Poetry from the Jonker Memorandum

Jonker Memorandum Poetry

Episode 84 JM Finale

© applies to all material on this site.

In this final episode we discover what it was that caused this story to be a Mythical tale.


Episode 49 JM

Episode 49 JM

The final episode in PART ONE of the Jonker Memorandum.
What does Luhane discover and what does she decide to do: and what happens that no one expected?

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Episode 25 JM

Episode 25 JM

We discover more about Marak’s party of happy drunken associates and what happens when Luhane becomes enraged about a glitch in her devious plan.

© Applies to all material on this site.


What everyone forgot about 9th grade economics

By Nicholas Jakari aka Blogroid (reprinted)

As the world hovers on the edge of financial catastrophe and allegedly clever people are meeting to figure out what went wrong and how it should be resolved in the future so it doesn’t happen again, a gap has opened into which talk of a transaction levy, also referred to occasionally as a Tobin Tax has been thrust like a sharp finger into the throat of the Banking sector which has summarily and categorically rejected it.

In this blog I am going to present an argument suggesting that almost without noticing the world has sleepwalked into a state of being where we have turned time itself into a natural resource and we have neglected to charge rent for that resource. And that a transaction levy is the natural remedy for the world’s current impasse notwithstanding the entirely predictable vested interest opposition to what is in effect a radical and revolutionary idea. I also accept that there are at least three probably four or maybe more, profoundly sensible reasons for rejecting such an idea… many of which have been besmirched by the blatant frauds perpetrated on the world by the financial services sector of the world’s economy.

Preliminary Tweet version of this blog.

[For those who need their information in Twitter style bites.]

Sovereign debt problem inherited from Private Banking sector demonstrates that using the Future, as a Factor Of Production without charging economic Rent for its use is unsustainable.

The longer more complex 9th grade version, for those who found Economics unbearable.

In making this presentation it is not my intention to break the Capitalist system, I like and teach Capitalism [whatever it is… like Zen it seems to be whatever its proponents intend it to be]. Rather it is to demonstrate how ‘capitalism’ is shooting itself in the foot through its unwillingness to accept that in the same way that the world has evolved from the Stone age to the age of Knowledge so too must the system evolve, that has helped to bring humanity from the caves to the glories of our present time.

In a few weeks now I am going to launch a podcast cyber serial called the Jonker Memorandum: [sub-titled] an Mzansian myth, following an apocalypse: about the ambiguity of memory, how the world ended and what happened afterwards. In that ‘afterwards’ world this idea of a transaction levy is the core mechanism whereby the world functions financially. The story is not about the transaction levy: rather it is simply taken for granted in the same way that we take electricity [for instance] for granted.

Rather than wait for the relevant footnote in the futuristic part of the story to be broadcast in about ten months or so [It’s a serial remember: in episodes.] it seems apposite, given the present crisis, to present the rationale for what is [in the story] simply a footnote to a logical conclusion. I’m doing this because it seems to me that in the general fuss over the Transaction Levy no one else seems to have presented a logical and reasonable explanation for why this instrument represents the inevitable next step in our human evolution. Of course I also understand that it may well take an apocalyptic event to induce its acceptance … hence the subtitle. And I’m sure that for many people the present crisis is an apocalyptic event.

I hope that I still have your attention at this stage.

Among other things I teach 9th grade economics, and it has fascinated me over many years how we introduce, at that level, a most intriguing set of concepts; that form the core foundations of economic theory in all its diversities: and then carefully ignore one rather critical part of the theory.

Or perhaps we willingly forget.

For those who have forgotten: 9th grade economics deals with three critical aspects of fundamental economic theory. First there is the idea of the so-called ‘economic problem’: scarcity, and the idea that all economic behaviour is concerned with the fact that people set out to satisfy unlimited wants and needs with generally limited resources. Note the idea of “Limited resources”.

Question: Is the future an unlimited resource?

The idea of limited resources leads naturally to the associated dual concepts of supply and demand, and the principle that when supply is constant [or declining] and demand is rising, then prices will rise. And alternately; when supply is increasing and demand falls, then prices, should, in principle, fall. There are many reasons why this doesn’t always work out so neatly but for the moment that suffices, as 9th grade economics will do. 9th Grade doesn’t do Fiat currencies and endemic inflation.

The second critical idea central to economic theory holds that to satisfy needs people produce goods and in order to achieve this satisfaction they make use of so-called “Factors of Production.” This is a teasing idea for 9th grade learners and inevitably causes some confusion, because it makes something obvious into something seemingly abstract.

So for instance in order to produce the ubiquitous cellular telephone one requires a range of materials referred to in all the prescribed textbooks as being derived from natural resources: e.g.: metals and plastics. One also needs capital in the form of the machinery needed to manufacture the instrument and the premises in which the machinery is housed together with the sums of money needed to finance the production through to the income stage.

Then there is the labour, and the endeavour and the knowledge needed to make the thing. So all in all there are seemingly five key so-called ‘factors’ involved in production.

When I first started teaching this subject [9th Grade Economics] back in the 70’s, at a time when the “Commanding Heights “ theory of national governance was in vogue around the world, my 9th grade textbooks referred only to three “Factors of Production”: Natural Resources, Labour and Capital. Entrepreneurs were regarded, as being akin to criminals [and gosh they still are in many quarters] and knowledge was a relatively static concept. Gradually since the 90’s Entrepreneurs have been added to the list, grudgingly in my own home environment, and more lately, especially since the likes of Facebook and Google the idea of pure knowledge as an independent Factor has been slowly “creeping like snail unwillingly to the pages” [to paraphrase the Bard].

At this point, with the 9th graders, it is usual to evaluate the various ways in which these factors are paid and it is here that things become both controversial and curiously obscure.

Labour is paid with wages and salaries. Capital is paid with interest, Entrepreneurs with profits and Knowledge receives royalties. These are all argued over routinely and these arguments do not concern us here.

What does concern us though is the textbook hypothesis that Natural Resources are paid with something referred to as ‘Economic Rent’.

And here my classes invariably grind to a halt. In the neighbourhoods where I have routinely worked over the years many of my students live in rented homes and so the first confusion is separating the idea of the rent their parents [often single moms] pay for their roofs, from this idea of economic rent.

The textbooks themselves are strangely silent on the idea of economic rent, something that carries over into 10th grade where the subject doesn’t come up at all; 11th where it receives a bare mention and 12th where again it merits a bare paragraph or two and so it continues into economics 101, 201 et al. Well its there: but buried well. The current standard [9th grade] text [in my district] is in fact completely silent on the definition of economic rent…. It simply refers to “Rent” conveying the impression that one simply “rents” natural resources in the same way their folks rent their homes, trailers, or even television sets. Almost no one ever gets it, and in the twelve or so minutes the syllabus prescribes for dealing with it, it generally gets lost.

One suspects that somehow over the years the idea of economic rent has become submerged into the idea of tax generally which all of us despise and which many regard as theft, and in its progressive income taxes form as an active form of discrimination against upward mobility. One of my heroines in the Jonker [my forthcoming podcast cyber serial remember] announces, following Nozik, that “Taxing people’s labour and the fruit of that labour creates a moral flaw at the profoundest heart of modern society” This is her prelude to the {historical in the story} introduction of the transaction levy.

More sophisticated textbooks refer broadly to supply elasticity’s and the difference between transfer earnings and economic rent, The illustrious Keynes refers to Locke’s definitions of Economic rent and generally over the centuries the idea of economic rent is viewed as “An amount of money, over and above that which would induce an owner of a factor to offer that factor for use. [Michael Parkin: Economics] Most tertiary level texts also associate the idea more exclusively with land than with natural resources; i.e.: a subtly rooted idea that all natural resources boil down to land… which in the 21st century is no longer as true as it was in the 19th.

According to Henry George a seemingly carefully forgotten 19th Century economic activist, famous a century or so ago for an idea called “Georgism”, “ A sizable portion of the wealth created by social and technological advances in a free market economy is possessed by land owners…. Via economic rents…” [Wikipedia].

He continued: “[In the economic meaning of rent, payments for the use of any of the products of human exertion are excluded, and of the lumped payments for the use of houses, farms, etc., only that part is rent which constitutes the consideration for the use of the land. The part that is paid for the use of buildings or other improvements is properly interest, as it is a consideration for the use of capital.” [Henry George Foundation]

So you can see the idea is confusing. I don’t want to get hung up about definitions though: I just want you to remember that it is an accepted feature of commercial life that natural resources earn this thing called rent, which is basically different in concept from tax, interest, profits, royalties or wages: even though it’s all money.

Now I would argue that as we have moved from an agrarian to a Post-Industrialized market structure where the existing range of Factors of Production were appropriate to a world based on tangible goods we are now in a world where, most of the so-called “Developed” part is in thrall to economic activity that is intrinsically intangible. In the financial services sector, and specifically that part called “derivatives” trading, economic activity is basically a casino game based on a range of intangible variables

When I started teaching 9th grade economics in the 70’s, services were almost an appendix to a textbook. They were in practice, indescribably formal and access was hugely restrictive. They were generally a tiny part of overall GDP. Then we [the place where I live] were massively dependent on so called primary commodities for most of the GDP.

No longer.

Now services are centre stage and the biggest of all are the money markets. This set of production classifications represents the third of the basic principles of economic activity that we teach to 9th Grade. This refers to the idea of Primary [e.g. farming, mining] production, Secondary [e.g.: manufacturing cellular ‘phones] and Tertiary [banking, haircuts, insurance and the sale of collateralized debt obligations: or the derivatives market]. We do attempt to suggest to 9th Graders that by the time we reach the latter two we are dealing with something that operates in essentially an alternate reality… the exponential expansion of an idea called the ‘fractional reserve multiplier’ extending the meaning of money into an infinitely abstract probability. At this stage my more dismissively assertive 9th graders ask if i’m on crack or have been imbibing the holy weed.

According to a host of different commentators over the past months and years since the emergence of the international financial crisis and the Great Recession, The derivatives market in but two commodities: gold and silver, is around three times global GDP. That of the entire derivatives market involves debt obligations totaling more than 20 times the entire annual income of the entire planet.

In other words services have emerged: big time… and they are not paying rent… therefore the system, which should be supported, is breaking down: has broken down… to the critical disadvantage of the players. [Note: I have no problem with people getting rich… I do have a problem with people who are unable to recognize when they are committing suicide. If it is at an individual level its bad enough… but this Lemming thing is scary.]

Why should financial services pay economic rent?

It is because this abstract tertiary form of economic activity uses the most abstract of all conceivable Factors of Production to achieve its aim. Simply put: it’s Time. Specifically It’s “The Future”.

All debt is founded on the Time value of Money. In other words it is a lien on the future. That is: Value borrowed today is borrowed from the future. You buy your car on hire purchase: five years to pay, you are borrowing against your own future. You do the same thing with student loans. This is not new: it’s been done for millenia. What is new is the scale and scope of this lien.

In the 1970’s money was an economic lubricant, oiling the wheels of commerce. Today in a world of Securitised Loans, Commercialised Debt Obligations [CDO’s] and Hedge derivative options, not to mention high frequency trading, money has become a product… and it uses the future as its primary factor of production.

And since it has evolved into a product it too must fall under the auspices of [the more abstract] notion of Factors of Production… with the Future as the Factor. And in the same way that all factors of production pay some form of Rent, so too must ‘The Future’. The Risk and the rate of return: i.e. Interest, are the rewards and realm of Capital, using time, now on an unprecedented scale.

The idea that we can exploit the future which is, by the way, unlike any other Factor in that it is not scarce at all: the future is infinite, isn’t it? It’s an unlimited resource bounded only by our own fear and greed… and the nature of human disaster: the idea that we can hock the future for untold hundred of trillions: more than two or three planet Earths could generate in a century, and expect to pay for it from current output is so insane it is incomprehensible that we are still doing it.

If we are going to hock the future on the scale that we now do, using electronic convenience then algorithms must be developed and, then, strange as it might sound, the future must pay its way, or the system will break terminally, and I’m sure most of us don’t want that.

In other words: to restate Henry George:
“In the economic meaning of rent, payments for the use of any of the products of human exertion are excluded, and of the lumped payments for the use of investments, only that part is rent which constitutes the consideration for the use of the future. The part that is paid for the use of wealth denomination in any form is properly interest, as it is a consideration for the use of capital.”

The Transaction Levy [not a tax … a payment to the system for providing itself] appropriately balanced against reductions in other extortions we make on ourselves, will help smooth out the massive lump that lies in front of us: and promote the energy we require to take our human adventure to the next level… which is sure to be as different then as 2011 is to 1973, where the only thing that seems familiar is the shape of my classroom and the playfulness of its contents.

Thus endeth the 9th Grade lesson.