The Ownership Society

Early in George W Bush’s administration, he coined the term “ownership society” to describe his American economic vision. It was a vague term then, opportunistically so, and remains today. At the same time, a former conservative turned “enlightened” named Jeff Gates, wrote a similarly titled book to describe a similar utopia, at least incorporating working class participation in the form of advocacy for ESOP’s (employee stock ownership plans), that were darlings of enlightened Newt Gingrich and others.

It would be wonderful if by “ownership society” they meant the sense of responsibility implied in the “take responsibility for your life” social responsiblity and new age movement. Its a great utopia if you have net worth, not so great if you are of the now majority that have net debt.

In the late 90′s, I read “The End of Work”, by Jeremy Rifkin which affected me profoundly, and continues to.

His thesis was that at some stage, less and less work will be needed socially, that the vast majority of physical and institutional infrastructure will have been constructed, and there will be less need for employment, for work in general, and implied less need for productive investment, to meet human needs.

Its an enormous institutional quandry, that is manifesting in our declining economic vitality.

His thesis implied that the economy will shift to a maintenance economy.

That thesis was a reiteration of the similar Marxist thesis that improvements in productivity would lessen the amount of required work time to fulfill human needs.

The objection to the Marxist and Rifkin thesis was that human needs continue to increase, that minimum necessities continue to increase (walking to a car now as a minimum necessity, voice shifting to a phone, to now a smartphone as a minimum “necessity”).

One other objection to the thesis is that we only see what happens close to home. So, while the fulfillment of needs in the US may lessen, that is not true of the world. As China, India, all of the former third world improve their standards of living in real terms, work is performed to accomplish that.

The quandry is that in the current world, same as in the past, work is needed to survive. Families and social attitudes have not shifted. We are still expected to work, to provide for our families.

And, in the current world in which 9+% of adults can’t find work at all and many more work in jobs that do not utilize their intelligence and skills, in the current world in which salaries and wages are declining in all fields to the extent that MANY can’t afford the prevailing cost of living, the permanent relations of class are more prominent.

We distrust each other (we find MANY ways to, even those of us that preach trust), and we don’t form commonwealth’s, in which we prominently share the benefits of common ownership. We don’t commit to our families. We don’t commit to our close friends. We don’t commit to our neighbors. We don’t commit within our communities, region, nation.

In a society that needs less work to make it through, it makes sense to form socialist common ownership relationships, that are intimate enough that the obligation to contribute to society productively is retained, that allow for significant individual choice.

I personally consider one reason that the formation of local and regional social institutions happens so infrequently, is that there is competition from federal institutions. Its great that there is an insured confident safety net. Its horrible that it is administered so remotely, so anonymously, fostering dependence rather than inter-dependence.

In Franklin County, in Windham County, in Amherst now even, the local economy is in the doldrums. While policy makers go to cities to discern that the economy is stagnating, it is true and absurdly true locally, rurally.

We’ve not shifted to a commonwealth of God-given natural resources as the basis of our rural well-being. There are no community owned forests – not even private CSF’s (community supported forests). No community owned farms.

In and efficient social-owned economy, what level of work would be required to be contributed (equivalent to a military reserve obligation), 24 hours/week maybe? to provide all of the food needs, shelter needs, heating needs, transportation needs, education needs of the community for all its public purposes?

That social reality could be instituted by a 50% tax on income beyond living wage (maybe $12/hour) that provides minimum necessities for all. Improvements to the standard of God/nature given solar income accumulated over millenia, could be privately paid for by virtue of work beyond the 24 social hours.

It could be voluntary. How would we get a cooperative society moving along?

Drops of private agreements encouraged with open non-exclusive invitations to new participants, or voluntary or mandatory institutional?

I don’t care if this sounds like the meanderings of a 22 year-old.

Naomi Szinai

My mother-in-law Naomi Szinai died this past Saturday, of complications from an obstructed colon and of heart failure, in the Royal Free Hospital in London. She was 87.

She lived a life, a journey that we need to remember.

Her family was descended from world-renowned Torah scholar rabbis on her mother’s side (I believe). Her father’s side was also descended from rabbis, and her father had received rabbinic ordination (smicha), but practiced his career as a doctor in a town about the size of Greenfield, MA (my home town), in rural Hungary.

For the first few years of her life, she was fairly well off, middle class. Her father was one of two doctors in the town, relied on by all in the town. She had a close family. There was some anti-semitism in Hungary in the 20′s and early 30′s, with a fascist government in power, but it was manageable.

When Hitler came to power first in 1933, and then later consolidated power and began instituting persecutions of the Jews in Germany and later Austria and Czechoslavakia, Hungary was one of the independent allies of nazi Germany. Still, Jews’ life did not change as significantly. There was more social permission to express anti-semitism, and suppressive laws were introduced, and enforced more vehemently. The Hungarians did not initiate the zeal of genocide that the nazis instituted. (In 1944 though, Eichmann remarked that the Hungarians were more enthusiastic to ship the Jews out to the camps than even the Germans or Poles). Even though her father was not legally permitted to practise as a physician, he still practiced under the table and for barter (one of two doctors in a town of 20,000. Somehow they thought that it was better to have only one doctor, than two doctors one of whom was a Jew). Jews were permitted to live in their homes and partially practice their professions and own some personal property. Noone was herded into ghettos like in Poland or elsewhere.

My mother-in-law and her two younger siblings went to school, oriented to science more than religion or anything else.

In 1944, Germany grew impatient with Hungary, that their fascist government wasn’t suppressive enough, and invaded.

It appeared that they did so mostly to complete their genocide of Jews and Gypsies.

The very young, old, ill, dissident, “deviants”, were shipped to Auschwitz and other death camps. The young were put to work.

My mother-in-law and family worked in slave camps (I don’t know the details). In late 1944, when it became obvious that the Germans would lose the war, they expedited their genocidal efforts, and organized “forced marches” of the former slave labor to the death camps. My mother-in-law had gotten separated from her father and brother, but her mother and sisters were with her. During the march to the death camp, my mother-in-law organized a small escape, and slipped away, arranged false papers, shelter, and food for her family.

My simple worrying mother-in-law. Survived.

The area where she was was liberated by the Russians, but the Russians basically abandoned the people they had liberated, and she was able to get her family to the US sponsored displaced persons camp.

Following the war, she tried to return to her former town and home, but the home was occupied. Even though rented, the new residents refused to give back any of the stolen belongings (clothes, furniture, animals) and the returning refugees were chased from their towns, some killed.

In the big city of Budapest, they could find a way to survive. There was a large Jewish community, somewhat of an economy, and Jews were again permitted to attend university.

She studied (I don’t have a clue how she financed it), and earned a degree. She met her husband (who died before I married my wife) in Budapest at university.

In that time, Hungary adopted communism (in a corrupt process). A large number of the communist officials were Jewish. Still, practicing Jewish rituals and religion was prohibited.

My mother-in-law arranged for members of her family to travel overland to Italy, and after Israel achieved independence, traveled to Israel and was one of the pioneering youth.

Her father served in the Israeli public health service. Her husband received a PHD from the Hebrew University in chemistry, and they lived in a garage on an army base, I think near Jaffa. They were poor, food was rationed. Even with their relatively prominent positions, they lived in some deprivation. The time was heady, inspiring, motivating.

But, there was terror, and overt war. My wife’s father was some combination of haunted, ambitious, impatient, authoritative, and after serving in the 56 war, arranged a position with a pharmaceutical firm in England. The family moved there (with my wife, then 1 year old).

My mother-in-law was a housewife and mother for a few years, but later took professional positions in government and public health where they resided.

The family moved frequently due to her husband accepting research and then professorship positions in pharmaceutical chemistry in different parts of England, then Gainesville, Florida.

I don’t think my mother-in-law liked moving so frequently, particularly to Florida. (My wife didn’t.) After her husband died from either a freak accident or questionable cause of death (noone knows exactly), she moved to London to a predominately Jewish upper middle class neighborhood where she lived for the last thirty years.

In London, she was home. There were many Hungarian speaking neighbors and friends, little crime, good local shopping and public services nearby.

Over time, illnesses first restricted her movement. (She suffered a hip breakage in her 70′s, then a two botched hip replacements.) She had heart problems. Then the most unpleasant malady over an extended period was severe intestinal problems over a few years.

When I last saw her in 2009, she was gaunt, grey, weak, old. A very different woman, outwardly, than I knew from visiting previously (only a few times sadly).

Speaking to her on the phone when she grew weaker and weaker upset me. I knew she was dying.

Although Naomi and I did not get to spend much time together physically, I felt sincerely very close to her. We talked often on the phone. I was often a mediator between my wife and her. I loved that we would call each other just to speak with each other, not to speak to my wife, not about some family drama, not about my kids, just us. I considered Naomi as one of my closest friends, honest, unpretentious.

Knowing a little of my mother-in-laws experience, my son inquired into the history of the holocaust at around 18. He visited Israel and Yad Vashem, and it affected him severely emotionally, reading the names in the MANY volumes there. (I’ve never been to Yad Vashem.)

When he returned from Israel, he moped around a bit, talking often about nagmama (Hungarian for grandmother) and in despondent tones. I told him that the most important part of her life, was that following her traumas, she LIVED. She didn’t respond with despondency, but with care and vitality.

She did not adopt hatred in response to her experience. Even though Hungarian neighbors cheered as her family was driven to the camps, she doesn’t think of Hungarians as evil, complicit. Partially because she was saved by brave Hungarian families that sheltered them after her escape.

Similarly, she did not adopt a hatred of Arabs, even though she experienced wars and animosity.

In the few days of sitting Shiva that I was able to attend, a few family members and others that knew her in Hungary and Israel came by. I heard different, but similarly chilling and inspiring life stories. Her brother Imre. Cousins whose names I don’t remember, one of which is a hasid from a different sect from my son. A few neighbors.

Not a movie script story. A life story.

Thank you for living. Thank you for being a close friend. Thank you for birthing and parenting my wife. Thank you for your financial help at times. Thank you for appreciating and helping my children.

Good-bye. Rest in peace.

 

The Source of ALL Cumulative Wealth

There are literally only two sources of wealth on the planet.

1. As a result of nature’s gifts (utilized for purpose)

2. As a result of work (utilized for a purpose)

From that, wealth is only useful for two things:

1. For current social well-being

2. For future social well-being

No wealth comes from capital. (Sorry to sound like Marx.)

Some (perhaps even a great deal of) wealth comes from the work of the choice of where to put capital to use.

No wealth comes from idleness (Sorry to sound like a rabid conservative). What people do with time that they are unemployed or unable, can be a contribution to society.

People are idle a lot. Leisure. Even working people are “idle” 60 hours of their weekly waking life.

In an average person’s life, they are idle (not contributing to economy) for the first 22 years of their life (college educated). A lot of expenditure for future contributing life (a form of human capital, in contrast to social[ly-owned] capital). They are idle 60 hours/week of their working life (reasonable). They are idle an average of 20 years of their retirement life.

So, in summary, between preparing for contributory life and relaxing after contributory life, most individuals are fully idle for half of it.

One definition of adult life is the transition from preparatory idleness to socially contributory. That is the liberal definition.

The conservative definition of adult life is the transition from others taking care of you, to you taking care of yourself, and to you caring for others.

If high unemployment is acceptable (the conservative view), that there is no moral social obligation or even social virtue (through any agency) to universal employment, then there will end up not being a path for the conservative virtue, the ability to universally take care of yourself and of others.

In Greenfield, we are in trouble. I’m in trouble. My neighbors are in trouble. We are eating our seed grain.

 

Working on improving economic health – Ecology of economic scales – Throwing the dice this week

My goal is get people to think about what  would engender financial health (at least) in society as a whole.

Today:

What does the economy of a healthy neighborhood look like? What projects are appropriate and essential/desired at that scale?

Food

Shelter

Home heating

Small household needs

Household services

Transportation

Health

Education

Electricity

Communications

Clothing

Insurance

Entertainment

Exercise

Charity

Governance/law

Spirituality

Friendship

Deaths

A wide range of concerns. Its obvious to me that unless I intentionally meet my neighbors and form arrangements about each of these issues, they won’t form by magic. Its also obvious to me that much that needs to happen in the world, must happen at the neighborhood scale.

Some neighborhoods have actual associations to facilitate these needs. Lets also talk about how to start them.

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The Ecology of Economic Scales – Roles

I’ve noted that there are eight economic scales that I am a part of. Each of the economic scales have economic activity that is natural to that scale, and constitutes its health At each economic scale there are three modes of economic interaction: compulsory contribution, exchange/market, commonwealth.

Individual

My individual health is measured by my physical condition, free from disease, ability to function physically, clarity of mind. Economically, I require minmum necessities, some entertainment, some spiritual life, access to transportation and communications, interaction with family and friends, interaction with those I contract with and colleagues, sleep, leisure, good work to do.

Family (Witty’s)

My family’s health is measured by the composite of the individuals within my family (self, wife, children, mother). Within my family, there are some chores and contributions that are compulsory for each individual to contribute. I and my wife are responsible to contribute a minimum monthly amount towards minimum necessities. I and my wife must contribute some household maintenance effort, cleaning, paying bills, errands, shopping. There is an element of exchange in which compulsory efforts we will each do. We each have some self-assigned regular tasks.

Neighborhood (East of High Street, below the Rocky Mount ridge in
Greenfield, MA)

My neighborhood’s health is also measured by the composite of the individuals within the neighborhood. Our neighborhood really doesn’t have a coherent economy or society. I know my neighbors and look out for them a little, but we don’t have any property in common, nor really any exchange, nor any compulsory work.

The neighborhood though is the most intimate social network that is outside of one’s home. It is the area that MANY cooperative ownership efforts should occur. (Cars, leisure, food buying clubs, cooking groups, energy generation, community gardening, etc.)

Community (Greenfield, MA)

Once at the community level, 20,000 people in the case of Greenfield, we are passed the intimate scale, and into the mass, the statistical. Its really impossible to care for every individual (like it is possible to care for every individual within a neighborhood.) The community is still close, and most retailers will know their customers individually.

It is the scope for most retail, groceries, clothes, etc. The town government comprises the extent of actual commonwealth. There are a couple cooperatives, but they are mostly retail businesses, more than shared wealth. We pay compulsory taxes, and realize the collective benefits of schools, police, library, etc.

Micro-Region (Pioneer Valley – Northampton, MA to Brattleboro, VT including Amherst)

The Pioneer Valley microregion is the site of many intentional community linking norms. Years ago, we had a local currency that suggested serving the Valley micro-region. It could be revived or started anew. There is no formal micro-regional governmental entity (now that counties have been dismantled in Massachusetts), and there is no really micro-regional scale commonwealth (except what is under the state umbrella).

There is much more inter-regional trade occurring relative to the Valley, particularly in education, but also in manufacturing. Employees serve the institutions micro-regionally, via 20 or so town residences comprising bedroom communities. The majority of the region’s economy is constructed of these micro-regional inter-regional exchange.

Macro-Region (New England)

According to the best of regional economy theory, New England should be the scale size that serves the majority (literally) of the industrial needs of its residents. Cars, refrigerators, food, building materials, should be regionally supplied, resulting in functional regional economic independence. But that is a ruralist economic model, not the urban.

It is possible in New England. We have excellent farmland, suitable industrial building lots, well-educated populace.

Again, there is really no New England scale commonwealth, though the states may provide that macro-regional function.

Continent (North America)

Some needs can only be met at a continental scale. While the siting of manufacturing plants can be local, the siting of some industry must be continental, or maybe bi-continental (west coast and east coast). The national scale serves what would otherwise be continental in scope. It provides a globe-like marketplace. That the federal scale marketplace swamped regional even before globalism draws a parallel to continental great cities whether American or global.

As conservative as it may sound, we need protection from the mass national marketplaces, as much as we need protection from the mass global marketplaces. States don’t do it well. Federal law regarding interstate commerce, has stripped the ability of states to regulate. And, the giant scale of federal legislation and institutions, corrupt the processes that could otherwise result in universal regional health.

The continental scale say for agriculture should be a secondary insurance against local draught or blite, not the other way around. Similarly for manufacturing or materials availability.

Globe

Its too big for things, great for ideas. Lets leave it at that.

Fully Occupy your HOME (s)

I haven’t been following the “Occupy Wall Street” movement very closely.

Nor have I been following the anti-occupy Wall Street denunciations at all. I saw some acknowledgment of the movement on the Sunday news shows this weekend, and the concensus of denunciation and/or dismissal by the talking heads.

I enjoyed the glee that Christiane Amanpour expressed in her sympathetic laughter at the occupy Wall Street’s representative’s comment that he was the only member of the actual working class to have historically appeared on her show.

The rational criticism that I have heard of the demonstrations is that they are only a beginning identification that something is wrong, but with limited credible framing of analysis and with limited framing of proposal for improvement.

I personally believe that the remedy for our long and short-term social ills rest in the discussion of social scales, that comprise an ecology of social scales with varying roles, possibility, importance.

Each social scale constitutes a setting for BOTH individual initiative AND for shared commonwealth.

There is sufficient commonwealth between all of the social scales (if given enough attention to be a healthy) to ensure that no individual is any irreconcilable fundamental risk (except perhaps personal health) and has a path for commerce and for principled contribution to the greater good.

The current framing of an individual’s economic and work like, is primarily, individual entity relative to “the economy”. “The economy” is global, and requires participation in the scope of institutions that can compete in the global economy. The global economy includes niches that are not of international/global scope, but over time the niches diminish, incorporated into the market of global institutions.

Globalism in that sense destroys the ecology of scales that comprise a healthy portfolio of solutions. If all of the regional solutions to food problems say are non-existent, that only the global specialized supply chain is in effect, dependent on fossil fuels in particular for transit, fertilizer and chemicals, then if there is a disruption to a primary commodity, there is then NO resilient response.

If our agricultural land is consumed by sprawl tract homes, if there is a real crisis in fossil fuel supply, if there is a new blight in mono-cropped corn fields, then we don’t have the flexibility to respond to external challenges.

If however, there is a viable and functional regional food distribution system, alongside a healthy global food distribution system, then an obstacle in one sector just diverts the supply path through a different channel. A blip rather than a catastrophe.

So, what is that we are, what is that we are part of? (to quote an Incredible String Band song from 1969).

We are part of:

Families (say the Witty’s)- With economies within families, comprising BOTH a market exchange system AND a commonwealth that all members are shareholders

Neighborhoods (say precinct 5 in Greenfield, MA under Poet’s Seat)- With economies within neighborhoods, comprising BOTH a market exchange system AND a commonwealth that all members are shareholders

Towns (say Greenfield, MA) – With economies within towns, comprising BOTH a market exchange system AND a commonwealth that all members are shareholders

Micro-regions (say Franklin County or larger the Connecticut River Valley between Springfield and Northfield)- With economies within micro-regions, comprising BOTH a market exchange system AND a commonwealth that all members are shareholders

Macro-regions (say New England) – With economies within macro-regions, comprising BOTH a market exchange system AND a commonwealth that all members are shareholders

Continental (say North America) – With economies within North America, comprising BOTH a market exchange system AND a commonwealth that all members are shareholders

Globe (say earth) – With economies within the globe, comprising BOTH a market exchange system AND a commonwealth that all members are shareholders

Right now some families function dually as both individual exchange systems and commonwealth. Some emphasize one over the other, even to the point of exclusion.

Fewer neighborhoods have really ANY organization or commonwealth or even exchange economy.

Towns have some markets, and some commonwealth in the form of municipalities, but MANY of the them are economically weak to the point of dysfunctionality, and don’t conceive of themselves as a commonwealth, but only limited constitutional obligations.

Micro-regions have some markets, but very very limited commonwealth that anyone can truly participate in. (In Massachusetts, the Boston-centric legislature determined that counties are archaic, unnecessary, an additional bureaucracy with fixed costs. That is well and good for Boston for which the suburban counties should be unified in a planning system with the Boston counties themselves. But, it does not serve Western Massachusetts well at all, for which counties are coherent governing and market scale entities.)

States are our current macro-regions, but they are residual of pre-constitutional literal states, 18th century British colonial residue.

A better form would be macro-regions. In any case, there is commonwealth and some distinct markets within states, but again, states are horridly stressed financially, and don’t often constitute a confident commonwealth, providing a safety net.

Similarly at the continental and global scale. There is some market function and some sense of commonwealth, whether distributed to individuals or universally providing capital in various forms to needed regions, communities, families.

There is a valid republican/ conservative criticism of national only setting of commonwealth and safety net. But, the criticism is only a only a partisan griping currently, and NOT a constructive proposal for an ecology of  universally healthy functioning families, communities, towns, micro-regions, macro-regions, globe.

Markets AND commonwealth at each scale.

Seminars – Brattleboro Thrives

Cancelled, or at least postponed. I’m leaving it up as a good idea.

Beginning Monday, September 19th, a series of networking seminars will begin at the Hooker Dunham building conference (2nd fl), at 139 Main Street, in Brattleboro. (Continuing the first and third Monday’s of every month).

10:30 – 12:00 Entrepreneur’s Peer Support – (21st Century Business Roundtable) – Stay late and “don’t eat lunch alone”

12:00 – 1:00  Don’t Eat Lunch Alone (DELA)

1:00 - 2:30  Brattleboro Angel Investors Consortium – Come early and “don’t eat lunch alone”

6:00 – 7:30 Personal saving peer support group

We need to talk, imagine, organize, enterprise.

Brattleboro Vermont is a very interesting town, the site of my satelite accounting office.

Brattleboro faces some challenges, similar challenges to many towns in New England, and very similar to Greenfield, though different in ways.

Brattleboro has experienced the affects of a couple recent disasters. There was a major fire in town at the beginning of the summer that destroyed a downtown city block, stores, apartments. It is being repaired but very slowly. That there are still vacancies in offices and retail even with fire victims looking for alternatives, is a bad sign for the town.

Last week there was severe flooding from tropical storm Irene, which rendered another block of downtown unusable currently. Worse, flooding severely damaged east-west roads across Vermont, isolating “suburbs” and summer home towns from Brattleboro. A large part of their economy is disturbed.

Finally, there is the prospect that a major employer and property tax provider, Vermont Yankee Nuclear plant, will close. There is a raging legal fight between the plant’s owners Entergy and the state over whether the state has any jurisdiction over its relicensing permit, or if it is only a federal jurisdiction. I am opposed to nuclear energy, and every year that the aging plant remains open, it becomes more fragile in components that are impossible to replace or repair, increasing the risk of accident. (Nuclear accidents are severe, not minor. Even a moderate risk, rather than infinitesmal, is too much exposure to the town.)

This is a lot.

The common threads are that there is limited industry and limited even intra-regional value addition occurring.

Most of the commerce in town is conducted by large retail: grocery chains, office supply chains, tax preparation chains (my competitors). There is a thriving co-op, currently constructing a large retail store, and office complex downtown. There is some industry, some media, but also a great deal of “value-addition” in social services. Also, there is a very affluent group of urban professionals and wealthy with vacation homes in the area, that drive up the cost of housing, and do spend some money at local restaurants and retailers.

Unlike Greenfield, which is also a bedroom community to Amherst/Northampton and local private schools, Brattleboro doesn’t really have a big network of commutable employers close. Some commute to Keene,and there is some large food warehousing operations locally (but much of that has been off-sited.). There are a couple small colleges in the region, but nothing of the scale and affect of University of Massachusetts, Smith College, Amherst College.

Greenfield also has a thriving community college, which is absent in the Brattleboro area.

The community is a combination of long-term yankees (rich and poor) and now aging old ex-hippies (rich and poor). The “new ideas” that circulate are from the sixties and seventies. Vermont is further from “civilization” than Greenfield, and the cultural difference between the two communities is greater than the actual. Many that have settled in Brattleboro do so to “get away from it all”. (Still Brattleboro is closer to urban centers than the remote smaller towns, and many originate outside of Vermont, unlike in other cities like Rutland or Montpelier.) There is a rural “utopian” feel to the thinking. Sadly, among those that were the progressive utopians, there is a morphing also to stoic endurance (a Yankee virtue) and some hopelessness.

There is a feeling of distrust here, expressed in many ways, by many people. Innovation is not encouraged. Although one would think that there would be a vibrant entrepreneurial culture here, new ideas are distrusted. The wealthy with summer homes don’t tend to invest in any local efforts, and there really isn’t a forum for entrepreneurial brainstorming or mentoring.

I hope to contribute to changing that.

What does a community need to innovate, to thrive?

1. Capital

2. Skills – Direct trade skills and knowledge, administration, decision-making, customer service

3. Motivation and encouragement – Respect and active support of entrepreneurship

4. Communication path from provider to prospective customer

5. Good siting  and available office, manufacturing or warehouse space

6. Professional and surge labor support

The world is different than it was than when Brattleboro thrived as a downtown. Its even different than when Brattleboro sprawled.

It is possible for Brattleboro to be independently healthy economically, and have a complement of great services and culture to offer to part-year residents.

It won’t happen without work. And the work won’t happen without thinking and brainstorming.

An Ecology of Currencies

I don’t know enough about the European Union to comment much. I rely on more knowledgeable people to explain what is going in Europe and in international banking.

I do know that Europe formerly had strong divided nation-states, that allied, warred, each with independent governments, tax and fiscal policies, currencies (and defined on very different bases).

Now, Europe has a single market, no customs restrictions, no immigration restrictions, functioning with a single currency. Some countries continue to use two currencies (England), but the Euro is legal tender in all of the European Union.

It is more confederated than the United States was before the US Constitution was drafted and ratified. But, each state’s role in the European Union is more independent and significant than states’ roles are in the US.

There are US states that have larger budgets than some even major European countries, and a default on a state’s debt would be devastating. Many states are stressed financially, and a default on some state’s debt is a strong possibility, especially in a localized or generalized double-dip to the current recession.

The combination of unified currency but independent governments is regarded as the cause of the current global banking crisis (that resulted in 14% drop in the global stock market valuation in 3 weeks, and that was without an actual default). European countries are known to have a strong social welfare orientation. There is some racial and regional division though, as the northern countries are regarded as fiscally confident siting the combination of “strong work ethic” with social welfare state, in contrast to the accusation of Greece, Italy, Spain, Portugal, Ireland, as not having a strong work ethic, but only the social welfare expectation.

I don’t know if it is true or not, or how anyone could assess even.

The accusation is that the south borrows without hope of repayment, without hope of working their way out of debt, while the north borrows with the hope of working their way out of debt.

Europe is in a state of tension now though. There are times when it looks like the whole European Union could devolve or even dissolve.

If each country reestablished their own national currencies, in addition to a strongly backed Euro that can be exchanged back and forth, that might be a good thing, even if the Euro is valued at a premium. (ie statutory 2 -3% exchange premium favoring the Euro over national currencies).

While the integration of Europe is a jewel (international travel is easy, work permission is easy, cosmopolitanism reigns), there are severe problems with the dominance of continental scale economy over an ecology of market scales that includes continental but also regional and local.

The United States is the teacher. When the US Constitution included the “commerce clause” permitting non-tariffed inter-state commerce, the scale of the US economy became continental (after completion of “manifest destiny”). The rationale of economic management determined the scale of market served by different organizations. When the costs of communication and transportation reduced significantly, all limitations to continental commerce disappeared.

There was a natural tendency towards economies of scale, which came to include all facets, not just siting and manufacturing economies of scale. With the implementation of continental media and advertising, economies of scale came to apply to manufacturing, logistics, marketing, ownership.

Now, the supply chains and markets are global. But, it took a long time to even extend continentally, and only culminated at the end of the 20th century, with the presence of ubiquitous global retail. Before then, regional retail was the largest scale.

The consequence was the demise of regional enterprise, regional retail, regional manufacturing. The social consequence of the demise of regional enterprise, is a dangerous economic fragility resulting from reliance on single or very few alternative paths. If there is a bankruptcy, a natural disaster, a war, that affects a fundamental commodity or supply chain, billions of people will go without.

In the finance world, so much is interdependent, multiplied by the valuation process of modern finance (a million dollars profit doesn’t add or subtract a million dollars to a company’s valuation, but ten million), and still reliant enormous leveraging (speculating using borrowed funds). So, the threat of default of one thousandth of the world’s debt, sends the valuation of all financial entities’ stock value down 10%, one tenth.

In contrast, a setting of ecology of currencies, currencies functioning at multiple social scales, encourages the development of intra-regional trade that gets very thick in value-addition and potentially universally.

In the states, that would work by the presence of the national currency – dollar, combined with say a New England currency, combined with a micro-regional currency (Pioneer Valley), combined with local currencies.

Banks would exchange currencies at a premium for the larger scale. For example, although the New England currency would be stated as NE$ and required to be accepted by retailers at the same valuation, it might be redeemed at .96/dollar. Similarly, the Pioneer Valley currency might be redeemable at .96/NE$ or .92/$. And, the Greenfield MA currency might be redeemable at .96/V$ or .88/$.

Banks could then profit on the issuance of local currency, but the local economy would be enhanced far beyond the loss in currency premium, by individuals exchanging very thickly locally and regionally, particularly on value-adding labor-intensive economy that results in enhanced employment.

Just a thought.

Mediocrity of Governance – Choices

We have a mediocre, but very expensive, government.

We have neither good socialist governance, nor good libertarian.

We have neither a confident safety net, accompanied by full employment, nor an open entrepreneurial playing field with confident volunteer or peer constructed safety net.

And, neither is proposed Actually, BOTH are proposed by rational democratic policy makers.

From the libertarian perspective, our tax rate is too high. The government has and continues to pay for things that are social in nature, not mandated by the constitution. It is too high due to prior commitments and expenditures over a long long extended period, (amped up by powers of ten under the Bush administration).

The natural tax rate for an “originators” constitutional obligation would be in the 14% range, if that. But, that would entail renouncing the US role in world affairs, thereby decreasing the defense budget and establishment, and also renouncing defense of critical US supply chain for oil, minerals, labor. We would have to be self-reliant, which we are nowhere near close to.

Further, the US would become a banana republic, in which private militaries overwhelm public and lawful. Mexico would be our model.

Free enterprise. Hard to know if universal regulation and disclosure would prevail, or only contracted or subscribed regulation and disclosures would.

In a libertarian society, there are still options for voluntary social welfare associations, permanent ones, that could resemble, or even improve on the ones provided by the federal government.

In a socialist society, the government and/or voluntary associations, would provide for full employment, primary personal and infrastructural needs (water, food, housing, energy), cradle to grave. The worst that anyone could experience is boredom.

The natural balanced tax rate in a socialist setting is in the range of 40%. There would still be affluent and somewhat stressed, but not the absurdly affluent acquiring primarily power, and the desparate poor.

The Clinton middle ground, with average tax rates of 30% is a balanced middle way.

Not a lot of “we” feeling going around among leadership. The insistence on government not paying one’s way and simultaneously demanding reduction of deficits, is just wierd.

Its been a long time of overspending, of not paying our way. Fighting two simultaneous unfunded wars at $100 billion/year for ten. Stealing (borrowing) from the social security trust fund as if they were simply government revunues.

The federal government is attempting to go corporate, cynical corporate. The one’s that declare bankruptcy to void pension obligations.

All, in the name of being a “promise keeper”.

Nervous?

“We’re not going to default”.

Just a lot of drama, of no real consequence. Just a lot of noise in the system.

Bull.

The only way that the federal government will get to and remain solvent, is if they orient their discussions over the accrual basis financial statements of the government, and frankly almost ignore the cash basis ones. And, further, oriented to cumulative surpluses and deficits over the relevant business cycles, not only over a single year.

What is an accrual basis financial statement?

In a nutshell, it describes income and expenses as the consequence of promises to the federal government and promises by the federal government, based on economic activity that has occurred during the year in question.

That contrasts with the cash basis financial statements which record the cash income and expenses. If as a result of events this year, I realized $50,000 in income, but I incurred pension and health care obligations into the future of $100,000 that I will eventually have to pay for, I’ve lost money in fact (even if it didn’t come out of my checkbook this year).

The cash basis income includes actual individual tax receipts, corporate tax receipts, social security taxes, medicare taxes, medicare co-payments, duties, estate tax, licensing, sales of federal assets, etc. It is the actual money that is received.

Similarly, the cash basis expenses include actual payments to military, veterans benefits,  federal contractors, Congress and staff, Presidency and staff, judiciary and staff, agencies and staff, social security payments, medicare payments, aid to states, etc.

If tax receipts based on current year activity is deferred, then that is not an item of cash basis income. If commitments based on current year activity is deferred, then that is not an item of cash basis expense.

The deferred expenses enormously exceed the deferred income.

Deferred expenses include future social security payments (based on the expected payout over the life of individuals that work now and contribute to the theoretical social security trust fund now), future medicare, future veterans benefits (nearly as large an expense as a result of the Iraqi and Afghanistan wars, as the actual expenses incurred), pension expenses for federal employees.

The computation of deferred income and deferred expense is a very complex determination. I doubt that any living individual can even conceive of it (though the treasury secretary is responsible to, and someone is responsible to sign off on the audit of the financial statements of the US government).

No corporation runs on the cash basis. Any that publicly presented their results of operations on the cash basis only would be sued for violation of SEC requirements and gross misrepresentation.

During the Clinton administration, although the government operated at (my guess) approximately an average of $100 billion cash deficit, (the best of any administration in the last 50 years), the average accrual basis deficit was closer to double that much, that severe. (The accrual basis financial statements were only required to be prepared from 1997 on, so the data below doesn’t reflect the first four years of his presidency. The last two years were in accrual basis surplus, not only cash basis.)

During the Bush administration, although the government operated at an average of $400+ billion cash deficit, (3.2 trillion) the cumulative accrual basis deficit was literally 1.8 trillion worse ($5 trillion real deficit) as a result of government legislation, policy and external events.

The overwhelming debt occurred grossly over that time period, literally nearly bankrupting the nation.

I don’t know how professional accountants lived with it, how Big 4 consultants accepted in good faith the recommendations to reduce taxes and spend on military adventures, at the same time.

I don’t know how the Congressional Budget Office and a gamut of think tanks IGNORED the reality in front of them, willingly shutting up.

These results are from the Financial Reports of the US Government.

Net operating cost is the accrual basis annual results give or take. The deficit is the cash basis result give or take.

A positive number is a surplus, a negative number a deficit.

	Net operating cost	Deficit	Administration
1997	-2.6		Clinton
1998	-109.9		Clinton
1999	101.3		Clinton
2000	46		Clinton
2001	-514.8	127	Clinton/Bush
2002	-364.9	-157.7	Bush
2003	-665	-374.8	Bush
2004	-615.6	-412.3	Bush
2005	-760	-318.5	Bush
2006	-449.5	-247.7	Bush
2007	-275.5	-162.8	Bush
2008	-1009.1	-454.8	Bush
2009	-1253.7	-1417.1	Bush/Obama
2010	-2080.3	-1294.1	Obama

http://www.gao.gov/financial.html

During the period reported during the Clinton administration, the government operated at a net accrual surplus. In other words, the federal government adequately funded its operations over that business cycle. Immediately after Bush became president, that changed. A recession began at the beginning of his administration, 911 occurred greatly precipitating the recession.

BUT, Bush entered two expensive and remote wars only incidentally relating to direct threats to the US. (Al Quaida was a threat, but the 911 event was a lucky fluke for them, that could have been prevented with an increase in national security spending of perhaps $20 billion/year, not the $80 billion/year spent). The Iraq War was utterly unnecessary.

AND, rather than funding those wars by increasing taxes, he did not fund the wars at all, and instead reduced taxes. Although the economy came to do well as measured by the stock market, the gains in the stock market realized were barely taxable.

So, we saw large cash deficits and much higher accrual deficits during the best of economic times, with a clearly predicted bulge in obligation coming.

This was Joseph in reverse. Rather than preparing for anticipated famine during the best of times, Bush opened the stores of seeds to the vermin. (Sorry for the gross polemic language).

In 2008 and 2009, the best of times ended, and we saw enormous cash and accrual deficits.

Obama inherited the idiotic war policies, the idiotic tax policies, the idiotic fiscal policies.

Its now a 100-year fix. The cash deficit cannot decline significantly without breaking all promises, rendering all legislative enactment (our democracy) void. So, there is a 20 year tide to swim against.

Or, the federal government can devolve to my credit rating.

But, “no new taxes”.

Among the Congress, out of 550 members, I’ll bet that maybe 50 of them even know that the federal government issues accrual basis financial statements. That is our “leadership”, our “stewardship”, our “governance”.