Here’s my current understanding of the genesis of worldwide economic crises, and the underlying mechanisms of our economic system. It emerged from some very interesting discussions with friends.

The current economic system relies on “fiat money”, that is, money without (full) Gold backing. Only in the fiat money system, money can be “generated” (by the state printing it), only in this system inflation is possible (through money printing) and only in this system, book money is possible.

Book money is used as follows: a bank gets some deposits of “real” fiat money from private persons, and lends this to other persons or banks. The fact that this money can be lent a second, third etc. time means the generation of “book money”, which far exceeds the amount of cash money. And the fact that money is lent only in exchange for interest rates (that are higher than the inflation rate) means that the need for money permanently increases. Which is only possible through increasing the amount of book money, by lending to an ever increasing number of people (to earn from the interest rates). The bigger this number of people has to be, the more riskier the business gets (lastly including failing subprime lends). And, the credit acquisition includes also an ever growing number of credit grantors, including the state, at last, which has to support breaking banks.

But if no new credits can be given out or lent finally, a credit crunch happens, and then the financial system breaks and is restarted. This happens once in every 70 years or so; the last time was the worldwide economic crisis in 1932, and currently we have the current repetition. Resetting the financial system means, basically, state bankruptcy: the state had to use money printing to overcome the credit crunch, because even the state could not lend any money from banks anymore (it had done this too often already and is yet no longer deemed credit worthy). Excess use of money printing means, however, hyper-inflation, and then, the start of a new currency.

The fact that credit is promoted that hard means that companies have to take credits, in order to keep up with competitors who took them first. Which means that companies tend to end in excess production in the end, like the worldwide car industry currently (at the end of 2008).

Excess production also means that people have to work harder than necessary, as they work for products that the world does not need. It is an important insight that the amount of work to fulfill the basic needs of humanity is limited. Given the means of industrial production and justified wages for one’s work, nobody of us had to work more than 1,5 hours a day on average. Now, how comes that we don’t get the justified wages? First, because the ratio of government expenditures to gross national product is currently at approx. 50% (in Germany), so that you can only use 25% of the money you earn to buy a product, the rest goes to the state (50% of the money you earn, and 50% of the money you pay to the vendor). Of the 25%, the vendor and the chain of distributors get their share, the inflation (some kind of modern confiscation) gets its share, and the finance system owner get their share though the interest rates that companies have to pay. So in the end, you can buy stuff and services for just approx. 5% of the money you earn, though you got the 100% on your bank account. The trick is this: the theft happens after you get your money, not before! (Addition: from the 5%, you can rarely buy any quality products, as vendors try to sell trash.)

I stated above that system breakdowns (with all the collateral and disergistic effects)
are inherent in our financial system, due to credit promotion. And then, that the credit promotion is the reason of excess production and inadequate wages. Now, the big question is, who does profit from all this if the people loses? Those who give out credits and are able to rescue their property in time. Which are, the super-rich people in the world: those whose property the world is. As they have so much more than they can enjoy personally, their properties serve only the purpose of might. (And, of course, security: people try to be independent from God, but fail upon dying.)

So, the end result is this: stressful life, inadequate wages, and economic crisis is just a result of the might aggregation of some. To answer the question where the resources went that should be in the hand of the people: might was bought with them, in the indirect sense of “buying” as “trading possible efficiency for something else”. Might as a horrendous price. About 95% of the gross national product, as stated above. And we all pay this sad price since the emerge of Nimrod. Yes, we could call our current financial system a modern form of slavery: it looks nice from the outside and comes along with some nice things like freedom of speech (enabling me to write these lines), but its character is just about retention of power as the slavery system was.

A quick hint to a solution: search autarchy, either as a group or individually, either explicitly or (better) implicitly. Implicity autarchy is e.g. a side effect of a well functioning Christian congregation: it is a solidarity group, needing little from outside. For example, it needs no psychiatrists, social workers, banks, family tutors, health insurance, old age insurance etc., and in tough times also no physicians, food providers and others. Wherever the Spirit of the Lord reigns, there is truly freedom.

Regarding my job, I’ve a strong feeling that prohibits me from doing work that deems senseless to me. (It’s not that I don’t need to do such things just for the money, but it’s a torture.)

The problem is, now, that mine and the market’s opinions what is meaningful to do deviate widely. It’s easy to recognize what the market thinks is meaningful: everything the market will pay for. This includes, among other stuff, ugly sunglasses for 560 USD. And the foil coating of police bus windows, while in other countries they have no working police at all.

In my opinion, the market is constantly in error. If it would be up to me to decide what’s meaningful, I would include:

  • basic stuff, of course: nutrition, health care, accomodation etc.
  • Many more UNU (United Nations University) research projects.
  • Heavy reasearch for an AIDS treatment.
  • Heavy research for a malaria treatment.
  • research on what is the true theology

Then, it would also be easy for me to find a meaningful job. But now …

P.S.: I should add my definition of “meaningful”: meaningful is what makes the world a better place to live. (And, adding from a Christian perspectiv: “Where world includes this and the next world.”)

If I’ve learned something from the current financial crisis, then it is that big systems may result in big disasters. So durability in times of crisis needs small, flexible systems with a good degree of autarky. If this is the case, recession should not really harm anybody: in Germany, the GDP may drop in 2009 by 0,5%, and with full flexibility of the economic system that should result in a 0,5% drop of income for everybody. Which does not harm. Now of course we don’t have such a flexible system, I cannot change it into one, and the unflexibility will result in a good amount of unemployedness. And we will have to deal with that: feeding unemployed people increases the drop of income well beyond that 0,5%, even in a fully flexible economy.

But, here’s a somewhat crazy idea how to deal with unemployed people immediately. Probably that idea is too crazy to try it out, but perhaps it’s crazy enough to inspire somebody for something more practical.

Here’s the idea: we need technology and ingenious organization to jump-start companies as “flash companies”: collect unemployed people on the street in any place of the world, give a smartphone to each of them, and press “start”. The system starts to coordinate, build task forces, analyse competence, educate etc.. If there’s enough money generated to keep the system running, it’s all ok. Slowly growing companies are not what we need in times of recession. After large companies went out of business and there are millions unemployed, we need rapid reconfiguration.

Such flash companies can build on the vast excess of material that’s available in people’s private households (at least in industrial nations). This is waste of resources and therefore a reason for recession (how can we argue that unnecessary buys would improve the economy, while it harms companies?).

Salary should be paid on a daily basis, to act as a motivation. The only precondition is that the employee did what he / she was told to do via the smartphone. Even better and more practical than paying salary is to give people what they need: food, medical treatment, places to rest. Whenever they need it (telling via the smartphone). Of course, people in industrial nations would want more, wherefore this kind of company mightnot work there (or it might, if people are allowed to enter personal wishes in specified amounts, like, “I want my bathroom renovated.”).

These flash companies should be organized as grassroots movements, without explicit organization structure, and with the software based coordination guaranteeing that no such explicit organization (and with it, exploitation of power) can arise.

The smartphone app should display realtime statistics about the flash companies daily income, in parallel to Wikipedia’s donation target.

The idea is that everybody has a bunch of contacts, competences and capabilities. And that just combining these can instantly lead to synergistic effects that are strong enough to uphold a company, earning money for every participant (it is not even necessary to select which people to add to the company, just to sort evil people out or to educate them). For example, somebody will know a possibility for a paid job, and others will contribute necessary competence and material. Precondition is extreme flexibility (working with other people every day, being called in the middle of the night by the smartphone etc.).

It is argued here that most companies don’t flourish because of bad leadership: wherefore the flash companies are led by software, which is far more consequent (i.e. forcing people to anonymously criticize each other).

The financial crisis, its concrete and deeper causes

The financial markets are currently in an uproar, and independently of if and how these problems will be solved, we should ask what their deeper cause is, and how to protect economy from that. First, regarding the concrete causes, I found the following material to be a good introduction:

Now regarding the deeper causes of the crisis, there are way less people who at least think about that, and way less articles to read about that. I found two ones that seem to be recommendable:

  • “Der Kapitalismus ist zum Spielcasino verkommen”, Spiegel Online, 2008-10-09. An interview with Muhammad Yunus, who got the 2006 Nobel Peace Price together with his Grameen Bank for micro credits as development aid in rural regions of Bangla Desh. He suggests that businessmen turn away from earning money for its own purpose and out of pure profit-maximizing greed, and instead use it for social purposes as a “social company”. His Gremeen Bank seems to be the paradigm he has in mind. The “social company” as a company that helps people and earns money at the same time is, in his eyes, preferrable to “blindly giving” philantropy, because the invested money is not just used up, instead it is “help for self help”, it is used as a catalysator for own economic activity. He says that Adam Smith’s theory of the “invisible hand” (self-regulation of the market) is invalid, and that the current financial crisis shows just that (it’s a “crass market malfunction”).
  • Jürgen Werner: Die wahren Hintergründe der Finanzkrise, WirtschaftsWoche, 2008-10-12. The German philosopher Jürgen Werner thinks that short-visioned desire for more efficiency (in my words: greed for money) is the foe of long-term efficiency, which is provided at best by mutual trust and correct behavior towards each other.

The problem financial markets and the real economy

A financial crisis in itself would not be that bad, but it can have immense effects on the real economy and on politics. During the Great Depression (1929 and onwards), people in the USA even became fugitives, and in Germany it led to the rise of the NSDAP and the Third Reich. The financial crisis of 2007/2008 starts to have effects on the real economy, also (BMW announced that it lost 14% of new car sells in 2008-09).

It definitely feels uncomfortable to be part of an economy that you cannot steer, being doomed to share its fate, be it success, depression or chaos. This has to be avoided, definitely. The fate of a human being should not depend on the fate of his society. So how to achieve that?

Theoretical basics: indirection, complex systems, modularity, centralization …

Here are some basic perceptions of mine (though not formally verified by studies) that I will use later to build my own flavor of economic system on:

  • Money is an indirection: it’s a substitute for material value. As any indirection, it is more flexible (easier to transfer, easier to divide, can be saved up). And as any indirection, it comes with its own rules: it can be traded, exchanged between currencies, it can be creates out of nothing (fiat money), it can lose its worth independent of the underlying material worth, it depends on trust (as the money material is worth nothing), it enables “market rules” as an indirection of money trading, and “market trend” as an indirection of market rules, again with it’s own rules set. All these rules differ widely from the rules applyable to material goods, and as every set of rules, they come with their own set of problems. The current financial crisis shows that we don’t know the rules and how to use them correctly. Therefore, we should search for a more robust economic system.
  • A complex system is one that uses its own result as input (feedback principle). Good architectural guidelines for complex systems are set up by agile system architecture. The best work on this that’s available online is: Dove, Rick K.: Design Principles for Highly Adaptable Business Systems, With Tangible Manufacturing Examples. In: Maynard’s Industrial Engineering Handbook. Ed.: Zandin, Kjell B.; Maynard, Harold B.. 5. edition. New York, NY, USA; et al.. 2001. pp. 9.3-9.26. Here, systems are made up of “self-contained units”, with “plug compatibility”, “facilitated re-use”, “non-herarchical interaction”, “flexible capacity”, “unit redundancy” and “evolving standards”. These principlses seem to be a perfect basic idea for an efficient economic system (even more efficient than current high-tech financial management), and as stable (through reconfigureability, multi-redundancy etc.) that it is, as a worldwide system, undestroyable.
  • As to the morals. Adam Smith’s “invisible hand” might have been present in the past, but it vanished into thin air (or worse) nowadays. Why? In my opinion, because, less decisions are based upon personal values (desire for quality, desire to do something for the money you get, desire to spend money only on what you can afford etc.), and more decisons on pure greed. There seems to be a critical threshold of value-based decisions, below which the economy starts to malfunction.
  • Centralization is immensely positive for the development of efficiency, but for robust economies and societies, centralization is negative. Because, where there is only one or a few large things of one type, a defective one will have dramatical effects on the whole society. Therefore, for the sake of world’s stability and on the cost of technical efficiency, I suggest to decentralize everything, from power supply to state laws. By using the agile deisgn principles, the loss of efficiency can be minimized, so that it is bearable even for a technology freak like I am.

Practical proposal: community-based world economy

The following proposal may seem somewhat strange, but propose to me a less strange one that is both capable of being a personal and world-wide alternative to the current greed-based economy (which we call still “market economy”). A central thought is, that in modern Western societies, the “social net” has only very small and very large meshes (the family and the society), and that’s a fault. But let’s see:

The proposed economic system consists of modularized modules (in five layers), each with a special task and the promise of solidarity (in level-specific areas) to its members. Solidarity decreases in intensity from smallest to greatest level, but increases in extensity (that is, higher levels are for the rare, really bad cases in life, while the everyday cases need higher personal commitment of time). Economically, the modules of each level are autarchic, and the degree of autarchy increases from smallest to highest level, while a level of autarchy sufficient for survival shall be available from level 3 on (i.e. groups of 1000 people).

The levels are:

  1. the individuum
  2. the community (10 individuums)
  3. the thousand (100 communities, resp. 1000 individuums)
  4. the million (1000 thousands)
  5. the world community (6000 millions, i.e. all people of the world)

Each module (i.e. each group in the size as described by a level) is able to select its members. For example, a thousand may decide that it wants to include (or educate) two physicians, but no more theologicans. By applying such careful orchestration, te groups become organisms, not just societies which are cobbled together by some laws. And, most importantly: through their autarchy, groups (from the “thousand” size on) can live on themselves, including education and medical care. To do so efficiently, all information must be free by default, shared between all the groups (by using the Internet). Because, if you have all the CAD data on the net, manufacturing your own products is possible in a community of 1000 in an efficient way; and where it is not, the following is possible without sacrificing autarchy: every group uses 10% of its time for a group specific special service or special product, wherewhich it serves other groups. This can be applied to all levels, and resembles the “community service” principle in African societies.

If this proposal is used to create a “personal economy system” as a working alternative to the fragile global economy system, I suppose to found a powerful community of 10 friends, and with them, the “thousand” community. As goods and services are exchanged within the community without any need for money, in direct exchance or with an internal registration system, this “thousand” community is functional right from the start, even when it would consist of unemployed people only.

And of course, as there is only direct marketing of goods and services, and as larger enterprises are enabled through the collection of people as a community instead of the colloection of capital, no financial market with all its drawbacks will be available in this new economic system … .

Some thoughts inspired by a friend’s notes on work. I mean work: this thing that makes you weary and sleepy, not just the fun thing where you play with interesting technical stuff all day long. I am currently in the interesting situation that I need only about 5 days a month to work for my material needs … and basically I’m happy that way. Not that I’d have much money, but I have no unsatisfied basic material needs. The rest of my time has to be spent on other things (sadly I do not know how to save time so that I can spend it later for other things … but, ok, working for excess money is something like that).

So, the question that arises in this situation is: what work is rewarding? And I mean work, this thing that … see above. Actually, I have no idea what kind of work would be rewarding in this world … as this world will pass away, and death renders all to be nothing. Somewhere in Ecclesiastes Solomon said something very similiar, and he hated life ’cause of that. Vanity!!!

It’s not that I would not have a vision for my life … see my post “My vision for my life, as of today“. But, umh, this kinda feels like something “nice to have”. It would not make me happy, I guess, just as anything you can have or reach. So it does not motivate me to really work for it.

Motivation for work must be a strong one, as a weak one is not sufficient to work until you’re k.o., and this for weeks, months, and years. Basic material needs serve such a motivation, but what after these have been met? As is the case with me?

What deemed Jesus “rewarding work” while on earth”? Travelling around and preaching the gospel, healing people. And I can imagine that he was quite k.o. on evenings, so this was work, really.

It’s not that I’d miss Jesus, food, friends, work or a vision for my life. All this is in place. But I miss the cognition that all this stuff is rewarding (… at some point in life I stopped to work for these goals that one by one turn out to be Fata Morgana, among them my profession). A cognition that is at least in part based upon observations, e.g. from what other people did and the reward they got. Or, lets put is thus: a cognition that is justifiably true. Not jst something you believe for pragmatic reasons: “because it works” for motivating you. You’re welcome to tell me: something rewarding to work for, and why it is rewarding, and why the cognition of this is justifiably true.

Start date: 2007-09-05

Version date: 2007-09-05 (for last meaningful change)