Same-sex Marriage Now Protected in All 50 States

As of Friday, same-sex marriage is now protected in all 50 states under the 14th amendment to the US Constitution. Justice Anthony Kennedy  delivered the 5-4 decision:

“It would misunderstand these men and women to say they disrespect the idea of marriage. Their plea is that they do respect it, respect it so deeply that they seek to find its fulfillment for themselves.”

“Their hope is not to be condemned to live in loneliness, excluded from one of civilization’s oldest institutions. They ask for equal dignity in the eyes of the law. The Constitution grants them that right.”

Before today’s decision, same-sex marriage was legal in 36 states, covering 70 percent of the US population. The remaining 14 states included: Alabama, Arkansas, Georgia, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee and Texas.

The Sixth Circuit Court of Appeals in Cincinnati had previously determined that states should define marriage laws,  and “to allow change through the customary political processes” instead of the courts. In recent years, public opinion has shifted rapidly. A Gallup poll in 1996 indicated that 27% of people approved of same-sex marriage, up to 60% now. Over the last year and a half, 60 decisions struck down same-sex marriage bans.

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Piketty and Rognlie Forgot About Money

Matthew Rognlie’s analysis of Thomas Piketty’s predictions on increasing inequality is on point regarding both the role of housing and the poor substitutability of capital for labor, but it’s blind to the very existence of money and to the role of the interest rate on risk-free bank deposits in determining the costs of real investments.

The returns on capital can only diminish if the interest rate, and thereby discount rates for real investments, falls further. Currently, this cannot happen because the zero lower bound (ZLB) of interest rates acts as a “minimum wage of capital.” No matter how eager people would be to save, the return on monetary savings cannot fall any further (as this article will explain). Hence also the returns required from other assets remains high.

Eliminating the ZLB and implementing a land value tax (LVT) simultaneously would solve the majority of our economic concerns, such as chronic unemployment, heavy taxation of labor, the polarization of income and wealth differences and the growth dependence of our economies, which prevents tackling our environmental threats. It would also be feasible for any first mover nation or monetary region, as it would actually improve its competitiveness over real, productive investments.

Otherwise the “oversupply of capital”  in the sense of an oversupply of saving —  and hence essentially an oversupply of labor  — will just drive the economy into a more severe depression. The unemployment, deflation pressures, and public deficits we are currently seeing in Western economies are the results of the ZLB and the low substitutability that Rognlie emphasizes.

If there is one thing we should’ve learned from the financial crisis, it is the danger of making real-world predictions with economic models that ignore the monetary and financial system .

Apparently we didn’t.

Not only housing, but all real estate — which is unequally distributed

MIT graduate student Matthew Rognlie has received a lot of attention with his criticism of Piketty’s “r>g theory,” which predicts that income and wealth inequality will continue to rise when the rate of economic growth (g) falls below the average return on capital (r). Rognlie’s work sure is admirably thorough.

Before going into the biggest omission both of their analyses, let’s point out that Rognlie is not the first nor the only to notice that most of Piketty’s “increase in the amount of capital” is actually an increase in the value of land (see e.g: Stiglitz, Karl Smith, Galbraith).

Many like to conclude from Rognlie’s analysis that “since the housing ownership is much more evenly spread than productive capital, it may be less worrying for inequality.” (It maybe partly because of this framing that Rognlie’s critique receives so much attention.) However, this is not the case. Homeownership is one of the biggest unearned polarizers of both income and wealth differences; the higher and more reliable your income, the bigger and cheaper a mortgage you can get.

Also, the issue of rising land values does not only apply to housing but to centrally located real estate in general. This includes office buildings in business districts. Overall, the limited resource of land (location) is very unequally distributed. (In fact, the distribution of land ownership was one of the first cases to which Vilfredo Pareto applied his famous 80–20 principle.)

Others have, more appropriate drawn the conclusion that what we really need is not a wealth tax but a land value tax. (see e.g. Noah Smith, Tim Worstall)

Restrictive zoning and “NIMBYing” are of course one factor maintaining accommodation deficits and hence unnecessarily high rents and housing prices. Zoning and construction regulation could be slackened in many places. But removing city planning altogether won’t solve the land issue, as accessible locations will still be limited. As a bottleneck resource, they will continue to capture a big portion of productivity gains.

Also, some city planning is very useful and valuable, as all land use has externalities (positive and negative) on the value of adjacent land. Zoning makes these predictable- mitigating windfall gains and losses. The absence of planning would also result in less efficient infrastructure and transit systems, further reducing the availability of locations with good accessibility.

High depreciation rates = low capital intensity of technologies -> low substitutability

Unlike some Chicago economists believe, capital is not some generic “putty clay” that can be applied productively in different quantities at will. The opportunities to increase capital intensity in production are significantly limited by available technologies. If we assume that all capital assets can be produced with labor (i.e. we omit land and natural resources), capital intensity essentially means how much beforehand on average all the work required for producing the end product needs to be done.

As The Economist paraphrases Rognlie’s point on the changing nature of capital:

“Modern forms of capital, such as software, depreciate faster in value than equipment did in the past: a giant metal press might have a working life of decades while a new piece of database-management software will be obsolete in a few years at most.”

This higher rate of depreciation essentially means that new technologies are less capital intensive than earlier ones — even if they increased labor productivity significantly. In other words, even if they allow a more valuable output with the same amount of labor, they don’t need as much work to be done before it’s usable capital. Of course, robots that make, repair, and program themselves could eventually turn this trend on its head. But for now, Rognlie’s arguments for a low substitutability of capital for labor are well grounded. Piketty mistook the rise in land values for a rise in capital intensity.

Also, Piketty seems to imagine that capital can always be accumulated by saving up more money. However, in a closed economy, net savings are limited by profitable real investment opportunities. Rognlie is on the right track in that, theoretically, an increased desire to save should result in the yields of capital falling. According to supply and demand, a factor or resource in abundant supply should fall in market price. This was already pointed out by Banko Milanovic of the World Bank in his 2013 paper:

“But, the reader will ask, if the capital/output ratio increases so much, would not the marginal return to capital diminish? Would not r go down? This is obviously a soft point of Piketty’s machinery.” (Milanovic 2013, p. 9)

“Will the reader be convinced by the argument that the elasticity of substitution between capital and labor is likely to remain high, and that an increase in capital will not drive r down?” (Milanovic 2013, p. 10)

Unfortunately, high substitutability of capital for labor is not the only factor that can maintain high returns on capital. Tragically, the economics discipline is so segregated that capital theorists don’t understand macroeconomics — and neither capital theorists nor macroeconomists (want to) understand money.

“Capital” has two different meanings

Before explaining the role of money and the risk-free interest, it might be useful to avoid a possible source of confusion in terminology.

In economics, “capital” usually refers to real assets that allow easier production or provide some other real benefits in the future. In addition to physical production goods (machines, buildings, tools etc.), this includes for example, technologies and new product designs created by innovation. This was also the meaning used above when discussing “capital intensity.”

In finance and accounting on the other hand, “capital” refers to “financial capital,” which is any property or security that can generate income in the future for its holder. In addition to the ownership of real capital assets (directly or indirectly through shares in companies or funds), this includes all forms of credit (including money), immaterial property rights, and other kinds of privileges that can be owned and traded (e.g. taxi badges and patents).

Joseph Stiglitz recently emphasized in his INET talk the distinction between productivity-increasing “capital” and “wealth,” which also includes capitalized rents from monopolies and privileges. Piketty uses capital synonymously with “wealth.”

In the case of a company, real capital assets appear on the “assets” side of the balance sheet (together with any credit and IPRs the company might hold), while “capital” in the financial sense refers to the “liabilities” side of the balance sheet: The capital structure of the company determines how the risks of the company’s assets and business are allocated between shareholders and creditors. (The shares and bonds of the company are of course assets for their owners. One’s liability is another’s asset.)

Rognlie importantly points out that the market value of a company’s shares (its shareholder equity) can diverge significantly from the book value of its assets in excess of debts. (Rognlie 2014 p. 15) Even if a company with a relatively small balance sheet can be valued at billions. This is not only the result of those product designs, human capital, or other immaterial assets that a company cannot capitalize into its balance sheet for accounting reasons, but also any monopoly rents (as explained by Stiglitz) or competitive advantages established through a strong brand or customer relations. Also, the whole is often “more than the sum of its parts” — and so it should be with a company.

This distinction between “real capital assets” and “financial capital” is even more important for what we mean by “the cost/price of capital.” Rognlie writes about “capital” in the first sense, and by the “real price of capital” (Rognlie 2014, e.g. p. 2–3) he means the production or acquisition cost of the assets in question. So to him, a rise in land value is a “rise in the real price of capital.”

However, when we talk about the “cost of capital” in finance, we mean an investor’s profit requirement for an investment or company in question. For credit finance, this is the interest rate on the company’s debt. The cost of shareholder equity is the return that would make an investor deem the investment “profitable,” i.e. worth making. This depends on the interest rate on deposits and the perceived risks involved, as will be explained. For a company’s real investment decisions, it is common to calculate the Weighted Average Cost of Capital (WACC) from credit and equity costs and to use this as a discount rate for expected cash flows. Discounting means that future expected cash flows are “devalued” by the discount rate (i.e. the profit requirement) – the more times the further they occur in the future.

The interest rate determines the returns on producible capital

Rognlie’s analysis is based on an economic model without a monetary system — which is a typical neoclassical approach. This assumes that all savings are automatically turned into real capital investments. Increased saving hence increases the supply of production goods and automatically lowers their net yields.

Reality differs from this in that we have a monetary system, which allows individuals to also save as credit on others and lets companies and other people to spend or invest on credit (i.e. by going into debt). However, new money does not emerge by saving. All monetary savings are someone else’s debt and one person’s income is another’s expense or real investment. The monetary system is a zero-sum game.

Moreover, the return yielded by risk-free credit — bank deposits — determines the costs of equity: the profit required of real capital investments.

As long as the risk-free interest rate follows the natural rate of interest — the rate at which overall desires to save are approximately in balance with profitable real investment opportunities — the outcome is pretty much the same as in a model omitting money. However, if the interest rate fails to keep the macroeconomy in balance, the story is very different.

Diminishing returns on capital — or a worse depression? The interest rate decides

Let’s assume we have a closed economy or an externally balanced open one, i.e. one with a balanced current account. This means that the economy is not falling into debt overseas, nor accumulating net foreign financial assets.

If the overall desire to save exceeds the available profitable investment opportunities, this essentially means that not everyone gets to earn and save as much as they would like to (unless the government facilitates this extra private sector monetary saving by going into debt itself, i.e. unless there is continuing fiscal stimulus). In practice, this oversupply means involuntary unemployment and underemployment. In the absence of wage regulations and excessively generous social security, this results in lowering pressures on nominal wages, and hence also prices, i.e. deflation pressures.

This is where the central bank would normally lower interest rates to balance the economy. However, currently many Western economies are stuck at the zero lower bound of interest rates (ZLB). In this situation, the result is not increased investment and lower returns on capital but more unemployment — or a need for the government to accumulate more and more debt (to stimulate the economy fiscally) to keep the economy running .

Regardless of how much the “supply of saving” (i.e. people’s desire to save) increases, this does not lower the returns on capital unless the interest rate can fall to the natural rate where net desires for monetary savings are eliminated and hence aggregate supply and demand for labor are balanced.

Quantative easing is mainly an inefficient placebo medicine based on the outdated quantity theory of money. It does not lower discounting rates notably nor reduce people’s desires to save.

Many economists and commentators have noted the possibility that even the long-term natural (or equilibrium) rate of interest might have fallen significantly below zero (see e.g. Summers, Blanchrd et al, Avent, Buiter).

What we would really need to do is to eliminate cash (in order to implement negative nominal interest rates) or to adopt a higher target inflation rate to allow more room to cut real interest rates.

The Remedy: a land value tax + removing the zero lower bound

On the other hand, if the real interest rate did fall to e.g. -5 %, we would see our real estate bubbles explode to unprecedented proportions. Land does not erode (Rognlie 2014, p. 13), is limited in supply, and has few direct substitutes. Therefore, in valuing it, we are essentially discounting an infinite cash flow – a “perpetuity .” When the discount rate approaches the expected growth rate of the cash flow, the net present value approaches infinity.* In other words, if you have an asset that forever gives you more every year compared to the previous year than you require your investments to yield, you should not sell such an asset for any price. With a profit requirement of zero or less, even a fixed (non-growing) perpetuity is infinite in price.

While the ratio of producible capital to income is determined largely by the capital intensity of available technologies, the capitalized value of monopoly resources is strongly dependent on the market interest rate.

However, in the current situation, this effect is much more an opportunity than a threat. The biggest obstacle to implementing a proper land value tax (LVT) is that imposing it suddenly would make real estate prices crash, resulting in a massive, unjust wealth transfer in the real estate market. A mere glance at the situation shows that the dilemmas associated with both LVT and removing the zero lower bound solve each other. We can compensate for the lower costs of capital by raising the LVT rate at the same time with removing the ZLB.

With no lower bound on interest rates, Piketty’s r (the average return on capital) can even drop negative. Good bye r>g dilemma and never-ending accumulation of patrimonial wealth.**

Western countries have a unique opportunity to make a shift towards a more equal and prosperous economy. More over, the move would be extremely competitive for any first mover: A lower interest rate would devalue an area’s currency lowering labor costs, and both LVT and negative interest rates government debt would allow reducing harmful taxes on trade (income tax, VAT, corporate taxes), vastly increasing any area’s competitiveness over productive, risk-bearing real investments. It remains to be seen, which economy first realizes the potential in this superior strategy.

Rognlie’s point about the importance of growing income differences between types of labor is also very relevant. To counter this, we need to maximize mobility between professions by removing artificial rigidities and privileges, ensuring access to education, as well as maximizing competition over employees.

The details for implementing this strategy and an analysis of its full impacts can be found in the book Fixing the Root Bug, available digitally and in print.

Tuure Parkkinen

The writer is an author, institutional entrepreneur, and economic engineer-philosopher. He has developed the Root Bug hypothesis that identifies the main flaws in our current economic system and provides fresh solutions for a fair, sustainable, and growth-independent economic system that facilitates all desired growth. Follow the Root Bug on Facebook and Twitter, and subscribe to the YouTube channel and the newsletter (in the right-hand column).

A version of this article has also been published on Medium.

*The valuation formula for a growing perpetuity is V = P0/(rdP), where P0 is the first year’s expected cash flow, dP is the annual growth rate of the cash flow, and r is the discount rate employed, including risk premiums. In reality, the value won’t turn infinite, as increased volatility raises risk premiums. Instead, real estate prices become extremely speculative with negative real interest rates — in the absence of proper land value taxation.

**If we additionally mitigate risks of long-term unemployment and ensure that people have the realistic alternative to work less in the mid-term (if they so desire), we can make supply meet demand on the individual level regardless of aggregate demand. Then g (the economic growth rate) can be whatever people really want it to be. Economic growth becomes a matter of personal preference, while we can allow productivity to grow (unnecessary work to be destroyed) as much as technology allows.

References

Rognlie, Matthew, 2014, “A note on Piketty and diminishing returns to capital,” retrieved 29.3.2015, http://www.mit.edu/~mrognlie/piketty_diminishing_returns.pdf

Milanovic, Branko, 2013, “The return of ‘patrimonial capital’: review of Thomas Piketty’s Capital in the 21st Century,” World Bank, retrieved 9.4.2014, http://mpra.ub.uni-muenchen.de/52384/1/MPRA_paper_52384.pdf

Other references under the respective hyperlinks.

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Dude, where’s my palace?

If you put people first, does it make any money? Ask Pythais, the world’s greatest investor.

 

oedipus-leaves.jpg

 

Pythais invested her time and effort not in making money, but in raising her son, Pythagoras. Pythagoras became one of the greatest thinkers ever.

 

Kapitolinischer_Pythagoras_adjusted.jpg

 

Pythagoras basically invented math. Aristotle called his followers

“the first to take up mathematics.”

(Aristotle, Metaphysics, 1-5)

True, before Pythagoras there were accountants and architects who used math, but Pythagoras took it much further: he said that math could explain everything: you don’t need tradition or ignorance, you can measure it all. All science is based on measurement.

 

It took thousands of years for the world to adopt this approach, but when it did, knowledge increased exponentially, and so did wealth.

 

 

So Pythais’ investment of her time and assets in her son was probably the greatest investment ever. Pythais never saw a penny of the results, but we are all seeing it now.

 

 Investment in modern times

 

Investing in people and ideas can create an explosion of wealth. Take Alan Kay for example.

Alan was inspired by ARPA, a body devoted to pure research, not to making money. When he worked for his next company he persuaded them to put ideas before short term profits:

 

“[We] had a written agreement with Xerox that they would not try to tell us what to do for the first five years. That turned out to be absolutely critical. But because they had that, you know, we basically went after the ARPA dream.”

 

The result? Alan and his friends created the personal computer, and much more. That invention alone added 30 trillion dollars to the world (so far).

 

“25 of us at Xerox PARC – create something that has brought almost 30 trillion dollars of new wealth to the world from the efforts of 25 people. […] There are many, many lessons to be learnt about what real innovation is actually all about and how to make it happen.” – Alan Kay

 

The secret to investment

The secret to investment is to create things that create more things. That allows amazing compound growth. For example, if you grow by just 7.5 percent per year then you create ten times the original wealth in just over 30 years.

 

 

The next thirty years gives ten times that result, and so on.

That may be extreme, (though China has averaged more than that for decades) but even a small steady growth has amazing results.

How do you create things that create more things? You invest in people and ideas. Not just with your money, but with your time and attention, like Pythais and Alan Kay.

Then why aren’t we rich?

Why don’t we do it right? Because we get dazzled by short term profit. We forget the power of long term steady growth. Or we never understood it in the first place.

 

This essay is about how to create wealth. Other essays are about how we destroy wealth: by creating barriers, grabbing land, unfair laws, etc.

Quiz: how rich should you be?

Let’s talk numbers. If our ancestors invested in people and ideas, instead of land and wars, how rich would you be now?

So, start with 400 dollars per year (our money) in 1400 BC, add 2 percent growth per year due to honest trading and new discoveries. What should you be earning today?

  • $40,000 dollars a year?
  • $500,000 dollars a year?
  • $100,000,000 dollars a year?
  • More?

Quiz answer

So here is the answer: the amount you should be earning is…

Wait for it…

19 billion…

No, not 19 billion dollars.

You should be earning 19 billion times the wealth currently on the entire planet.

 

“What, every year?” No. Every second. Don’t take anyone’s word for it: calculate it yourself.

But you are not earning that, are you? Because throughout history, people have invested for the short term. They did not invest in people. They thought they would make more money.


(source)

If you want fabulous wealth for everyone, put people before short term profit. Vote to share ideas, to share land and other natural resources, to help the poor. Invest in education and pure research. And if someone says “we’ll lose money” ask if they have heard of compound growth.

Because if we don’t think of the long term, then we are not thinking at all.

 

Footnotes and references

All links retrieved 5th March 2015, 10-11 am GMT
The year 1400 BC
Phoenicia was a set of cities around the coasts of the Mediterranean. It was arguably the first “modern” nation: that is, they lived by trading more than farming. So that’s a good starting point for economic growth. They gave the Greeks their alphabet around 1700 BC, settled Cyprus around 1500 BC, and made a treaty with Egypt around 1300 BC. Later they were the first people to sail all the way round Africa, and the single Phoenician city of Carthage as the biggest threat to ancient Rome (hence Hannibal and his elephants). That’s why we don’t have Phoenicians any more: just Google the phrase “Carthage Must Be Destroyed!”

 

The year 1400 is also chosen because, according to the Bible, it is the date when Moses produced his land laws. These are extremely interesting from an economic viewpoint (he taxed land, not work), but that’s another story. Incidentally, the wealthiest cities in Israel were Tyre and Sidon – Phoenician cities.

 

The picture of Pythais
As a forgotten wealth creator there are no paintings of Pythais. But there is a famous play by Euripedes called “The Phoenician Women”, about how the good people are ignored and forgotten while the bad people fight to steal the land. The painting (“Farewell of Oedipus to the Corpses of His Wife and Sons” by Édouard Toudouze) illustrates that play. It shows Antigone, wife of Oedipus, mourning the death of his brother, who died fighting to be king over the land, and of their mother, who then died of a broken heart.

 

Pythais the mathematician?

Pythais was a Phoenician, the wife of a trader. We don’t know of anyone else at home at the time, so until further information appears we must assume that she handled his accounts: that she understood maths. Given the importance of early childhood development, she must have played a big part in Pythagoras’ mathematical genius.

 

Pythagoras the greatest thinker

Pythagoras was the first man to call himself a philosopher, a lover of wisdom. According to Aristotle (in Metaphysics 1:5) his followers taught that “the principles of mathematics were the principles of all things”. This insight was arguably more advanced (that is, more precise and more useful) than any of the later philosophers, and was not confirmed until the theoretical physics and high energy energy experiments of the twentieth century.

 

Pythagoras invented math

According to Aristotle (in Metaphysics 1:5) his followers were the first people to take up mathematics. True, the Egyptians knew some maths before that, e.g. for building pyramids that don’t fall down, but the Pythagorians were the first to “advance the subject” and be “saturated with it”. They were the first to see maths as a tool to apply to everything.

 

Math and global wealth
For thousands of years, people thought you become rich by amassing property: by taxing, stealing land, having a monopoly, etc. But that is only true in the short term. In the renaissance and enlightenment people began to demand that the numbers should add up: they wanted numerical proof. Adam Smith did the sums, and discovered that real wealth comes from trade, from specialisation, from taxing ground rents instead of income, and so on. He invented economics: he applied maths to nations. Hundred of years later our governments still do mathematically stupid things (like taxing work instead of land) but gradually we are learning to add up, and so our wealth is increasing.

 

Pythagoras and earth sharing

Though Pythagoras is known for his mathematics, his main concern was in creating an ideal society, in which everything was shared. This was not simple communism as such, because the movement expanded until it ran entire cities, so it was a sophisticated economic structure. But it ended when Cylon, a man listed as a Pythagorean city administrator, set fire to some or all of the Pythagorean headquarters, sending the whole movement into disarray. Presumably he had some kind of conflict with the leaders over how he should administer the land. So now you know why “Cylons” are the bad guys in Battlestar Galactica.

Cylon.jpg

Image: “deviantartmaster07”, licensed for noncommercial sharing. For the history of Pythagorians, see “A History of Pythagoreanism” by Carl A. Huffman, Cambridge University Press 2014.

 

Pythagoras statue photo
Taken by “Galilea” and uploaded to Wikipedia on a “sharealike” licence.

 

Alan Kay

Photo by Marcin Wichary, vial Wikipedia, under a sharealike licence. Alan Kay quote from an interview with Mike Richards for the Open University TU100 computing course, block 2 part 2, .

 

Pythais was probably your ancestor
Statistically you are probably descended from the early Phoenicians. This is why:

 

You have two parents, four grandparents, eight great-grandparents, and so on, Every generation doubles. If no relatives ever marry then every 20 years back (because your ancestors married young) your ancestors double: in 100 years you have 2x2x2x2x2 = 32 ancestors. Another 100 years is 32×32 = 1024 ancestors. Another 200 years: over a million ancestors. Another 200 years, to AD 1400, over a billion ancestors, more than the population of the world back then. So you would be descended from everyone.

 

Of course in reality people tend to marry people nearby, so after a hundred years there is a lot of overlap. But people travel: it might take just 200 years for everyone to be descended from everyone in the area, then an incomer might marry and have children. Two hundred years all of your group probably includes her as an ancestor, so they also have all of her ancestors. In this way, the further we go back the more likely it is that we share all the ancestors from farther afield.

 

And the Phoenicians travelled a lot. They were the first mainly seafaring nation: they met and intermarried all over the ancient Mediterranean. So if you have European or north African ancestors you probably also have Phoenician ancestors, and if you go back a couple of hundred years more then you are probably descended from every Phoenician at the time (or at least, those that had children).

 

So while we cannot prove that you are descended from Pythais, if you have any European or north African ancestors there is a good chance that you are.

 

(Note: some people say the Pythagoreans were celibate, which would have limited Pythais’ descendants. This is not true, They just tried not to be sex obsessed. But they encouraged people to have children, especially to procreate in the winter months, when there was less work to do, and children could then be born in the late summer when there is plenty of food. see “A History of Pythagoreanism” by Carl A. Huffman, Cambridge University Press 2014.)

 

Phoenician picture
Adapted from “Phoenician traders on the coast of Britain” by Lord Leighton (now out of copyright)

 

Money picture
Adapted from “Money” by “Patyvo” from the stock.xchng photo site

 

Compound growth chart

Adapted from the chart by “MartienTheRock” at Wikimedia. Creative Commons 2.0 sharealike.

 

Global assets

All the financial assets of planet Earth are current valued at $156 trillion.

http://www.businessinsider.com/156-trillion-global-financial-assets-2014-3?IR=T

 

Global GDP
Adapted from “Contours of the World Economy 1-2030 AD: Essays in Macro-Economic History Paperback” by Angus Maddison, via the version used by Michael W. Kruse, then updated via the CIA World Fact Book

 

Where the numbers come from

Although Pythais lived around 600 BC, Phoenician trade really took off around 1400 BC. We’ll start with effectively nothing: minimum subsistence level (below which you starve to death) is around 400 dollars per year (today’s money, the famous “dollar a day” a few years ago). An easy to achieve growth rate is 2 percent: many modern nations exceed that, despite often investing in the wrong things. We are actually doing a lot of things better than our ancestors did. Here I simply suggest that our ancestors do a few things we do not (trade, education, opportunities for entrepreneurs, etc.)

 

Planet Earth pic

Adapted by the author from public domain NASA imagery

 

Facepalm pic

Photo by Alex E. Proimos at Flickr, Creative Commons 2.0 sharealike-

 

How to calculate compound growth:

To calculate 400 dollars increased by 2 percent, 3415 times:

In Microsoft Windows, open the calculator

(Start -> programs -> Accessories -> Calculator)

Switch to scientific mode

(view -> scientific).

Click 1.02  >  Xy  > 3415  > * > 400

Result: $93,679,930,156,983,494,976,008,056,331,645 per year

To divide by the number of days, hours, minutes and seconds in a year:

( /365 /24 /60 /60 )

$2,970,571,098,331,541,570,776,511 per second

then divide by total of all global assets (156 trillion)

19,042,122,425

That’s 19 billion times the whole world, every second!

 

Original art by the author, Chris Tolworthy. Older source material from out of copyright books, via Project Gutenberg.

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Land: A New Paradigm for a Thriving World

What if we lived in a world where everyone had enough? A world where everyone mattered and where people lived in harmony with nature? What if the solution to our economic, social, and ecological problems was right underneath our feet?

Land has been sought after throughout history. Even today, people struggle to get onto the property ladder; most view real estate as an important way to build wealth. Yet, as readers of this book will discover, the act of owning land—and our urge to profit from it—causes economic booms and busts, social and cultural decline, and environmental devastation.

Martin Adams’ new book Land: A New Paradigm for a Thriving World introduces a radically new economic model that promises a sustainable and abundant world for all. This book is for those who dream of a better world for themselves and for future generations.

Land is available for purchase on Robert Schalkenbach Foundation’s website.

martinadams

Praise

“With great clarity and care, this book takes economics to its proper foundation: the earth itself, the land and all that comes from it.

— Charles Eisenstein, Author, Sacred Economics

“A brilliant contribution from one of the most important voices of our time.

— Thom Hartmann, New York Times Bestselling Author

“Martin has the knowledge to change the world we live in. His book is a must read.

— Ted Gwartney, Real Estate Assessor
Land: A New Paradigm for a Thriving World

“If you want to truly understand the way out of our present economic challenges,
read this book.

— Peter Barnes, Capitalism 3.0

“Land deserves to be on the reading list of anyone who cares about the ways we can create a sustainable future.

— Judah Freed, Making Global Sense

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Poo Ninja Attacks Indonesia

Darris Hawks

UNICEF has started a campaign to end open defecation (pooping in the open air). Their mascot for this endeavor is a professional boxer/terrorist made of personified poo.

See boxer Melanie Subono go toe-to-toe with the oversized Mr. Hankey.

Talking about poop is icky so people generally avoid it, but UNICEF is bringing it to the table (gross) because over 30% of the world doesn’t have access to sanitary toilets. In Indonesia alone, over 50 million people practice open defecation. Open defecation has serious consequences including the increased risk of avoidable diseases like cholera and dysentery. Open defecation is expensive to fix though.

 

Funding Basic Sanitation

Imagine providing toilets to two-and-a-half billion people. How does something like that get funded? You could increase taxes on corporations and make them pay for it, I guess, but that doesn’t usually seem to work. Increase taxes too much and corporations will leave. Plus, since corporations have a lot more clout than those without access to running water and a proper toilet, there’s little chance that the impoverished won’t be left high and dry with that approach.

 

You could do what many countries often do when faced with large public works projects: go into debt and let the income of the country pay the interest on the amount owed, that could work, but what if we could pay for it all without going a dime into debt? What if we could build sanitary infrastructure and have it pay for itself?
Here’s another thought. I bet you that real estate is pretty cheap in areas that don’t have access to running water. Why? It isn’t very desirable to live there. If they were to tax the land and use the revenue to build a sewage system, the land value would go up. Now it’s a little more desirable to live there. This would make the land value go up, and this would increase the revenue available for sanitation -a virtuous cycle. In fact, you could apply that system anywhere. A government could make any public infrastructure self-financing by just taxing the value of land. Learn more about how to create the virtuous cycles that alleviate poverty.

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Vortex May Offer a Cheaper, Space-Saving Alternative for Wind Energy

Mock-up image of Vortex units installed in desert

As the wind power industry grows, those 100-foot pinwheels are becoming more and more an accustomed part of the landscape. They could soon, however, be a thing of the past. Vortex Bladeless, a Spanish company, is a proposing a radical new way to generate energy from the wind. The bladeless turbines, elongated upside-down cones that they say look like “asparagus,” not only look completely different from conventional turbines but harness wind energy in an innovative way.

The basic idea of the Vortex is similar to that of conventional wind turbines–use the kinetic energy of air currents to generate electricity. This new invention, however, achieves this through an altogether different mechanism. Instead of the rotation of propellers, the Vortex uses “vorticity,” the aerodynamic effect that creates a pattern of spinning vortices when wind breaks against a solid structure. When wind is strong enough, vorticity causes an oscillating motion in the structures it encounters. Engineers and architects have been battling this for ages, working to design buildings and other structures that resist these wind whirlpools, which caused the collapse of the Tacoma Narrows Bridge in 1940.

 

640px-Tacoma_Narrows_still (1)

 

Studies show that the Vortex captures thirty percent less wind power than the conventional design. However, twice as many Vortexes as propeller turbines can fit into the same space, which means a net 40% greater ratio of energy production to land area. The Vortex has no bolts, gears, or mechanical moving parts, making it 80 percent cheaper to maintain than conventional turbines. It’s also about 40 percent cheaper to install, with manufacturing costs at about 53 percent less. The Vortex is silent and, without spinning blades to fly into, safer for birds.

The technology is still in development. The company has started a crowdfunding campaign with the goal of 5,000 backers and $50,000 and has raised a million dollars of government funding and private capital in Spain. They are now looking to the United States for more funding. The Vortex Mini, which stands 41 feet tall and can capture forty percent of the power of the wind when conditions are perfect (blowing at about 26 mph), is scheduled for launch for residential use in developing countries in 2016. The 490 ft commercial Vortex Grand, with a generating capacity of 1 mW (enough to power 400 homes) is scheduled to hit the market in 2018.

 

Prototype for Vortex for private residential use.
Prototype for Vortex for private residential use. Photo courtesy of Vortex Bladeless

 

At Earth Sharing, we know one thing that would encourage this and similar efforts to generate clean power is greater taxation oil, coal, other natural resources and the pollution produced in consuming them. Simply making harmful activities more costly through taxes while eliminating taxes on what is needed to produce clean energy (labor, research, sales of hardware, etc.) would foster an environment more conducive to innovation and, in so doing, align corporate financial interests with the common good.

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New Era for the Civil Rights Movement?

Fifty years ago Mario Savio delivered an amazing speech:

“put your bodies upon the gears and upon the wheels…upon the levers, upon all the apparatus…you’ve got to make it stop!” Savio’s words are believed by many to have sparked everything from the Free Speech Movement to the enormous opposition to the vietnam war.

 

 

People are protesting across the country today after juries decided not to indict the police officers who killed Eric Garner in Staten Island, New York and Michael Brown in Ferguson, Missouri. Activists are literally throwing their bodies upon the gears, blocking the highway in DC (see video below). Do you think recent events are the catalyst for a new era in the Civil Rights Movement? Perhaps the suppression of protesters marks a new era in the Free Speech Movement as well? Tell us what you think.

 

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What Bathrooms Can Teach Us About Sustainability

The four of us were college sophomores, excited to rent a house together. Each would have his own private bedroom, and we’d share the bathroom. Four guys, one bathroom, that sounds like a good idea, right?

 

But let me tell you about Ed. Nobody wanted to use the bathroom after Ed, because something would be finished, gone, used up. No toilet paper? No soap? Ed was always the last one to use these things. The rest of us had to spend more money replacing this stuff, yet he never chipped in.

 

Then there was Chuck. Ever heard of a courtesy flush? The bathroom often looked like the shaving cream had exploded. The rest of us endured and picked up after him, but we got no compensation.

 

Andrew on the other hand was neat and tidy, everything had to be immaculate -including his appearance. Once inside the bathroom, the pretty boy wouldn’t come out! The rest of us would hop around waiting, pleading, trying to make it known that we were waiting outside without being pushy. Eventually, we had that awkward talk.

 

It did no good. He continued to take forever. That restricted access for the rest of us, and yet we got no compensation.

 

The fourth person? That was me. I was the perfect roommate, no bad habits whatsoever.

 

Bathroom Earth

 

Now let’s talk about you and everyone on Earth. We don’t have to share a single bathroom. But we do all share one planet.  Some take more than their fair share of oil, fresh water, and minerals, without compensating the rest of us.

 

Some pollute the land, water and air with toxic chemicals without compensating the rest of us. Some monopolize resources like land — Urban land speculators, for instance hold many square miles out of use, anticipating a rise in the price. In the process, they displace the rest of us, forcing development to sprawl out into the countryside. They may come out of the deal looking pretty like Andrew, put sprawl is anything but pretty.  Those who take, monopolize, and pollute are imposing costs on the rest of us.

 

 

Is there a solution? Of course there is. It’s simple. To respect our common interest in our planet’s resources, those who take, monopolize or pollute more than their fair share of our planet should compensate the rest of us.

 

If you’ve ever experienced a crisis similar to mine in college, you know how important it can be to have a good bathroom policy. Or a good planet policy.

-Hanno Beck (adapted)

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Saving the Planet: Lessons from Snowpiercer, ISIS, and Easter Island

by Edward Miller & Jacob Shwartz-Lucas

Snowpiercer

Snowpiercer was released not too long ago. It wasn’t available at most theaters, but has nevertheless found surprising success through other distribution channels. If you haven’t, be sure to see it.


Caution: there are some very mild spoilers in here.

The film starts by showing the last human survivors of a global warming intervention gone terribly wrong. In trying to stop global warming, humans inadvertently trigger a catastrophic Ice Age, and the world is now a frozen wasteland. The survivors zip around the world in a self-sufficient train.

A new social order has taken root. Cops in riot gear terrorize the hungry rag-wearing lower classes in the back of the train, while the elites enjoy botanical gardens, aquariums, and other spacious amenities in the front.

Wilford, the industrialist who built the train, knew that the world was going to end. He demanded a strict limit on the number of people who would be allowed on. However, it is implied that his old friend, Gilliam, allowed more into the rear out of a sense of altruism. Gilliam was forced to live with the consequences of that action, and to suffer in poverty with those he had helped.


Lifeboat Ethics

Snowpiercer is likely an allegory inspired by Garrett Hardin’s essay “Lifeboat Ethics: the Case Against Helping the Poor.” In the essay, Hardin makes the argument that if you are in a shipwreck and your lifeboat can only hold a limited number of people, the seemingly altruistic act of helping others could actually doom everyone.

He then extends this argument to international aid and immigration. Hardin says that the planet can only support so many people at the living  standard equivalent to those in the United States. The more people let in to developed nations, the nearer we approach the natural limits of the planet. To prevent this, he argues we should limit immigration and foreign aid so that the technologically advanced nations can continue to advance, creating hope for the survival of our species.

Landscap

In Snowpiercer, Wilford knew that his train couldn’t carry everyone. He also knew that once Gilliam let those extra people on, they would live impoverished lives. The richer cars sealed off entrance from the poor cars, and the poor cars were left without food. Eventually they were given subsistence rations produced from insect protein. The train could not support a high lifestyle for everyone, so Wilford made the decision to keep the rear passengers at bare subsistence level instead of diminishing the lifestyle of everyone else.


Don’t Assume

Now, before we continue, let’s take a moment to make an out of place request: don’t immediately categorize these views as techno-utopian or environmentalist, but instead remain patient and open-minded. Neil Degrasse Tyson said it best:

“The moment when someone attaches to a philosophy or a movement, then they assign all the baggage and all the rest of the philosophy that goes with it to you, and when you want to have a conversation they will assert that they already know everything important there is to know about you because of that association.  And that’s not the way to have a conversation.  I’m sorry.  It’s not.  I’d rather we explore each other’s ideas in real time rather than assign a label to it and assert, you know what’s going to happen in advance.”


Earth as Lifeboat: An adequate analogy?

The difference between Snowpiercer and “Lifeboat Ethics” is that in Snowpiercer it was obvious that the scenario was solely a result of people being stuck on a train. In that case, Hardin’s thinking is accurate, but that is not the world we live in. Hardin thought of our whole planet as if it were actually a cramped and sterile space (boat), not recognizing the true re-productive capacity of the Earth. The Earth is both spacious and organic. You can’t grow food on the floor of a train or a boat, but you can utilize soil more efficiently.

Fear over climate change has people turning their attention to the natural limits of the planet There was recently a podcast with an ex-activist from the Green Party in Canada, Mike Dewar. He has grown pessimistic about the looming possibility of climatic disaster and the ineffectiveness of activism. He referenced Easter Island a couple times, asserting that we’re all doomed to the same fate. As a result of these beliefs, he’s given up trying to change things and decided to just make a boatload of money working in the Alberta tar sands and to live a self-centered life.

If we buy into all the premises he holds, then he seems extremely rational in his nihilistic response. He’s very correct to distrust in the likelihood of humans to collectively reduce CO2 levels within the time frames required by the IPCC and similar organizations. And, if one believes that catastrophe is the inevitable result of failure to do so, then nihilism is a very understandable response.


Easter Island

Yet, the problem with his narrative is multifold. Even his reference of Easter Island (Rapa Nui) is tenuous. Yet, it is frequently the example given for why depopulation is the answer to our environmental woes. The story goes, starting with Spanish Missionaries, and later popularized by Thor Heyerdahl, that a large population of the islanders outstripped Rapa Nui’s available resources and nearly died out before the arrival of Europeans, supposedly because they wasted all their timber transporting giant statues called Moai.

rapa_nui_lenguaje

According to this interpretation, the islanders, rather than correcting course, depleted all available resources, experienced famine, and turned to war & cannibalism. Well regarded anthropologists like Jared Diamond have continued along this vein. Yet, from our perspective, this interpretation seems all too convenient for the colonialists. There is evidence to support the theory that the natives were very conscious of their environment and went to great lengths to be sustainable.

For instance, the islanders are thought to have taken large igneous rocks, broken them up, and then scattered them across a tenth of the island. The strong sea winds would hit the rocks, releasing mineral nutrients. This in turn would help restore fertility for the cultivation of taro and other crops.

When the dutch explorer Jacob Roggevin sailed to Rapa Nui in 1722, he reported that the people  didn’t ask for food. Ask yourself, would you have the energy to move 70-ton statues around if you were starving? Indeed, most of the depopulation probably resulted from tuberculosis, STIs, slavery, and Jean-Baptiste Dutrou-Bornier’s clearing of the original inhabitants for his massive sheep ranch.

“Demographic and cultural collapse resulted from European contact beginning in 1722 A.D. with the devastating consequences of newly introduced Old World diseases to a nonimmune Polynesian population.” (Science)

 

Easter_Island_Ahu_(2006)

Also undermining the native ecocide theory is recent carbon dating and tool analysis that suggests that violence and cannibalism were rare. Only 2% of the fossil record suggests such activities (Easter Island: Mysteries of a Lost World).

It’s possible the overpopulation wasn’t a problem at all. In fact, having more people to farm and scatter rocks could have been highly advantageous. Regardless of what actually happened, it’s clear that the standard Rapa Nui narrative is dubious. We should be careful about how we apply that narrative to the planet as a whole. Even if we agree that it was attributable to natural scarcity, it is one of the only famines of significance that one cannot supposedly trace to colonialism, war, or totalitarianism.


Iraq: ISIS and the Yazidi

At the time of this writing, there is a famine going on in the mountains of northern Iraq. The members of a small ethno-religious sect called the Yazidi have been driven from their homes by the Islamic extremist group ISIS. They’ve taken refuge in the mountains. But there’s no food or water up there. The water shortage is even more serious than the food shortage, since people die sooner without water. About 40,000 people are in this situation as we speak. If they leave the mountain, they will be shot or beheaded by ISIS. At best, the women may be sold into sexual slavery, rather than killed.

 

If we focus only on the water shortage, we are missing the bigger picture. Their problem is not one of resource scarcity; it’s political. And their situation is a microcosm of most famines in this respect. Indeed, I challenge you to think of a single famine that can be traced at its root to anything other than political exclusion, pillaging, or mismanagement by authoritarian rulers, all man-made problems, not naturally occurring ones.


Absolute Limits
vs Social Limits

We can see that the planet indeed does have absolute limits, a maximum carrying capacity for human life. It is a fact of physics that theoretical limits exist, even if they remain undefined.  However, our global environmental predicament is not as simple as that. Rather than offering up a one-time supply of resources such as 20 billion loaves of bread in one go, the Earth has a re-productive capacity to yield bread indefinitely. Matter and energy are neither created nor destroyed. If we use the planet’s resources efficiently, the natural carrying capacity can be far greater than we might assume.

In addition, when people become more secure in their basic needs, they exhibit  lower birth rates. This has at least been the course so far in the world’s developed countries, in what  demographers call demographic transition (DT). DT means more efficiency and lower demand upon the resource base. Alternatively, if we hoard resources and destroy the productive capacity of the planet, the carrying capacity is greatly reduced.

In Jared Diamond’s TED talk, he discusses some of the reasons why societies collapse. Even within the confines of his somewhat Malthusian narrative, he points out something very interesting.

“Among the Greenland Norse — a competitive rank society — what the chiefs really wanted is more followers and more sheep and more resources to outcompete the neighboring chiefs. And that led the chiefs to do what’s called flogging the land: overstocking the land, forcing tenant farmers into dependency. And that made the chiefs powerful in the short run, but led to the society’s collapse in the long run.” (TED)

This example highlights that it’s not the number of people that are causing the problem per se, but the inefficient use of resources stemming from the policies of larger entities. Practically speaking, the key determinant of scarcity is how those people manage their resources as a community. This is a subtle and nuanced difference, but the ramifications for appropriate action are profound.


Q: The more the merrier?

If people are the problem, that automatically devalues human life. It makes us more willing to shrug our shoulders at the plight of those on the back of the train, the 3rd world, the victims of war and other calamities.

If we treat people as shareholders in the common project of creating prosperity, it may mean improving living standards and in turn, greater access to contraception (sans certain religious groups), and reduced incentives to have children. City dwellers don’t have much need for extra farmhands. Freed from child labor, urban children can receive more attention: better education, nutrition, and a higher quality of life. In a virtuous cycle, those children in turn are more likely to grow up to innovate and  improve the efficiency with which we use resources.


A: It Depends

We may have already exceeded the carrying capacity of the planet, on the other hand the true carrying capacity could  be 100 billion people, given new technology. The point is that we don’t know. It’s preferable to think in terms of actionable and tangible things we can do to save the environment and maximize technological innovation. There’s no use wallowing in pessimism, anymore than there is in blind optimism.
More people means greater technological innovation and thus the potential for efficient resource use. However, rather than a linear or exponential relationship between population and technological innovation, we see an an inverted U shape, indicating an optimal population growth rate of 0.25%, ironically measured in terms of patent filings.

Of course, it may be argued that those living under conditions of prosperity and higher growth rates may be less motivated to innovate as a means of survival. What seems to be more important in terms of increasing innovation, and thus the efficiency of resource use, is the opportunity for collaboration brought about by population density.It is a virtuous cycle. Such density is also desirable in terms of limiting sprawl and the plethora of environmental problems it causes.


Economic Growth, Good or Bad?

economy = environment

From a techno-utopian perspective we should blindly follow the forward momentum of the economy, regardless of its trajectory, and ignore any side-effects. Eventually, technology will trump all of the problems associated with economic growth anyway.  From an extreme environmentalist perspective, nature is more important than humans and their economies. We reject both arguments.

“An intelligent approach to growth involves 1) distinguishing between the benign and harmful elements of growth and 2) designing policies based on those distinctions.  Analyzing the elements of growth entails moving away from highly stylized views that lump diverse activities into single categories, such as IPAT (Impact = Population x Affluence [income/capita] x Technology) or ultimate bio-physical limits on human activity.” –Clifford Cobb

Take energy usage for example, a process which has many negative environmental side effects. With the exception of Switzerland and Germany, which have experienced zero and negative energy-GDP elasticity respectively, most economies use more energy as they grow. That said, we can look at the high degree of variance between these countries for examples of policies that maintain growth while also reducing environmental damage.


Poverty Destroys the Environment

Increasing technological innovation tends to correlate with desirable environmental outcomes. For example, pesticides are often used more in disadvantaged countries, and insecure property rights can breed neglect of the environment as surely as unjust property rights. Prosperous and well educated people can make better ecological decisions.

Efforts designed to slow economic growth will not reduce the consumption of nickel-cadmium batteries as compared to alkaline batteries, nor would doing so necessarily increase the proper disposal of environmentally harmful products in general. These problems require political solutions.

“We find no evidence that environmental quality deteriorates steadily with economic growth. Rather, for most indicators, economic growth brings an initial phase of deterioration followed by a subsequent phase of improvement. The turning points for the different pollutants vary, but in most cases they come before a country reaches a per capita income of $8,000.” (NBER)

Poverty has been known to actually increase the rate of deforestation faster than affluence. Poverty can reduce people to homesteading in the rainforest, and this is a leading cause of deforestation.Environmental damage is not the inexorable consequence of economic growth. We can achieve economic prosperity without eco-destruction.


Slash & Burn Agriculture

That doesn’t mean that we blindly pursue any trajectory the animals spirits of the economy dictate; it means that we make the economy work for us, we encourage those activities that create real wealth while discouraging wastefulness. This can be achieved by a tax code that imposes costs on the use and abuse of nature, and removing taxes from economic activities that create genuine wealth. It would encourage people to consume as little of our resource base as possible. “Only take what you can eat,” as Mom says.

A lot of environmental activists hate the term “efficiency,” with good reason. It is offender used narrowly to mean financial efficiency, i.e. decisions are streamlined such that the environmental costs are not accounted for. If however, the environment was part of the bottom line, just as labor costs are, it would induce corporations and individuals to take a little a do a lot with it.

 

Spaceship Earth

 

NASA-Apollo8-Dec24-Earthrise

We fall into the trap of thinking about our planet as cramped and limited in its capacity for supporting life. We often hear this sentiment when people speak of Spaceship Earth. Yet, the man who coined the concept of Spaceship Earth had a different perspective:

“It is a well-provisioned ship, this on which we sail through space. If the bread and beef above decks seem to grow scarce, we but open a hatch and there is a new supply, of which before we never dreamed. And very great command over the services of others comes to those who as the hatches are opened are permitted to say, “This is mine!” – Henry George, Progress and Poverty

If we are to sail gracefully into an abundant future, we must not allow waste or allow people to obstruct access to the bounty of nature. The progress of civilization hangs on the ability for people to harness the fantastic reproductive power of nature, and use it to transcend the constraints we find ourselves in.

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