Those who are mindful are beginning to realize that only an entirely
new operating system can prevent the collapse of civilization. However,
to date, no one has presented such a system. This presentation outlines
a system that has the potential to serve as a viable replacement for
the current paradigm.
By design, all of our dominant institutions -- religion, education, and work organizations -- erect barriers to learning. I have been in the fortunate position of having the leisure time to explore dozens of disciplines through reading hundreds, if not thousands, of books. My conclusion is that we must establish institutions that do not impose barriers to learning. Indeed, the survival of our species and possibly all life on earth depends on there being no boundaries to learning. The handwriting is on the wall spelling out our demise. We simply do not have the vision to read and recognize the obvious. It is because our institutions put blinders on us.
Of course, absolute freedom to learn must be balanced with survival and, by extension, productivity. The two key elements of survival are food and shelter. Another key element in my opinion is quality. The foundation for quality is scale. Therefore, any institution must have the production of food and shelter in a quality environment as its foundation. It just happens that gardening, building, and cooking are three of the most gratifying activities known to man so long as they are done at a proper scale. A human scale.
The realization that all existing institutions hinder our survivability is the key to our survivability.
In an interesting book that I may have previewed here at some time in the past, Lex Hixon traces enlightenment in ten different traditions. My interpretation of the message is that we need to move beyond the concept of a supreme being to one of a supreme identity. This means that we must develop to the point where we drop the ego.
While enlightenment is often presented in tandem with mysticism, it can be discussed in practical terms. It is more important than ever that anyone who is in a position to do so research enlightenment and get the message out to those who they can influence. Remarkably enough, there are theologians who have never reached the enlightenment stage. (I recently previewed a book, Darwin's Gift, by Francisco Ayala that makes the case that evolution explains why "God" did nasty things. Wow!)
The concept of supreme identity is consistent not only with the advanced levels of religious traditions but also with physics, biology, psychology -- just about anything you can name. One doesn't have to be a mystic to know this. A few moments of reflection is all that is required.
My research has led me to the conclusion that we must have living systems that encourage individuals to develop a supreme identity. In simple and practical terms, we're all in this together. A sustainable system would not permit accumulation beyond what is necessary to get us through a winter or two. Buying a 2500 s.f. house and working for 30 years or more to pay for it is not sustainable. If we die with material assets, then we have failed the supreme identity test and the sustainability test.
I just listened to a portion of the On Point segment on oil prices and transportation. One of the guests, Rick Geddes, mentioned that he had toured developments that encourage people to walk. Interestingly enough, this is the point where I and another guest, James Howard Kunstler, were at fifteen years ago. Kunstler wrote at least two books on New Urbanism and I became an activist and also promoted New Urbanism in my role as a real estate officer at a large pension plan. However, anyone who spends enough time -- without the boundaries of academia and corporatism -- studying the way we live comes to realize that some major adjustments will have to be made in order to shift to a quality life for the majority. (It should be noted that the majority of the world's inhabitants do not have a quality life now.) One of the keys is realizing that there are limits to growth and that the system that we have operated under -- call it capitalism or anything you wish -- has done a lousy job of recognizing these limits. If it takes Rick Geddes and others fifteen years to understand this, we will be long past our window of opportunity to shift to a quality existence rather than one based on material wealth.
I'm continually trying to come up with a way to capture the attention of those who wish to live a sustainable life. For those few who have an awareness of The Human Predicament, there appear to be camps on either end of the technology/organization spectrum. On one end are those who envision themselves living in small groups without much in the way of amenities. Some of this camp see themselves surviving as hunter-gatherers and appear, for the most part, to be unaware that with our current population, all that is out there to be hunted and gathered would be gone in a matter of weeks if we all made the shift. On the other end are those who think that if we toss enough money at new technology and let the free markets work their magic, a fix will be forthcoming and we will all live happily ever after in essentially the same way we have for the last few decades. Most of the technologists/corporatists seem unwilling to make any change in their lifestyle except for putting an extra hybrid car in the garage. Tom Friedman is the spokesperson for this group.
There has to be another way. A way that is somewhere between anarchy and business-as-usual corporatism. Some of the answers may be found in a ten-year-old book that I believe is a starting point for a move toward a more sustainable and quality existence. The book is The Living Company by Arie de Gues. It provides clues as to why we got ourselves in the mess we are in and how we can make adjustments to save core aspects of civilization. It helped shift my allegiance from the small group advocates end of the spectrum to the technologist/corporatist/organizational end of the spectrum. Like many, I have been turned off by the manipulation that is a key element of our current financial system. The result is that I have thought for a long time that there is little room for large organizations in our future. However, it is worth our time to sit down and determine if organization on a large scale can help us with our predicament.
Here are a few excerpts:
I put the question to a number of psychologists: Why do managers fail to exercise foresight? They explained that there is a human resistance to change -- a resistance which is basically good, for both the individual and society. One should not change for change's sake. However, said these psychologists, in effect, when change is demanded for survival, this resistance must be overcome and the only way for this to happen is through pain -- deep, prolonged pain! [p.29]
As I have mentioned before, the trick is to implement change that is not painful, but attractive.
Ingvar hypothesizes that our "memories of the future" provide a subconscious guide to help us determine which incoming information is relevant. The stored time paths serve as templates against which the incoming signals are measured. If the incoming information fits one of the alternative time paths, the input is understood. Information becomes knowledge, and the signal acquires meaning.
The message from this research is clear. We will not perceive a signal from the outside world unless it is relevant to an option for the future that we have already worked out in our imaginations. The more "memories of the future" we develop, the more open and receptive we will be to signals from the outside world. [p.36]
As for learning itself, according to the prevailing view, you (if you are a manager, at least) are supposed to learn only during a particular part of your life: the school years. This learning time is a time of fun, without too much responsibility. Then you move into real life, into work at a company where you apply your knowledge. Play stops and hard reality takes over. You are paid for what you know. The more you know (or have learned in school), the more you should earn. Education is not a vehicle for expanding your capability, but simply a credential for bettering your lot....
This attitude is a cartoon of intelligent human life. It portrays people as motorcars: you start at a service station (university) and fill up your "brain tank" with knowledge. Then you use your intellectual fuel to advance down life's highway. In this view, there is no need for institutions to make learning happen more effectively or on a larger scale. All the knowledge of the company is already embedded in the heads of its employees. Learning, except perhaps for a bit of "touch-up" learning to stay abreast of new technologies, is assumed to be already covered.
This view is reflected in the way we recruit, remunerate, and promote people. There is no place at the top for an actor who seeks to anticipate outside events by (for example) bringing people together to look at development that might turn into a crisis. There is no room for someone who admits that he or she does not have all the answers. The idea that the company itself could do some learning of its own does not enter into anyone's thinking. [p.56-57]
The other type of learning, as Piaget puts it, is learning by accommodation. In this type of learning, you undergo an internal structural change in your beliefs, ideas, and attitudes. When we learn by assimilation, says Piaget, the lectures and books of conventional school learning are sufficient. But learning by accommodation requires much more. It is an experiential process by which you participate fully, with all you intellect and heart, not knowing what the final result will be, but knowing that you will be different when you come out the other end. This interrelationship with the environment actually makes you grow, survive, and develop your potential. [p.60]
The second type of company, by contrast [to the economic company], is organized around the purpose of perpetuating itself as an ongoing community. This type of company has the longevity of a river. Unlike a puddle, a river is a permanent feature of its landscape. Come rain, the river may swell. Come shine, the river may shrink. But it takes a long and severe drought for the river to disappear.
Yet from the point of view of the drops of water, the river is horribly turbulent. No drop of water remains at the center for very long. From one moment to the next, the water in one part of the river or another will have changed. It will no longer be the same. Finally, the drops of water run out to the sea. The river lasts many times longer than the lifetime of the individual drops of water which comprise it.
Instead of stagnating like a puddle, long-lasting companies seem to emulate the flow of the river. No one drop dominates the company for long; indeed, new water drops continually succeed the old drops and then in their turn are carried out to sea. The drops of water are not destroyed; they are carried forward. The river is a self-perpetuating community, with component water drops that enter and leave, with its own built-in guarantees for the continuity and motion of water within its banks. A company, by initiating rules for continuity and motion of its people, can emulate the longevity and power of the river.
In such a "river company," return on investment remains important. But managers regard the optimization of capital as a complement to the optimization of people. The company itself is primarily a community. Its purposes are longevity and the development of its own potential. Profitability is a means to that end. And to produce both profitability and longevity, care must be taken with the various processes for building a community; defining membership, establishing common values, recruiting people, developing their capabilities, assessing their potential, living up to a human contract, managing relationships with outsiders and contractors, and establishing policies for exiting the company gracefully. [p.102-103]
Similarly, the river company has an underlying implicit contract. It, too, may never be written down, but it is obvious in every personal decision made by the company. The individual will deliver care and commitment in exchange for the fact that the company will try to develop each individual's potential to the maximum. [p.118]
Even if you develop a high-caliber system of innovation, you will still not have institutional learning until you develop the ability to "flock." Flocking depends on two of Allan Wilson's key criteria for learning: mobility of people and some effective mechanism of social transmission. [p.135]
The picture was very different in the ten successful companies, all of which eventually became significant international businesses. Eight of the ten had never held a loan. They were entirely debt free and always had been. The two companies that had borrowed money had done so to meet specific short-term needs. They had since repaid the debts in full.
Conservatism in financing, in short, is not merely a conceit of a former, less credit-happy age. It seems to be an essential condition for companies that hope to survive to a ripe old age. When companies know how to "listen" to their financing, they are ready to follow the path of a natural, long-lived evolution. [p.174]
After the euphoria of the Liberation (which in Holland is still written with a capital L) came, with the Marshall Plan, a dogged mixture of realism and idealism. There would be social equality to prevent the misery of the crisis years from reemerging. The rebuilding of the town, the port, and the factories would create wealth for a "new beginning" (as we called it) after the depths of the war.
The times created a great feeling of togetherness. Everybody pulled their weight for the general good. If the country did well, if Rotterdam did well, and if our companies did well, we all knew we'd be doing fine. And it worked.
By the early 1950s, there was an atmosphere of enormous hope. Everything could be done -- no, it would be done. It was great to play on a winning team. At the same time, there was not much wealth. Life was simple and spartan by today's standards. We did not question the necessity of creating material wealth. Anybody could see the need for it. There was constant reminders in the lingering memory of the Great Depression, the war damage, and the displaced persons everywhere. Material wealth was necessary to repair and to prevent it from ever happening again.
Unfortunately, our current crisis is not as evident to the casual observer as it was in postwar Rotterdam. And, we are going to have to solve it by contracting rather than expanding.
Nor did we question what, in retrospect, seems like a paradoxical premise: that the most effective way to produce this wealth was to join together in large institutions. We knew that we could create wealth only on a large scale. [p.187-188]
The wide distribution of power can be incredibly frustrating, but it means that the number of minds that are actively engaged in the decision-making process is increased considerably. [p.193]
A healthy living company will have members, both humans and other institutions, who subscribe to a set of common values and who believe that the goals of the company allow them and help them to achieve their own individual goals. Both the company and its constituent members have basic driving forces: they want to survive, and once the conditions for survival exist, they want to reach and expand their potential. [p.200]
Do companies such as this exist today? Are there any focused on developing sustainable infrastructure?
Upon this gifted age, in its dark hour, Rains from the sky a meteoric shower Of facts…they lie unquestioned, uncombined. Wisdom enough to leech us of our ill Is daily spun; but there exists no loom To weave it into fabric.
--Edna St. Vincent Millay (As quoted in A Bridge to the 18th Century)
I am currently reviewing a book by Amartya Sen entitled Development As Freedom. According to the publisher: "This is a landmark work that shows how in individual human freedom -- the exclusive possession, Sen shows, of no particular nation, region or historical, intellectual or religious tradition -- lies the capacity for political participation, economic development and social progress." In my opinion, this process of individual human freedom -- it is rare here in the U.S. -- has to be supercharged and a "loom" must be developed to integrate existing wisdom. Developmentally, as a society, we are not even to the stage that the founders of the U.S. were in the 1700's. (Wilber, 2000)
We have to create a new loom/institution that enables us to live in a way that provides quality and reverses the destructive course of humanity.
What would the physical infrastructure look like? While the physical structure of a village may be fine, no one has ever claimed that a village is innovative and encourages personal development. Quite the contrary, many find village life stifling. When I think about village, gossip springs to mind. We need to inject a new element into the village. That new element is the university. Another way to look at it is to talk about injecting the university into the village. Most individuals leave the university and their personal development stops. They enter into structures that have boundaries: religion, family, and work/corporations -- just for starters. (It should be mentioned that the corporate infiltration of universities has served to impose boundaries in that institution as well.)
Any new institution -- or re-tooled institution -- must be interdisciplinary.
There are many ideas out there that have merit. However, they do not address the personal development that is necessary in order to lift the world up and reverse the current, widespread destruction that is occurring.
Guiding premises and goals:
All life is important
Reduce suffering/Eliminate empty bedrooms (there are more empty bedrooms each night in the U.S. than there are homeless individuals)
Development is only possible though dropping the desire to acquire
Draw from the wisdom of all religions and traditions
Create an environment that can provide a way for bright, young people to envision a fulfilling life without producing offspring
Institutions must encourage and facilitate lifelong development
Physical infrastructure might physically resemble the villages envisioned here. The creator of the site wisely counsels us that cars need to be banished to the periphery.
Operational structure would resemble a university. Trustees who serve without pay. Researchers/fellows who work a baseline of 20 hours per week in hands-on productive activities. Gardening, Cooking, etc. Home Economics in the sense that this is work that is done anyway by someone in the household. What we are doing is incorporating all the elements of living into one institution that is far more comprehensive than the cobbled up mess that we currently pay homage to.
Improving local sources of food is key to thriving in the coming decades. (See this Richard Heinberg transcript for an explanation of the importance of local and labor-intensive agriculture.) However, if someone is working on an important project, other fellows who recognize the value of their work may step in and "cover" for them in their labor obligations. Fellows will be free to come and go at the end of the "quarter."
Capital will come from patrons who deposit money in an institution account that is drawn down as they use the services. First class accommodations in a university village.
We are at a stage where the next decade or two is fairly easy to project...
Stock market values will leak down in fits and starts to a fraction of their current "worth" as they have been propped up by manipulation rather than production. Why slowly? The system has been designed -- whether intentionally or not -- to make it difficult to do anything other than invest in Wall Street. It is quite likely that the government will increase the early withdrawal penalty in order to discourage people from taking money out of the market. The market will drop a bit -- say 2000 points -- in the next year or two and then stabilize after various laws are put in place and then collapse once it is clear there is no value. The collapse may be 15 years out. [Later note on 10/13/07: What can we count on? Firstly, the government will change the rules so that getting out of the market is more difficult. Big pension plans will stay in the market and by doing so, keep it propped up for a long period of time. Public and private plans will not be able to meet their obligations and the general public will want to be let off the hook for funding retirement for that segment of the population who have defined benefit retirements. Many lawsuits.]
We will transition from a wasteful society to a resourceful society. By necessity, rather than design.
Our education system will shift from developing manipulators to developing producers. Again, by necessity, rather than by design.
Almost all trees in urban areas -- at least on private property -- will be cut down for fuel. Obviously, this will occur more intensely in colder climates.
Most people who work in offices will lose their jobs in the next few years. One consequence will be a collapse of real estate values as current values are a consequence of two wage earners per household.
Many of the wealthy will leave the country for places like South America. It has been reported that George the 1st has bought a ranch in either Uruguay or Paraguay. Those who are perceived to be instrumental in this manipulation phase of empire will be about as popular as Nazis after WWII -- and they will flee to the same part of the world as the Nazis did.
I think that it will be possible to find quality in the future, but it will take the creation of new institutions and the transformation of existing institutions. Universities will have to re-tool from developing wasteful individuals to developing resourceful individuals.
I have characterized my concept in various forms through the years. It may be easiest to envision a first-class university whose mission is to work on the human predicament. Funding will come from patrons who provide capital in return for access to the physical infrastructure.
I watched The 11th Hour last night. Just one of several environmental movies recently produced. It is easy to watch the impassioned interviewees -- David Suzuki is an especially talented communicator -- and come away thinking that maybe the tide has turned. However, once you vacate the theatre, take a look around. We have some major work to do.
In the movie, James Woolsey speaks glowingly about automakers (during WWII) making the rapid shift from making cars to making tanks, planes, and all the trappings of war. He believes that the government will play a major role in the shift that is necessary to prevent further deterioration of our environment. Highly unlikely. However, there is no doubt that a rapid shift must take place.
We have to ask ourselves why we didn't take action earlier. What is it about our dominant institutions that did not permit them to take a leadership role? The answer is quite straight forward.
Religion is mostly about faith and dogma and doctrine. None of these are conducive to the change that is necessary to reverse our destructive ways. Religion is also about hypocrisy. Our local faith-based university has the CEO of one of the largest mortgage lenders on its board. He has personally benefited -- to the tune of hundreds of millions -- by his company making loans to people who likely can't repay them. Those who are least able to pay, pay the most. The original policy manual for this faith-based entity did not even permit the charging of interest.
Corporations are mostly focused on profit and are generally hierarchical. Both are mighty distractions when it comes to making the rapid changes that are necessary to reversing our course. The so-called free market has shifted prodigious amounts of wealth from the bottom and middle of society to those at the top.
Universities might seem a likely source of wisdom. However, they have been re-tooled since the start of the industrial age to train specialists, rather than to educate or enlighten.
And of course government is simply the hand maiden of these institutions -- regardless of which party is in power.
A system that is influenced by any of these institutions is literally and figuratively bankrupt.
At the movie's website, I was struck by the label of "Consume Less, Live More." For years, I have been dwelling on this paradox of our current predicament. With few exceptions, why would we want what we currently have? I long for the days when people did not walk around in a daze talking on their cell phones -- and for the days when our horizons weren't marred with the tens of thousands of cell towers necessary for us to walk around in a daze.
So, how do we use technology wisely and create a world that is sustainable? We have to dwell on the Live More side of the equation.
Over time, I have asked myself what it would take to Live More. My answer is no debt, no insurance, no job, no commuting, no possessions other than a few clothes, no cell phones or other distractions, no noise other than the sound of productive building and the sound of nature, no lights to dim a starlit night, no streets, fresh vegetables, and an environment that is high quality. And the company of those who share my concept of Living More.
ParadigmClub.org offers solutions to many of the problems that plague society today. Some examples are as follows: Carbon Offsets
Carbon offsets are typical of the existing paradigm whereby we use elaborate mechanisms -- complete with an office full of employees and bumper stickers -- to address problems. Carbon offsets effectively involve a transfer of funds from those who feel guilty about their carbon usage to an office full of employees who are professional carbonists. We need to switch from being professionals to being producers. As a refreshing alternative, we can make membership deposits into a club that actually constructs environmentally sound infrastructure and provides livelihoods -- operating and eventually building first class lodging properties around the world -- for a group whose quest for knowledge has no boundaries. As members utilize the property, they draw down their membership accounts.
Inflation and Deflation
Because members can access the properties at the lesser of cost or market, they are protected against hyper-inflation and deflation with respect to their membership deposits. This enables those who are morally opposed to usury to be protected from inflation and deflation.
One of the problems with the carbon economy of the past 100+ years is that we built an infrastructure that is of a scale that is not hospitable to pedestrians. It also created a tremendous amount of noise pollution. ParadigmClub.org properties will be built to human scale -- no buildings taller than 5 stories, for example -- and will banish automobiles to the periphery of any property. Asphalt and concrete -- major causes of environmental degradation -- will not be used or used in a minimal way.
An infrastructure built to human scale will lead to a more civil environment. We can actually acknowledge each other as we meet on tree-lined and perma-culture lined pathways. All electronic devices will be "banished" to private quarters in order to encourage members and scholars to live in the moment.
Access, Not Possess
Although private property rights are important, we place too much emphasis on ownership. Property ownership is a burden and makes it difficult to be nimble and expose ourselves to new ideas. If we deposit our capital in a "bank" that owns many properties, we gain access to all of those properties. We also create a system that encourages 100% occupancy. Empty rooms are the antithesis of environmental responsibility. The survival of the human species and all other species requires that we lower our footprint considerably.
A Taste of Freedom
The design of the reservation system permits one to essentially "bookmark" a place in the club system. We can make a small commitment and if we like what we see, we can make additional deposits for extended access to the system. It is hoped that members will eventually live all year round in this infrastructure that will permit members to live well with an ecological footprint that is far smaller than is the average today for those in developed countries.
This type of system is far more comprehensive than anything that exists today. It should attract start-up capital from any non-profit interested in sustainable development. Instead of providing grant money that is never seen again, non-profits will see their capital returned as members make deposits.
Several years ago, I read a book about Generational Cycles. The book was The Fourth Turning: What the Cycles of History Tell Us About America's Next Rendezvous with Destiny. My wife just completed the book and points out that although the book was written in 1997, it forecasts the election of someone like Bush and an event like 9/11. I found the book depressing in that it tells the story of how our misery is pre-ordained. However, it helps explain why it is so difficult to gain traction with the idea of a different system. It is likely that a different system will be better received in the depths of the upcoming depression. While I believe that a different system has the potential to break us out of these destruction generational cycles, history tells us that it will be difficult.
If you insist on staying in the possession/trading system with all its inefficiencies, here is an article by Bill Bonner that has been posted at Carolyn Baker's website. Bill mentions the problems with Ethanol and provides a link to a "letter" on the topic by his associate Addison Wiggin. By the way, the ethanol discussion is right on and should be obvious to anyone who does not have a vested interest in riding the dead ethanol horse for a while longer. (Actually, it should be obvious to those with a vested interest, but our current possession/trading/manipulation system makes it difficult for them to behave in an ethical way.) It should be noted that the diesel manufacturer mentioned in the "letter" is Cummins.
For the most part, consumers judge prices for bread and shoes consciously and reasonably according to their needs and means. When human beings value financial assets, they must contend with a debilitating lack of knowledge and feelings of uncertainty. They contend with these obstacles to a great degree by forming judgments in sympathy with or in reaction to the opinions and behavior of others. This surrender of responsibility makes them participants in a collective, which is not a reasoning entity. [p.25]
So much for "free" markets.
Why does stock market participation narrow and why does the economy expand more slowly in fifth waves? The simple answer to this question is that stock market advances and economic cycles must get weaker before they reverse. The final rise is where that weakness must be evident. Advances come in five waves, so the fifth wave is where the relative weakness manifests.
The mechanism of that difference, I believe, is the immense optimism of major fifth waves, which encourages the populace to engage in financial speculation. Third waves are built upon muscle and brains. Fifth waves are built upon cleverness and dreams. During third waves, people focus on production to get rich. During fifth waves, they focus on finance to get rich. Manipulating money is not very productive. [p.48]
It is interesting to note that books like Atlas Shrugged were written during third waves, but those who defend the principles espoused by Ayn Rand are defending fifth wave manipulations -- because that is the source of their financial support.
As I write this chapter, the "watchdog" of earnings, Standard & Poor's, has just bowed to pressure to change the basis of its earnings reports to "operating earnings" rather than total company earnings so that the reported P/E ratio will henceforth be about half of what it really is. [p.61]
This would be consistent with the manipulation that is characteristic of this era. CPI calculations are another example.
A deflationary crash is characterized in part by a persistent, sustained, deep, general decline in people's desire and ability to lend and borrow. A depression is characterized in part by a persistent, sustained, deep, general decline in production. Since a decline is credit reduces new investment in economic activity, a depression supports deflation. Since a decline in credit reduces new investment in economic activity, deflation supports depression. Because both credit and production support prices for investment assets, their prices fall in a deflationary depression. As asset prices fall, people lose wealth, which reduces their ability to offer credit, service debt and support production. This mix of forces is self-reinforcing. [p.92]
It should be noted that almost all of the "gains" in asset value over the past couple of decades or so have been through manipulation. Currently, governments around the world are trying to delay the inevitable by pumping money into the markets. However, this will only serve to make the depression deeper.
When the volume of credit is large, investors can perceive vast sums of money and value where in fact there are only repayment contracts, which are financial assets dependent upon consensus valuation and the ability of debtors to pay. IOUs can be issued indefinitely, but they have value only as long as their debtors can live up to them and only to the extent that people believe that they will. [p.94]
Congress authorized the Fed not only for the purpose of creating money for the government but also to "smooth out" the economy by manipulating credit (which also happens to be a reelection tool for incumbents). Politics being what they are, this manipulation has been almost exclusively in the direction of making credit easy to obtain. The Fed used to make more credit available to the banking system by monetizing federal debt, that is, by creating money. Under the structure of our "fractional reserve" system, banks were authorized to employ that new money as "reserves" against which they could make new loans. Thus, new money meant new credit. [cont. in following para.]
It meant a lot of new credit because banks were allowed by regulation to lend out 90 percent of their deposits, which meant that banks had to keep 10 percent of deposits on hand ("in reserve") to cover withdrawals. When the Fed increased a bank's reserves, that bank could lend 90 percent of those new dollars. Those dollars, in turn, would make their way to other banks as new deposits. Those dollars, in turn, would make their way to other banks as new deposits. Those other banks could lend 90 percent of those deposits, and so on. The expansion of reserves and deposits throughout the banking system this way is called the "multiplier effect." This process expanded the supply of credit well beyond the supply of money. [p.100]
Following the Great Depression, the Fed and the U.S. government embarked on a program, sometimes consciously and sometimes not, both of increasing the creation of new money and credit and of fostering the confidence of lenders and borrowers so as to facilitate the expansion of credit. These policies both accommodated and encouraged the expansionary trend of the 'Teens and 1920's, which ended in bust, and the far larger expansionary trend that began in 1932 and which has has accelerated over the past half-century. [cont. in following para.]
Other governments and central banks have followed similar policies. The International Monetary Fund, the World Bank and similar institutions, funded mostly by the U.S. taxpayer, have extended immense credit around the globe. Their policies have supported nearly continuous worldwide inflation, particularly over the past thirty years. As a result, the global financial system is gorged with non-self-liquidating credit [a loan that is not tied to production and and tends to stay in the system...consumer purchases such as cars, boats or homes, or for speculations such as the purchase of stock certificates]. [cont. in following para.]
Conventional economists excuse and praise this system under the erroneous belief that expanding money and credit promotes economic growth, which is terribly false. It appears to do so for a while, but in the long run, the swollen mass of debt collapse of its own weight, which is deflation, and destroys the economy. Only the Austrian school understands this fact. A devastated economy, moreover, encourages radical politics, which is even worse. [p.105]
The author recommends investments such as precious metals, bear stock funds, and depositing money in banks that earn high ratings for survivability in a global depression. I recommend a transition to an equity economy where the infrastructure is comprised of quality living environments with small footprints.
Incidentally, as we write, Congress has just passed a drug benefit that is roughly twice as expensive as President Bush proposed. It raises the $45 trillion fiscal gap by $6 trillion to $51 trillion! [Note that this is roughly $171,000 per man, woman, and child in the U.S.] [p.67]
For over half a century, ardent discussions of budget balance have been used as a cover for what is really happening: a massive redistribution from young and future Americans to currently living adults. Our de facto generational policy has been to indulge the present at the expense of children living and unborn. This gives new meaning to "no taxation without representation." [p.83]
...conventional economic notions are turned upside down when considered from the perspective of generational accounting. Take structural tax reform, such as replacing the income tax with a consumption tax that generates the same revenue. Most observers would think that such a policy has no particular generational consequences. Nothing could be further from the truth. Switching from income to consumption taxation is one of the most fiscally conservative policies the government could undertake because it places a much larger fiscal burden on current older generations and a much smaller burden on future generations....
The reason is easy to see. Under an income tax, the elderly, who are retired, pay taxes only on the income they earn on their assets, but they finance their consumption not just from the income on their assets but also by spending down principal. Hence, taxing consumption is like taxing the elderly on their wealth holdings; every time the elderly spend their wealth on consumption, they pay a tax. [p.85]
Economists view such behavior as evidence of intergenerational altruism -- the theoretical proposition that parents (kids) care not only about their own welfare but also about their kids' (parents') welfare. Intergenerational altruism has been tested in the United States not only in the context of living arrangement decisions, but also with respect to annual consumption expenditures. It's been tested using cohort data, data on extended families, data on nuclear families, and data on families in which some members are actively making transfers to other members. Regardless of what data set one uses and what empirical or statistical testing method one applies, intergenerational altruism is very strongly rejected. [p.104]
Since the early 1960's, consumption per retiree has almost doubled relative to consumption per worker. Indeed, when you include all the in-kind health care benefits they receive, the boomers' parents now appear to be consuming more, on average, than the boomers themselves! [p.105]
A final concern is whether firms will cut back on their contributions to DC plans. Ironically, one of the largest administrators of DC plans, Charles Schwab, recently stopped making contributions to its own DC plan on behalf of its own workers. If Charles Schwab can stop making such contributions, with all the embarrassment that entails, any other firm can stop as well. [p.110]
Facts are, however, of little consequence when it comes to religion. And unlike his dad, George the Second is a true convert to supply-side economics. Since taking office in 2001, he has, to repeat, presided over three tax cuts. To his and other supply siders' dismay, revenues as a share of GDP haven't grown. Instead, they've shrunk -- from 20.8 percent of GDP in 2000 to a projected 16.2 percent of GDP this year . [p.116]
Economic logic never restrained supply siders in the past, and it's not likely to restrain them in the future. The truth is that these people never met a tax they like and never met a spending program they really supported -- unless it was subsidizing their own business ventures. [p.117]
During Russia's recent hyperinflation, Russians stopped using the ruble altogether and developed elaborate barter arrangements, many of which continue to this day. [p.134]
Is there anything we can do to protect ourselves? Our answer is a firm yes. As detailed below, we can start saving like mad, invest in securities that are insulated against inflation, and hold assets whose return is not taxed. But the first and most important thing to do is to preserve what we've already got -- and that's harder than it sounds. There is an entire industry -- the financial services sector -- whose primary goal is to separate us from our money. Avoiding this industry's financial malpractice is step one in our self-help guide. [cont. in following para.]
What do we mean by "financial malpractice"? We mean the enormous burden placed on our savings by "the retirement-investment complex" -- the bankers, insurance agents, brokers, mutual fund managers, financial advisers, and employers sponsoring retirement plans -- all of whom purport to be our friends. [p.193]
This "complex" might be even more dangerous than the military industrial complex as the complexity and sexiness of it distracts us from our current predicament.