Friday, September 27, 2013

Elegant Fixes Desperately Needed, To Stem Our Increasing Flood of Critical Social Bugs

Commentary by Roger Erickson

One wag just wrote to say (paraphrased) that: [I just read an article by Warren Mosler on Demand Leakages, and of course I totally agree with the concept, but I can still see the objection that many will raise. If people "save" by buying bonds, their currency has gone to the government or to another bond seller, who is presumably planning to spend it. Meanwhile, investments in the stock market send currency to the stock sellers, who also spend it into the economy. No one has really saved currency. They've only bought bonds or stocks. The supposed savers have only purchased something. That's what the gold-bugs mean when they say we need more saving so that we can have more investment. I agree that the gold-bugs are wrong, but I don't know how to respond to their argument in a way that quickly gets more citizens to understand this important issue.]

This is a fascinating question, which shows how far we have to go to achieve adequate Situational Awareness or Context Awareness in this country, and how many levels of understanding there are between here and that Desired Outcome state.

First off, the key presumption about net "sellers" spending all or even most currency back into the economy is plain incorrect. One of our chief problems is that the net sellers are NOT spending the increasing amounts of currency which they accumulate.

That, by definition, is what happens when a financial income and wealth disparity develops.

[This raises the question, of course, of how a subgroup of any society becomes a net seller of any assets, year after year. Shady "acquisition" semantics are, of course, a pre-requisite - but that is a topic for the likes of Bill Black. It would make this post minimally 10x longer.]

There are many issues which cascade from this point made by Keynes, as well as many before him. It boils down to a Sectoral Imbalance, when the Middle Class or bulk of a population do not receive enough social credit to actually consume what they are capable of producing. Most skip over the links between produce/consume/grow.

The key presumption of most graduates of our current school system seems to be that all sellers of stock are equally likely to spend any received liquidity units back into the real economy. As noted, most people gloss over this point, no matter how often it's stated, and go blithely on their way.

Granted, it's a slightly subtle "system" point, so there's no one liner that exposes it for everyone. However, here's a sequence I've found to be pretty portable. It works on most audiences. It's all in the delivery. :)

Social Bug Fix #3000 (8 "lines" of social code)

1) What if some "honeypot" agents simply scavenge vast amounts of currency, and take it out of EFFECTIVE circulation? Could that happen? 
   # So far, all I've encountered agree that this is possible.

2) Do ANY such honeypots actually exist in our market. # Most will readily admit "Yes."
 # Even Warren Buffet constantly says he sits on huge piles of currency, and that it's getting harder to find things worth buying with it! He's been saying that for decades. He's not alone, by any stretch of the imagination.

3) What happens to our effective currency supply if growing proportions of national currency - supposedly in circulation - are actually not FUNCTIONALLY in circulation? Our theoretical assessment of adequate currency supply is therefore increasingly bigger than what's available in practice, right? 
 # It's Ye Olde problem: the difference between theory & practice is always bigger in practice than in theory. :( 

4) Do some of our existing "honeypots" use their unused currency hoards as a Sword of Damocles, held over policy deliberations? 
 # Many people already answer "Yes," hopefully more every day, until we have a majority catching on, and insisting upon campaign finance reform - plus other responses.
5) Thereby the accumulation of significant currency hoards becomes a differentiating and distorting tactic available only to a select few, right?
6) So how long can those honeypots resist the awful temptation to use their rare bargaining chips to circumvent the very democratic process that got us, and them, this far?
 # Only until one of them doesn't practice restraint? Then the others have to act too, or else cede the game, like the rest of us.
7) Do we have any choice except to act - or succumb? Whenever a bug appears in any system - honeypot or other - it MUST be fixed, or it WILL eventually be used.

8) The only question is how artful and elegant our social bug fix can be. Right? :)
That sequence usually gets people on board. However, even then, most people are unwilling to actually act. They'll go back to saying that all politicians, political parties and campaign finances are broken ... EXCEPT theirs, of course. :(

American Ingenuity not circulating.
Apparently, some other - unnamed - types of honeypots are also hoarding most of the American ingenuity and audacity that we used to have. We may or may not be issuing as much to our kids, but whatever ingenuity  we still have, less of it appears to be active circulation each year. Seems our Group Cognition Leakages are the enduring causality behind our Demand Leakages. :(

Please let me know if anyone comes up with a shorter or more elegant "fix" for this particular "social bug". This particular, 8-line, fix typically takes 2 beers, or a whole pot of tea, or one good glass of Port, etc, etc. It's portable (no pun intended), but nevertheless, few will take the time to sit through it. People seem too rushed to actually think about their unemployment. :(


The  of a aristocrat-spawned orthodox economic religion.

and the (missing)  .

The Fix, the Fraud & the Missing Bug Fixes ?

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