Translating Aggregate Laws to Some Specific Laws of Sovereign Currency

   (Commentary posted by Roger Erickson.)





FDR said something similar, about 10 years after after Shewhart, although in a narrow context.

So let's turn our attention to observing some of the many, emerging "Aggregate's Laws" empirically documented in the course of evolution.

It is much easier to understand Aggregate Laws if one keeps in mind one reference Aggregate Rule, or rule of autocatalysis:

"The whole point of aggregation is to VOLUNTARILY [and doggedly] swap SOME local degrees of freedom, for SOME uniquely aggregate degrees of freedom, exactly because of the net BENEFIT of that exchange. That's what we call a SOCIAL species."

Rigorous selection is required, of course, and the corollary trick of adaptive aggregation is to slowly figure out context-specific methods which make it harder for potential aggregate members to work at cross purposes. Building up the requisite array of feedback loops that shepherd more coordination and less friction is the secret hiding in plain sight.

Any aggregate must - to be an aggregate - attend to an unpredictably large & diverse set of hard-learned coordination lessons, and hence to the rules-of-thumb that result. The beginning of these rules predate the dawn of human culture, and hence are even more ancient than homo sapiens. The following 10, trivial rules & points of logic just happen to be some that comically bedevil the ~320 million supposedly intelligent humans in the USA, in the year +200,000 of homo sapiens history - not to mention multiple billions elsewhere on planet Earth.

Yet don't laugh. It's actually not funny.

"We sent men to the moon 40 years ago, cram mind boggling technology into
cell phones, do robotic surgery, and don't understand how a simple
spreadsheet called the monetary system works."  Warren Mosler

Currency Law 1) Sovereign currency "comes from" the distributed IOUs inherent in dynamic Public Initiative. Sovereign currency denominates the constantly increasing volume of social credit, and all forms of “money” represent inter-person IOUs. (a)

Currency Law 2) Aggregate austerity obviously can't work. The more that aggregate initiative - e.g., "Public" initiative, aka, currency budget - is constrained, then the lower the aggregate capabilities, options and outcomes are. (b)

Currency Law 3) There is a fundamental difference between a Currency Issuer, and the distributed Currency Users, so that a "balanced budget" for a currency issuer is an absolute oxymoron, unless an aggregate has "achieved" zero aggregate growth. (c)

Currency Law 4) The unit of social credit - and also a given currency unit - naturally & constantly depreciates in evolving real terms. (d)

Currency Law 5) The purpose of right-sizing & right-distributing currency supply is to constantly grow cultural agility and policy agility. 

  The concept of a "deficit" in fiat currency, fiat or Public Initiative is simply arbitrary & misleading use of variable semantics, and a logical oxymoron if any meaning outside the narrow jargon of accounting is applied. (e)

Currency Law 6) To constantly enlarge national National Policy Space and increase Policy Agility, inter-national currency Exchange Rates absolutely must float. (f)

Currency Law 7) There is no national challenge which is not optimally addressed through collective policy, aggregate mobilization and distributed adjustments in coordination, invariably involving an increase in Public Initiative and it's corollary, public spending. (g)

Currency Law 8) The core purpose of National Monetary Policy is Banking Regulation, not trying to manage patterns within aggregate demand by micromanaging interest rates. (h)

Currency Law 9) Foreign Currency Reserve policy is always politics by any other name. (i)

Currency Law 10) Fiscal Policy is the final arbiter of National Adaptive Rate.
  To both grow and adaptively tune aggregate degrees of freedom, any aggregate population is required to manage distribution, in real time, of enough sovereign currency - through agile combinations of public spending, taxing and regulation – to do 2 things.

One) grow the nation's Adaptive Rate as our primary Desired Outcome,
(by enforcing and self regulating aggregate policies, specifically by allowing residents to pay all enacted taxes enforced in that currency,) 

AND ... 

Two) protect & grow the distributed Adaptive Rates of all citizens, as our key methodology (By constantly providing enough extra currency - i.e. purely nominal "deficit" spending - to allow residents to adequately explore all distributed options which also help coordinate evolving aggregate policy). That requires allowing ALL citizens to:

i) efficiently transact all necessary exchanges of goods & services (i.e., full involvement and employment);

ii) maintain SHORT TERM buffer currency savings adequate for exploring & selecting novel, adaptive innovations and transaction patterns.

###

a) While it is theoretically possible for aggregates to be highly organized WITHOUT some tax-based or penalty-based currency system, none that I know of seem to exist in nature. The very process of being organized indicates that some aggregate scoring method to "trust but verify" is in use. Failure to meet the measurable level of trust standard set by the aggregate triggers a statistical range of vetting processes, ranging by uncorrected decay & attrition to active auto-immune rejection of a component by the aggregate. It seems that only the form of currency systems vary, their function is always to mediate information AND accurately denominate levels of coordination demanded by the aggregate. In the case of modern humans in the USA, public currency is distributed ONLY via public initiative, as public spending. Some is returned as public taxes, and residents use the excess (nominal “deficit” spending in accounting jargon) for nominal private financial savings or multi-step liquidity allowing highly agile and distributed transaction chains to be easily interleaved. Modern currency is simply bookkeeping, tracking individual responsibility for social credit within a nation. Given a prepared electorate, there is always room for more, and never any sense for less.

b) Why? The whole reason for being an aggregate, i.e., a social species, is because the highest return of all is always the return-on-coordination. Said inversely, the cost of coordination is always the highest cost, and the return-on-coordination is the only return that outstrips the coordination cost. Our path is clear, though littered with obstacles.
  To visualize this, compare the different methods employed by less capable versus more capable aggregates. All branches of organization tuning boil down to "staging, linking and sequencing" disparate actions coordinated across aggregate subparts.

Staging requires consensus desired outcomes, plus preparation of static & dynamic assets.

Linking requires understanding of interdependencies, & reliance upon feedback and timing.

Sequencing, the last & devastatingly effective step of aggregate agility, specifically requires differentially timed actions by all aggregate parts, whether cells in muscle groups, or humans in cultural groups. To take increasing advantage of sequential actions, the parts of an aggregate must extend & rely upon increasingly extensive inter-component credit, in order for all to reap the return on group coordination. If you can picture the range and frequency of credits extended and received, then you can understand sovereign currency and the method for denominating, tracking and managing social credit. If persons A, B & C each agree to perform distinct actions on days 1, 2 and 3, in order for all to participate in the outcome generated - say on day 5 - then they have all extended credit to one another, and expressed it in the form of their cooperation and shared return. Rather than only repeating their actions, if they all want to take their cooperative spirits elsewhere, or just simultaneously participate in distinct & interleaved transaction chains, then they may utilize a group-backed credit-scoring or credit-denomination system, often called a Sovereign Currency. Simplistic currency systems may take the form of distributed IOUs, while more sophisticated currencies allow more agility, by replacing all IOUs as multiple units of some standard unit of social credit.

c) An organized aggregate cannot run out of sovereign currency any more than it's citizens can run out of IOUs to exchange with one another. All they can run out of is the memory of how they once organized & created their currency system, or the practiced capability & intelligence to keep the currency system organized. Arbitrarily railing against increasing currency supply is like railing against increasing blood volume as a child grows. Growth, blood supply, sovereign currency and what an aggregate DOES with it's growing "limbs" are orthogonal issues. The only solution is tuning, and NEVER arbitrarily limiting any of the above. National currency supply balances must float automatically, as a function of distributed citizen transaction rates. Currency Issuer and Currency User currency budgets are completely different. Populations distribute currency in order to efficiently denominate and manage distributed social-credit contributions to public purpose. National budgets are formally denominated terms of public initiative, and “balance” only when nations achieve zero net growth rates. Sub-national budgets are formal judgments of sub-population use to a nation, as measured by currency throughput. Subcomponents seeking budget portability between nations are, like stockholders, risking citizen benefits and responsibilities for commodity measures. Nominal, national currency budgets have no relevance to sub-groups accounting for local responsibility. National populations are NOT COLLECTIVELY ACCOUNTABLE to one another for how much currency each circulates (see corollary A).
  The ONLY thing a modern currency is guaranteed "convertible" to upon demand (collectively, not even personally) .... is national initiative. $US international exchange value is based entirely upon confidence in US initiative.

d) Why? It's a simple function of dynamic system logic. Currency supply must expand as some function of the net amount and rate of social credit being expressed, as Public Initiative. With any combination of changing aggregate numbers, changing individual & group capabilities, changing transaction rates, and changing complexity of interleaved transaction chains .... the net flow of the linked social credit & sovereign currency must constantly grow, just to satisfy the demand for increasing liquidity. Since the aggregate is evolving new capabilities, the very form, number and unit of 1 instantaneous social credit is constantly depreciating - as new aggregate capabilities diversify beyond the relevance of old aggregate capabilities and old social credits.
  Simply put, while adaptive rate is non-zero, the return on future coordination swamps the return on simple hoarding of static assets, and neither social credit nor Public Initiative can be saved at all, only invested. Hoarding current fiat only reduces future options.

e) How good would an Army remain if weapons sat in warehouses while soldiers were under-equipped, or if the officers and especially generals hoarded all the weapons? Ditto for an electorate and it's currency supply.
  And the semantics? Humans use dynamic semantics in order to maintain a small linguistic base applicable across multiple contexts. As a result, many if not most words mean different things in different contexts. For Jane & Joe Sixpack, the typical meaning of a "deficit" is that something they require is missing. However, in the formal practice of Double Entry Accounting used for currency tracking, every new social credit or currency unit created is labeled as a "+" or source, and must be matched by an equal and opposite numeral in a matching column, labeled as a "-" or sink ... or, in accounting jargon, as a "deficit" - even though nothing at all is missing, except the logical capability of those people who are alarmed by semantic diversity. If you ran around a track 5 times, and entered a "5" in your exercise chart ... and used Double Entry Bookkeeping ... you'd have to enter a -5 in an opposite column, and declare a "lap deficit." Heck, to accountants, you'd even end up with an accumulating personal exercise debt. Some slow thinkers would even conclude that you're passing on that exercise debt to your grandchildren, thereby condemning them to be couch potatoes. Sheesh! You call this an informed electorate?
  After removing maladaptive constraints, then national budget balances for a purely NOMINAL currency matter no more than how many points are used during a hockey league season. Do leagues worry much about the # of points scored or taken away? No. During play, does it matter how points are awarded and/or penalized? Yes. Overall, stakeholders track individual, team and league initiative - the plus/minus transaction ratings of players and teams throughout games & seasons - as indicators. However it doesn't matter whether a league balances nominal "hockey point" budgets. Nor does it matter whether a nation balances a purely nominal currency budget which - like hockey points - is used only to instrument transactions. [It would matter, if hockey-points & currency were made of or guaranteed convertible to gold at FIXED rather than floating rates.]
  Can either access to hockey points (tickets) or national currency be traded for, say football tickets? Certainly. Do leagues compete to create demand for their as opposed to other league's points & tickets? Certainly. Yet they do so through initiative, not by manipulating interest rates on storage or trading of league points .
  Neither a league or a nation, however, can function if there are not enough hockey points or currency to allow "transactions" to occur. If a league lets the supply of hockey points get too low, or arbitrarily restricts their use too much, then aggregate demand from stakeholders may melt away and take years to rebuild - if it recovers at all. Ditto for modern currency.

f) Modern currency reserves can be used to affect currency exchange rates, but cannot guarantee stable buying power of ANY commodity, goods or services. In contrast, public initiative, like a hockey league's initiative, sets the value of a national currency. International exchange value of the $US is most efficiently managed via collective initiative, which does more to inflate $US value than any interest rate set by bankers.

g) Solvency and Deficit Terrorists. For modern or nominal currency, supposed fiat currency "deficits" have become exactly that, NOMINAL - just as with hockey leagues. Modern currency is simply less cumbersome than attaching spreadsheets to every citizen. We needn't run out of spreadsheet columns, leagues needn't run out of hockey-points, and we needn't ever run out of our own, monopoly currency. Granted, international exchange rates can fluctuate, based upon demand by international traders. IF that ratio matters to enough co-citizens it is best managed via national initiative, not by constraining use of either hockey points or sovereign currency.

h) In the USA, the purpose of "Monetary" policy is to preserve the sovereignty and trustworthiness of the national currency and our banking system. Attempting to do that by manipulating the cost of currency generates more complications than it can possibly solve. Therefore the core purpose of Banking Policy is regulation, so that banks meet the terms of behavior dictated by local and national banking licenses. Correspondingly, the purpose of collective, civil government is to protect REAL net aggregate demand as the sum of adequately distributed demand. No part of our economy should ever be allowed to hinder net aggregate demand simply for fear of not balancing purely nominal currency budgets. Manage public initiative & aggregate demand, not "hockey point" balances.
  Exactly how much money we do or don't print matters little, other than that we should never have so little circulating that people can't easily transact business (deflation), nor so much that it becomes a nuisance (inflation) - nor confuse buyers & sellers with frequent & swings which they cannot easily anticipate. It would be better to track only too-little/too-much ratings, like plus/minus ratings in sports leagues.

i) Given that the purpose of Government Policy is to serve national interests, it is impossible to separate Foreign Currency Reserves from other policy processes. The immediate corollary of this reality is that "Free Trade" is a complete oxymoron, as much as "Free Crime," "Free Patents," "Free Citizenship" and "Free War." Every inter-nation interaction, not just war, is an extension of politics by any other name.
  We needn't much care how much of our currency other countries hold, since reserves only affect exchange rates, and we have adequate policy options in response to ANY moves by any other country to increase or dump their foreign currency reserves. It is only a question of exercising policy agility. If a population desires different Fx rates, the best tool is national initiative, not confusion about whether to express more allegiance to international traders or to our nation. Modern currency does NOT store intrinsic value. If robbers instantly stole all cash throughout the USA - leaving behind only empty ATM machines, a barrel of oil, and toys with lead paint & melamine - citizens could simply distribute a new currency and take the initiative to find alternatives to imported oil, lead & melamine.

Why DC Saved the Economy, Then Permanently Destroyed the Labor Market - Autocatalysis Stalled For Now

Commentary by Roger Erickson

Why Washington Saved the Economy, Then Permanently Destroyed the Labor Market

Apparently, our advanced technologies have so far only enabled us to more precisely target our own foot. Obviously, WE ARE CAPABLE OF ACHIEVING FAR MORE THAN THAT. It's a matter of learning better uses for our emerging tools ... by practice.

This is a VERY useful article. It explains much about political operations,* which cannot be ignored any more than currency operations can be ignored.

Mindless, narrow class war is playing out, just like between rival Alawite/Sunni/Shia villages in Syria ... just in a more abstract venue. Is our internal class war - "financial terrorism" - just as self limiting for our aggregate? Of course. What can we do about it? How can we get back to continuously forming "a more perfect union?"

By setting our sights on even bigger, desired outcomes? On consensus outcomes that transcend the trivial tactics that are now masquerading as national goals? Surely Americans can dream audacious dreams big enough to stimulate everyone's imagination? Anything less gets boring, very quickly. 

How can we get ourselves to do that? No one can predict solutions, only practice finding the unpredictable solutions. We need more interaction, more talk, and more practice at social auto-catalysis.** And, paying far more attention to adequate K-12 education would also help. That general process falls under the heading of cultural OBT&E - what we can either call "COBTE," or just auto-catalysis.

Otherwise, all we can be will remain BELOW something that is greater than the sum of our parts. We can't chase our Achievement Gap by bickering and hoarding .. only by creating - which requires discussing all perceived options and then exploring them. In short, we need to get back to practicing auto-catalysis. The highest return, by far, is always the return-on-coordination, and it can only be pursued by constant practice at auto-catalysis.


*[Note esp. that a "plant" seems to have immediately hijacked half the comments to the straw man issue of immigration. If nothing else, the 1%'s hired lobby is disciplined and organized.]

** [The definition of auto-catalysis transcends the cooperation inherent in teamwork, and emphasizes that team practice continuously enhances and enlarges the return on teamwork. Auto-catalysis makes teams better, and represents the "moment" of, or best method for, accelerating cultural Adaptive Rate.]

Colossal Policy Mistake: Campaigns to Preserve the Static Buying Power of a Dynamic Asset

Commentary by Roger Erickson

Recent discussions with co-authors here at MNE drove home how vast our distributed policy mistakes are becoming. It all seems to stem from a fundamental decline in Situational Awareness. We're simply not sharing enough operational information, across disciplines. The consequences are devastating. Failing to appreciate the most basic aspects of fiat currency operations is one glaring problem, but not the only one. Lets look at fiat currency operations.

Our starting premise is that a "fiat" currency regime exists only if both foreign exchange (Fx) rates and the entire national currency supply actually float freely, in every sense of the word. A national currency is always first and foremost a dynamic unit of account, whose volume must float freely with net economic activity. No liquidity, no economic activity. Consequently, our ongoing effort to stabilize the static buying power of an inherently dynamic asset is our most fundamental and colossal mistake.

What kind of fool would try to save "fiat?" For example, I can sit in a deck chair with a cold beer - ostensibly saving "fiat" all I want, smugly consoling myself that all my saved initiative is steadily appreciating in real value. NOT! By the time I decide to put all that saved initiative to actual work, I might not even be capable of shaving myself unassisted! Repeat after me. Fiat is a dynamic, not a static asset! Ditto for fiat currency.

The advantage of fiat currency is a growing policy space and unlimited policy agility. Those benefits are more than worth having - but ONLY if it they are utilized aggressively, with a bias to action.

Yet our vast financial system is applying astounding, inappropriate pressure to coerce us into trying to save fiat! Why? Whatever the diverse reasons, ALL of them are tragically misguided.

Logic dictates that we should use liquidity to grow capabilities, not fail to put currency to work. The whole concept of currency-based savings is illogical, and criminally tragic. The better lesson is to accumulate appreciating assets, and use depreciating assets ONLY for liquidity, when and as necessary - so that we can be agile, when executing real transactions with real returns.

Let's describe some basic fiat currency operations.  In any fiat currency regime, the currency supply automatically follows net actions of the electorate, not the reverse. Note the following observations.

1) A fiat currency issuing government COMMITS TO ACTION FIRST, then appropriates and issues a 'floating' amount of fiat currency as a consequence. The currency issuer guarantees it's own liquidity.
2) Then, that government destroys some small amount of currency, by collecting some small amount of taxes per arbitrary policy (to fine tune both aggregate demand & particular activities). The net currency left in play constitutes the net private stock of currency savings.
3) Only after that does it coincidentally issue T-Bonds - and then ONLY to drain excess banking-reserves, which only exist as a historic relic of happenstance.
4) Subsequently, for any and all transactions opened and closed by non currency-issuing citizens, the nation's licensed banking sysem guarantees real-time "liquidity" for real assets, by automatically issuing and slowly destroying temporary changes in currency supply - as the difference between [honestly appraised?] credits to sellers accounts and unpaid debits to the accounts of supposedly qualified buyers. That way, the electorate guarantees it's own liquidity too, insured by the currency issuer.
[Note that in a fiat regime, all the emphasis shifts from controlling the currency supply itself, to regulating White Collar Crime, or credit fraud. That transition requires accelerating agility of supposedly-accredited bank operations and their supposedly-vetted loan recipients. We want the added policy space and economic agility, so we must invest a fraction of the net returns into adequate regulation - otherwise we quickly produce our current problem, TBTJ banksters who think they own us, and our little government too.]

Next, as an example, note the following, simple consequences.

Within the huge market in fiat-currency T-bond trading, many traders erroneously assume that T-bonds occur in a buyers, rather than a sellers market. Just think about that for an instant. Does any issuer of fiat really depend on a bond buyer to get the fiat it can supposedly issue in unlimited quantities, at will? Wouldn't it behoove any T-bond trader to look into the real operations of CB/Treasury bond sales, and ask how they actually proceed, and why they bother with the T-bond process at all? What if one of the core axioms held by many bond-portfolio traders was simply completely backwards? An understanding of actual reserve-banking operations can save bond traders from significant losses. A great example, involving pre-euro, Italian gov bonds is described here (note that this occurred back when Italy still had it's own fiat currency, before ceding fiat to a foreign entity in Brussels, which had "other" primary interests and was immune to most feedback from Italy, or Greece for that matter).

Next, consider the national budget projections regularly released by the US OMB. Again, if you don't know the context, the data is meaningless.

Context for fiat budgets.

Consider the DoD alone, and the institutional momentum it adds to the political arena. The DoD operates on a Planning, Programming, and Budgeting System (PPBS), which continously works on 3, overlapping, 5 or 6 year Future Years Defense Plan (FYDP) - plus a Quadrennial Defense Review (QDR) every 4 years, as a "fix" for the deeply flawed PPBS! Meanwhile, Congress appropriates annual budgets, yet it takes at least eighteen months to prepare an FYDP, so defense staff "can be working on as many as three FYDPs at one time: the budget plan currently before Congress, finishing the budget plan the president will submit in January, and the early stages of preparing the FYDP the president will submit a year later."

Similar but less convoluted processes go on in every single one of the smaller Federal agencies.

So now what do you think of our ongoing Balanced Budget Debates? It's clear, as many experienced Senators and Representatives will readily admit, that we decide what to do first, and THEN we simply appropriate a budget to denominate what we'll have to hire ourselves to achieve. Paralysis from our current policy debates - in both major parties - could go down in history as one of the classic policy and/or military blunders of all time.  Balancing our own fiat? What does that even mean? It's lazy, disorganized semantics, nothing more and nothing less, and it's embarrassing to see it tying up our entire Congress, POTUS and electorate.

What did we say? In any fiat currency regime, "a government COMMITS TO ACTION FIRST, then issues fiat currency as a consequence, and then collects taxes per arbitrary policy, and only after that does it coincidentally issue T-Bonds - and then ONLY to drain excess banking-reserves."

Once again, if you stop and think about this, it drives home the point that a "fiat" currency regime exists only if both Fx and the entire national currency supply actually float, in every sense of the word. A fiat currency automatically denominates any and all real transactions, NOT the other way around.

The real meaning of a fiat currency regime is NOT that we can "spend" or print any amount of currency that we want to. Rather, it means that we can denominate ANY real transactions that any people in our country can convince us to let them execute, from local to national. Fiat simply means actions first, then obligatory accounting recognition of what has occurred in the real world - as an automatic stabilizer of real, dynamic-outcomes-accounting or functional finance. It all comes down to our methods for linking fiat to adaptive function.

That finally acknowledges that the real causality of any currency system is officially inverted from former theory. Prior to John Law, we simply had it backwards - same as for many other things that we only sorted out after the fact. Progress always follows the same principles. First we invent and explore unpredictably emerging options. Then we rationalize surprises through initially formulaic theory that eventually always turns out to be embarassingly inept - in retrospect. Finally, we eventually discover even more options to explore, by forgoing obsolete form in return for emerging function - thereby imposing the need to realign outmoded theories and entire paradigms.

Note that most of our frictions involve previously exalted theorists being repeatedly embarrassed by emerging realities on the ground. Sound familiar? Every capable grandchild can learn at least one new principle that their grandparents and/or parents were completely clueless about. Our practiced skill in absorbing unchanged principles while also openly admitting unpredictable errors is how we increase, or decrease, our Adaptive Rate.

The overall lesson is to just follow the emerging operations, and let the theory follow ... as fast as it can. This shouldn't be news to anyone, but we've allowed an entire generation of isolated economists to be surprised by the mundane - and another crop of the same is on the way. Better brace yourself. And if you can think of a way to head that inept army off at the pass - please do so immediately, for the sake of your country. Otherwise, we'll get ongoing austerity-insanity and national self-suicide, as we pursue the unattainable and unwanted goal of preserving the static buying power of a dynamic asset ... our fiat currency.

How does all this play out, in a population our size? In the case of fiat currency systems and current fiscal policy, everything subsequent comes down to nth order feedback loops among hundreds of millions of people. All those feedback loops sum - randomly or in an organized pattern - and the sum feedbck then affects what we all think one another should or should not do. One impact is indirect pressures to underfund and overtax activities which given groups don't initially approve of in other groups - especially if they aren't intimately familiar with one another.

The outcome? If there isn't adequate interaction and coordination between all subgroups, then absolutely appalling mistakes, lost opportunities and a growing Output Gap may ensue - as we flounder between alternately narrow policy positions. That's a tragic outcome for a nation of capable but dissociated citizens, because we're failing to grow the astounding potential return on optimal coordination.

When disorganized people try to manage a fiat currency system, a common blowback is that unprepared citizens hoarding fiat currency suddenly get an interest in preserving the static buying power of that dynamic asset. Once that occurs, they may easily lose track of the bigger option - utilizing "fiat" as an unlimited, coincidental outcome of fully floating and un-suppressed coordination. Things get sticky once that becomes an issue, because by then the complaining party has - by definition - already lost sight of the bigger options exposed through national affinity.

To understand organization, affinity and return on coordination, it's useful to keep a simple system mantra in mind.

Interactions drive awareness.
..Awareness exposes group opportunities.
Opportunities demand timely, coordinated actions.
..Coordinated actions drive interaction.

Organization is a positive feedback loop, referred to as autocatalysis. It is a runaway proces, but only if we set it in motion and keep it running freely.

In short, we as a nation, are what we practice. Fiat bookkeeping to track the dynamic value of diverse transactions is just one of the many, trivial data patterns we use. They're all coincidental to the outcomes we as a people desire and of he efforts we organize to achieve those outcomes.

If we don't let our aspirations as a nation float freely, then we cannot maintain a functional fiat currency - only a growing Output Gap. Our pursuit of our aspirations comes first, and the tangible measures of fiat follow coincidentally ... if we let them.

Can't Get More Straightforward Than This

commentary by Roger Erickson

A Question, Answered by Warren Mosler

Japan, US, ECB, they're all just bureaucracies doing what they do ... nothing ... until absolutely forced to, kicking & screaming.

Plus, it gets worse. It's hard to self-tune & select well from a pool of options you refuse to adequately fill. If you limit your options & reduce baseline diversity ... voila ... you steadily degrade the statistics & probability of making high quality selections. Duh!

Selection & option-diversity go hand in hand, inseparable, catalyzed by threshold liquidity & distributed initiative.

What part of 2-stage optimization don't bureaucrats get?

It doesn't matter what wave you select if you don't paddle your surfboard far enough out into the damn ocean!

This ain't rocket science. Just bureaucracy in inaction.

Managing the Real Fiscal Balance, Between Bureaucracy and Autocatalysis

commentary by Roger Erickson

Adaptive rate tracks the ratio of autocatalysis vs bureaucratic lethargy (entropy). So what factors tip social adaptive rate forwards or backwards?

"News is what people want to keep hidden, everything else is publicity" ~ Bill Moyers

Ergo, bureaucracy ("desk power") can't change without knowledge throughput, i.e., without fundamental shift in feedback patterns, aka group discourse patterns. You wanna change a systems' output function? Perturb the input function, to get a different output. The system itself will auto-adjust to a new equilibrium, until again SUFFICIENTLY perturbed.

It's never just a question of what coulda, woulda,  shoulda been achieved. It's a bluntly honest question of "How do we get THIS system to start doing what's needed, soon enough to matter?" First priority is always enough Situational Awareness - in this case including group self-knowledge - to honestly answer that honest question.

Until our electorate knows itself, it knows squat.

How does an electorate know itself?

Interactions drive awareness.
.....Awareness exposes distributed options.
Distributed options demand distributed actions.
.....Distributed actions drive distributed interactions.

(And so we - potentially - arrive at cultural autocatalysis. To actually tip outselves into group autocatalysis and maintain that state, then becomes an issue of maintaining distributed interaction patterns and rates above a threshold that differentiates the three zones of system dissolution, system stasis/hibernation, or increased system agility. Of course, maintaining or even accelerating autocatalysis requires continuous re-distribution of energy, liquidity, freedom to act, and public initiative. We coulda, woulda, shoulda been measuring this, but so far we simply aren't preparing ENOUGH students and citizens to even be aware of this option, let alone want to constantly accelerate our rate of exploring it.)

With all respect to all our Shakes-em-up peers, living or dead:

To be or not to be, an autocatalytic nation, that is the group-question.
Whether 'tis Nobler in the group mind to suffer
The Slings and Arrows of outrageously unpredictable Context,
Or to take Arms against our Internal Sea of Bureaucratic Frictions,
And by opposing, endlessly counter them: to never die, to never sleep.
To actively Dream while still awake; Aye, there's the rub,
What of that dread of something after change!
The undiscovered Country, from whose desks
No Bureaucrat returns. PDSA? Exceeds their OODA will.

And makes Bureaucrats rather bear those ills we have,
Than fly to others that we know not of.
Thus Conscience does make Cowards of all Bureaucrats,
And thus our Nation's hue of Distributed Resolution
Is sicklied o'er, with a pale fear of Thinking,
And decisions triggering great pitch and moment.
With this regard bureaucratic Currents turn awry,
And lose the name of Action. Hell no! you say,
The feisty Boyds, Demings & Shewharts? In thy cursings
Be our #$%&! new explorations always triggered. Hell yeah!

How to NOT Understand Tuning and Adaptation of Recombinant Systems!

commentary by Roger Erickson

Russell Huntley forwarded an article from ZeroHedge, prompting the following question.

With a declining innovation premium, will innovation only be able to exist as "open source"?

Wrong, question, really. This is just a belated restatement of Walter Shewhart's famous axiom about the statistics of complex systems.

"The highest cost, by far, in any complex system, is the cost of coordination." Walter Shewhart

The inescapable corollary was considered so trivially obvious that it was left unstated by Shewhart, Deming, Shingo, Boyd and the entire statistical process management field: "The highest return, by far, in any complex system, is the return on coordination."

That's simple system dynamics.  Call it auto-catalysis if you want, but the simplicity of the logic remains the same.  What's the innovation premium on writing the US Constitution, going off the gold std in 1933, or launching NASA?

With a steady source of uneducated beginners, however, it's absolutely necessary to restate the obvious, every day. Yes, it's rather comical to see how it takes these ZH guys to catch on, but they simply reflect the average situational awareness of students coming out of our schools. Face it, 99% of the electorate is about 4 decades behind logic, just in the field of computer software alone.

The innovation premium has always been this way! For about 3.5 billion years, just for life on planet earth!

It's called optimal "recombination" - quite literally

ZH is just defining "return" as personal return - to components in a supposedly organized system - in the form of personally hoarding static assets. Once they grow up enough to recognize the far greater return as group return-on-coordination, they've at least approached the logic of primeval biology. Social species invented alternate hoarding strategies: distributed hoarding of dynamic assets, i.e., the methods for tapping return on coordination.  That's how social species and organized teams leave Libertarian hermits in the dust.  EVERY organized system is based on the principle of optimizing recombination. Every coach or instructor tries to teach the value of teamwork, but apparently mostly in entertainment areas like sports, music, dance & drama.  Once grown up, of course, we also practice organized war.

Sheesh!

Something is terribly wrong with our education system. Are we purposely TRYING to dissociate? Or is distributed situational non-awareness just a coincidental byproduct of growth in numbers?

We better hope that that temporary group-clumsiness post rapid group-growth is a transient phenomenon, or else we'll find ourselves a cliff to clumsily fall off of.

This is not so different from any adolescent going through a growth spurt, and getting clumsier before they can get agile again. The only difference between one growing adolescent and one growing nation is that growing systems, including human cultures, are ALWAYS going through a continous growth spurt. Subsequently, they are ALWAYS desperately trying to re-establish group agility, and keep it within shouting distance of group growth.

This ain't rocket science, just simple system dynamics. There's no reason why every kid shouldn't have completely absorbed this by age 10, as their fall-back habit.

It's Not the Static Capital, Stupid! It's the Net SUM of (static + dynamic) Capital.

commentary by Roger Erickson

There's a reason I feel like I've been talking to a brick wall all my life.

My entire culture IS a freaking brick wall.

As just one example, orthodox capitalists are toxically confused over a fundamentally simple feature of all social species.

Every culture is, by definition, a brick wall. It's always been this way. The latent capabilities are always stacked out the Wazoo. They can be unleashed only by group practice. People who understand this innately are typically the youngest child in a large family. From the onset they get to observe team activity at work, well before they get immersed in it, and lost in defined roles. It's rather like the coaches kid sitting on the bench for years, before even being eligible to play.

One lesson it's faster to learn by observing vs being on a team is that any team member or citizen seeking credentials or prizes is, by definition, a "toxic" team player. Alfred Nobel should never have endowed the Nobel Prizes, since they promote and reward totally academic endeavors and misely perspectives, at the expense of operational practice.  If we traded every Nobel Prize winner in history for a double dose of Walter Shewhart, W.E. Deming and John Boyd, we as a country would be far ahead for the trade.  Academic prizes weren't necessary through 3.5 billion years of evolution, and aren't necessary now, unless taking our eyes off the prize has become our suicidal goal.

In adaptive systems, component and system dynamics are always in both competition and cooperation.  Net benefit accrues to the extent that they optimize the combination of local and group initiative, not either alone. Dynamic return on coordination swamps both team-only and individual-only strategies, by far. To say it formally, it's simple, 2-stage optimization in real-time, that expands via successive layers of increasingly distributed autocatalysis. However, you don't even need to say it formally. It's obvious to little kids sitting on the bench, watching, seeing many possible combinations of individual and team outcomes, while waiting for their chance to join and/or change the game, or imagine inventing totally new ones.

Orthodox capitalists are toxically confused over this fundamentally simple feature of all social species. How is it that we invented both calculus and capitalism ~500 years ago, and the two have never met! (At least not where it mattered most.  The two fields use one another shamelessly, but have never formally met.) You couldn't make this up.

For those with the opportunity to watch and recognize a system before joining, endless opportunities to tweak - or replace - the entire process are easier to see. Few immersed in arbitrarily specific roles (e.g., seeking "prizes") in any version of any game are as likely to see the spectrum of options for changing the whole game.

It's not the static capital, stupid! It's the dynamic, net sum of distributed (static + dynamic) capital. We are ALWAYS in the process of completely changing the entire game, OVER the objections of all the Luddites working harder at specific things they learned how to do yesterday. It's the infinitely nested Degrees of Freedom, Stupid! NOT any subset of them whatsoever. By mathematics alone, there are ALWAYS more options awaiting than we can possibly imagine. Go do something to enlarge your imagination, rather than leaving it where it is today. Ditto for your culture. Do something to trigger bigger challenges worth going after, and achievable only through complete indirection. Otherwise, we're leaving our latent capabilities unemployed. For what reason? Eating more twinkies? Get real, or get extinct.

How many people today would rewrite the entire US Constitution? Or invent something radically different, and even better? Why not? We did it once before. Are you seeking prizes in the current game, or willing to design games involving an order of magnitude more imagination.

Which sound more satisfying, and more fun?

Forget Paris.  How ya gonna keep people down in a role, once they've seen "gaym" systems?

The orthodox among you will be too inhibited to see the value in that degenerate statement.  Try exploring it in a virtual game first, then imagine selecting from some of the more interesting options that crop up.  The ones you haven't thought of yet, and can't even imagine.   They're out there.