|
|
Musings Report 2022-14 4-2-22 If We Fix Finance, Do We Also Fix the Real World?
You are receiving this email because you are one of the subscribers/major contributors to www.oftwominds.com.
For those who are new to the Musings reports: they're a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Thank You, Patrons and Contributors!
Thank you longtime stalwart subscriber Matt L. and welcome new patrons / subscribers Simon K., Max G. and Philip T.--thank you very much!
If We Fix Finance, Do We Also Fix the Real World?
Finance has dominated the real-world economy for so long that many people have come to believe that fixing what's broken in finance will automatically fix what's broken in the real-world economy.
A great many commentators promote the idea that cryptocurrencies and decentralized finance (DeFi) will all by themselves put the real-world economy on a positive path.
I understand euphoric hopes for new technologies is natural, especially after decades of rapid changes wrought by new technologies, but I think we're missing a couple of key points here.
In my view, finance dominated real-world resources for decades. Now the roles will reverse and resources will dominate finance.
Simply put, we can't "print our way" out of scarcities of real-world resources.
Many people seem to think this only applies to fiat currencies issued by governments and central banks, but it applies equally to all financial instruments, including cryptocurrencies.
Many people think that replacing fiat currencies with gold / resource-backed currencies or bitcoin / cryptocurrencies will go a long way toward solving real-world scarcities of resources and socio-economic problems such as wealth-income inequality.
In my new book, I explain why inequality and scarcity are the primary threats to social stability and national security.
The reason is that the global economy is dependent on "growth" defined as consuming more of everything that generate more financial transactions (gross domestic product)..
I call this economic model the "waste is growth" Landfill Economy because the more we waste, the higher our consumption and growth, and the faster we dump things in the landfill, the higher the consumption and growth.
This model assumes resources are infinite, or infinitely substitutable: if deplete our wild fisheries, we'll substitute farmed fish. If we deplete the cheap-to-get oil, we'll build fusion-based power plants.
Unfortunately resources are not infinite and there are no substitutes for fresh water, fertile soil, clean air, wild fisheries or hydrocarbons.
We need hydrocarbons to build a replacement system of sustainable energy and much of what is assumed to be "in the bag" (i.e. not just do-able but inevitable) is magical thinking or not truly renewable: wind and solar are "replaceable," not renewable, for example, as every turbine and solar array has to be replaced every 15 to 25 years.
Finance has enabled us to fool ourselves into believing that creating money and credit will magically create more supply of whatever we want.
But there are physical limits on what resources can be extracted profitably, i.e. at costs consumers can afford to pay.
In other words, the problem isn't that conventional central bank/private bank/state-issued fiat currencies have distorted any otherwise sustainable economic model.
The problem is the global economy is a "waste is growth" Landfill Economy. The distortions of fiat currency and credit have actually extended the life of this completely unsustainable and unstable economic model of infinite growth on a finite planet.
Eliminating money and credit expansion would crash the system's reliance on expanding financial instruments to maintain the delusion that the system is sustainable.
So substituting ever-expanding cryptocurrencies, NFTs and DeFi for ever-expanding fiat currencies and credit wouldn't actually solve the core problem.
Although many wish it were otherwise, cryptocurrencies and DeFi do not eliminate wealth and income inequality. Those who are wealthy now buy bitcoin, gold, etc. using their existing wealth and lines of credit. These assets are largely held by the same small group who own all other forms of wealth.
The bottom 80% have limited means to buy gold and bitcoin, just as they have limited means to buy income properties and big portfolios of stocks and bonds.
Precious metals are also concentrated in the hands of the already-wealthy, so proponents of using PMs as money are simply extending the current wealth inequality: the few will continue to own the vast majority of the capital and the income from capital..
A relative handful of speculators have made fortunes issuing NFTs and speculating on cryptocurrencies, but this is just an extension of all financial speculation.
It isn't changing the world as many claim because these speculations don't address the root sources of wealth-income inequality or the "waste is growth" global economy.
Current cryptocurrencies have a fatal flaw which I describe in my essay The Community Economy Needs Its Own Money.
The questions for any currency are: how is the currency issued and to whom? Any currency that is "mined" (i.e. new currency is issued to those maintaining the blockchain) will be issued to those with the capital to buy the most powerful mining computers: the rich get richer, period.
Currencies which aren't mined have the same problem: early adopters end up with the vast majority of the gains. Later entrants may well lose what little capital they had when their speculations end badly.
Proponents cheer the relative handful who bought bitcoin and other cryptocurrencies early and have reaped a fortune, but they ignore the millions of inexperienced speculators who have lost money in speculative gambles.
The world isn't changed by speculation or by new forms of finance that end up in the hands of the already-wealthy and a tiny cadre of early adopters.
I have long argued the only model of cryptocurrency/DeFi that actually addresses inequality and the Landfill Economy directly is a labor-backed currency that is issued solely to those performing labor in the Community Economy, the only model for a truly sustainable economy because it is not dependent on for-profit consumption or financial mechanisms held by the few at the expense of the many.
Those of you in the financial sector know there is an absolutely massive land rush of the super-wealthy and their minions into DeFi and cryptos, as the already-wealthy are doing what they do best, which is exploit new means to expand their wealth. Those who get control of the platforms and network effects will reap billions as the bottom 95% will end up enriching the super-wealthy winners who beat out the competing super-wealthy.
Will "fixing" finance by replacing central bank fiat currencies and credit "fix" the core problems of the real world, inequality and resource scarcity? No.
Expanding the wealth of the already wealthy and a few early adopters won't fix either widening inequality or an unsustainable, rapidly destabilizing "waste is growth" global economy.
None of this makes me welcome in DeFi and crypto communities. My views are anathema to both mainstream finance/economics and alt-media finance/economics.
So be it. I have to call it as I see it, I don't create content to win popularity contests. Hopefully this is one reason you support my work. Thank you for supporting someone who you might actively disagree with. That takes courage and heart.
Highlights of the Blog
Posts:
It's All the Aliens' Fault (April Fools Day)
Cancel the Funeral for the US Dollar: The "Patient" Just Leaped Out of the Coffin 3/30/22 Alt-media mavens hated this one....
Calm Before the Storm? 3/28/22
Best Thing That Happened To Me This Week
Completed the draft of my new book on burnout.
From Left Field
NOTE TO NEW READERS: This list is not comprised of articles I agree with or that I judge to be correct or of the highest quality. It is representative of the content I find interesting as reflections of the current zeitgeist. The list is intended to be perused with an open, critical, occasionally amused mind.
"An Absolute Mad Rush": Californians Confess Why They're Fleeing The State --voting with their feet....
What the "Involution" Olympics in Beijing Suggest About China’s Future: The Winter Games are constrained not only by the pandemic but also by the Communist Party’s determination to suppress any challenge that could test its grip. --ratings were abysmal...
The Stock market Doesn't Matter: Whether stocks plunge, which they might, or go back up or just head sideways, it’s irrelevant for almost all of us. -- amen. How much the wealth of the top 5% rises or falls only matters to those skimming the wealth....
The Internet Platforms We All Use Should Be Publicly Owned and Democratically Controlled--as I have argued....
Crypto Won’t Solve Our Problems — We Need to Democratize Money --yes....
Heart-disease risk soars after COVID — even with a mild case: Massive study shows a long-term, substantial rise in risk of cardiovascular disease, including heart attack and stroke, after a SARS-CoV-2 infection.
Is there a long emergency plan for peak oil? An amazing amount of political discussion is directed toward goals that are physically impossible. -- question their magical thinking at your own risk....
Money as Simulacrum: The Legal Nature and Reality of Money (via Simon H.) -- long, difficult, important....
Dr. Robert Sapolsky - Hierarchy Is Bad for Your Health (9 min) -- no wonder burnout is epidemic....
For a Clean-Energy Future, We Need Deregulation -- if it takes 20 years to get a permit, solutions cannot manifest....
Dennis Meadows on the 50th anniversary of the publication of The Limits to Growth--note his humility, a rare thing in today's media circus....
The big idea: is it time to stop talking about ‘nature versus nurture’? (via Don S.) The latest science shows that genes and environment are too deeply entwined to pit them against one another
"I sometimes astonish my patients by telling them that it is far more important that they should be able to lose themselves than that they should be able to find themselves. For it is only in losing oneself that one does find oneself." Theodore Dalrymple
Thanks for reading--
charles |
|
|
|
|
|
