Friday, December 14, 2012

Poverty Is Too Good

Financial pundits use the word "austerity" as if it were a happy word – a word describing the positive and inspired state of former financial hard cases finally living up to their obligations – the repentant wrong-doers agree to live a diminished future to make up for a spendthrift past. The rich are only seeking justice, after all. Debts must be paid.

In the eyes of, this view has a nauseating resemblance to the happy workers pictured in communist art from around the mid-twentieth century. Nauseating because the communist vision was impossible and it is sickening to be reminded of the very many who struggled, suffered, and died under the lash of the imaginary communist future.

Today, in the justice system of the rich, the greatest crime is being unable to pay one's debts. Deadbeats are scorned, and the rich essentially complain that "Austerity is too good for them!" when they grudgingly agree to new debt deals.

The trouble with the justice of the rich is that the rest of us will be paying off debt forever. The capitalist system today is arranged so that becoming debt-free is an impossible dream on the wide social level. A few manage to do it (or are allowed to do it) to provide hope for the rest. A few become chronic deadbeats (or are made into deadbeats) to encourage the others. Most of us trudge our treadmills every day, stretched between heaven and hell, freedom and slavery, lashed by economic insecurity and hoping for the impossible.

Tosoc has mentioned before that capitalism has become more like a lottery. The propaganda is extravagant, most of the money is taken by those who own and run the lottery, the winners are very few, and the vast majority of participants are losers.

Greece is now in the unenviable position of being the world-wide example of losers -- the loser nation. They were lured into the Union with promises of European unity, equality, opportunity, and rising wealth. The problem was that they could not keep up with the Germans, and attempting to do so on a national level caused them to borrow too much. The Germans obliged, and now the Germans want to be paid back. So much for unity, equality, opportunity, and prosperity.

Therein lies the trap into which the rich winners lure the poor losers. Sales and marketing create unrealistic expectations, and loose lending standards allow the losers to borrow too much. The rich professionals also use the divide-and-conquer technique, taking advantage of their access to individuals. If they can convince enough individual amateurs to make mistakes, then they can loot the entire society.

One sad part is that the losers get to think of themselves as winners for a while, feeling middle class and believing that things are improving, but the good times do not last for very long. The losers have been sold the financial rope with which to hang themselves, and they obliging loop it around their own necks. A sucker is born every minute, as they say.

Now the Greeks see the results of the trap. They get the poverty ("austerity") and the Germans get the wealth.

Another sad part of this is that many Greeks are probably very careful with their money and objected to the borrowing by their government. To no avail. Now they are suffering, too, even though they are innocent even in capitalist terms. (This is just one example how the justice of the rich breaks down.)

A similar process is happening in the United States, though we are in the position of the one who just jumped off the tall building. Like the old joke, when asked how things are going, we can honestly reply that things are going OK so far. Greece has already hit the sidewalk. If we will just look ahead, we will see the sidewalk coming.

The problem is that we are still in trouble because we are still borrowing. Some of us have voluntarily cleaned up our personal balance sheets (that is, paid off our debts), imposing austerity on ourselves to get it done. Unfortunately that will not do us much good. Our thriftiness is offset by government borrowing. Even if we have paid off our personal debt, the government is still raising our collective debt. We are all in debt trouble together. Share and share alike. (Except, of course, for the rich, who can run away and protect their wealth.)

A large percentage of US government income is based on taxes on jobs. (Just for illustration, let us say 80%.) If you have a job, then dividing the debt per job makes your part of the national debt about $84,800 and is going up each year by over $5,000. In only a few years, the debt per job will be over $100,000 per job.

Depending on interest rates, we are paying about $2000 per job a year in taxes to pay just for the federal debt and the payment per job is going up each year by almost $100. Of course, interest rates are very low right now. This is part of the trap we are in. The total debt is less important than the interest rates because the payments rise with the interest rates.

If interest rates are 1% now and rise to 6%, then the payment per job each year will be roughly six times the current amount, or about $12,000, and will be going up by about $600 each year. Attempting to raise taxes and cut government spending enough to pay such a burden (which is the austerity solution) would cause an enormous recession if not a depression. This is exactly what happened to Greece and is on the way for the US.

No matter how thrifty you are, no matter how well you hew to the economic ethics recommended by the rich, then unless you are already rich, your economic destruction lies in the collective economic decisions of the rich, the US government, and your fellow citizens.

Another way we are in trouble is that collectively we are taking on new debt in order to make payments on old debt. For example, on a personal level, you know that is happening when you have to borrow on one credit card in order to make a payment on another credit card. This signals that the end of your prosperity is near.

On a national level, this is harder to detect, but roughly speaking, it is when the collective debt is growing at a faster rate than the collective income (that is, taxes). That is what we are doing, and that is why the current administration is so desperate to raise taxes and tax rates. They have already borrowed and spent the money, and now they have to raise the collective income to pay for it. First they put us in an untenable position, then they require us to sacrifice in order to fix things. These days, that is considered leadership.

The situation is even worse in Greece, where on top of a depression-level economy and more poverty, the Greeks are called irresponsible deadbeats, even those who individually worked hard, did not go into debt, and tried to save money.

At we are not pleased with the rigged debt game of the one-percenters, and we are not impressed with either their standards of "justice" or their "poverty is too good for them" attitude toward the Greeks and the rest of us. We believe that justice as practiced by human beings is generally as harsh and unfair as those who demand it, and we also believe that what goes around generally comes around. Those who demand justice should be careful because they themselves will be judged.

"We all got it coming, kid." Will Munny, Unforgiven.

Tosoc believes in mercy instead of justice. We do not judge the Greeks. We sympathize with them because we bought into the propaganda just like they did. We borrowed money on visions of wealth just like they did, and we know how easy it is to fall into that trap. The rich are always busy smoothing and beautifying the wide and pleasant road to hell.

If nothing else, the Great Recession should have taught us that many of us will fall into debt traps if they are set for us. That is what the housing crisis was all about. Many of the rich will explain this away, saying that we are all adults here, after all. Poor decision-makers get what they deserve. It's a "dog eat dog" world, after all.

That sounds fair, but it is not. In reality, there is no contest. The giant dogs eat the little dogs.

Instead, tosoc says that amateurs should not be forced to compete against professionals. Tosoc says that the mistakes of the few should not be allowed to become general economic meltdowns that keep almost everyone poor. Tosoc says that the poor should not be looted through government debt to support the debt traps set up by the rich. We do not glory in a "dog eats dog" world. We would rather see a "dog helps dog" world.

We say all this in part to reinforce the idea that the common currency is the means by which the rich take advantage of the rest of us. The debt traps for the Greeks were set up in euros and our debt traps are set up in dollars. We amateurs are forced to compete against the professionals, and the currency is their playing field.

Multiple exclusive currencies would make it much more difficult for the professionals to set their traps for us and multiply the mistakes of the few into mass profits looted from the many. Our turf would be different from their turf, and we would not be forced to compete directly against them. Also, the divide-and-conquer technique could not be applied because our markets would meet their debt threats collectively from the start, before any economic disasters could unfold.

With multiple exclusive currencies we can defeat the economic tricks and traps that keep most of us poor. After all, if economic security is good for the rich then it must be good for the poor. We should start widening economic prosperity rather than narrowing it. "We all got it coming, kid." can be taken to mean deserving of mercy and prosperity.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (

Copyright © 2012 TheOtherSideOfCapitalism

Sunday, December 2, 2012

The Guilty Innocents

"A penny saved is a penny earned." Hard work and thrift. Cooperation, creativity, charity, adaptability, and integrity. Proper sleeping habits are supposed to make us healthy, wealthy, and wise. Genius is 1% inspiration and 99% perspiration. This is what we are told.

Did you believe in these principles, work hard all your life, and still end up being retired early so your company could cut your pension? Some have. Maybe these principles are supposed to apply to you, but not to those you work for.

Even so, the rich largely conform to these ideas and firmly believe that they are good for everyone. Personally they almost never treat employees or customers badly and frequently act with real compassion and understanding. They keep themselves innocent.

The people they employ to run their businesses are not so innocent. They often operate by different principles. "Never give a sucker an even break." "If you ain't cheatin', you ain't tryin'!" "The squeaky wheel gets the grease." "No good deed goes unpunished." "Never leave any money on the table." "Behind every great fortune is a great crime." "Genius is 1% inspiration and 99% stealing the ideas of other geniuses."

In your vision of the future, what do you want to see? A society of charity, integrity, and abundance? Or a society of cheating, "squeaky wheels," and austerity? Based on the evidence so far, it seems we are headed for more cheating and squeaking.

The rich remain innocent of this, however, because they are not personally involved. Often they are absentee worklords. They do the best they can and shake their heads sadly at the condition of society. The masses are just not as ethical, disciplined, sensitive, and creative as themselves. They look down on us from their high places and are disappointed.

This way of thinking is a real barrier to change.

The rich choose our managers, and that is where their hands get dirty. They do not realize it, however, because they think that they can delegate responsibility at the same time they delegate operational details. At heart, however, what really matters to them are results – return on investment. Oh, ethics are important, too, they say, but make sure those results are good.

If there is any truth to the idea that the profit motive is bad or wrong, this is where it applies. Managers are strongly exhorted to produce results, but rather weakly exhorted on charity and integrity. A manager making great returns without any serious evidence of wrongdoing is cheered and rewarded. Great returns obscure bad behavior and discourage investigation.

The breakdown of ethics works this way. In a world of ever-increasing expectations, managers eventually run out of ethical options for improving performance. To maintain their position in their peer group, they have to turn to unethical options. All keeping their integrity will do for them is allow them to keep their head up as they are kicked out. What does it profit you to keep your integrity if you become a loser? Economic and social fears tempt managers to cheat. And after all, in our society, "If you ain't cheatin', you ain't tryin'!" Everybody does it.

We can imagine that in the mortgage industry before the Great Recession  managers were encouraged to sell more and more mortgages. As the market started to plateau, it became more difficult for managers to meet their numbers. Economic and social fears started to kick in. Managers began to push their subordinates to take on riskier and riskier applicants. They themselves started approving worse and worse applications. After all, the increasing risks were being managed by AAA-rated mortgage-backed securities and collateralized debt obligations, right?

We know now how badly it ended for all of us, but at the time, those managers were cheating and straining every sinew to keep their world going for just another year, maybe just another quarter.
Only losers refused to cheat. They were kicked out of the system early.

After the fall, the rich, looking down from their high places, sadly shook their heads again and made sure that the government borrowed trillions to save their bank accounts and investments. This had to be done to keep the worldwide credit markets from freezing up.

Hearing reports that so many were losing their jobs and being kicked out of their homes, the rich wept another tear and commented how sad it was that so many people lied on their mortgage applications and showed so little financial responsibility. Those poor people just took on more debt than they could handle.

That is how the rich see it, but another interpretation is that they set a giant trap for the whole country, whether consciously or not. Just let people be the way they are, and some will become hard-driving managers. Their subordinates will do their best to do what the hard-driving managers tell them. Still others can be convinced that houses are guaranteed investment winners. They will buy more house and more houses than they can afford, telling everyone they know how smart they are. Don't be a loser – borrow as much as you can and buy houses.

The rich simply spread their nets and eventually money falls into them. There is nothing particularly wrong with anything they do, but the results can be wrong. No one has economic security but them, and no cheerful platitudes will save the poor from their poverty. In a sense the rich are guilty without having committed a crime. That is what makes their guilt so hard to detect and so easy for them to ignore.

The only way to detect it is with broad measurements of wealth and security. It is when the rich get richer in both good times and bad while the poor go bankrupt over and over again. It is when the poor fall behind and cannot catch up. It is when the rich can bring down the national economy simply by playing with their money, overwhelming and ignoring any warnings or attempts to limit their behavior. It is when self-control is seen as fear – as a middle-brow excuse to limit oneself, avoiding risks. All these things are happening now.

It is hard to punish and deter when there is no crime. The Great Depression was bad enough to teach a lesson even to the rich, but that was a special case. The Great Recession does not seem to have made much impression on the rich. If they will not restrain themselves, the question is whether the government will do anything significant to prevent this kind of thing in the future. So far it appears that the answer is no. All we are doing is more of the same kinds of policies that have failed before.

What we really need is a radical economic re-organization like nothing that has come before. The rich should be given their own currency to play with. The rest of us should have a separate currency that the rich are not allowed to own. They can create a debt crisis and lock up their own credit system if they like without affecting ours very much.

Since they cannot directly pay us, they cannot lay us off. Since they cannot directly own our mortgages, they cannot foreclose on us. Since our managers will not work directly for them, the rich cannot threaten them. Since they cannot own our debt, they cannot bankrupt us. Since they cannot sell directly to us, it will not be so easy to trap us.

It is time to defend ourselves and our nation from those who have power over us but whose interests are worldwide. They exert their power through our own currency, and it is time to take that power away from them. Multiple exclusive currencies are the best means to separate ourselves from them.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (

Copyright © 2012 TheOtherSideOfCapitalism

Saturday, December 1, 2012

Vision Loss

One of the problems in the U.S. today is that the rich no longer seem to know which way to go. We are having a crisis of leadership.

Does this mean that wealth and leadership are linked? Yes. At, we see wealth and leadership as inseparable. Anyone who has the time and resources to plan for the futures of many is a member of the "one percent." This includes both businessmen and politicians. Businessmen implement their plans through their businesses and politicians implement their plans through their policies, so we believe that both the top politicians and the top businessmen make up the one percent.

The President of the United States is always a one-percenter. Generally, every U.S. Senator is a one-percenter. Many members of the U.S. House of Representatives are one-percenters.

This is a problem because no one plans for their own, voluntary downfall, or for that of their associates. Plans are limited to those without any significant self-sacrifice, so some alternatives are excluded no matter how good they might be. In fact, an important part of any plan is how to make someone else bear the cost if the plan goes wrong. That is what is meant by "managing risk." It is also what is meant by "blaming the innocent."

So one primary reason why our government borrowed trillions of dollars was to save the one-percenters (including themselves) from the consequences of their own actions. It did save them, but now the one-percenters do not seem to know what to do with all that money. They are not lending and they are not investing. They do not know where to invest. Steve Jobs is dead and even Apple does not seem like a sure thing any more. Everyone is waiting for the next great commercial concept that will set off a wave of ideas, investment, employment, and profits.

(That is, if there is another great commercial concept. More on that later.)

Even in the political realm, there seems to be a lack of ideas. When progressives controlled all parts of the U.S. government for two years, the best they could come up with were plans to control health care costs and increase regulations on businesses. This was all very well, but despite the propaganda, these are basically conservative concepts (save money), and frankly, they are boring. They hide it well, but the progressives are intellectually dead right now.

At least the progressives have something superficially different to offer. On the conservative side, it is still "get a job, work hard, save money, and everyone can be rich!" No one believes that any more after the Great Recession. The conservatives are more obviously intellectually dead than the progressives. The truth is that you get a job, work hard, and save money just to survive – not in the service of any greater conservative vision.

So there is some question whether the world economy has fundamentally changed. It may be that the technical revolutions are over and the human race has nearly reached its maximum productive potential. If so, then this will have a huge effect on our planners.

If economic growth is dying, leadership will have to plan on a plateau economy, in which things do not change very much from year to year. It will be an economy where evolution is slow and there will be no competition for the big dinosaurs. They will get bigger and bigger at the expense, of course, of the little dinosaurs. Popular culture already feels it – the future may be one of scarcity. Humanity may literally become the new dinosaurs, doing nothing more than surviving until a big meteor comes along and ends the repetitious boredom.

This is where our economic expectations and our visions of the future intersect. If the future is expected to be expanding and abundant, then the rich will be open-handed and encouraging. Things get better for everyone, and everyone gains wealth. People at all levels will feel that their efforts are valuable and going towards valuable ends. Freedom, democracy, and free market capitalism work best in these circumstances.

Right now the rich are not open-handed and encouraging. They are socking away the trillions we borrowed in order to save them. This indicates that they already believe that we are moving into a plateau economy. It may be that even the capitalists privately are beginning to doubt freedom, democracy, and free market capitalism.

Another indication that leadership has lost its vision is that the social messages to us the poor are all about scarcity, not abundance. The are about conservation. Smaller populations. Using fewer resources. Using less and being less.

These ideas strike a chord with the poor because their lives are filled with hard work and hard choices that bring only limited returns. We tend not to think about abundance, but about austerity – that is, poverty. If we are poor, we believe that we can all at least be poor together. That is fair.

Except, of course, that the idea is nonsense. In a plateau economy, for the rich to maintain their consumption, it is important that the poor be convinced or forced to reduce consumption. That is all that our sacrifice will really mean because remember – the rich we will always have with us. believes there is a way to break this pattern. We offer a plan quite different from the ideas of either the socialists or the capitalists. So long as we the poor share a common currency with the rich, the rich will always rule us to their own advantage. Multiple exclusive currencies can be used to break the chains they use to bind us.

For one thing, if we pay ourselves and our politicians with internal currencies from which the rich are excluded, then the rich will no longer own our political processes. Their money will be no good for that any more. Politicians' interests will align with the rest of us who use internal currencies and they will no longer be co-opted by the rich.

The rich will also have to contend with the rest of us collectively rather than individually. It is easy for the few to rule the many using divide-and-conquer techniques in a one-currency system. Any effective opposition can simply be purchased. In the best case (for the rich), this will be done in secret so that the opposition can remain opposed, but simply lose its effectiveness. It is hard for a rich person to maintain strong feelings of injustice, but a harmless, organized opposition provides a good outlet for the strong feelings of others.

What if instead the rich could not buy anyone off. It would not automatically right all wrongs, but it would allow political discussion to be made in a less-volatile environment and largely exclude those whose interests and therefore political beliefs are most divergent from the whole.

It would also allow us to punish rich wrong-doers where it really hurts them – in the marketplace. The collective economic power of the U.S. is now being used to hurt Iran, for example, to discourage Iran from developing nuclear weapons.

So long as there is a single U.S. currency, however, we cannot focus our economic power on those who develop derivatives of mass economic destruction. The reason is the common currency. We cannot hurt our rich without hurting ourselves. That is why they were able to hold the masses hostage in the Great Recession and extort trillions out of the U.S. government.

With multiple U.S. currencies, we could focus our collective economic power on rich wrong-doers with lower risk to ourselves. The separation of the internal from the external currency provides a firewall. This may be the only effective way to discipline the rich.

At, we know which way to go in order to improve society. Our ideas are so different from what has been traditionally taught that this may not be apparent right away. We simply ask you to keep multiple exclusive currencies in mind. When you read or watch the news, start looking for ways in which they can be applied. We believe that after some time and thought, you too will come to see things from the other side of capitalism.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (

Copyright © 2012 TheOtherSideOfCapitalism

Saturday, November 17, 2012

No Sauce for the Gander

"Silver hair combed neatly, a purple tie gracing his neck, Ricardo Salinas Pliego spoke with the easy confidence of a man who has not worried about money in a very long time." 'Mexico's Credit Card,' Erin Carlyle, page 132, FORBES Magazine, May 7, 2012. "Grupo Elektra's Ricardo Salinas Pliego makes his billions the old-fashioned way: by charging the poor usurious interest rates. In Mexico, that's not a bad thing."

The owner of Westgate Resorts, David Siegel, sent an email to his workers before the U.S. Presidential election advising them that he might let them all go if Obama won. (See Mr. Siegel talks about his 42 years of hard work and many sacrifices to earn his fortune and his big house (called "Versailles"). Now he is concerned that the Obama administration thinks it is right to take his money to stimulate the economy.

What these one-percenters never understand is how little the rest of us care about how clever they have been and how many sacrifices they have made. For each one of them, there are thousands who were fairly clever, worked just as hard, and made as many or more sacrifices – but still lost their jobs and their homes The competition is not equal and the one-percenters have all the advantages.

Consider the old joke about the 800-lb gorilla sitting wherever he wants. The gorilla has that "easy confidence" of the rich and thinks that the world is fair. After all, anybody can sit wherever they want, if they just work hard enough and make sacrifices.

"Australian billionaire Gina Rinehart, the world's richest woman, has told Australians envious of rich people that they should stop complaining, work harder, and cut down on drinking, smoking and socializing." (See Well, thank you so much, Ms Rinehart. What a comfort it is that there are people like you to to amaze us with such commonplaces. Being an heiress to unearned billions has given you such a refined insight into the lives of the hoi polloi.

The fact is that the capitalist economic system is already broken because the rich cannot really lose. Perhaps worse, they get to pick the winners. They are beginning to become a useless aristocracy rather than a vibrant stimulus to the economy. Whatever fight Mr. Siegel might once have had in him, he is ready to quit and go sit on the beach for the rest of his life.

No matter what, Mr. Siegel's life will be as secure as it can possibly be. His workers' lives are about to be as insecure as they can be. They do not get to quit securely, no matter how many years of sacrifices they have made.

The rich are correct that anyone can become wealthy and secure in a capitalist system. However, this vision is as fake as a lottery. Very few win, but the promise of security keeps the majority playing – and losing. This is the basic unfairness of the system.

Perhaps most offensive of all is the self-righteousness. The rich cover themselves with propaganda about their own good qualities. This may be true to a point about those who built their own fortunes, but at some point their wealth rose to a level where they gained so many opportunities and advantages that no poorer person could really compete with them. And best of all from their standpoint, they did it without ever doing anything really "wrong." Al Gore said it well regarding his campaign solicitation calls from the White House, "There is no controlling legal authority that says this was in violation of law."

In effect, capitalist societies today threaten those who lose the economic game with at least homelessness, breakup of the family, and social disgrace. In some places they are threatened with starvation.

Perhaps many of the rich think that widespread economic fear is what energizes the system, creating and maintaining a high level of total wealth. They work toward a society where little wealth is shared with the unworthy lest they lose their motivation. They want to make sure there is a lot of stick and only a little carrot.

If they believe this, it seems strange that they would believe that it is good that they themselves suffer no economic fears. Unless, of course, they feel themselves to be naturally deserving as superior beings compared to the rest of us. Either way, perhaps they do not believe that what is sauce for the goose is sauce for the gander.

At, we believe instead that the hard work and sacrifice of the workers deserves economic security just as much as the hard work and sacrifice of wealthy entrepreneurs. We believe the entrepreneurs deserve more, but we are very much against the entrepreneurs using economic insecurity to strike fear in the workers. We do not need the David Siegel's of the world threatening our jobs based on election results. We need leadership, not beatings.

The best way to accomplish that is to set up multiple exclusive currencies and the markets to go with them. Make sure the markets are truly competitive by keeping the rich separated from the poor. Let the rich have their laissez faire capitalist markets, if they wish. Let the poor be shielded by protected socialist markets, if they wish. Read all the posts on for more details.

Socialism for the socialists and capitalism for the capitalists.
TheOtherSideOfCapitalism (

Copyright © 2012 TheOtherSideOfCapitalism

Don't Secede or Deport! Join The Other Side of Capitalism!

"Socialism for the socialists and capitalism for the capitalists."

Recently the news is carrying stories of some who are circulating petitions asking to secede from the U.S. and the reactions of others who oppose it, including petitions asking to deport those who sign secession petitions.

Secession petitions; petition to deport those who want to secede.

It seems unlikely that anyone will actually secede or be deported, but these activities illustrate the point that U.S. society is becoming less and less about freedom and diversity, but about social "oneness" (or unity) that is impossible to achieve -- and about which "oneness" will rule.

 On the other side, we are against this "oneness," but how can it be prevented?  Denial of resources is one tool of conflict, and fanatical unifiers use it all the time.  The European "austerity policies" are one example (at, we call them poverty policies).  At one time, starvation in Darfur was another example.  In the U.S.-style economy, there is what we might call "The Squeeze Play."  ( plans a blog post on the squeeze play when we have time.)

One way to prevent the unifiers from stuffing the rest of us into ever-smaller boxes is multiple exclusive currencies and the markets to go with them.  This is explained in other posts on, and it will help preserve freedom and diversity.  As we have started to say, "Socialism for the socialists and capitalism for the capitalists."  We can achieve this with multiple currencies.

TheOtherSideOfCapitalism (

Copyright © 2012 TheOtherSideOfCapitalism

Saturday, September 29, 2012

The Depressing Effects of Devaluation

Below is our response today to a post by Paul Krugman on his NY Times blog regarding the experience of the British during their devaluation after WWI.  We thought this encapsulated version of the basic TOSOC argument might be useful to you.

Right on.  Another example might be  the depression during the Grant administration in the 1870's.  Deflation brought the dollar to its pre-war value in gold, but at a high economic and social cost. 
Beyond this, however, is the view from the other side of capitalism.
First, what we see in the world today are poverty policies, not austerity policies.  Note the soup kitchens in Greece, for example.  Germany should be ashamed.
Second, on the other side, we see the problem this way:  we cannot achieve contradictory monetary goals with only one currency.  Policies targeted to help our lenders (like China and Japan) may not be good for our banks.  Policies to help our banks may not be good for our poor.  And so on for each of the diverse populations that use our currency.
Only one policy can be implemented through a single currency at a time, and for now we have chosen policies that save the rich.
On the other side of capitalism, we want to see multiple currencies for separate populations  so that we can implement multiple monetary policies.  The policy for each currency could then be adjusted relatively independently to help the population of users of that currency.  All the groups that need separate monetary policies could then be given separate policies.

Wednesday, September 19, 2012

Printing the Bristol Pound

The news is that the city of Bristol, England, has launched its own currency to keep trade local.
BBC UK on the Bristol Pound

According to the following, one complaint is that big companies "hoover up" (that is, vacuum up) money from  local areas.
Hoover Up

On the Other Side, we agree completely.  That is what has happened to Greece and Spain.

However, we believe that the effort is somewhat misdirected.  What is to keep the local one-percenters from "hoovering" up Bristol Pounds from the local poor?  Also, the limited scope of this program means limited results, and pegging the Bristol Pound to the Pound Sterling means that their local economy is still tied to national Sterling policies.  In other words, of all the possible benefits of printing a currency, they are only trying to achieve one.

We wish them well, but we hope that others who think about multiple currencies will start to think in broader  terms.

TheOtherSideOfCapitalism (

Copyright © 2012 TheOtherSideOfCapitalism

Monday, September 3, 2012

Climate Control

While "The Other Side Of Capitalism" is generally about using multiple currencies to help us achieve a more stable and fair worldwide economic system, there may be times when other topics are discussed.  This post is about climate change.

There is no question that we need to reduce our dependence on fossil fuels.  Whatever the true magnitude of the effects of rising carbon dioxide levels, there is no doubt that some level eventually will be "too high."  Unfortunately, rather than presenting the facts in an open and straightforward fashion, we advocates of policy changes to reduce greenhouse gasses frequently have chosen to frame the issue in faux religious apocalyptic terms, making doubtful and unsupported claims.  Our writings often seem similar to sermons about the wages of sin; about hell and damnation.  This hurts our credibility.  It seems doubtful that these patronizing approaches will do any good.  Perhaps they actually are doing harm to our cause.

In simplistic terms, our basic point has been that greenhouse gasses retain heat and that humanity has stumbled into a situation where we are dumping large amounts of greenhouse gasses into the atmosphere to support our energy needs.  Only recently have we realized that the result will be climate change of some sort.

The original expected result of retaining more heat was that worldwide average temperatures would rise quickly, and the original expected apocalyptic result was that unless we repented of our environmental sins, we would eventually bake ourselves to death.  The solution was first, to stop adding so much carbon dioxide to the atmosphere, and second, to possibly reduce atmospheric carbon dioxide.  This process turned out to be more complex than expected, so now we talk more about climate change than rising temperatures.  The approach has been to focus narrowly on climate change and its disadvantages.

A better approach, however, may be to lay all the cards on the table and take a more wholistic approach.  First, our energy needs are related to the number of people we have to support.  The more people, the more energy.  For many reasons, not just climate change, we question just how many people the earth can support.  What is the "best" population of the earth and have we already exceeded it?  Part of the discussion on climate change should be about population control.

Second, we should reframe the issue as one of climate control rather than climate change.  Humanity stumbled ignorantly into climate change, but now we know why it is happening and generally what to do about it.  It is no longer just a big accident.  We know what we are doing.  So we should start making our real claim, that we control the climate of the earth by raising and lowering the proportions of greenhouse gasses in the atmosphere.  Once we accept that, we should ask the next question.  What temperature should the earth be?

No one wants to bake or freeze, but some might like the temperature a little higher and some might like it a little lower.  Some might want the seas a little higher and others might want them a little lower.  We need a consistent worldwide climate policy because otherwise nations might initiate opposing policies to achieve their own climate goals.  It is hard to say what will happen if some nations intentionally generate greenhouse gasses to warm the earth up while others take measures to cool the earth down.  Another part of the discussion on climate change should be about worldwide development and enforcement of climate regulations.

Finally, we should be careful not to frame climate change conservatively or in a reactionary fashion.  Some of us tend to make faux religious arguments that assume that the earth was specially placed here so support humanity -- and that if it were not for our environmental sins, the earth by nature would be the best of all possible worlds for life as we know it.  There is simply no evidence for this and promoting this kind of thought denies both evolutionary principles and the evidence of large extinction events in the past.

Rather it may be within our power, and for a time, to make the earth into the best of all possible worlds for ourselves, and to freeze evolution, making the earth a sort of protected zoo for all species as they exist now -- not perhaps the best of all possible combinations of living things, but at least the living things to which we have become accustomed.

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Wednesday, August 29, 2012

Moving Up/Moving Out

Once you look at things from the other side of capitalism, you realize just how out-of-control the rich really are.  It is in the nature of being really rich.  If you try to compel them, they will pick up their marbles and go where you cannot punish them.  See the following recent articles.

Companies move away.
Individuals move away.

Note that these are not just U.S. companies and citizens.  They are also residents of very oppressive regimes  from which one might think there is no escape.  Yet the rich are able to escape anyway.  Again, it is in their nature.

The rich can be disciplined, but only by the market.  For example, not all the regulations from the last four years was able to keep JPMorgan from making poor bets in derivatives that led to billions in losses.  However, losing billions is its own punishment.  If JPMorgan learned anything, it was from the losses, not from the regulations.

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Tuesday, August 28, 2012

Rain in Spain

Things are getting gloomier in Spain.  There is no rain-making, just storm damage.  A Reuters report says that individuals and corporations are taking their deposits out of Spanish banks, as much as 5% of the total deposits so far.  This is similar to what happened in Greece.  Spain is not leaving the euro zone.  The euro zone is leaving Spain.

Europe is providing such good examples why multiple currencies are needed.  Germany and Sweden do not need the same monetary and fiscal policies that Spain and Greece need, yet the rigid nature of the single currency, the euro, mean that the ECB could not put the right policies in the right places even if its mandate allowed it to do so.  Because of the politics, the economic policies are "stuck on stupid."  There are no solutions so long as the thinking about the currencies is stuck inside the box.

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Saturday, August 11, 2012

We Need More Currencies

It should be clear from previous posts that from the other side of capitalism, we see that there are not enough currencies available to implement the correct economic policies for so many diverse types of economic persons. In the sense that we mean on the other side, this has never been tried before because the technology was not available. Always in the past, the vast majority of people used physical tokens of some kind to represent units of money. Whoever possessed the tokens had the money, and anyone could possess any token.

It is different on the other side. On the other side of capitalism, not everyone can possess the currency tokens. Transactions between persons in different markets take place through a central clearing house set up by the government. If the buyer uses currency A, then the clearing house takes payment in currency A. If the seller uses currency B, then the clearing house pays in currency B. Generally, it would be illegal for the buyer to possess currency B and illegal for the seller to possess currency A.

This mechanism prevents those in more-competitive markets (richer persons) from using the currency to jerk around those who are in less-competitive markets (poorer persons). If the rich use the same currency as the poor, then the currency acts as a chain controlled by the rich and wrapped around the poor.

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Sunday, July 22, 2012


One of the newly rich founders of Facebook, Eduardo Saverin, renounced his U.S. citizenship in favor of Singapore. There is much speculation about the reasons, but Mr. Saverin has denied that it was for financial reasons. He said it made things simpler.

Whatever the reasons, Mr. Saverin demonstrated a serious problem with the idea that it would be easy for the government to raise more money by increasing the taxes on the rich,. It is not easy to pin down the rich and take their wealth. They are mobile and have the power to escape.

Furthermore, the loyalty of the rich is to the markets, generally speaking, not to a place or a political system. Sure, many of the rich will pay a high price to be American, but the higher we raise that price, the higher the number of rich who will leave. Keep in mind that this includes rich companies as well as rich individuals.

If you have read the other works on "The Other Side Of Capitalism," you may have asked yourself who are the rich and who are the poor. Now you have the answer. The rich are those who have the resources to escape from where they are in order to chase opportunities or avoid problems. The rest are poor whether they are called "middle class" or not. That is why the rich are "external" and the poor are "internal," no matter what their personal feelings may be.

So the poor are those who do not have the resources to escape. Generally, they are those who travel very little outside their own country and who make their livings primarily in the currency of their home country. Also, they are generally net borrowers – their debts exceed their cash. (Some would say that their debts exceed their "assets" rather than their "cash," but the events of the Great Recession show for example that house prices can vary widely. One's assets may not be worth as much as one expects when the crunch comes and you have to pay in cash. Your safety net can disappear and you will not know it until it is too late.) Most of the poor belong in the "internal" markets.

Let us not take this metaphor too far about the rich being "external," however. Google is an American company and Warren Buffett is an American citizen, for example. They probably take their American roots very seriously. At the same time, however, Warren Buffett will move capital from America to China if he sees opportunities there. Also, it is commonly known that Google's growth prospects are better in China than in the U.S. As a result, Google finds itself squeezed between freedom of speech and hitting its expected financial goals. We cannot expect Google to be a strong advocate of free speech and the American way if it has to compromise with the Chinese.

The same is true of Warren Buffett, though let us not pick on Mr. Buffett in particular – think of George Soros or Bill Gates if you prefer. In the same way, you may want to think of Ford or Caterpillar rather than Google. The common factor among them is that all of them need to go where the growth is in order to maintain their riches. To the extent that their businesses grow faster in China, for example, their political and business outlook becomes more Chinese and less American.

The consequences of this include not just the growing disparity of income and wealth between the rich and the poor, but the growing divergence in interests and prospects. The interests and prospects of the poor are internal. That is their focus.

The interests and prospects of the rich are increasingly external, yet the rich control not just their own wealth, but also the money of the poor through jobs, bank accounts, retirements accounts, lending, and interest rates. If the best returns are found in other parts of the world, the rich will want to invest everyone's wealth externally. The poor might prefer to earn some lower returns in order to maintain jobs locally. Since the rich control the money, their interests prevail.

The rich and the poor are no longer pulling together in the U.S., they are pulling apart. The rich will move on to their external interests and take the money with them. There is no way to bring them back because the loyalty of the rich is to the global markets and the loyalty of the poor is to their internal markets.

This is not so obvious in the United States because the nation is so rich. It becomes obvious in the case of some of the leaders of poor countries, where they impoverish their own people and ruin their national currency so that they can become rich in dollars or euros and invest their wealth elsewhere. That is what happens when the rich control the currency split between rich and poor. Better for the American people to anticipate and control this process before the rich do.

The best way to do that is to cut the cord and start using separate currencies now. If the rich cannot own or control the currency of the poor, then the link is broken and they cannot misuse, misappropriate, or threaten the wealth of the poor, and they cannot threaten the economy. With separate currencies, their mistakes and misdeeds affect primarily themselves.

The rest of society can never adequately tax or punish the rich because the rich usually influence policy more than the poor. (Most politicians are rich, or are becoming rich, after all.) Also, the rich can run away if all else fails them. Therefore methods that use law in the attempt to solve these problems are only temporary and are only partially effective.

We should not hate or despise the rich for all this any more than we should hate or despise gravity for pulling us down. It is a natural result of their positions and identities, and most of us would like to be rich, too. What we need to do instead is separate ourselves from their external interests and keep them from using our own capital against us. We cannot do that while there is only one type of money and the rich have control of it. What we need are separate currencies controlled by the internal majority.

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Thursday, July 19, 2012

One Size Does Not Fit

Those Type A personalities can be fun. They are energetic, outgoing, and hard-working. They are a little crazy. A little sociopathic. But they can also be very, very productive. Every workplace should have a few to help keep the others moving.

Type A personalities tend to do better than most. Capitalists love them and many capitalists are Type A themselves. Things might be easier if everyone in the markets were like them. Of course, very few are like them.

Participation in the markets varies widely. Some people cannot change their own clothes, much less trade in the markets. Disease and accident can make anyone totally dependent on society. Infancy and extreme age have the same effect – we all come full circle if we live long enough. As far as money is concerned, we all fit somewhere along the line between those who need someone else to act for them and the very few who are geniuses with money.

We do not expect one size of shoe to fit all of us in our diversity, but somehow we have come to believe that one currency does. We say that the social safety net is necessary but we look down on those who receive aid even in currency substitutes, such as food stamps, subsidized housing, or progressive taxation. The ideal is still to earn your living by competing successfully in the private markets.

The trouble is that the money geniuses end up with all the money. It is what they do. Even when they make mistakes, they still end up with all the money because they find ways to make others pay for their mistakes. The Great Recession is an example. The rich were able to coerce the U.S government into saving them and helping them pay each other bonuses. While the rest of us were losing our jobs and houses, our own government took on trillions more debt in our name to save the rich.

Printing money and transferring some wealth from the rich to the poor has helped, but it is only a partial solution. All it does is prop us up again so that we can be exploited in the market again. The rich like that and they support it.

The rich really are powerful. We have to acknowledge just how powerful they are before we will understand the need for better solutions. The results of the Great Recession should make it clear that the U.S. government is almost powerless against them. So long as the rich can hold the economy hostage against government action, all the talk and new regulations are just fairy dust in our eyes to keep us from seeing just how little is really being done.

One reason why the rich can hold the economy hostage is that one currency tightly links every part of the economy to every other part. The rich have enough economic power to make a mess of one part of the market and the trouble spreads freely to all the other parts.

The other reason is that governments and central banks cannot focus their economic power tightly enough. One might expect that they have the final say over the currency, but that is not true. They represent everyone, even the rich, and the rich have the most influence over economic policy. Also, those in the government get paid in the common currency just like everyone else. Individually, they are as subject to economic pressure and exploitation as anyone else. Finally, governments have obligations to other countries and their economies. Even if they see the exploitation and want to help, they may be unable to do so because they are pulled in so many directions at once.

Suppose instead that the government had at least two currencies, one being a national internal currency and the other being an international external currency. Government policies would control the relationship between the two. Other countries and the rich would not be allowed to own the internal currency or anything denominated in it, but would have to work only with the external currency. Those in the internal economy would generally not own any external currency or anything denominated in it.

It may not be obvious to the reader right away, but this division automatically creates capital controls. A rich person would not be able to simply lend money directly to a poor person any more. These transactions would have to be approved according to government policies. Essentially, the rich person would be lending to the government on behalf of the borrower. The government would act as a cutout in the process of paying for the house and from that position, it would be better able to deal with exploitative behavior on anyone's part.

Furthermore, this division would allow the central bank to better focus its efforts. The government would have more flexibility and could apply different policies to the different currencies as needed. That is not possible with a single currency.

The rich would not be able to damage the internal economy directly, either intentionally or not. The government would be able to deal with the rich separately and not be influenced so easily by the threat of a ruined economy and a starving population.

The poor could work and build wealth without fear that unexpected and sudden economic crashes would cause them to lose their jobs, their savings, and their homes to the benefit of the rich. There would still be economic blows, but the government could focus its internal policy efforts toward cushioning those blows and helping the people keep what they have earned.

All this would only be possible using the best money technology and for the most part, electronic money. A rich person could buy a hamburger in the internal economy using a debit or credit card, but only at an exchange rate determined by government policies. Furthermore, there would be limits. The rich person would not be allowed to buy all the hamburgers in town. Cornering any internal market would be prevented automatically by the computers and software that handle the transactions.

Doing that might be as simple as exponentially raising hamburger price exchange rates as more hamburgers are bought. Bankrupting a rich person on that last trillion-dollar hamburger purchase would be a far more effective deterrent, and a more fitting punishment, than any fixed law or regulation could provide.

If two currencies are good, three might be better. As has been pointed out before, perhaps we need as many currencies and markets as is needed to keep them all balanced. People would be assigned to markets and moved between markets depending on their economic competitive power. Just in terms of the stages of a person's life, the young would be placed in less-competitive markets and then moved to more-competitive markets as they gain experience and capability. Then as they enter extreme old age, they will return to less-competitive markets that are more suitable to their energy level and mental capability.

One size does not fit all and one currency does not fit a complex and diverse economy. We now have the money technology tools and information processing capability to manage multiple currencies at once. This will give strength and focus to monetary and fiscal policies that governments have never had before, allowing them to keep capitalism working at top speed and also keep it from flying apart due to the pratfalls of the rich.

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Sunday, July 15, 2012

Who's Afraid Of Another Currency?

(Sorry, this article still needs editing.)

The Treaty of European Union (the Maastricht Treaty) states the purpose of the Community in Article 2.

The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing the common policies or activities referred to in Articles 3 and 3a, to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.’

Some of the actual steps, such as a common currency, are laid out in Articles 3 and 3a.

Money has been around for thousands of years and there have been many ways to make it. Certain types of sea shells, the shells of certain sea snails, metal lumps and coins, certain weights of barley, and printed notes have all been used as money. In recent years, electronic money has been used. Humans have not found that the nature of the money counters is as important as the concept of money, the number of units, and which currency the money is denominated in.

In recent centuries, there has been a trend toward reducing the number of currencies and a trend toward paper banknotes with a few types of coins minted for the smallest denominations. Money became nationalized, and generally one currency was made dominant within national boundaries. This facilitated trade within the nation and the national currency was a source of national pride.

In the extreme, there are many today who believe that only gold is real money. They essentially believe that there is only one real currency, a universal currency, and that money should be (or at least represent) fixed quantities of gold. This is the general idea behind the various proposed gold standards.

Without being a scholar on the history of the European Economic and Monetary Union, it is difficult to know what the arguments were for a single currency, or whether there were any arguments at all. Perhaps everyone assumed that, just as political unification of Germany in the nineteenth century meant monetary unification of various German currencies into the mark, the political unification of Europe in the twentieth century could only mean monetary unification of the various national currencies into the euro.

Another possibility is that separate national currencies were seen as impediments to trade and the flow of capital. National currencies in the hands of national central banks might tempt national governments to implement nationalistic monetary policies during economic downturns, tending toward economic divergence rather than the convergence required by the treaty.

Another purpose may have been competition with the United States. There may have been a desire to create the euro to compete with the U.S. dollar. That way, the union could issue euro-denominated debt backed up by an aggregate economy that was larger than the economy of the United States.

Finally, we might speculate that there was an enticing vision that any group of Europeans could get on a train, travel to any other EMU country, and spend the euros in their pockets just as easily as they could at home.

All this made the capitalists very happy – a single currency, free trade, and free flow of capital. It looked good, and it worked well for about ten years. However, even on the capitalist side of capitalism, there were some concerns about the lack of a firm fiscal policy and questions about how a single monetary policy could deal with potentially very diverse fiscal policies. Those fears proved well-founded.

In fact, the failure of capitalism in Europe was the very impetus that started us searching for solutions on the other side of capitalism, the side that supports capitalism in general, but acknowledges the structural problems in capitalism and does not hold so strongly to the ideas of a single currency, free trade, and free flow of capital. As we have said elsewhere, it is hard to see how adhering to these principles has helped Greece in the current economic crisis.

There is little doubt that at the time the Masstricht Treaty was conceived, a single currency looked like the best solution. The cost of multiple currencies was high.

Money technology has changed since then, and the cost of multiple currencies is quite diminished now. Indeed, many companies set up gift cards and rewards programs that have some of the characteristiscs of money, and electronic money, credit card transactions, and debit transactions have the effect of physical transactions without any physical money changing hands. Food stamps in the United States act a lot like money. Finally, many credit cards allow transactions anywhere in the world in "foreign" currencies using spot exchange rates that neither the buyer nor the seller necessarily ever sees or needs to know.

With good credit cards, any group of people can travel to Europe and spend money using their cards just as easily as they can anywhere else. It does not take exchanges to physical euros to do that any more.

Briefly, it does not seem necessary to refute the argument for the euro in order to be consistent with tradition or with history. We think that the vast majority will agree with us that these things have no place in these discussions.

It seems that the purposes of the euro are to allow Europe to have a union currency that can compete against the U.S. dollar and to discourage or prevent individual members from going their own ways with their own currencies. However, money technology has reached the point where this can be handled a different way. The ease of electronic commerce means that while European governments can participate in the euro zone, each government can have one or more currencies that are only used internally. This will prevent the governments from going their own ways and allow the euro to compete with the dollar, but it also gives the governments the flexibility to deal with the problems caused when the common market becomes unbalanced.

As far as travel is concerned, even if Greece uses the drachma internally, other Europeans could still easily travel to Greece and electronically exchange euros for drachmas at spot rates regulated by the Greek government. Greeks in the drachma system could do the same kind of thing when travelling in the rest of Europe, the difference being that their exchange would be drachmas for euros.

There no longer seems to be any reason to force all Europeans to be paid in euros and for them to spend in euros. It seems to be enough that the governments use euros in external dealings and prevent any internal currencies from being used or collected externally. With the advent of electronic money, it should be relatively easy for national governments to maintain membership in the euro zone and at the same time to restrict and regulate the use of any internal currency, keeping the ability to make sure their citizens have enough currency. It is now clear that they cannot always rely on other European nations to do that for them.

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The Rich You Will Always Have With You

The Democratic People's Republic of Korea (also known as North Korea) recently selected Kim Jong-un as Supreme Leader, replacing his father who had replaced his grandfather. The Democratic Republic was established by the egalitarian communist Soviet Union, which had ended its own long misrule by Imperial dynasts to establish its Union of Socialist Republics. Ironically, it now looks like a new dynasty is being born in North Korea.

For that matter, the patron-client relationships under the nomenklatura in the old Soviet Union contradicted that nation's egalitarian beginnings.

The recent historical examples of North Korea and the Soviet Union should make us suspect that no overtly egalitarian system can adhere to its principles for long. Real people do not fit well in such systems.

However, even in the face of experience, the theory behind egalitarian systems is still attractive and simple. It looks good compared to capitalism. Capitalism divides society into layers based on wealth and has a built-in intolerance of the rich for the poor and the poor for the rich. Overt unfairness, insecurity, anger, and accusation make capitalism look ugly. Egalitarian theorists seem to offer a fair, calm, safe, and rational alternative.

Egalitarianism presents a pretty picture, but it is just a picture. It relies on people to control themselves, but many do not. Egalitarianism needs for people to think of the common good, but many will not. Most of all, it relies on people to think of themselves as equal to others when so many are convinced that they are better than everyone else. These characteristics are built into the human race. All the gulags and re-education camps created in the communist world failed to expunge these characteristics from the people.

Worse than that, perhaps, is that egalitarianism holds that society is best without the the rich. That might be true of the idle rich, but it is not true of the active rich. The idea that the worst decision-makers should dispose of the same amount of resources as the best decision-makers is absurd on the face of it. We may not like the rich, but if we got rid of them, the waste and stupidity of our own society would force us to bring them back, as we have seen happen in China and Russia.

Finally, egalitarianism fails because it has a false concept of wealth. It is a common misconception, and it is the idea that wealth consists of quantities of things, like money. Instead wealth is a combination of psychological inspiration, social interaction, and things. Things only mean wealth in the context of a society with active markets, and active markets require the energetic participation of individuals who have a vision of what it means to be rich. The vision and energy of the rich and those who want to be rich keep the markets active.

It is counter-intuitive, but this means that we can not take the wealth of the rich to secure the lives of the people. If we try it, we take the rich out of the markets, and the markets lose their steam. Wealth disappears like magic gold losing its spell and turning to trash in the sunlight.

The above shows that the core of capitalism is not money and trade. The core is vision and energy combined with resources, and it expresses itself first through communal activity, inspiration and service. Then comes satisfying workers and satisfying customers. Only after all these come trade and income and wealth. No one would know what wealth is without the rich to show them. Another word for the work of the active rich is leadership. Helping capitalism succeed means providing an infrastructure to support these activities.

However, this does not mean that the active rich can be safely mixed with the poor under a single currency. The reasons for this are explained elsewhere in more detail, but it boils down to a few points. The active rich are so good at gathering money into their own hands and they become so economically powerful that they unbalance and distort their own markets. The effort and single-mindedness required to build businesses and become rich can make them social outliers and a bit sociopathic. They cannot be about fairness. They have to enforce the rules of the marketplace, contrary to their own consciences if necessary. They can exploit the poor without even recognizing what they are doing, and they are so good at diverting blame that they make plausible explanations about how the poor did it to themselves. In the end, they are able to make the poor pay for the mistakes of the rich.

Solutions to this must be of a kind to "firewall" the poor away from the rich using new currencies. The rich will not be allowed to own any of the primary currency (or currencies) used by the poor majority. The government will establish exchange rates and manage the flow of capital from the primary currencies into the secondary currencies used by the rich. This will allow the government tremendous flexibility to regulate the treatment of the poor and isolate the problems of the rich.

For example, suppose the Greeks had had an internal drachma economy for poor Greeks while the Greek government and rich Greeks worked in the euro market. However bad we might think that Greek social policies have been, those problems could have been isolated in the internal drachma market, and the government could have printed more drachmas as needed to deal with them.

At the same time, the Greek government could have isolated external problems to the external markets, and it would not have had nearly so much debt denominated in euros. Maybe Greece could not have avoided all the external economic problems, but it could have done better than it actually did.

In the real event, the Greek government had no flexibility when the euros started to leave Greece, and the problem has both impoverished the Greeks and harmed the worldwide economy. The rich northern European states are trying to impose poverty policies on Greece, and the only reason they can even try is that all Greek debt is denominated in euros. The single currency is the connection that must be broken as the first step in our solution to these problems.

We know that egalitarian principles fail, based on recent history if nothing else. We know that we need the rich and we know that policies to get rid of them are doomed in the long run. Yet we also know that, without controls, the rich can cause enormous economic problems, including increased poverty for the innocent poor. If we can correct that, it will go a long way toward making capitalism more just and fair. It can be done by the use of multiple currencies under government control, economically separating the rich and the poor.

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Economic Tolerance and Diversity

At a scientific institute not far from Moscow, Cold War Soviet scientists were tasked to invent better antiaircraft armaments for defense against the capitalist West. The courtyard of the building was quite nice and when the weather was good, some of the scientists liked to stroll around and around, thinking about how to get the job done. The guards complained. "They should spend more time at their desks working!"

This illustrates one of the major weaknesses of the communist system: a narrow and intolerant view of the economic person. There were relatively few legitimate ways of participating productively in the economy. The rest were either discouraged as suspicious, or they were criminalized. The cost of missed opportunities was high, and this inflexible and dogmatic form of communism almost immediately proved itself unable to adapt to changing conditions. It rapidly died out. So much for the imperatives of history.

Meanwhile, capitalism has proved its superiority, survived, and is going from strength to strength ... or not.

Certainly capitalism embraces diversity and tolerates a wide variety of people in economic activity. Capitalism is also fair in the sense that the money one makes is both the reward of one's merit and the measure of one's success. Birth (as in noble or common), gender, and skin color are nothing compared to the size of one's bank account.

At the same time, capitalism stratifies the members of society by wealth (roughly, into the rich and the poor). It is through that mechanism that capitalism becomes deeply intolerant. This comes about in many ways, only of few of which will be mentioned here.

Successful capitalists on the whole may be more tolerant than most people, and there is some reason to believe that is true. What frustrates the rest of us is that there may be relatively few rich bigots, but each of them has enough money to make their bigotry hurt many other people, and they can fiinance the harm they do for a long time.

Below the truly rich in the economic layers are the nearly rich – the fearful climbers. The fearful climbers are those who desperately want to be truly rich; to achieve it, they feel that they just need one more good deal, or a little help from above. They are fearful of moving down, and therefore fear those below them who are moving up. They are likely to find justifications for stepping on the hands and kicking the heads of those who are lower on the economic ladder.

For those on the bottom, the rich and the climbers may have some sympathy for the helpless ones, those who cannot even find the ladder. However, they generally have harsh words for the "lazy and shiftless" ones who know exactly where the ladder is, but refuse to climb. This ill feeling is mutual. Those who drop out are just as deeply intolerant as those who buy in.

Finally, while capitalism is fair on the surface, it becomes more and more unfair as the rich get richer and the markets become unbalanced. Capitalism seems equitable because all the rich do is take advantage of their advantages. Everyone does – it is only human. That seems fair enough until the rich gain so many advantages that others can no longer compete. The competition is too rigged.

It becomes so rigged that the rich can successfully demand that the poor bail them out of their mistakes. This is the deepest intolerance of capitalism, when the poor are made poorer to save the rich from the consequences of their own mistakes, and none of the rich think it is wrong. After all, they have arranged things so that they can blame the poor.

At the same time, the poor become so oppressed that their situation is no different from what they would experience under a dictatorship. The promise of capitalism becomes a lie for the poor, and they blame the rich. Typically they then make the mistake of framing solutions in terms of the currency they share with the rich. They need money, and they can imagine only a few ways to get it – they think mainly in terms of taking it from the rich. The poor are just as stuck on this side of capitalism as the rich.

On the other side of capitalism, we look for a deeper tolerance, accepting the rich for who they are and the poor for who they are. We know that the strong hands will always take from the weak hands, and that the people are made up of both types. We have to work with that fact. We cannot abandon either type of person. At the same time, competitive capitalism works very well when it is working. We do not want to give capitalism up, either. Convincing all this diversity to work in harmony is the problem.

The key to finding the solution is that capitalist exploitation takes place through the common currency. The rich have the money, the poor have to earn it, and governments have please both sides. The rich can create artificial scarcities of money, scarcities that the government is hesitant to make up because it has to weigh the effects on everyone, not just the poor. One currency rules us all. Single currencies and economic bigotry are intertwined.

Therefore solutions will involve multiple currencies, at least one for the rich and at least one for the poor. The rich might be able to create a scarcity of money among themselves, but they would not be allowed to own the other currency. The government would therefore have the flexibility to deal with the problems of the poor almost independently of policies to deal with the problems of the rich.

We had to suffer through the disadvantages of capitalism for so long because we did not have the technology to maintain multiples currencies. We do now, and we should start to use it.

Both capitalism and communism are deeply intolerant, capitalism perhaps moreso in nature than communism. Capitalism survives because it is better than communism at motivating and inspiring the people. By breaking the currency link that allows the rich to exploit the poor, we have a chance to offset the faults of capitalism and bring to it a deep tolerance.

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Wednesday, July 4, 2012

Fool's Gold Standards

We hear that "only gold is REAL money." Therefore, it is said, we should return to the gold standard and tie our money supply to gold. Paper money is intrinsically worthless. For example, the dollar has lost 98% of it value since 1900 or so. The dollar can only be a true store of value when it represents an amount of something real and lasting. Alternatively, maybe our money should BE gold.

If the above seems like absolute truth to you, then you may be interested in some of the reasons why so many disagree.

If gold were truly the only real money, then one would expect to find many historical examples of cultures in which gold was also the currency. There are in fact very few examples, if any. Certainly no advanced national culture has used physical gold in a significant quantity to handle everyday purchases for thousands of years.

The main reason for this arises out of Gresham's law. ("Roughly, bad money drives out good money.") Yes, gold makes a good currency, so good that it is hoarded rather than spent. Eventually it all ends up in the "strong hands" and goes out of circulation. Governments learned long ago to keep most of the gold to themselves and substitute alloys of silver and copper or paper notes for physical gold. For the average person, physical gold always has been largely mythological.

That is why most "gold standard" proposals are about limiting the national money supply based on the national gold supply. This is a lost cause from the beginning, however, and no one should spend very much time thinking about it. Once gold is not used as the currency, then the connection between gold and the currency is open to manipulation. The money supply is then dependent on the discipline and plans of those who control it, not on the gold supply.

Policymakers have learned to pay almost no attention to the price of gold. The primary reason is that the gold supply is not flexible enough. The need for currency fluctuates too widely and too quickly for the gold supply to keep up. Gold stands still, but economies do not.

During a first-grade girls soccer game, one of the girls came to the coach in frustration and asked, "Where am I supposed to stand?" The coach was embarrassed because it showed how poorly he was coaching. Soccer is not about standing still. Markets are not about standing still, either. There is no commodity or item that can permanently preserve a constant value.

Finding a constant store of value is most important to the "strong hands" who are able to gather large quantities of anything they want. They are net lenders and tend to want a strong, deflating currency so that the purchasing power of both the principal and the interest increases from year to year on the money they lend out. That is why the Great Depression of the 1930's was a great time for those who had money. Another reason is that there was a real reluctance among policymakers to increase the money supply and counteract the profitable deflation.

Just the serious mention of re-establishing a gold standard should raise the spectre of another deep recession or depression. The purpose of such a policy would be to stabilize the money supply in the favor of the rich. We see this already in Europe, where poverty policies (known as austerity policies in the financial press) are being pushed on poor Greeks to stabilize the savings of rich Germans.

On this side of capitalism, the capitalists often interpret an increasing money supply and inflation as due to mistakes on the part of policymakers, perhaps even the result of secret populist agendas. At best, the rich see it as a cost of doing business in the U.S.

On the other side of capitalism, inflation is seen as the natural result of an unbalanced market where the strong hands have all the money and policymakers have to print more in order to keep the weak hands in the game. Any gold standard is seen as even worse, a step toward a worldwide single currency that could hardly fail to destroy capitalism in the end.

While the concept of a gold standard glitters for many of us, historical experience shows that most of us would never see any gold even if it were made the standard. In fact, the result of a tight monetary policy would be the gathering of all strong currency into the strong hands. Everyone else would live at the mercy of the rich, only participating in the markets as permitted. We should not allow ourselves to be fooled by promises about gold standards.

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Friday, June 29, 2012

On the Other Side of Capitalism

Despite deep discounts, no one walks into a certain children's clothing store before noon.  The four-generation family that owns the shop survives on a government pension paid to the widowed grandmother.  Great-grandmother has a small plot for farming.  There the family scratches out furrows and plants potatoes with hand tools.  Maybe they can produce a little extra food, then barter it to other Greeks who are doing the same thing.  At that level of economic activity, it is hard to see when things will get better.
This is more than austerity.  This is the breakdown of capitalism in Europe.  The Greeks do not have enough euros to participate in the common market, and things are getting worse.  The crisis  is not really about Greece leaving the euro zone.  The crisis is that the euros are leaving Greece and the euro zone is leaving with them.  It is all happening according to the best principles of capitalism.  A common currency.  Free flow of capital.  Free trade.
  Capitalism always destroys itself because the winners eventually drive the losers out of the market.  It takes money to participate in the market, and the better capitalists eventually end up with all the money.  This is the basic structural problem with capitalism, and it is the reason that capitalism never survives for long without external intervention.
  Governments save capitalism by propping up the losers and getting them back into the market.  This is not a permanent solution, nor is it capitalist.  Capitalists find it acceptable anyway because most of the time, capitalist principles prevail and times are good.  Even the non-capitalist intervention periods are good for the "strong hands," because austerity (or poverty) policies force the weak hands to sell good assets for low prices.
  Growth, breakdown, intervention.  Growth, breakdown, intervention.  This cycle repeats because the rich have learned to finance the interventions.  This preserves the common currency, the free flow of capital, and free trade, but it does not fundamentally change anything.  The winners need the losers to stay in the game, and up to a point they are willing to pay for it.  On this side of capitalism there are no real solutions to economic breakdowns.  The solutions are on the other side of capitalism, where capitalists never look.
  Permanent improvements to economic stability require structural changes by government that will counteract capitalism's structural defects.  The basic requirement is this:  in any given market, the participants must be nearly equal to one another in economic strength.  That is, each market must be balanced.  Equals should compete against equals.  This requires the creation of new markets and currencies, enough so that each individual can participate in a suitable market.
  However, balancing the markets will not be a one-time event.  Since markets become unbalanced over time, as some participants gain and others lose, the government must monitor the markets and re-balance them as needed.  Those who prove themselves stronger will be moved to a stronger market.  Those who cannot keep up will be moved to a less-competitive market.
  Within any market, capitalist principles will prevail.  For interactions between markets, government oversight is necessary to prevent exploitation.  Common currency, free flow of capital, and free trade will not be allowed between markets, only within them.
  As a simple example, suppose Greece created an internal drachma-based market and moved its "troubled assets" and weaker capitalists into that market.  Strong Greek capitalists would remain in the euro zone and earn euros.  Perhaps then the Greek government and Greece's best capitalists could remain in the euro zone and deal with its euro debt from a stronger position.  With some flexibility regarding the euro zone agreements and the terms of the debt, this could be considered preserving the euro zone rather than breaking it up.
  Bringing back the drachma internally would give Greece the flexibility to prop up markets without any euros and get money to those in financial trouble.  The Greek government would manage exchanges between the euro zone and its internal market, including the exchange rate.  Capitalism and its advantages would be preserved in both markets.  At the same time, internal jobs and capital would be protected from the competition of the common market.  Without this protection, there is the danger that the strong hands will use these times of austerity to buy all the good Greek assets cheaply and leave the Greek people renting their own country from the Germans.
  Any result that leaves Germany owning Greece will not be a capitalist success.  Rather it will make a farce of European "unity" and show that "common markets" lead to economic oppression.  The only real solution is to put an economic "firewall" between the "strong hands" and the "weak hands" so that the poor are not hounded into destruction.
  Far from being strong and natural, capitalism is artificial, self-destructive, and ultimately weak.  It is a powerful economic machine, but only while it is working.  The capitalist euro zone is breaking down and needs help.  With real structural solutions, perhaps it can be preserved and stabilized.

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