How do we make sense of the ongoing mortgage and foreclosure fraud news flow and the attempts of the Fed and others to resuscitate the engines of job creation? About a week ago I re-posted an item from James Kwak at Baseline Scenario.
In this post, James discusses industrial food production and industrial finance. He refers to ideologies and how those are reflected in these industries. These industries are imprisoned in their ideologies.
It might be helpful at this point to think in terms of “Systems“. Tomorrow there is an election and it appears that the ideologies of the “Right” will win out. I’m not sure how those ideologies are going to help their supporters though. The vast majority of the Tea Party seems to share the angst of people on the right and the left who feel that we are losing our economic liberty. The ideology they are caught up in is the myth that we used to have free markets and now we don’t because there is too much government spending (even though the government does not bother to tax in order to spend), or too much regulation (even though neither Dodd Frank or the Health Care bill has done diddly squat yet).
Read this for a take on the state of the free market these days and where the threat comes from.
The CEOs I have talked to in recent years over drinks, overseas, and in private, are worried too. I have heard this comment at Davos far too many times to ignore: “I am as patriotic as anyone, but when I see where my corporation is investing, where it is doing R&D and especially where it is hiring, I worry about my country. It’s all going outside America. But what can I do?”
Or read this:
Democracy’s Death Spiral is a positive feedback loop between ever-greater concentrations of wealth and the ever-higher costs of retaining political power…
…In the U.S., the ever-greater concentrations of wealth gathered by an ascendant Financial Power Elite has entered a positive feedback loop with the costs of gaining or retaining political power. The costs of winning an election have skyrocketed to the point that fundraising is the key function of any politico who is not independently extremely wealthy.
This quantum leap up in the costs of gaining or retaining power has forced politicos to curry the favors of those few Elite groups which can give them millions of dollars.
Just as in an arms race, the amounts of money which can be spent on campaigns is essentially unlimited. The explosion of media now requires multi-million dollar campaigns on multiple fronts: broadcast TV, cable TV, mailed flyers, radio spots, promotion campaigns to influence the mainstream media coverage, adverts on the Web and social media campaigns–the list grows longer every year.
Here is the positive feedback loop. Candidate A gains the backing of a Power Elite group (a political action committee or other front) and collects $5 million. As a result of a media blitz, he/she wins.
Between elections, he/she amasses a “war chest” of $5 million from the same donors, guaranteeing that the final cost of the next election will be $10 million.
Potential rivals understand that victory against this well-funded incumbent, no matter how incompetent, will require $15 million. The only sources of that amount of cash are other Financial Power Elites and State-funded fiefdoms like teachers unions, and so each candidate sells their soul to the few “special interests” with deep enough pockets to harvest and contribute millions of dollars.
Back to “Systems” thinking. This is a complex topic but here are some basic elements of a system.
- Environment and boundaries
- Systems theory views the world as a complex system of interconnected parts. We scope a system by defining its boundary; this means choosing which entities are inside the system and which are outside – part of the environment. We then make simplified representations (models) of the system in order to understand it and to predict or impact its future behavior. These models may define the structure and/or the behavior of the system.
- Natural and man-made systems
- There are natural and man-made (designed) systems. Natural systems may not have an apparent objective but their outputs can be interpreted as purposes. Man-made systems are made with purposes that are achieved by the delivery of outputs. Their parts must be related; they must be “designed to work as a coherent entity” – else they would be two or more distinct systems
- Theoretical Framework
- An open system exchanges matter and energy with its surroundings. Most systems are open systems; like a car, coffeemaker, or computer. A closed system exchanges energy, but not matter, with its environment; like Earth or the project Biosphere 2 or 3. An isolated system exchanges neither matter nor energy with its environment; a theoretical example of which would be the universe.
- Process and transformation process
- A system can also be viewed as a bounded transformation process, that is, a process or collection of processes that transforms inputs into outputs. Inputs are consumed; outputs are produced. The concept of input and output here is very broad. E.g., an output of a passenger ship is the movement of people from departure to destination.
- A subsystem is a set of elements, which is a system itself, and a component of a larger system.
- System Model
- A system comprises multiple views such as planning, requirement, design, implementation, deployment, operational, structure, behavior, input data, and output data views. A system model is required to describe and represent all these multiple views.
All you have to do is read this description of “systems” and think of the news you read these days and you can see that we have dysfunctional systems. For example, there are concepts of exchange of matter and energy with surroundings. Implicit is that exchange is two way and beneficial. Exchange and extraction are not the same thing. There is a concept of transformation. Implicit is that stasis is not a measure of health of a system. The system must adapt. We do not see healthy adaptions in our system. A system must have a workable architecture. Does the inter-relationship between the Congress, the Fed, Wall Street, and Main Street feel like it has a workable architecture? Will leaving Congress, the Fed, and Wall Street unconstrained by any intentionality lead to a good outcome for Main Street?
Another word that you hear a lot these days is “Ecosystem“.
The entire array of organisms inhabiting a particular ecosystem is called a community. In a typical ecosystem, plants and other photosyntheticorganisms are the producers that provide the food.Ecosystems can be permanent or temporary. Ecosystems usually form a number of food webs.
Ecosystems are functional units consisting of living things in a given area, non-living chemical and physical factors of their environment, linked together through nutrient cycle and energy flow.
- Artificial, environments created by humans.
Central to the ecosystem concept is the idea that living organisms interact with every other element in their local environment. Eugene Odum, a founder of ecology, stated: “Any unit that includes all of the organisms (ie: the “community”) in a given area interacting with the physical environment so that a flow of energy leads to clearly defined trophic structure, biotic diversity, and material cycles (i.e.: exchange of materials between living and nonliving parts) within the system is an ecosystem.”
I am convinced that what is broken is the system. The system today is like a shattered mirror. The best that could be done with that mirror is all the hundreds of pieces could be put back together like a jigsaw puzzle, with great effort and cost, and then the mirror would only be partially functional.
The system is like the land. For 40 years we have used the land in a way that has depleted its productive capacity so that now all we can do to maintain industrial food production is engineer more synthetic fertilizers and engineer seeds that can withstand the ecological desert in which we plant them. We can’t get off this merry-go-round because if we did there would be nothing to eat. Then we would kill each other with our guns.
But we can recognize that the system we have is not optimal and begin to change it. Converting farmland back to organic takes a minimum of three years. During those three years the land can produce a little fodder for livestock or can product low yields of food crops. But it cannot produce much. During this time though, it can become healthy if the land, the soil, is nurtured properly. Organic content is increased. PH balance is restored. Microorganisms begin to return. The soil returns to life and living soil, properly managed with biodiversity, is productive soil and produces healthy food. Healthy food can improve quality of life and reduce health care costs and yes, even government expenditures. But we must invest in healthy food.
I recommend a book, Inquiries into the Nature of Slow Money, by Woody Tasch.
Quoting from the Forward:
We have to find a new form of economy, an economy that knows how to govern its limits, an economy that respects nature and acts at the service of man, a situation where political and humanistic choices govern the economy and not the other way around. We have to discover new economic relationships that respect the pace of nature. Lacking this respect, we have an economy that is speeding out of control, promoting unlimited consumption and always chasing after distant markets, with destructive consequences for local economies, communities, and all living things.
Quoting from Chapter One:
The problems we face with respect to soil fertility, biodiversity, food quality, and local economies are not primarily problems of technology. They are problems of finance. In a financial system organized to optimize the efficient use of capital, we should not be surprised to end up with cheapened food, millions of acres of Genetically Modified corn, billions of food miles, dying Main Streets, kids who think food comes from supermarkets, and obesity epidemics side by side with persistent hunger.
You see, the financial system is part of the food system and it is like the food system. There is no biodiversity in the financial system. It is largely monocultural. Monoculture breeds disease. Monoculture depletes the environment. Monoculture is standardized. Loan servicing is standardized. Monoculture is efficient. Outsourcing jobs is efficient. Monoculture is fragile. Too Big to Fail banks are fragile. Monoculture is about maximizing production. Biodiversity is about sustaining productive capacity without chemical infusions. Just as our monocultural agricultural processes require maximum synthetic inputs to produce crops, our monocultural financial system requires increasing infusions of monetary stimulus, fiscal stimulus, legislative protectionism, and public subsidy. We have a sick system. We need to quit protecting the sick system and build a healthy system.
Then we can have healthy communities.