The Pyramid
The primary issue for a monetary system is its strength. There is a stark contrast between a framed house and one made of cinderblocks. One structure provides more strength than the other. Obviously during normal times both serve the same purpose. However, if you look at it over a longer period of time, there are always periods of storms and natural events that occur which threaten the structures and the people that depend on them. Which structure would you want to depend on, if you needed to, for decades and longer? Obviously the most desirable structure under the circumstances would be the strongest.
Nothing epitomizes structural strength more than a pyramid. This is the level of strength and stability that is needed for a monetary system, not just for the U.S., but for the entire world. A pyramid has layers, one built upon another. Similarly, each layer creates a foundation for the next layer both in a pyramid and a solid monetary system.
The base of the pyramid is a belief system. A Belief System is a viewpoint or a widely held concept that is agreed upon by the maximum number of people. This is may be similar to faith or common sense. But a Belief System is particularly – the basis for important concepts, things that will have a significant impact on everyone’s life with the intent to make it better. Hopefully there are certain truisms where people from any country, background or economic position can agree that they share a destiny for the survival of civilization and society. An example of a belief system is – human beings need water, food and air to survive, therefore we need to protect these resources. The belief system has to be so fundamental and inescapable that few rational people would argue the reality of the premise.
A principle derives from the belief system and supports it. There has to be a logical connection between each layer of the pyramid. Many times a set of principles will clarify the nature of a core Belief System. The point of the principles is to define, with some clarity, how people should act or give them a reason to act in a certain way. An example of a principle is, we must act together to ensure that we all continue to have clean sources of air and water. Therefore, cooperation would be a guiding principle about the belief system. Notice that the words are being chosen very carefully. The principles of fairness, inclusiveness, sharing and sacrifice would also add substance to the belief system. We are familiar with similar frameworks in religion. It is fairly accepted that the modern religious Belief System in a monotheistic almighty deity. The principles in different religions vary from there considerably. One may believe in a vengeful god. Others may believe in a final judgment day. Still others believe in life after death and karma. The motivations may be fear, hope or other human emotions that are strong enough to guide behavior.
Policies support each principle. A clean water policy would define the objective, like the water must have less than x amount of lead, pesticides, arsenic, etc in it. The policies define specific behaviors and thereby set boundaries with which we are suppose to act within. Back to the religious example, the Ten Commandments define constraints to human behavior. A policy in this context is “Thou Shall Not Kill” as an example. A careful examination of any policy sets up a target or goal to act towards. It may not be attainable in the absolute sense but should constantly be driven towards. Defending yourself may be acceptable even though the policy is “Thou Shall Not Kill”. It is not a contradiction to set these goals at unattainable levels because it at least clarifies where we should strive to be in the end.
Processes would ensure that the policies are followed and have substance to them. Processes would define the- who, how, where and when that would ensure the policies are met and exceeded. Laws, rules, regulation define the processes by which to measure, analyze progress, control and improve the current state of affairs. In the case of clean water, the processes would define who is responsible for monitoring and controlling the levels of contamination. They would also define frequency of testing and/or monitoring; and procedures used to judge levels and progress. In the religious analogy, dietary habits, and procedures for judging others, as well as punishments for inappropriate behavior are defined processes.
The time just spent on describing the nature of an abstract pyramid was necessary because a leap of faith is needed to appreciate the importance of the Monetary System relative to the current and future pending world economic crisis. Describing a simple Belief System for the Monetary System would be hollow and meaningless unless the entire structure was described. Anything short of that treats the subject as a minor issue. We need an enduring solution to protect civilization. Even religion is not a solution for the current economic problems of civilization. The variations in religious principles have been (and will continue to be) reasons for war and dividing one group from another. The monetary system has to have a better track record.
BELIEF SYSTEM
The primary belief has to be cooperation. A vast majority of people need to recognize that a common monetary system is needed that benefits everyone more than current system. The natural resources of the world are limited and the population of the world will eventually exceed even the most basic resources needed to sustain life on this planet. Only through cooperation of all governments and people can we delay or even reverse the inevitable destruction of our way of life and the species that inhabit this “paradise”.
A common Monetary System is needed to form the basis for valuing work and placing value on all resources. Supply and demand is like a law of physics. If the same conditions are created the same outcome can be expected. Create more demand or less supply then the competition for a commodity will go up. Prices will follow the change in the balance between supply and demand. What will the world do if the supply of critical commodities becomes too tight? What will they do if it is projected to stay tight and continue to get tighter?
Let us make a prediction. First the “haves” will raise the prices on the “have-nots”. Inflation will take off or the economy will plunge into recession. Either way, fewer people will be able to afford basic essentials. A certain level of this is tolerated until the population refuses to accept the situation or the government blames another government for the problem. Again, only war is inevitable if the situation is allowed to get to a crisis. There is another choice.
The inevitable situation can be anticipated and a plan can be developed to prepare for the shortages. The key will be to find an equitable way to share the resources and more importantly conserve them to control supply and demand. Valuing the commodities/resources will have to be consistent and stable. Since this is a global condition a common currency is needed to stabilize the inter-country sales and transfers.
It may be hard to imagine the magnitude of the situation. This magnitude changes with population growth, technology and the actual supply of basic essentials. First there were tribes, then kingdoms, City-states then countries. So the evolution to a larger political entity is just inevitable. So the question is not whether to form a global entity, just when. A global currency should actually be the first institution.
PRINCIPLES
PRINCIPLE #1: Currency – a currency is to value work and commodities not for political manipulation of social policy.
The issue of currency exchange is a significant one only because of volatility. Also the question of looking at gold as a way to substantiate value is only relevant because people are looking for stability. Governments have clearly lost sight of the reason for stable currency and keep trying to manipulate it for other national issues. However, the overriding issue regarding currency should be its ability to act as an international and national method of exchange. This defines the purpose for having a currency.
Volatility and value are subordinate characteristics to the primary purpose. The goal should be to determine how to strengthen the ability to use the currency on a long term basis. The most desirable outcome would be to have a currency that has no inflation and could be depended on to always be used to buy the same amount of goods and/or services. What a concept?
Saving enough money for a house, food, college and retirement is hard enough. Planning for inflation makes the task of saving that more difficult. As inflation rises the task becomes nearly impossible.
Fluctuations in costs are understandable as supply and demand changes. In a free capitalistic society, buyers and sellers dance back and forth trying to get their best prices. Contracts are negotiated in an attempt to stabilize the prices for the term of the contract. Different sets of players play the same game. Success may depend on the ability to do a better job than your competitors. This is business’ Darwinian Theory – survival of the fittest. The result is still the same. Business survives on negotiating everything it does and costs fluctuate more. Ironically business needs to have price stability as much as individuals and simultaneously work to introduce volatility at the same time.
Introducing politics into the mix raises the complexity of pricing to a much higher level. Consider tax policy, tariffs, subsidies, regulations and the whole host of government policies that have an impact on the cost of goods and services. The monetary policy of the Federal Reserve dwarfs the other policies in the amount of money that they can create and spend. The combination of all these policies adds to the inherent volatility of the currency. Some policies contribute to volatility more directly than others.
PRINCIPLE #2: Allocation – Resources should be spread in a balanced manner.
A society such as the U.S., can neither afford to have no safety net at one end or no limit to wealth at the other end. If the distribution of wealth becomes too steep the wealthy become too powerful and cannot help the temptation to interfere in policy development for their self interest creating dynasties of wealth.
The basic premise of the U.S. society is to foster competition. Capitalism thrives on a competitive environment. The general belief is that this system breads a healthier more vibrant society. In the same way, the concentration of wealth or monopolization of business is anti-competitive and the original virtues of competition are stifled.
Ensuring the supply of vital resources is consistent with the competitive principles. It is not competitive for one country to be subjected to environmental regulations while another is not. We both suffer from the same detrimental effects. The argument to me is inane. But the issue is a hugely significant one. When one party has to abide by a set a rules and the other does not then there is not a level playing field. This same issue covers a broad range of areas where different sets of rules apply in a global economy.
So for a global currency to work the same set of rules need to apply across the globe as well and there cannot be this constant bickering as to who can violate the rules. Allocation of resources and wealth needs to be discussed but that discussion cannot even start until there is an honest agreement as to application of rules. One of the more vivid illustrations of this is the effectiveness of OPEC. Multiple countries get together and try to set production limits so that supply equals demand and price can be maximized. As much as we hate to think of some entity controlling a vital resource like oil, it serves as an objective lesson to us projecting forward in time.
The marketplace oddly enough is the enforcement arm of OPEC. OPEC allocates which countries can produce which percentage of the overall supply and they set the total production amount. There have traditionally been violators to these limits. The marketplace invariably punishes OPEC with lower prices when supply exceeds demand. Demand is invariably reduced the higher the price goes. Further, the high prices incentivize use of other forms of energy. The problem with this form of control is the reactionary nature of it and the painful impact on real people and stability.
The problem with OPEC is its objective and motivation, “maximization of profits”. The same motivation is felt individually and collectively. This motivation is good for competition, not for creating a better working relationship. So we have a paradox now, between competition and stability. OPEC allocates who can produce how much (the supply side) but does not consider who can get how much (the demand side). This model inherently favors the richest countries and shuts out the poorest in a systemic system that makes it impossible to compete.
The reality is this is not about competition between countries it is about a small group of people having incredible control over very large numbers of people. They use their money and influence to maintain the status quo. They will promote war and create weapons that are so horrific that life on this planet could be jeopardized as a consequence of this attitude. We have to recognize it for what it is!
Allocation of resources is where the rubber hits the road. We need a system that allocates resources in a stable long term fashion otherwise peace is unsustainable. Allocation has to address the supply side and the demand side – equitably and over the long term.
PRINCIPLE #3: Population – The population of the world must be controlled and reduced.
I hate to pick on religion but it is the single biggest impediment to controlling the population. In fairness we need to differentiate religion from religious dogma. We have the craziest religious dogma being promoted I can imagine. Multiply! This is not limited to any one religion. It is shared across many religions. At one point in time it may have been a good idea to have many children (in an agricultural society) when mortality rates were high and resources were plentiful. Even from an economic perspective, having more children created an internal workforce to manage the farm. Today this is not the same situation.
We essentially are all in a small boat in a vast ocean. There are so many people in the boat that the water is just breaching the top. Someone swims up to the boat and wants to just hold on. This additional weight will sink the entire boat and everyone will drown. What is the morality of this situation? These decisions are uncomfortable and we do not want to face reality but it does not eliminate the circumstances and the consequences of either inaction or the result of the wrong decision.
The responsible thing is to control population. We are not even making an effort to control the growth rate. This is what is truly crazy. Any religion that wants to promote more, well there you have it. People traditionally want to hold on to a set of principles that give them comfort and stability in their mind. We can have a very active discussion about religion but what matters in the context of this book and its subject is the impact on a stable monetary system. As long as any active group or leaders continue to promote principles that will lead to more chaos then they are fair game for discussion and cannot be ignored.
The contribution of religion to this discussion is so large, it has to be addressed. There are other ways that religion has exerted influence on financial policy and institutions but the most significant is its attitude towards procreation. If we step back from the passion that people feel for their respective religion then we can appreciate the richness and value that they bring to our lives. That richness does not have to be corrupted by ideologues that have no ability to question the sanity of their beliefs and values. Worse yet is an ideologue that has no ability to recognize that different situations dictate different responses.
The laws of physics and mathematics will eventually prevail. Either we manage the situation in an orderly premeditated way or we will suffer through the worst possible scenario especially as more countries and individuals get nuclear armaments. That genie is out of the bottle already. What do you get with this formula? (One part large population, one part high percent of suffering, two parts weapons of mass destruction, three parts fanatical religious leaders)
PRINCIPLE #4: Conservation – All resources must be respected and treated as if they are very limited and precious.
Therefore, they must be conserved and used sparingly. Distribution methods, packaging and manufacturing methods all have some inherent waste in them and can be re-engineered to eliminate waste. Consumers routinely get more junk mail then they even open, Consumers also have habits that generate needless waste when many things can be reused and recycled in other uses. Talk to a Depression Era person. They will provide you with a many ideas on how to converse, recycle and save money.
Learning how the Indians used everything they could when they killed an animal was very interesting. Intellectually they made it part of their culture to respect nature and they understood that they depended on it for their survival. When “primitive man” depended on nature more for survival they even worshiped nature and deities that felt controlled nature. Technology and modern thinking has made us arrogant about nature. We have separated ourselves from it intellectually now, losing respect for it. I am not suggesting that we have to worship nature but we should have that level of respect for it.
The result of our arrogance is short sighted thinking without regard for consequences. It is vitally important they we all feel a sense of community and belonging to a large group with individual responsibility to that group. An attitude of conservation comes from that sense of responsibility and community. This leads us into a Value System…….
PRINCIPLE #5: Value System – Our character is defined by our ability to problem solve and our sense of priority.
What are those things that we hold as the most important things in our lives? If you want to have an engaging conversation with any stranger, ask them – What is most important to you – Stability, Control, Passion, Sex, Money, Family or Faith? It does not matter which option they choose. What does matter is how divergent people are at this level. Further, their answer provides an insight into why they think the way they do and you can therefore project how they may respond and act under various conditions. Several of the options characterize someone that is selfish or self-centered. Another depicts someone that is carrying a lot of baggage from someone that has hurt them. Others are driven by emotions and not logic. Regardless, this is reality and if you want to have a more productive conversation with that person then you need to understand them better and empathize with their needs as well as our’s.
Religions would have you make faith the highest priority. The idea would be that your faith is a set of values, as taught by that religion, should provide you with the guidance you need to lead a good and healthy life. I would add another option to the list – “global community responsibility”. Wow – isn’t that a stretch. Can you imagine someone actually saying that? An expression like – “Walk before you run”, does not apply here. We are really talking about the big picture. The focus and the solution have to be the same magnitude as the problem.
Today we are caught up in ourselves. Countries think in narrow terms about what they individually need. However, what we do need is to agree on a common value system before we can talk about meaningful solutions to a growing critical problem – Human survival! How much war, pain, suffering and lives will it take before we recognize that we need some level of a common value system?
We even need a more precise language and definition of terms. After many conversations about the issues of the day, I have concluded two things: 1) People find complaining very convenient and easy to do but they are very limited in deriving meaningful solutions to these issues. They are complainers and not problem solvers. 2) We often get hung-up on terminology, in that we define specific terms in very different ways. Subsequently, conversations get convoluted and valuable time is wasted in misinterpretations. Rhetoric and politicizing issues are counterproductive and destructive to our ability to solve problems. The first question should be – How can we have the most constructive / productive dialogue to address our financial issues?
The intent of this book is to provide a better understanding of the major issues that face us and offer solutions that could significantly mitigate and minimize these important issues. The magnitude of the financial crisis is so large that billions of people are being impacted by how well it is managed. I do not care about ideology, dogma, political parties or which system people use to govern their country. What I do care about is the ultimate goal and how do we get there fastest. For argument sake that goal is, providing a stable, productive, healthy life for as many people as possible. The financial system is a tool that should make our lives easier and better. The measure of success is how many people can benefit by the financial system, not a limited few. This is not a system for acquiring power and influence or controlling others. It should benefit mankind, so we can aspire to create and grow as human beings. Enable us to learn about the wonders of nature. Empower us to discover and explore our capabilities to build magnificent things. Somewhere along the line the means have become the goal. Terms like capitalism, democracy, socialism, and competition are means to an end. As an example, bringing democracy was a stated goal that the previous administration wanted for the Middle east. However the battle that we are waging is against terrorism. If a different political system achieved a stable friendly region that was devoid of terrorists, would that not be desirable? Would we go to war with a region that was in this condition? We it be necessary to kill people if they are friendly to us? If the answer to these questions is a clear “no” then the political system is only a means to an end. Imposing our will on others or them on us is an act of terrorism in itself and if you deplore others doing it to us then we should not do it to others.
Once we understand the top priorities therefore the goals then we can productively determine how to get there. The process of plotting the course between where we are now and where we want to be is problem solving. Imagine a time when we all agree on the goal and send our time exploring all the possibilities of how to get there till we find the best way and then simply determine how to implement it efficiently.
POLICIES
The “industrialized” world will equalize with all countries and deal with them on an equal basis. Anything short of that would create a “them and us” mentality.
Respect must be afforded the land needed for agriculture and forests; fresh water sources & systems needed to purify the water; the air that we all breathe.
Natural resources are not the sole property of an individual, company, group or country. They must be thought of as common property that must be protected and allocated by a shared set of policies. If that does not happen then the alternative will be war. The stress of too few resources available for a greater number of people will cause greater conflicts.
The world population has to be controlled. The first principle of all religions should be the sustainability of life on this planet. Doctrines that encourage procreation should be removed from all religious text and teachings.
The principles just described should be pictured as adding depth and breadth to the Pyramid. They should also lay the foundation for the next level – Policies. As I reflect on the policies that governments and industry create and promote, they all share the same nature. They are disjointed, arbitrary at times, self serving to the administration that is currently in power and are rarely monitored for their adherence to a long term plan. The Principles should be used to provide direction to policy development and would become a metric for the success of a Policy.
Recently I heard a master plan for a Downtown Redevelopment Project. It talked about how the government, businesses and residents need to come together for the common good. This was marvelous and is exactly the blueprint described here. The goal is create a sense of community for the entire town. The principle was that the downtown area in the heart of the town and needs to be the focal point for creating that sense of community. The second principle was that government, business and residents need to be equal partners. They must all contribute equally to the project and must equally benefit by it.
The specific projects and design of the redevelopment plan are essentially the policies that will be needed to make it happen. They will describe how each party in the project will participate both from an initial project perspective and from an ongoing basis after the construction phase is finished. Funding issues need to be addressed. Design and functionality needs to be determined. One policy was the role of volunteerism, which was perfect. This connected the principles back to the original long term goal.
Similarly, specific policies should be developed to continue to promote the general attitude and sense of belonging to a global community. Our national governments have failed us. They have been corrupted by special interests that have a single goal in life – become more powerful and hold that power. A case could be made that the Free Trade Agreements are a move in the direction to be more cooperative. That would be true if the policies supported the goal. As one observer, I must protest that the way Free Trade Agreements are executed they just act as large trading blocks, competing against other major trading blocks. These inevitably create more animosity and friction. There does not seem to be any policies that address the displacement of workers and the disparity in wages between the members. The industries seem to be the primary beneficiaries and the “residents” seem to be losers. Therefore there is no equality in this equation.
Let us start with categories of policies that should be developed.
1. Role of Government
There are many conflicting roles that government representatives play. At one level they represent the people that are their constituents. But does that always mean everyone or subsets? At another level they represent business but maybe only those businesses that the representatives feel support the goals and objectives, the representatives support. The point is, it is unrealistic to assume that everyone can get expect support for their interests simultaneously. Sometimes it a numbers game where the real goal is re-election.
Imagine a government that has a vision of a long term plan that is independent of the individuals that get appointed or elected. The founding fathers developed a set of guidelines for the U.S. The Bill of Rights best fits the concept of Principles. Whether deliberately or not, the founding fathers did not go beyond that. The U.S. is at its best when there is a clear goal or a central theme to the direction of the country. Recent examples are the space race and the Internet Boom. These two areas of achievement gave everyone as sense of pride in the country and signified major advances in technology. One was a government led effort and the other a private endeavor. As much as many people like to criticize government as inefficient, the Space Race was a highly successful effort. The Tech Boom was initially a government effort to harden our computer network but the major advances in it have been propelled by the private sector.
The first policy should be to determine a long range plan for the country.
The plan should be a clear set of priorities. It is somewhat ironic and sad that what are identified as priorities today are merely programs that should be a no-brainer. Education, healthcare, security and housing are basics. Yet we struggle over the basics. Philosophical differences have made political footballs over these basics.
Real priorities would identify areas of the economy where investment would create growth and productive jobs in the future. I hate to digress but as I wrote this last sentence it became obvious that there is an inherent definition of terms problem here. Some jobs support the administration and basic infrastructure. Other jobs work to create and support external demand. The external demand provides the revenues needed to support the overhead of the infrastructure. Obviously the less overhead and more resources devoted to external demand the healthier a society or any business.
As a small example use the family structure. A family by itself does not create all the things needed by the family. Members of the family go out to earn money to buy those goods and services that the members don’t provide. If no one cooks then they go out to eat and pay more for that service. There are always things that are needed outside the bounds of any group of people or political entity. The citizens of the U.S. must appreciate that we are depending to heavily on outside goods and services. We basically cannot afford it anymore. This is reflected in our balance of trade.
Balance is the operative word. If we squander our resources on infrastructure without investing in areas that service external demand then we do it at our peril. We will no longer be able to afford anything provided by others. Therefore a viable plan addresses the need to invest a significant amount of your resources in creating and servicing external demand. Simply what are the goods and services that we can provide to other countries? We are in competition with the entire world now. The plan needs to consider the marketplace and the competition. Finally the plan needs to specifically provide a path to deliver those goods and services.
A fair question would be: why is it a government responsibility to develop a plan? Why not let the marketplace decide? Simply, the marketplace is reactionary and short term oriented. Our retirements and future are long term issues and best fits the function of government than any other sector. I am not going to get into the merits of who could better do something. Again all sectors have failed in different ways. However, trying to get a particular sector to act in a way that is not their natural environment is like setting them up to fail before you even try.
A second policy would be to ensure confidence that institutions, which the general public depend on, are trustworthy to act in the public’s interest.
So, ask yourself, why does the public have such a low opinion of our public officials? They have too much power, too little transparency and their motivations are predisposed because of the process by which they get into office. What is the problem of trust in top management of business? They have too much power, too little accountability, make too much money and act in ways that only serve the shareholders/themselves and not the public or the workers. Is this the situation that we want and need to move us in a direction that will strengthen our country?
The American political system was put in place to have checks and balances. The founding fathers recognized that human natural is corruptible and the political process itself needed to be constrained. The division of power and oversight of one part of government by another was pragmatically the best way to maintain trust in the system. There is one major flaw is the system.
Businesses have now grown in size and power to overwhelm many governments. There is no less need to be aware that the human nature of businessmen is corruptible and corrupting. AT&T was broken up over its monopoly position. The innovations in telecommunications that have subsequently occurred are remarkable. Is there the same political will to do the same for other businesses that have gotten too big too fail? The public interest is best served when the competitive environment is protected. If AT&T was able to control the Internet, where do you think it would be today?
The Internet is the best example of how a truly free market economy should work. The untaxed / low cost of entry environment inspired huge amounts of capital and talent to invest in that technology. Particularly noteworthy was the amount of free effort and programming that went into he initial stages of the area. People are willing to contribute their time and skills to a greater good. If the Internet is allowed to be taken over by solely commercial interests then it will completely kill the attitude that made it great in the beginning.
The government should foster and promote voluntary efforts.
Again, family members naturally feel a sense of responsibility to help each other without expecting in-kind compensation for their efforts. Family elders hopefully have instilled a sense of belonging and individual responsibility to the greater family unit. A stronger family is one where the members all want to do more than their fair share of work and actually enjoy their own contribution to the family.
That feeling only occurs if the rest of the family shows a desire to contribute and appreciate the efforts of others. The policies overlap and support each other. There is a great word I learned in business, “synergy”. Loosely defined, it is when the total yields more than the sum of the parts. Synergy conflicts with the competitive motive. Voluntarism may also seem contrary to the business environment. Yet both are needed and should be balanced. Workers that feel their job is threatened will not share more information than is necessary with fellow workers. They may even deliberately mislead others.
When I joined the full time work force in the mid-70’s, it was not unusual to see my fellow salaried workers putting in 60 plus hours per week on the job and put in countless hours at home. They felt that this effort would be rewarded with promotions and to some degree they spent the time out of company loyalty. We felt like we belonged to a great entity that would take care of us if we took care of it. Programs were delivered to the employees that discuss team efforts. The Japanese style of management was later promoted and of course part of that style was life-time employment.
I still believe in the principles that were taught but sadly there seems to be few vestiges of those principles left in large corporations. Years of downsizing, out-sourcing, reduction of benefits and the treatment of employees as a commodity have contributed to the destruction of these principles. Amazingly, hypocrites will argue for huge compensation packages for executives while they complain about labor costs. Aren’t the executive salaries a labor cost? I wonder if anyone seriously thinks that today’s corporate culture encourages people to help each other any more.
Loyalty and a willingness to contribute to the family are essential for a healthy family. As a resident of the U.S. (or any country), it is essential that we feel that way towards our country. We all need to have that sense of pride, otherwise we are only hurting ourselves. Children may act in selfish ways and hopefully will be taught the importance of the right attitude. Government has a role in this, to ensure that companies and individuals act to promote the sense of belonging and public spirit.
I love the context of this concept. If people feel that what was just presented sounds like socialism then they do not believe in the family structure. There is a role for social mindedness just as there is a role for competition. Healthy companies need their employees to help each other. In that environment, employees should not be penalized when they help someone else.
Keynesian Economics
John Maynard Keynes saw a role for government to intervene in the private sector when necessary. The social welfare programs of the 60’s and 70’s were a reflection of that line of thought. Although these programs were thought to be discredited, they are being resurrected now. The moral hazard of state welfare programs is the over dependence that people have on them. Work ethic goes out the door when the state routinely provides things without a requirement to work. As a policy, social welfare programs should be temporary and provide a path to self sufficiency. The exception is when elderly people are involved. There will come a time when they can no longer be self sufficient, so there is no path.
We can choice to look at social welfare programs in either-or terms, or as shades of grey. The policy is to construct social welfare programs within the realities of the environment. Long term programs are persistent aid programs like social security. Limited time programs are temporary and are necessary due to circumstances. Both of these program types have the common characteristics of scope, size and nature. These characteristics can be balanced and adapted to be most effective and to maintain cost controls. The real point here is the attitude that people have towards these programs.
a) When necessary the programs size should be as limited as much as possible, both in time and cost.
b) Scope should be limited to as few people as possible.
c) Size should determined by the amount of money allocated for the programs, with a fixed limit or as a percent of total budget. Scope and size can be allocated differently but should always be kept within a balanced budget reality.
The simple idea that governments should intervene to do social engineering is not in itself scary. But letting politicians use an unconstrained budget to fund such programs is a prescription for disaster. Politicians feel very free to give away money, especially when it’s not theirs. After all it will help them get reelected too. This reasoning starts with individuals that love to get something for nothing. But there is never a free lunch. Someone will pay in higher taxes and mortgaging away our sovereignty (as is now happening).
If we are more productive then we should be more charitable. But this cuts both ways too. If we start to fall behind then it is time to tighten our belts and cut spending. Anyone that thinks the solution to putting out the fire is by putting more fuel on it deserves to have their house burnt down. Similarly, we got into the current economic crisis because of one central reason – excessive debt! How is creating more debt going to help it? We have to fundamentally change the individual attitude about debt. We could say that this attitude should transcend every aspect of the society – individuals, corporations and government. But that is too easy and lets the individual off the hook too much. If it doesn’t start with the individual then it will easily migrate through the other parts of society.
Debt use to belong to investment strategies. Debt makes sense when it is used to buy something that will have a return higher than the original investment plus interest. Let us call this the “Purpose of Debt”. The Purpose was eroded with the idea that debt can be used to buy things that depreciate before the loan is completely paid, like cars. Then the idea grew that we can have loans with no money down. In other words, the investor does not have to have any responsibility for the risk. Finally to top it all off, now we can package off the debt and sell it to third parties that have no idea about the value of the securitization of that debt. Each step in the transition away from the first principle, about the purpose of debt, contributed to the erosion of our own logic and sense of value. Let’s live for today with no regard to consequences!
We deserve our vacations, the electronics, the bigger house, the fanciers cars, eating out and the list goes on. The only way most people were able to afford these things was by accumulating more and more debt. They didn’t need it all. I am not even sure that it made anyone that much happier. It starts to become a vicious cycle of wanting more before you even got the first round. The constant attitude of wanting more “things” is depressing. It also fosters an attitude of selfishness. Selfishness erodes the work ethic of helping each other as a team mate. That makes us less productive people and less competitive.
I don’t want to condemn people for buying things they can afford and have saved to get them. The point is, if you cannot afford them then the answer is not to take out a loan so you can. Increasing debt should be the exception, when there is an investment involved that matches the debt servicing.
Many seemingly solid businesses get killed off due to cash flow issues. Cash flow problems can be fairly short lived imbalances of revenues to expenses. Households are no different. If someone in the household looses their job and the cash in-flows goes down significantly then what happens to a family living on the edge – pay check to pay check? Many of these people are on the street now. The answer is simple – change your attitude and your individual policy. Saving and investing is a virtue. Take responsibility for your family’s future by keeping debt to a minimum or eliminate it entirely. Don’t carry debt longer than necessary.
2. Politics
Politics is a process by which social questions get answered. Either an individual or a group can argue why a particular policy should be promoted or adopted. This kind of a process is healthy for understand several sides to an issue. The logic of an argument or previous examples can be brought to bear on the debate and hopefully the stronger, better argument wins the day. If you were to take a poll of how people feel about politics today you might not get such a complimentary description of the process.
The negative perception of politics comes from the way the process has been conducted for many years. This is not limited to any one country. The process has the same objectives in practically every instance. Maintain and control the power base. Leverage is used like a currency to exercise self serving policies that re-enforce or grow the power of the party. They might manipulate the arguments (“the message”) to sound palatable to the electorate. Even if the argument is a valid one, the validity is questionable due to the source.
This does not eliminate the need for having healthy debate of issues. Questions on issues are rarely simple. Often there are more than two sides to the issue and off-setting factors exist that can make the best choices seem marginally effective at best. Public policy affects many people. Some parts of the electorate are helped through a policy while others will be hurt or be expected to pay for it at minimum. A key issue for all arguments is to establish a definition to what the public good really means. It is hard enough to find the best options, but imagine how much the complexity increase when there is not a common definition of success.
Matter of fact, political parties will use the lack of definition as a device to avoid their actual stand on an issue. The standard sad joke of most campaigns today is the lack of substance that a candidate will provide about how they stand on an issue. The more they campaign on platitudes and vagaries the better chance they will have to win. This does not serve the public’s interest. Issues need to be debated on the merits of the arguments. Candidates should be tested based on their ability to argue their case for their stance. The public learns about the complexities involved in the issue. The public also learns about the mental capacity of the candidate – their understanding of the issue, and their ability to debate and sell their position.
Candidates for office need to be transparent about their stand on issues.
1. Centralized Control
The merits of public verses private management were discussed earlier. There is another way to slice and dice governance. The debate between states’ rights and federal control typify that debate. It has been held that education is better controlled at the local level, yet we have seen a steady decline in the quality of our education system. At the same time when the federal government argued for testing standards it also advocated charter schools. There is no clear evidence that a more centralized or decentralized system would produce better results in education. Yet the argument about a more centralized system is worth exploring.
The degree of distributed governance extends in both directions. Maybe at one end of the scale is a condominium/homeowners association and the other end is a global governance body like the World Court. The questions always remain the same, what level is appropriate for the people involved? Often times there are overlapping responsibilities that breakdown in the following categories: Funding; policy/rule making; monitoring and enforcement of those rules and dispute resolution. (These categories of governance will be referred to as the governance process.) The more common framework would be that a higher level governing body bares the responsibility for enforcement and dispute resolution.
Take a Homeowner’s association (HOA) funding, where the members share the expense of common maintenance. The members enjoy the luxury of not having to mow the grass themselves or arrange a contractor individually to do it. However, on the other hand the members have to get together to decide on how much is needed to maintain the landscaping at a particular level of quality. There will always be people that are more able to afford the cost than others. Even a question as to how often the grass should be cut will be driven by people’s ability to bear the cost of the service.
We can get ridiculous to make a point. Should the federal government be involved in the process of an HOA budgeting, collecting funds and executing the service of lawn maintenance? It does not sound so ridiculous when you introduce the complexity of what to do with the debris from the lawn, the chemicals that are used to treat it and the water used to water it. Local, State and federal laws have now been developed that impact sometime as local and isolated as lawn maintenance.
The point is that the more an activity affects the larger general public, the higher the level of governance that needs to be involved in rule making, enforcement and dispute resolution. The natural tendency is to believe that raising the level of governance to a higher level reduces your sense as an individual to have an effect on the entire process until you feel like you are personally hurt and frustrated that the process is failing. The truth is corruption and incompetence can occur at any level of governance. So, to generalize the situation, a higher level of governance provides the opportunity for corruption and incompetence to hurt larger numbers of people faster and make is more systemic.
To be sure there are probably books written on this subject but the subject of centralization needs to be addressed. It is critical that the governance process be defined and managed at an acceptable level of efficiency and effectiveness. The idea of a global monetary system smacks at the philosophical argument about whether centralization is good. What are the merits of having a common centralized system? What policies are necessary in this context?
The core issue is the stability of the currency and the inability of individual countries to manipulate the currency for the protection of their individual sovereignty over other countries. This is a big one. The United States has dominated the world economies due to its sheer size and military force for decades. This is no different than other empires in the past. The U.S. naturally has used that position to provide an advantage to its citizens. We are now in the waning days of that dominance and I am sure that there will be resistances to that lose. The movement towards a global monetary system would be a major milestone in the erosion of its dominance.
There is another consideration that is scary. History has shown that when a world leader comes on the stage with dreams of conquest and power then their goals can plunge the world into an ugly war-ridden state. The tendency of the United Nations to be ineffective in dealing with rogue states and leaders does not bode well on the monitoring and dispute resolution side of the governance process. Even the rule making activities seems to be driven more by politics and black-mail by resource rich countries. We cannot blame anyone for taking advantage of opportunities when the time is right, provided they use it in productive competitive way. The real problem occurs when they use that advantage to do destructive things. Further, the sad reality is all governments have not always acted in benevolent ways, because those bodies large and small still comes down to individuals. Those individuals are driven by the human traits of greed, power and other self-serving characteristics.
There is obviously a systemic need to create a global monetary system. The challenge is how to make is so that it cannot be corrupted by the people that have to manage it. The Global Monetary System must be built with checks and balances that will safe-guard its integrity from corruption and self serving individuals. Similar to what the founding fathers of the U.S created, the system needs to have a structure with inherent checks and balances.