This is econ 101:
when a family is richer, its older workers demand higher wages to stay in work
and its younger workers demand higher wages to take a first job. The dynamic
contracts available jobs unless offset by an equal or greater rise in
productivity.
— Edmund
Phelps, Financial Times 11 January 2012, 2006
Nobel Laureate in Economics
Late
in last
weekÕs article I used an archaic word, which at the time I had not noticed.
But shortly thereafter, I wondered if any American still understood what I was
writing about and even if they had an inkling of its meaning, if they could at
all grasp the implications of what that word, if really put into practice,
would actually do to the economic muddle we now find ourselves. Dear readers
that word we donÕt hear anywhere anymore is: decentralization.
In
my lifetime the United States of America, has become really the federal
government unitasker of the world and its current and potential prosperity.
There was some talk within the early days of the Tea Party and the talking
points of Republican candidates for the presidency, about states rights; and of
course Ron Paul and his libertarian base speak of smaller government and in
favor of individual rights, sometimes bordering on anarchy. The word decentralization
however is to be found nowhere in anybodyÕs conservative lexicon.
As
far as Barack Obama, the liberal-progressive-left and the Democrat Party, it
seems that they think there is no problem that more government spending will
not cure, particularly if it originates within the federal government
unitasker, an then forces the un-sovereign states to fund what the federal
government doesnÕt have the political will or the constitutional power to
implement.
Furthermore,
like all elitists of their persuasion, they believe that new wealth can be
created, as do most Republicans, through tax incentives to crony capitalists,
which through mergers and acquisitions, will provide the economic basis for the
continuing growth of government programs, including entitlement programs and
wealth redistribution.
Late
Sunday we posted a short video from CNBC last Friday
with Edmund Phelps, whose quotation above, from a recent article in the Financial
Times, begins our discussion this week. In that video he speaks of the role of
particularly southern European governments who sponsored wealth creation for
their citizens through entitlement programs, yet through unintended
consequences are linked to both a decline in national productivity as well as a
significant cause of the euro crisis.
If
you back up and try to put this into context of what is happening in the United
States and the world today, what I think he is really saying is something like:
Since the end of World War II, the
western democracies, using federal government programs financed by deficit
spending created the rise of the perceived wealth of their citizens, which
increased significantly faster than the true wealth generated through gains in
productivity and entrepreneurial new wealth creation.
In
stark terms these were and are international, national-state government
sponsored Ponzi schemes and now that the original investors are beginning to
want to draw on their invested funds, they find that their hard work and
diligence has only created — well nothing tangible but IOUs.
We
are told the solution to this malfeasance is to be cured through austerity,
which is supposed to be paid for by enhanced national economic growth, which is
severely impeded because of the need to pay the back previous debt and bad
loans. This yield curve historically leads to some mixing of inflation and/or
default. This time is not different, and producing smoke and mirrors, and
hoping the wizards behind the financial screen will this time pull off a true
miracle, perpetuates the illusion and perhaps an eventual normalcy of deviance
event.
A
true global normalcy of deviance event, by the way, would make the time of the
Great Depression look like general prosperity — so it is typically better
if we just ignore that possibility. However if you look at this in the context
of economist Joseph SchumpeterÕs Òcreative destructionÓ this is just what is
needed to recreate an economic world truly based upon the title of this weekÕs
article: productivity, efficiency and decentralization.
In
contrast with our current economic world, the natural world, or as we apply it
in Business Ecology, is truly based upon those three synergistically linked
terms. To illustrate let us look at a simple economic model based upon a river.
The
first thing we should note is that our natural river is really an energetically
open system. In that I mean that all of the energy the drives the ecosystem
ultimately derives its energy from the sun. That includes the hydrologic cycle
that causes the rain and snow to fall, as well as the direct Òprimary
productivityÓ of the plants and other organisms that utilize that solar energy
to create natural growth. This fixed carbon, can then be utilized by more
advanced organisms in what is called secondary productivity to create the world
in which we live and have our being.
To
continue to function, this whole river ecosystem and the terrestrial ecosystems
that surround it, are this way by design, and over time develop greater
efficiency and decentralized complexity. As a Christian that is the way God
designed it, including at our human level.
Evolution
says nature must work from this decentralized complexity to more centralized
simplistic complexity, which was essentially the basis of the progressive
elitism that gave us both the collective (government) elitists and the laissez
faire (business) scoundrels. Together as cultural antagonists they
synergistically destructively evolved the worldÕs current floundering economic
Ponzi scheme.
Back
to the river. The old Ancient Mariner quotation, water, water everywhere,
but not a drop to drink, is also a
twenty-first century truth and plays a very distinctive role in our future,
because potable or fresh water, not energy, is the most limited resource on the
planet. Other than the following brief analogy, this is truly a
decentralization problem, meaning the great-big-benevolent-collective isnÕt
going to provide everyone with drinking water, the scope is just too bodacious
and the solutions are just too complex.
In
our river system we are working with natural relatively potable water, in our
economic model we call it financial liquidity. Natural water provides the basis
for life and biological diversity wherever it naturally occurs. Financial
liquidity allows for enterprise conditions only where the gods of finance think
that it is appropriate and they can control or get a piece of the action,
preferably without risk, but at least with some sort of hedged or insurance.
Natural
water insulates and provides the mechanism by which solar energetics can
provide productivity that creates complex biodiversity. Financial liquidity is
created out of bits and bytes of computer code and ceases to exist unless they
are stored in some sort of computer energy consumptive storage device.
Furthermore these devices really create lakes, or oceans of non-energetic
financial capital, far removed from where this liquidity money could be
productively utilized. Its creation however makes the creators feel secure in
their surroundings, because in that environment they believe they are making
their contribution to human society.
Outside
that closed niche, and in these uncertain times, their presumptive paradigm
should be opened to broader discussion and debate.
In
our river system natural productivity requires the sunÕs energy, the previous
liquidity water and the primary nutrients nitrogen, oxygen, phosphorus and
carbon dioxide. Yes carbon dioxide, that terrible greenhouse gas that threatens
future life on earth and gave us a vast store of cheap fossil fuels to provide
the basis of our commercial world, and the gas our bodies create and breathe
out with our every breath.
LetÕs
see, our current financial system provides financial liquidity support for us
to burn fossil fuels, and create all those nasty greenhouse gases; while
supporting the cartels that believe they need at least $100 a barrel to keep
their world functioning. It also makes available to those highly evolved
institutions, which we call here dinosaurs, behemoths, and troglodytes, the
liquidity necessary to purchase developing productive enterprises, thereby
limiting the power of creative destruction (extinction) of their
inefficiencies.
It
also provides, or at least it has in the past, enough liquidity to allow
governments the faux belief that they could provide massive entitlements to
their peasants and serfs, giving those individuals the belief that a truly
unsustainable Ponzi leverage scheme would provide security for their future.
This pretty much sums up the contribution of the paradigm of mutually assured,
economic destruction, which attempts to prevent us from killing and exploiting
one another in wars? Thank God!
Back
on the river in flowing water, the two most important nutrients to productivity
growth normally are nitrogen and phosphorus. Nitrogen is the most abundant gas
in the atmosphere, but it also is the element that is fundamental in amino
acids and proteins, which are really the basis for life.
Phosphorus,
while not a gas, is required for us and all other life covert the stored energy
in proteins and carbohydrates into energy that we utilize to keep us alive.
Phosphorus is also part of our DNA, RNA and bones, as well as in ATP (Adenosine
triphosphate) by which we continually ride the Krebs Cycle, which you
can ride to the edge of the belief of the evolutionary universe. Phosphorus is
normally the limiting nutrient in aquatic environments.
While
we donÕt have anything as complex as a Krebs cycle to discuss, we can use both
nitrogen and phosphorus as models of nutrients required to produce the primary
productivity required to restore the business cycle.
You
are a big blob of protein, IÕm a little bigger than most, but protein, along
with our bones, are what holds us all together, and gives us the infrastructure
to keep all that stored fat in all the places we would not like to have it.
Keeping
with our ride on the Krebs Cycle, phosphorus is the nutrient that energizes us
to do work. We would rather not work, but watch television, play video games,
drink alcohol, take drugs and a whole lot of more restful, less physical
endeavors. However in the current economic environment there seems to be more
time for the less physical, which is enforced because of the limitations of our
current economic reality; for there is no money in our liquidity river, just
some distant debt lakes, that seem to be represented by bills to pay; arriving
every month describing our contribution there to.
Some
phosphorus in our river comes from human activity, a lot of it comes from
natural sources, but just because we cannot control the amount of nitrogen, in
our human enlightenment we make the decision that we want to control the
phosphorus and keep the rivers and the lakes from turning green and potentially
stinking from too much primary productivity. That requires a whole lot of the
economic liquidity to support, and we are just getting started.
We
can discuss, or argue how this financial world came about, but in reality, it
just slowly grew after the end of World War II, and through the Great Society,
the Vietnam War, the Reagan Revolution, the dotcom and the housing bubbles.
Through these times we quit broadly fertilizing our entrepreneurial endeavors
with energetic phosphorus because we didnÕt think we needed it. So we blobs of
nitrogen continued to increase in numbers and in individual mass, this resulted
in a decrease in individual productivity, but we maintained our standard of
living and entitlement wealth by debt liquidity with fiat-non-energizing money.
Our
answers are not to try to continue to seek solutions from more debt or even
more austerity. The solution is more energetic phosphorous fertilizer; we need
to turn the river green. The natural source of this energetic phosphorus is
what brought about the creation of the United States, based upon the natural
laws of God and the active work of attempting to achieve; of what the
Declaration of Independence calls the pursuit of happiness.
Blobs
of protein really canÕt be happy without that pursuit, but can only be
energized by the reality that we can each make a difference. That difference
pursuit will quickly lead to increased efficiency and decentralization, which
is where we will take it up next week.
©
2012: All rights reserved.
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