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Economics

Jeremy Rifkin: “The Zero Marginal Cost Society”

Posted by Matt Beer - May 20, 2014 - Economics, Economics Level 4, Energy, Level 4, Sustainable Economy
2

In this talk at Google HQ, serial big picture author Jeremy Rifkin talks about how the internet is changing our society and our economy. More specifically, how the internet surrounding information communication has radically changed how our economy functions and how this will spread into a future “Internet of Things”, doing the same thing to the economy of physical goods. In other words, a fundamental driving force that will rebalance the foundations of capitalism, potentially making it unworkable and create a world that is hard to envisage today.

The term “marginal cost” refers to the cost of producing an additional unit of a product and capitalism is all about reducing those cost to maximise profits. Unfortunately when these costs are driven down to near zero, the product can them become free. Think of the internet. It doesn’t really matter if the website serves 100 people or a million, the (relatively) fixed costs of production remain the same and each additional person served costs virtually nothing. This is having a profound impact on people’s quality of live in two ways. 1) people are able to access that service for free or very little, in theory making their lives better. But it is also 2) causing many people who were traditionally employed in that industry to not have a job anymore. Near zero marginal costs combined with the ability to easily access the related service is wiping out middlemen and this phenomenon is set to continue as it spreads from industry to industry.

Here lies the fascination in this concept, just how will the world adapt to a new economic paradigm? Will it be a bumpy road or a smooth one? Will this make our quality of life richer or poorer? Will we need to foster the creation of government or co-op organisations to provide the more critical functions (such as journalism)? It is a very big idea and is one that is worth being aware of when trying to envisage the future.

Steve Keen – Hardtalk BBC 2011

Posted by Matt Beer - April 7, 2014 - Economics, Economics Level 4, Level 4
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As one of the few to have predicted the 2008 financial crisis, Australian economist Steve Keen has something real to say about the un-sustainability of our current financial system. “Debt that can’t be paid off, won’t be paid off” is essentially the focus of this interview and he talks about how the financial system has allowed levels of debt to reach astronomical levels and in doing so the industry has become parasitic in nature. He argues that a modern debt jubilee (cancelling of debts) is a much more preferable outcome than 20 or so years of slowly paying off the debt in the usual fashion, and the economic stagnation that will accompany it. It will take a bold idea such as this to avoid living through another economic depression.

Money Creation in the Modern Economy – Bank of England

Posted by Matt Beer - March 12, 2014 - Economics, Economics Level 2, Level 2
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This isn’t the most riveting of short films but in amongst it is an incredibly important statement that would blow most people’s minds (mine at least). This fact is: banks create money when a loan is made. I’ll repeat that. In todays fiat money system, commercial banks are the main source of new money. They don’t shift money from savings accounts to loans as a lot of people think, but rather own a digital printing press and use it each time someone takes out a loan. If you stop and think about this it will turn all your preconceptions about money and debt upside down. You might then wonder why banks seem to have more control over the economic system than governments do and why everyone is ok with this.

Confronting the Status Quo – Dr Susan Krumdieck

Posted by Matt Beer - January 28, 2014 - Economics, Economics Level 3, Energy, Level 3, Oil, Peak Oil Level 3
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In this great little talk Dr Susan Krumdieck speaks about our energy conundrum through a lens that is rarely used: financial return. Presumably talking to business leaders she quickly dismisses the relevance of peak oil, climate change and sustainability as reasons to change and goes straight to the formula for a resource base that is consumed by exponential growth and how everything inevitably follows a path of boom and bust. In other words the same curve as what peak oil describes.

She then goes into depth about the falling levels of EROI (Energy Return on Investment) and has some great sankey diagrams showing how as the rate of return drops so to does the amount of energy available to service the economy, particularly the energy levels needed to grow the economy. Her conclusions are clear and stark. Economic growth will not continue and economic survival will be dependant on the ability to adapt. The communities/companies/people who change the most to a low energy consumption pattern will be the most successful in the future.

The Crisis of Civilization

Posted by Matt Beer - March 8, 2013 - Climate Destabilisation, Climate Level 4, Economics, Economics Level 4, Energy, Geo-politics, Level 4, Oil, Peak Oil Level 4
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This 77 min pseudo documentary “The Crisis of Civilization” is based on the Book by Nafeez Mosaddeq Ahmed of the same name. It goes through multiple parts each exploring various elements of our interconnected world, namely Climate Catastrophe; Peak Energy; Peak Food; Economic Instability; International Terrorism; and the Militarization Tendency with some final thoughts on a Post Peak World. I have mixed feeling about this one and I still can’t figure out if I like it. For starters it really is just a long talk done in an interview style with some old stock footage and the occasional custom animations to provide some visual distraction. I don’t have a problem with this, but that is what the pseudo documentary refers to.

What it does do well is take a holistic view of the world and the many problems we are currently facing and pulls them together. I am in broad agreement of most the overall stuff that Nafeez talks about, especially highlighting the link between our current neo-classical economic model and energy use. But the scientific/academic side of me cringed a few times at some of the statements he made and I was inwardly saying “that’s not technically correct”. It just made me question his thinking when he said this and this and therefore that. There was certainty some cherry picking of data and some logical inconstancies that made his truth more obvious than it fact it likely is.

For example he talked about how the world oil production would peak (I agree), then he said that nuclear energy uses oil (yes) and therefore oil peaking would make uranium mining unviable (which I cannot agree with). Yeah sure it might not work under the exact market conditions of today, but if I was a head of state with an oil crisis on my hands I would sure as hell prioritise getting oil to critical economic functions like electricity generation. Lets not confuse peak oil with running out all together and there is a hell of a lot of waste in the system so making just a small saving in domestic transport will free up more than enough to make nuclear energy viable (or building renewables for that matter). There certainly is a risk of what Nafeez talks about coming true, but there is probably a bigger likelihood that collective human effort and technology will be directed into solving some of these energy problems. That side of things doesn’t really get a mention. I could go through another few examples but I won’t.

What I will say to you watch this to get an overview of our problems from holistic viewpoint. You should certainly be aware of the broad areas that this film covers and how they fit together. As for the details I would say don’t take them as the gospel truth even there is a lot of truth in there. This is still basically another opinion film and I generally always have a problem with pure opinion as broad statements can be made without the viewer knowing the truth behind them. This is why I will continue to stick to keeping data at the centre of any videos and articles that I make.

Why Do Banks Make So Much Money?

Posted by Matt Beer - February 10, 2013 - Communication+, Economics, Economics Level 1, Level 1
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http://www.youtube.com/watch?v=DOa8U0yixgQ

It’s hard to believe but banks have the licence to print money, or rather the licence to type it into a computer screen every time some one takes out a loan. It defies common sense but stop and think about it. If an economy grows, the money supply must grow too. Someone needs to inject this new money into the system. Normally you would think it would be the government, but they only create a small fraction of new money (physical money and electronic base money). Money has to be created from nothing, that’s what creation is. The unbelievable fact is that banks are licensed to have this ability. The more unbelievable fact is that no one talks about this in all the economic debates.

If you stop and think about it, the implications are mind boggling. Banks have huge control on the direction an economy takes. They like to loan to safe investments such as property and not to risky investments such as small businesses. This is why house prices are so unaffordable. Also when they create money through a loan, they charge interest. This interest does not exist. There is a mathematical flaw in the system which means our level of debt will always get bigger. And then there are the ethical concerns. What is the moral obligation to pay back a debt of money that was created out of thin air? Why does a sovereign nation need to borrow money from banks and be charged interest when they could create this money themselves at no interest. Why do we need to bail out the banks that provide this money creation when governments could claim back this power? Why don’t governments stimulate their economy by giving money directly to it’s citizens instead of handing it to banks to lend out to it’s citizens.

I’m still wrapping my head around this but it’s clear that this is a massive story that would shift the whole “cut government spending” debate on it’s head. Ask yourself why this issue of money creation is not talked about in the mainstream media.

PBS Frontline – The Untouchables

Posted by Matt Beer - February 9, 2013 - Economics, Economics Level 4, Level 4
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Frontline spends 54 minutes examining why no Wall Street execs have been prosecuted for any fraud related activities despite their clear knowledge of the toxicity of the bad mortgages contained within the complex financial products they were selling. There seems to be little political will to go to trial and win the tough to prove cases. Is it a case of “too big to jail?”

Watch The Untouchables on PBS. See more from FRONTLINE.

PBS Frontline – Money, Power & Wall Street Part 4

Posted by Matt Beer - February 9, 2013 - Economics, Economics Level 4, Level 4
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In the final instalment of this four part PBS special the culture of Wall Street and investment banking is explored. It was a culture of making money and everyone was in on it. Bankers, really glorified salesman, were encouraged by management and a system of lucrative bonuses to sell derivatives to everyone, from municipal governments, countries trying to get into the EU, even nuns.

Ethical boundaries were deliberately crossed in the stampede to sell these complex products to unsuspecting customers. Hell, even the bankers themselves didn’t really understand what they were selling. It all looked good on the surface until the market changed in 2008 causing the subprime crisis in America to spread throughout the world.

People around the world felt the pain and the occupy movement rose up out of the millions of unemployed and disillusioned. But despite the resilience of this movement the banks and their lobbyists are still firmly in control and have successfully watered down any attempts to reform the system. So we are still where we are before the crash began. The big banks are still too big to fail and the risky derivative market is (mostly) hidden from regulatory oversight. It appears that the lessons have not been learned.

For me it is only a matter of time until another bubble pops. Again I think a spike in oil prices will prick this bubble just as it has the last several recessions. Add in climate change and the fact that a huge part of the global stock market value is based on fossil fuel reserves that cannot be extracted if we are to have a safe climate, the events of 2008 are just a taste of things to come.

Watch Money, Power and Wall Street: Part Four on PBS. See more from FRONTLINE.

PBS Frontline – Money, Power & Wall Street Part 3

Posted by Matt Beer - February 9, 2013 - Economics, Economics Level 4, Level 4
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In the third of a four part series, Frontline takes a look at how freshly elected President Obama dealt with the incredibly daunting task of fixing up the worst economic mess since the 1930′s. A key part of this would be the selection of the economic team that would ultimately deal with the situation. Would he bring in outsiders to reform the system in line with his fiery campaign rhetoric? Or would he stick with the experienced Wall Street players who knew the system?

Ultimately Obama went with the status quo and wasted this once in a lifetime chance to leverage the banks into accepting reform that would address the root causes and help prevent a repeat of the situation.

Watch Money, Power and Wall Street: Part Three on PBS. See more from FRONTLINE.

PBS Frontline – Money, Power & Wall Street Part 2

Posted by Matt Beer - February 9, 2013 - Economics, Economics Level 4, Level 4
0

In the second of a four part series, Frontline examines how the financial top brass dealt with the dilemma that this systemic risk caused. The basic survival of the fittest ideals of a market system were continually discarded as the reality of the “too big to fail” situation was revealed. Being backed further into the corner the choice between letting the markets self correct or bailing out the banks became increasingly easy to make as it was obvious the system would not self correct. In unplanned desperation Geithner and Paulson turned to the government and managed to produce a blank check which they handed on to the banks.

Watch Money, Power and Wall Street: Part Two on PBS. See more from FRONTLINE.

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