Governments around the world are talking Emissions Trading Schemes - Cap and Trade in Carbon - all designed to reduce CO2 as a greenhouse gas. But what this shows is the influence of the non-productive, speculation based sector.
An ETS is in fact a tax - it adds the cost of a permit to just about everything, like a GST or VAT.
But an ETS allows the buying and selling of these permits. These permits can be bought from overseas countries, global companies, other States and Governments. Add in the RECS - certificates issued for renewable energy based appliances and electricity generation and you have a whole new stock market of financially valued permits - not with a fixed value, or even a value directly linked to time, or CO2 levels, or sea level rise - but with a value determined by the financial market itself.
Just like the current dollar based financial market - the cost of this new tax will be set by the needs of the speculators, be driven by government financing needs, and will vary wildly according to holidays in major markets, rumours, and gossip - booms and busts just like the current financial markets.
But will an ETS work? The stated aim is to encourage the use of low carbon processes, develop low carbon forms of electricity production, reduce the use of fossils fuels, increase the efficiency of energy consumption, and over time, reduce the level of CO2 in the atmosphere.
As a straightforward tax, it won't unless the tax is large, consistently applied with no concessions, stable in value or cost, and the money raised is put back into infrastructure that meets the stated aims of the ETS.
As a tradeable mix of tax, permits, and certificates - it is hopeless. It will be too small, hugely variable in value (making investment in projects hard to cost), have plenty of loopholes and opportunities for kick-backs and corruption, and highly political in that the money raised can be used for preferential dispersement.
In short, it will be another tradeable commodity designed to enrich the non-productive speculative money markets. A clear case of the real world being parasitised by the unreal.
Monday, November 2, 2009
Tuesday, February 24, 2009
How Much Money Should We be Making?
Frugalnomics says that real wealth comes from the transformation of energy, and at the most basic levels - agriculture and crafts, it is fairly easy to work out what wealth is possible. But how do you judge the validity of wealth at levels removed directly from energy transformation?
Firstly, be sure that the wealth has a true energy transformation basis. Look hard at what source of energy or energies underpin the process, map the pathway of this energy up to the stage where your wealth is generated and consider the validity of that process. Don't forget your energy as part of the process - humans are pretty efficient transformers of solar energy through the foods we eat. That sort of covers the moral side of the equation.
Now consider the dollar value - how much money should we be making?
Part of the current financial crisis is due to expectations for excessive returns on investments. Financial packages were developed with promises of now, ridiculously large returns.
So what sort of returns should we expect? Australian Superannuation Funds as a group, have set a annual benchmark return of CPI plus 3% - or roughly 4% due to inflation and 3% for astute investment.
Similar pooled expectations from academic economists consider Inflation plus 4% reasonable.
So anything that offers returns of more than 7-8% per annum must be counting on smoke and mirrors ( or put another way - the cheating of less informed investors ) to generate these returns.
Where does the 3-4% come from? I think it is the sort of return that is derived from human effort - or the natural wealth increase from the transformation of energy by people. ie: this is the sort of return an individual can generate by their own sweat, and it puts executive salaries in a poor light.
Frankly, any management or executive position that is paid more than 4% greater than the staff being managed is being overpaid, as there is no way individual effort, as a manager, can generate more than a 4% increase in wealth.
Firstly, be sure that the wealth has a true energy transformation basis. Look hard at what source of energy or energies underpin the process, map the pathway of this energy up to the stage where your wealth is generated and consider the validity of that process. Don't forget your energy as part of the process - humans are pretty efficient transformers of solar energy through the foods we eat. That sort of covers the moral side of the equation.
Now consider the dollar value - how much money should we be making?
Part of the current financial crisis is due to expectations for excessive returns on investments. Financial packages were developed with promises of now, ridiculously large returns.
So what sort of returns should we expect? Australian Superannuation Funds as a group, have set a annual benchmark return of CPI plus 3% - or roughly 4% due to inflation and 3% for astute investment.
Similar pooled expectations from academic economists consider Inflation plus 4% reasonable.
So anything that offers returns of more than 7-8% per annum must be counting on smoke and mirrors ( or put another way - the cheating of less informed investors ) to generate these returns.
Where does the 3-4% come from? I think it is the sort of return that is derived from human effort - or the natural wealth increase from the transformation of energy by people. ie: this is the sort of return an individual can generate by their own sweat, and it puts executive salaries in a poor light.
Frankly, any management or executive position that is paid more than 4% greater than the staff being managed is being overpaid, as there is no way individual effort, as a manager, can generate more than a 4% increase in wealth.
Thursday, February 19, 2009
Facing Up to Frugalnomics
If you have been following the business press lately you will have been seeing articles talking about the capitalist bubble. Guy Rundle and David Hirst in The Age recently wrote good articles.
In summary, they point to the fact that developed economies really surged in productivity post WW2 with most of our current infrastructure like roads, bridges and train lines; pipelines, sewage, telecommunication and electricity services; and government departments and social services all coming into place.
Capitalism is argued to be a system where a large number of people can be persuaded to work for an income sufficient for daily needs plus a small amount of luxuries. This creates wealth because this individual human labour converts true energy. It is a pretty good source of productive capacity, but there are two limits. The first is the physical resources, the embodied energy, which can be exhausted ( mining, oil, etc.) or degraded ( agriculture ), and the second is that individual labour is a limit in itself.
Post WW2, Capitalism was modified. A spirit of consumption was encouraged. People were persuaded to shape their identities around consumption and luxury goods. This was designed to overcome the limit of individual human labour, and ignored the limit in physical resources.
It was also the first sign of a secondary economy designed to feed off the real economy, an economy of speculation that needed constant and expanding growth to camouflage its activity - a permanent bubble economy.
One outcome was an acceleration of energy conversion into social wealth, the infrastructure described above, but the other was a rapid depletion of natural sources of energy and this productive capacity and output stalled in the late 70's.
But by then we had a secondary economy of such size and political power that it demanded increased consumption to maintain its wealth. The problem though is that bubble economies are just that - bubbles with no real economy core. The consumption it required did two things.
It asked for the transfer of the conversion process to areas of lower wages - manufacture and processing of resources moved off shore to less developed countries - as this boosted apparent cash profits and savings. And it encouraged the transfer of these savings into speculation, shares and purchase of luxuries where it could be appropriated by this secondary economy.
And this is where we are now.
The bail-out programs of our governments are driven by the needs of the secondary economy and only marginally designed to support the real economy. And unless much more attention is given to sources of renewable energy and the rebalancing of our economies back to the conversion of natural energy as a source of wealth, the results will be marginal too.
In summary, they point to the fact that developed economies really surged in productivity post WW2 with most of our current infrastructure like roads, bridges and train lines; pipelines, sewage, telecommunication and electricity services; and government departments and social services all coming into place.
Capitalism is argued to be a system where a large number of people can be persuaded to work for an income sufficient for daily needs plus a small amount of luxuries. This creates wealth because this individual human labour converts true energy. It is a pretty good source of productive capacity, but there are two limits. The first is the physical resources, the embodied energy, which can be exhausted ( mining, oil, etc.) or degraded ( agriculture ), and the second is that individual labour is a limit in itself.
Post WW2, Capitalism was modified. A spirit of consumption was encouraged. People were persuaded to shape their identities around consumption and luxury goods. This was designed to overcome the limit of individual human labour, and ignored the limit in physical resources.
It was also the first sign of a secondary economy designed to feed off the real economy, an economy of speculation that needed constant and expanding growth to camouflage its activity - a permanent bubble economy.
One outcome was an acceleration of energy conversion into social wealth, the infrastructure described above, but the other was a rapid depletion of natural sources of energy and this productive capacity and output stalled in the late 70's.
But by then we had a secondary economy of such size and political power that it demanded increased consumption to maintain its wealth. The problem though is that bubble economies are just that - bubbles with no real economy core. The consumption it required did two things.
It asked for the transfer of the conversion process to areas of lower wages - manufacture and processing of resources moved off shore to less developed countries - as this boosted apparent cash profits and savings. And it encouraged the transfer of these savings into speculation, shares and purchase of luxuries where it could be appropriated by this secondary economy.
And this is where we are now.
The bail-out programs of our governments are driven by the needs of the secondary economy and only marginally designed to support the real economy. And unless much more attention is given to sources of renewable energy and the rebalancing of our economies back to the conversion of natural energy as a source of wealth, the results will be marginal too.
Tuesday, December 2, 2008
Consumer Price Index & Inflation
There are basically two kinds of goods. Those needed by the consumer - food, clothes, leisure, health, etc. and those needed by the producer - factories, companies, brands, patents, buildings and assets... And there is some stuff used by both - semi durable goods used for production, like cars, computers, etc
Most central banks act when they see a rise in the level of Consumer Good prices (CPI), they also generally act against any rise in the general wage level as it may lead to inflation and further increases in the CPI.
But rarely do Central banks act when they see a rise in the general level of producing good prices, and it is clear that all asset prices have risen recently, including housing and stocks.
They also do not act to buffer a general rise in company profit levels, although it usually leads to further increases in producing good prices.
Why are central banks and economists so happy when production good prices rise relative to consuming good prices ? Could it be that the political power resides with big business?
Of course. It also goes some way to explain why the bail out of big business is the "preferred" path is addressing the current financial crisis.
Pity really, as putting money into real wages and investing in broad scale community resources and infrastructure would more rapidly fill the debt bubble with real economic demand and big business would be better off in the long term.
Most central banks act when they see a rise in the level of Consumer Good prices (CPI), they also generally act against any rise in the general wage level as it may lead to inflation and further increases in the CPI.
But rarely do Central banks act when they see a rise in the general level of producing good prices, and it is clear that all asset prices have risen recently, including housing and stocks.
They also do not act to buffer a general rise in company profit levels, although it usually leads to further increases in producing good prices.
Why are central banks and economists so happy when production good prices rise relative to consuming good prices ? Could it be that the political power resides with big business?
Of course. It also goes some way to explain why the bail out of big business is the "preferred" path is addressing the current financial crisis.
Pity really, as putting money into real wages and investing in broad scale community resources and infrastructure would more rapidly fill the debt bubble with real economic demand and big business would be better off in the long term.
Fixing the Current Financial Problems
The theory runs that you can boost global demand by offering more credit - or increasing debt. And economists argue that the world needs the growth in total demand to absorb the productivity gains in Asia.
So let us look at schemes by which domestic demand can be boosted - offering increasing levels of credit/debt or alternatively - boosting social spending via domestic government programs; direct financing of government deficits by domestic central banks; and increasing the minimum wage and increasing other family incomes.
These last three increase inflation, but inflation is a debt reducing factor and in the current climate may be healthy.
The other side of the coin though is that the debt bubble has been politically encouraged because it boosts investment profits, and the political power assumed by this profit flow has meant that real wages have stagnated, more low and middle class wage earners owe more money to asset holders, and more small asset holders owe more money to big asset holders and their intermediaries.
A real and democratic solution would be to raise real family incomes and real wages, even creating jobs in stressed areas - but that requires an elected government facing off criticism from big business and economic think tanks, who actually know this action will solve the problem but are loath to admit it, preferring to offer the bail out of big business as the only solution.
Its a pity, but the political power lies with those who a) profited by the debt bubble, and b) look like profiting from the "solution"
So let us look at schemes by which domestic demand can be boosted - offering increasing levels of credit/debt or alternatively - boosting social spending via domestic government programs; direct financing of government deficits by domestic central banks; and increasing the minimum wage and increasing other family incomes.
These last three increase inflation, but inflation is a debt reducing factor and in the current climate may be healthy.
The other side of the coin though is that the debt bubble has been politically encouraged because it boosts investment profits, and the political power assumed by this profit flow has meant that real wages have stagnated, more low and middle class wage earners owe more money to asset holders, and more small asset holders owe more money to big asset holders and their intermediaries.
A real and democratic solution would be to raise real family incomes and real wages, even creating jobs in stressed areas - but that requires an elected government facing off criticism from big business and economic think tanks, who actually know this action will solve the problem but are loath to admit it, preferring to offer the bail out of big business as the only solution.
Its a pity, but the political power lies with those who a) profited by the debt bubble, and b) look like profiting from the "solution"
Thursday, November 27, 2008
Exciting Times?
The last three months have been quite amazing times. The A$ has gone from 95 to 60cUS - investment banks have folded, mortgage houses been bailed out, shares have fallen 50% in value.
So what how did this happen?
The short answer is that the government bodies that should be regulating the financial world have not done their jobs.
All around the world the regulators have allowed companies to hide the interconnections between themselves and satellite companies, and with trading partners and customers.
If you go back to my theory on the source of wealth, you can see that the spirit of the laws and regulations on company reporting and disclosure as designed to make transparent the links between the real source of wealth and the participants in that transformation of energy - ie reading a companies report should allow you to identify the source of wealth creation and the share of the wealth that passes to each participant - worker, owner, shareholder, etc.
But financial speculators derive their wealth by bleeding wealth out of the real system and they have been adept at convincing regulators that special cases exist for not disclosing the methods they are using - things like linking shares to special voting rights, pre-emptive rights over assets, cross management deals, and the hoary old "commercial in confidence" has been used to argue that the books of these companies are not open to public viewing.
The results have been a bloating of the non-wealth producing (and wealth bleeding) non-energy transformation sector to the point of failure.
Now, if these were just normal businesses with bad business plans or tough trading conditions, their failure would free up energy sources for other businesses to transform and continue to create wealth, and individual business collapse (while hard on those involved) is not a problem for everyone else. But speculators are parasites on real businesses and they know that failure for them disconnects them from wealth, and they use all their political powers to remain linked to the real economy - even though that damages everyone else.
The longer answer is that we use the same currency for both real economy energy transformation transactions and speculative transactions. This links speculative failure to the real economy. But it doesn't have to be this way.
Its normal for other currencies to be nominated in deals. A lot of import export contracts are written in US dollars even though neither importer or exporter lives in the USA.
If we had the FINO - a currency used only for speculative trading in shares, derivatives, futures contracts, and anything that was not directly linked to energy transforming activities, then a failure in regulation, or a collapsing bubble of speculations would affect the exchange value of the FINO back into other real currencies, and this internalisation of risk would provide the feedback loop to drive self regulation.
So what how did this happen?
The short answer is that the government bodies that should be regulating the financial world have not done their jobs.
All around the world the regulators have allowed companies to hide the interconnections between themselves and satellite companies, and with trading partners and customers.
If you go back to my theory on the source of wealth, you can see that the spirit of the laws and regulations on company reporting and disclosure as designed to make transparent the links between the real source of wealth and the participants in that transformation of energy - ie reading a companies report should allow you to identify the source of wealth creation and the share of the wealth that passes to each participant - worker, owner, shareholder, etc.
But financial speculators derive their wealth by bleeding wealth out of the real system and they have been adept at convincing regulators that special cases exist for not disclosing the methods they are using - things like linking shares to special voting rights, pre-emptive rights over assets, cross management deals, and the hoary old "commercial in confidence" has been used to argue that the books of these companies are not open to public viewing.
The results have been a bloating of the non-wealth producing (and wealth bleeding) non-energy transformation sector to the point of failure.
Now, if these were just normal businesses with bad business plans or tough trading conditions, their failure would free up energy sources for other businesses to transform and continue to create wealth, and individual business collapse (while hard on those involved) is not a problem for everyone else. But speculators are parasites on real businesses and they know that failure for them disconnects them from wealth, and they use all their political powers to remain linked to the real economy - even though that damages everyone else.
The longer answer is that we use the same currency for both real economy energy transformation transactions and speculative transactions. This links speculative failure to the real economy. But it doesn't have to be this way.
Its normal for other currencies to be nominated in deals. A lot of import export contracts are written in US dollars even though neither importer or exporter lives in the USA.
If we had the FINO - a currency used only for speculative trading in shares, derivatives, futures contracts, and anything that was not directly linked to energy transforming activities, then a failure in regulation, or a collapsing bubble of speculations would affect the exchange value of the FINO back into other real currencies, and this internalisation of risk would provide the feedback loop to drive self regulation.
Saturday, August 2, 2008
Stalled Debates on Climate Change
Been following the media over the last two weeks? Lots of sensible comments by the "little" people on taking action, lots of small scale good news stories and lots of suggestions on how "you can make a difference".
Lots of nothing from big business and government, lots of targets and future time frames and how much money has been "earmarked" to address climate change.
What is not being said is that diverse alternate energy programs - solar panels on roofs, solar hotwater in houses, bicycles, and public and cooperative transport solutions, don't offer profits to organisations and financial systems that make money by speculation, greasing political wheels, and funding monopolistic large infrastructure projects.
Huge desalination plants, clean coal power stations, geosequestation of CO2, nuclear power stations, hydrogen fuel cell cars, these are great money makers because only the very big industries and large financial groups can fund them - perfect financial monopolies.
The small step solutions are too democratic, too easy to copy, too domestic!!
Pity that they are just as effective. Look at electric cars - the car manufacturers will make some money producing them, but plug in charging will break the service station refueling monopoly and slash the oil company profits, not to mention reduce government fuel excise ( not as easily garnered from domestic electricity costs ) Fuel cell technology maintains the production-service station-tax structure, so it is little surprise it are getting government support and media airtime.
"Look to the money trail" is good advice. If you can not understand the inaction of government, or the illogical action like cutting domestic solar panel rebates, look at who stands to make or lose money - if it breaks a monopoly, if it's fairly easy to copy, if it's achievable by the ordinary person, you can bet it will be resisted, reduced, and struggle for government support.
Lots of nothing from big business and government, lots of targets and future time frames and how much money has been "earmarked" to address climate change.
What is not being said is that diverse alternate energy programs - solar panels on roofs, solar hotwater in houses, bicycles, and public and cooperative transport solutions, don't offer profits to organisations and financial systems that make money by speculation, greasing political wheels, and funding monopolistic large infrastructure projects.
Huge desalination plants, clean coal power stations, geosequestation of CO2, nuclear power stations, hydrogen fuel cell cars, these are great money makers because only the very big industries and large financial groups can fund them - perfect financial monopolies.
The small step solutions are too democratic, too easy to copy, too domestic!!
Pity that they are just as effective. Look at electric cars - the car manufacturers will make some money producing them, but plug in charging will break the service station refueling monopoly and slash the oil company profits, not to mention reduce government fuel excise ( not as easily garnered from domestic electricity costs ) Fuel cell technology maintains the production-service station-tax structure, so it is little surprise it are getting government support and media airtime.
"Look to the money trail" is good advice. If you can not understand the inaction of government, or the illogical action like cutting domestic solar panel rebates, look at who stands to make or lose money - if it breaks a monopoly, if it's fairly easy to copy, if it's achievable by the ordinary person, you can bet it will be resisted, reduced, and struggle for government support.
Subscribe to:
Posts (Atom)
