October 2008

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October 2. The financial crisis was an inevitable result of what people used to call "usury". If money borrowers have to pay back more than they borrowed, then you have 1) a constantly increasing money supply, which must collapse because nothing can increase forever, and 2) positive feedback loops in both wealth and poverty, and therefore a constantly increasing gap between the rich and poor, which also must collapse. In this particular case, the housing bubble and the lending bubble were desperate attempts by a giant pool of money, near collapse, to keep growing exponentially.

One way to prevent it from happening again, would be a demurrage currency system, in which concentrations of money tend to shrink over time.

October 5. This new Charles Eisenstein piece, Money and the Crisis of Civilization, is a deep explanation of the present financial trouble. To summarize:

Interest causes the total amount of money to grow over time, which means that either the quantity of goods and services also grows, or there is inflation. Throughout the industrial age, services have been "created" by taking activities that used to be done for free, like cooking and child care and entertainment, and pulling them into the realm of money. And goods have been "created" by conquering and exterminating nature and pulling its dead parts into the realm of money. Both processes have been slowing for decades, and lately the money supply has been forced to grow through speculative bubbles that do not even represent anything real.

Now it's all collapsing, and our best adaptation is to move as many goods and services as possible from the money economy back to the gift economy.

October 7. This video, Money as Debt, goes into much more detail about how the custom of charging interest leads to an ever-increasing supply of imaginary money. Here's a Money as Debt transcript.

You might have heard the thought experiment where we're all on an island using a fixed number of coconuts for money, and if we start lending coconuts at interest, we create imaginary coconuts so it's impossible for all the debts to be repaid. To make the simplest possible example, if there's only one coconut, and I lend it to you on the condition that you pay me back two, we now have two imaginary coconuts and only one real coconut. You can't pay me back two, so instead you pay me back one and become my slave.

Multiply that by billions, and it's still not as bad as the real situation, because once we have a system where someone can make money merely by lending, we get lending institutions that don't just lend the money they have, but money they don't have. The really big fake money is created not as interest, but as fake principal to enable the creation of more debt/slavery. Inevitably, the supply of real stuff cannot match the exponential growth of money/debt, and the financial system collapses. And the foundation of the whole nightmare is the rule that if you loan someone money, they have to pay you back more.

October 8. Thanks Rob for helping me clarify my thinking on interest. I came up with another island-coconut story that makes the point better: Imagine an island with three people, Morgan, Chase, and you. Each of you has ten coconuts. Morgan and Chase agree to hold each other's coconuts and pay interest to each other, and you think that's silly and just keep your coconuts under your bed. Eventually, through compound interest, they have accounts worth hundreds of coconuts, while you still have only ten. Of course, if they try to withdraw their coconuts, the system collapses, so to make it more stable, they use pieces of paper that represent coconuts, and later they don't even use paper, but just keep a ledger of how many coconuts everyone supposedly owns. They agree to rules where they can lend each other even more coconuts than they have in paper money, so they can grow their money faster, until there are tens of thousands of symbolic coconuts. Meanwhile you still have only ten, and now if you want to buy stuff, it's going to cost more than it did before. Probably you will have to sell your actual coconuts to Morgan and Chase to afford to eat.

Adam sends an interview he did 15 months ago with Richard Douthwaite on debt-based money. Douthwaite suggests reforming the system so that money is created by government spending, and banks can still loan money at interest but they're not allowed to create money. The deeper principle here is that it's possible to have interest without runaway growth, but only if the amount of debt is kept in equilbrium at a low level.

Here is Eisenstein's chapter on The Currency of Cooperation, which cites several historical examples of demurrage currency systems, in which concentrations of money go down in value over time, not up. One he doesn't mention is the Brakteaten system in medieval Europe, where every year the government recalled all the coins, took a cut of the metal, and issued new coins with what was left. Because it was costly to hold onto money, people spent it to make enduring physical things like good furniture and cathedrals, and there was relative peace and prosperity.

Now, even if we have a rapidly growing debt-based money supply, we can still have the appearance of stability as long as the amount of monetized real stuff keeps up with the amount of money. The problem is, for real stuff to keep up with the money supply, more and more stuff that was previously outside the realm of money has to be dragged into it. Living forests get turned into board feet, and activities we used to do as part of the gift economy, like art, have to be done as part of the money economy. And when we start running out of stuff to monetize, we have to create new paid activities that are neither useful nor fun. We have to manufacture needs, and design products to wear out sooner. Eventually, the supply of stuff people want to buy falls behind the supply of money, and prices go up. For a while, the rising prices can be diverted into speculative bubbles, like housing, but when those prices are corrected, the imbalance has to go somewhere else.

Now, there's still one way out: aggressive bankruptcy, where we simply cancel debts and declare that all the excess money goes back into the thin air that it came from. This is roughly what ancient civilizations did with the Jubilee tradition.

October 13. It occurs to me that the word "fascism" is confusing us the same way many words do: it has multiple meanings, but we blur them into one meaning because we have only one word. Consider Pinochet in Chile. He was a ruthless military dictator, operated death squads and torture prisons, and had his opponents assassinated. But he was never popular -- he needed to do that stuff to stay in power. And his total death toll is estimated at only a few thousand.

Now consider Hitler, who was one of the most popular leaders in European history. He didn't have to torture or kill anyone. His generals opposed the death camps because they were consuming resources the military needed. Hitler killed people not because his power required it, but because his power enabled it. And if you look at the details of the Holocaust, in books like Hitler's Willing Executioners, you see that Hitler didn't act alone -- he was the focus of a massive popular movement to gain power and kill, and the killers were driven by class resentment and hatred of intellectuals. From Witold Pilecki's Auschwitz Report:

In the beginning, a question was tossed by a striped man with a stick: "Was bist du von zivil?" [What were you in civilian life?] An answer like: priest, judge, barrister, resulted in beating and death.

When internet pundits cry that America is becoming fascist, they're thinking of Pinochet-style fascism, and they're looking at stuff like domestic deployment of soldiers and harassment of dissidents. Sure, that could get worse, but the more frightening danger is Hitler-style fascism. If we get a right wing rabble-rousing leader, that's a fire nobody can control.

October 15. 18 minute video on bonobos. They have now learned from humans to make stone knives, to light fires, and to use written language. And the most interesting thing is how they learned. Imagine how much smarter we would all be if schools worked like this:

"We found that the most important thing for permitting bonobos to acquire language is not to teach them. It's simply to use language around them, because the driving force in language acquisition is to understand what others that are important to you are saying to you. Once you have that capacity, the ability to produce language comes rather naturally and rather freely. So we want to create an environment in which bonobos like all of the individuals with whom they are interacting, in which they have fun, and in which the others are meaningful individuals for them."

October 16. Nature loss dwarfs bank crisis. The idea is that forests do stuff for free, like gather and filter drinking water, and sequester carbon, and provide food, and if we cut them down then we have to spend money building and managing things that duplicate those functions. This goes back to last week's subject, that a growing money supply forces a growing monetization of stuff that used to be free. If the financial system uses debt to create more and more money, and the guardians of the giant pool of money don't want it to be dissolved by inflation, they have to replace forests with farms and filtration plants, just so the quantity of stuff in the realm of money is keeping up with the quantity of money.

Here's a link about Ecological Economics. The idea is that we need to retool the whole field of economics to account for what we get from nature, what future generations will get from it, and how our actions help or harm it. I suspect that we have barely begun to count the services that nature provides. One the BBC article doesn't mention is that trees capture water that would otherwise flow back to the ocean, and they transpire it back into the air, and that water vapor makes new clouds that carry water farther inland -- so cutting down a forest can make a desert downwind!

A deeper issue is that humans are in trouble if we can't see the benefits of nature without putting them into numbers. Maybe in 100 years businesses will use an equation showing how proximity to wildness reduces depression and makes workers more productive, but I would rather be in a culture where we don't need equations to know how to live.

An even deeper issue is that ecological economics is still valuing the nonhuman world in human terms, instead of on its own terms. It's like you're saying to your mother, "You know, I was going to kill and eat you, but I've just realized that I derive selfish benefits by keeping you alive."

October 30. Yesterday's Archdruid post, Arguments from Ignorance, mentioned two different kinds of thinking. One is "sitting down with the relevant facts, assessing them calmly, and then making a decision on that basis," and the other is "people start from the conclusion that appeals to their emotions and intuition, and then go looking for logical reasons to support the belief they've already chosen."

You could call these expansive thinking and contractive thinking. I like to call them scout thinking and warrior thinking. Warrior thinking has its place -- sometimes your emotions and intuition can sense things that your rational mind can't, and of course we never have anywhere near full knowledge. To some extent, every idea and theory and "fact" is like a shape we're seeing in the clouds, and sometimes you have to believe something to see it.

But the great advantage of scout thinking is that it constantly makes you smarter. When new information appears, the scout looks at the map, erases a line, draws another, and keeps exploring, while the warrior either rejects the new information for not fitting the map, or if it does fit the map, draws an existing line darker.

The scary people at Sarah Palin rallies are not really "anti-intellectual" -- they're intellectuals themselves in that they're obsessed with ideas. What they are is anti-expansive, anti-empirical, anti-reality. They seek to silence anyone who threatens their comfortable and compelling internal map of the world.

There's a new saying, "Reality has a liberal bias." But that's not quite true. What happened was that the movement that called itself "conservative" got stuck in warrior consciousness and lost touch with reality, veering off so far that now "conservatives" can only maintain their ideology through obvious giant lies. Meanwhile the movement that called itself "liberal" was put under such pressure, held to such high standards, that it could only survive by scrupulous integrity and honesty, by a (relatively) close alliance with reality.

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