Conflating CURRENT FIAT with FUTURE REAL OPTIONS

(Commentary posted by Roger Erickson - replicated from a comment first posted Dec, 2012 at Seeking Alpha)



Every citizen should learn the rudiments of Situational Awareness by, say, age 10, so that we as a people can keep exploring real national options, not just working at looting one another.

Teamwork. Surely that's not a difficult concept in such a sports-mad country?

Teamwork, like any goal, requires assessment systems, so we can practice before seeing if we can be successful in novel situations. Successful outcomes can always be interpreted in short, medium and long-term metrics. How about these familiar standbys?
.. fiat currency accounting?
.. proportional population employment?
.. survival of the country (based on capabilities & affinity ... of US citizens).

No citizen can assess what they can do for their country if they don't understand the basic operations listed above, starting with fiat currency.

Yes, we already have these measures that could let the public track success, but that doesn't mean that they're used. Largely because most citizens don't learn much about policy tools we already possess. Most of our problems were, in fact, taken care of by the Automatic Stabilizers enacted during the 1930s-1940s (social security, FDIC, unemployment benefits, etc). The only one remaining is Control Fraud (google William K. Black), and that's only because we let crooks talk us into deregulating financial crime, right up to repealing Glass-Steagall.

Everything else comes down to a fight between merchants and citizens, waged through the currency supply, either restricting it to preserve the buying power of hoarded cash, or letting it depreciate to continuously grow liquidity. Let's see how many grasp the following argument.

How do we afford to pay the "fiat interest on fiat bonds."

If carried far enough, that discussion eventually leads to 2 points.

First, we can't fail to pay the interest, since we can always generate as much fiat liquidity units as we want.

So, second, the argument reduces to either:

a) Arbitrarily maintaining the purchasing power of previously hoarded fiat (liquidity units), by progressively depriving an increasingly complex economy of both relative liquidity AND return-on-coordination [i.e., pay the fiat interest by draining private savings of previously issued currency; even though population & net capabilities... are both increasing]. [Even fools don't want that, when faced with a choice. Only pure sociopaths do.]

or

b) Instead, enlarge the fiat currency base [the unit of liquidity] with expanded issuance (public spending), thereby diluting the absolute buying power of yesterday's liquidity units. Why? In order to provide enough liquidity to readily DENOMINATE and hence rapidly explore the expanding options of tomorrow's return-on-coordination. Coordination possible from the pairing of more people with more capabilities.

That is the "SOCIAL-SPECIES DILEMMA." Evolve and stay in the adaptive race, by organizing on a larger scale ... or ... become a has been culture, and become either extinct or a domesticated lunch source for some other, more rapidly adapting species - i.e., one optimizing it's liquidity in order to explore expanding options faster than your culture does.

People who save excessively, i.e., hoard fiat beyond liquidity needs, are hoarding today's output and thereby depriving their grandchildren of expanded options.

Our grandchildren's options are reduced without our full investment in generating those options. Our Output Gap = grandchildren's Options Gap, and the relation is not linear, but exponential.

If our output gap is "j", their options gap is [j(e)], i.e., "j" to some unpredictable exponential "e".

That's how evolution has worked since the dawn of time. We die so that our descendents can be far more than we were. It's called sexual recombination, or cultural recombination, or - in general form - Options Recombination. (see the "Traveling Entrepreneurs Task")

This all follows from the simple, bottom-up dynamics of organized systems.

Walter Shewhart: "In all complex systems, the highest cost, by far, is the cost of coordination."

Obvious corollary: "In all complex systems, the highest RETURN, by far, is the RETURN on [investing in] coordination."

***

SeekingAlpha Commenter Zmartmoney added a key point.

To all who care to notice, you've just explained all our problems in one short treatise. The fact that 90% of the population does not understand any of what you wrote is our heritage - we, as a nation, are now virtually clueless as to how govt, business, or economies work and what role each of us plays in it. This is a testimony to the insidious nature and capabilities of politicians and their success in dragging the discussion into the ditch to drown it quietly while stealing from everyone in sight. The number of statesmen in the Legislative, Judicial, and Executive branches of our govt can be counted on two hands, and we'd probably argue about which ones those are. Our doom is sealed by our inability to grasp why we are here and what solutions, if any, might lead to our recovery to a state of being well informed and capable of making decisions in our personal lives and our govt. Sorry.

We as an informed electorate were not always this ignorant, nor do we need to remain that way. I hope we can someday prove him wrong. To do that, our grandchildren need more options, and they need to be AWARE of them. To provide those options and capabilities, we need to express more initiative (fiat) now, and also select where to apply it - wisely, not randomly.

Don't Look Now - But Some Zombies Are Recognizing the Return On Coordination

Commentary by Roger Erickson

This is like a segment from "Night of the Living Duh" movie series, where a fraction of the zombies actually start to mutate, & develop rudimentary cognitive skills. That's right, undead thinking. Given enough time, who knows where this might lead to?

Costliest 1 Percent Of Patients Account For 21 Percent Of U.S. Health Spending

You don't say? So the highest cost is the cost of coordination?

If we don't interrupt their train of thought, they might ... just MIGHT ... realize the obligate corollary. The highest investment return, by far, is the return-on-(investment in) coordination.

You can lead even a species of diverse molecules to be social, but you can't make 'em use their group intelligence? At least not at any impressive Adaptive Rate. 

How long has it been? 3.5 billion years? 

Guess we can wait a bit longer for our current species' train of thought to start loading at the station. There seems to be this National Semantic Debt clock that ISN'T ticking. No wonder our cultural train of thought is conflating "loading at the station" with "getting loaded at the station." Cognitive Prohibition, unwittingly (to say the least) imposed by Merchants?

Why Let Foxes Set Henhouse Security Penalty Fees?

Commentary by Roger Erickson

Witness yet another local feud over asset allocation. This one's between bank-service-providers & merchants. Several items will seem familiar to peasants wielding common sense, students of heterodox economics, and white collar criminologists.

Genesco Lawsuit Could Shake PCI Compliance Regime To Its Core

The argument's over who gets to fine whom? For what, when, for how much, and how frequently? This is always an issue in equitably managing private association "taxes &/or penalties." Rather reminds me of class-based policy for income & other taxes! For sustainability, shouldn't they all co-manage the strategic incentives, not just the immediate tactics?

"The root cause of conflict in this case isn't necessarily about the security standards themselves, but in how the card brands and payment processors choose to inflict financial penalties due to noncompliance and breach events."

"There is a presumption in favor of the payment processor built into the system."   [ya think?]

"The revenue stream generated by these fees is the dirty little secret of the PCI world"

"the revenue model creates a perverse disincentive for processors to push  [a protection-racket model]"

"one of the best outcomes of the Genesco case would be if it would spur the creation of an independent governing body that would assess PCI compliance and the penalties associated with it"

Gosh, maybe we could someday make the Fed, SEC, DoJ & IRS "independent" too? Perhaps even Congress? Wotta concept!! :(

The simple, adaptive systems rule to apply here is adaptive focus. Make policy serve emerging CONTEXT, since solutions to full context always require a whole strategy that is greater than the sum of it's tactical parts. 

It really seems quite simple, and we're more than adequately evolved to solve this. To succeed as a nation, just cooperate on group outcomes? Gee. Isn't that what social species do? Pay the cost-of-coordination, to reap the unimaginable, mind-blowing return-on-coordination. As far as we can tell, nothing has outdone that policy, for ~3.5 Billion years.  Hard to argue with that kind of sustainable success.

But that's just what we're doing. Why? We can't resist the temptation to tax the Golden Goose? Group self control for a growing group is something we achieve ONLY with increasing practice. The only way to profitably handle increasing degrees of freedom is with discipline that co-scales with those degrees of freedom. That's as simple as not trying to pilot a jet or aircraft carrier until you've adequately trained the crew, and even then provide them with enough practice to maintain adequate skill levels.

Ditto for a potentially innovative and inventive work force. Use 'em or lose 'em.

We Need Better Operations, Not Just Supposedly Better Tactics.

commentary by Roger Erickson

If you don't know tactics from strategy/policy/goal/operations, you're part of the problem. With neither situational awareness nor operational awareness, we're reduced to tactics masquerading as national goals.  Instead of policy staff discussing staging, linking & sequencing of economic maneuvers in our complex economic situations, we see idiots spouting gay marriage and abortion as key national priorities.

In that setting, the  following statement says a lot, but nowhere near enough.

"The eventual outcome would fulfill John Maynard Keynes’ dream of an international currency system in which both creditors and debtors share responsibility for maintaining stability."
The Tragedy of the European Union and How to Resolve It - George Soros

Keynes had a great perspective on economic operations, but he went off the rails at the goal and policy level.  Personally, I must completely disagree with Keynes' vision of an international currency system. That's as maladaptive as envisioning one, inter-physiological blood supply and blood type for all people. To maintain a high adaptive rate in any complex system, we must accelerate concurrent, multi-level selection at all levels of our increasingly distributed decision-making. In overly simplistic terms, we need competitive cooperation everywhere, in order to adapt - and that certainly includes preserving a selection market between sovereign nation models.

The most important thing anyone trained in any sort of systems science can do with the rest of our lives is help all professions share a deeper appreciation for our nation and culture as a system. Human culture simultaneously displays the most complexity and adaptability of any culture in history. Excessive cultural homogeneity hinders adaptive rate, and is suicidal. Even transnational currency homogeneity would be suicidal.  The eurozone's experiment with currency union preceding political union is only one case in point. It is a dead-end, and tempo counts more than they know. They will never recover the lost output from destroying their own creditor regions.

There are many research areas that understand these insights well, from different perspectives and using different jargons. Yet all of these disciplines are becoming progressively more useless to their own culture, through professional isolation. That's how so many, diverse, brilliant researchers end up working for and at the whim of policy knuckle-draggers like Karl Rove. It's a tragedy of epic proportions.

Results in most systemic research areas - from biology to military campaigning - are already stockpiled in excess of public utility. The public utility of these research efforts are actually declining, through isolation, and are largely relegated to endeavors supporting throughput of only trivial amounts of public initiative.

That's a tragedy because we know that initiative, whether individual or public, cannot be saved. It is either used well, or wasted well. Let's not waste it. Members of a social species cannot become so separated from their neighbors as to break social bonds we cannot live without. Loss of our return on coordination - while still scaling up the cost of coordination that comes with any and all forms of growth or development - only cuts off our face to spite our nose. It is mindless folly. If we cannot study and maintain our nation-wide connectivity, we cannot survive - no matter how much individuals know in isolated.   Our constant goal is a more perfect union, able, through accelerating coordination, to compound the value and capabilities of our individual citizens.  OpenSource is just a method that should be a universal, automatic stabilizer.

An evolving culture survives selective pressure through increasingly systemic adaptive response rate. If you work in any system science, please use your head to help your country, not just your transient pocketbook. We can only do that by keeping our colleagues close, and our Luddites even closer. None of us will continue to see further for very long, if we can't keep our Luddites alive long enough to stand on their shoulders.  The best investment is always in faster adaptive rate in our democracy.  Why aren't there investment vehicles expressly for that purpose?  There are, of course, but they simply aren't yet currency accessible.  I would challenge audacious youth nationwide to invent ways for all citizens to invest in more scalable democracy, faster/leaner/better.

Citizens don't let citizens be boiling frogs. We need optimal utilization of all of us.

Adrian Pabst — Building a civil economy

Game theory [competition] or gift society [voluntary cooperation for mutual benefit]? The narcissistic vision of the homo oeconomicus has failed to acknowledge long-documented evidence of the primacy of cooperation. In this Friday essay, Adrian Pabst explores the liberating potential of an anthropologically informed economics for the age of austerity.

Our Kingdom — Power and Liberty in Britain
Building a civil economy
Adrian Pabst

(h/t Energy Bulletin)

Neoliberalism aims for growth as the chief objective based on meritocracy that reward initiative, regardless of distribution. Social liberalism aka modern liberalism and social democracy aim for distributed prosperity based on social justice, recognizing that no one makes it on their own in modern complex society.

Note that the foundation of the universe of discourse is classical liberalism, which provided the intellectual underpinning of the U. S. Constitution. Liberalism traces its history to the Magna Charta in England and to Athenian democracy. The is the meaning of the saying that history has a liberal bias.

The tension within liberalism in general arises socially, politically, and economically from the trifecta of individual freedom, the equality that the rule of law requires, and the exigencies of community and social life. The rule of law and institutional arrangements mediate between individual liberty and social responsibility. Therefore, rule of law and institutional arrangements largely determine the balance of freedom in community. However, the rule of law and institutional arrangements are insufficient. Culture and the level of collective consciousness are also crucial in the balance.

Increase in complexity requires increasing adaptive rate through coordination. Increased coordination involves increased costs. The goal is to secure return on coordination exceeding cost of coordination.

The global economy can never hit a steady state that avoids the increase in complexity as long as population is increasing. One solution is allowing "natural order" to resolve the issue through the eliminationism that results from competition. This is social Darwinism. The other solution is to rise to the challenge together. This is the use of human consciousness and intelligence in a coordinated way.

British Bankers Will Again Own Spain?

“A flock of vulture funds is gathering in Madrid in the hope that a banking sector shakeout will finally deliver a bonanza of real estate and distressed company assets at rock bottom prices.”

Reminds me of Jim Rogers advice for vulture investors.

“Investors, get thee to a country just after conclusion of a war or other disaster.” Jim Rogers, paraphrased.

And he just paraphrased the British (who had no qualms about fomenting local wars in order to buy out both sides afterwards). The early bankers caught on to that strategy back in the 1500s.

‘Royalty’ [formerly temp war chiefs] originally caught on when it was suggested by a Pope ~300AD. You can look upon "royalty" as "affinity-bankers" who concentrated & leveraged distributed affinity ties, until formal currencies become available.

Currency bankers later found that they could readily "buy out" bankrupt royalty after disastrous wars - which they therefore began to encourage. It's the simple, narrow logic of saprovores. Buy at bankruptcy sales, even if you have to help cause the bankruptcy.  The currently worst parasite is a royalty clan aligned with a banking clan.  They're just two forms of banksters, one perverting affinity operations for private gain & the other perverting currency operations.

That "Austrian Economics" approach, however, is self limiting when applied to your own aggregate - which is exactly why all stable tribal systems relegated clan & class prerogative to temporary roles, to serve transient context. The rational way to mitigate excessive investment-bank momentum is efficient democracy – i.e., full-group policy discourse. That’s exactly what we’re having trouble ramping up quickly enough. Our political institutions that barely saved us in 1933 just aren’t up to producing adequately agile policy now that we have ~3x the population throughout the G7.

Message to the Edrigus & Inigas of Spain: "We NEED ways for people to invest in better, more agile Democracy. NOW!"

Cost of coordination is always the highest cost.
Return on coordination is the ONLY return that exceeds the cost of coordination.

We either invest in making our growing populations even more agile, or we regress. I don't know how to make that more plain.

Do we want to be to a dying mass majority owned, on the way down, by the Jim Rogers' of the world?

The war of 1776, our Civil War, FDR - in fact every war, whether inter-class or inter-national - shows that an aggregate ALWAYS has more than enough firepower to overwhelm any given sub-class, regardless of whether that subclass is royalty, landowners, military or banking. For net progress, our ultimate weapons are the social catalysts that scale coordination to new levels.

Social tools are NOT social catalysts, until they're tuned to optimal use.

Just in time, just as needed communication of minimally-required information is what every "tuned" aggregate needs in order to scale up coordination - based on trust in the return on coordination.

Once they bypass all the low-margin distractions, any aggregate can focus on their insanely great return-on-coordination.

Spain needs to cross that chasm and organize - not starve, sell out & give in to British banker-fungi (yet again).

Please Spain, wake up. For the sake of everyone. The whole world is watching.