Power Grid or Bars on the Cell of our Imagination?

Please see the comment from Jan de Dood attached to the end of this post and added April 27, 2010

Ever since the run up to Copenhagen, I have been intrigued by the degree to which those who seem to care about the climate have seemed to be oblivious to the madness that has spoiled it. The madness to which I refer is the fact that a meta-challenge underpinning the havoc we’re wreaking on the environment is our terribly unimaginative view of efficiency. We use electricity because our appliances require it. We don’t stop to ask whether taking a fuel from the ground or sky and using it to heat water to create a pressure gradient to drive a turbine to put a variable charge into a copper wire to run over great distances to get to our homes so that we can use a compressor to create a pressure gradient so that we can chill our beverage makes as much sense as our consensus illusion wishes it would. We don’t ask how much copper has to mined from how many lands dispossessing how many people so that we can have a more efficient power grid that reduces carbon emissions by 20%. We don’t consider whether Prometheus’ theft of fire means that we always need combustion for locomotion.

While we continue to focus on climate change and CO2, we are missing the elephant in the room. Our commitment to electricity (an addiction that goes unspoken) is something that not only leads to the pollution problems we have, but is the “drug trade” that supports resource extraction, capital market inefficiency and a host of other ills. In the graphic below, you see that based on mechanical inefficiency ALONE, just to run a refrigerator, we have to over-supply 188% of the power requirement just to get to the outlet to run the compressor.



And this analysis pays NO attention to the fact that the steel, water or land contamination, water use, transmission metals (copper, etc) all are MISSING from this equation. If we didn’t have our copper addiction (the syringe for our electricity heroin), the South American, Mongolian, Chinese, North American and African environmental carnage would be defused. Our best estimates (when we include land, water, metals, etc.) suggest that a refrigerator actually requires over 500% energy inefficiency which could be largely deconstructed if we engineered devices which create mechanical compressing functions rather than running an electric compressor. In short, by asking the wrong question and diagnosing the wrong disease, we wind up frustrated in solutions which don’t achieve their objectives.

Second, the analysis above masks the fact that the 500% inefficiency supplies the “investment” inventory for those who promote debt and equity models – both of which lead to resource asymmetry and injustice. Think about it. If we didn’t support the metals and fossil fuel (commodity), the refining, shipping (equity and private debt resulting in over 30% of the S&P value), transmission and utilities (public debt and equity), we wouldn’t have much of the frictional resource waste of capital but we’d also have resource abundance to distribute in other fashion. So when we suggest “climate equity, bonds, or other structures” what we’re really saying is that we will replace the idol of production or consumption, but we’ll leave the inefficiencies (actual and capital) unaddressed. In short, unless we confront the currency of the drug trade, we’ll just be swapping dose but the addiction and resulting injustice will flourish.



Therefore, we need to consider whether we can “solve” anything if we ignore the inventory / supply of capital products which make mandatory the preservation of obsolescence avoidance behaviors which destroy the environment. We need to engage in a dialogue about the degree to which promoting bonds, equity, tax-credits, etc, simply replaces one dealer for another. In an interest to elevate our dialogue around a change of climate of our consciousness, should we consider modes of value creation which are linked to incentivizing fruitful production with a warm embrace to obsolescence in favor of our compromise capital systems which preserve incumbencies of injustice and scarcity? If not, our addiction and the consequence thereof remains unaltered.

And when we consider that our electricity addiction is a symptom of a deeper condition – an illusion of the control of “power” in a world from which we’ve detached ourselves from the empowerment of a unified ecosystem of living dynamism – we realize that the 60Hz hum is a mantra that simply drowns out deeper contemplation. In my next post, I’ll suggest a few ideas about trust, fear and risk which live at the heart of the illusion. So, stay tuned…



The Following is a Comment by Jan de Dood and was too big for the Comment field...

Dear All,

This weekend I had some time to think about the document which David attached in his invitation to the Dialogue about “The Elephant in the room” or Electricity addiction. I must say that I was aware that we were not very efficient in many ways, but had not seen this kind of figures before and it is quite eye-opening. Looking at the pictures that were in the document, especially the one called The Cost of Our Electricity Addiction, I tried to place it in the context of my thoughts about the transformation of the world we are living in. Although this can be already known by some of you in one way or another, I feel I have to share this with you.

First a short introduction of myself to give you some context of my remarks:
As some of you may know I am a risk manager within the financial world and a kind of Philosopher/thinker when it is concerning the Transformation and Future of our world. My work as a risk manager is done within the Rabobank, the cooperative bank based in the Netherlands. My function is Head of Risk Management for the Private banking division. My activities on the transformational issues have led to the publishing of a book, written in cooperation with a friend of my: Marieke de Vrij. The book is titled “ The Future of a Truly Stable Economic Order” (you can find more information at www.dedood.nu in the English section). At this moment I am mainly focused on transforming the Rabobank from within, and with that trying to influence the Dutch financial institutes and regulators. A long and lonesome road sometimes, but progress is (slowly) being made.

A short overview of my thoughts.

Crisis, what crisis?
Looking at the world today, we are faced with a lot of so called crises. There are five big crises where we focus on: a water crisis, a food crisis, an energy crisis, a financial crisis and a climate crisis. When we take a closer look at these five crises we can see that there is not only a connection between these crises, but there is also an order. This order is connected with the evolution of humankind.

The water crisis: Water is the basic element of life. Having a crisis here means humankind faces a crisis in the basis of its existence.

The food crisis: Food refers to maintenance and growth. Humankind faces a crisis in the ability to growth further in terms of evolution.

The energy crisis: Energy stands for dynamics and creativity. After humankind took the first two steps in its evolution it became creative in designing its way of live and existence. We now face the crisis of being the opposite. It looks like we are (not you ; ), but in general) not capable in bringing in new ways of living or working that can really change the world. We stick to the old paradigm.

The financial crisis: Finance and economies are about structure. After the process of creativity humankind felt the need for structure to keep pace with the processes and developments that this creativity had initialized. Now we see that we are not “in control” (quite a financial term isn´t it!) anymore. This is not only the case in financial structures, but also with social, political, ecological structures etc.

Then finally we face the climate crisis: Climate is about systems. We exist, we grow, we are creative, we create structure and then humankind became a system. And now we have a systemic humankind crisis.

In one of my essays, I called the overall crisis “the sixth crisis or the Consciousness crisis”. Humankind is at the end of an evolutionary step, and must be made ready to take the next step. This can only be accomplished if we are aware of what is going on and if we have an appropriate level of consciousness. All the mentioned five crises will attribute to the development of this consciousness.

So far the crises.

During the above mentioned process of developing consciousness there are two things very important. First we have to make visible what does not make sense, is weird, rare or whatever in the context of the way humankind is existing and has organized itself. By doing this we can make people think and get ready for the paradigm shift that humankind needs. Secondly, those who see the challenges in the current system and have the right mindset have to think about possible solutions, ways of doing things different or simply stop certain activities or change there attitude. This is necessary because when me make the transformation, we have to redecorate our social, ecological, economical system etc. (and we need new leaders!)

Going back to the Electricity addiction topic, it is certainly something that for many people (like me) is an eye-opener and something that does not make sense. And it indeed makes even lesser sense when we include land, water, metals etc. So it certainly fits with the things mentioned above and by bringing this in the open, it can make a big contribution to the change in consciousness.

The more challenging part is to look for a solution of this “drug trade”. I will make some comments on this hereafter, but of course this is only one possible direction of thinking.

When you see the process in the document David sent to us, you see a path from the oil platform to the refrigerator. The costs of this process are very divers, and even without the mentioned figures one can imagine that it is a very costly process. The reasons why this is so costly are also divers: we see a lot of processes to change the basic materials (oil and metals) to a new product. I am not a engineer, but I assume that in such a process you will have a waste of the original product and a waste and/or pollution of the sources you use to keep the process going (land, water, air, metals, minerals etc.). Furthermore we have a lot of transport costs.

When we are looking for a solution we can look to make the current process more efficient. This is a start, but it does not solve the real problem. It only mitigates it. I think it is quite clear that the solution can be found in reducing the pollution, material waste and the transport costs. This mean that we have to make the process of producing electricity more efficient by introducing new methods of producing. These methods must be more direct in terms of a simple process (maybe like solar, wind or gravitational energy) with as less waste and pollution as possible and we must combine this with the will and ability to produce the energy in the neighborhood of the user.

This sounds simple, but I know it is not. It means we have to rethink the way we organized our society. This is not only necessary in the context of the topic of our dialogue, but also in terms of risk management. We have to reorganize the way we build systems and the way we connect these systems via structures . We need a more robust system to a) cope with the current and coming crises as a result of the transformation process and b) to have a solid basis to build a new world on. As I wrote in my book:

“The processes and developments stated above indicate that we have created an unmanageable and uncontrollable world full of uncertainties. A world full of high risks, due to the direct unsustainable connections and the intercorrelation between all (sub)systems. However, man wants to be in control, feel secure and enjoy life. This can be achieved by splitting up the large systems into many smaller systems. A problem in a controlled environment with limited external influences (whether internal or external) is more easily recognised, is usually less complex and is therefore easier to solve. To solve the problem of leverage, we must create smaller units, ending up with a sort of cell structure.

As already stated, deglobalization is on the rise. Countries will operate more independently, societies will become more communal, and nature will be spared more, and abused less.

Structure
The cell structure system enables the mutual connectivity of the cells. But these connections are sustainable and strong. Each cell, each structure and each system employs its qualities for the benefit of others. Not for monetary profits or reward, but on the basis of appreciation and mutual trust. None of this represents a step backwards. Although we have been talking about the disintegration of old structures, the new structures are being assembled at a higher level of consciousness and developed into the next phase of renewal.
Money will again become a means of exchange and not something against which we assess our personal value. We will become human again.” (From: "The Future of a Truly Stable Economic Order by Jan de Dood and Marieke de Vrij)

Having written my first thoughts on this issue it is clear to me that it is an important issue on at least two levels. First because of the fact that it is producing a lot of waste and pollution that is affecting our environment in a not preferable way, and secondly because addressing this problem can help us to create more consciousness in this highly complex transformation we are going through as humankind.

Warmest regards, Jan

Abundant Enterprise: Beyond Corporations

A Renewal of Humanity’s Organization for Fruitful Engagement


The methods by which we organize our endeavors have profound implications on the consequences of our efforts. Often, by their frequency of use, we assume that certain practices and models are essential rather than consciously optional. Seldom is this consensus illusion more prominent than our practice of organizing human endeavors into Corporations. The corporation, animated to achieve “person” status in modern legal paradigms, is a legacy of an exploitative, colonial past and its use continues to stunt humanity’s potential. In fact, the first modern corporation was established by the monarchy of England on December 31, 1600 and became the foundation of the East India Company. Formed to shield individuals from accountability for their actions, these utilities of social control are optimized to:

Form legal barriers to engagement by means of licensure, registration, and regulation;

Form taxation mechanisms for the state to extract double tariffs, first from the endeavor and then from the beneficiaries thereof;

Form counter-parties for the purposes of limited liability agreements in the form of financing (debt and equity), contracts, and litigation; etc.; and,

Externalize accountability for decisions made out of expediency rather than integral interest.

As we awaken to our deep impulses to address human endeavors in a more integral fashion – often in pursuit of benefits which are not denominated in the creation or exchange of currency or surrogates of value (such as well-being, education, culture, knowledge, community engagement, ecological responsibility) – we see that the Corporation is no longer adequate to match outcome with mode.

A part of our work around manifesting the ancient futures of social evolution – consolidated under our Idigna program – we are working to increasingly adopt Abundant Enterprise as a means of organization of human endeavors. Abundant Enterprise can be characterized by the following core values:

Accountable Stewardship. All resources – natural, human, and energetic – are explicitly manifest by linking every part of a value chain to fruitful participation. For every resource used in an enterprise, its value is explicitly honored, its existence engaged in such a way to insure its replenishment, and its use includes all stakeholders in benefit sharing.

Responsible Engagement. All participants in the ecosystem of value creation are “stakeholders” without hierarchy. This means that every decision includes explicit consideration of the interests of all contributors. The land, resources, power, living things, all are engaged and the benefit from endeavors are shared with all. Profits, for example, from a product from the forest means that the forest “stakeholder” receives replenishment, not as philanthropy but as a return on investment.

Active Benefit. The beneficiaries of human endeavors are those who are actively creating value. Passive equity does not exist. From the creators of an enterprise impulse to all those who animate it, participation is intrinsic to benefit. Beneficiaries, including existing structures of civil society, are still entitled to their participation in the value created but attach only to those value exchanges for which they provide utility (eg. the State that mints and supports money can tax money).

Existing corporations can begin to transition to Abundant Enterprise models in a variety of approaches. However, each approach requires a long-term commitment to the departure from shielded accountability in the form of a corporation and deep engagement in the form of a network of value. Limited liability is replaced by full accountability and responsibility. Shareholders are replaced with engaged stakeholders (inclusive of all ecosystem elements). Investments and returns are simplified into fruitful stewardship. Profits are seen as means to distribute the value created by the enterprise back to the stakeholders. Wealth is seen as an ecosystem that is perpetual. The mode of engagement is through contract law and the formation of trusts or societies in which all active members are engaged.

Cent of Fear

I was intrigued by the recent press around Renaissance Technologies, the ambitious quantitative trading fund run by the inscrutable Jim Simons. While numerous heuristic (meaning based on a series of empirical rules) quant platforms operate in the market, few have achieved the legendary status of Renaissance. Operating with an opacity characteristic of the engineers who create them, these funds buy and sell not based on performance of enterprises but on the trading behavior of the markets per se. Not surprisingly, Renaissance and some of its aspiring ilk, are well endowed with physicists, mathematicians and engineers with backgrounds in linguistics, encryption, intelligence and related unstructured data fields. Those who are interested in learning more about the man behind the legend will enjoy reading Jim’s work on topological quantum field theory.

Peter Brown and Robert Mercer, the two PhDs who have stepped in as co-CEOs of Renaissance have an interesting background. Both contributed to IBM’s natural language research effort before being spirited away to join Simons. Much of their work was on modeling the “next effect” in words – trying to rationalize what the next word in a communication sequence would be based on the pattern preceding the predicted. Simply put, their work on n-gram language models assumes that the words you’re reading are not random in their inclusion or order. Rather, they are perplexingly, predictable. They, perplexingly rather, are predictable. Predictable, they rather perplexingly, are. You may be missing my point. You see, language is an encoding process, an encryption if you will, which loads meaning not merely in words but also in word-order and context. Before Drs. Brown and Mercer could crack the real nut – how to handle metaphoric expression – they followed the sirens to a quant fund and started making money. And here’s why I find the three people’s stories interesting. Because their performance actually unveils a fundamental human limit – the “cent” of fear.

From Babylon in the 18th BCE, to 7th century CE Roman “benevolent societies” which offered to pay death benefits to “insured”, to today’s most advanced insurance enterprises an irony emerges from looking at Renaissance performance and what seems to be an improbable industry comparable. At their peak performance, they hit very similar limits of blended returns, between 35-40%. Why is it that death and automated trading both capitate their performance at 40%? I think that the answer is that we have a human constant that I would call the “Fear Premium”. Now some of you might prefer that I call it uncertainty but I don’t for a simple reason. The motivation that makes Renaissance money is the “n-gram” of the next predicted event. They have modeled a human response that they train machines to detect and trade accordingly. Insurers constantly push the margin on how much the market will pay for the perceived “control” of fundamentally uncontrollable events (like death). In both cases, the uncertainty is skewed and the skewness is around the fear of loss.

Ironically, as I’ve begun to look at this dynamic, I have come to observe the Fear Premium in numerous historical and present capital models. Over the coming weeks, I will be highlighting several of these. One of my favorite which must be mentioned is the Basel II reserve capital spread between “investment grade” credits and “junk” credits where the Fear Premium charged to banks for reserve capital is, you guessed, the same number.

At the core, what does this mean? I believe that Renaissance is not necessarily anything more than a canary in a coal mine. Equity and bond traders are letting a few people (and the number of beneficiaries appears to be shrinking as Brown and Mercer look to close the doors to more outside capital) take their money by behaving predictably. If equity and bond traders stepped away from their addiction to impulsive trading and actually began investing based on, God-forbid, actual analysis of corporations or bond issuers, the helium that is maintaining the illusion would dissipate and the game would be over. If we didn’t live in an era where dying in debt continues to justify the dizzying levels of life insurance that we buy, making sure your death doesn’t cost your loved ones would lose its cache and the Fear Premium would be exsanguinated. In short, being free from fear would put at least another 40% of money in your pocket. It would let you spend 40% more time with your family and friends. It would let you relieve 40% of your stress.

As evolved as we pretend to be, it is ironic that in our present age, we still are gazelles on the savannah living with the certainty that there must be a lion out there somewhere. As evidenced by the recent nonsense that was marketed as “health care” debate in the U.S. (a harbinger of the love fest just around the corner in the U.K. and Australia), we had conservative Christians and political activists up in arms about – God forbid – the government caring for those less fortunate. I can’t wait for the first such activist group to waive their government authorized non-profit status, operate a homeless clinic in honor of their spiritual patriarch, and then talk about the irrelevance of government. You know why they won’t do that? Guess what the taxation rate would be on an activist group that didn’t have non-profit status… You guessed it, the Fear Premium.

Fools Gold

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It is not by injustice, therefore, that you hold what you have taken, rather it is through your own human kindness that the citizens are allowed to keep whatever they do retain.

Yet I foresee that if we betake ourselves to the life of indolence and luxury, the life of the degenerate who think that labour is the worst of evils and freedom from toil the height of happiness, the day will come, and speedily, when we shall be unworthy of ourselves, and with the loss of honour will come the loss of wealth.

- Cyrus the Great in CYROPAEDIA by Xenophon

I am perplexed. As I read the Federal Flow of Funds data, I’m struck by what appears to be a simple irony. In the FY 2009, consumer spending and debt have shrunk significantly and persistently (debt down $112 billion in FY 2009). During the same period of time, Federal debt has continued to balloon ($1.4 trillion in FY 2009). At its peak in 2006, consumer credit – the engine of the consumption addicted economy – rose to a high of $1.17 trillion.

The past 4 quarters have seen commentators and politicians describe their assessment that the economy is showing signs of recovery. However, this propaganda is, well, just that, propaganda. Here’s why.

First, the only thing that is contributing to economic activity is the Federal government’s spending of borrowed funds. In the most inefficient means of stimulating the economy (tax incentives) the Federal government is spending other people’s money to stimulate the automotive, housing, and manufacturing sector. As I said for the past four years, if you removed the premium of Federal spending (particularly in the indirect support of the war efforts in Iraq and Afghanistan) leading to S&P profits in defense, aerospace, materials and energy, we were in a recession before the “banking crisis”. Our GDP during the Bush administration was inflated and it’s even more so today. However, even the most casual observer can see that the Federal government doesn’t get the same economic return on its dollar spent as did the American consumer.

Second, we’re still living in the illusory world of an antiquated employment statistic. The fact remains that we have a growing number of Americans who are contributing nothing to the economy. We have more people who are beyond the 12 to 15 week without a job window who are either not working at all or are working in temporary situations or are otherwise under-employed. In the most recent March data, under-employment is over 20% and unemployment (U6 Figures) is still around 16%. Simply, this means that over 1/3 of the American population is not contributing to the economy. This cannot and will not last.

The myth that this is acceptable because “productivity” is higher is – well – just that, a myth. We are not more productive. Just because those who are employed are working longer hours and their marginal production per employee appears to be growing, this statistic fails to capture the fact that we’re riding an artificial wave of “value” inflated, to a large extent, by Federal government wage premiums. With more of the labor force working longer hours for real-dollar less wages, the Bureau of Labor Statistics is, once again, contributing to the consensus illusion that we’re making progress. We’re not. Paying fewer people less does not create an economy, it stimulates the French Revolution.

Cyrus the Great had it right. The day has come, when our carelessness about productively engaging our society to focus on real value creation in lieu of phantasmal “service” and “knowledge” businesses that supported consensus illusions as we saw our consumer addiction dealers off-shore the manufacturing of our intoxicants, must be reckoned. We must once again find honor not in the acquired wealth from others but in the honor of productive engagement. We must celebrate the industry that creates rather than blindly waiting to be served by those from whom we’ve taken so much. The drug is wearing off and we need to see clearly that creativity and production, supported by ethical exchange of value, is not a whimsical aspiration but rather the only way into a future with living.
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No Other Gods

In his first Papal Encyclical, Deus caritas est Joseph Ratzinger – then Pope Benedict XVI – spent considerable time discussing the role of the church in social justice. He stated:

“The direct duty to work for a just ordering of society, on the other hand, is proper to the lay faithful. As citizens of the State, they are called to take part in public life in a personal capacity. So they cannot relinquish their participation in the many different economic, social, legislative, administrative and cultural areas, which are intended to promote organically and institutionally the common good.”

In an encyclical that is built around discussing the relationship between love and social justice, the Pope made concluding reference to St. Martin of Tours who is the iconic representation of justice and charity. In an act of profound (and capital) consequence as a Roman solider, he took the property of the State (his uniform’s cloak) and gave it to a beggar. This act of giving State property to a beggar was a violation of Roman law and could have cost St. Martin his life. Instead, it became the foundation of his canonization. Pope Benedict XVI makes a clear declaration that “service of neighbor” is inextricably part of the mandate of the faithful and of the church.

So as Europe was aflame with the church’s tireless abuse scandal over the past week, I was in East New Britain and New Ireland provinces in Papua New Guinea – the Metropolitan Archdiocese of Rabaul. Established in 1844 as the Apostolic Vicariate of Melanesia and promoted to Archdiocese in 1966, the church was established in its current incorporated state with the Roman Catholic Archdiocese of Rabaul Act of 1969. And, while I thought I was going to write this week’s blog about the horrific scourge on humanity’s legacy (once again, fully capitalized, aided and abetted by the Toronto Stock Exchange and its willing investors) – Simberi Mining Corporation (TSX-V: SAU) – where an entire village’s food supply has been jeopardized by a failed re-routing of a river, I find myself compelled to address a more insidious injustice. That is the violation of the Papal Encyclical referenced above.

For those of you who don’t travel to the Archdiocese of Rabaul, it is hard to appreciate the depth of injustice represented by the land holdings of the Catholic Church. In a land where property rights did not exist in our current understanding, the church’s land holdings are vast. Much of the productive agriculture supply is controlled by the church and offered to locals (original stewards of the land) for leases. In a land of abundance, in the name of God, the faithful are charged for access to the creation that has been the heritable land of millennia. The Pope’s reference to the “common good” in his first encyclical is constantly violated by the perpetuation of exerting “ownership” of land that was taken from those who had no knowledge of what land ownership meant. In Kokopo, the prime commercial real estate is owned by the church. On the coasts, fertile farmlands are owned by the church. If the Pope was serious about his encyclical, why doesn’t he put himself in line with the very saint he holds as iconic and return the land to those from whom it was taken? Rather than entering history as the Pope on whose watch the church foundered on more sexual abuse, why doesn’t he actually become the first Pope to explicitly evidence that the church’s God is not mammon?

And the Catholic’s are not the only ones displaying conflicted messages in East New Britain and New Ireland. No church has been more clearly evidenced in promoting family values and the importance of social order than the Church of Jesus Christ of Latter Day Saints – the Mormons. I have been amazed at the church’s expansive presence throughout the Pacific and have been constantly impressed with the tireless efforts of the church to build communities which provide education, recreation and numerous other benefits.

However, this same church that has worked so hard to promote the highest and most laudable social values as an expression of a genuine belief, has two amazing contradictions which cannot conflict with the very values that they promote. First, Zions Bancorporation (NASDAQ: ZION), the bank founded by Brigham Young, and other asset management arms associated with the church have active presence in the global gold market. This church, which promotes the value of family and stewardship could use its presence in the Pacific to call for accountability in gold mining. In a part of the world where Barrick (ABX.CA), New Guinea Gold (NGG), Simberi (SAU), Lihir (LGL) and the oceanicidial Nautilus (NUS.TO) operate with lack of environmental, social, or legal transparency, where is the church’s voice to defend its faithful against loss of land, ecosystem, dignity, and wealth? Regrettably, it is largely silent. Apparently gold is more important than people.

And who can forget the fact that Brigham Young University has patented biodiversity and indigenous knowledge from Pacific Island healers without naming the providers of the information in their patents? Where is the church when violation of international intellectual property law is done in its name and held in its institutions? Regrettably, here too it is silent.

You see, a great prophet is quoted as having said that you cannot serve God and money. However, whether it is in the colonial annexation of lands held in trust and Commons for millennia, or in the coin of comfort in times of fiscal uncertainty, it seems that communities of faith seem to lose their prophetic voice when it comes to the wealth upon which they count their blessings. And this, in the final analysis, is a failing more insidious than those that grab the headlines. Because they undermine the very values that are promoted as divine.

It’s time for those who seek to shepherd those who live in the abundance of creation to actually genuinely care for those who have turned to faith as their guide. It’s time for morality and justice to go all the way to the bottom line. Otherwise, the world will see the true identity of the god that has been deemed supreme.

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Why We Don’t Build Pyramids

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On Wednesday, March 10, 2010 I was a guest lecturer at Atenisi University in the Kingdom of Tonga. Atenisi University is an enigma in every sense. Seldom have I met people more profoundly dedicated to the cause of freeing minds for deep inquiry. Seldom have I seen students more animated when a perspective blows its way to the island kingdom that sits on the first ray of dawn each day. Nowhere is the dawn more possible than the place where every day begins first.

Now, the next three paragraphs are weighty but I ask you to indulge me them as they reflect a theme that I’ll explain later. And yes, I know that taking what I’m trying to say to heart, may mean that you need to take a couple bites at the apple. Think of it as poetry if you must…

I gave three lectures at Atenisi. The first was in Philosophy, the second in the macro-economics integral to the French Revolution, and the third in Clinical Psychology.

I hypothesized that Pythagoras’ conviction of the essence of truth manifest in numbers may have been deeply influenced by Persian moral philosophy. His attempt to forge a new understanding of humanity’s consequence in the cosmic scale may have been inspired by the stories of Cyrus the Great who stands alone in our present understanding of history as a master of tolerance and social discourse. [It is plausible that Xenophon, a soldier and student of Socrates, chose to write the Cyropaedia because of its centrality to the evolution of Greek philosophy.] I went on to suggest that the Pythagoras known to students of mathematics and philosophy has been characterized primarily by “Truth is Number” as an apology for our modern obsession with numeric reductionism. In plain English – that the only thing that matters can be counted and the only thing worth counting is expressed, in its most generic form in money. How rare it is to hear about Pythagoras’ spiritual inspiration from Orpheus, that great mythical failure who inspired his men past the Rock of the Sirens not by debating the merits of being seduced but rather, simply playing a sweeter sound.

My proposition regarding the macro socioeconomic dynamics behind the French Revolution was rather blunt. I suggested that the revolution was not as much revolution as it was a coup d'état. My thesis was built around the observation that the combined rise of Central Banks (replacing Church and Crown treasuries) and limited liability corporations needed to galvanize a public to be distracted by the opulence of the monarchy. This public furor rallied a populace while the Corporate Banking interests assumed sovereignty – an act consummated during the Napoleonic Wars and, famously, with the functional privatization of the Bank of England following Waterloo. Few historians adequately address the fact that it was the ability to levy taxes that galvanized “revolutions” and, after the revolutions, the one thing that remained more intact than ever was – you guessed it, taxation. I suggested that the faux banking crisis of 2007-2009 is, in fact, the first substantial evidence that the coup has committed the fatal seduction of coups – when the robbing of the national treasury winds up involving stealing from yourself. Now, the only thing left for central banks to do is trade with each other as they’ve become entirely detached from their underlying national economies. In short, Act I of the French Revolution is over – on to Act deux!

And in Clinical Psychology – where the discussion was on Learning – I discussed my observations that what we call learning is more accurately described as consensus patterned behavior. Building the argument around the concept of Orderly Organic Synchronization (the process of building shared consensus views on observations and inputs which support socially acceptable narratives), I pointed out that most of what we do when we educate and train is to actually encode patterns that make communication within a subset of humanity efficient while explicitly isolating those who we deem “outsiders”. In its most egregious form, we suggest that language is a means of communication failing to realize that by selecting to encode in one language, we expressly identify our audience and subconsciously exclude those who encode using different encryption.

Off to an interview with the national news in Tonga and then an evening lecture on Poverty.

Now, aren’t you glad we’re through that? So, let’s click the lens back a notch and see what is behind what I’m saying in these three “parable” lectures. And what is the message that is communicated by linking what appear to be three disparate themes. Here goes.

I’ve written before about our collective, unimaginative system of denominating “wealth” and “poverty” based on a simplistic monetary metric. Those who “have” are those with monetary wealth and disposable access to consumption. Those who don’t have access to disposable monetary resources are “poor”. We rationalize our Orderly Organic Synchronization (learning) by reinforcing this message. We “know” (because is our synchronized, accepted belief) that if a country has a small GDP, it’s poor. If a country is being robbed of its minerals and resources by those with monetary power, it’s still poor. Isn’t it ironic that many of the world’s “poorest” nations actually have much-desired resources in abundance? And isn’t it convenient that, by focusing on their absence of monetary strength (labeled as “poor”), we co-opt them into letting their resources be exploited without consideration for people, the environment or the future. The Greek philosophers who gave us our concepts of “truth” and “substance” are misapplied when they are used to rationalize behavior that counts dollars but not trees, gold, clean soil, and fresh water.

A few months ago, I worked with courageous leaders in East New Britain, Papua New Guinea to notify the Toronto Stock Exchange that one of their listed companies (New Guinea Gold, TSX:NGG) was reporting revenues of gold sales to the public while failing to disclose or pay royalties for those sales under their obligations to the nation of Papua New Guinea. Further, the subsidiary shell corporation set up by NGG in which local landowners hold partial interest, was being charged accrued debt expenses without receiving any revenue. The company pressured the local media to renounce a newspaper report of its own securities filings. And TSX Compliance did nothing. You see, apparently, Canadian securities regulators only count what their listed companies report. And shareholders, drunk on gold fever, have no knowledge, interest, or will to know that their company is operating at the expense of a country.

Now we can sit back and rationalize that, after all, Papua New Guinea is a long way away and so oversight is impractical. However, it’s not so far away as to prevent Canadian investors from misappropriating the assets of a country. You see, you can take money from Papua New Guinea gold in Toronto, but you can’t take information.

I was recently asked by a French socialist academic if I really believed that ethical capitalism is possible. In a diatribe worthy of a wooden crate in 1917 in Moscow or Paris, I was informed that labor and resources are necessarily exploited in capitalism. Really? You can’t build common wealth by engaging productive people to a mutual benefit? You can’t open the aperture to accommodate that STAKEHOLDERS (including workers, managers, and shareholders) all need to benefit if the ecosystem is to be viable in the long term? Which leads me to the coup d’état.

If, as rational human beings coexisting on this planet, we share common aspirations for sufficient living conditions in which there is enough for all and even wealth for a subset, why is it that we’ve ignored the notion of Liberty and Fraternity – the rallying energy for the Greeks, the French, and yes, present? The answer is simple. Society has manifested a fear of those who control the coin of the realm. We seem to be incapable of considering that it is the hegemony of debt-based currency which is the cow to sacred to challenge. Is the bailout of reserve banks any different then Marie Antoinette’s “Let them eat cake”? Is Toronto’s indifference to flagrant abuses of its own ethical and legal standards any different to the tyranny of willful ignorance that plagued Versailles?

We the People, in Order to Form a More Perfect Union can actually begin operating in Liberty and Fraternity without being forced or cajoled into these ideals. In fact, I think we only get there by actually living the way we’d like to see the bigger system operate.

Start with a simple exercise. Take a look at your retirement account or your stock portfolio. Examine the companies in which you hold equity. And then, take a quick look at the company’s last quarterly filing. See the locations in which they operate and then look at the news for those locations using the company’s name in your search. For example, type the terms “SAIC” and “Greek Olympics” into a search engine. You choose your companies and see what you see. You’ll find one where to maximize profit, a city has collapsed with a plant closure so you could get your investment profit. You’ll find one where the reason why a jurisdiction is selected is because they have “favorable environmental operating conditions” which is politically correct for the ability to pollute without consequence. You’ll find one that paid fines for bribing officials in procurement efforts. And when you find that company, sell the stock. But don’t just sell it. Go on and write a letter to the investor relations manager explaining that, as a shareholder, you will no longer support what they’re doing. Then, take the proceeds of that sale – your gain – and contribute it to a cause you believe in.

You see, when you build your retirement on a foundation that includes a passivity which authorizes bad behavior, you insure that the coup persists. As soon as you start living the way you wish the world would work, little by little, you’ll help turn the tide.

So, how do we get from Cyrus and Pythagoras, to the Bastille, to Psychology, to Papua New Guinea, to Toronto, to our retirement account? Actually, quite simply. If we want “things” to “change”, we must actually begin manifesting the world we wish to see. Waiting for someone else to begin, when that is the unifying consensus of everybody, means nothing will get done.

Which is why we don’t build pyramids. We don’t build pyramids because we don’t believe that it can be done or that those people in Egypt or Meso-America could have done it. However, I know how the pyramids were built. It started with someone starting. So… let’s get started. And, by the way, a bunch of you read this blog, think big thoughts, and then go on about wishing that something could happen. So why don’t you send this blog to 25 of your closest friends, get together, and figure out how to do the exercise suggested in this post together? You never know, you might actually change your world.


P.S. If you want, you can use your blog-inspired proceeds to help Atenisi University offer more scholarships to students in Tonga. This country, while fifth from the bottom of the global country “wealth” chart, has a university that offers full tuition waivers to any citizen. If you want to make a difference, get in touch and I’ll connect you with something worth doing. Their budget could use about $80,000 to open up a whole new program in Ethical Innovation Finance.

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All Debts Public and Private

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I was walking in Manhattan this week in the midst of an epic journey. The company I lead, M•CAM, is looking to establish a market solution to the current market’s greatest challenge. We are working to create a transparent means of linking human creativity to human enterprise in a way that rewards innovation and aligns capital and enterprise to shared objectives. You see, what has passed for financial innovation over the past three decades has grossly contorted the capital system and has decoupled capital from productivity. Having entered into dialogue with many of the market’s most sophisticated minds stewarding the largest aggregated pools of capital, the daunting realization was that, when confronted with systemic paradigm shifting opportunities, the people you might think are on the frontiers of financial sophistication are truly paralyzed by the reality that the hype about economic recovery is, well, just that – hype.

I’ve written about this before but I’m pretty sure that most people still don’t get what’s wrong at the core of the economic system. And while I’ve tried to highlight a number of components of the disease that still plagues our economic system, I think that I’ve been ineffective at communicating. And in a world where the market “responds to good news” about the slowing of the rate of job loss (because we’re continuing to shed the hopeless – now well over 2 million people – who have not found work from the official count) and sees this as indications of a “recovery”, at some point you must confront the fact that the same media that didn’t see the recession/depression coming are equally incapable of reporting on market recovery.

Let’s revisit some basics. I’ve called your attention to the difference between debt and credit before. Debt focuses on the cost of money and its use. Those with capital – which in their own hands earns nominal interest in, say, Treasury bills – can provide that capital to others as long as their cost to hold the money and their return to lend the money are sufficiently spread. Debt, whether it’s in the form of your mortgage, or bonds to pay for a highway, or pay for an out-of-control government (like the fiscally delusional U.S.) seeks neither productivity nor equilibrium. It seeks its own return and requires perpetual growth. In modern times, debt is resolved (as many of us know) by taking out more debt – politically correctly known as refinancing. If you contemplate debt in its extreme, debt is antithetical to productivity. Three hundred years ago, debtor’s prisons ironically put the debtor in prison extending the usurious reach of obligations to family members and friends while rendering the productivity of the debtor impractical and impossible. In modern times, debtors now find themselves having to take more time away from family with a second or third job, leave children unattended to pay off obligations, etc. In many parts of the world, including the U.S., debtors wind up literally enslaved. Human trafficking, now at an all-time high, is a direct consequence of debt.

There was a time when credit – an entirely different concept – was more commonplace. In its simplest form, credit is best exemplified with a seed. If I have seeds in abundance, I may offer 10 seeds to a farmer and charge him 15 seeds in exchange. This works because I know that each seed I provide will yield 100 seeds – more than enough for him to keep seed for the next year, feed his family, and pay me 15 seeds. While cartoon in its simplicity, this example is quite vital to understand energetically. Unlike debt which seeks its own return divorced from the underlying enterprise, credit takes into account an alignment of all interests. First, as the provider of seeds, my bet is with the farmer and with nature. Second, my return is based on fruitful productivity. Third, my role as seed provider is not necessarily perpetual. In fact, I may work myself out of a job and may need to move on to other forms of credit if a market is fully functional and crops are productive. In short, as the provider of credit, I am betting with future productivity, not a perpetual illusion of capricious returns. And yes, I will lose sometimes. And that’s o.k.

One of the main reasons we are in the economic failure we’re in right now is because we don’t understand credit anymore. And in failing to understand credit, we give no thought to the fruitful ecosystem. Let’s look into this deeper.

In credit, I look to the ecosystem of the seed-farmer-soil-rain-harvest-market dynamic and understand that, to make a functioning system, I need to make sure that my credit works within a closed loop that may or may not have finitude. I need to look at the raw material-production-assembly-distribution-marketing ecosystem and make sure the capital costs fit inside the fruitfulness of the ecosystem. In short, I need to understand the foundations of productivity and then integrate my capital within a viable cost structure therein. In short, my returns – high or low – are directly a consequence of the ecosystem productivity.

Debt, on the other hand, has made capital ignorant and lazy (euphemistically described as “efficient”). I spoke to several people about collateral. Collateral is a form of commitment that says that, if for any reason, an obligor fails to perform on repayment of an obligation, a secondary source of payment in the form of disposable assets, can be monetized to defease the obligation. Collateral has taken on enormous meaning lately as, in its absence, cash-rich banks are unable to lend because their reserves are adjusted based on their creditors’ collateral adequacy. With investment-grade collateral, a bank needs to hold 8 cents in reserve for every dollar lent. Without collateral, the same bank must hold up to 53 cents in reserve for every dollar lent. Most of the American and European public fail to understand that the reason why cash-laden banks are not lending is because they cannot. Technically they cannot because they do not have collateral adequacy in their credit assets. Operationally they cannot because they have no clue how to assess the collateral in today’s market – most of which is intangible. Your home, used as collateral for your mortgage, does not create value and, when real estate markets fail, its loss of value actually puts you in greater debt.

Ironically, during this administration’s rush to stabilize our economy and put it on the road to recovery, it has continued to overlook a comic irony. Intangible assets, intellectual property and innovation are all part of what’s called a “General Intangible Lien” – a collateral instrument holding hostage all corporate innovation from effective deployment. I use the term hostage because, unlike traditional tangible collateral – like real estate – that at least has some form of value, intangible collateral is taken under liens, restricted from use, but assigned NO VALUE. In other words, banks now hold America’s and Europe’s innovation assets, ascribe them NO VALUE, and with real estate and traditional assets loosing value, have no way to unleash their value without worsening their already collateral-insufficient position.

In short, our love affair with debt – mortgage or commercial debt – has enslaved the seeds of future productivity. When I was in Saudi Arabia speaking with people associated with SABIC – the buyers of GE Plastics – they were shocked to learn that many of GE’s patents on critical plastics technology were not expressly conveyed in SABIC’s purchase. Many of them, post the acquisition, were still held in liens taken by banks with whom GE had lending agreements. Companies including electronics, telecommunications, pharmaceutical, and energy enterprises and others, have vast intellectual property holdings which are tied up in senior liens rendering their use limited to non-existent. In the case of one photographic technology company, their patents are expressly prohibited from use in licensing transactions by the bank that holds their debt. And, during my stroll through the banks of New York, I was amazed that nobody seems to realize that we need to fundamentally change. More of the status quo is NOT the solution and will continue to inflame the sores that we've bandaged poorly of late.

I highly recommend deeper exploration of the debt conundrum expounded by my friend and colleague James Quilligan. James writes and speaks about the centrality of debt and capricious interest in the present economic system failings. I will spend more time on this as well. In the meantime, we need to actively decouple our debt dependency and actively work to create fruitfulness-aligned capital systems. This means that when we’re working on building ecologically viable communities in St. Louis, we need to examine every element of our retrofits. The water systems in buildings need to be financed using the future value of potable water and be paid for using water credits. Sanitation systems need to be financed using off-grid commitments where developers can be compensated for reducing or eliminating their reliance on municipal water and sewer systems and where organic waste can be captured, processed and turned into a fuel source. Rather than seeing waste as a cost, we need to see biomass as energy and compost. We need to realize that the private sector – not the government – must lead the way to link capital to future productivity. In a world where our government has reduced its economic empowerment tools to interest rates and tax incentives, little more than the failed status quo can be possible.

And on an unrelated note: Did anyone in Congress EVER run a business? To grow a business, you must invest. To invest, you must use present profits to plow back into enterprise. So, when stimulus bills get passed that provide tax relief (that only is useful if you are creating profits) does ANYONE realize that this only creates loss carry forward positions which make small businesses desirable tax sinks for larger – less employment friendly companies? I’ll write more on this one too.

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