Tuesday, November 13, 2012

Democratic monetary policy - Novel proposals

There is only 2 valid sources of complaints/concern over monetary policy:  It benefits a select/chosen few even when it achieves economic goals, and it includes a presumption of trickle down voodoo economics that the chosen few will spread the benefits to the wider economy/society.

The complaints traditionally heard are infighting among groups that wish to be privileged.  This article offers a novel (AFAIK) approach to monetary policy that may seem radical, though it is fairly simple, and should be popular, but first explains monetary policy in the context of some key points.

Public Monetary policy provides 2 functions.  Printing new money, and banking collusion on setting interest rates.

Collusion on interest rates
Central banks have dual masters.  The state and the national banking system.  This is justified primarily by the notion that what is good for the banks is good for the nation:  Healthy, profitable, banks are able to fund business and land development.

High interest rates are set primarily to prevent wage inflation, while allowing the bank cartel to increase loan profits.  During economic boom times, businesses and land purchasers are optimistic about the future and willing to pay a higher "tax" (interest rate) on money.  Higher interest rates are designed to slow economic growth, and boost savings rates as a source of lending funds.  While directly harming the labour force's competitive position is hard to justify, the justification is made that increased corporate profits will make the businesses more sustainable when the economic boom vanishes.  It can be harder to lower wages or fire people when times get more difficult.

Since this article is not primarily concerned with interest rate policy, I will point out that removing regulatory barriers to firing and lower wages, while always keeping low interest rates, would allow the labour force to gain a higher total share of income during boom times, and might be considered progressive.

Low interest rates are the result of government pressure in poor economic times.  It helps promote consumption and investment instead of savings, and hopefully hiring.

Printing Money
Printing money is necessary at least to keep up with population increases.  Otherwise, the average wealth per person necessarily falls.  The best measure of the money supply is cash bills and coins + bank and financial brokerage deposits.  Amazingly, this is not an official measure of money supply.  The official measures focus only on money that could be spent in the next 5 minutes, and some deposits are restricted in that you may need to transfer them to a chequing account first.  "Real/natural money supply" is obviously all cash deposits. It represents the tangible liquid wealth of the nation.  We could add the main "near-tangible wealth items" of market value differences to acquisition costs for financial and real estate transactions to tell us total main national wealth.

The reason that tangible liquid wealth of the nation is the real natural money supply is that whenever you sell anything, all of the purchasing money, whether it comes from purchasor's account or is created by the fractional reserve banking system through a loan, gets deposited back into the financial system.  How long it stays in a chequing account is completely irrelevant to the actual supply of money (real cash availability) of the nation.

Returning to the gold standard is a terrible idea
The main and only necessary point to dissuade any ideas of returning to the gold standard is that total US money supply was $10T in 2005, and the US bullion (claimed) reserves are 147.2 million oz. troy.  The price per once would need to rise (from ~$1700) to $67934 per troy once in order to make the currency exchangeable.  Anyone that knows that a return to the gold standard is imminent can become extremely rich.  That wealth comes at real expense to everyone one else.  A house that is worth 100oz today becomes worth 3oz tommorow.  A salary worth 40oz/year today is worth 1oz tommorow.  Does a corn farmer still want 1oz of gold for 500 bushels? Very likely.  Switching back to the gold standard is a horrible idea because a very small amount of huge lucky or politically connected winners are created at the expense of a super-vast majority of completely miserable losers.

Current money printing policy - quantitative easing
In the US and Europe, central banks have been buying poor credit instruments worth $0.20/$-$0.70/$ for (nearly) 1$ of printed/fabricated money.  The winners of this policy are the financial institutions that would be otherwise stuck with large losses in poor investment choices.  Because these financial institutions are using the cash proceeds to buy US and German government bonds, secondary winners are those that sell their bonds at inflated prices.  As long as all of the money gets spent in financial instruments, there is no benefit to the real economy, and so the losers are everyone else whose purchasing power is diminished by any money printing, and who are excluded from the primary "free money" of acquiring garbage securities for the purpose of flipping them to the central bank's generosity programs.

More recently, the US Federal Reserve's current quantitative easing program involves printing $40B per month to buy 30 year mortgages at only 2% yield.  If we agree that there is no rational investor that would want to hold a 30 year mortgage for less than 4% yield, then we know that this quantitative easing program has nothing to do with helping banks stay solvent.  The fed is paying a large premium (5%-10%) for these mortgages.  The huge problem with this activity is that it is equivalent to auctioning dollar bills where one buyer has promised to spend $40B/month, and a select few sellers are allowed to collude to get $1.05 or $1.10 for each of their dollars.  Selected favoritism of free money recipients, can be justifiable when collapse of the financial system is threatened, but not so when it is simply awarding rich banks with printed money.

What is good for the nation is good for the banks
The initial justification for the above was that preventing banks from failing is good for economic stability.  The fact that giving them free money doesn't help the general economy is a problem.  The simple reason why giving free money to banks is a poor method of money printing is that all investment is based on good ideas and not just the availability of lending funds.  There is a shortage of good ideas if chronic unemployment and political corruption and mismanagement are endemic.  There will never again be sufficient investable good ideas unless the policy proposals from this site are implemented.

Another way to save or benefit the banks is, indirectly, by boosting the economy.  They just have to work for the money instead of getting it free.

before I get to recommended policy, here is a thought experiment.
what if tomorrow....
All funds held in banks and brokerages will be doubled (through money printing)
... or increased by 10% instead of 100%.  A 10% increase is comparable to current quantitative easing plans.  I will stick with doubling for the analysis.  Simplistic economic analysis suggests that there will be an inflation pressure that will cut the purchasing power of every dollar in half, but that inflation pressure is not instantaneous.  Note that the proposal doesn't include an adjustment to all existing contracts, and so there are winners and losers from the proposal.  The winners are those that receive cash tommorow well before the full inflationary consequences of the proposal are realized.

Winners:

  • banks.  All of their deposits are doubled.  They are thus able to lend more.  Existing loans are more likely to be repaid
  • landlords.  Even if rents don't increase right away, the value of the property eventually doubles, and future rents will double.
  • borrowers. The amount owing doesn't change, but their income will eventually, and their other financial resources are instantly higher.
  • Government fiscal position.  Income inflation means pushing individuals into higher tax brackets and so higher real revenue.  Debt eventually halved in real value.
  • spenders.  If inflation is delayed, then buying them tomorrow is better for the purchaser than if they wait until the price doubles.  For sellers, since they need to trade what they produce for what they consume, there is no cost in selling item tomorrow if they also buy tomorrow.
Controlling inflation through maximum adjustment of existing contracts
Adding to previous proposal, a government decree that all existing contracts (wages, rents, social assistance, future deliveries) may only have a maximum adjustment of 20% per year (starting tomorrow) would spread the inflationary impact over 5 years.  In the case of wages and future deliveries, we could give the payment recipient the option to terminate/renegotiate the contract.  Landlords do not need that option, as their eventual wealth is assured, and social assistance/pension recipients might even be offered a slightly lower than 20% annual increase, which they are not in a position to refuse.  Note that there is no increase offered to debt holders.

Effects of controlled inflation policy:
  • Consumption items would inflate around 20%/year as they are funded through income and not wealth, and incomes are only increasing by 20%.
  • Investment and large ticket items would inflate to their full 100% increase more quickly, because they are often funded through wealth.  The impulse to convert wealth into more affordable consumption would substantially boost the economy.
  • Interest rate increases.  20%/year interest rates would be affordable on a 5 year loan due to expected value of the investment, and represent an approximate opportunity cost for lenders for not spending tomorrow.
If all contracts and loans are also instantly doubled...
Then no one gains or loses.  Or the effects are very minor:  The cost of changing all the price tags.  When they start adding exceptions, such as government debt and obligations, then they can target specific losers.  If they also exempted home ownership debt from doubling, then even though they would not make banks as happy as the banks would prefer, the process would still improve bank health.

The politics involved
There is no way that the $150k in US national debt per 100M (capita) taxpayers will ever be repaid by them or any descendants   Default or inflation are the only solutions to runaway debt.  So the purpose of the above "even to all" doubling would be to specifically exempt government debt from doubling, and so halve its real cost/levels.

The current policy mechanisms of printing money for the direct benefit of financial institutions and then keeping that money within the financial system, and so only generate asset/commodity/financial instrument inflation rather than general consumer inflation has the benefit of keeping interest rates very low.  It creates the same currency devaluation that costs all, but keeps the benefits of the free money within the financial industry.  Furthermore, and more importantly, the propping up of the financial industry is only sustainable through sustained quantitative easings and sustained free money giveaways to the financial industry.  The price premiums for government bonds go away if there is ever a hint that no more free money will be injected, and there is a strong possibility of a significant rubber banding rise in interest rates if the existing money printing policies are stopped.  The financial industry does create food and metal/resource inflation.

The democratic benefits of doubling money, contracts, and private loans
Creating no losers except for the targeted government debt holders means that printing money would not have popular political opposition.  Debt holders are not without political influence, but as long as the system is based on the most individual votes, that influence is not necessarily sufficient.

The one negative compared with the more deceitful, less democratic, current money printing system is that the appetite for more debt is significantly decreased if doubling the money supply is expected to be a recurring policy.  Or, more accurately, requires higher interest rates to compensate for the value of the debt being halved again.  For this reason, instead of doubling account values some day like tomorrow, they should be increased 10 fold.  As long as there is no expectation of the event occurring again over the next 30 years, then there will be no impact on interest rates for future borrowing, and in fact, since the real value of the nation's existing debt burden will have been cut by 90%, the nation will have a healthy fiscal/borrowing profile, and an ability to afford more debt.

Selective politically friendly debt holders bankrupted by the process can be bailed out.  The process is equivalent to a near national default, but there is no breach of any contract.

Progressive, not just democratic, money printing
When all money, contract and private loans are doubled, it is called democratic money printing because there are no losers other than those specifically targeted through exceptions.  An even better solution exists when you have already accepted that money printing is necessary.  Progressive benefits are those that more directly benefit lower income earners.  I'll show later that high income producers gain great benefits too.

Print money to give every adult government ID holder $10,000.
Giving all 200M Americans aged 18-65, 10k each would cost $2T.  (seniors already receive $10k+/year). US wealth was $66T in 2007, and has perhaps recovered to that level in 2012.  A doubling of the financial (real money) supply would take 33 years, at $2T/year.  Only 3.3% expected inflation per year.

Basic income as a needed social policy
Providing basic income to citizens means giving say $8000/year to every adult citizen.  Its intended as a taxable benefit (Those with high other income would pay a higher tax on this additional income than those with low income).  The main benefits of basic income are significant economic growth, replacement of bureaucratic anti-poverty programs, and its the only possible social response to the diminishing necessity of work and unsustainable old age social assistance.  Basic income also lays the philosophical understanding for social dividends:  We each deserve an equal share of social (tax) revenue because the purpose of taxes should be meeting social needs and harmony and not funding a state empire.  The individual is far more capable of determining his own needs through cash then the state can.  With social dividends, every social program is funded through an equal share (payment) from each citizen.

Tax funding of basic income
Total 2012 US government spending is $6.3T.  Eliminating all government spending would free enough money to give $21k/year to 300M Americans.  There are actually 265M Americans over 18.  If the goal is to provide all of them $8k, then the cost would be $2.12T.  $1.85T of that cost can come from eliminating current old age and welfare programs.  Because basic income is a taxable benefit that would go to rich and poor, assuming a 33% average tax-back, then a $12000 basic income level would have the same $2.12T after tax cost.  Since social security benefits has a very low tax rate applicable only to those with over $59k total income, and welfare benefits are unlikely to be taxed, lets use $1.75T as the after tax cost of those 2 programs.

Then, to provide basic income to every adult American at the same cost as (replacing) social security and welfare programs, a benefit of $9905 can be given to every adult.  $9905 is the deficit neutral amount.


Monetary printing funding for basic income
3 headlines ago, I brought up a $2T money printing plan to fund basic income.  Last paragraph I showed that  monetary printing is not necessary to fund basic income.  If we combine funding, though, we can pay higher stipends to citizens and/or cut social security less.  A strange quirk in US SS compared to Canadian Old Age funding is that there is very little subsidy from high contributors to low recipients.  So, we can give SS recipients the same $10k as everyone else, but clawback SS benefits by up to $10k.

Understanding inflation
Inflation is comparable to a tax on disposable income, from an individual's perspective, without directly raising social revenue.  Current monetary policy benefits the income of the financial sector, but costs the entire society with inflationary pressures.

Although economists/government do not explicitly make the distinction, inflation impacts can be separated into 2 or 3 classes:  High, middle, and low wealth/income.  Private jets and home ownership costs affect one end of the spectrum, cars, electronics and designer clothes affect the middle, while rent and food can be a disproportionately high percentage of spending on poorer people.  A $50 higher monthly grocery bill can be either devastating or negligible depending on the percentage of disposable income spent on groceries of the individual.  Jet fuel prices can be irrelevant to many people in a society.

When analyzing the impact of money-printing-caused-inflation, we need to consider who is benefiting from the money printing while who is inflicted by the inflation.  Current monetary policy confers narrow benefits to the financial sector, while inflicting inflation broadly.  Current monetary policy acts as a regressive tax on poorer citizens.  When inflation occurs as the result of demand for labour increasing, inflation becomes a progressive tax, because the benefits side/cause of the inflation is mostly received by lower and middle classes.

The purpose of the initial exercise of doubling everyone's money while doubling the cost of everything was to show that inflation in of itself is not damaging, and can be completely neutral.  With a progressive-democratic money printing policy used to fund basic income, costs/inflation would go up 3% but middle and low income citizens would get an income increase of 10%-100% (10k basic income added to either 100k or 10k income).  Even if marginal tax rates were as high as 50% (and basic income is a taxable benefit), anyone earning below $160k/year would gain more through money printed basic income than they lose to inflation.

The failures of recent fiscal and monetary policy
High end tax cuts and free printed money for the rich has not helped the economy prosper because trickle down economics is a lie that doesn't exist.  People and companies don't invest in production or jobs because they have extra money available.  They only invest if there are customers.

While the payroll and middle income tax cuts could have helped demand somewhat, it is still focused aid for those that have jobs, and ignores the poor.  Because these are temporary measures, it does not alleviate long term job insecurity of the middle classes, and so it doesn't create jobs and long term investment, because returns on such investments cannot be made as a result of a short term band-aid.

Democratic money printing benefits producers and the financial sector too
Printing money in order to give every citizen $10k/year, benefits everyone equally.  But because wealth trickles up, and the program is long term, producers will create jobs to go take that extra money from lower and middle income citizens.

Basic income funded one way or another is necessary to bring economic recovery and prosperity in the future.  Without basic income, there will never again be enough demand to support the technology and productivity increases that humanity is capable of.

Increased economic activity and wealth always benefits the financial sector.  When money is scarce and in great demand for investment, financial service fees increase.  When there is a wider monetary base, there is a larger base for the financial sector to earn income from.  Even if in short sighted fashion, banks may prefer to maintain the exclusive monopoly on free money printed, there is no need to defer to such greedy short-sightedness.  In reality, not only will banks do just fine, but they will be even richer under democratic monetary policy because of the resulting increases in economic activity.

Also, unlike the doubling all deposits but not (public) debt proposal, progressive money printed basic income does not threaten the solvency of debt holders.  Absolutely no one can claim any hardship whatsoever as a result of free money basic income.

Effect on interest rates
With $2T printed and handed out as basic income, there would be $2T in additional financial institution deposits.  This allows banks to offer lower deposit interest rates and improve margins.  For those that believe in supply side benefits of current monetary policy, with a fractional reserve system that amplifies the supply of lendable money by 6-10 times deposits, the availability of loans would increase far more than $2T,  lower borrowing rates, and increase potential economic investment and activity as a result.

A benefit for banks is that they remain unforced to lend to businesses and home owners.  They can continue investing in paper securities, but benefit from the spread with lower deposit rates.

Nominal GDP targeting
The smartest concept in economics that I have not personally developed in the last few years is called Nominal GDP targeting   The concept advocates conducting monetary policy such that GDP grows by 5%, regardless if the entirety of that GDP growth is caused by inflation.  The difference with traditional economic policy is that the latter targets real GDP (Nominal GDP less inflation).  Nominal GDP targetting does not imply that inflation is awesome, but rather than 5% GDP growth with 5% inflation is better than 0% GDP growth with 0% inflation.

The advantages of nominal GDP targeting includes encouraging investment just to stay even with inflation, encouraging spending today before price increases, and inflation of tax revenue.  All of these result in real jobs and real growth.

NGDP targeting with democratic monetary policy 
The tie-in of NGDP targeting with democratic monetary policy has to do with basic income.  As shown, basic income can be provided either through taxes or through money printing, or a combination thereof.  When real economic growth occurs, or if there is ever a good argument for organic debt repayment, tax funding of basic income or social dividends can replace money printing.

Anatole Kaletsky - Quantitative easing for the people
A reuters journalist has made the same proposal this summer, and claims the idea originated with Milton Friedman in the '30s.  A followup article suggested that controllers of US and UK monetary policy may be forced to consider such proposals, and he addressed some of the typical kneejerk misconcieved responses (though in way's I've disagreed with above) to printed basic income.

Tuesday, November 6, 2012

Job creation and tax policy


The biggest conservative lie in this and past elections is that cutting taxes creates jobs.  The opposite is true.

this is a shorter excerpt from my recent Culture of work article (the second part).  Focused on just tax policy.

Job creation
Wealth only trickles up.  If there is a sufficient number of people with money, then producers will find a way to go take that money from those people.  Even if the producer sells expensive yachts, it is that producer's advantage to have a society of 300M people each with at least $10k income, than a society with more concentrated wealth, because other producers will go and take the money from lower income members, and pass it along to producers who can be yacht customers.

Only the wealth of customers is relevant to job creation, because producers will borrow any lacking funds, and our banking system supports unlimited borrowing.  Having wealth has a near zero impact on job creation.  The only reason ever to invest money in a project is if you believe there are customers for that project.  The more concerned you are about the future viability of the customer base, the more you are likely to cut investment, and protect your long term financial independence through fear that you will never make production profits again.

The absurdity of tax cuts for job creators
Once a business takes off and becomes profitable, it is extremely rare for it to fund future investments by requesting more investor money.  They  instead fund investment through their existing profits.  Higher corporate tax rates necessarily and directly creates more jobs and investment because any spending directly lowers a company's tax bill even when it fails to produce desired revenue gains.

More generally, the only other element than customers that assists job creation is reduction of risk for investments.  Higher tax rates and better tax deduction for operational and investment losses can significantly boost investment.  Lower corporate tax rates does the complete opposite.  At a 0% tax rate, every penny you spend on a losing investment is a penny lost.  At a 90% tax rate, every dollar you invest, only costs 10 cents after tax.

High corporate taxes never discourages profitable work, because corporate owners can avoid corporate tax bills by giving themselves salaries.  Ideally dividends should be tax deductible as well.  

While increasing the tax rates on high personal incomes can cause some financially independent people to work less, that choice is also job creating.  If many doctors and lawyers find that the tax rate on income above $250k is too high for them to work past $100k or  $250k income, then that leaves room for other doctors and lawyers to work to take customer money.  If 4 lawyers make $250k instead of 1 lawyer making $1M, then that is 3 extra cars, vacation homes, and boats that can be made for them.  As a society, we never need worry that someone will not bother to come take our money, and so we do not need to empathetically defer to these 1st percenter problems.

If it is a crime to deny the holocaust where you live, the penalties for the lie of claiming that lower taxes are economically and socially useful should be 100 times harsher, because the lie if believed can and will destroy the economic and social future of any civilization.


High taxes are not slavery
High taxes are good for all of you and all of us.  In the US, government spending is $6.3T.  Over 40% of GDP.  Those of you directly employed by the governments or its contractors can get 100% of your income from government sources, but the rest of us get 40% of our income as a result of your government funding.  We either sell directly to general consumers, 40% of whom are government funded, or we sell to other producers who've already taken their money.

The government labour force is also 33% of the total labour force.  Eliminating all government spending necessarily directly results in a 40% reduction in  private sector incomes either through job losses  or pay cuts.  The 40% lesser private sector necessarily causes a secondary 40% cut in the private sector because there are an additional 40% fewer customers.  It keeps spiraling downward.  After just those 2 rounds resulting from elimination of government spending, 66% of previously employed people would be unemployed.  Or, incomes would be 66% lower.

Opposing government spending is perfectly valid when it is useless, wasteful or evil.  Its even valid to object to useful spending when it is awarded through politicized favoritism where the winners and losers, even if justifiable, are arbitrary.  But no matter how wasteful or evil, any spending is more economically beneficial than no spending, because you may sell groceries or insurance to the warmongers.  The objection to evil and wasteful spending is that useful spending could be made instead.

The only argument for lower taxes is idiocy.  Eliminating everyone else's taxes will lower your pre tax income by at least 66%.  Since your tax rate is well below 66%, you are much better off with taxes than without.  If the profits and wages you took from society are not considered theft, then neither are taxes.  Giving a relatively small portion of your profits and wages back to society, is simply an intermediate step in the circular process of you taking the money back from them.

While the Congressional Research Service has recently published a paper showing that lower tax rates on the highest incomes never results in economic growth, they used a correlation/data analysis approach.  In economics, you have to prove policy through human nature.  Both approaches are often used to support lies, and most people tend not to understand either, so there is value in data analysis approaches confirming human nature based proofs.

Basic income and social dividends is the correct social spending of taxes
Basic income allows greater job creation because it takes more people (jobs) to go out and take money from many people 100s or 1000s at a time, than the effort required to take money from politicians/bureaucrats millions or billions at a time.  If you are not a military contractor, you can make much more money if 1M people are given 10k each, than if one military contractor receives $10B.

Basic income can lower the risk involved in studying and starting a business.  Education alternatives can be priced down to what is affordable without student loans.  Basic income can help support the design/development phase of a new business.  If may also enhance volunteer work due to enhanced freedom of choice

Basic income can also create jobs by eliminating the need for minimum wage and a few other employment regulations.  Basic income solves the culture of slavery by paying everyone.  Anyone that wants to work or wants more money than what is required for basic survival, will still choose work.  Although the culture of slavery creates a demand for low paying jobs out of the necessity to volunteer as a slave or starve, those companies that need low paying jobs tend to have low income customers.  Taxes and basic income both enhance demand for those businesses, and essentially subsidizes any employees wages.  If someone was content to work for a company for $15k per year before basic income is implemented, they should be content working for them for a total of $20k in employment + basic income.... At a cost savings to the company, and thus enabling the company to afford hiring additional workers.

Monday, November 5, 2012

The culture of work

The culture of work is the common belief that people must be made to work.  That people only deserve welfare if they work on something no matter how useless.  That we measure economic health by number of new jobs, and that we measure the social value of human beings by their work income.


While work is obviously necessary for economic output of a society, and should always be encouraged, the culture of work is wrongheaded and pointless.  Technology and productivity increases mean that there is less work required.  This is especially the case for work related to the core necessity of feeding and sheltering of people.  This leads to left wing abuses of creating useless work through government, and right wing abuses of maintaining oppression and slavery to force work and force acceptance of the culture of work.

Belief in the culture of work is the only reluctance available to oppose basic income and social dividends.  Basic income is a proposed cash stipend given to all citizens designed to allow survival without work income.  Social dividends is the inherent right of citizens to receive an equal share of surplus tax revenue.  The core advantages of basic income is that it can enhance reliance on market forces for work and social activity within a framework of a culture of fairness, and it removes politicized and unsustainable awards of social funds as prizes of electoral contests.

The culture of financial independence
Financial independence is also a cultural aspiration.  The strict definition is an absence of absolute reliance on work income.  We most often equivocate it to being rich, and being able to afford every desire.  But, we also accept that we deserve strict financial independence at the age of retirement, and social funds are "set aside" to provide seniors with financial independence.

There is thus a class of people who are entitled to escape the culture of work.  People that could contribute greater economic and social value than merely allowing their funds to sustain financial markets.

Still financial independence is a worthwhile aspiration.  It is the truest freedom obtainable while suffering state subservience.  It can be an aspiration that motivates work, and higher levels of financial independence can motivate more work.  That financially independent people continue to work is proof that oppressive power and desperation are not essential elements to inflict work on people.

Financial independence is obviously desirable to everyone.  Basic income and social dividends permit a basic level of financial independence for every citizen.

The culture of slavery
Slaves in the US were provided with room and board.  They were necessarily made content enough not to attempt escape, though restraints and lack of opportunity for escapees were likely input factors in "contentment".  At any rate, not to suggest that slavery wasn't bad, while providing income to voluntary workers which is barely sufficient to cover food and shelter, may seem as a remarkable improvement from the slave's perspective due to the "great" personal freedom of choices in the food, lodging, and entertainment options, it is not a materially economic difference from the slave owner's perspective.

Middle class wage earners can enter voluntary slavery by their choice of lifestyle, and reliance on employer for healthcare, and car, boat, education and house choice maintenance.  While there is no need to discourage such voluntary choices, the culture of work instills in them the sense that they deserve their own slavery, and therefore strengthens the belief that everyone less fortunate than them should also deserve to be slaves.  Only in America, can the absurd-straight-faced claim that $250k annual income is middle class slavery, and any agreement of the premise is based on the organized propaganda campaign behind the culture of work.

The culture of slavery, and its acceptance, enables oppression through exploitation of desperation.  The culture of slavery justifies counterbalancing measures of minimum wage laws, worker's compensation, and occupational safety in order to protect the slaves from too much oppression, but all the while still reinforcing the culture of slavery.  Under the guise of caring for welfare recipients, the state strongly encourages them to work while confiscating typically more than 80% of their earnings.  Under the guise of helping students, oppressive loans are inflicted upon them.  Also forcing work.

Job creation
Wealth only trickles up.  If there is a sufficient number of people with money, then producers will find a way to go take that money from those people.  Even if the producer sells expensive yachts, it is that producer's advantage to have a society of 300M people each with at least $10k income, than a society with more concentrated wealth, because other producers will go and take the money from lower income members, and pass it along to producers who can be yacht customers.

Only the wealth of customers is relevant to job creation, because producers will borrow any lacking funds, and our banking system supports unlimited borrowing.  Having wealth has a near zero impact on job creation.  The only reason ever to invest money in a project is if you believe there are customers for that project.  The more concerned you are about the future viability of the customer base, the more you are likely to cut investment, and protect your long term financial independence through fear that you will never make production profits again.

The absurdity of tax cuts for job creators
Once a business takes off and becomes profitable, it is extremely rare for it to fund future investments by requesting more investor money.  They  instead fund investment through their existing profits.  Higher corporate tax rates necessarily and directly creates more jobs and investment because any spending directly lowers a company's tax bill even when it fails to produce desired revenue gains.

More generally, the only other element than customers that assists job creation is reduction of risk for investments.  Higher tax rates and better tax deduction for operational and investment losses can significantly boost investment.  Lower corporate tax rates does the complete opposite.  At a 0% tax rate, every penny you spend on a losing investment is a penny lost.  At a 90% tax rate, every dollar you invest, only costs 10 cents after tax.

High corporate taxes never discourages profitable work, because corporate owners can avoid corporate tax bills by giving themselves salaries.  Ideally dividends should be tax deductible as well.  

While increasing the tax rates on high personal incomes can cause some financially independent people to work less, that choice is also job creating.  If many doctors and lawyers find that the tax rate on income above $250k is too high for them to work past $100k or  $250k income, then that leaves room for other doctors and lawyers to work to take customer money.  If 4 lawyers make $250k instead of 1 lawyer making $1M, then that is 3 extra cars, vacation homes, and boats that can be made for them.  As a society, we never need worry that someone will not bother to come take our money, and so we do not need to empathetically defer to these 1st percenter problems.

If it is a crime to deny the holocaust where you live, the penalties for the lie of claiming that lower taxes are economically and socially useful should be 100 times harsher, because the lie if believed can and will destroy the economic and social future of any civilization.


High taxes are not slavery
High taxes are good for all of you and all of us.  In the US, government spending is $6.3T.  Over 40% of GDP.  Those of you directly employed by the governments or its contractors can get 100% of your income from government sources, but the rest of us get 40% of our income as a result of your government funding.  We either sell directly to general consumers, 40% of whom are government funded, or we sell to other producers who've already taken their money.

The government labour force is also 33% of the total labour force.  Eliminating all government spending necessarily directly results in a 40% reduction in  private sector incomes either through job losses  or pay cuts.  The 40% lesser private sector necessarily causes a secondary 40% cut in the private sector because there are an additional 40% fewer customers.  It keeps spiraling downward.  After just those 2 rounds resulting from elimination of government spending, 66% of previously employed people would be unemployed.  Or, incomes would be 66% lower.

Opposing government spending is perfectly valid when it is useless, wasteful or evil.  Its even valid to object to useful spending when it is awarded through politicized favoritism where the winners and losers, even if justifiable, are arbitrary.  But no matter how wasteful or evil, any spending is more economically beneficial than no spending, because you may sell groceries or insurance to the warmongers.  The objection to evil and wasteful spending is that useful spending could be made instead.

The only argument for lower taxes is idiocy.  Eliminating everyone else's taxes will lower your pre tax income by at least 66%.  Since your tax rate is well below 66%, you are much better off with taxes than without.  If the profits and wages you took from society are not considered theft, then neither are taxes.  Giving a relatively small portion of your profits and wages back to society, is simply an intermediate step in the circular process of you taking the money back from them.

While the Congressional Research Service has recently published a paper showing that lower tax rates on the highest incomes never results in economic growth, they used a correlation/data analysis approach.  In economics, you have to prove policy through human nature.  Both approaches are often used to support lies, and most people tend not to understand either, so there is value in data analysis approaches confirming human nature based proofs.

Basic income and social dividends is the correct social spending of taxes
Basic income allows greater job creation because it takes more people (jobs) to go out and take money from many people 100s or 1000s at a time, than the effort required to take money from politicians/bureaucrats millions or billions at a time.  If you are not a military contractor, you can make much more money if 1M people are given 10k each, than if one military contractor receives $10B.

Basic income can lower the risk involved in studying and starting a business.  Education alternatives can be priced down to what is affordable without student loans.  Basic income can help support the design/development phase of a new business.  If may also enhance volunteer work due to enhanced freedom of choice

Basic income can also create jobs by eliminating the need for minimum wage and a few other employment regulations.  Basic income solves the culture of slavery by paying everyone.  Anyone that wants to work or wants more money than what is required for basic survival, will still choose work.  Although the culture of slavery creates a demand for low paying jobs out of the necessity to volunteer as a slave or starve, those companies that need low paying jobs tend to have low income customers.  Taxes and basic income both enhance demand for those businesses, and essentially subsidizes any employees wages.  If someone was content to work for a company for $15k per year before basic income is implemented, they should be content working for them for a total of $20k in employment + basic income.... At a cost savings to the company, and thus enabling the company to afford hiring additional workers.

OMG, people with racial/ethnic backgrounds I don't trust might just drink and smoke pot all day
The value of society to you is what society provides you.  Although, we might find that the services we receive from social funds to be worth less than the taxes we pay, nearly all of  you neglect to count the consumption that those, who profit through wages or contracts from those social services, contribute to help you produce and sell more of whatever you do.

Its completely irrelevant if other people produce nothing of use, as long as they consume.  The value to you of people in society is the same whether they do nothing, or supervise people on welfare to dig and refill holes, or do anything that is of no direct use to you.  We do not need a bureaucratic empire that filters out who is poor enough to receive aid, and supervises what they spend it on, because with the cost savings from eliminating that bureaucratic empire, we can ensure that everyone has enough, and trust that they will manage to survive.

If you participate in the act of production, then people who do nothing but consume do you the favour of not competing with you as a producer.

Basic income can also help alleviate poverty and crime, by replacing welfare and social housing.  Unlike welfare, basic income has no clawback penalties for work income.  Cash instead of social housing provides the benefit of not concentrating people into a culture of slavery, oppression, and quasi-prisons.  The problem with prisons and quasi-prison ghettos is that the occupants cannot help but associate with criminal designs.

Basic income can substantially facilitate renting a room or accepting room mates, because there should be no reasonable excuse for, or likely event of, missing a rent payment.

Tuesday, September 18, 2012

Should we vote to end civilization in 2100?

This post is a philosophical exploration of solutions to climate change, government debt explosion, and selective entitlements (for current retirees but excluding future retirees).  "Ending civilization" in this context refers to scheduling catastrophic warming/melting events, and scheduling government collapse by renouncing all future obligations after the scheduled point.  The year 2100 is chosen because no one alive today has an expectation to be alive then, and only a handful of voting aged people today would naturally reach continued life in 2100.

The referendum question of "would you prefer additional benefits in your lifetime at the cost of post-apocalyptic conditions in 2100" would not be proudly voted for, but if that is the wrong moral choice, and still a probable outcome, then democracy, even in its idealist form (truth is a force that will cause voters to improve and progress society), is a broken and amoral mechanism.

(click to enlarge)

The philosophy of trolleys
A well known philosophical/ethical proposition is the trolley problem.  A train is quickly bearing towards a fork in the tracks and you are standing by a switch that can change its path.  If you don't pull the switch, 5 people will die (they are tied to tracks) by being run over, and if you pull the switch, the train will change path and kill a fat man also tied to those other tracks.  You can justify either killing the fat man due to the total individual and social costs being lower, or can justify doing nothing because you have no responsibility to bear responsibility for your decision.

The actually interesting knowledge from the proposition, is one I have not seen explained before.  If the switch is already set to kill the fat man, there is no moral justification for setting it to kill the other 5, and if there are multiple people standing by the switch, there is no moral justification to prevent any one of them from deciding to kill the fat man.  So, in a democratic procedure for setting the switch position, the only morally justifiable voting options are to either kill the fat man or abstain.

Real world application of the democratic trolley problem
In the real world, the fat man has a gun, bribery funds, and a megaphone to deny railroad physics.  Your vote will no longer be influenced by overall social costs.  The train is an allegory for impending environmental and fiscal collapses.  The masses may have smaller guns, but there are more of them and so capable of exerting influence as well, and complicating any decision further.

Voting for a 2035 apocalypse?
The US social security "trust fund" is able to pay expected retirement obligations until 2033.  For those over 55, voting to keep all benefits for those over 55 and eliminate all benefits for those under 55 while continuing to tax those under 55 for benefits they will never see personally is rational self interest.  Similarly, a $10T debt increase over the last 12 years is worth the minimal economic benefits it provided as long as your age means that you will not be involved in repaying that debt.  Funding for schools and jobs becomes less important as you age, while funding for strong security and prisons would seem a priority to control the sub-class generations.

Romney/Ryan Apocalypse 2035
The above is pretty much exactly the republican political campaign platform, but without the distasteful explicitness of inter-genrational slavery.  GOP spokesmen proudly exclaim that "social security and medicare will not be lowered for those over 55", and "20 year olds today already expect that they will not receive any retirement benefits".  The last point is especially offensive because even if 20 year olds expect their government to draft them into war with Iran, indefinitely detain them, and cut all of their social benefits while raising their taxes to pay for past spending, doesn't make it fair.

The social contract
While some people object to the social contract on grounds that they never signed their name to it, and they shouldn't be compelled into funding social mandates, a much stronger objection is if the government cancels or reduce their obligations under the contract.  The core of the social contract is that we each get about 12 years of social funded education and 12-20 years of expected social funded retirement/health benefits, and pay for it all through taxes in between.  If we are somehow not entitled to retirement benefits at birth, we are certainly entitled to them once we enter tax paying age.

This year marked the first time that people have paid more in payroll taxes than they can expect to receive in benefits.  Further cutting benefits for the young is more explicit slavery than not cutting those benefits while taking in their taxes.  A $13k -$33k benefit cut is the same as the equivalent tax increase

The pyramid scheme of deferred benefits
If we are entitled to 15-20 years (based on expected life span) of benefits, the problem with them being due 45 years after we start working is that Governments can decide that those benefits are a lower priority than spending on wars, prison occupancy, or drug benefits to current generation of retirees designed to prevent cheaper mail order and with conditions that forbid program price negotiations.

Like all pyramid schemes, social retirement entitlements were designed with the false presumption that a steady stream of new participants would be available to pay for current entitlees.  Declining birth rates and longer life spans is the direct pressure on the sustainability of the retirement entitlement pyramid scheme.

Al Gore's lockboxes vs. Nordquist's starve the beast
Apocalypse 2035 was cemented in the US 2000 elections when extending the funding sustainability of the entitlements pyramid was explicitly rejected (no matter how narrowly).  "Starve the beast" is the intentional bankrupting of the government so that it can become small enough to drown in a bathtub.  Karl Rove's "deficits don't matter" was a specific admission that apocalypse 2035 doesn't matter to the GOP voting base.

Apocalypse 2035 is designed such there is an "oops we have no more money left so everyone younger than x gets a reduction or elimination of benefits" moment.  All of the benefits prior to that moment will have been paid.  In a ponzi scheme, no money is destroyed.  Every dollar lost is a dollar gained by someone else.  The only basis for discouraging ponzi schemes is that there is fraud and disappointment committed against the less sophisticated participants.  In every ponzi scheme, the longer you can maintain the lie (extend the oops moment), the better for those at the top of the pyramid, because the longer the lie is maintained the more new people keep paying into the scheme.

The moral justification of Apocalypse 2100
As a democratic process that has no negative consequences for anyone of voting age, and almost everyone alive, there is no possible evil committed against anyone in the group if we decide today that government and social debt is eliminated (renounced) in the year 2100.  The decision to procreate birth slaves is a voluntary one, and can be avoided if you would despair over their fate.

The promise of eliminating government in 2100 is a generous gift to the birth-slaves, and will maintain hope for humanity for deliverance on the promise date.  We can kid ourselves that technology, and drunken-sailor-spending, will improve the state of the world on the hand-off date,

The diabolical evil or "even better justification" for apocalypse 2100
  • The social birth slaves could also be made to be liable for their master generation parents and grand parents personal debts.  So there would be personal incentives to create social birth slaves, if personal use of the slaves is an added bonus.
  • The social birth slaves could have substantial surtaxes to further help pay for our lifestyles
  • Military drone technology can be developed to condition proper respect of birth slaves for their generational masters.
  • Environmental issues would only matter within the context of damage/depletion prior to the 2100 deadline.
  • We could scrub history to make believe that this arrangement has always occurred every 100 years.  The purpose would be to make the arrangement appear fair and normal.  "Transition 2100" or "Empowerment 2100"  are more marketing friendly names that apocalypse 2100
The moral bankruptcy of apocalypse 2035
The same generational masters and birth slave separation is being currently made, but the birth slaves are already born and approximately younger than 55.  It is not morally justifiable if birth slaves are created through a hidden and corrupt political process that deceives the birth slaves, and even convincing them that slavery (reduced entitlements) is their correct position

The basis for the moral justification of apocalypse 2100 is removed when lying and deception is necessary to inflict damages on the generational subclass.

An interesting phenomenon in US elections over the last 12 years has been that exit polls (person asking people exiting voting place how they voted) have consistently shown that fewer people admit to voting republican than the official vote counts.  While an obvious and rational explanation for the discrepancy is corrupt election rigging, the other possible explanation is that people are shamed from publicly admitting to voting for republicans.   You can understand full well that war and senior prescription drug debt will be borne by some people's grandchildren, but see that as much more preferable than you having to bear any cost.

Just as we might all publicly renounce the apocalypse 2100 proposal, within the secret ballot process, many of us would consider the personal advantages of having slaves and being on the right side of the generational superclass divide.  It is much easier to vote yourself as the superclass when that assignment is hidden and not publicly discussed, as it has been in recent elections.  Slaves are controlled more effectively and cost efficiently through the illusion of freedom  than through armed security.

The disadvantages of creating a youth subclass
Beyond the collective shame for being anti-humanist pieces of shit by enslaving our, or our peers', children, the birth slaves will morally justify extreme violent resistance and the overthrowing of generational rulers.  The chief utilitarian cost of birth slaves is the resources used by, and failures of, militarized control of the birth slaves.  Some of us will die, and all of us will feel less safe, as a result of the justified hatred and resentment of the birth slaves.  Not only will we have monumental security expenses to control the birth slaves, but the security will still fail sometimes.

Even if we aim for apocalypse 2100, by 2050-2070, there will be relatively few of "us" and our will to maintain the social order may be weaker than the collective energy of the birth slaves to oppose us.  The full 88 year reign may not be a reasonable expectation, and so we condemn some of our younger privileged generation members to either a violent death, or a forced compromise of forfeiting their benefits.

SOLUTIONS

Now testify
Paul Ryan said his favorite band is Rage against the Machine.  This shocked the band members who asked what his favorite song possibly could be, since the band's philosophy is antithetical to everything Ryan believes.  If I may answer for Ryan, it is Testify.  





Musically, its one of their best songs, but more importantly from the linked video, it carries a voter suppression message that democrats are the same as republicans.  While not the strongest possible endorsement, I can definitely state that democrats are a lesser evil than republicans.  That should be sufficient to earn your dedicated commitment to vote for democrats this November.  The importance is exterminating republicans from political influence and relevant discourse.

Better political alternatives to democrats can surface afterwards.  If you don't vote, you admit to having zero relevance in social issues.  You should prefer your political opponents, no matter how wrong or useless, to be human beings rather than demons.

Turning deferred entitlements into immediate entitlements
The simplest way to avoid generational master and sub classes is to use the Social security fund to start paying stipends (based on Canadian OAS model) to everyone over the next 15 or 20 years.  The moral justification is that at least the benefits would run out for everyone at the same time.  I name this solution Social Security Liquidation

A problem with this approach is that this still creates a significant economic event in 2027 or 2032 when the payments run out.  Also, even if the common widely broadcasted advice that people should invest and save the payments in preparing for their end is well understood, issues of personal responsibility and bad luck with investments would create substantial personal hardships.

Basic income and social dividends - The better solution
Basic income is providing every citizen with a stipend in the amount of approximately $7k to $10k per year.  Permanently.  You could consider the previous solution of a 15-20 year temporary "retirement (Social security liquidation) stipend" to be a test run for basic income.  At any time in the next 15-20 years, the people can vote to extend the social security liquidation program into a permanent annual entitlement.

Basic income provides far more advantages than just eliminating the generational subjugation problem we are facing.  Basic income is not welfare.  There is no created disincentive to work.  It replaces welfare, eliminates catastrophic poverty and desperation, eliminates need for minimum wages or excessive employment regulations by equalizing the negotiation power between employers and employees.  It also provides substantial economic activity boost since the poor spend everything, and the middle class and rich also get a safety net that allows them to save less.

Social dividends is the concept that every citizen deserves an equal share of social tax revenue.  It is a justification for basic income, but it is different in that it provides a variable entitlement rather than a fixed entitlement.  I recommend both a fixed basic income portion as well as this variable social dividend component.  The variable nature of social dividends provides an automatic adjustment to the economy.  When the economy does poorly, lower stipends will pressure more to look for work, and when it does spectacularly, there will likely be more encouraging work opportunities, or more content leisure opportunities.

The core benefit and purpose of social dividends is that every government program has the natural alternative of paying its cost as an equal cash stipend to citizens, and so every program must provide value efficiently in order to be tolerated.  A social dividend structure means that even though people may be taxed differently, the actual cost of any program is paid for equally by everyone.

Paying for basic income
Despite lies to the contrary, very high corporate tax rates directly create jobs, and low corporate tax rates destroy jobs.  The simple reason, is that the easiest way to avoid taxes is to hire people, do R&D, and buy equipment.  The higher the tax rate, the larger the tax deduction for any spending.  All that spending directly leads to economic activity and taxes from wages and other companies' profits.  Low or no taxes does the exact opposite:  A company focuses on cutting as many costs as possible, and it must bear the full cost and risk of any hiring or investment, because there is a lower tax deduction from spending.

On the personal side, higher top marginal tax brackets can also create more employment.  If say, some doctors and lawyers, reduce their work hours because they are making too much money, then there is more room for more doctors and lawyers.  Society is healthier with 400k doctors working 10 hours per week for $100k/year, than it is with 100k doctors working 40 hours per week at $400k/year.  At the very high income end, income is earned primarily from wealth and investment.  No tax rate causes anyone to keep money in their mattress instead of putting it in a safe investment, and high tax rates combined with high tax rebates for losses encourages risky investments due to the subsidy received if the investment fails.

The right tax policy is high tax rates with ample strategic "loopholes" designed to channel productive economic behaviour.  The right strategic tax deductions are those that when one entity successfully avoids tax, other entities receive income and tax obligations.  So high tax rates naturally cause distribution of income.

Basic income is affordable without tax increases
There are 20M US government employees.  The average Federal employee receives $120k in salary and benefits.  Elimating all government employees would allow providing $8000/year to 300M Americans from the cost savings.  I'm not advocating eliminating all government employees, but when you can give $8000 to 15 people instead of the 1 employee, then you need to look at whether the luck or politics involved in choosing the right recipient for that "nice job" is fair, and whether that job could be filled at a lower salary.

Total 2012 US government spending is $6.3T.  Eliminating all government spending would free enough money to give $21k/year to 300M Americans.  At that site, you can drill down for details, and pick the $2.4T you would prefer cutting in order to afford $8k/year for 300M citizens.

Social dividends allow a democratic process to determine what programs to cut.  Its unlikely that the whole government would be eliminated.  It is reasonable to expect that the military would receive significant cuts, and that drugs would be turned from a huge social and personal misery (from persecution) cost into a source of social revenues.

Improvements to democracy
Society and democracy must deal with people who view democracy and society's only purpose to make their lifetimes as comfortable as possible at any social cost.  When that perspective is so extreme as to be shameful, then the anonymity of voting contributes to that shameful act, just as anonymity contributes to every other shameful act.

The Canadian Charter of Rights and Freedom and the US Constitution include provisions to prevent laws that discriminate among groups.  But generational warfare is not currently covered.  Politicians could easily be shamed into officially adding a human right protecting against generational slavery.  But perhaps the courts could even extend the protection by assuming that it was an obvious intention all along.

Shame is the only peaceful weapon available to combat anti-humanist extreme selfishness.  Pretending evil is not occurring or contemplated facilitates evil.  Laws against evil maybe helpful too.

Friday, August 17, 2012

Alternatives to regulation: voluntary regulation vs. Imposed natural finance obligations

While government regulation is not the worst invention by any means, it does have several practical disadvantages, and worth considering alternatives:

  • Bureaucratic.  Rules and permissions can be arbitrary and wrong.
  • Expensive. the bureaucracy, enforcement,  compliance, and punishments have costs
  • Capture.  Legal and illegal bribes to the regulators or the politicians that appoint them can allow regulators to serve the regulated and prevent competition to its benefactors.
  • Broken Framework.  Implementing new needed regulations wrongly presupposes that truth is a strong enough force to stand up against industry/lobbyist interests.
The common alternative proposed by libertarians is that we should resort to suing each other whenever something bad happens.  While this eliminates the bureaucratic and capture problems of regulation, in its simplest form has its own problems:
  • Its not really cheaper: Saving from bureaucratic salaries are offset by double sided legal and investigation costs.
  • Loss of monitoring function: It is easier to get away with harming neighbours if there is no agency actively monitoring damage or compliance.
  • Punishment needs to be based on damage caused rather than negligence/malice of the responsible.  Lives need to be ruined even when harm is accidental.
  • Punishment must be more severe:  If it is easier to get away with harm, people who are responsible for harm must have their lives ruined more severely.
  • Damages caused may exceed the ability to pay of the responsible.
The core of the rest of this post will explore two compatible solutions that solve the above problems.  Though explained in greater detail later, natural finance obligations are used here as an instrument of economic servitude alternative to cash court judgements or corporate dispossession.  It solves the problem of damages exceeding the responsible party's ability to pay.  Voluntary regulation is regulation voluntarily adopted by the regulated in order to reduce the punishment that might occur if some harm is caused.

Let's start with some common everyday regulation that appears to have value, before we look at serious failures:

Driving regulations
These are generally useful at preventing accidents and harm.  License tests, Speed limits, seat belts, working brakes and signals, drunkedness limits.  The libertarian alternative, if we continue to socially value preventing accidents and traffic fatalities, would have to increase the punishments when an accident occurs.  In a libertarian world, only after the fact blame for accidents would be regulated.  While people should have the right to individually decide on traffic laws and regulations they observe, voluntary compliance with licensing requirements and vehicle safety would significantly benefit their insurance rates.  Even "scary big brother" ideas such as breath-alcohol and speed monitoring could be voluntarily accepted for their benefits on insurance rates, and accountability/excuses if accused of being responsible for an accident.  In the end, I believe most people would choose the voluntary regulation in the case of driving regulations, which perhaps only makes the choice illusory.

I actually believe that driving regulations are the least in need of replacement.  But in the case of industrial regulations I will show that society can be much better protected by essentially applying the old libertarian idea of reducing accidents by placing a sharp spike pointed at the driver on every steering wheel.

Building Permits
While knowing that a home complies with building codes for snow, wind, earthquake and fire resistance can be valuable peace of mind for many buyers, some building regulations (such as minimum size) have zero value to builders or buyers, preventing energy efficiency and affordability choices.  All of the safety concerns can be independently certified, and include marketing features beyond code compliance (premium plywood/HVAC/other materials used) that may enhance the expected longevity or perceived quality of the home.

Whether the certifying agencies are government agencies or private is not important.  The choice of choosing not to obtain certifications can reduce the costs to knowledgeable buyers or transfers among friends and family.  Most importantly of all, it frees up building choices.  And somewheat importantly, if the certification process is corrupt, too expensive and useless then the certifications will not be considered valuable enough (in enhanced property value) to obtain.

Playgrounds
Playgrounds can either be fun and dangerous, or safe and boring.  Regulating against needlessly dangerous equipment has some obvious benefits, but overall, regulation can make everyone unhappy in the case of playgrounds.  Certification of equipment safety levels and implied waivers of liability seem to be a more appropriate approach than ensuring that only the safest, most boring, equipment is put in.

A pause for some concepts...

Natural Finance Obligations
Natural finance obligations are usually voluntary loans.  They are soft loans in that they carry no hard repayment obligations (no fixed amounts on fixed dates).  They are instead, repaid based on incoming company cashflow, and ability to repay.  Repayments are obligatory and enforced by a 3rd party comptroller.  The loans are in queued priority with the first loans fully repaid all principal and interest before any repayments of future loans are made.  A general rule of thumb is that 20% of company's operating contributions can be set aside to pay employee/management bonuses or deferred compensation, or used to pay shareholders, or held as an operating reserve.  The other 80% of contributions should go to natrual finance obligation holders.

The remedy of dispossession
While dispossessing a property or entire company is not a very libertarian or even pluto-democratic remedy, it is entirely appropriate whenever the damages inflicted by a company exceed its ability to compensate for them.  The traditional plutocratic remedy is to award a large amount, through civil court.  The consequences are likely to result in bankruptcy, company liquidation, and loss of employment for all involved, and, relevantly, failure to pay most of the ordered amount.  The limited liability nature of corporations also allows corporations to create shell subsidiary companies (that never hold assets) in order to conduct evil/risky operations, and the law must diligently guard against such strategies both in its traditional plutocrat state, and under the remedy of dispossession.

Social dispossession
When the harm is to society at large, the natural remedy is for dispossession of the offending institution into social control.  Social dispossession should be considered when the infraction is so egregious that the company cannot compensate those victimized by its carelessness.  Beyond political dogma that demonises social ownership, there are some real disadvantages:

  • No guaranteed management competency.  Backdoor political appointees to management are likely to destroy value in enterprise.  This can be helped with natural governance principles (directly elected independent functions)
  • Split ownership is difficult.  Some members of society may be more directly harmed by the cause of the disposession, and so might equitably be assigned some of the shares.  The problems of split ownership may make that stake relatively worthless.  In addition to all other non-dividend-maximizing corruptions a majority shareholder can abuse minority shareholders with, a government majority shareholder could also have non profit maximizing objectives.
  • Key employees and former shareholders will be demotivated.  Shareholder employees with key product and technical knowledge will need addressing their motivational package after their shares are disposessed.
  • Just because a damage award is too expensive to pay now, doesn't mean it couldn't be paid over time.  Dispossession becomes too onerous a punishment in these cases.  Courts are incapable of adjusting damages down to an ability to pay.
Natural finance obligations as an alternative to social dispossession
A natural finance obligation's key advantage over social dispossession is keeping the organization intact, and dealing with the split ownership problem.  It is roughly equivalent to requiring the penalized institution to pay out most of its existing cash, and 80% of future profits to the obligation holders until they are fully paid off.  It can and should be set at 0% interest growth, because the speed at which it is repaid is not up to management discretion.

Not only can the beneficiaries of a natural finance obligation be split into any number of groups without discrimination to any member, but the financing of the obligation can come from many parties, and can be modified over time.  For instance, in addition to the company and its insurers, the bond can be collateralized by well paid executives over time displacing the other backers.

Even if it takes 20 years to pay off a penalty through a natural finance obligation, shares should still retain value, because the shares will revert to their "full value" when the obligation is repaid.  This addresses the organizational sustainability, management and motivational issues, but at least as importantly, allows financing potentially larger penalties than existing assets could support.

Some corporate regulatory failures....

Massey Energy Martin County sludge spill

Instead of regulation, a high risk coal mining project should require bonded assets/insurance backing that triggers in the event of a disaster.  A potential natural finance obligation is a claim on future earnings and so can be bonded more cheaply than tangible existing assets.  Its easier for society to list all possible bad consequences and its associated penalties than it is to mandate safety rules.  The coal mine and its insurer will be motivated to adopt every worthwhile safety precaution.

BP event horizon gulf oil spill
BP/Transocean benefitted from lax regulations in that there was no requirement (that exists in other countries) to have a backup relief well, and they possibly violated existing regulations by having a defective shutoff valve.  After the incident, they've benefitted from a cozy and helpful US government.

Collectively, I believe society feels that if a company cannot safely operate, then it should choose not to.  From an economic/social finance only perspective, the benefits of oil production can be outweighed by the costs to tourism, fishing and property values.  This alternative to regulation is essentially a company affirming "Let me operate however I wish, but if that operation results in social damages, I will pay significant restitution and penalties"

The core failure of pro-active regulation is that it is decided by politicians who's friendship has been purchased by the potential regulated industry/lobbyists.  They naturally argue that their operations are safe enough, and they don't need additional rules, but their opinion is always worthless in relation to the truth (same statement/position would be made whether true or not).  So its better to not even entertain discussion on what is safe, and simply punish accidents/events.

Fukushima
A nuclear industry that is safe 49/50 years is not safe.  The Japanese government should seize/disposess all shares of the fukushima operator Tepco.  While there is an extremely serious objection that such action would have no legal basis whatsoever, let the shareholders sue, but countersue for the $trillion in damages and cleanup costs.  The net effect to Tepco shareholders (worthless shares) is the same, but Tepco itself can continue providing expertise in the cleanup instead of being bankrupt.

A more important action in every country engaged in nuclear power is to declare today that anyone who wishes to continue producing nuclear  power must put up a bond of insurance/assets/future income not in the event they are found at fault of a disaster, but in the event of a disaster.  The industry's opinion of nuclear safety is irrelevant if they are unwilling to personally indemnify society for its possible failures.

The current US political playbook on nuclear energy, which is corrupt and should be unnacceptable, is to wait until fukushima is forgotten before reinstating nuclear energy permits in order to feed the American public's "much beloved" nuclear weapons arsenal.

financial crisis
The financial industry willfully and wrecklessly issued poor mortgages because they controlled zombie muppets that would buy any mortgage no matter how worthless.  This directly caused the US housing collapse, and cascading world financial crisis of 2008.  Our politically appointed authorities have found that no laws were broken, and that none of their overlords deserve the indignity of arrest or trial.

A lot of lips are moving regarding how to prevent a future crisis, and the peaceful group formed on the importance of the injustices committed have literally been labeled terrorists.  No regulatory reforms have been implemented, and the ones that has been scheduled (Dodd-Frank act) have an energy to the lip moving against them to suggest that the industry hopes to overturn them.

Instead of arguing about regulation, putting the ownership of the banks at stake would definitely curb any wrecklessness by management.  Part of the too big to fail protections is the concept that the economy suffers if banks are ever punished because they can't shower the rest of us with money if they have less of it.  The threat of social dispossession becomes more appropriate because it doesn't harm the rest of the economy.

A global warming/climate change solution
This is more of an aside, but the debate about whether climate change exists would be irrelevant if the energy companies accept a very large (collateralized/bonded) bet that climate effects will occur.  Their opposition has been key to preventing regulation and measures designed to combat climate change, and their opposition is rooted rhetorically in denying its existence.

NASA
NASA has a reputation for a culture of safety.  It stems from in large part to their future funding is dependent on success, but a common trait of intelligent people and science in general, is placing a high value on human life.  Great pride should be taken for NASA's early success in human space missions, and pride for reassessing the costs/benefits and eliminating human space missions when its budget was adjusted.

While naive analyses might say that NASA is safety focused because its lacks a profit motive, more important factors for its safety focus is that it lacks the ability to hide failures, escape blame, accountability and consequences of failures, and lack of budget provisions for campaign donations to overturn findings of blame for failures.

Voluntary regulation implementation
The core social safety proposal being made is that companies are forced to abide by rule "if socially damaging event x happens then $y must be paid"  The $y can be put up by any party other than the company (insurance company likely), and beneficiaries c/would be split by national and local communities, and those more directly affected.

One issue with the approach would be that a company utterly devoted to safety precautions could still incur a ruinous accident.  This is where voluntary regulation or voluntary safety measures come in.

In exchange for adopting safety measures, the company can negotiate the $y amount down in addition to hopefully reduce the chance of event x occurring.  Both of these effects would lower its insurance premiums it is paying any 3rd party to collateralize its potential event obligation.  An alternative to negotiating down the $y amount, is simply cataloging safety measures undertaken so that in the case of event x it can argue why $y should be lowered on the basis of its precautions.

If the company is not insured, it is incredibly vested in preventing x.  And if it is insured, then its insurance provider is incredibly vested in supervising and authorizing behaviour.  For Natural Financed companies, the 3rd party comptrollership role is suited to dealing with multiple parties and obligations, and can assist in ensuring compliance.

the simplification of regulatory approvals
Currently, when a controversial project has safety fears, political contributions can significantly influence its approval.  More controversial projects may have their timing of approval delayed, but in the end the committee will announce that their safety concerns have been met, and they have confidence in the operator's safety plan.  Statements that are fundamentally unassailable due to being judgments based on comprehensive mostly private facts.  No public visibility or accountability of the committee members means that they are unlikely to have their actions reviewed in the event of a disaster.

In the case of Massey Energy's sludge spill, the fine involved was $55k. If an approval committee instead of assessing the probable simply stated that if the project fails to prevent dumping 1B gallons of toxic sludge it will pay a penalty of $55k, the statement would be viewed as obviously absurd and corrupt.

Decisions that focus on the possible and the penalties for the possible are necessarily more transparent and reviewable than private assessments of probability.  The entirety of the regulatory assessment fits into a headline, instead of a balance of secret deliberations.

government vs private involvement
3rd party safety certifications adds credibility to any safety claim.  Private safety certifiers are likely to be corrupted by wanting to please their clients and be too easy on them.  Government certifiers can be corrupted the same way or through the political process.  The main rationale of proposing natural governance (independent directly elected functional governance) was to eliminate government monopoly and hidden political manipulation of regulatory functions while not resorting to submission to private (certification) mafias.

In the context of certification agencies, natural governance would allow overlapping and competing socially accountable functions.  There would be no absolute requirement of social funding.  It would add over the private alternative, direct electoral accountability to guard against corruption of their mandate and presumptive duty.  A private company is only accountable to its customers and shareholders and so unsuitable to be trusted for social care, no matter how cute the baby animals in its advertisements are.

safety innovation
Another issue with our current regulatory framework is that safety innovation can be politically blocked by industry.  Even small industries.  A prime example is the table saw that shuts itself off instantly when it is about to cut through a human finger.  According to the 2nd video there, 1 in 20 table saws ever sold has mamed someone.  While this is an obviously great idea, there were substantial initial marketing struggles that may be partially blamed on it being too good an idea where the inventor wanted to be rewarded too much.  At any rate, saw manufacturers didn't want to implement it because they didn't have to (Saws like playgrounds carry a waiver of liability due to inherent danger), and the regulatory agency refused to mandate the safety feature, despite the fact that the CPSC's own data show that 3-4000 idiots per year have table saw related amputations and need protection from themselves.

The way this alternative regulation proposal (I'll eventually refer to it as Natural regulation to keep the lazy naming scheme) advances such safety innovation:

  • Individuals can still choose to use more dangerous equipment if they are confident in themselves.
  • A direct and obvious economic appeal can be made to liability and insurance rates.
  • If there is active oversight of operations of your business by an insurer then there will be highly responsive reactions to potential safety innovations.
  • Customers that bear liability from using supplier equipment ( who don't) could get more helpful suppliers.
  • You don't waste 1 to 2 years of time trying to convince bureaucrats to do the right thing.

Pre-addressing criticism
The loudest argument against "natural regulation" is that it will prevent industry and economic activity due to companies being too afraid of projects and their potential liability to proceed with them.  The question to answer though is "Would you allow BP to proceed with its Event Horizon project knowing the outcome?"  Even if that outcome occurred only 1 in 5 times, it would still be better for the world if BP had been too fearful to conduct it.  Also relevant though, is that BP would still have wanted to undertake the project with more expensive safety measures.  My understanding from the reports on the incident, was that the accident was influenced by cutting corners rather than the project being infeasible from a safety perspective.


Political implementation
Given that this proposal would reduce the benefits of political campaign donations, its easy to predict that current politicians will not favour it.  But if we pay attention to the lip moving, ...

Republicans speak of personal liberty, lower taxes, and even the elimination of regulatory agencies.  Democrats speak of making the country/people safer, and protecting the environment.  I think their opposition would expose hypocricy.

The most important point of this paper is showing that the general libertarian approach to regulation is not necessarily a pro-polluter one.