The Future of Money

March's Wired Magazine has an interesting article called The Future of Money.

"...an army of engineers and entrepreneurs is ... hoping to do to the payment world what has already been done to the music, movie, and publishing businesses..."

Alternate payment systems like paypal or even sending payments through Twitter are on the rise. Also, alternate currencies Linden Dollars. The Economist likes to talk about payment systems through the cellular (not free) networks. (see Bling Nation for example)

I heard on an economics podcast that the government has loosened up the rules for issuing your own currency, something that was, up 'til recently, a jealously guarded prerogative of the Federal Reserve. It'll be interesting to see how all this interacts with the declining value of the good old green dollar bill.

• TED talk by Bernard Lietaer on complementary currencies, complexity theory and the financial crisis
• Lietaer on A New Paradigm of Money, monetary blind spots and structural solutions, same as above but more subversive/conspiracy-theory

Joseph Stiglitz

Notes on: Joseph Stiglitz: The Economics of Information, an interview at The Asia Society from February of 2008.

Balance of global power is shifting due to:

• rise of china and india
• financial crisis
• US debt

International organizations designed around the post WWII power structure are out of date and failing due to lack of legitimacy. True of the World Bank, IMF, and G8. Advocates the rule of law between nations and points out that the invasion of Iraq was a violation of international law.

US foreign policy often made for the benefit of campaign donors. Intellectual property rights deals made in secret undemocratically that favor narrow interests in the US. Much of foreign aid is also part of a global military strategy rather than truly for purposes of aid.

Why is China, a non-democracy, growing faster than India, a democracy? Stiglitz claimed that China allows more participation. (really?) China is investing heavily in Africa.

Under what conditions does Adam Smith's invisible hand work? In other words, are markets efficient always or under specific conditions? The financial crisis seems to be a case where the market failed. Market handle some situations poorly: imperfect information, externalities, public goods.

Median income in US lower today (2008) than 7 years ago and among males, lower than 30 years ago. Globalization is only one factor, but an easy target because the blame falls on outsiders. Social protection is not protectionist.

The stimulus package gives little directly to the unemployed, where it would be most effictive, due to being immediately spent. Stimulus should be spent on assets that will increase our future income.

GDP flawed measure. Median income can fall while GDP is rising if inequality is also rising. GDP neglects degradation of the environmental and depletion of resources. Switch from GNP to GDP politically motivated? (example: resource extraction).

Links

• Stiglitz on wikipedia
• Stiglitz's site
• Capitalist Fools
• The Money Man: Super-economist Joseph Stiglitz on how to fix the recession
• Obama’s Ersatz Capitalism

Steward Brand: City Planet

Stewart Brand of the WELL and the Whole Earth Catalog wrote an interesting article back in 2006 called City Planet. He gave a lecture to the commonwealth club which I came across on daviding.wordpress.com. He gave a what appears to be the same talk compressed down to unintelligability at TED, but watch that for some of the visuals missing from the longer version.

The bottom two billion are urbanizing, largely to squatter cities, to find jobs, freedom (especially for women), and education for their kids. He refers to Shadow Cities, by Robert Neuwirth, which I liked quite a bit, Shantaram by Gregory David Roberts, and C. K. Prahalad's The Fortune at the Bottom of the Pyramid.

See also:

• Planet of Slums
• Learning from Informal Urban Economies

Book Review: Shadow Cities, A Billion Squatters, a New Urban World

Here's a review of Robert Neuwirth's book Shadow Cities, A Billion Squatters, a New Urban World that I wrote a long time ago, but left to rot on my hard drive.

Imagine a third world shanty town and likely what you’ll think of is rampant crime and dire poverty; a place most of us would fear to tread. Robert Neuwirth, a reporter from New York City, spent two years living in four different squatter settlements. From the favellas of Rio de Janeiro to the corrugated metal shacks of Nairobi, continuing to Istanbul and Mumbai. His book examines the truth on the ground of shanty towns and the history of squatter communities.

In the shanties, Mr. Neuwirth does indeed find desperation and heavily armed drug gangs straight out of the film City of God. But, he also finds decent people struggling just to get by, facing complex economic and political obstacles with creativity and vitality.

Mr. Neuwirth meets hard-working people who have admirably provided for themselves rather than wait for government, society, or the official economy to provide for them. This, in fact, is the central theme of the book. For their independence and initiative, they are rewarded with perpetual risk of persecution and eviction.

The legal authorities are frequently no friend to the squatter, or the poor in general. In the town of Cuzco, Peru, unless things have changed since I was there, there is a statue outside the courthouse; a big black mountain lion, claws extended, fangs bared in an expression of menace. This is the image the Peruvian justice system presents to its people. In fact, the squatters of Neuwirth’s book fall frequently prey to the whims of government officials or real estate developers.

Favela Rocinha, Rio

The legal limbo in which squatter communities exist is perilous, but not without advantages. The illegality of the squatter’s property serves to some extent as protection from confiscation by the authorities whether for taxation, dept repayment, or plain corruption. And many squatter communities happily pirate electricity and other utilities with relative impunity while they bootstrap themselves into modernity. Cottage industries thrive in the tax and regulation free environment of the unofficial settlements.

Being a software developer myself, the parallels between the squatters rebellion against legal barriers and the debate around intellectual property practically leapt out at me. We are in a period of enclosure of intellectual property similar to the fencing in of the great open spaces. Moneyed interests with allies in the legal system seek exclusive ownership rights. It might not be stretching the analogy too far to think of a shanty town as an open source city.

The economics of the unofficial economy and the interaction of wealth, power, and property rights are interesting and complex. Neuwirth’s book makes something of a hands-on companion to the theories of economist Hernando de Soto. Anyone with an interest in these subjects or a curiosity about the way of life in another world will enjoy Mr. Neuwirth’s book.

The vibrancy and ingenuity that Mr. Neuwirth finds in the slums contrasts vividly with the sanitized homogeneity of suburban consumer culture. It takes only a bit of imagination on the part of the reader to summon the sights and smells of the shanties; to visualize the gulf that divides their world from ours and the humanity that unites us.

Links

• Squatter City Neuwirth's blog
• Pic of rocinha stolen from here: Johnston Architects: Urban Squatting

Market failure vs government failure

Asking whether the financial crisis was a market failure or a government failure is a misleading question. Considering the market in isolation from the legal and political environment in which it’s embedded is a recipe for error. Adam Smith saw this and devoted a section of the Wealth of Nations to political economy. The same players that compete in the market also compete in the political sphere to influence the rules of the economic game. That feedback loop is the central cause of the crisis. So, it’s neither a market failure nor a government failure. It was a failure of the political economy and it’s causes are obfuscated by ideology on either side and generally are going totally unaddressed in the proposed reregulation. We’ll apparently have to see more of the same before anything real gets done.

For some reason, I was compelled to write the above in response to this.

Great Powers: America and the World After Bush

The Carnegie Council hosts a great lecture series available as podcasts and videos. Military strategist Thomas P. M. Barnett (wikipedia) spoke on February 4, 2009 on his book, Great Powers: America and the World After Bush (audio, transcript).

Barnett's systems diagnostic view of the world

Barnett's basic argument is that globalization is a deliberate strategy on the part of the US to establish a world order in which developing nations can pursue export driven growth. America provides security, stability and a principle market, with the implicit agreement that trade surpluses would flow back into American debt instruments.

This american branded globalization consists of an international liberal trade order, collective security, high transaction network rates; most importantly, a competitive religious landscape. Stability operations are conducted to help establish order that advances U.S. interests and values. Great power war between the European powers or China-Japan-Korea-India has become unlikely. And there is a prevailing "minimal rule-set for connectivity to the global economy" that has moved about 3 billion out of poverty.

Historically, the American revolutionary war was, itself, a separatist guerilla action against the previous order. He credit's Alexander Hamilton's 1791 report on manufacturers as the first grand strategic document of the US. The early America was ruled by a succession of generals and revolutionaries and behaved in its early days much as Russia does now, with the exception that post-revolutionary America exported cotton rather than hydrocarbons. Slavery and ethnic cleansing are a part of America's history. Perhaps the industrialization of America during the robber baron days compares to China now.

Globalization was pursued as a continuation of the economic integration of the American wild west in the post-Civil War era. After the Civil War, through Theodore Roosevelt's time, regional economies were rapidly knit together into a continental economy. As the frontier was closed, economic integration with the outside world was the alternative to stagnation. (See Professor Frederick Jackson Turner's Frontier Thesis of 1893.)

Woodrow Wilson tries to establish an American order after WWI, but without sufficient military might is rebuffed by European powers. Finally, US kills colonialism at the end of WW2 (by Article 7 lend-lease agreement). Bretton Woods 1 established the World Bank, the IMF and the dollar as reserve currency and stabalized Europe during the cold war. Bretton Woods 2, after the demise of the gold standard in 1971 up until recently, underwrote the rise of Asia.

In this view, the US military has two roles - the Leviathan function, meaning the ability to fight big wars, and the system administrator function which maintains sufficient order for the functioning of the global economic network. During the cold war, the forces become overweighted in the Leviathan function to the extent that the integration skills honed on the American frontier deteriorated with visible consequences in Vietnam and Iraq. But, Iraq and Afghanistan are realigning and retraining a new generation of sys-admins.

America should be dedicated to encouraging democracy everywhere but we should be committed to forcing it nowhere.

We are in an age of integrating frontier markets. The major challenge over the next 20 years will be for the West and East to integrate the global south. The great divergence started by the industrial revolution then becomes the great convergence. A global middle class emerges. The high-trust environment of the West is now highly linked to the low-trust developing East. For access to raw materials, the low-trust East is integrating the no-trust countries of the bottom billion.

Economic integration comes before democracy and is better done by voluntary association than coercion. Wealth is the incentive to join the system. Democracy comes when countries are demographically middle class and middle aged. Markets bring this about by increasing income, creating a middle class and lowering birth rates.

To address this, the US military will realign toward system administration as the big war scenarios fade away. Taiwan will integrate Hong-Kong-style with China. Iran will become nuclear. America's tradition allies are demographically moribund, have declining defense budgets, and are increasingly unwilling to act geopolitically, while our new friends, the BRIC nations plus the Next 11 emerging economies, share the general goals of stability and economic interation.

Norman Angell, British philosopher, wrote the book The Great Illusion in 1911. It says: If the empires of the world in Europe went to war, they'd destroy each other and none of them would survive the process; so they're not going to do it because they're not that dumb. Turns out they were that dumb. Turns out they destroyed themselves. None of them are first-tier powers anymore as a result of that process. He gets the Nobel Peace Prize in 1933, sort of the consolation. [...People] say, "You're the second coming of Norman Angell." I say, "Damn straight, but I'm Norman Angell with nukes, and nukes change everything." They really do. And that's the good news.

Questions

Barnett played a role early in the GW Bush administration and supported the Iraq war. And I'm always suspicious when claims are made of a grand strategy after the fact. America is the result of globalization, not its cause. Globalization is the continuation of a process that goes back as far as civilization. This is a fascinating talk, regardless of how much you buy, but I was left with a few nagging questions.

• What's the difference between this and the neocons?
• What exactly does the system-administration function entail and is it best done by the military??
• “America's empire is the first in human history to actually empower and enrich individuals” ...well, it's not the first to claim to do that.
• Is it necessary for America to have the “World's biggest gun”? For one thing, I don't like paying for the world's biggest gun. For another, is our government vastly more trustworthy with such a thing than any other?
• America, along with Europe, had a real chance to reorder the world after the cold war. What might have we done?

Notes:

• BRIC = Brasil, Russia, India, China
• Next 11 = Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam
• The Monks of War
• The Significance of the Frontier in American History, Frederick Jackson Turner