Surprise as yes and no both lose Scottish referendum

19th Sept 2014

There was a surprise at the polls in Scotland yesterday when both the yes and the no sides lost in what was seemingly a simple choice between independence for Scotland or remaining part of the UK. The surprise winner with a clear majority of votes cast was the spoilt paper which was the result of some discussions which got going over the summer as to the role of nationalism and the opportunities that would be made available to all by a sensible and rational restructuring of the planet along the lines advocated by the Zeitgeist Movement (1). 

It had seemed until early summer that the “no” campaign would triumph.  There was a fact based argument for this as recent history and economic theory were clear on the effects of dividing territories.  The separation of Czechoslovakia in 1993 was the most relevant example and in this case trade between the two halves “collapsed” despite efforts to prevent this happening and assurances prior to the separation that this wouldn’t be the case. (2)

The case for spoiling papers by simply writing none of the above at the bottom of the voting paper was based on two points:

1              Nationalism was morally repugnant

2             Neither option was a rational way forward for Scotland or the planet and a great deal of unnecessary suffering and premature death was likely to be caused by not pursuing the third option

A strong sense of nationalism is actively encouraged by all leaders and it is easy to follow along and get caught up in the enthusiasm.  However, stepping back there is a very fine line indeed between nationalism which is encouraged and racism which is abhorred.  Racism is discrimination against people based on who they were born to whereas Nationalism is the ‘protection’ of people from something largely based on where they were born.  Perhaps the Scottish people have come to realise that there were no guidebooks in the womb and it was not an informed choice by most to be Scottish.

Einstein was correct when he described nationalism as an “infantile disease”.  The independence question is analogous to being asked if it is right continue with a policy of racism against all people of Asian ethnicity or whether to be more specific and discriminate against people of Indian or Chinese descent?  The population of Scotland appear to have recognised that the right thing to do is simply not to dignify the question with an answer and this may have been the reason for the clear win for the spoilt papers at the ballot box yesterday.

There is a fantastic legacy of Great Scots who went out and engaged with the rest of the world with huge success.  This is something that people from many developing countries are simply barred from doing by the travel and visa restrictions that have emerged over the past 100 years.  We must move on to discussing how we can break down barriers and get the world moving forward.  Fixing malnutrition and basic healthcare for all, which we already know how to do, is likely to be the quickest way to get to much more advanced remedies as we would then free up more people to work on more advanced science.   Independence is a question that has finally been kicked back into the last millennium – the world has moved on and by spoiling their papers the Scottish people have signalled that they want to be at the forefront of the new world. 

While rejecting nationalism at any level is a key step the real issue that the “None of the Above” campaign was highlighting was that both options appear to be looking to perpetuate a system of unnecessary protectionism, chaos and stress that can no longer be justified.  The ironically titled Commonwealth of countries were actually competing in Glasgow at around the time some of these arguments got going.  This structure and others have ensured wealth remains about as common as a pregnant panda in the modern world and indeed recent figures have shown that 46% of global wealth is owned by 1% people.

The Scottish people are more affected than the rest of the UK by hereditary degenerative conditions which are at present incurable and lifestyle factors which combine to make life expectancy lower than elsewhere in the UK.  The Scottish environmental factors including concentrated wealth, long wet winters and low quality soccer further pressurise many into smoking, abuse of alcohol and other drugs and obesity.   

Based on history and proposals Government from either London or Edinburgh would continue the existing policies and ensuring the majority are either occupied in largely unnecessary work or struggling to survive and not address the opportunity and requirement that technology is creating to restructure society.  Neither a yes or no vote seemed likely to commit to the sort of reorganisation that is required to deliver a good standard of living and additional free time to the majority.  Focussing on change now may well be a matter of life or death for the majority of Scots. 

Leading biogerontologist, Aubrey De Grey (3), has suggested the first people to live for a thousand years have already been born.  It seems reasonable to anticipate that the more focus we put on curing aging and other diseases now the larger that group is likely to be.  Despite what many people think nobody actually KNOWS whether they are part of that group or not.  As the Zeitgeist movement has clearly explained with appropriate reorganisation and continued innovation the future is likely to be very much better than the present.

Bibliography

1. Various. The Zeitgeist Movement Defined. http://www.thezeitgeistmovement.com/. [Online] http://www.thezeitgeistmovement.com/uploads/upload/file/19/The_Zeitgeist_Movement_Defined_6_by_9.pdf.

2. Ghemawat, Pankaj. World 3.0: Global Prosperity and How to Achieve It. World 3.0: Global Prosperity and How to Achieve It. s.l. : Perseus Books Group, 2011, pp. (Kindle Locations 775-789).

3. Grey, Aubrey De. http://en.wikipedia.org/wiki/Aubrey_de_Grey. http://en.wikipedia.org. [Online]

Peak Inequality - Making wealth distribution less even?

Introduction

Carl Gustav Jacob Jacobi (December 10, 1804 – February 18, 1851), considered to be the most inspiring teacher of his time and one of the greatest mathematicians of his generation, said: “Invert, always invert”. Jacobi believed that the solution of many hard problems can be clarified by re-expressing them in inverse form.

Following this approach let’s examine how to increase inequality of income and wealth.  There are three main areas:

• Wealth distribution
• Borrowing and Lending
• Income distribution

Let’s also consider potential threats to increased inequality.

Executive Summary

Trends in wealth distribution and expanded opportunities for borrowing and lending will drive increasing inequality.  Idealists and campaign groups may be threats, but provided these remain disorganised and unstructured they will not reverse the trend.  Social networking software developing into a widely accepted decision making mechanism is a concern.  This could lead to fair and reasonable decision making and given wealth accumulation typically requires an element of unfairness and unreasonableness this is a problem.  Many mechanisms, including legislation can be put in place to slow adoption but ultimately it fairness and reason seem likely to prevail and the trend will reverse. The end of credit expansion will probably happen before the end of 2017 and will seriously disrupt wealth distribution with impacts that are difficult to predict.

Wealth distribution

In the absence of debt, peak inequality arises with one person owning all the wealth on the planet. This is difficult to achieve and the present distribution is far further along this path than we, or any classical microeconomic theory, imagined was possible and the concentration is increasing. 

A recent Oxfam report, http://www.latimes.com/business/money/la-fi-mo-oxfam-world-economic-forum-income-inequality-20140120,0,7080817.story#axzz2vFSrSpyc cited that 85 individuals had control of around 46% of the world’s wealth. The adage that money goes to money appears almost as reliable as gravity.  Our inclination is that this area is progressing well and no further action is required.

It would be difficult to generate widespread support for further actions to concentrate wealth.  One might argue that very rich individuals are best at managing wealth and so should be given more of it. However we think this argument is theoretically flimsy as the other 99% of the planet have almost zero wealth to manage and consequently their ability to manage it is unknown.  Practically it seems almost impossible to make the man on the street understand the potential benefits of making the very rich even richer and there is a real risk of a counterproductive backlash if this was attempted.

Borrowing and Lending

Peak inequality is not restricted to getting the majority of people’s wealth whittled down to zero. The established finance industry allows extensive borrowing and lending. This enables many individuals to have negative net wealth for much of their lifetime. As one man’s paper liability is another’s asset a fully developed banking system helps to maximise inequality.

There appear to be many promising opportunities for progress here.  Two main areas to build on are education and housing.

Educational Lending

In North America and other developed areas student loans are available.  This allows many of the more able citizens get saddled with debts as young adults.  It only requires some surplus income after studying to service the debt.

The US has ruled that discharging this debt in bankruptcy is inconvenient for lenders and is not allowed.  Instead the process is to penalise anyone who struggles to repay and this helps ensure many debts last for years.  Education costs have also risen rapidly and many graduates emerge with a significant liability. It is extremely hard for parents to deny opportunity to their kids and so they can often be persuaded to guarantee debts or contribute to the costs and this has helped to allow costs to skyrocket. Some excellent analysis on student loans is available at http://market-ticker.org/akcs-www?post=228449 .  However most people won’t read this so it’s not a major concern.

Educational lending can expand to other further education activities and lending in less developed countries can increase provided suitable protection for lenders is established.

It is disappointing, from an inequality point of view, that children typically enjoy many years of education without getting into debt.  While appealing to allow them to borrow, without granting other rights to contract, generating widespread support for this is difficult.  It is very tricky to enforce repayment of obligations taken out prior to them reaching the age of responsibility.

The most promising option for child lending seems to be through campaigning to push down that age.  Perhaps 14 is a level that can be reached with a bit of lobbying.  Obviously, the sooner children get into debt the more years they could be contributing to the interest flow from the poor to the rich which is so helpful to the way of life of the elite. 

Most banks and financial institutions would probably be in favour of this move.  There would probably be some costs in terms of political contributions to get the legislation passed but it seems a logical extension of the overdevelopment of further education.  We could probably get politicians to back it on the basis of providing children with better educational facilities and it could be combined with further public borrowing to help develop the system.

There are additional opportunities to maximise inequality. Most countries do a fairly good job of ensuring students enjoy a period of unemployment after their studies but potentially this could become mandatory to ensure students forget as much as possible of what they have learned before getting the chance to put it to use.  The myth that it doesn’t matter what you study must be perpetuated and courses should continue to focus on the interests of academics rather than the requirements for a more successful planet.

There isn’t a whole lot more action needed to move this along.  Encouraging gap years after studying and continuing to promote the social desirability of borrowing should be enough to ensure the vast majority of youth emerge from their education with a solid wall of liabilities which they can pay interest on for most of the rest of their life.

More might be done to make initial post-educational jobs a commodity to be bought with a modest loan.  This would help with topping up liabilities at the end of studies and could restrict movement of labour for a period afterwards until the supporting loan is paid off.  Not quite slavery, but a tied employee can certainly be underpaid for a while.

Housing

Housing provides another opportunity to get people into debt.  Unlike education housing loans are well secured on the related property.  This creates an incentive for both the lender and the building industry to ensure innovation and cost reduction in building are kept to a bare minimum.  A situation where new housing becomes significantly cheaper than the existing housing stock is undesirable as it impacts the security of existing loans. 

Nobody, other than the customer, benefits from affordable housing as this impacts the lender’s security and risks a situation where people were able to buy houses with less borrowing.  Consequently a high level of building regulation must remain and new techniques and materials should generally be found to contravene these regulations.

Planning restrictions must remain strict to make it difficult to build houses.  However some building on flood plains and other areas prone to natural disasters eg bush-fires should be encouraged.  This can result in insurance claims which given that very rich people own the insurance companies is a cost.  However this is not as bad as it appears as they never pay out the full replacement cost of what’s destroyed and in practice many claims can be avoided or mitigated on technicalities.  Premiums are hiked after a claim and there is no obligation to provide cover in future.  This diminishes the wealth of flood affected homeowners.

Income Distribution

Good progress has been made on income distribution recently and the future looks promising.  When compared to chief executives, the salaries of typical workers are much smaller executives than 20 years ago.

This is explained as a result of the labour market working well and some people seem to believe this.  In a situation where there is excess labour, there are real possibilities to increase board level and non-executive pay as just compensation for keeping overall costs and employee wages low.

Combining this with stock options and bonuses supports inequality.  Bankers’ bonuses remain an issue. Somehow the public struggle to understand the rewards that are required to incentivise bankers to bankrupt their employers and exploit the customer.  However with so many living in debt the bankers have a huge amount of power.  Simply backing off on new lending means many loans will fail and ordinary people will start to struggle.  This fear combined with buying influence with politicians has helped allow much of the pillaging that takes place under the banner of financial services to continue after the initial crisis.

Secured property lending also allows banks to take ownership of properties when they cause a downturn in lending.  Once a good level of wealth has been confiscated banks can start to lend and grow again. This is obviously much easier once prices bottom.  The boom and bust cycle is extremely helpful must be encouraged to concentrate wealth.  It creates some musical chairs among the banking leadership but severance payments are good and there is no real concern. 

In summary recent decades have been good and mechanisms are in place to extend inequality in future.  Abraham Lincoln’s Gettysburg goal has been redefined as Government of the debtors, by the creditors, for the creditors and it is unlikely to perish from the earth anytime soon.

Threats

While the above outlook is encouraging taking increasing inequality for granted is complacent.  The following threats will be considered:

1                     Democracy

2                     Secularism

3                     Civil disobedience

4                     Social Networking

5                     End of credit expansion

Democracy

Initially, democracy was a real concern among the elite. However these concerns were unfounded.  Democracy promotes the idea of the will of the people but in practice controls over the press and high operating costs for political parties ensure credible candidates are well linked to the elite.  Periodically proclaimed socialists emerge and appear to be in charge.   This is concerning, but only superficially, as they make rumblings about re-distribution of wealth and a fairer society.  However most politicians don’t really mean what they say and there is much talk and little action.

The fairly recent example of Tony Blair’s election in the UK is typical of how this can work out.  The main redistribution of wealth he achieved was from the rest of the world to him.  In return, using his leadership as a token to join the elite he found himself rather less inclined to legislate against them.  Instead, Tony, like most politicians, was keen on borrowing and this allowed him and the rich to gain wealth while the public liabilities grew.  Blair was also clever or lucky enough to bung the baton of leadership into Brown’s bottom before the banks blew up.  However let’s not be too sorry for Gordon cleaning up the mess.  A recent Forbes report suggests a residue of $15 Million dollars was left over for him after he left office and the baton passed out of his orifice and back to its more conventional home among the former pupils of Eton.

Secularism

Secularism is probably a bigger threat than democracy.  For centuries the poor majority have been told of big rewards and perhaps retribution in the afterlife.  This has made them more accepting of struggle and exploitation.  Atheism could make the majority more challenging to manage. Funding of religious leaders is also less worthwhile if their influence diminishes.  Science is a real problem as it keeps explaining how things actually work without divine intervention and consequently God’s attributed abilities continue to decline.  However the Romans and the Soviets have both demonstrated that religion is not critical to holding power.  The ‘bread and circus’ approach should continue to apply and provided basic needs are met then the risk of rebellion is low. 

Civil disobedience

If ‘bread and circus’ theory holds then so long as the majority are fed and entertained the risk of civil disobedience is low.  Issues arise if the quality of food or entertainment deteriorates or prices rise noticeably ahead of wages.  The incumbent political leadership generally deal very harshly with disturbance and this helps promote an atmosphere of fear among the majority of the population if any uprising gains ground.  This goes without saying as a requirement for the funding provided to political parties.  Indeed protests can help politicians to demonstrate how powerful and masterful they are by getting their servants to deal harshly with protestors.  There are also techniques to infiltrate crowds and manage the reporting to discredit, downscale and tarnish the credibility of protests.  While not ideal these can continue to be used and denied when necessary.

Social Networking

While current social networking tools spread publicity and rapidly update the public on events they primarily help by distracting and pre-occupying the majority.  This activity is not a major threat and anything which avoids the majority thinking about current issues such as inequality must be encouraged.  If social networking evolved into a group decision-making platform this would be concerning.  While it may appear this is similar to democracy there are some key differences:

1                     Decision making is continuous rather than a managed vote every four or five years

2                     Participation costs are low

3      Decision making could be shared and the people making the decisions might not be known in advance and this makes influencing their thinking and their wallets exponentially harder

4             It could lead to real decentralisation and distribution of decision making

5            It might lead to fair and reasonable decisions that lack focus on concentrating wealth and rewarding the elite

Clearly this could become a very troublesome trend if it was to get going.  A system like that outlined at http://netdecisionmaking.appspot.com/ must not be allowed to be established. 

However few people make the effort to think and many apparently prefer being told what to do. Consequently such a solution would take time to gain traction.  It may also be possible to buy out the developers, a bit like political leaders, and provide a contribution for them not to publicise their ideas.  While actions can be taken to delay this, ultimately it looks like there may need to be funding to support politicians and compensate them for enacting the necessary legislation to outlaw this development.  A situation where the majority are empowered to make decisions in the best interests of society and based on consensus is unacceptable.  That could seriously impact the distribution of wealth in the future.

The end of ever expanding credit

When housing credit stopped expanding in the US in 2007 there were repercussions. The elite, through their agents, moved into a confiscation phase of the game.  Since then global governments have worked hard to get credit expansion going again and the question arises if this were to stop again what would the consequences be?  There is some good back-drop to the debate here (http://globaleconomicanalysis.blogspot.co.uk/2014/03/pettis-proposes-savings-glut-and-income.html ) debating the issues with consumption, saving and investment.  However neither Mish nor Michael seem to explain how effective Government borrowing remains in allowing individuals to save and the economy as a whole to consume at the same time.  The so called Keynesian multiplier effect with borrowing appears to be a win-win situation for everyone.

The workers get jobs, the rich get to invest risk free and the Government takes credit for a bigger programme of work than taxation alone could allow.  It appears to be as close as humanity has ever got to the perpetual motion machine.  Certainly this game can go on for a very long time and there doesn’t seem to be much not to like.

However, nothing grows for ever and the end of the debt super-cycle remains a real risk to all holders of wealth.  All wealth is either directly linked to paper promises from counterparties or anchored to prices and incomes based on norms established during a period when Government borrowing has distorted free market rates.  Anchoring of values and distortion of prices has taken effect and given this period now covers virtually everyone’s adult life it is very difficult to recognise and accept these conditions are NOT normal and will ultimately prove unsustainable.

Make no mistake the end of the debt cycle is a mathematical certainty as debt cannot expand faster than income in perpetuity.  It ends when too much of that debt ceases to be serviced and rolled over and at that point things quickly get rather ugly and a great deal of wealth will have to be written down and entitlements and promises renegotiated.  While the rich will arrange for the burden to be proportionately higher for the middle and lower classes they will also be affected.  The questions that arises are when this will happen and what could trigger it off?

As so much borrowing is now either by the state or guaranteed by the state it seems certain that crisis will now start at a national level.  Japan, China, the Eurozone and the US seem the most likely sources of trouble, with Government debt, property bubbles, peripheral debts and student loans seeming plausible causes for each area.  However the inter-connectedness of the world and the cross exposure of banks makes it likely that any one of these crisis could trigger all the rest and the happy drift of the very rich to get even richer will be over.  We predict the faeces finds the ventilator fairly soon and as an absolute deadline we expect debt expansion gives way to further debt monetization by the end of 2017 at the very latest.

Fortunately, despite all the creativeness of financial futures and derivatives and the many claims on the future that have been written there is still no way to actually consume next year’s harvest before it has grown and technological progress genuinely does mean humanity is theoretically more capable with each passing year. However renegotiation of entitlements will prove a shock and distraction from progress and prospect theory means many people will choose to under-produce as they adjust to the new normal.  If renegotiation is done equitably and openly then it is likely to reduce the concentration of wealth – however if force and authoritarianiasm prevail then wealth may further concentrate. However their portfolios will probably need to diversify from gold and silver to lead and brass if they want to live long enough to enjoy it.