Double-entry Accounting Dogma Constraining Eusociality

commentary by Roger Erickson

In a post at his blog, Warren Mosler asks:
Fiscal Devaluation in Europe - am I missing anything?
[see excerpt at bottom]

Warren,
As far as I can see, you aren't missing a thing. You're just not going far enough to get at the root causality, and attacking where the forces generating these problems are actually vulnerable. Here are some thoughts on our predicament.

1) The very fabric of static, double-entry accounting is mis-taught as a dominant and adequately dynamic management policy, rather than a simple inventory tracking system. That's an even deeper conceptual failure that has to be completely challenged, analogous to a flat-earth view or still-existing "divine-right" aristocracy laws in some places.

2) The ONLY way such misconceptions persist and grow in dynamic cultures is when our interaction patterns and our body of cultural discussion becomes so dissociated that it can no longer maintain an adequate representation of national Situational Awareness. That simple fact is our greatest National Security Threat, and requires nothing short of initiating and sustaining a serious, prolonged call for a Constitutional Assembly, or a similarly serious bout of soul searching and national reinvention.

  The fact that too few are listening to you, and especially to the many people like you in multiple disciplines, is the deeper problem. We're letting our own wolves loose from our own backyards, and no one is listening to all the kids crying wolf. That's very bad.

As to Harvard economics & the current French 'court,' leave it to accountants/economists alone, and this is what you get. The fatal flaw in the Harvard/France approach is that they're treating "fiat currency" primarily as a static, limited commodity rather than as a simple liquidity unit. The outcome is that their entire model of their own human population predicates a static equilibrium rather than a evolutionarily explosive growth system. This can only end with some sort of explosion, when management can't contain the evolution of the components.

Why and when does any evolving system "blow up?" That becomes possible as soon as the ratio of momentum within reactionary, infrastructure-maintenance channels can no longer contain and suppress the momentum generated by constantly mutating and evolving diversity-generating channels (aka, the "build-out" channels). It just needs a trigger. By definition, an adaptive sysem can cede the future gracefully. A non-adaptive system blows up and regresses. We're about to see how adaptive we as a people really are.

The fatal flaw of double-entry accounting as an adequate management method.
Double-Entry accounting is flat out missing the fact that it's trying to "account" for the sum activities in a dynamically evolving system. Where are the provisions in double-entry accounting for net creation - i.e., the mutations, innovations and recombinations - that drive the very return-on-coordination that drives the momentum of evolution? Static accountants, having no formal explantion for the act of creation, are always amazed that it occurs, call it profit, and then presume that they can determine which "inputs" must own which "outcomes" since they appeared on their watch. Given the complete unpredictability of that input/output conversion, that step is always fertile ground for Contral Fraud. Our reality is that we have zero predictive power, only selection power. Evolution actually occurs as the SELECTION process which figures out Adaptive, i.e, unpredictable, solutions to the subsequent asset allocation task, regardless of what arbitrary bullshit accountants spew. Asset allocation options have to be explored, not previously declared.

I'm at a loss as to how that ageless fact was somehow weeded out of double-entry accounting and capitalism dogma.  The crucial step may have occurred earlier, with the imposition of divine-right and the class-based feudal system which completely imbalanced rather than scaled up, the prior, pass-through, tribal economy systems. In groups small enough to retain a sense of affinity, the prevalence of dynamic over static value is obvious. As Jefferson noted, people in larger groups lose adequate exposure to the obvious benefits of dynamic power, and revert to the odd state of trying to be hermits just as they've achieved grouping in an even more social state of a social species. That's exactly why merchants have no country.  It should be clear to all that it's our methods for scaling eusociality that are lagging, NOT our economic capabilities, which are running far beyond our current group intelligence.

Rather like the methods allowing us to optimally use unpredictable sexual recombination and cultural recombination, the adaptive power of Double-Entry Accounting must be fundamentally changed, so that it can somehow "account" for the unpredictable nature of reality, and address it by a flatter distribution of resources among those available for recombination.  The success of an Evolutionary-Options-Recombination engine - aka, we the people - tracks it's resource throughput and recombination rate. Sustainable success has never tracked any participants claim of special or divine knowledge.  If there had EVER been any evidence of predictive power in the universe, we wouldn't NEED evolution.

Given that, what we're really facing is an intractible argument between social camps.  One camp claims special knowledge and hence divine right to narrowly direct continuous asset re-allocation.  The other camp says 'let's hurry up and actually find out, before our kids, with their unpredictable characteristics, get impatient, and grab the reins before they're ready.'

Those interested in Double-Entry-Accounting ought to be honest enough to explain how to apply their record-tracking to the known history of net physical/biological/cultural evolution and history.  The weight of that history is that there is always a better way.  Who the hell are accountants to claim that equilibrium - i.e., matching universal input to universal output - is a better way than the evolution that surrounds us?  Their current position is not only supremely ignorant and arrogant, it's simply boring, and pathetically limiting.

Despite all evidence from the sources before their very eyes, accountants - like Shamans of old reading bones or entrails - claim the skill to tell us who owns and may constrain the Golden Goose - return_on_coordination - as a static asset, instead of just letting it exponentially multiply additional golden geese as everyone's permanently guaranteed food source. This isn't even some kind of special stupid, it's just the pre-logic of 3yr-olds, something that one apparently DOES need an economics degree to retain. If we're going to act that stupidly, why not just reserve national governance as the special preserve of only those kids born with a silver spoon attached somewhere, and have done with it? After all, that's always worked in the past, right?

Worse yet, the junior buffoons lauded for publishing such idiocy are being farmed out from the court-favored Ivy League to dominate faculty positions throughout academia. By blind momentum alone, the Luddites are solidifying control and exerting their presumed right to bring their own dynamic system to a static stasis. She's gonna blow.

Harvard Economists: "Despite discussions in policy circles, there is little formal analysis of the equivalence between fiscal devaluations and exchange-rate devaluations, they wrote. This paper is intended to bridge this gap."

[RGE: Translation: "There's little formal evaluation of semantics; even less of full Situational Awareness, ... so ... lets anally analyze our semantics with sophistry! THAT'LL FIX IT!!!"   Weepin' Buddha on a decline! Have these harvard economists ever been outside a textbook?  Let's see:

Full, honest description of situation?             missing;
Meaningful definition of "fiscal devaluation"? missing;
Exchange-rate devaluation?                          labelled "bad";

Outcome? They don't have to alter the present status quo! Mission accomplished!! They'll be handsomely rewarded. Everyone can hope to fix deteriorating macro consitions simply by continuing to do what they've already been doing. That's exactly what most want - a way to just muddle on. 'Please don't ask us members of an adaptive system to actually adapt! We beg you!' This is exactly the perfect blend of naivete, wishful thinking, obstinance & complete idiocy that is ALWAYS most highly rewarded and lauded - in Luddite channels, i.e., by the typical denizens of existing bureaucracies. Their motto is "just keep doing what we're doing."]

"By increasing value-added taxes while cutting payroll taxes, a government can create very similar effects on gross domestic product, consumption, employment and inflation."

[RGE: More idiocy! No mention that net Output Gap keeps increasing because both population size and citizen capabilities keep increasing.  Hence, net conditions for citizens keeps falling, and net income disparity also keeps rising. Why aren't those issues mentioned in their calculation of the situation?  No wonder people have been emigrating from Europe for centuries.]

"The higher VAT raises the price of imported goods as foreign companies pay the levy. The lower payroll tax helps offset the extra sales tax for domestic companies, reducing the need for them to raise prices. Since exports are VAT exempt, the payroll-cost saving allows producers to sell goods cheaper overseas, simulating the effect of a weaker currency, according to the paper."

[RGE: Yet there is NO freakin' change in net aggregate demand!!! Certainly nowhere that demanded by the increasing rate of populationXcapabilities as a product. They've shifted some accounting numbers around, but haven't improved the composite situation - which is actually getting WORSE! Who invented this brand of Harvard Economics, Marie Antoinette?  "What, citizens are starving? Things look fine from here. Let them eat Double-Entry Accounting!"

What part of obvious can't these palace economists see? Given the reality of a dynamic, floating-value, fiat currency - rather than their imagined, fixed-value currency - the ONLY citizens who can possibly receive added benefit from this are those in the countries receiving the increased REAL exports. To be gruesome, this policy is the equivalent of letting foreign recipients eat French babies. Given the explosively increasing dynamic value generated by return-on-coordination in ANY adaptive system, it's not mathematically possible to assign static value to exponentially increasing dynamic value. Static & dynamic value are actually incompatible definitions rooted only in limiting semantics, not reality.

  Someone please go check all the windows at Harvard Economics.  See if they're intensely rose colored.]

"The policy also can help on the fiscal front, as increased competitiveness can lead to higher tax revenue, Gopinath said."

[BMHOTK! This takes the cake. If they churn activity between accounts, without any net change in gross activity ... they can extract even more rent - in theory. Brilliant!]

To extract maximal return-on-coordination out of a Recombinant-Options-Generating engine, the obvious solution is to systematically remove all obstacles to acclerating the completely open recombination RATE. This is Adaptive Rate written out for economic dummies.

How may we proceed, as residents in an economic system tasked with continuously finding and removing brakes on our Recombinant-Options Engine? Oh, we might look for any and all causes that let Options Disparity Variance get outside of survivable tolerance limits, i.e., quickly look for and adjust public self-control catalysts that are allowing atrophy rather than democratically directing growth of our net capabilities?

How about little efforts like ACTIVELY getting rid of regressive taxes, regressive regulations, and regressive policies that degrade rather than accelerate distributed innovation and the quality of our distributed decision-making? Just as a starting point?

By over-pursuing personal wealth and over-pursuing static net output as command & control metrics, is our eusocial nation-state tracking the wrong metrics? Duh! Absolutely.

By fundamentally neglecting our own interaction-rates and the policy-agility of all our bureaucracies, are we, as a nation-state that is just coming out of a dramatic growth spurt, also abjectly failing to regain scalable command and control methods appropriate to our organic growth rates? Duh! Absolutely.  We're not even treading water, let alone catching up.

So. What are we going to do about that, America?