Home > Regular Features > Monday Message Board

Monday Message Board

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.

Categories: Regular Features Tags:
  1. May 7th, 2018 at 14:12 | #1

    Readers may be interested in a community economy we are building for renewable energy. Here is a summary of what it is, how it works and what it does. https://medium.com/@kevin_34708/building-living-economies-8484564170f3

    The community economy software constructs a complex adaptive system that automates many functions while bringing economies of scale. It removes the time value of money within “cells” of an economy by including lenders and borrowers in the same entity (cell). When investments or loans are made they are made within the cell hence there is no need to charge interest on loans Inside the cell, investors get a return on their savings and buyers get lower-prices. In economic terms, if we produce the same goods and services for a lower cost then there is a productivity improvement. The approach gives productivity improvements by making the financial system more efficient.

    It will be interesting to see how economic theories incorporate this innovation. We were thinking of calling it a Digital Economy as it works by transferring discrete chunks of money but a Living Economy is closer to what it is.

  2. Ernestine Gross
    May 7th, 2018 at 23:39 | #2

    A fellow by the name of Mark Bouris is said have made a fortune selling home loans. According to an article of the smh, 7 May 2018, Mark Bouris now advocates long term leases for residential housing. There is little if anything fundamentally wrong with this suggestion nor is it a novel idea. Indeed, Mr Bouris refers to the rental market in Paris. However, his sales pitch is rather strange to put it mildly.

    Mark Bouris suggests:

    1. “I have a view on real estate ownership, nobody actually owns real estate. You can’t lay down and hug it on the ground, you don’t own it, OK? What you have is the right to occupy against everybody else,”

    2. “I think we could end up there, maybe not right at the moment but we will end up there,” he said. “What’s going to happen, with lending regime the way it is, you’re only going to get certain numbers of people who can afford to, or be qualified, to buy an investment property.”

    [Source, “Mark Bouris throws support behind long term leases for Australian cities”, smh, 7 May 2018]

    IMO, Mark Bouris conveniently overlooks the historical context of the nature of the rental market in Paris – extreme income and wealth inequality at the time when the rental properties were constructed. Is it absolutely necessary for Australia to go backward in time to say the French revolution?

    His idea that nobody owns real estate is too silly to deserve comment.

  3. Ikonoclast
    May 8th, 2018 at 07:03 | #3

    @Ernestine Gross

    If we had a Government owned bank, it could make mortgage loans for owner/occupiers at the official cash rate, which is currently 1.5%. One loan would be available per qualifying person or qualifying couple. There could be high prudential requirements for these loans re the issues of deposits and ability to repay. Retail and commercial banks would lend solely for investment including investment properties. To supplement the above policy, the government could also build public housing for rent.

    In addition all land should be owned by the government and leased for 99 years. This is EXACTLY what happens in the ACT right now. It exists, it works and it should be spread nation wide. All new land should only be acquirable by Crown Lease. Free title could be phased out in the fullness of time by free sale back to the Crown and resumption/compulsory acquisition in some cases, under just terms of course.

    We don’t have to run our economy so that capitalists and rentiers get everything and the rest get next to nothing (which is the way it is currently heading). There are other ways to run a national economy. All takes is political will and freeing minds from neoliberal indoctrination.

  4. May 8th, 2018 at 09:41 | #4

    @Ernestine Gross @Ikonoclast
    It does not matter who “owns” things. It is what happens to the profit from the use of the things that matter. Producers and consumers can share the profits. Market economies work by producers taking all the profits then leaving it up to the market to give consumers the benefit in lower prices. When we operate Capital Markets this way the owners of Capital have little incentive to give their customers – people who want to build systems to produce goods and services – as little as possible of the profits as they can. If however, we set up systems (one loan at a time) where owners of Capital share the profits with their customers then we end up saving the cost of money (interest, dividends, capital gains). The owners of Capital get their original profit plus a share in the savings.

    We are about to do it with Renewable Energy because customers can be producers with home solar panels so the sharing of the cost of money gives the investors who also supply the Capital even lower priced energy. Investors without the need to buy electricity (typically super funds) will get double their money back over 20 years in equal inflation-adjusted yearly payments.

    What it will illustrate is the inefficiency of Capital Markets as the way to allocate Capital.

  5. Graeme Bird
    May 8th, 2018 at 10:57 | #5

    “If we had a Government owned bank, it could make mortgage loans for owner/occupiers at the official cash rate, which is currently 1.5%. ”

    That can work but unless you make it for high rise in country towns the net effect will be to continue housing price inflation. Only high-rise in the small towns could increase the supply of living space, at the same time as reducing the demand for land. Otherwise playing with money creation is not going to liberate any magic pudding.

    But in any case the central banking system and the commercial banking system are all part of the same international thieving racket. Anyone who tries will find that its almost impossible to divide the one against the other. The whole point of the central banking system is to subsidise the commercial banks. It could only be broken up by treating it as organised crime.

  6. Ernestine Gross
    May 8th, 2018 at 22:52 | #6

    @Kevin Cox

    “It does not matter who “owns” things. It is what happens to the profit from the use of the things that matter. Producers and consumers can share the profits. Market economies work by producers taking all the profits then leaving it up to the market to give consumers the benefit in lower prices.”

    The term ‘producer’ and ‘consumers’ are well defined in math econ theory and so is the term ‘market economy’ and ownership. The word ‘producer’ refers to a production technology. The word ‘consumer’ refers to an individual, characterised by preferences and endowments – ownership of things. In this framework, the producers are also owned by individuals. Hence the profits go to the consumers according to their ownership shares. In this framework the problem you describe does not exist if all individuals have ‘enough endowments’ (either tradeable physical things, including labour services, or ownership shares of producers or both). ‘Enough endowments’ means the market value of whatever they own is big enough to buy at least a little bit of everything according to their preferences.

    What you are describing looks to me like what we can observe under the institutional environment we have and ‘competition policies’ that aim to make available consumption goods at lower and lower prices. There are obvious differences between the theoretical framework and the said observables.

    Setting aside production for own consumption, your usage of the word ‘producer’ corresponds to legally defined enterprises, mainly corporations. The latter are required by law to work in their shareholders’ interests subject to complying with labour, product, accounting, tax, etc laws. (For owner-manager mini enterprises, there is essentially no difference between the theoretical and the observables on the conceptual level.) Clearly, if every individual in ‘an economy’ would be also a shareholder of all for profit corporations then your problem of who gets the profits disappears. There is one clarification, the term ‘profit’ would have to refer not only to operating profits but also to changes in the market value of all physical and financial assets.

    Related to the foregoing is the actual distribution of ‘endowments’. In other words, the wealth distribution among people.

    Furthermore, the observable system encourages corporations to increase profits (from operations in the first instance) by means of reducing the workforce (if successful that is, if the accounting data shows increased monetary profits, then share prices tend to increase – there is plenty of data on this one). Hence, the problem you described is even bigger than what appears to be the case from your description because some ‘consumers’ may not be able to benefit from reduced consumer prices because they lose their job and can’t buy much on Newstart.

    In conclusion, it does matter who owns what.

    PS: I’ve read your fist post including the reference. I am not clear on the details, which may be crucial. But, in a general sense, I can’t see a problem with trying to develop alternative coalitions to improve the lot of the coalition members. Perhaps the renewable energy sector is suitable for such endeavors. At present I can’t say much more.

  7. May 9th, 2018 at 05:30 | #7

    @ernestine gross
    Thanks for your comments. I agree it matters who owns what when ownership determines who gets the profits under the rules of the existing economic system.

    What we are doing is setting up small economic systems where some people invest in the means of production and some people consume what is produced. The people who invest and the people who consume come together in one organisation (that could be a company or a co-op or a trust etc.) for the production of a specific goods or service. It turns out that the constitution of any organisation can be set up, so the investors and the consumers share the profits. When we do this, and we build the system so that the amount of money that goes into the organisation equals the amount of money that comes out of the organisation then the “cost of money” is removed. It means the investors can get back a high return and the consumers can get lower prices because they can agree to share the savings from the removal of the cost of money. It is an observable phenomenon.

    It is the agreement on sharing the profit that is the important factor. If producers do not share the consumers will become customers of an organisation that does share. Renewable Energy is a good place to start because an individual can be an investor/ producer and consumer. By joining together into a single organisation, many individuals get economies of scale and the safety in numbers. In this situation, it does not matter who owns the panels. It is the agreement on sharing the profit from the panels that matter. It is lower cost if the organisation owns the panels because when people move house, the transaction costs of moving their share of the organisation profits to another organisation are low. Again this is an observable outcome.

    I don’t know how economics is going to handle these organisations in its theories, but they will give high returns to investors and give lower prices to consumers because they have removed the cost of money from the organisations’ internal transactions. They scale because each organisation is a single entity in another grouping. The scaling is fractal-like. It means that we can build economic systems – that happily coexist with the existing system – where money tokens do not have a value in themselves.

    Economics theories appear to use continuous mathematical models based on money tokens having a value to predict and understand. Much is built around the idea of competition as being the driver of productivity. These groupings as I have outlined are not explained with continuous functions but are more quantum-like, and consensus rather than competition becomes the driver of productivity. They are not unusual and internally regular companies, family businesses, family finances, operate this way. What is different is the technology to scale the approach across disparate entities for specific goods or services.

    The current financial system costs more than it needs to because we give money tokens a continuously increasing value over time. We don’t have to do that, and when we remove the cost of money tokens (debt), then we get a much lower cost financial system to better serve the systems that produce goods and services.

  8. Graeme Bird
    May 9th, 2018 at 07:17 | #8

    By the way I AM ADVOCATING cheap interest loans for the purpose of building new apartments in rural areas. To have the good life we want third world costs for living and working space, and first world wages. The way to do this is to have cheap interest for small town high-rise. But only for the new stuff. Only for the newly built apartments. Let the rest of the market take care of itself.

    That is one problem I had with Nicks scheme. If you are going to have a program, lets have it solve half a dozen problems at once. Reserve bank interest for country high-rise can be part of any holistic scheme to help with retirement problems, with cost of doing business problems, with housing problems, with having a catalyst to help make the real estate market less horrifically dysfunctional. With employment. As ingenious as it was, Nicks scheme suffered for lack of ambition.

  9. Greg Pius
    May 9th, 2018 at 07:25 | #9

    Enestine Gross made some excellent points leading up to her conclusion. In old economic textbooks there was usually a warning about redistributing income without also redistributing assets. Politicians often miss this point when they brag about how much MONEY they are handing out. Even creating jobs is of little value if these new jobs are contract labour on subsistence wage levels. Ask yourself: If employment is so good at the moment why are there so many unemployed persons still on the paltry Work Search allowance? One answer is the lack of asset ownership has some people caught in a poverty trap. To take a low paid casual job on a short term contract will not help these unemployed people out of that trap.

  10. Ernestine Gross
    May 9th, 2018 at 09:34 | #10

    Kevin,

    Briefly,

    1. The IPA ‘theorists’ may well be totally lost. But that wouldn’t change the current state of affairs.
    2. In applied economic models continuous functions are often used. These are not always satisfactory approximations for discrete time processes or technologies. There is some math econ work involving fractals. (Making a stab in the dark, it seems to me the choice of the math objects can be postponed until item 3 and 4 below is addressed.
    3. It seems to me you need to describe (“characterise”) the role of the agents you label ‘investors’, ‘producers’, ‘consumers’ in the system, for various scenarios regarding wealth distribution.
    4. One way or another the contractual framework has be be considered. (eg. Is it possible for ‘consumers’ to buy forward electricity supply? If so, this amount would be their ‘investment’.)

  11. Collin Street
    May 9th, 2018 at 12:51 | #11

    People should probably familiarise themselves with the centrelink “liquid asset withholding period”, which is a significant barrier to capital accumulation among people in irregular employment.

    To put it mildly

    [Sadism is socially-unacceptable, which means that people acting on sadistic impulses conceal the sadism as a motivation, in much the same way that paedophiles construct situations where it’s “natural” that they get to grope children.]

  12. May 9th, 2018 at 19:46 | #12

    Unassuming Antipodeans at the top again John probably writing under pseudonym – A single academic paper, published by three Australian researchers in 2007, has been cited by Wikipedia editors over 2.8 million times—the next most popular work only shows up a little more than 21,000

  13. May 12th, 2018 at 05:02 | #14

    Solar update: from 2020, California will require all new houses to include solar panels, or use of a community solar farm. *****greentechmedia.com/articles/read/solar-mandate-all-new-california-homes

    The current rate of Californian house building is about 100,000 a year. At present, residential solar installations run at 15,000, so it’s a big boost. The mandate will slash permitting costs and eliminate those for customer acquisition, which together account for most of the large price differential (ca. 2X) between US residential solar and that in Australia and Germany. The official estimates of costs ($10,000 a house) are therefore almost certainly too high. Those for added capacity (200 MW a year) are similarly too low; they are based on the mandatory 3 KW minimum installation, but the economics improve for bigger ones and the current Californian average is 5.7 KW (NREL). The new regulation does not at present include a requirement for storage, but again with coming ToD pricing the economics are likely to bring a substantial increase here too.

    Australia has much better pricing and simple permitting for residential solar, but there are still marketing and design costs that could be cut with a new-house mandate.

  14. May 12th, 2018 at 07:03 | #15

    @Ernestine Gross
    1. In implementing any variation on IT systems, you have to fit in with the existing environment. I think of economic systems as “just another IT system”. So yes it is imperative that if we wish to change the way the economic system works it has to fit seamlessly into what already exists. The big technical “breakthrough” in what we are doing is that we have found a way to build accounting systems with truly distributed ledgers. Not fake ones promulgated by the blockchain people. Our distributed ledger systems include existing centralised systems as just another entity in the distributed system.
    2. We do not “get rid” of continuous functions but we use them where appropriate. In signal processing, we divide our messages into packets but a set of packets is treated as a continuous stream, and we use appropriate tools to analyse the stream. Similarly with money. The transfer of money is in packets but a continuous stream of packets is often best described as a continuous function. A problem with economics IT processing today is that we have made things that are best described as discrete as though they were continuous and we have done that by giving money tokens a value over time. We do not have to give a return on investment by giving a return on money tokens. When you get rid of the idea of the money tokens generating more money tokens and replace it with a return on investment happening by receiving more money tokens that are generated by the investment, then we get rid of the extra money created by interest (or dividends, or capital gains). Giving money tokens a value over time is a real cost, and if you do not have to do it, then that is a real saving. Giving money tokens a value over time is a very expensive fiction that the system has to accommodate. That reconciliation turns out to be most of the cost incurred by the financial, insurance and real estate industries. In the Renewable Energy Pre Power http://pingala.org.au/pre-power/ system, we can confidently assert that the price will always be lower than the price of fossil fuel because the fossil fuel industry will always use money tokens that have a value over time.
    3. Yes – I agree. We are struggling with the terms to use because existing terms come with existing meanings. It is one of the reasons why IT systems are so expensive and difficult to maintain. We have found a way around it. Here is my attempt at explaining our IT solution. https://medium.com/breathe-publication/it-systems-that-scale-7e7c9382c456
    4. Investors in the Pre xxxxx systems (and it applies to all capital investment) pre-purchase output. They get a return on investment by getting a discount on the output when they use their pre-purchase tokens. They get more output for the same amount of money. That is how we get rid of the need to increase the number of money tokens inside a closed system. In Pre Power, the closed system is a community of investors who supply the capital and consumers who pay for the output. The savings from not generating the extra money is a minimum of the cost of interest over the lifetime of the “customer” where the customer can be thought of as the house on which the panels reside. The cost of compounding interest over a long time is large. What we are doing is removing the cost of renting money for the production of electricity by a group of people working together as a unit.

    We can apply the same approach to groups of Pre Power and to the service providers who supply Pre Power. The systems scale because the economic structure is fractal and they fit seamlessly into other fractal systems like Pre House, Pre Food, Pre Education, Pre Health etc.

    Now, all we have to do is to deploy the systems:) We will leave it up to others to analyse what we have done.

  15. Ikonoclast
    May 12th, 2018 at 08:54 | #16

    @James Wimberley

    If modern technology can be used to turn everyone into a “prosumer” that would be a good outcome. If we can decentralise the production of physical power (and food eventually) this should play a role in decentralising political power. Following a materialist dialectic, political power always derives at base from physical power.

    After people get solar power on all their dwellings and apartments, why not hydroponics to self-grow more food and 3D printers and mini fabrication robots to make at least some household items like furniture? Plenty of people would then put free designs on line. It sounds a bit sci-fi but then so did solar power once.

  16. May 12th, 2018 at 12:19 | #17

    @Ikonoclast
    Yes, we can turn all our economic agents into prosumers and it is remarkably easy to do. We do it by consumers becoming investors in production. Consumers become part owners in production by pre-purchasing the output of production and using the pre-purchased tokens to buy goods and services. Consumers get a return on investment by the tokens buying more than their face value. That is, consumers get a discount if they use pre-purchase tokens. Consumers become prosumers by owning part of the future output.

    It will lead to positive feedback in the reduction of costs because the only way for consumers and producers to both get a higher return on investment is to reduce the cost of production. In today’s world where producers get all the profit and where investors or the renters of money get most the profit from the producers the simplest way to increase profits is to increase prices rather than reduce costs and the simplest way to increase prices is encourage inflation and/or increase the cost of finance. This all happens because in our “conversations” about value (economics) we believe and make money tokens have a value simply by creating them.

    Economists like this because the abstraction of money is amenable to mechanistic mathematical formulations. Economics is actually a human conversation about value and humans change their mind about value all the time. Our financial systems need to take this into account. One way to do this is to build systems where the money tokens can vary in how much value they represent. We can do this by building “fractal” like systems where within closed subsystems the money tokens vary in value while within the closed fractal. When the value is transferred out of the fractal we use different tokens within the encompassing fractal. We do this today with our national currencies. We can extend the idea and do it down to peer to peer transactions and we make a peer to peer transaction the basic economic unit rather than the money token. What is exciting about this idea is that it makes all IT systems essentially the same. The fundamental unit of communication is a transaction between two entities instead of today where the data element is the building block. When the transaction is the building block we build the action into the building block and the action performed provides the meaning. So our building blocks contain the meaning whereas building blocks of data require an external description of meaning.

    When we do this we find the systems cost a lot less to build. We find the maths of networks or graphs become very useful and our predictions become much better. Our financial systems are able to accommodate shocks and easily adjust. The systems literally take on the characteristics of what we call living organisms.

    These “living systems” require less effort to create and maintain than non-adaptive deterministic machines and so they have an evolutionary advantage. I expect them to replace most existing IT systems and that includes economic systems.

  17. Ernestine Gross
    May 13th, 2018 at 20:54 | #18

    @Kevin Cox

    Thank you for your post @15 and (indirectly since I read it) @17.

    Your reference “pingala” was most helpful. Incidentally, you did use the appropriate basic unit of agents, namely ‘individuals’.

    Never mind what so-called market economists say, the co-op market described in pingala makes perfect sense to me (my background is in math econ theory, which is a rather broad area. My only PhD graduate had an IT background). Terminology: ‘buying forward’ is what you call pre-payment.

    As for the IT aspect of the transactions recording system, obviously without having detailed technical information (and assuming I can follow it), I basically have to take it as a given. Your explanation of how you go from discrete units to continuous functions makes sense to me.

    So, how is the ATO going to get a slice of the real return of the co-op market for electricity? Are you offering the ATO to become a member of an electricity co-op? At present it looks like electricity co-ops being at odds with government finances because there are no tax revenues on profits and no GST on electricity consumption. However, these are early days. IMHO, it is useful to develop IT systems for so-called ‘real economies’ (ie physical stuff is produced and traded) because if, and I hope it won’t happen, the monetary system does collapse, then barter is the default system. But barter, supported by an IT system of the type you outlined for co-op electricity markets, is a different system to barter where people search, as it were, for an exchange or production partner.