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I = S - M

The modern way of thinking about economics has been I = M - S Where I is the I as in me, M is what is 'mine' and S is what ...

8/31/14

Dear young friend,

The school of your future will not be in industrial factory-like buildings.

Your school will be in nature, in your home and your friends' homes, in travel and experience. Your teachers will be your self and your friends, your parents and your friends' parents, and life itself. You will learn by experiencing life and experimenting for your self, exploring for your self both individually and with your friends, making new friends along the way.

You will not be afraid to speak to strangers since you will know that your wholeness is respected by you and your family and your community and so you will be very strong and unafraid to explore, talk to anyone, do anything, go anywhere and learn from observing, engaging, laughing a lot, crying at times, expressing, taking naps when you need to, making things, building things, doing whatever you feel like and are drawn to do.

This dear young friend is your school of the future.
What really matters? That a person have a good family, have good work and that they are part of a good community.

How one organizes one's family is up to each one of us. It may be traditional or non-traditional, contain parts of tradition blended with modern, experimental parts. But each one of us must choose.

Work must involve all of us. Boredom is a sure sign of inferior work. Work must engage us making our inner light shine. It should feel good. It should make us whole and keep us whole. We bring our whole selves to our work. We are not diminished by our work, we are enhanced by it. Paid work is not the only option although there is nothing wrong with that. Work can be organized by tradition. It may be that men work and women care for the home and family or vice versa. Or that men or women create families together and decide to take up traditional roles in non-traditional ways. If that is the chosen way then that can be appropriate. If both adults work then a sensible, whole approach must be taken for the care of the family. That care must be whole and not an afterthought. To create whole lives families must be whole which means that children must be engaged in the family lives and not "dropped off" at so-called care centers and so-called schools which are nothing but industrial farming machines churning out standardized, dehumanized products. These care centers and schools are a form of violence and create the disconnected, disembodied youth of today.

A good community of friends and relations who are themselves whole, engaged in whole work and rearing whole families is the crucial last piece of the puzzle. This takes time. This takes effort. But the effort starts with the individual and proceeds from there. If every one of us individually seeks wholeness and works for it then over time that personal wholeness will create whole families, whole work and whole communities.

These communities of wholeness are the future of a whole economics that will end all suffering.

8/8/14

What is wealth?

Adam Smith (following the physiocrats) supposedly effected a giant leap in economic thinking when he introduced, from the opening sentence of the Wealth of Nations, time into the notion of wealth. Before Smith, wealth was seen as static, what was owned. Smith changed that forever by seeing wealth as the flow of things per unit of time, specifically in his view, one year.

In the Wealth of Nations Smith uses the word nation interchangeably with the word society. Smith is really exploring how wealth flows to a society over a period of time and what factors determine that flow, its size, its quality and how that may be influenced.

There was a big evolution in thinking of wealth with Adam Smith. However this evolution was incomplete and has stayed incomplete to this day. This almost technical-seeming incompleteness has brought us to the edge of destruction: Today we do not know if we will be able to reverse the changes in the earth and the atmosphere to survive.

Once we introduce time into the notion of wealth, we must look not only at the effects of the flow of wealth on the society receiving the wealth (as Adam Smith did) but also on the effects of that flow on everything else, over time. While it was convenient for Smith to think of the flow of wealth in annual terms, since he was only looking at the effects of that flow on the society being studied, expanding the notion to include the effects of that very flow on everything else can only be meaningfully understood taking account very long periods of time, measured in generations rather than years.

There is thus an essential asymmetry in how time affects wealth. While the flow of wealth has simple measurable effects (measured say, annually, in the tradition of Smith) on the society being studied, its effects on everything else can be felt only over a very long period of time and may not be measurable and must the qualitatively analyzed. If ignored these effects on everything else don't simply go away but life on earth will surely be gone.

Wealth not only flows to and through the members of the society being considered but has a sustained effect on everything else outside of that society.

So Adam Smith essentially effected a split in the notion of wealth by introducing time in a limited way but leaving out a fuller examination of time. This in turn led to the development, over time, of a monstrous system of exploitation of land and labor yielding ever-increasing annually measured wealth while the delicate balance of the earth was slowly, painfully and systematically destroyed over many generations of the application of so-called economic science, first in the industrialized world and over time through conquests and colonialization, worldwide.

If we expand the notion of wealth to include not just what flows to us but also through us and onto everything else, we will be at the beginning of bringing wisdom into economics. We will begin to heal the split between us and them, us and everything else. We must start now. The effects will only be felt generations later.

If we really manage to do that, together, you dear reader and me, generations from now will be able to feel our change as their change and our small steps as our wealth and theirs.

8/6/14

The paradox of thrift has been misunderstood for a long time. The idea is simple: if we all cut back upon our consumption in an attempt to raise our individual levels of saving, the overall saving rate for the economy will drop rather than rise. The paradox consists of the idea that individual actions in a logical fashion undertaken in a way that makes perfect sense for the individual may take society as a whole in exactly the opposite direction of that which is individually intended. It is my contention that such a paradox only exists in the present structure of the economy, a structure that splits the individual and that when we adopt a holistic structure that split will be healed and the paradox of thrift come to an end.

Let us examine the paradox of thrift a bit closer.

What we produce creates an income equal to it. If I produce a $100 pair of shoes I thereby create an additional $100 in income. This is true because we define profit in economics as a residual. Once I have paid my workers and overhead and whatever else, what I have left, the entire residual, is profit. Profit is part of income so,

Output = Income.

Output can be consumed (C) or invested (I). We include in investment all the residual output that is not sold, calling it inventory investment. So,

Output = C + I.

Income can be consumed (C) or saved (S). So,

Income = C + S.

Hence,

Output = Income

C + I = C + S

I = S.

Investment equals saving.

The paradox of thrift is used to support two very different points of view. It will be my contention and concomitant responsibility to show that both views are structurally limited though entirely correct. It is this structural limitation that allows two opposing points of view to use the paradox of thrift to make their case.

The first view points out that in a modern economy saving decisions are made by one set of people and investment decisions by an entirely different set of people. Since these actions are not coordinated, an increased rate of individual saving creates an imbalance between investment and saving causing overproduction or underconsumption depending on how you look at it. This results in periodic gluts in the market followed by recessions.

The opposing point of view starts off exactly at the same point as the first view: in a modern economy saving and investment decisions are made by different sets of people and hence subject to imbalances. However, this view points out that in a well functioning market this imbalance is temporary. Excess saving will cause a drop in the price of savings or in other words the interest rate. As the interest rate drops investment rises. The interest rate, in fact, keeps dropping until investment rises to meet the level of saving. Now this does not always happen in a modern economy because of barriers to the free operation of the market such as government policies, regulations, the lack of well-defined property rights and so on. This in turn results, just as is asserted by the first point of view, in periodic gluts in the market followed by recessions.

The policy response of the first point of view is to raise investment to meet the higher level of saving through public investment financed by budget deficits and the bond market. The policy response of the second point of view is to reduce the size of the government at all levels, lower taxes and reduce regulations.

I find both points of view to be stuck in a mechanistic, industrial view of the world. We have seen both points of view cause much havoc and destruction in the world.

The problem with both points of view is that they take the structure of the economy as given. Neither view questions why saving and investment have been split and what terrible consequence this split has had on the individual and society. If we can imagine a way of living and working where we are connected to our work, connected to our planet and all that is part of it, living and non-living, we will have an entirely different approach to the paradox of thrift. In fact the paradox of thrift can not operate at all if saving decisions are made by the same people who are making the investment decisions.

If I save, not out of fear, not for a rainy day, but with a vision to expand my work, my creation, to embrace more sustainably, to create fresh webs of relationships, networks of people and land and animals and plants and minerals and nature herself, then my investment will be a natural consequence of and holistically equal to my saving. Society will then never depart from the

Saving = Investment

equality and the very nature of saving, the very act of saving will be an act of love and in that act of love spontaneously create an investment equal to it.

At that point the paradox of thrift will cease to exist the so-called points of view of economics will wither and return to their native nothingness, monuments to man's profound idiocy in the museums of tomorrow.