Sunday, September 17, 2017

Investment as Commitment. Tim Jackson at the Summer School of the Club of Rome in Florence



Tim Jackson speaks at the 1st Summer School of the Club of Rome in Florence, Sep, 2017 (image courtesy of Daniel Reinhardt)


There have been several interesting talks at the Summer School on Sustainability in Florence, but the one by Tim Jackson has been among the most focused and relevant ones. Jackson is the author of the book "Prosperity Without Growth"  (2017) and he goes straight to the core of the problem, which lies in our financial system. We are geared for growth, everything in the system pushes for growth, all the financial structures are rewarding growth. And, as Jay Forrester was perhaps the first to note, economic growth is taking us straight to the Seneca Cliff. 

So, we need to re-examine the basics of our economic system and propose ways to defuse the ticking bomb that we ourselves have created. There is much to be discussed about Jackson's proposals, but one that I noted, in particular, was the concept of "investment as a commitment." I asked Jackson how this is supposed to be different than the current way of investing, and his answer was that, today, investors tend to see the market as a "gamble" in which they may gain or lose; but their main motivation is for big, short-term gains. Clearly, this is not the way that will take us to a saner and safer world. 

The key point of the whole thing, as I see the situation, is in the financial system. If we found a way to divest from fossil fuels and to move financial resources to the transition in the form of renewable energy and the related infrastructure, then there is still hope to avoid the Seneca Cliff, at least in its most brutal form. The question, then, is how to move money to some kind of "investment as a commitment"; investing for something that will last for some time and provide a steady return, not necessarily a spectacular one. 

With Jackson, I discussed the idea of money which steadily loses value with time, or "expires" after a certain length of time. Or also to the old Sumerian idea of "amargi", periodic debt cancellation; a tradition that later led to the Hebrew Jubilee. Possibly, this kind of reforms would lead people to invest in real things. Is it possible? Hard to say. Maybe someone has other ideas? 






7 comments:

  1. Thanks a lot Ugo for sharing stories, insights, and new knowledge from Florence.

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  2. Yes, thank you for taking the time and trouble, very much appreciated!

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  3. The tax code in the USA could definitely be adjusted to push in this direction. Tax dividends much less than capital gains. Tax long term capital gains much less than short term capital gains. Gains with a term less than e.g. six months could be taxed at a rate above the highest rate on salary income.

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  4. Another form of commitment is shared risk - as I propose: http://interdependentscience.blogspot.com/2014/04/banking-reform.html

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  5. Thanks for that post Prof. Bardi.

    There has been said so much about how we can get rid of our financial system, but be aware that it all amounts to getting rid of capitalism, something many (most?) people here still won't subscribe to. I noticed that you yourself might have problems to accept this.

    Capitalism is not about "free markets". Our financial system, the way money is created and the way money is made with money, this is what capitalism IS.

    Capitalism is a bet on future growth. Capitalists invest into a venture (means of production) because they expect it to grow. If overall grow stagnates, some capitalists may still gain from their bet, but capitalism itself has a problem.

    We need a new way to organise our economic system because the old one fails us and fails itself. Its not a question of ideology, but of necessity.

    I personally find the writings (and talks) of Charles Eisenstein concerning a new financial system most usefull as they also add various totally new, and for many people alien perspectives to the topic.

    Charles Eisenstein is one of the speakers of the Occupy Wallstreet movement. His book is called "sacred ecenomics" and you can read it here: http://sacred-economics.com/ , or watch a movie about it.

    We need new thoughts and perspectives, we need to open our minds to alien views if we want to get rid of this financial system. Some of these new ideas we find might be very old.

    The Vatican has promoted "Sharia Law" Banking as a way out of our predicament:

    "The Vatican paper wrote that banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis. “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service,”
    (https://www.brusselsjournal.com/node/3819)

    All religions in history have denounced usury as a major problem for society. Only in our time the usurer (investor, creditor, banker, etc.) is celebrated. All religions and cultures over time found ways of handling them. Why cant we?

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  6. Ugo, a clasic example of "investment as commitment" were the Permanent Building Societies of the UK. They were regulated by an Act of 1876, with three basic rules:

    (a) The societies could lend out only the moneys deposited by savers

    (b) They could lend only for the construction or purchase of real estate

    (c) They were not permitted to resell the loan, but must retain it until fully discharged.

    These institutions worked very well, and note that the above rules pretty much ensure they worked. Recall also that until 1914 all money in circulation was backed by gold (thanks to Sir Isaac Newton), so there was no fiat money and no fractional reserve banking - the two pieces of insanity that have ruined capitalism and replaced it with fraud and cronyism.

    The societies were immensely popular, and paid a modest but usually reliable income, or alternatively addded the interest to the capital, typically on a monthly basis. They also negotiated discounts on home insurance, and offered other advantages to their members.

    In most cases, the societies were owned by their investors, and this kept them honest. The lending rate was determined by the free market, and the savings rate similarly, so providing a strong incentive not to let those rates diverge too far. Indeed, many societies were officially "non-profit", and kept heir overhead to a minimum.

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  7. Sustainable human activities on a finite world will required a new social contract that successfully controls the behaviors of individuals which are now either controlled by genes or by cultural restrictions.

    That the world is migrating to conditions which are not pleasant
    this discussion is considering what are these additional controls?

    With Jackson, you discussed the idea of money which steadily loses value with time, or "expires"

    with Peter Brown you spoke of private ownership and sovereignty.

    In Part 4
    http://www.skil.org/position_papers_folder/PlanForUnwindingThePredicamentsocialcontractpr4.html
    of a paper "Unwinding the Human Predicament"
    http://www.skil.org/position_papers_folder/PlanForUnwindingThePredicament.html

    I would like to contribute a few more constraints (to be included in a social contract) that produce sustainability.

    jack



    Jack Alpert PhD Director:
    Stanford Knowledge Integration Laboratory http://www.skil.org


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Who

Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014). His most recent book is "The Seneca Effect" to be published by Springer in mid 2017