Saturday, December 31, 2016

Knowledge and Power

Knowledge and Power.

Knowledge is not power.  Knowledge is the complement of power. Knowledge without power is impotent.  Power without knowledge- is worse.  Knowledge and power are different things, which together can combine to achieve great purpose.

Knowledge serves as a multiplier of power.  Applicable knowledge can greatly increase the effectiveness of power. Conversely, power applied without the proper knowledge will at best be wastefully and inefficiently used. The effect of the application of that power will be distorted from and diminished from its intention.  The situation resulting from such an application of power may even be worse than if that power had never been applied at all.   Even when power badly applied does achieve its goal, the expense of it applied without proper knowledge will be much greater than necessary, the result invariably inferior, and the consequential damage due to those aspects of that power misapplied may be extensive.  Power will be wasted,    Its sources may be compromised.  Its objectives may be irretrievably lost. 

The more demanding the situation, the greater the constraints, the greater the requirements for knowledge.  And the greater the consequences of ignorance.

Against this, knowledge comes at a cost, and this cost rises with the increase in the quantity and quality of knowledge acquired, and may become prohibitive. Situations arise, therefore, where the costs of the knowledge necessary for the proper application of  power, and the costs involved in the actual application of that power, exceed the ability of the actor to bear. These costs may even exceed the return on even judiciously applied power.

Knowledge is not to be confused with information. Knowledge comes with the ability to weigh information, and properly weighed information contributes to knowledge, and thus, recursively, to the ability to properly weigh information.  Conversely, improperly weighed information may actually detract from knowledge, and, recursively, reduces the ability to properly weigh information, and thus, the ability to acquire knowledge.

As a multiplier of power, proper knowledge of how to apply power will amplify that power.  However, one of the most important uses of knowledge is to know when to apply power.  And when not to.

Friday, November 11, 2016

After the Election

Here's a nice post mortem of the election by Dylan Matthews over at VOX:

Trump also promised to massively build infrastructure while cutting taxes.   Since these are mutually exclusive it will be interesting to see which he chooses.

More military means less of everything else, including the things we have the military to protect in the first place.  Like rights and such.

Getting rid of the EPA means more rural people (who mostly voted for Trump,) will be buying their water in stores.

Because of reduced taxes and government spending, the demand side of the economy will contract, leading to higher amounts of money being taken out of circulation.  Thus continued deflation. And low growth.

The rich have shown that who they really wanted was Trump, at least as indicated by stock prices.  Hillary allowed herself to be used by Wall Street.  They never loved her as one of their own.

Friday, September 30, 2016

On Hyperinflation

Previously, we asserted that the standard definition of money was in error.  Money does not constitute a store of value.   Money, fiat money, has no intrinsic value.   It only constitutes a store of demand.  In particular, it is demand on the real production of goods and services of the society whose government recognizes the money as ‘tender.’  (Money has various forms, which may also be exchanged for each other. This distorts its actual exchange value.)  Even more exactly, money is a token offered in exchange for either other tokens, other ‘forms of money,’ or for goods and services produced by the economy, or needed or used by the economy.  (We will call any of these things, or any combination of these things, (real) resources.)  Its current value is roughly determined by the ratio of the flows of goods and services to the (opposite directed) flow of money. The flow of money is nominal, in the sense that, for a given rate of flow of goods and services, the greater number of units of money in the countervailing flow of money, the lower the value of each unit. Thus, the value of the unit, the dollar, is determined by the ‘physical quantity’ of goods and services exchanged in the economy divided by the number of units, of dollars, those goods and services are exchanged for.    Money’s value is not directly affected by the amount which is exchanged for other forms of money, nor the (lesser) amount of goods and services exchanged in barter.

Aside from the flow of money, there is a stock of money, just like there is a stock of real resources and assets, which, at any given moment, are not being actively exchanged. The standard definition of money implies that this stock of money constitutes an asset, a 'financial' asset. And therefore, according to the standard definition, the value of all this money should be added to the stock of real goods, services and real assets in the economy when calculating the total 'value' of capital in the economy.  

However, money is only an 'asset' to the individual.  The total value of a society, of all its assets and production, is independent of the total quantity of money.  Money is not an ‘asset’ to society, in the sense that the ‘value’ of the total quantity of money in a society is added to the total value of society.  It is only an asset in the sense that it enables certain forms of exchange.  In this sense, it acts as a multiplier of value. (Multiplication of value I discuss elsewhere.  I only mention here that its value as a multiplicative factor depends on its distribution, and not its nominal quantity.)

Invert the usual definition.  Money has value in terms of the things it is buying. In traditional macroeconomics, money's value is given by the so called "Equation of Exchange:"  M= P x Q/V.  In this equation, M is the stock of money, the total number of dollars, P is the Price level of things, sort of  the 'average' number of dollars exchanged for each thing, Q the quantity of  things exchanged, and V the average velocity of the total amount of money.  Now this equation is usually used to evaluate the total quantity of money M in an economy, so V can change. But really, the velocity of the money in circulation does not change, unless the velocity and/or number of things in circulation changes, so when the V of the equation changes, what it is showing is the share of the total money supply which is actually in circulation in the real economy, and what share of the total money supply is in savings or bonds or other financial instruments. It shows the proportions that M is divided between circulation in the real economy, and the 'churn,' where different forms of money, bonds and other instruments of debt, are traded among themselves.*  Thus, when V goes down, money is being taken out of circulation in the real economy and 'invested' in the churn.  When V goes up, money is being taken out of the churn, and put into the real economy.  

With this understanding, we can simplify the equation to:  M = P x Q,  where the terms are as described above. This can be understood in either macroeconomic terms, in terms of average price level times some quantity measure of all things exchanged, or in terms of microeconomics, as the average price of any particular good, times the quantity of that good, giving the total quantity of money, the number of dollars, (or in general the number of units that P is expressed in. which need not be dollars.) that is being exchanged for that particular good. It can be visualized as the flow of money, and the opposing flow of the good or service, in its own particular channel.

 If we rearrange, then the price of any particular good, or of the price level of all goods if we are talking about the economy as a whole, can both be expressed as:  P = M/Q.   If M increases, and/or if Q declines, the price or a good, or the price level of an economy, goes up.
We have talked about what we call the churn.  The stock of money experiences activity separate from its motion in the real economy. It is not kept in mattresses, (although in a sense it might as well be,( churning:  Forms of money are exchanged for other forms of money.  However, this ‘churn’ usually has no immediate effect on the value of money in the real economy, as long as it does not affect the movement of money out of the churn and into the real economy, or out of the real economy and into the churn.)  Similarly, barter, the direct exchange of goods,  does not affect the value of money, although changes in the amount of barter, where they alter the amount of goods exchanged for money, would change the value of money in the opposite direction.  That is, if a greater percentage of goods were being exchanged in barter, then the money in circulation would be chasing fewer goods.  This would result in inflation.  (This analysis ignores the effect of the expectations of participants, which may indeed alter the value of money in the real economy.)

Demand as debt.

Many have heard about instances on hyperinflation, and tales of wheelbarrows of money being exchanged for loaves of bread.  During the Weimar hyperinflation in Germany in 1923, before computerized money, they couldn’t print the money as fast as it was being inflated.  Bills printed with already outrageous denominations had to be restamped with denominations hundreds and thousands of times higher, before they could actually be issued, because the original denominations were already to small to be useful.

What we don’t hear about, however, are busloads of money being exchanged for houses. It would be rare, one would think, but surely, if it happened, it would be memorable.  But no one sells houses during periods of hyperinflation. Or automobiles, or appliances, or many of the more ‘advanced,’ but in the end, less immediately essential  products of an economy.

For what happens is that the monetary economy collapses onto essential goods, the most essential being food and fuel.  But the circulation of these goods, in the modern economy, and the quantity of money exchanged for them, takes up only a small portion of the market of the entire economy.  So the total quantity of money in circulation, whose value (as tokens of demand) was originally based on fact that things demanded consisted of the entire quantity of goods and services in the whole economy, is nominally much greater than the nominal value of the circulation of essential goods and services like food and fuel.  The supply of valuable goods contracts to only those which are essential.  Demand is now concentrated on a much smaller portion of the economy.  Meanwhile, the value of non-essential goods crashes, as well as essential goods held in surplus.

In our equation:  P = M/Q, then, what first happens is that M increases, not as a result of government printing, but as money is taken out of the churn, and put into the real economy. This is mostly rich people panicking, although ordinary people are also taking their money out of the banks.   As this process progresses, the economy begins to contract onto essential goods. Thus the quantity Q of goods exchanged for money decreases.  

Imagine that suddenly, all that anybody wanted to buy in the economy was bread.  With over $!.4 trillion of dollars cash in circulation, M0,  M2 the larger measure of less liquid money is over $13 Trillion, M3, still money but no longer counted, we may estimate, from recent trends at at least $19 Trillion. If M2 tells us the amount of money in mattresses, the difference between M2 and M3 we might consider money buried in backyards.  It will all come out.  With the market for bread at the outset about 1 billion dollars the price of that bread would become extremely high extremely fast.  Of course, there are other forms of food, which may be regarded as equally essential, (although high priced foods might also be priced out of the market.)  The size of the retail food market in the US is around $50 Billion per week, or  $2.5 Trillion per year.

 And this is what happens at the outset of the progression of hyperinflation.  The government doesn’t have to print money.  The money is already out there. Some of it is just being used for ordinary business in ordinary ways. Much, perhaps even most of it, is in the churn:  Ordinary savings accounts for ordinary people, high powered financial instruments for the wealthy.  But as runaway inflation, and then hyperinflation begin to take hold, people increasingly see money as overvalued.  Durable goods and fixed assets also begin to be seen as overvalued, at least in terms of money.  And they see other people seeing that, too. Therefore everyone wants to exchange their money for (basic) goods as fast as possible. As the demand becomes ever more concentrated on essential goods, the velocity of money also increases.

 As inflation progresses, increasingly goods become sorted into their essential value. The value of non-essential goods and assets decreases, relative to essential commodities.  Money becomes preferentially spent on those of greatest essential value, and the prices of these increase the most as demand becomes concentrated on them.   Those holding money in savings and other financial instruments, withdraw and liquefy them, and bring them into the real economy, where they add to the already increasing forces of inflation.    

The government faces a choice:  Either to take money out of circulation  as fast as possible, or to print money.

The proper response of government is not to print money in an attempt to stay ahead of it. This merely aggravates the problem and drives the accelerating inflation.   While initially, government issued money is not the problem, as the government issues money at an ever greater rate, the entire nominal value of money in circulation does becomes government issued. (In the limit.)

The proper response of government is to take money out of circulation as fast as possible.   One way is a high sales tax. However, this will not prevent the entry of money into the circulation of the real economy from the churn, the stock of money circulating in banking and finance. Therefore, the liquid assets of the wealthy, and foreign holdings, must also be frozen, and offshore financial assets prevented from repatriating.  So far as the wealthy control the government, this is resisted. 

When the wealthy become aware, not only that the stock of money is too greatly over valued, but aware that others also know,  we may expect a rush into more tangible assets, with ordinary people, by which I mean basically the entire 99%, priced out of essential goods and services.

And or course, it can always be that the government actively pursue the destruction of its unit of money. One consequence of this would be to consolidate the gains of the wealthy, and so a government under the control of an oligarchy might do this.

*[Edit:22-04-2020] The activities financial sector don't directly affect the price of things in the real sector, except as the financial sector, because it is the source for nominal profits, attracts and holds money away from the real sector.

Monday, August 29, 2016

The Growth Trap

The  Growth Trap

Every economy, every self-organizing system which is not also self-limiting within the bounds set by its environment, grows until it exceeds the ability of that environment to support and sustain it.  It then collapses.  

The collapse of a modern economy can be expected to be catastrophic.

When an economy first develops, acquiring resources is difficult and expensive. There is little surplus to be 
invested, and growth is slow.  This is despite the fact that resources are often accessible and plentiful.  The methods of extracting the resources are primitive and inefficient, and there is little surplus.  The demand for and uses for new resources are limited, and efforts at developing new resources are often desultory. 

However, as infrastructure is invested in and developed, the relative cost of acquiring and developing resources decreases.  More uses are found for extracted resources, providing motive for ever greater extraction. Since it is easier and cheaper to develop uses for resources, rather than new sources, demand, in general, outstrips supply, keeping the profit margins of producers high. For the producers, this means more resources are available to invest in expanding extraction and distribution, thus increasing the supply of these extracted resources available to be put to other uses in the economy.    

With growth, the economy is able to exploit resources at an accelerating rate.  The limiting factor is now no longer the costs of extraction, but the limitations in demand, the final uses for the resources, and the necessary distribution systems, which also must be developed.

In order to extract, distribute and employ the resources, it is necessary to develop an infrastructure, There is a cost, in resources consumed, to developing this infrastructure, There is also a cost to maintaining this infrastructure, and there is also a cost to operating this infrastructure. 

When resources are still plentiful and cheap to extract, these costs are relatively low.  The infrastructure grows robustly, both because the costs of extraction are low and because it is still new, So maintenance costs are also low.

Clearly, however, with finite resources, or even a finite average density of resources, or with a finite rate of renewal of resources, there are limits to any economy’s ability to grow. 

Indeed, as the plentiful and inexpensive resources are consumed, ever more marginal resources, resources more costly to extract and process, more distant and difficult to transport, become necessary to expand and sustain the economy.  The infrastructure must be expanded to develop these resources, and at an increasing cost.  What is more, the increasing cost of extraction must be passed on, and this increases the maintenance cost of the entire infrastructure. Less and fewer resources are available for expansion of that infrastructure, which is necessary both to supply other uses and to extract the ever more marginal and distant resources.  These costs are compounded  by the fact that the increasing cost of extraction also increases the cost of operating the infrastructure.

Eventually, as the availability of resources decreases, and their cost of extraction increases, the cost in resources necessary to develop new infrastructure, and more importantly, the cost in resources necessary to maintain and operate  the infrastructure already built, exceeds the ability of the economy to extract benefits from those resources. 

Increasingly, maintenance will be sacrificed to cover the increasing costs of operation. The result will eventually be a stage where the infrastructure can no longer be maintained, when the maintenance budget passes below a critical threshold, but will be subject to increasing catastrophic failure. This threshold is roughly when the budget is no longer able to cover both preventative maintenance and essential repairs. With inadequate preventative maintenance, essential repairs will increase, eating into the budget for preventative maintenance. As the budget for preventative maintenance decreases, the need for essential repairs will increase, in a vicious spiral. This process is sped by increasing costs of operation, which the declining quality of the infrastructure also aggravates, and by the increasing rate of extraction of money and real resources from the real economy by the financial economy. 
In the case of the modern economy, then, there are two relevant systems:  The real economy itself, and the financial economy which feeds off the real economy.  The financial economy produces nothing of substance itself. When useful is serves as a multiplier of production, by increasing the efficiency of allocation of resources. When overgrown it diverts more resources to itself than it saves the real economy by that allocation of resources.  The result is a decline in the efficiency of the real economy, and its ability to grow. 
In any case, this happens at a late stage in the development of the real economy, when the resources available to the real economy to mount opposition to the growth of the financial economy are diverted away. Part of this is the result of increasing real costs in the rest of the economy outlined above.  Part is by the increasing diversion of resources by and to the financial sector itself.  (Inter-sectoral competition for resources is seldom considered by business leaders.)  Effective regulation of the financial sector then fails. (One part of this process is that one of the consequences of the increasing concentration of wealth is that the value of non-financial rewards offered by the society declines, and become devalued, reducing the cost of corrupting other institutions.)  Once the financial economy evades the controls set on it by the real economy, it mimics the real economy:  It grows without bounds. Feeding off the real economy, it is also a non-self-limiting, self-organizing system.. It too is subject to overgrowth and collapse when it exceeds the ability of the real economy to support it . When this occurs, if  and only if it occurs before a critical point in the growth of the real economy, the real economy may yet be saved.  This is not because the real economy is self-limiting.  It is only because it has been increasingly organized to service the financial economy, and with the collapse of the financial economy, the real economy may be reorganized into a self-limiting form.  This is not guaranteed.  This may not even be likely.  And this still depends on whether or not the real economy is already too big to be reorganized into a sustainable form.  

So the financial sector then grows until it exceeds the ability of the real economy to sustain it. This growth happens much more rapidly than happened in the real economy, since the financial infrastructure is much less expensive to develop than the real infrastructure. The financial economy diverts resources from the real economy to itself by making finance nominally more profitable than real investment, thus diverting money, that is demand, on resources away from the real economy. Money is taken out of the real economy faster than government spending can pump it in. This causes deflation in the real economy. Producers in the real economy are hurt two ways.  Because of lags in production, prices of final goods are reduced vis a vis the prices of the factors which went into them.  And demand for those final goods is also diminished. Even as this happens, the quantity of various forms of money in the financial economy increases without bounds.  This is accompanied by ever greater concentration of wealth, and ever more extravagant expenditure. This growth is in the demand side of the economy, which conceals decline in the extracting and manufacturing sectors.  GDP, for instance, does not distinguish between growth in these producing sectors, and growth in consuming sectors such as retail and, increasingly, finance. 

The real increasing costs of maintaining the real economy, (and in particular its infrastructure,) and the increasing real costs of its extraction of real resources from the natural environment, are hidden by the mechanisms of externalization of costs, both directly onto the environment (pollution) and onto labor, and by government subsidies, by defaulted debts, and by the deferred maintenance of the real infrastructure.  These manipulations make the cost of extraction, transport and fabrication of real resources appear cheaper than they really are.  However, while in nominal terms the costs are reduced, in real terms the costs cannot be reduced, only hidden, and must increase over time.  The real costs of these manipulations, however, transfer these costs onto other parts of the producing sector. This increases the costs of production in these other sectors, an increase greater than the reduction in apparent nominal costs.  These manipulations of the real economy, as well as the financial manipulations which enable them, enrich the financial and consuming sectors, and impoverish the actual producers of real goods and services.  The productive sectors are deprived the real resources necessary to grow, and ultimately to maintain themselves.

This financial extraction becomes ever more difficult and costly, as the real economy becomes progressively impoverished.  The concentration and availability of extractable community assets declines.  This decline in efficiency means more labor is required for the financial sector to extract wealth from the real economy. Thus, even though most labor is no longer involved in real extraction and production, there results the paradox of an increasing burden on labor in non-productive jobs. This is obscured by the fact that these financial costs are increasingly externalized onto the real economy, ie absorbed by non-financial industries and labor . However, because of the decreasing efficiency, the profit to be made off these jobs is very low, and decreasing, and the pay must be commensurate.  

Meanwhile, since the cost of all maintenance increases, the cost of maintaining the burden of the financial and consuming sectors is also increasing.   the costs required for extraction increase, the actual financial profits decline to zero and even go negative. 

The degree of financial exploitation is not reduced, but merely more resources are devoted to the process.  Even as this happens, fewer resources are available to the real economy. This is both because the financial sector externalizes its costs onto it onto the real economy, (and thus appearing artificially profitable,) and because greater real resources must be expended in acquiring resources from an increasingly impoverished natural environment.  Combined, these processes render the usual indicators of economic health and prosperity at least useless and even more likely misleading. Much growth occurs in the wrong sectors, and is indicative of impending failure, rather than success. Further, with increasing deregulation, more fraud may be expected, both in production, and in reporting on that production.

Mankind has yet to develop a modern, self-limiting economy. Hunter-gatherer societies existed in ecological equilibrium with their environment, fitting into the limits set by the rate of replenishment of renewable resources.  For pre-industrial economies, the growth trap must be considered as a possible factor in their ultimate decline. Since economies ultimately serve a population, clearly, with unrestricted population growth, no self-limiting economy is possible.  And any non-self-limiting economy will be subject to the growth trap. 

More to the present, however, there is no evidence that capitalism is self-limiting.  Only a self-limiting economy can survive the growth trap.  Only an economy which can limit its consumption of renewable resources to some rate less than the rate those resources are renewed, and its consumption of non-renewable resources to some rate less than those resources can be recycled, can be indefinitely sustained.  All other economies will fail. And a failing economy will be incapable of providing sufficient resources for the survival of most of its members.  Indeed, because of the enormous efficiencies brought about by a modern economy, if that economy fails, such a failure will be catastrophic, and only small percentage of the people who depend on that economy can be expected to survive.

There still seems a choice, however, although, judging from their antics, our political class seems incapable of confronting the issue.

Revised and expanded Sep 7,2016, Nov7, 2016, Feb 17, 2017

Sunday, July 31, 2016

The Survival of the Marginal Part I

Consider Darwin’s Finches.  Which changed first?  Their bodies?  Or their behavior?  And why did they change their behavior?

The idea of the survival of the fittest is a mistaken understanding of the dynamics of evolution.  It is not those best adapted to an environment who win the game of life.  It is the weak, the losers in the competition for supremacy within their environment and within their species, who in the end triumph.  The fittest either come eventually to die, clutching the residues of their spoils, or survive on as prisoners, trapped inside the bounds of the field of their victory, hemmed in by the descendants of those they once drove forth into hardship.

For when the strong drive out the weak, what happens to the weak?  In their home environment, the weak may be well adapted, both physically and behaviorally, to exploit its resources, and prosper.  However, the weak must also compete against those like them, but stronger, both for those resources, and for the right to reproduce their kind.  But since they are the weak, they are outcompeted for food and reproductive rights by the strong. 

In a crowded environment, the strong  may physically drive them into the margins.  Even if the weak are not directly confronted by those stronger than they are, they may still be faced with starvation.  Certainly, they face an unpleasant choice.  They may choose to endure, and eventually die, perhaps without issue.  However, they may also choose to depart, and move out into the margins of their former environment.     

The margins will not be as favorable to the weak as was the center of the ecology that the strong still claim. The behaviors which served them in that environment will no longer be adequate, and different behaviors will be demanded. To survive, the weak will be forced to adapt. (And some will be prepared for this, because their old behaviors will have failed them, and they will be ready to change.) In particular and in general, a greater variety of behaviors will be demanded. Physically, they may be mal-adapted to their new environment, and their new behaviors must first compensate for this. Different food sources must be pursued. Different locations for food and even different varieties of food must be sought, because those sources they once relied upon will no longer be adequate, if they are available at all.  None of the sources which they once depended on will be available in sufficient quantity.

Meanwhile, their enemies may follow them.  They may be forced to deal with new predators, who may see them as a new opportunity for predation.  They may be forced to deal with new hazards. And their survival will depend on their ability to adapt their behavior in response.

In the old environment, the strong of the species are in a sense optimized, or will evolve to become so, both physically, and behaviorally.  And when they do become optimized,  the strongest will be the most fit to that environment, and any individual who deviates, the carrier of any other random mutation, will be inferior in its ability to compete, and thus selected against. As long as their environment remains constant, so will the species, and for these individuals, and their descendants, the process of evolution effectively ceases.  The only remaining outlet for change, a domain of random drift, within which the external pressures of selection are essentially absent, within which genetic alterations, which still randomly occur, in no way change the functional relationship of the species to its environment. 

Those driven into the margins, however, are not optimized to their new environment, either behaviorally, or physically. And because they are suboptimal, and suboptimal possibly to a variety of different optima, both physically and behaviorally, they may have choices.  Their new environment may present them with a selection of possible niches for them to move into, for them to both adapt to and mould to their behavior. (Every time a species successfully colonizes a new environment, it alters that environment, and thus the structure and relationships of the niches occupied by the other species already occupying that environment. and of course the species themselves.)

 First they must alter their behavior so that with their imperfectly adapted bodies they may best cope with their new reality. If they succeed and survive, and have issue, they pass these behaviors on to their descendants.  Physically, the descendants slowly evolve, as the shape of the new environment potentiates net forces upon them.   These provide relative advantage to the random mutations which create the altered structures that improve the ability of the species to cope and prosper, and relative disadvantage to those which do not.  (Note the earliest generations have the greatest opportunity to change behavior, and adopt to different niches.  Indeed, a random physical adaptation which is inappropriate to the behavior adopted by the parent may lead the descendant to alter its behavior, and thus branch into an alternate niche. This suggests that branchings, rather than predominately binary, would tend to be clustered about points of colonization, when the differing  opportunities reachable to the species are greatest in availability, number, and variety.)

The forces imposed upon the colonizing species would be of two basic types, push and pull, pressures and opportunities.  Singly, these would respectively tend to be dispersive and attractive.  However combinations of opportunities could be dispersive, and arrays of sources of pressures compressive.  As a result of these environmental forces, different combinations of vectors of radiation may result.

There is also the possibility that colonization happens into an environment where no particular niche offers sufficient opportunity for the new species to survive. No singular alteration of behaviors would enable survival, but a combination of  two or more groups of new techniques must be adopted if the species is, say, to acquire enough food to survive. The species may eventually come to physically adapt to one or another niche and specialize. It then may come to exploit that niche with sufficient efficiency to survive. Due to environmental forces, this may involve acquiring physical strength, over subsequent generations, and the weak become strong. 

However, it may also be that specialization is not possible, and the individual of the species must continue to exploit several niches in order to survive. Since physical adaptation to one niche will likely compromise its ability to exploit other niches, increase in the ability to exploit its environment might then be primarily a result of an increase in the varieties of behavior.  Behavioral adaptation, especially where an increase in the variety of behaviors is required, puts a premium on intelligence.  Of course, even the simplest act of colonization requires more intelligence than is needed by an optimally adapted species in its home environment.    

In the adaptation to its environment, a species acquires those qualities it needs, but in more than the quantities it needs.  The ability to meet the bare minimum of demands of the environment will not be sufficient.  Survival requires more than efficiency: In the distribution of coping abilities in its environment, the abilities of individuals in all but the lower tail of that distribution must exceed the demands of the environment.  This necessarily includes intelligence. 

Friday, June 3, 2016

Rigging the Democratic Party, Continued

Below is my campaign literature for the election to be a Sanders delegate to the Democratic National Convention in Philadelphia at the end of July. I brought slightly over 200 copies of it to the Sanders caucus in my Congressional district. (There was another caucus for the 3 Clinton delegates from our district.) I handed almost all of them out to other attendees at the caucus. 

There were some 300 men and women at the caucus. About 30 people, including myself, had earlier, online, applied to be one of the 4 Sanders delegates.  Most of us were pretty na├»ve about parliamentary procedure, a fact that was used in a maneuver which eliminated all but 8 of our names from contention.  None the rest of us realized we would have to be ‘nominated’ at the caucus, and our nomination seconded. So none of us were. 

As for the 8 who were nominated, and seconded, these 8 were comprised of two groups of 4, each of which formed a ‘slate’ for the full quota of the delegates for Senator Sanders. They were allocated to the senator for winning the district.  While the 8 candidates were voted on individually, one slate, (the more willing to compromise with Hillary slate,) won. On average something like 170 votes to 130.

The Democrats do themselves no favors with this procedure, since it is incongruent with the electoral college, which is an all or nothing process at the state level.  The result of their procedure is not optimized to result in the nomination of the most electable candidate.  

It is, however, optimized to insure the establishment candidate is the nominee.  It minimizes (statistical) variation, (Sort of like what would happen if you scored most of the points in a basketball game say, by a score of 73 to 65. But instead of it being called a win for you, it was called a tie.) and, assuming that the “Superdelegates,” some 15% of the total, and who largely are the (Democratic) establishment, actually vote for the establishment candidate, all but guarantees the nomination of the establishment candidate, no matter what the outcome of the primaries. 

It is not enough for the outsider to just win the popular vote by over 18%. (719 is 17.7% of the 4051 pledged delegates, which are more or less determined by the primaries.) He must capture 59% of the pledged delegates, or 2390 delegates, to overcome the establishment’s Superdelegates.  

In order to overcome the 719 Superdelegates, the outsider candidate would have to win virtually every one of the 435 Congressional districts.  And some he would have to win by humongous margins, to gain enough plurality of delegates.  For a district with an even number of delegates, a close victory leads to an evenly split delegation.  To split a district with say 8 delegates, 5 to 3, the winning candidate would have to win with over 56% of the vote. (I think that’s the way it works.) To split a district with 7 delegates 5 to 2, (instead of just 4 delegates to 3) the candidate would have to win over 65% of the vote.  This he would have to do in may districts in order to obtain the necessary delegate plurality.  In the reality, this is assuming the other pledged delegates, the at large and the PLEO  (Party Leader and Elected Officials) delegates, are evenly split.

  The whole process is window dressing.   The procedure, and the Superdelegates, effectively disenfranchise the Democratic voters.  If Senator Sanders does win, it will only be because the Democratic establishment has decided that Hillary Clinton is unelectable.  Which, by the way, she likely is.  Whether the party elite realize this before the National Convention is the interesting question.  In these situations, where the individuals are committed to their positions in more than one dimension, the evidence usually does not suffice to change people’s minds.

But here’s my campaign literature.  All of it:  (2 copies a sheet, which I cut in half.)


(SIDE 1:) Any delegate we elect will bring Bernie his vote.  Go Bernie. But Bernie needs more.  Bernie’s opponents have attacked the cost and practicality of all of his positions, and this has weakened his appeal and his campaign. Just a vote at the convention will not be enough.  Bernie needs more.  Bernie needs someone who can show him how to solidify his positions and broaden his appeal. And help him turn the votes of Superdelegates at the convention.

Bernie’s plan for single payer health care is attacked as too costly. Organizations like the AMA and monopolists like Big Pharma have restricted the supply of healthcare services, and now American healthcare is simply inadequate to provide services for everyone.  This is what is driving up the price, and Bernie needs to address this by attacking these organizations and providing mechanisms for increasing the supplies of doctors, nurses, and the other things American healthcare needs.

To assure justice for all, and in particular the poor and minorities, Bernie,  as President, can bring suit against local jurisdictions for their inadequate funding of their public defender’s offices. There should  be about as much money for the public defenders as for the prosecutor’s offices in each jurisdiction.  Right now the whole justice system is just a scheme to keep our prisons filled, and with a disproportionate number of minorities. If Bernie advocates for adequate funding for public defenders, it WILL be revolutionary.

I haven’t been able to reach Bernie.  If I am a delegate, it will increase my chances of being able to talk to Bernie, and, if I can, and Bernie wants it, I will be able to help him, his campaign, and the people.  No other delegate you could elect would be able to do this.  Elect me to be your delegate.   …Help Bernie!


(SIDE 2:)  Capitalism rewards efficiency and punishes resiliency.  Capitalists seek to maximize their profits, and will do so even if it harms society.  Capitalists seek to maximize the consumption of resources, so they may maximize the profit they can take.  They do not, and in fact cannot, take the long view. Society, however, is interested in lasting as long as possible, and thus seeks to maintain the flow of resources at a sustainable rate.  When capitalists take control of government, society is no longer able to do reduce and maintain the flow of resources to a sustainable rate, and the future is consumed at an ever accelerating rate.   The interests of capitalists are not the same as society’s, and never were.  Bernie opposes the TPP, and has always opposed free trade.  Economists believe so much in free trade that they ridicule Bernie’s position, and right now Bernie does not have the arguments to fight back.  There are two arguments, however, which economists cannot answer.  The first is that under a trade deficit, the losses to producers are greater than the gains to consumers.  The second is that because all taxation is a tax on production, if a government does not tax all sources of production, production will migrate to those sources government does not tax.  This is because any producer the government does not tax will have an advantage over a producer the government does tax.  The government cannot tax foreign producers.  It can only put a tariff on imports. If it does not do this, all domestic producers will eventually go overseas, and the government will then not be able to tax any of them.   

Ask me about college tuition. Ask me about CEO pay.  Ask me about the police.  Ask me about climate change.  Ask me about the tax system.  Ask me about government and society. 

Donald Trump, who is a member of the establishment, has become the anti-establishment candidate. Hillary has become the establishment candidate.  Should the economy go South, as it is likely to do, Hillary will take the blame, and the Democrats will be crushed in the election.  The Republicans, and their wealthy sponsors, who are the actual establishment and ones actually responsible and who should take the blame, will be absolved.  The government will be largely dismantled, as will the rights guaranteed by that government.  These are the rights that protect us from the depredations of the wealthy, rights which the Republicans are already steadily taking apart.  The economic consequences of this will be terrible, even for the wealthy, because the people are the foundation of all wealth, and without the people there is none.  Even if Hillary is elected, the depredations by the establishment of the people will continue, and worsen, also to the point the of eventual economic and political destruction of the United States.  That is why I am for Bernie Sanders.  Only Bernie is truly opposed to the establishment policies, which are looting and destroying our country, and all our futures.  We must do what we can.  …. 


The ellipses are where I put my name.  Only one person asked me about anything, and that was about energy.   Since I was put off by what happened, (although encouraged by the fact that so many were participating, even if the exercise was, ah, irrelevant to the real nomination process.  That was a fact they did not know.) I gave the  larger picture some thought, and, I think, gained insight.  Altogether, a worthwhile adventure. 

Sunday, May 29, 2016

Taxation, the States, and Trade

The State of Connecticut, and other states, are having increasing difficulty meeting the conflicting demands  of a declining tax base and increasing need for its services.  Next year the state must cut over $1 Billion of valuable and even critical services in order to balance its budget.

A recent article in Forbes ascribes the cause of the deteriorating tax base to the imposition of a personal income tax 25 years ago. (25 Years, $13 Billion Lost: Connecticut Income Tax Continues To Fail) *

But let’s look at something else which could be a cause:  According to “State Smart,” ** the state of Connecticut, in 2014, paid out  $53 Billion dollars to the United States government in taxes.  However, that year, it only received am estimated $45 billion in benefits from the federal government. Every year the people of the Connecticut give out to other states $8 billion.  The state and local share of that $8 Billion, (about 13%) works out to about $1 Billion in lost taxes.   And that is just one year.

It is up to the state’s Congressional delegation to address this problem, if they can.  In the meantime, the state is running the race with one foot in a bucket.  While bad, this can be mitigated.  The problem for the state, since it is easier for rich people, and more generally for businesses and corporations, to move than the working and the poor, is that the state is only allowed a regressive tax system. Since Connecticut is stuck in the shadow of pricey New York City, it must also pay more for what it buys.  These are not insurmountable problems.  They mean, however, that the state must attract enough wealth generating business activities that the tax load is not so burdensome upon the poor and the working class that it cannot be mitigated by proper state expenditures. And this means the state must have tax policies, and spending policies, and regulatory policies, which are attractive to those kinds of business activities which bring in money.

For instance, Corporations collect wealth from their many operations, and the place they accumulate the most of this wealth is at their headquarters. Other business activities which accumulate wealth are corporate offices in general, laboratories and factories.  All of these activities bring money into their communities, and into the state. 

These are activities the state wishes to attract and encourage.  While it cannot directly subsidize them, (Well, nominally, it could,)  it can capitalize the infrastructure these businesses rely upon.  Investing in roads and railroads, human capital, but perhaps even more importantly efficient institutions and the resolving of conflicts, including those inevitable conflicts businesses have with the state itself.   This will reduce the many costs of doing business in this or any state, and enhance the profit margins. 

For comparison, stores, in particular chain stores such as Walmart, Home Depot, CVS, McDonalds, (and Amazon) and so forth, take money out of communities, and out of the state.  Walmart itself takes several billions of dollars out of the state of Connecticut each year, and sends those dollars off to Arkansas. Much of the money which goes to the larger cable and telecommunications also leaves the state. This loss of money the state can, with proper taxes, and by taking the part of the communities and local store owners in their struggle with these large retail chains, diminish. 

There are other activities, which themselves do not generate wealth, but merely rearrange the ownership of wealth.  These may also be taxed.  Some of these businesses, like real estate, cannot leave.  The others, since they do not actually generate wealth, may be allowed to leave without penalty to the state’s economy.  These would include many personal services of all kinds.  Most of these personal services are elective, and raising their costs would not affect the well being of most people directly.  Most especially, these taxes would not have a critical affect on the well being of the poor.  For those services which were not elective, such as child care, the needs of the poor could be supported.  Indeed, for something like child care, the state would in general have and interest in subsidizing it for all possible clients, as this would form a more attractive workforce environment and this would be something to attract businesses.

The state is in the business of allocating resources.  Taxes take those resources from one use and expenditures put them to another.  In many cases, this fulfills social needs that the market cannot fill.  Quite simply, the market simply cannot supply any particular thing or service to everybody.  The laws of supply and demand guarantee that there will always be those who cannot afford fuel, who cannot afford shelter, who cannot afford adequate food, without intervention into the marketplace.  Private intervention, that is, charity, cannot suffice. For the charitable will find themselves at a competitive disadvantage to the mean and selfish.

As the production of resources within the state declines, the state must reach out to the production of other states, by attracting the functions of businesses which accumulate the production from other states.  And the state government must adopt policies which attract those functions.  It is only once this income is spent by the corporations and businesses that the state attracts, that the state can begin to collect taxes on it. And increasingly, the state becomes unable to directly tax its own production.  As due to increasing offshoring, domestic production declines, (And without tariffs, taxes cannot be collected on production in foreign countries,) competition for the remaining factories, other remaining production facilities and the headquarters of domestic enterprises, the offices and laboratories, will intensify. Only the intervention of the US government can stop this spiral to the bottom.  But in the absence of such intervention, a state government which understands this reality, and which is able to adapt to it will, for a time, prosper.

So only the actions of a government can assure that the needs of all of society are met. A government which fails in this, will eventually fail altogether, one piece at a time, as first the bottom, and then each higher level of society falls below its ability to sustain itself.  Only by capturing an adequate share of the incomes of the very wealthy can the government succeed at this. But first it must attract these incomes to itself. 

Since all taxation is against production, the government must capture all productive streams, in order to extract necessary income. Any streams it does not capture will be more competitive than those which must bear the additional cost of taxation.  When an economy runs a trade deficit, it must also tax foreign production, since otherwise domestic production will be uncompetitive with foreign production, and domestic production will be replaced, and government revenues decline.

Non-productive activities must also be taxed. Otherwise, economic activity will preferentially go to non-productive activities, since these will have the greater nominal profits.  In particular, the non-productive activities of the wealthy must be taxed, to prevent decapitalization of the economy.