Monopoly money in real life (aka: "Banks")

My last blog discussed the nature of money and concurrently the "ownership" and rights to create money.  When money is created by banks and private institutions and is able to be used as a commodity, it becomes a transient and elusive.  Without the control of it's supply by a real national bank (no, not a central bank) it operates in patterns that destabilise the economy it serves (a view that is supported by the paper referenced in my last blog).  

The current method that private institutions create money is by fractional reserve banking (FRB).  This method of money creation can be described as "optimistic" at best, and more glibly, it is little more than the idea of handing out Monopoly money but for real life purchases.  FRB is basically creating money out of thin air (or electrons anyway - all this banking is done electronically now).  It is essentially wonga.com but on a global scale.  You take out a loan (from a central bank or another private institution) then spend ten times the money that you were given, and hope that in the meantime no one calls you up looking for the other 9/10ths of the money until you have made some profit from it.  Another way to imagine it is the same way that multiple credit cards and 0% balance transfers can be used to juggle debt - but the banks do this with trillions.  Feel free to look this up, it's on wikipedia. 

FRB, the housing bubble and associated mortgage backed financial instruments are the tools that made the current form of recession possible.  I won't go into detail about these  here as they are better discussed in another blog.  What I did want to explore is some proof to my last blog's assertions - a real life example of the "destabilising effect" that Monopoly money have.  

I recently came across an article in The Atlantic that had some fascinating data about the collective worth of the Eurozone banks.  I submit it as an example of the above problems with  money creation since it throws up some appalling conclusions that should not happen in a well run and believable world.

Lets us assume that common sense dictated what happens in the world.  If we were to imagine then, the worth of the banking sector of the Eurozone, we would imagine something pretty substantial.  After all, the Eurozone is one of the largest economic blocs in the world.  If were to continue this thought experiment and compare the Eurozone's to other financial markets around the world, we would assume that intuition would give us some sensible ideas as to how they would stack up.  So when the article asks, would you believe that the Eurozone's financial sector is smaller than Australia's, most of us would say; "No, I don't believe it."

What?  Really?!

Well, there it is.  I am actually quite stunned by all this.  I find it terrible and obvious that this roller-coaster-like image of global finances is largely caused by the "virtual" Monopoly money that is ubiquitous in our economies.  It is even more terrible to understand that this small graph is a representation of the actual economic turbulence that is making life miserable for millions of people in around the world.  

I don't like recessions.  I don't like banks acting like gambling addicts.  I don't like rich institutions having access to powers that they cannot use responsibly, and I definitely don't like to see graphs like this one.  A graph that shows the result of this recklessness in crazy, reality-bending clarity.

Who's money is it anyway?

Some of you may be aware that there has been a bit of commotion in the world economy in the last few years.  It has largely been downplayed by the people responsible.  As for the rest of us, it has ended up with us feeling poor and probably unable to buy a house, no matter how small, squalid or secluded it is.  OK, so even if you have been living under a rock, since you can't afford rent or to buy a house, you will know of the recent financial problems.  A number of terms have been used, interchangeably or relating to specific aspects to the problem; credit crunch, recession, global economic downturn and even Great Recession - mirroring the name of the Great Depression in the 1930s.  

The last name became somewhat poignant since I  came across a fascinating research paper by Jaromir Benes and Michael Kumhof.  Titled "The Chicago Plan Revisited" it is available through the IMF website as a free to view PDF.  They explore the causes of the recent problem - the fact that we still have no idea what money is and who should give it out; the state or private institutions.  I say that we have no idea what money is - we really don't.  People intuitively understand the way money is used in every day life - I give the newsagent £1 and he gives me some Haribo.  

But, what money actually is and how it is defined has proven illusive for the entire of human history.  These underlying issues have been found to have caused financial instability in ancient economies as far back as 5000 years ago in Mesopotamia (the place we bombed for most of the 2000's).  So much for people learning from their mistakes.  Currently money is a commodity that can be bought as debt from central banks by private banks and can then be traded in of itself or for other commodities.  An alternative model is that money is a pure exchange medium that is controlled and priced solely by the state for the benefit of the economy.  

What does a "pure exchange" medium, controlled by the state, actually mean?  It means that money is created by the state for the purpose of exchange of tangible goods and assets.  It means that banks can no longer generate profits by exploiting loopholes in the calculations of global stock markets.  It means that your money will never "evaporate" from banks as the money in circulation would be linked to state backing.  It means that banks can no longer bet on the economy the way a gambling addict bets on horses because they no longer have the ability to generate "vitrual" money endogenously using fractional reserve banking.  Fractional reserve banking is another way of saying that a bank lends out 10 times more money that it actually has so that it can maximise its profits at the risk of catastrophic cash-flow shortage.  Basically writing cheques that will bounce - and hoping they don't get cashed in too soon to avoid them bouncing.

This would have profound implications for the way that banks operate.  By effectively taking control of the money supply away from private banks the "Chicago Model" envisages that the boom-bust cycle would be eliminated.  It would also eliminate the naked profiteering and consolidation of wealth that occurs in these cycles - as happened in the 1930s crisis.  Great, sounds brilliant - so why has it not happened yet?  Well, it turns out such a system has been used before, many time.  It became so ingrained in the ancient societies around Mesopotamia that it was included in their religions.  Aristotle even wrote about the subject in Ethics; “Money exists not by nature but by law".

The benefits of a system where the state controls the money supply can be seen in the history of the UK.  Before the introduction of the Free Coinage Act (allowing private institutions to create money supply) the incidence of boom-bust cycles was unprecedented.  Since its passing, however, it is estimated that there has not been longer than 25 years - a generation - between these upheavals.  

Sadly, since such a system is not conducive to the wealthy getting wealthier, in countries where it has been the status quo, there has usually been the concerted push from the plutocracy to move away from it.  Even though the authors of the paper go to length to model the benefits of this system and even propose a plan for transition from the current system, it would be optimistic to presume that there would be a change.  While there are ongoing problems in the  world economy, one thing that is the same is the self-interest of banks with much to lose.  Power as great as the ability to create money, is hard to let go of.

Link to the paper: http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

Jaromir Benes and Michael Kumhof, The Chicago Plan Revisited

Usain Bolt - Greatest Olympian?

The guest commentary on the BBC of the men's 200m final was heavily filled with opinions that Usain is the greatest Olympic athlete.  His successful defense of the 100m and 200m titles is a first in the history of the Olympics and this is largely what has prompted these opinions.  I personally don't believe I have the credentials to say definitively if this is the case.  Michael Johnson was on the commentator panel and is very conclusive that Usain is in his opinion the greatest Olympic runner.  

Usain, feeling good.

A curious distinction?  Yes actually, Michael had made the interesting point earlier in the Olympics that the question of the greatest usually becomes instantly tainted by emotions and is rarely purely empirical.  The records that Usain holds are empirical facts as is his defense of his 100m and 200m titles - but there are other Olympians, like Michael Johnson himself, that hold similar records in defending other running titles (such as the 400m and 4x400m relay for Michael).  Similar debates rage on when comparing multiple medals won in a single Olympics versus a similar number over a span of Olympic games - which holds more worth?  No-one seems to agree. 

This is made even fuzzier when you ask Michael, who the greatest Olympian is; his answer, is Carl Lewis without hesitation.  Why?  Well, its personal opinion, empirical results and the non-tangible context of Carl Lewis' achievements; competing  against the racist-agenda Nazi hosts to the 1936 Olympics. 

My opinion is that Usain is absolutely great - eminently like-able, he is self-confident yet understated until he proves his point by results rather than words.  His relaxed and playful demeanor - a dramatic difference to the somber, laconic or boorish outbursts displayed by many other sprinters - adds to his personal appeal above his sporting ability.  By making others laugh with him and enjoy the spectacle is what separates him from other athletes.  But for me what I appreciate is his honesty, a point also highlighted by Michael Johnson, that continues to make him appear more human and fallible.  

By openly admitting his faults and and being realistic about his ambitions, he delivers what he promises: why would he not look to compete in the 400m?  Because he knows he does not have the determination to focus his training enough to succeed at the longer sprints.  Some might frown at this, but ultimately he delivers when it counts and does not waste energy on unattainable or even undesired targets.  

The Greek aphorism; "γνῶθι σεαυτόν", "know thyself" is as evident here as it was in The Matrix.  Is that the secret to his success?  Well it would not be that clear cut but it would follow the same line of logic as the pedagogy of Montessori schools - a favored model of mine, and the subject of another post. 

All we can say without controversy is that Usain is clearly the fastest man alive when it comes to the short sprints.  And a really nice guy.  What opinion we have of his greatness (and other athletes) seems to be more personal than practical then, but for me, the type of enjoyable spectacle that he conjures is what makes the Olympics more than just watching a clock count up to 19.32 seconds.

Arcologies - Saviors or Follies?

The idea of arcologies has always been heralded as a cure for all the problems  of modern, urbanised societies.  More than half of the world's population is now living in cities, so we would expect them to be popping up all around us, with their promised benefits of clean, renewable and sustainable living - but as of 2012 there is still not a single real arcology in existence.  The few half-built examples are all stagnating for one reason or another: the experimental Arcosanti project set in Arizona was started all the way back in 1970 by architect Paolo Soleri but is still not "ready" 42 years later; Masdar City in UAE has had its completion date put back from 2016 to 2025, a big slip in project time; Crystal Island in Russia has been postponed indefinitely citing "global economic crisis" as the reason - the name alone reminds me of the British Crystal Palace that ended in disaster.  Many more can be added to this list and their common denominator is that they all seem to be going nowhere.  Not exactly bright beacons for the future.

The reason that arcologies have a hard time working is three fold; most people don't want to live in what is essentially a massive condo built for half a million people; neither does any company of government have enough money to spend on such massive projects when the benefits are largely unproven (the neo-cities in China use proven and relatively "low-tech" layouts, architecture and town planning concepts that equate to a much lower per inhabitant cost); and finally there is a large variety in what one set of people understand as the concept and purpose of an arcology is.  This post is not dealing with "exotic arcologies" such as space habitats or ocean-faring arcologies - the scope here is practical, necessary and possible methods to create sustainable, scalable and comfortable new population centers.  Whenever you have an unclear mission brief, you will struggle to get the project off the ground.

Looks great - but what if you lived right at the bottom where the sun don't shine?

Arcologies were originally envisaged as megastructures that would be totally self sufficient in every way; power, food, water, sanitation etc.  The idea to make them big and tall is to maximise the population density in relation to geographic footprint.  This is an error; the world has  limited resources not overall land area.  Concentrating populations makes access to available resources harder as they are depleted faster in the local area.  It is better to build in areas with a surplus - using green energy generation and adequate recycling facilities for the given population size can then maintain a sustainable and comfortable living environment.  Population from overpopulated areas can then be attracted to reduce the pressure on the old urban centres.  Minimising the area for building means it is harder to adequately generate enough energy (think of the land needed to build sufficient wind or solar energy farms) or recycle waste effectively, making megastructures counterproductive. 

The theory is that arcologies are designed with commercial, habitat and industrial zones in proportions so that all inhabitants would be able to work and spend all leisure time in the arcology without the need to venture outside.  Now, this is not only impractical on certain levels (would every arcology really need to have a Large Hadron Collider / high energy particle lab?) but also this sounds too much like a prison to me.  While squeezing people together would theoretically lower commuting and the associated pollution, this is not as simple in practise.  Town planning already looks to minimise commuting and have optimal levels of habitable and commercial zones but in the real world, micro and macro economic factors make this impossible to predict accurately.  When building a $50 billion structure you hope that you could be less exposed to such risks.

This means that some of the underlying concepts of an arcology can be incongruous to our modern lifestyles.  They are meant to reduce travel to work by bringing work closer to habitation zones, but this becomes non-sensical in an age of multinational, multi-office corporations where people cannot live next to their job.  And while reducing the reliance on cars by bringing work closer to your home makes sense, many people already can cycle to work in large cities - they choose not to for reasons other than the actual distance to work being too large (for example, they might often just be too lazy...)

Large commerce buildings interspersed with rapid-transit routes and
low-rise zones and planned green areas.  Each "cell" is mostly self
sufficient but matrixed to meet any deficits in space or energy.

Arcologies of the megastucture kind are akin to the claustraphobic and titular "Caves of Steel" described by Isaac Asimov in his Robot Series; which is a bad thing, as they were largely a cautionary tale.  They are also very hard to incorporate into the current geography and economy - finding 1 million tenants and $50 billion in funding is harder than finding 10,000 tenants and $500 million. 

Smaller scale structures can be inserted into the ecosystem more easily and incorporated into or near current urban areas.  Within these smaller developments, keeping the layout compact where possible (e.g. commercial and industrial zones) but expanding to give larger green, leisure and habitat zones would increase the wellbeing of inhabitants and allowing recycling initiatives to be efficient and give close to zero pollution footprint.  Even a cursory glance at these two approaches draws an easy comparison as to which is more appealing.

Where would you purchase a property?

As mentioned, a staple of Sci Fi, mega-structure arcologies tend to become run-down and corrupt while smaller "cell structure" arcologies are usually seen in idyllic settings with happy populations.  Acting as a "cell structure", small arcologies can be pieced together, each tending to its own energy and recycling but catering for small local variations in demand for certain zone types by allowing limited commuting and "leasing" of resources.  This can be thought of as the expansion of the current concept of "green homes"; where a home produces and recycles much of its own energy and waste.  Taking this to a larger level allows for economies of scale and public funding to make this more efficient.  An inflexion point can be imagined where the increasing the scale of the arcology no longer produces big gains in efficiency while the undesirable symptoms of the mega-structure design emerge.

A design attached to a larger, existing population hub.  Though providing extra functional space for the city it will increase population density as there is no added leisure or green space.

Small or large, these projects are mostly theory right now.  As recycling and renewable energy technologies improve, populations continue to grow and we become more serious about the "green agenda", the likelihood will increase that we take the idea of arcologies seriously and secure the necessary funding to make them happen.  When that happens, it would be interesting if a planned and considered approach is taken to build the smaller scale "cellular" units or if there still will be the belief that monstrous, monolithic mega-structures are chosen. 

Why do I like the Citroen DS3?

I really like the DS3.  Every time I see one go past I smile and say to myself, "wow, what a cute car"!  The fact that I would even consider owning one is what really freaks me out.  You see, I generally don't like French cars.  I don't like their styling, their lack of reliability, their suspiciously cheap prices and the way they tend to depreciate; like melted ice cream.  I also don't like hatch-backs.  So why do I go against all my usual rules on this and like it?

Citroen have really done a great number on this car.  Yes, it might deprecitate fast but it is cheap to being with - finance options start at under £99 a month if you just casually enter a search on google.com -  making it affordable overall.  A similar search for a BMW 1 Series gives you almost double that - £189 per month or above.  But there are many cheap cars out there so that can't be the only reason.

Maybe it is the way it reminds me of a Mini - Citroen offer different coloured roofs just like the Mini.  The styling, silhouette, lights and slant of the A and C pillars is very reminiscent of the Mini too.  Citroen clearly think that by taking the blueprints for a Mini and slightly stertching a few of the corners they will end up with a good looking car.  And, well, they are basically right, actually.  I knew that my teachers were just being closed-minded when they told me not to copy homework (Newton sort of thought the same thing really).

And it is festooned with shark part analogues, making it look mean and macho.  This appeals to the primal, limbic portion of our brain to make the car look thrilling and exciting.  These design details can be seen on other cars; the fin shaped aerials on BMW 5 Series and the shark gill-like side grills on Peugeot 407s.  Must be a good design idea, then.

Yes, the DS3 has good handling and a reasonable engine for the price (even if I would still be worried about the reliability of the unit as time goes on) but this is not what makes me like it.  If I really wanted good handling I would get a roadster, or any of a number of other small hatchbacks; like the better equipped Ford Fiesta, for example.

Really, I dont know the reason why I like them.  It must be because of the complete package, but then again it might be just because of the snazzy looks.  I don't know.  All I do know, is that out of all the other French cars out there that I would never touch, for some reason, the DS3 is the only one that I would actually cough up my own money for.  Maybe.

1+1≠2 The Men's 77kg Olympic Weightlifting 2012

So, a first post on the Blog also begins with a 1...

Ahem, anyway.  I was watching the men's 77kg weight category in the Snatch event, when the to-be Olympic Champion Lu Xiaojun, was denied his final lift at 177kg.  Lu had just broken the World Record with a lift of 175kg - the record was previously set by him in 2009 at 174kg - when he planned to break it again.  What made this astonishing?  He was already leading in the Snatch and this was the last lift of the event for all the competitors.  It was a pure test of how far he was able to go.

Why was he denied the lift?  The judges reasoned that he had taken longer than the allowed 1 minute to take his lift, which is the rule when following the previous lifter.  The only problem was that the previous lifter was Lu himself.    The lifter that was supposed to precede him pulled out due to injury, and this left Lu with a back to back lift routine - in cases where a lifter follows himself in a consecutive lift, he is allowed 2 minutes to rest between lifts.

Why is this sad?  Well, it is amazing that a panel of judges that are watching a weight lifting competition, failed to notice that a lift did not occur...  And that they could not work out how to increase a 1 minute rest period to a 2 minute rest period, by adding 1 minute.  Not to mention that we missed on the chance to see another World Record breaking performance!

There was a protest from Lu's team, the judges deliberated, then they realised that no-one had lifted since Lu's second lift, they deliberated some more, and they let the clock run down some more and then finally made a decision.  Just call the Snatch event finished and turn on the countdown clock to the next event.  Great stuff. 

Everyone was confused - Lu was still waiting at the platform to take his lift.  Eventually we were told what allegedly happened; since the lifter between Lu's lifts intended to take the lift, that it was equivalent to actually taking the time to perform a lift.  So, I guess a lifter's intentions can dilate time in the Olympics.

The moral here is that common sense failed.  Everyone was upset and the judges had to make up the rules to save face.  Owning your errors is embarrassing, but Godly - ask Noah.  Why not let Lu lift?  Maybe it would be unfair, maybe not - he won the competition in the end anyway.  I am worried that the judges had such a tough time figuring out what to do - it really took about 6 elderly officials longer than 2 minutes to figure out that 1+1=2.

Were the O-levels really that hard?  Different topic...  Congrats to Lu Xiaojin who smashed the World Record for the total lift too, with 379kg!