capitalism disappear (since non-fiat currency would fully unleash the post-scarcity potential of means of production and distribution that have existed around us since at least the 1950s and that Buckminster Fuller and King Hubbert described in detail). I will leave with a few 1934 quotes from Leon Trotsky regarding the absolute necessity of ending the federal reserve. ;)

"-This system will be made to work not by bureaucracy and not by policemen but by cold, hard cash. 
-Your almighty dollar will play a principal part in making your new soviet system work. It is a great mistake to try to mix a “planned economy” with a “managed currency.” 
-Your money must act as regulator with which to measure the success or failure of your planning. 
-Your “radical” professors are dead wrong in their devotion to “managed money.” It is an academic idea that could easily wreck your entire system of distribution and production. That is the great lesson to be derived from the Soviet Union, where bitter necessity has been converted into official virtue in the monetary realm. There the lack of a stable gold ruble is one of the main causes of our many economic troubles and catastrophes. It is impossible to regulate wages, prices and quality of goods without a firm monetary system. An unstable ruble in a Soviet system is like having variable molds in a conveyor-belt factory. It won’t work."

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Monday, December 13, 2010

Time to Ban Advertising to Children

Ads to those below the age of consent are a form of cognitive pollution that adversely affects the developing psyche and endangers society politically

Nothing shows out of control consumerist culture more than scenes of people trampling each other half to death in order to save a few dollars on black friday. Such ghastly herd behavior is just one among many symptoms of allowing corporate structures almost unlimited informational influence on homo sapiens. We're well familiar at this point with other maladaptive behaviors involving:

1) Emotional distress from lacking some non-essential item/service for which the desire was externally implanted (conditioning to want useless junk begins with infants)

2) Definition of the self being partially dependent on concentrated, frequent, and evolving advertising propaganda and priming (100 years of ever more sophisticated efforts to exploit psychological research to influence the human psyche, now going as far as delving into neuroscience and brain scans for brainwashing). Emotional distress and splintered chaotic personality resulting from not keeping up with these directions.

We saw a rather substantial ongoing backlash against consumerism in the last decade but none of the efforts go to the root of the problem. This being the mass scale targeting of children by advertisers. These children then become adults who are much more open to continuing manipulation (and other more hidden materialist priming on how to live/be via movie and TV series characters).

A common and insufficiently thought out reply to this is that people have free will to overcome propaganda and that those with weak wills deserve to become shallow, borderline sociopathic, and financially drained individuals. This is a poor response to the advertising onslaught since (as Aldous Huxley described as early as the 1950s) research shows that 20% of the human herd are very informationally susceptible physiologically, 20% are not really susceptible at all, and 60% are semi susceptible. Free will itself as a concept is very problematic.

This susceptibility applies to everything ranging from hypnosis to criminal swindlers to political statements, etc. We're talking about a fifth of homo sapiens born with severe risk of being manipulated further in life. They need to be protected since the science behind relatively benign corporate messages about what shampoo makes one a real man/woman can and is utilized by politicians, cultists, criminals, etc.

We are all put at risk by a section of very manipulated public especially now that transnational corporations compete with nation states and families for allegiance of individuals (successful corporations have their own origin myths, founding fathers, pseudo-nationalism via brand internalization, office "family" subculture, funding of weddings/funerals in some countries, etc).

We cannot have massive oligarchical structures that often buy out entire governments also have a major role in shaping the young. Family and public/community educators need a child's mind to be less clouded so they can step in.

One of the obvious solutions is a forceful full spectrum ban on advertising that explicitly targets those below the age of consent.

Nope. Not just a ban on ads that promote anything specific to those under 18 but an overall blanket ban on corporate propaganda aimed at the young. This means cereal, toys, sports equipment, etc. In effect this also means disappearance of majority of childrens' television programming (which do their own part to promote hyper materialism and imitation of fake personas). Advanced advertising directed at those below the age of consent can be conceptualized as a form of visual/cognitive pollution that cannot be handled safely by a developing psyche. This is especially true when it comes to young children who are still in a pre-conventional stage of moral development (hyper-egotistic stage that, as The Onion humorously yet truthfully mentioned, shares a lot of traits with psychopathy).

Large scale corporate indoctrination of children through marketing may not appear as harmful as religious or political indoctrination at first sight. However, in some respects it is even worse since it affects a child via a thousand different cuts which are hard to escape and which prepare the person to be more open later to cuts from religious/political entities using similar techniques (see megachurches).

I wont even go into depth about the problems of potential responses to an ad ban such as people who parrot about "parents not doing their jobs" and played out knee jerk reaction against the supposed cliche of any policy that is "for the children". There is also little reason to think exposure to ad pollution creates immunities and that those exposed to ads after the age of 18 will somehow be more affected than presently.

Large swaths of humanity are being subjected to a never before seen global experiment in psychological priming by completely amoral externalizing actors (modern corporations). Banning child specific ads from obvious places like public spaces, television, and printed media is but the first step to push back. To get a foot in the door politically towards the goal of a total ban, the growing memes of child obesity and junk food effect on learning need to be harnessed.

Second and more politically/logistically difficult solution is to create psychological immunities against propaganda in public schools (yes, public schools by well paid and meritocratically selected educators).

But that is an article for another day.

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Thursday, December 2, 2010

Maximum Wage and the Limits of Human Inequality

Pegging the rise of maximum compensation to the rise in the minimum will go a long way towards avoiding global disruptions

The appropriate maximum wage that society should have will be a critical issue in this century. It is generally agreed upon at this point that a neurosurgeon should get compensated more than a tour guide. The Soviet experience of a relatively narrow gap between highest and lowest compensation (top company manager officially earning 3-5 times the entry level worker) shows that society's progress stagnates if tangibly unequal abilities and contributions are rewarded with compensation that's perceived as relatively equal. Yet various banana republics (United States included) around the world demonstrate that stagnation also sets in when wage inequality gets sufficiently monstrous.

It is not enough to look at relatively egalitarian societies like Japan or Sweden to try to find some golden maximum/minimum ratio. What is needed is a common sense and/or philosophical framework that 1) justifies a certain income ratio
and 2) creates conditions compatible with human nature and self interest that allow the set ratio to be maintained.

1) Justification for capping the difference between top and bottom incomes should be grounded in reality and pragmatism and not idealistic popular desires of how a world should be. Theorists like Nietzsche spent considerable time elaborating that humans aren't equal. Yet in an ironic twist, the same reasons (that he gave for not having a leveling system where everybody is assumed to have the same value) can be used to set limits to difference in valuation.

click to enlarge
Like many characteristics of a population, the natural abilities to be exchanged for money are spread along a bell curve. Natural ability is anything that gives a physiological edge in addition to training. An example would be the hyper sensitive and rare taste buds of a top chef or a fighter pilot with remarkable reflexes and fast twitch muscles. If you take a person with poor taste buds and a person with exceptional ones and provide both with identical intensive high quality training on food preparation, there will be a certain intangible limit to how much better one chef is than the other. This applies to all professions. What is known for sure is that one is not 1000 times better chef after the training (or 100 times). Such numbers are simply ludicrous mathematically.

Napoleon Bonaparte is not 100 times superior person to say, a gas station manager and neither does Napoleon deserve 100 times more cars, 100 times more houses, 100 times better quality food, 100 times the salary, 100 times the size of personal land, etc. Think about it. Even without the leveling of military training, if you take the brain of the gas station manager and multiply its function by 10, the gas station manager would give Napoleon a run for his money in most if not all areas of life. Whether intelligence, speed, personality, patience, if you take an ability on one low end of the bell curve and multiply it by no more than 10, you automatically get to the other end of the bell curve (ex: IQ of 30*10=300).

I am using a multiple of 10 for simplicity here since the actual difference cannot be readily quantified (one perhaps can argue better for 15, 20, or 8). Considering the outrage over the bankster bonuses in the last 2 years, it appears the general public intuitively knows that there are limits to salary compensation. What remains to be done is to draw some line in the sand. A person earning 10 times as much as somebody earning 50 grand a year is getting half a million and automatically gets into top 1% income bracket. 10 times the compensation is an enormous leap. This perhaps sounds shocking, the way explaining that a duke does not have divine right to all the local land might have sounded shocking 300 years ago.

"But isn't compensation also determined by social importance of an ability (usually allocated by market forces)?"

As far as social importance, it is a very valid point. In today's absurd dying socioeconomic system, we don't see prime ministers and military generals receiving the same incomes as Lloyd Blankfein or other wall street criminals. We also don't see the operators of nuclear missile submarines getting 400 times the amount a waitress or a new army recruit gets (the way a modern CEO does compared to entry level workers in his/her organization).

Certainly the argument from social importance would indicate societal leaders, augmenters, and protectors to be the most vital. It is a tricky subject which should be properly studied with in depth examination of what professions benefit society the most (hint: engineers and scientists in political power). There are various ways of determining social importance with length and difficulty of educational training being one of them and critical examination of what makes real physical economy grow being the other (to filter out people who spent 13 years in intensive study of psychoanalysis or Gregorian chant from the top compensations).

This leads us to the idea of a free market competition, a concept as utopian and disconnected from reality as pure communism. The unregulated "market" is and will remain a diverse collection of political power centers that evolve the rules of the global private casino as they see fit. The obvious examples of the market giving top rewards to athletes, pop stars, and organized crime (Citigroup, JP Morgan Chase, etc) shows that it is a very poor determining mechanism of socially important tasks. This is where we see a difficult social divergence happening between perceptions of important jobs (nuclear power plant director) and consumer determined rewards for not-so important jobs (national talk show host). Obviously we'd like for both the public and infrastructural demands (that allow the public to live) to have a say in compensation without too much divergence.

If incomes could be broken into 10 levels, it very well could be that a top entertainer should be a level 7 worker (earning 7 times more than the minimum income of level 1) while the nuclear power plant director gets to be level 8. This will be up to the politicians and the needs of the crowds as long as they maintain the ratio system (in this case, based on maximum wage difference of bottom income multiplied by 10).

2) How does one make the maximum wage system stable and compatible with human nature? The simplest solution is to make the rise in maximum salary dependent on the rise in minimum salary. This means that if level 1 worker earns 100 units a day while the top level 10 worker earns 1000, the level 10 would only be able to get a raise of 10% to 1100 units if the salary of level 1 goes to 110. If you are beginning to suspect we are moving beyond capitalism to a more high tech welfare system of the future, then you are correct. Notice how the maximum salary gets to grow while being tied up to the minimum.

Pegging the material progress of the highest compensated to the material progress of the poorest can easily work within the capitalist system but it begins to work even better in a post-monetarist technocratic system. The strongest and richest must be given a personal incentive to improve the lives of the weakest and poorest through an income peg. They will still remain 10 times better off (10 times the cars, 10 times the living space, 10 times the clothing) but at the same time, if they work in their self-interest they will be lifting all boats. This dynamic inevitably puts more technically oriented people into top positions of society where they are most needed anyway. We're talking people who understand how to improve infrastructure, logistics, and basic structural economic welfare provision.

These matters will continue being a major concern as we gradually transition to a post scarcity transhumanist world of the future. It is important that we start discussing the limits to human inequality early on before social disturbances on a planetary scale have a chance to really develop.

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