Perhaps people might have some comments on this stuff.
Cheers, Ken Hanly:
P.S. Don't we get a report on Cuba from Paul Phillips?
> Re-embedding the Economy into Society and Society into the
> Biosphere
>
> We have entered a period of systemic breakdowns. That is
evident from the
> turbulences of the stock markets throughout the world;
from the
particularly
> noxious microbes that have evolved to withstand our
antibiotics; from the
> multiplying ecological disasters; from abnormal weather
patterns possibly
> related to an overstressed environment; from the small and
often
genocidal
> wars breaking out in enough places to tax even the war
machine of the
lone
> surviving superpower. Many of these catastrophes are the
direct result of
> solutions inspired by the "leave all to the market" model.
Evidence is
> piling up that there are problems that won't respond to
market logic.
They
> require the oversight and even the initiative of savvy
government.
>
> However, formulating this principle is not enough. Unless
it is brought
into
> society's accountancy, into our price theory, and into our
concept of
> "inflation," humanity will go on stumbling towards the
ultimate pit.
>
> Let us begin by examining how the cost of public services,
paid for by
> taxation, rather than marketed, enters the price system.
>
> Since there is no price tag on such services, their input
into price can
> only be measured by their cost. The cost of the
infrastructures to
produce
> them, however, must be depreciated and amortised over
their useful
lives.1
> The depreciation of the capital services needed for their
production is
an
> internal affair of the producer's own accountancy. It is
already covered
in
> his price.
>
> With public services that is not so. Its depreciation
costs, ideally
covered
> by taxation, must be brought to public attention,
otherwise its
contribution
> to the price level will be mistaken for inflation. And in
the creed of
> orthodox economists "inflation" -- badly defined as any
rise in the price
> index rather than what can be traced to an excess of
demand over supply
--
> plays a role not unlike that of the devil in earlier
Christianity. There
> were periods when not only black cats, but thousands of
innocent men and
> women were sacrificed in the belief that they were
manifestations of the
> Evil One. The depradations from a mistaken price theory
have been greater
> than that rather than less.
>
> If public non-marketed infrastructural investment is
provided in a timely
> way, its benefits may go on beyond the extinction of the
debt incurred
for
> it. Thus money spent to head off epidemics, may head off
the spread of
many
> diseases from a health system overloaded by such plagues.
The influence
of
> educated parents is likely to extend beyond a single
generation. Such
> bonuses could be considered "unmonetised" capital gains
from public
> investment. However, attempting to bring them into
society's accountancy,
> would further complicate cash flows. Yet it is important
to recognise
that
> investment in human capital contributes to the quality of
life and
> productivity at no additional cost beyond its own
amortisation.
>
> And here we must note an important asymmetry in the
rewards from adequate
> and the penalties from inadequate public investment.
Sooner or later not
> only must any serious shortfall in public investment be
made good, but
also
> the direct and indirect damage arising from that neglect.
>
> The Globe and Mail (22/06) quotes Margaret Hison,
president-elect of the
> World Federation of Public Health Associations:
"Investment in smallpox
> immunisation, a disease that was eradicated in 1980, has
been recouped
every
> 26 days since then. [But] aside from high-profile
campaigns such as those
> against smallpox and polio, immunisation rates are
plummeting in many
> countries."
>
> Improved health technologies have contributed to a
population explosion
> throughout most of the world, accompanied by sped-up
urbanisation. That
> calls for more immensely public investment. That in turn
results in the
> growth of the public component both of the economy and of
the layer of
> taxation in price. But by the official economic screed the
goal of a flat
> price index into all eternity is misnamed "licking
inflation" to be
enforced
> by higher interest rates. And while there used to be many
less disruptive
> successful ways of dealing with inflation than higher
interest rates, one
by
> one they have been weeded out since the sixties to
establish a monopoly
of
> interest rates as "the one blunt tool of our central
banks." In that way
in
> the name of deregulation a monopoly for the revenue of
money-lenders and
> speculators was established. That has turned economic
policy, our
political
> institutions, and morality itself inside out.
>
> Remember how smart the Reagan government was in pushing up
the ante of
the
> arms race with Moscow until the Evil Empire collapsed. A
similar cunning
was
> used by the financial sector in bleeding every social
subsystem --
health,
> the environment, biodiversity -- in the interests of ever
soaring
> shareholder value.
>
> That can only force countries weighed down by the burden
of those rates
to
> skip essential public investment. By a grotesque twist of
logic, the
> financing of health and educational programs has come to
be considered
> "pathological," while balancing budgets by supplanting
such programs is
> applauded as a sign of "health." The International
Monetary Fund is
always
> there to prescribe budget cuts and high interest rates as
conditions for
> further financing.
>
> A flat price level would be a ringing alarm that vital
public
> infrastructures are not being maintained or even provided.
>
> The non-market subsystems of our mixed economies operate
under
constraints
> of their own. At the most basic level these cannot be
expressed in money
> terms. Thus in the defence against carbon-dioxide
pollution, the limit of
> tolerance of such pollution is the fatal ratio beyond
which the
environment
> becomes uninhabitable. Defences of other types of
pollution have their
own
> lines in the sand that must not be crossed. In the
household economy the
> ultimate constraint is keeping the family together as a
nurturing unit.
> Money and price enter the picture in these non-market
subsystems strictly
as
> a means not as an end -- as a lingua franca to enable the
subsystem to
> communicate with other subsystems of the economy.
>
> It is essential to distinguish between the lingua franca
and the specific
> logic that each specific subsystem of the economy must
respect. To
clarify
> the point consider a French translation of a treatise of
British common
law.
> The language would be French to make the contents
accessible to all
French
> readers. But the content would still be British not French
law.
>
> The basic rule of systems theory is that for the system as
a whole to be
> functional every subsystem must be in working order by its
own code.
> Averaging out the efficiencies of the subsystems won't do.
When the
battery
> of an automobile runs down, the car won't move no matter
how much fuel
may
> be in the tank. One subsystem must not cannibalise another
other --
draining
> it of the means and motivation necessary for it to
continue operating.
> "Means and motivations" in social systems is an analogy
with "negentropy"
in
> thermodynamics -- the difference in energy levels to make
energy
available
> for use.
>
> In that perspective attempts to handle pollution by market
strategies are
> frivolous. Note the attempts to market rights to certain
types of
pollution
> in the United States. That attributes to a heavily
polluted site of an
> abandoned industrial plant a capital value that can be
realised by
selling
> those rights to an industry that wishes to legitimise
pollution
elsewhere.
> This is particulaly obscene in a country that still has to
recognise
public
> expenditure for health and education as public investment.
>
> Where is the money coming from to observe these absolute
priorities of
the
> various subsystems of our economy? That answer is "where
does it go at
> present?"
>
> The current assault on our biosphere and society was made
possible by the
> agenda of globalisation and deregulation to "maximise
shareholder
wealth."
> The kingpin of the plan was to transfer the bulk of our
money creation
from
> the central bank where governments were able to borrow
money for
essential
> purposes at a practically interest-free charge to the
commercial banks,
the
> stock markets, and other private institutions of the
world.
>
> Today there is urgent need to reembed once more banking
into the
productive
> economy, the economy into society, and society into the
biosphere. The
> biosphere is the basic matrix of all, of course, but in
the world today,
the
> order has been reversed. It is at the financial end that
blockages have
been
> thrown up to any serious survival program. That needs the
immediate
> attention of those concerned with the threats building up
to the
> environment, to the family, and to humanity's chances of
survival.2
>
> Towards this goal the subsystems of our economy must be
grouped into
several
> categories. In Category 1 the output of the industries are
marketed and
the
> means and motivations can be adequately expressed in
purely market terms.
> Here we have the fullest use of money in all its aspects,
not only as a
> lingua franca for communicating with other subsystems.
>
> Then we have the non-market sectors of the economy, that
again fall into
> distinct subdivisions. The household sector depends upon
the market for
its
> income and to obtain the goods and services that the
family cannot
produce
> internally. Its purpose, however, is not to make a profit
but to nurture
> family links. Except in pathological situations, money
enters the picture
as
> a means rather than as an end. It plays no serious role in
intra-family
> exchanges. Legacies, dowries and other major transmission
of funds
between
> members are essentially generational affairs to help an
adult family
member
> set up a successor family.
>
> Public services have their own category. Usually they are
not sold,
though
> in recent years "user fees" have come into vogue,
essentially as an
> encroachment of the market. The value of public services
is translated
into
> money language for integration into economic aggregates.
For the purpose
the
> cost of such services serves as a surrogate for
non-existent price. But
> there is a redistributional element involved here as well:
the taxation
> collected from the individual citizen bears no necessary
correspondence
to
> the quantity of public services she might consume.
>
> Many considerations other than a plus or minus sign before
the bottom
line
> enter into proper judgments on the efficiency of a public
service. Part
of
> the cost may represent a strategic investment in human
capital. A formal
> deficit may serve a macroeconomic purpose, such as helping
bolster the
> economy during a depression. It may be the government's
way of creating
> legal tender, which since 1971 has no other form than
central government
> debt. Not even private sector costs can be identified with
the core costs
> for the production of the output of a given firm. For in
those costs is
> embedded a layer of taxation that will reflect the social
policy of the
> government.
>
> Public services essential for both the private sector
itself and the
> non-market subsystems are a legitimate component of the
costs and hence
the
> prices of market output. Approval or disapproval of
increasing public
> services may appear to depend on the individual's politics
and ideology,
but
> the vital role of public services even for the private
sector must not be
> lost from view.
>
> Translating statistics of the household economy into money
terms for
> aggregation into the GDP has its own set of distortions.
If the mother
goes
> out to work to help pay the mortgage as interest rates
climb, that is
> registered as contributing to a higher GDP, our most
common token of
> prosperity. But leaving a family with less care and
supervision may show
up
> in higher psychiatric, educational, and even prison costs
years down the
> line.
>
> Expressing what goes on in the environmental subsystems is
even more
> difficult. At the most basic level, there is no common
dimension for
> aggregating the subdivisions of the ecology -- i.e. adding
up the damage
> from mercury poisoning of our waters with the carbon
monoxide or carbon
> dioxide of the atmosphere. Only when these different forms
of pollution
have
> been translated into money terms and totalled do we seem
to have a total.
> But in part that is deceptive. An average decrease in the
total amount of
> pollution will not fill the bill. For it is each specific
form of
pollution
> that must be brought well below its limit of tolerance.
>
> A further complication arises when we come to deal with
the "capital
value"
> of environments still unspoiled and that, indeed, must
never be
> commercialised -- for example fragile forest stands of the
subarctic, or
the
> rain forests of the tropics. If they are seriously
damaged, restoration
will
> certainly call for major investment. But adding notional
revenue from
clear-
> cutting stands that should never be harvested is folly.
There is thus
> another asymmetry in the statistical treatment that can be
given the
> destruction and the preservation of the ecology. If you
place a
commercial
> price on a fragile environment that must never be
exploited you end up
with
> a flattering but utterly misleading statistic on the
wealth of countries.
A
> grading of Canada by a United Nations agency a few years
ago showed her
the
> wealthiest country in the world, when in fact we were were
going through
a
> traumatic deflation with a great deal of unemployment,
homelessness and
> stress.
>
> A meaningful spreadsheet of our mixed economy must
recognize the very
> different significances of the translations of
non-commercial values into
> money terms. A modest step towards this goal -- on a most
primitive plane
--
> is suggested, you might say, by the optical approach of
laser
communication
> technology. That transmits billions of messages in
different wave-lengths
of
> the light spectrum over the same glass strand. Likewise,
the translations
of
> the figures from our various subsystems into dollar terms
might be
published
> in a few different colours.
>
> For example, ecological subsystems in shades of green, the
public sector
in
> yellow, the household economy in blue. If the frequencies
are kept apart,
> optical interference is avoided. The different
subdivisions of
environmental
> system could be distinguished by tagging them with letters
as well as
> colour -- since too subtle differences in green or blue
frequencies may
> escape human eyes. The overall spreadsheet could be summed
up in black,
but
> the subsystems in different colours would be there to
remind us that
their
> arithmetical sums must not be taken per se for viable
solutions. Very
> elementary indeed, but it would help salvage the essence
of systems
> analysis.
>
> 1 "Amortise" refers to the liquidation of a cost or
charge; depreciation
> refers to the using up of the usefulness of the facility.
Ideally the
> depreciation and amortisation terms should coincide so
that the cost will
be
> spread with relative evenness over the useful life of the
item.
> 2 This is a very cursory treatment of the money-creating
subsystem.
Abundant
> references will be found in the literature of COMER
Publications,
Meltdown:
> Money, Debt and the Wealth of Nations, 1999; William
Krehm, The Bank of
> Canada: A Power unto Itself, 1993; William Hixson, It's
Your Money, 1997.
>
> William Krehm
> Chairman
> Committee on Monetary and Economic Reform
> Publisher-Editor
> Economic Reform
> mailto:[EMAIL PROTECTED]
>
> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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> COMER Publications. Reproduced by permission of COMER
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> BOOKSHELF
> =========
> MELTDOWN : money, debt and the wealth of nations : how
zero inflation
policy
> and deregulation have turned the world economy into a
global casino : as
> documented in the first decade of Economic Reform
>
> (The John Hotson memorial series)
>
> Includes bibliographical references and index.
>
> ISBN 0-9680681-2-X
> 400 pages
> 6X9 SC
>
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