2. Growth

How important is GDP growth to human welfare? A graph of The Utility of Happiness measuring Contentment versus Average Income show a point of divergence where incomes continue to increase but separates from the relative flatline of contentment. Stated another way, no further increase in income will bring a further rise in happiness. (Easterlin, Layard, Frey, and Stutzer – Journal of Economic Behavior and Organization, 1995).

This divergence of happiness and income is showing us something important. People at the lower end of the income ladder work to meet basic needs of food, water, and shelter – their Maslow Basic needs. Some would include basic healthcare and education as part of the Maslow needs, a sort of Maslow Plus. In a modern society it is difficult to argue against this. These extra benefits are products of group efforts, not simply the individual effort required to obtain food, water, and shelter.

Those who have reached the Maslow Leisure Level may be motivated by other factors of status, power, or ambition. These characteristics are tied to what we think of as more aggressive people, so the label “leisure” may be misleading. It may be a perception of how others see them or the impression they themselves try to convey, leisurely strolling from one high-end shop to the next. Beyond that caricature, many people at the upper end of the income scale are not content to simply work for the basics and may want to focus effort on other things as well.

On the surface, maximizing GDP makes sense. Jobs should simply follow. But what kind of jobs? And at what income level? If employment were the only measure of economic health, we could hire one group of people to construct widgets and another group of people to de-construct those same widgets. We might all be employed. A more serious appraisal requires an economy connected to reality at some level in order to produce products and services that sustain us in the real world.

If GDP is not maximized, what else could be? An alternative and equally valid goal is to maximize security for an individual and the community within which they live. Security could be more important than maximizing GDP but less quantifiable, although it may be quantifiable indirectly by choices that people make.

Stability has become a mantra and de facto goal for economists and politicians alike, but stability is not exactly the same as security. Dictators like stability too and will use security – or lack of it – against their opponents in order to enhance their own security.  True security is able to change and keep up with a changing environment.

A writer from Ghana finishes his “Prayer for the Family” poem with the following:

“ . . .

This day again

you led us wonderfully.

Everybody went to his mat

satisfied and full.

Renew us during our sleep,

that in the morning

we may come afresh to our daily jobs.

Amen.”

(Sacred Poems and Prayers of Love, ed. Mary Ford-Grabowsky. Doubleday 1998)

This simple but profound prayer says much of what we wish, both for ourselves and for others, to get out of bed and do our daily jobs (GOOB for acronym lovers). It could be called “The Prayer of the Economist” since it covers the wishes and prayers of many economists as well.

A wrench has been thrown into this idyllic world: automation. Automation continues to take away jobs in the same way that farm mechanization took away the need for farm workers. Much of the loss of human jobs is to robots, computers, and automated processes. One can see this loss of jobs every day – at the grocery store, the toll taker on the bridge, the computer voice on the phone. A natural question that seems to follow would be “How do we keep people employed?”  Some countries have decreased the number of work hours per week to spread out the available hours. Such a solution may seem fair, but it is hardly the best use of the labor force. Decreased hours lead to decreased take-home pay and a widening Income Gap, neither a desirable nor optimal solution for maximizing security.

 An Economy of Information Structures – Part 1

(First in a 10 part series. Reprint of all 10 parts by request. )

Contents include:

1. Intro
2. Growth
3. The Free Market
4. The Power of Useful Information
5. Structures of Information
6. Systems
7. Power
8. Models and Metaphors – Catching Reality
9. Meaning and Morality – Politics and Power at the Local Level
10. An Economy of Information Structures – EIS

Part 1 – Intro

The 2008 financial crisis revealed an economic system that had serious flaws, causing many people to ask whether economics or the financial system need to be restructured. Was it a political problem, an economic problem, or was it systemic? Histories of financial boom and bust in many parts of the world suggest that there may be something in human nature or possibly in our economics that draw us into this cycle over and over again.

Admittedly it is difficult to change human nature but we can change the framework within which we live and think and work. This framework finds and creates information that becomes part of a belief system. Much of the restructuring can and should be at the local level with the intent of gathering Useful Information (UI). Using a broader definition of “information”, we must include not just data but input from any of the senses.

Finding and moving UI will be key in many challenges we face, especially when the environment is changing rapidly. Government creates another major, yet subtle framework within which we live and work. Even so, governments can still only supply part of our security. During long periods of stability leaders need the advice of historians and experts who know what worked in the past. During times of rapid change however, it becomes necessary to find additional new information and ideas – ideas that might come from anywhere.

In this paper we look at concepts of information flow, power, and leverage, plus information filters, structures, gradients, systems, a bit of psychology and religion.   Then we look at the four M’s of models and metaphors, meaning and morality. What is morality? What is the importance of competition? Finally we discuss what Herb Simon called the “Sciences of the Artificial” in an effort to find what other tools might be used to maximize security and create a longer lasting change.

Some words and concepts used here are defined explicitly. The reader may not agree entirely with the definition but it’s a useful starting point for discussion. A few lower case words are capitalized here to emphasize their importance. Some examples are given to clarify the concepts but readers are encouraged to consider examples from their own area of work and study.

                                   

The R-Bond Solution – The site of money injection does make a difference.

2008 and subsequent years saw a slew of bank failures. Weak economies around the world seem to be pulling us into another recession. When the Fed looks for tools to stimulate a lagging economy, they have ZIRPP’s, NIRP’s and a few QE’s as the few tools lying scattered at the bottom of the Fed’s tool box.

One way out of this dilemma might be to restrict the type of bonds that the Fed are willing to buy. If the economy goes into recession again, or if there is serious deflation, some banks will fail from over-exposure to bad debt. They will ask the Fed for a bailout. This is an opportunity for the Fed to purchase only Restricted Bonds (R-Bonds or RB’s) from any size bank rather than the QE’s in which the Fed purchased bonds only from a few large banks. By purchasing R-Bonds, the Fed could essentially underwrite 50% (e.g.) of face value of a bond. A $100 bond, paying $100 on maturity, would then cost the investor $50.

Bonds are and have been used frequently at many local levels to raise money for schools and needed infrastructure. These are for specific use and must be supported by people at that level who generally have a better understanding of what is needed.   In the case of Restricted Bonds, that bond must be restricted for use by designated type. An RB for bridges is only for bridges. An RB for schools is only for schools. e.g. An R-Bond for digging more coal would be short sighted, a fact that even people who live in coal country would realize when bankers in NYC may not.

The type of RB can be designed and chosen either at the Federal level or at the local level. Any specific RB can be blocked from implementation however, only at the local level by small cross-sectional groups of local level citizens (maybe chosen by birthdates). Local level people will have an understanding that there are limited funds, even with R-Bonds, since the local level and investors together must raise the other half of the bond money.

If RB’s can be started at the Federal or local level, the role of the States is to audit the process, making sure that the money is used for intended purposes. This process can be done expeditiously. It can save banks. It can re-direct the economy without picking specific winners and losers. RB’s can be created and sold by small and medium size banks too. RB’s can hit three birds with one stone: the economy, needed infrastructure, and clean energy.

There are other tools. The site of injection does make a difference.  An R-Bond stimulus can offer predictability for business investors. Employment must be in the areas that will help us survive and prosper. R-Bonds offer another site and a safer way to resuscitate the economy.

 

May 2, 2016