Energy based economy or roaring debt growth?

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Economy

While the New York Times editorializes about a warning by the US Congressional Budget Office that the growth in the deficit is more likely to roar than retreat across the next decade, Andrew Foa'ppiness from South Africa has provided some good food for economic thought. His proposal, made in more detail on his website, is to de-link money from the speculative economy that has no regard for people's everyday survival needs. He proposes energy as the basic value to link money to.

I do not agree with everything Andrew says but there is much in his discussion that is important.

Comments and references to previous articles of mine on economic issues are placed after his e-mail message.

If you care to comment as well, there is place at the end of the post...

NEW YORK TIMES
September 2, 2003

Deficit? What Deficit?

The White House serenely brushed off a detailed caution from the Congressional Budget Office last week that the growth in the deficit is more likely to roar than retreat across the next decade, fed by the three Bush tax cuts and other debt-fattening indulgences. If that warning was not enough, how about the concern reported at the International Monetary Fund that the administration has no credible plan to restore budget balance? Yes, the I.M.F., which must lecture the profligates of the globe, is worried that a structural deficit will push up interest rates and restrain growth as America ceaselessly borrows to steer red ink from imbalanced budgets onto future taxpayers.

The coming overview from the I.M.F. is reported to foresee that in the short run the United States will drive economic growth. But it can find no believable plan to rein in ballooning deficits, already at historic levels. The mix of detaxation and deficit spending that has overtaken the government under President Bush's guidance is rolling trillions of dollars in debt over to the uncertain future. The nonpartisan budget office's outlook is conservative compared with other responsible estimates of deficits averaging a half-trillion dollars across the decade, doubling the national debt to $9 trillion.

Hard choices should be made now about this grave threat, before the baby boomers are stuck with the bill in shrunken retirement benefits. But the dominant Republicans of Washington value no vision beyond pandering to taxpayers in the next election cycle.

E-mail from Andrew Foa'ppiness

Dear fellow seeker

Wiping the sweat from my brow, I now have the audacity to present the result/consequence/outcome/hopeful fruit of a long and gruelling nightmare for your considered opinion. It may be far fetched, but at least on my paper it makes some sense.

Maybe your insight can lead to something productive.

With kind regards

Andrew Foa'ppiness

We need a stepping stone between competitive evolution and perfect harmony to prevent a bloody revolution

Renovating a denatured economy

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The induced value of money has become too vulnerable to float without an anchor.

Where is our economy from?

Since the beginning of the industrial revolution (which started before the wheel, mind you), the nature of trade has been changing progressively, from being predominantly agricultural, to becoming predominantly intellectual in content and in value.

In early days most of the money in circulation was spent on essentials like food, clothing and housing. Changes in economic variables in those markets related mostly to conditions within these markets of basic goods and services themselves. Fluctuations endemic to these markets were absorbed in and limited by the content and magnitude of the markets within which they occurred.

What has become of it?

Over the years both industry and the markets became more sophisticated. A progressively larger portion of the economy became dominated by trade in luxuries and in artificial means for gaining wealth. The spirit of the market became steadily more profit- rather than service oriented. A greater volume of money came into circulation chasing non-essential speculative values. In short, the economy became bloated with goods, services, supplies and demands, money and transactions that have little if anything to do with the primary function of the original economy. In the end we have in fact two economies coexisting under the same umbrella, sharing the same 'blood', or currency, regulated by more or less the same stipulations. The primary economy serves the purpose of keeping us alive, while the other, parasitic on the first, in the sense that it grew out of it, serves to enhance quality of life beyond the ordinary.

The rules of the game have not changed. Neither have the fundamental laws. yet we are dealing with a different animal. The originally central theme of the economy, namely that of catering for essential needs, has now become a sideshow, a mere appendage to its former self. Enormous amounts of money now flow in the so called 'macro economy' at the mere whisper of either opportunity or collapse in speculative values -- and we talk fearfully of things like 'market volatility' and its effects on food and pensions and the price of fuel. These fluxes of megabucks, that are primarily profit driven and that seldom have functional bearing on the supply or demand of essential goods or services, cause ripples of their own : 'ripples' by their own proportions, that are, by contrast, tsunamis in microeconomic terms.

Fluctuations in the money market, caused by ups and downs in the speculative trade, that were previously barely noticed, now cause severe disruptions in the food and utilities zone 'lower down' -- also in the realm of welfare and of pensions and of household level startups. A single sneeze of mr Greenspan's seems to now have the power to wipe out hundreds of farmers at a time.

It does not behave properly anymore, this denatured economy...

The focus of the economy has shifted from the basic needs of the individual, to the profit margins of international corporates, with the effect that micro operators and dependants have been marginalized to the loose end of the flag flapping in the wind. The point is, we have become vulnerable to our own devices -- and more so to those of others -- to a critical degree, and something drastic has to be done about it.

We clearly have two choices now :

either seperate the twins, or stabilize the life blood in the primary side, the sustaining aspect of it all; then cultivate the secondary part to become the flower it should be, instead of it being the greedy cancer it has become.

The question is :

How do we regain stability were it belongs, at the grass roots, where our feet have to remain in touch with the realities of what mother earth has to offer -- at the level where a regular healthy meal for every living soul has to be generated?

The manipulations performed at the Greenspan level very obviously hold no permanent cures -- not with the World perpetually holding its breath for the next pontifically deliberated micro adjustment.

The answer

is to be found in a relationship between the very basic elements that constitute the economy, the natural elements and the artificial elements; the real value elements and the floating value elements.

In the real-value sphere there is one unique production factor that is a common denominator to every single action and event that takes place, inside or outside of the definable perimeter of any economy. That factor is energy. Nothing, but nothing at all, happens without energy. Not a pin will drop; not a breath will stir; no ship will sail; not a glimmer of light will be visible; not a single blow of a hammer will fall, without energy : real physical energy that comes in as many forms as the units it can be expressed in, be it terms of calories, or joule, or kilowatt-hours, or whatever the need may be, in our subjective view of things.

Then, in the floating-values sphere, there is the ubiquitous element of currency : the ever changing ever so ridiculously unreliable only yardstick we have for expressing the ever changing values of tradeable items and of economic dimensions of past, present or future concern. It has, by its definition as a mere token of trust in trade, no inherent value of its own. However, where its value in trade was earlier, in the original economy, determined by supply and demand of essential goods and services, the value of currency is now disruptively affected by the overwhelming volume of trade in speculative values.

The availability of each of these two elements - energy and currency - are determinant factors, respectively, in the two domains of economic variables we have to reconcile. On the one hand, energy plays its role in the real domain of intercourse with resources. In the floating domain of economic interactions, on the other hand, there is currency. Realizing this, the fact that energy is the common denominator in all real happenings at ground level and that the value of money is intimately related to the values of all the other floating variables like interest rates, tax rates, supply and demand, the answer becomes apparent : tie the two together and all variables should stabilize around basic energy related inputs.

At first sight this may seem ridiculous : as disastrous as fixing the price of bread, for tying the two together means fixing the price of energy. But it need not be. And, surprizingly enough, it can be done in such a manner that the 'natural' process of induction of the value of money will still function, away from the anchor provided, in the realm where money must exist as a cicumstantially contracted measure of added value.

This solution can, in other words, not be a simple price setting quick-fix. Although the proposition suggested here is essentially uncomplicated (just assigning money a minimum value equivalent to energy), it involves a complete reorientation of definitive free market dynamics within a redefined environment. This has to be done to prevent the free market losing its character of freedom and its inherent power of self propagation.

The sweeping difference

Fixing the price of bread causes problems, because all the cost factors related to every step, from getting the seed into the soil to slicing the bread on your table, remain variables within the system. A fixed variable within the system cannot adapt to changing circumstances. This implies eventually unbearable tensions and a breakdown of the situation, ending in pay strikes, or whatever the case may be.

In contrast with this, energy, as a tradeable commodity in the broadest and most basic sense, lends itself, as a unique exception to the rule, to be given a position outside the competitive playing field, where it cannot interfere with the workings of the supply and demand mechanism keeping its own balance.

So it is a two step solution : 1. Equate energy with currency, and 2. Get the supply of energy out of the competitive field, out of the private sector free market system, where its production factors cannot compromise supply and demand of the balance of goods and services that constitute wealth and well-being.

The trick is to, figuratively speaking, put energy behind the same counter as currency, right inside the treasury.

How on earth can this be done?

That this is an attainable position may be hard to believe at first. Considering all factors though, it is no more complex than putting gold behind the same counter than currency, as has been done before. In fact, most of the security and distribution facilities for nationalizing all tradeable energies are already in place and need little more than redefinition to have the desired effect. The seemingly