Bill Mitchell — Subsidiarity – a European Union smokescreen to justify failure

One of the various smokescreens that were erected by the European Commission and the bevy of economists that it either paid or were ideologically aligned to justify the design of the monetary union around the time of the Maastricht process was the concept of subsidiarity.

In 1993, the Centre for Economic Policy Research (a European-based research confederation) published its Annual Report – Making Sense of Subsidiarity: How Much Centralization for Europe? – which attempted to justify (ex post) the decisions imported from the 1989 Delors Report into the Maastricht Treaty that eschewed the creation of a federal fiscal capacity. It was one of many reports at the time by pro-Maastricht economists that influenced the political process and pushed the European nations on their inevitable journey to the edge of the ‘plank’ – teetering on the edge of destruction and being saved only because the European Central Bank has violated the spirit of the restrictions that a misapplication of the subsidiarity principle had created. It is interesting to reflect on these earlier reports. We find that the important issues they ignored remain the central issues today and predicate against the monetary union ever being a success....

Bill Mitchell – billy blog
Subsidiarity – a European Union smokescreen to justify failure
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

David Andolfatto — Why the Blockchain should be familiar to you

Today's post is more about marketing the idea of blockchain. The word sounds intimidating to many people. That's probably because attempts to explain it often make use of a highly technical trade language that few people understand. My goal here is to think of ways to communicate the idea of blockchain in a manner that will make people feel like the concept is familiar to them. Indeed, I believe that the broad conceptual idea of blockchain should be familiar to us all.

Renowned Bitcoin expert Andreas Antonopoulos writes here:It will take time for the idea of decentralized trust through computation to become a part of mainstream consciousness, and until then, the idea creates cognitive dissonance for those accustomed to centralized trust systems. With thousands of years of practical use, centralized systems of trust are accepted unconditionally and without much thought as the only model of trust.

It's an excellent article and I highly recommend you read it. What I want to do here is push back a little on the notion that decentralized trust systems should necessarily create cognitive dissonance. In particular, I should like to point out that we've had tens of thousands of years of experience with decentralized trust systems. Alright, so let's get started.….

Very worthwhile read if you don't know much about blockchain already. It's a simple explanation that David Graeber might have written. It's basically how decentralized systems based on mutual trust work and have since prehistory, and how digital networking allows this to be scaled.

Notice how the blockchain described above could serve a very useful economic purpose. In particular, notice that the act of consumption (medical services) in [1], John is effectively using [2] as currency. At least, this is how things work in what anthropologists describe as "gift-giving societies." And if you think about it for a while, you'll notice that the same principle is at work in the various groups you interact with on a daily basis (your friends, your family, coworkers, etc.). Much, quite possibly most, economic exchange occurs via such localized trust networks.

The problem with this ancient blockchain technology is that it doesn't scale very well. There's only so much data we can fit in our brains. So as populations grew and as people started forming large communities, a new type of record-keeping system was needed. The model that came to dominate is one in which databases are collected and maintained by trusted third parties. Much effort is expended in keeping these private databases secure (not always successfully). It is often difficult for these agencies to communicate and reconcile their databases (as in when you try to send money from your bank account to your friend's foreign bank account overseas).

And so enter the "new" technology, blockchain. I hope I have convinced you what is new here is not the principle of the blockchain. The new technological developments are: [1] bigger brains (increased capacity for data storage and processing via computers); [2] better communications (the Internet); and [3] computer-based algorithms to serve as communal consensus mechanisms (e.g., proof-of-work).

These innovations will permit a revolution in the truest sense of the word: we are traveling back to where we began--but with planet earth as our village.

MacroMania

Why the Blockchain should be familiar to you

David Andolfatto, Vice President, FRBSL

Izabella Kaminska — Scaling and why it matters

Not enough attention is paid to scale. Scaling is the basis of civilization. As Roger Erickson has pointed out, it is also the basis of evolution. Dizzy calls our attention to it with respect to the push for decentralization and sharing. Descaling won't work, especially in a capitalistic system in which there are economies of scale.

Dizzynomics
Scaling and why it matters
Izabella Kaminska

Don Quijones — The Men Who Stole The Sun

Incredible.

If there’s one thing we should have learnt from this extended period of post-crisis drudgery, it is that there is no limit to how far our elected governments will go to protect the interests and privileges of oligarchs and oligopolies. In Spain, the government will even steal the sun’s rays to protect the country’s energy plutocracy.

Now the Spanish government is planning to tax homes that produce their own energy through solar power and store some of it using batteries. El País reports:

A draft decree prepared by the Industry, Energy and Tourism Ministry establishes a new fee to discourage the use of batteries or other storage systems by people who produce electricity, with solar or photovoltaic panels for instance, and who are connected to the national power grid.

This latest royal decree follows on the heels of an earlier one announced in 2013 that levied a tax solely on those who generate their own electricity. Once passed into law, intrepid small-time energy producers will be forced to pay a backup toll for the power from their solar panels, in addition to the access toll paid by everyone who consumes electricity from the conventional grid.

What’s worse, in order to figure out who is producing what level of energy (and, of course, how much to tax it), all solar panels would have to be hooked up to the grid. Energy producers who don’t connect to the grid could face a fine of up to 30 million euros (yes, seven zeros!). As Forbes reports, the intention is clear: to scare taxpayers into connecting to the grid in order to be taxed:....

Not mention that in some places gathering rain water is prohibited.

Wolf Street
The Men Who Stole The SunDon Quijones

Ajay Shah — Can India leapfrog into decentralised energy?

India woke up to telecommunications through the reforms of the late 1990s: the power of DOT was curtailed, VSNL was privatised, private and foreign companies were permitted, new methods of working were permitted. At the time, wired lines were mainstream and wireless communications was novel. However, setting up wire lines in India is very hard. India leapfrogged, and jumped into the mobile revolution for both voice and data. The concept of not having a land line at home was exotic in the US when it was normal in India. In similar fashion, India was an early adopter of electronic order matching for financial trading, and of second generation pension reforms: these things became mainstream in the world after they were done in India. 

Could similar leapfrogging take place in the field of electricity?

Game-changer.

This can be done since it is already being done in off-the-grid housing in many countries, including the United States, where building out the grid would be profitably expensive unless it were subsidized. Less expensive to subsidize decentralization, which California undertook some time ago with a 50% credit initially and later scaled back.

There are now university level programs in sustainable living in the US, as well as non-profits dedicated to promoting sustainable living. A wide range of products and services is also available commercially.

It's happening. Moreover, the issue of scale is minimized since decentralization through on-site and local provision are fundamental. The only issue of scale is producing enough products and training enough service people to meet the growing need. This, of course, provides a host of new job opportunities.

Surprisingly (or not) Shah does not mention negative externalities in his market-based analysis, although he does mention positive externalities. When negative externalities are accounted for, the true cost of carbon-based energy is far higher than the market price, and the difference is being socialized. That is uneconomic as well as anti-social.

Ajay Shah's blog
Can India leapfrog into decentralised energy?
Ajay Shah

Lars P. Syll — Solow on Good Hayek and Bad Hayek

Robert Solow:

The Good Hayek also knew that unrestricted laissez-faire is unworkable. It has serious defects: successful actors reach for monopoly power, and some of them succeed in grasping it; better-informed actors can exploit the relatively ignorant, creating an inefficiency in the process; the resulting distribution of income may be grossly unequal and widely perceived as intolerably unfair; industrial market economies have been vulnerable to excessively long episodes of unemployment and underutilized capacity, not accidentally but intrinsically; environmental damage is encouraged as a way of reducing private costs—the list is long.… 

The Bad Hayek emerged when he aimed to convert a wider public. Then, as often happens, he tended to overreach, and to suggest more than he had legitimately argued. The Road to Serfdom was a popular success but was not a good book.…

Lars P. Syll’s Blog
Solow on Good Hayek and Bad Hayek
Lars P. Syll | Professor, Malmo University

Brad DeLong picks it up.
Lunchtime Must-Read: Robert Solow (2012): Hayek, Friedman, and the Illusions of Conservative Economics

The source of their alarm was not the danger from Soviet communism or Nazi Germany, but rather the rash of interventionist economic policies everywhere, the New Deal here and the Labor Party there, designed to ameliorate and to reverse the ravages of falling incomes and rising unemployment…. Lionel Robbins… Friedrich von Hayek… Frank Knight… Jacob Viner… Henry Simons… [all] wanted both to propagate ideas and to change the world. (It is worth mentioning that both Knight and Viner were later privately critical of The Road to Serfdom.) What seems off-key (at least now, at least to me) is that they all felt themselves to be in a struggle between free markets and collectivism (or socialism) with no possible intermediate stopping point. That is the meaning of ‘the road to serfdom’….

This is the source of Margaret Thatcher's TINA — "there is no alternative" [to neoliberalism]. This involves the informal fallacy of the excluded middle, aka "false dilemma, black-and-white thinking, bifurcation, denying a conjunct, the either-or fallacy, false dichotomy, fallacy of exhaustive hypotheses, the fallacy of false choice, the fallacy of the false alternative" [Wikipedia]. A lot of otherwise smart people fell into this trap of illogic, known since ancient times. Ideological blinders, or class-serving motive?

Klint Finley — Forget Mega-Corporations, Here’s The Mega-Network

Corporations are arguably more powerful today than ever before. But the economy isn’t dominated by a handful of megalithic conglomerates. it consists of hundreds or thousands of smaller, more specialized firms. Our cyberpunk future-present is dominated instead by a new power structure: the mega-network.

TechCrunch
Forget Mega-Corporations, Here’s The Mega-Network
Klint Finley
(h/t Lambert at Naked Capitalism)

Study: Open access publishing of science research rising at unanticipated rate

A new study shows that the rise of open access publishing of academic research is faster than anyone had previously realised

The Raw Story
Study: Open access publishing of science research rising at unanticipated rate
The Guardian (UK)

Jessica Reeder — 7 Ways To Reinvent Your City, Burning Man Style

Every August for one week, the Burning Man festival takes place in a temporary city of its own creation, called Black Rock City after Nevada’s Black Rock Desert where it is located. This year, Black Rock City’s population will be 60,000 — bigger than Carson City, the state capital of Nevada.

Our real-world cities, meanwhile, are struggling to provide the services citizens need, limited by declining tax income, record debt, and increasingly complex social issues. Cities have no choice but find ways to do more with less. Many seek to harness the creative energies of citizens to fill the gaps, asking them to take a more active role in governance, service provision, and even in creating new services.

It’s easy to write off Burning Man as a hippie love fest in the desert. It has its own problems like any city, but that's selling it short, especially in one regard - its remarkable ability to foster participation. The event -- which for 26 years has expected participants to practice sharing, gifting, and radical self-reliance -- is an effective proving ground for experiments in community self-organization. In fact, participants build most of the city without any direct oversight from organizers.

Given that cities need its citizens more than ever, can the lessons of Burning Man’s Black Rock City, which pushes citizen participation to the limit, be applied to modern cities? Of course they can. Here are a few ways you can support participation, sharing and community in your own town.

Shareable
7 Ways To Reinvent Your City, Burning Man Style
Jessica Reeder

Jeremy Rifkin— Distributed Capitalism

Energy regimes shape the nature of civilizations... how they are organized, how the fruits of commerce and trade are distributed, how political power is exercised, and how social relations are conducted. The locus of control over energy production and distribution is beginning to tilt from giant fossil fuel based centralized energy companies to millions of small producers, who are generating their own renewable energies in their dwellings and trading surpluses in info-energy commons.

Distributed Capitalism

The new era will bring with it a reorganization of power relationships across every level of society. While the fossil fuel-based First and Second Industrial Revolutions scaled vertically and favored centralized, top-down organizational structures operating in markets, the Third Industrial Revolution is organized nodally, scales laterally, and favors distributed and collaborative business practices that work most effectively in networks. The "democratization of energy" has profound implications for how we orchestrate the entirety of human life in the coming century. We are entering the era of "Distributed Capitalism."

Read the rest at The Huffington Post, The Third Industrial Revolution: How Lateral Power Will Transform Society (Excerpt)

Excerpted from Jeremy Rifkin's The Third Industrial Revolution: How Lateral Power is Transforming Energy, the Economy, and the World, Palgrave Macmillan 2011.

Update: The Third Industrial Revolution and the Economic Imperative of Energy Efficiency by John A. "Skip" Laitner

We can quibble over numbers and the exact set of calculations, but the data I observe indicate that as of last year, we were wasting something like 86 percent of all the energy we threw at the economic process.

That means that, as an economy, we are only 14 percent energy-efficient! As one might imagine, that massive level of waste imposes an equally huge array of costs that further constrain the development of our larger economy. The five pillars in Rifkin's Third Industrial Revolution may be the only smart way forward as the synergies of each pillar lift the economy into a higher level of energy efficiency, economic productivity, and sustainability.

The good news is that many in the business and policy communities increasingly see energy efficiency as a smart, no-regrets investment opportunity for the U.S. Just one example?

It turns out that our current system of generating and delivering electricity to our homes and businesses is an anemic 32 percent energy efficient. That is, for every three units of coal or other fuel we use to generate the power, we manage to deliver only one unit of electricity to our homes and businesses. What we waste in the generation of electricity is more than Japan needs to power its entire economy! What is even more astonishing is that our current level of (in)efficiency has been essentially unchanged since 1960 -- since Eisenhower was in office.

And yet, there are larger numbers of Third Industrial Revolution technologies that can improve our performance. Combined heat and power (CHP) systems, for example, can deliver efficiencies of 70-90 percent or more, at a substantial economic savings. There is also an incredible array of waste-to-energy and recycled energy technologies that can further increase our overall resource efficiency and save us money.

My colleagues at the American Council for an Energy-Efficient Economy and I are working on an analysis showing that we could reduce our cumulative energy consumption by as much as one half even as we nearly triple the size of our economy by 2050.