Nebuchadnezzar at the Federal Reserve

This week’s decision by the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve to formally ditch an unemployment target as a central mandate for determining interest rates is, in no small way, a metric unto itself.  In the most delusional of days, I could erroneously conclude that enough of the Committee have been reading my blog and countless other rational commentators that they realized the fallacy in a metric that fails to measure what it purports.  For those of you who didn’t read the FOMC Statement this week, Janet Yellen’s nurturing leadership debut was marked with a recognition that the Fed’s “highly accommodative stance” cannot be justified by any empirical economic mandate – like employment or price stability.  What she and the Committee did not state is that the rationalization for her cheap money mandate is justified if its real beneficiaries – monetary trade wars with the rest of the exporting world and massive wealth transfers for those who already have excess – are to continue their wanton recklessness.  What I find refreshing is that the masquerade of public good is being expunged from the FOMC’s illusory raison d’etre and, for the first time in recent memory, we can see that ‘accommodative’ is a shareholder interest alone.

We’re now entering the post-empirical divination phase of the Fed where “readings on financial developments” become the new bedrock for policy.  The new alchemy includes ‘measures’, ‘indicators’, and ‘readings’ – an irrational subjectivity so offensive to a few as to lead one member of the Committee – Narayan Kocherlakota, President of the Federal Reserve Bank of Minneapolis – to complain that such euphemism “weakens the credibility of the Committee’s commitment…” and could “hinder economic activity.” 

I remember my 10^th grade train-wreck with reality when my geometry teacher father taught me an important lesson in intersubjective solipsistic dissonance.  He offered to his students the following proposition: Come up with an original and unpublished proof of the Pythagorean Theorem and you get an “A” for the class.  “You can even bring in a pillow and sleep through class,” he promoted at the beginning of the academic year.   Long before Su and Velian published their “spherical proof” (17 years ahead, but who is counting?), I developed a proof using spherical geometry and way more steps than otherwise necessary.  Proudly I dropped my opus on his desk and even more proudly he confirmed that his son had, in fact, achieved the challenge.  What followed, however, was a harsh reality.  The offer of an “A” for the class had an undisclosed exception: “Not if the author of the proof is the son of the teacher.”  And so, for the rest of the year, I had to stay awake, study for exams, and eke out my “A” with the same toil as my fellow students.  My father taught me the important lesson that motivation is productive even if the objective is capriciously subjective.

Now where does a spherical proof of A² + B² = C² and the FOMC Statement merge on this chilly Spring morning just past the flirting ellipse of the precessing equinox?  My answer lies in the more fundamental recognition that confronts the FOMC and us all.  And for my answer I’ll plumb the depths of another timeless geometrical puzzle – the puzzle of Pi.  In 1999 University of Tokyo Professor Yasumasa Kanada and his assistant Daisuke Takahasi performed in 83.5 hours a world record calculation of Pi – you know the one: 3.1415…. – resolved to 206.1 billion digits.  This undertaking smashed the previous record of 50 billion digits and confirmed what the Persians, Egyptians, Greeks, Germans, and others have known for a long time – the circumferential relationship a circle has with its diameter is obsessive and transcendental.  According to Dr. James Grime and others, to understand the geometry of the known universe, we only need to know Pi to 39 digits to “compute the circumference of the entire universe to the accuracy of less than the diameter of a hydrogen atom.”  Like the calculations of my good buddy Pythagoras, descriptive formulae are helpful until considered at the assumptive scale at which point they become audacious and ludicrous.  While we think we know that A² + B² = C² and that ∏ = C/d, we don’t know what they mean and we don’t really have a clue why we can’t find the end of these circular and triadic mysteries. 

When it comes to the FOMC, what we know is that what the Fed was established to do and its public cover-story justification have never been in coherence.  Now, before you cast aspersions on the Fed, a note of caution.  The Fed actually performs the banking purpose for which it was established and, in service to its member institutions, it’s done remarkably well.  Former Chairman Bernanke was quite eloquent in reminding members of Congress – particularly the Tea Party activists – that if they didn’t like what the Fed was doing, they were perfectly within their rights to change its mandate (a challenge that no Congressman or woman was willing to do when they found out who they’d have to contend with if they took on the challenge).  The problem comes when the belief of the function is met with the reality of the dissonance between actuality and projected aspiration.  Justification is no more causal than it is accountable.  Just because you think something ‘should’ do something doesn’t mean that it ‘agrees’ or is even complicit in your shared sense of reality.  Therefore, metrics used to justify an illusion – regardless of their prima facie merits – neither hold an individual nor enterprise to motivation nor account.  Just because something is observable and alleged to be measured doesn’t mean that the observational assumptions or the rules for the metrics are shared. 

Janet and the FOMC get an “A” for an emerging honesty from me this meeting for unmasking what other Fed Chairs have been unwilling to admit.  They’re not in this for the U.S. economy – they’re in it for their shareholders’ interests.  This, for all you cynics out there, is progress.  Now we have an opportunity to have a more enlivened conversation about our misappropriated belief (and blame) on an actor in a system that, while justified using idealist goals, never was organized to serve them.  I’m no more motivated to jump on a Fed-bashing bandwagon than try to resolve Pi another few billion decimals.  And no amount of motivation will seduce me into finding another way to “prove” a theorem constructed to explain an interesting, obvious reality.  No, I found this week’s FOMC a breath of fresh air.  We now admit that metrics are what they’ve always been – an attempt to encode a dogma to manipulate others – and, as a result, one more blow has been struck to the feet of iron alloyed clay!  And with that metaphor, hopefully one or two of you can revel in the tapestry that is my allegory.

Skewed Up in the Real World

Life happens.  Most of the time, the sun rises, we go about what we’re doing, we start some things, finish a few less and randomly bump into unforeseen moments and then, the sun sets.  If you’re reading this blog, there’s a high probability that you’ve got some form of shelter, you’re connected to communication with the outside world, you probably had a few meals in the past few days and, with few exceptions, you’re living in relative peace and tranquility.  Furthermore, there’s a better than even chance that for the majority of your life, this has been your experience.  Infrequently, you’ve been in a car accident, have been evicted from your home, lost your employment, mourned the loss of a dear friend, tasted violence, seen your efforts come to naught, and contracted a fatal disease.

For many of us – dare I say most of the readers of this post – life has been disproportionately good.  In statistical terms, most of us live in a distribution of events and conditions which are like Garrison Keillor’s Lake Wobegon, “where all the women are strong, the men are good looking, and all the children are above average.”  Which is why I find myself so profoundly puzzled by the proclivities I see for people to anticipate “risk”, “crisis” or “loss” when it comes to their financial future.  Most paradoxical is the prevalence of this scarcity-laden fear among those who espouse a commitment to be part of a societal transformation that recognizes a more complete view of value and a more holistic view of engagement with the ecosystem.

Now let’s examine a recent case example of this issue.  I was at a dinner with a wonderful group of friends.  Sitting around the table were individuals working in the fields of finance, aesthetics, education, and public policy.  If you were to ask each of them for an accounting of the past year, you would find an overwhelming majority of them reporting a near perfect record of calamity-free days.  Sure, disappointments here and there but in the fat mean experience, the distribution of good days would be far in excess of the distribution of bad days.  However, ask the same group what would happen, say, if an equity market, banking sector, or business failure would be imminent and these same beneficiaries of excessive abundance immediately project a world in which words like “survival” and “not making it” and “devastating” show up.  Ask the same individuals to describe their experiences in communities around the world with far “less” wealth (defined in their paradigms) and invariably, they’d comment on how inexplicably “happy” “those people are”. 

Now I’ve discussed the illogic of the empirical and statistical schizophrenia of observing the reproducible tacit experience of life and choosing to energize a disproportionate obsession with crisis scenarios in the implicit illusion of devastating models of the future.  While continental Europe gave us the notion of risk being the loss of value in the face of possible success, life demonstrates persistent sustenance in the face of rare and infrequent loss.  In other words, it’s more likely that we’ll have something for which we should be grateful than have something to fear – yet, when looking into the shroud of a scenario-laden future, fear seems to prevail.  Our prophetic skewness is disproportionately negative in a world that is disproportionately positive.  And this is among those who have the most external evidence of abundance.

Now if this were the end of my post, you’d be left with a bit of a thud of the obvious.  But it’s not.  For my entire life, I’ve seen a world that few, if any others can envision.  Not only have I seen possibilities – like mistaking a cactus in the desert for a moose when I was a little boy (because I saw its ears) – but I’ve created enterprises around the world that have actually transformed impossibilities into reality.  I know that the madness of crowds is usually incorrect and, rather than railing against it, I’ve chosen to build vistas from which observation can evidence a reality that is masked by the madness.  I know that life is mostly good and I know that, with a bit of coaxing, even the not-so-good can be made better.  Sometimes, a lot better because it’s been so overlooked and underutilized.  No, what really puzzles me is why those who state a desire to transform or change are most frequently the ones who appeal to objections based on scarcity, risk, and fear (the sinister trinity of incapacity).  “If you take on that company, they could kill you.”  “If you choose to walk away from that project that would compromise your values, your business could go bankrupt.”  “If you engage with the powerful, they’ll corrupt you.”  All warnings that I’ve received from socially enlightened people while never encountering them in actuality and engagement with the parties I’ve been told to fear.

Shellfish exposure, according to the research of Canadians Howse, Gautrin, et al, and others, can lead to considerable allergic reactions in which a person with no previous symptoms can suddenly have anaphylaxis.  You’re going along merrily processing shrimp or crabs and then, suddenly, one day, your chest tightens, you can’t breathe and you think you’re going to die.  Like shellfish allergies, encountering people who insist on planning for adversity in the face of abundant near-certainty, can lead to a cumulative exposure allergy in which a person like me has had one too many of the “what if” scenarios pitched and the chest tightening, constricted breathing gets a bit too much.  Unlike the irreversible shellfish allergy, the scenario-skewness allergy (or SSA, as I like to call it) is entirely reversible.  When you hear dire predictions of grave uncertainties, you can simply walk away, go about your day, and at day’s end, celebrate another wonderful day of mediocre abundance… for which you can be eternally grateful. 

Extra Super High Priority

I had the privilege of addressing a diverse group of individuals over the past week.  In Gold Coast Australia, my friend and colleague Christine McDougall invited a group of about 40 to conversation on the nature of human enterprise.  In Chicago, Professor Leo Burke asked me to be a guest lecturer for the Notre Dame University Mendoza School of Business Executive MBA students’ weekend session.  Honoring the promise I made arising from my contempt for professors during my academic training who offered tired lectures on lifeless subject matter in robotic monotony, each presentation was entirely unique.  Different stories, different themes, and different arguments all arriving at the same core message: humanity is in need of an operating paradigm based on abundance rather than scarcity.

Following both presentations, I had the delight of chatting with several in both gatherings regarding the arc of the material covered – time, geography, disciplines – and found myself puzzling over the use of hyperbolic terminology to describe the narrative of my ordinary life.  Now, let me be clear.  I have been fortunate to be exposed to, and interact with, a broad swath of humanity in diverse settings.  I value the experiences I’ve had and the wonderful people who have enriched them in so many instances.  But my life has followed a singular and simple directive – I go where I’m invited and engage fully wherever that is.  This does not constitute an extraordinary, superhuman, transcendent experience but rather an integrated and full experience of life.

Hyperbole in the description of the human experience seems to imply another malignancy in the cancer of the scarcity paradigm.  Think about it.  On the History Channel (yes, I’ve been exposed to the Inflight Entertainment on the Star Alliance network), “ancient astronomical theorists” postulate about the influence of ‘extra’ terrestrial intelligence.  Human potential enthusiasts extol the possibility of ‘super’ human performance.  Religious adherents obsess about ‘transcendence’ to variously motivate or threaten consequence in the moment.  In fact, “After all, he’s / she’s only human” serves as the aphorism to describe behavior unbecoming of societal norms.  Paradoxically, our inspirational and aspirational distractions – retreats, seminars, revivals, etc – which are organized around escaping consensus monotony, seek to regress ‘transcendence’ to a common formula.  “We all” have brokenness, shadows, issues, sin, separation, unresolved conflicts and therefore, “we all” need explanation, adaptation, acceptance, or transformation.  We’re encouraged to marvel at “ancient” megaliths and are asked to ponder “how these extraordinary fetes could have been performed without modern tools?”  Last time I checked, ‘modern’ tools are worthless in cutting and stacking stones the size of school buses with interlocking precision.  It must have been ‘extraterrestrials’!

Now why do I associate hyperbolic expressions of the human experience with scarcity?  The answer is both mathematical and philosophical (which are, in fact, one in the same).  First, the math.  As I’ve addressed in numerous posts before this one, our adherence to regression (the notion that we can isolate metrics that can be placed on probabilistic linear models or can be distributed within a bell curve) is predicated on two fallacies.  First, that we know what is measurable and can in fact measure ‘it’.  Second, that our consent to “the measured” is a reflection of our capacity to fit ‘it’ to normative data.  Neither of these fallacious assumptions are ever tested.  Worse still, they strive to simplify into ‘manageable’ fragmented dimensions that which is complex and essential.  But the bigger issue – the one that reinforces our model of scarcity – is that outliers and the unexplained are measured by their failure to conform to our regressed illusion rather than invited to suggest the vast dimensions for which our metrics serve no descriptive or predictive purpose.  At the frontier of DNA-explained life is 97% “junk DNA”.  At the edge of the vast expanse of the physical sciences is over 95% unexplained “dark matter”.  Our confidence in what is known (less than 5% of our universe) is indicted by the pejorative dismissal of the unknown with terms like “dark” and “junk”.  Which would suggest that it is reasonable to conclude that we’re a long way from fully knowing present reality and even further from any form of transcendence.  We see, as it were, through a glass darkly, and fail to realize that behind all the smudges and the dirt is not reality but the silver we’ve placed to reflect our own illusions back to us. 

Rather than confronting our self-imposed limitations and our own constraints, cleaning the glass and removing the mirrors that we’ve constructed, we coalesce into a huddled horde seeking escape from our own limitations.  All the while, we fail to recognize that fully human ecosystems beckon from all around us but, as they are abundantly unfamiliar, we fail to heed their invitation.  And in the rare instance that we might seek a broader, more unconstrained experience, we huddle into small group experiences and construct elaborate fantasies of the “super” the “extra” and the “trans”. 

I am a mortal (not a “mere” mortal).  I am human (not “super-human”).  In gratitude, I thrive in a universe of opportunities and challenges which alloy my metal and sharpen my blade.  Are there numerous personal attributes in my life that I could refine or purify?  Absolutely.  But even this process – manifest in persistent action – is perfect in its messiness.  After all, perfection – maligned as an aspirational ideal or delegated to the divine – was the Latin concept for complete.  And recognizing the reality of perfection – the completion of all that is required to continually refine, render more elegant, and manifest with greater sensitivity and beauty – we can liberate ourselves from the sirens of superficial, scarce transition and fall into the loving gravitational embrace of ordinary abundance. 

Have a perfectly ordinary day with perfectly ordinary people doing perfectly attainable, amazing things!

Bikinis Anyone?

Sixty years ago today, the world awoke with one less landmass.  On March 1, 1954, the United States detonated a 15 megaton thermonuclear hydrogen bomb in the 'secret' Castle Bravo test.  At about 1,000 times the strength of the bombs used on Japan during the second world war, this test was over 150% more powerful than the nuclear physicists and engineers had anticipated and erased one of the islands in the atoll off the map.  In the years to follow, radiation sickness, death, miscarriages and genetic anomalies were the visible specters that haunted the world and persistent lies, assurances of safety later proven to be erroneous, and secrecy were the more phantasmal and ephemeral legacies.

Four days following the first nuclear test over the islands in 1946, a French mechanical engineer unveiled a new swimming fashion which was named "bikini" in response to the sudden media frenzy over the nuclear test.  Louis Réard clad at 19-year old nude dancer from Casino de Paris - Micheline Bernardini - in 30 square inches of cloth winning the distinction of creating the "smallest bathing suit in the world".  He insisted that, to qualify as a true bikini, the swimsuit material had be sufficiently scarce to easily "pass through a wedding ring".

Two 'accidentally larger than intended' explosions - one gargantuan and one itsy-bitsy - both bear the name of an island in the Pacific that was obliterated by a colossal lack of humanity.  And few people alive today pay the legacy even a passing thought.  While we could be distracted by the bikinis, it's worth considering what both of these legacies say about how we've become the society that is manifesting today.

The Illusory Value of Secret

The reason why the U.S. tested nuclear weapons was to instill fear in those who didn't share our capitalist, consumer-first mandate.  Fearing the specter of communism in which autocrats select economic winners and losers (can anyone say bailouts?) and an intrusive authoritarian state in which the state would senselessly pry into the private lives of its citizens in an effort to manipulate and control them (oops, can anyone say Edward Snowden?), the U.S. decided that it should secretly test a device that would create fall-out across the world jeopardizing populations that we didn't see as human and poisoning  water and land we didn't really wish to foul.  Through the cunning use of code names, we blew our cover across the globe to insure that all knew that we'd stop at nothing to pursue our quality of life which was so superior as to require fear and military strength to promote and defend it.  Through the veil of secrecy, billions of dollars were poured to enrich the secret programs that would serve to propagate our 'values'.  By keeping the project 'secret' we would capture the imagination (and the patronage) of the public who were willingly kept in fear and intrigue.  

Let's face it, a bikini as an article of clothing, doesn't keep much 'secret'.  In point of fact, the strategically placed triangular fabric swatches actually draw attention to the faux modesty they supposedly intend to defend.  By keeping certain anatomical parts 'covered' we maintain the illusion of discretion while in fact promoting their distinction. 

In bombs and bathing suits, the value of 'secret' and 'discretion' is a fallacy.  To the contrary, it is by promoting what you're not supposed to see that the cultural obsession is transacted and consummated.

Sensational Sells

Réard first called his two-piece wonder the Atome, assuming that it would conjure the idea of small.  But when the public went ballistic about the atomic tests, the name 'bikini' was on everyone's lips and, seizing the opportunity, he quickly jumped on the mushrooming phenomenon leading to the name that persists to this day.  

By 1954, the U.S. knew that atomic bombs worked with terrifying effectiveness.  So did the rest of the world.  But it also knew that the public wasn't so sure that these weapons were a good idea.  As a result, continuously upping the tonnage was a wonderful way to increase the funding frenzy required to proliferate ever increasing stockpiles of weapons - weapons whose existence was justified because "the Russians" could do unto us what we were demonstrating we could do to them.

It's amusing that neither the bikini nor the hydrogen bomb's societal effect was fully appreciated at the time of their detonation.  Both of them succeeded by landing on a particular moral paradox - offensive enough to discuss with moral derision but powerful and revealing enough to hold the public's fascination.  And I find this particular dynamic a fascinating study in macabre mercantile genius.  Create an object that society finds objectionable enough to proliferate in conversation but tantalizing enough to empower an aspirational attraction and you're likely to have a commercial bonanza.  The bomb didn't create the military industrial complex nor fuel the Cold War - it merely served as a larger-than-life example of our capacity to enforce our ideology.  The bikini has nothing to do with modesty or morality - it merely lampoons our incapacity to deal with our abject failure to understand eroticism, beauty, and sensuality.  Both of these sensational predations work because they share an implausible, incredulous scale (albeit at opposite ends of the spectrum in size) that sates a particular seductive power.

On this anniversary of the bombs (and bombshells) I wonder if we've progressed much over the past 60 plus years.  When Wolf of Wall Street and Gravity fill theater seats and when we breathlessly watch tired ideological oppression justify senseless suffering from the Ukraine to Syria, I find myself longing for more examples of human-scale, naked, modesty where we're known by what we offer humanity rather than define ourselves by how inhumane we can be.  The Bikini illusion of 60 years ago made a splash on the canvas of humanity's meandering story but it preyed upon the worst of our consensus fears - the fear of the 'other' and the fear of our own desires.  It seems that it would be fitting to mark this moment with a call to transparent living and engagement in which we've got nothing to hide.  The fallout from this idea wouldn't keep us off the beach!

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Margin(alized) Truth

 According to the Australian Presidency of the G-20 concept paper, approximately 600 million young people around the world are neither working nor studying.  Without addressing confidence and employment there is no way to “lift people out of poverty and build national prosperity.” 

But if you turn the metaphoric page (to page 4) you see some interesting inconsistencies that seem to insure that employment doesn’t grow.  The economies of the world need to “improve productivity and competitiveness”; the former has a negative effect on employment and the latter suppresses global economic growth.  The plan calls for greater commitment to building ‘infrastructure’ (a highly variable employment enterprise typically incentivized by the public sector) while suggesting that priorities must be placed on structural employment.  A few pages later, Australia points out that the G-20 wants to “fight corruption and work to address its negative impact on economic activity.”  It went on to state that corruption, “increases costs for business and deprives developing countries of up to $40 billion each year.” 

Each year, I read the G-20 statement and find myself musing about the monotony of what passes for “thought leadership” at the helm of the globe’s self-proclaimed elite.  And it was probably this last point on corruption (one I find particularly amusing given the Australian corporate involvement in countless global mining deals rife with corruption) that made me pause to reflect on the illusion that is the G-20 summit cycle.  Corruption – bribes, greedy officials, concessions, and general unfair practices – is conveniently placed at the feet of marginalized countries.  Most of these countries have extensive mineral, energy, or land exploitation value to the G-20 industries and it is the G-20 private sector which fuels the corruption engine.  Bribes only work when someone pays them.  If the G-20 really wanted to get serious about corruption, it would enforce laws prohibiting corporations from engaging in corruption by facilitating the same. 

But let’s take a bit closer look, shall we?  Unfortunate businesses have inconvenient “costs” due to corruption and a paltry $40 billion is lost to the world’s most economically disadvantaged.  That’s bad, right?  I mean, seriously, $40 billion is like two times the value of WhatsApp, the Silicon Valley firm being acquired by Facebook after being started by “two geeky” ex-Yahoo guys.  And let’s put this in a little more context:  $40 billion is just over half of the profits Apple alone ‘shielded’ from U.S. taxes.  So the WHOLE corrupt world’s market consequence is about half of what one celebrated (corrupt) U.S. corporation does on its own account.  Is it just me or does it feel like we don’t really care about corruption given the fact that the G-20 explicitly says that it needs to come up with ways for the private sector to have a more ‘favorable’ operating environment so that it can build private sector employment?  As we’ve watched global corporate tax rates fall as much as 30% from 2000 to 2011 with effective tax rates plummeting even further, is it any wonder that the current puzzle facing corporate leadership is not questions like, “How do I employ more productive people?” but rather, “How do I hire the best accountants and financial analysts to optimally shield my profits?”  Which leads me to the obvious and missing conclusion from the G-20 report: we should simply take all 600 million underemployed youth; train them on tax loopholes and Excel or QuickBooks and tax shield and base erode ourselves into prosperity. 

If we’re really serious, we could save ourselves the tediousness of pretending to care.  We don’t want a world with less poverty – we just want poverty contained and remote.  We don’t want a world without economic shocks – they provide a fabulous way to move public sector funds into private sector accounts.  We don’t want more transparent trade regimes – we want trade negotiations done out of the public eye like the Trans-Pacific Partnership Agreement (TPP).  And when you look at who the TPP covers (U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) you don’t have to guess which countries’ see themselves as benefactors and which are seen as beneficiaries.  In case you’re not up to speed on the global flows of trade, the U.S. has a negative trade balance with Canada (-$32.5 billion), Japan (-$76.3 billion), Malaysia (-$13.1 billion), Mexico (-$61.3 billion), and Vietnam (-$15.6 billion) so you can clearly see why all these countries should be forced to accept our intellectual property and trade regimes for their benefit.  Oh, that’s right.  They WOULDN’T if their populations knew what was being done.  But this signature trade agreement of the Obama presidency is being negotiated in the dark because it couldn’t survive under public scrutiny.  Its only hope is secrecy, ignorance, and corruption – all of which the G-20 seeks to combat.

While you’re reading this post, it’s fairly likely that a secret faction of your government is either directly negotiating, or complicit in the negotiations of, treaties to preserve the imbalance in the current system.  And while all the media coverage on the G-20 meeting Down Under provides the cover story of global concern for a more sustainable world, the same very entities are actively engaging in agreements that conflict every piece of the cover story.  And this works as long as we marginalize our pursuit of knowledge and understanding.  Our problem is not unemployment; rather it is our incapacity to engage in a world that is fueled by accountability and productive engagement.  Our problem isn’t the lack of infrastructure; rather it’s our capability to engage our ecosystem in sustainable scale.  Our problem is not ‘developing world’ corruption; it’s our view that corporate profits are the panacea for our social challenges.  By reading and sharing this conversation, you’ll take at least one small step away from the disdain of the anonymous ‘others’ and find a possibility to elevate humanity into a more transparent and constructive alternative.

Absolutely Corrupt… Almost

When Robert E. Lee surrendered to Ulysses S. Grant at the Appomattox Court House on the morning of April 9, 1865, Grant declared that the Union had been preserved.  An ocean away, a notable Catholic John Emerich Edward Dalberg-Acton, 1^st Baron of Acton lamented, “I mourn for the stake which was lost at Richmond more deeply than I rejoice over that which was saved at Waterloo.”  His abiding sympathy for the cause of decentralized government – a cause he saw embodied in the campaigns of Lee as battles for “liberty, progress and civilization” – was but a fraction of his broader liberalist perspective.

Many of us almost know of the maxim attributed to Lord Acton:

“Power tends to corrupt, and absolute power corrupts absolutely.”

Few of us are aware of the corollary that was part of the same thought:

“Great men are almost always bad men, even when they exercise influence and not authority, still more when you superadd the tendency or the certainty of corruption by authority.  There is no worse heresy than that the office sanctifies the holder of it.”

Few of us understand the emanating impulse for his misquoted adage.  Far fewer contemplate the profound insight he maintained during the latter half of the 19^th century – insight that has been lost to the dust of time for the most part.

Lord Acton’s quote came from a letter to Bishop Mandell Creighton written on April 5, 1887 in which he was vigorously arguing against the canon of Papal Infallibility.  But in this same letter, he addressed the association between the power usurped by Kings and Popes and the rest of the prevailing systems associated with the promulgation of power – including economics (you knew I was going to get there somehow).  Conspicuously missing from our recollection of Lord Acton’s philosophical musings are his equally poignant but less anarchist observations like:

“If we may debase the currency for the sake of genius, or success, or rank, or reputation, we may debase it for the sake of a man’s influence, of his religion, of his party, of the good cause which prospers by his credit and suffers by his disgrace.  Then History ceases to be a science, an arbiter of controversy, a guide of the Wanderer, the upholder of that moral standard which the powers of earth and religion itself tend constantly to depress.”

Now, for the sake of common usage, let’s remind ourselves that the definition of power is:

Power = Work / Time and Average Power = DWork / DTime.

This formula, in isolation can neither corrupt nor be corrupted.  When applied and misapplied to human contrivances, Lord Acton’s caution is prudent.  Why?  Because when human systems are aligned for the purpose of commandeering “work” and when capricious delimitations of temporal realities are imposed, the purveyor of “authority” (the definition of “work” and “time”) is the agency through which the debasing of the system is effectuated. 

Consider the following.  Conventional economists since the middle of the 18^th century live in a Rent Labor paradigm.  Economies are said to be functioning when employment is maintained and when wages are sufficient to support a mercantile industrialist paradigm.  They are said to be in dysfunction when employment is insufficient to fuel consumption.  But does ‘employment’ equate to ‘work’?  Absolutely not.  The fact that we don’t observe this linguistic compromise does not make it unimportant.  Long before Lord Acton, social systems – notably religion and government (in his observations indistinguishable since the time of Constantine) – dissociated the “work” in the power formula from productivity.  It’s not an accident that countless heretics went variously to the pyre and their watery drownings for questioning whether “faith” or “works” were central to Christian dogma.  In a world defined by illiterate labor and conniving, self-enriching literate elite, the more people focus on the occupation of time as opposed to the substance of productive work, the more the illusion of power can be maintained.  In fact, modern government and religion would collapse entirely if we actually realized that modern power relies not on physics but on belief where:

Illusory Power = DTime Spent Thinking You’re Doing Something / DTime.

Before we carelessly react with a call for anarchy, neither Lord Acton nor I find that to be the logical conclusion of a system clearly hijacked for the benefit of the few at the collective cost of the many.  Such a response is ill-considered.  Lord Acton’s observation that most great men were bad men must be examined more closely.  In his litany of bad actors is great wisdom.  The “great men” to which his observations were made were entirely from the Christian Occident.  The “general wickedness” of “men in authority” was correct but failed to consider the fact that these corrupt characters in their full bloom came from a fertile field of surrogated masses – masses who saw the Church and State as their benefactors.  It turns out that if predators see prey turning their necks towards the fang, they tend to bite.  If, however, we interrupt this impulse to look to authority for succor but rather collaborate with authority to support general accountability, we may actually rebalance the power equation to its incorruptible state.

But what does this mean?  Well, practically it means that we have to bear responsibility for things that we have pawned off on others.  It means that we need to care for those who need support; we need to rally to productive pursuits; we need to set aside our predilection to philosophize and instead engage in real work towards real future benefit.  In so doing, we address the integrity of the numerator and reduce the capriciousness of the denominator.  This means that we’ll work for the love of its results – not for the rents we collect – and in so doing, become Great Men and Women Incorruptible.

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One Stroke (in Time) of the Lutine Bell

The French frigate La Lutine was six years in His Majesty’s Service following its surrender at Toulon in 1793.  Passing the Dutch coast in 1799, she sank and with her about 1 million pounds worth of gold and silver and her bell.  Long after her economic loss was borne by the Lloyd’s underwriters, her treasure was located and, much of it salvaged.  Most cherished of the salvaged wreck was the ship’s bell.  This bell – along with thousands of bells – once served the important role of insuring that everyone knew that something important had happened at the same time.  As church bells summoned the faithful to assemble, so the Lutine Bell summoned risk takers to account when a loss at sea was confirmed.  If the Lutine Bell rang once insurers knew that an insured loss had occurred as a ship’s overdue status had been confirmed as a sinking.  Ringing twice, the bell provided good news that an overdue ship was just late and had in fact delivered its cargo.

Edward Lloyd, the coffee and maritime gossip house proprietor on Tower Street in London was known more for his quality of shipping intelligence than his coffee.  From a reward for a missing chestnut mare believed to be taken by a man with “black curled hair” with “Pockholes in his face” published in the London Gazette 326 years ago this month to the more important news of shipping movements and calamities, Edward knew that he could sell more coffee if his place was seen as the most reliable source of news of the day.  As the bloody 18^th century opened, the speculation on shipping losses became big business.  With the seas boiling with perils – pirates, battles, faulty maps, storms, shoals – the frothy wagering on the fear of loss became one of London’s most celebrated markets.  In less than half a century, underwriting activities at Lloyd’s had become so exotic and speculative that the London Chronicle described the fever pitch of “illicit gambling” at Lloyd’s as “the melancholy proof of the degeneracy of the times.”  Those who understood the significance of disciplined, intelligence-based underwriting abandoned the debauched coffee shop and set up a new operation (complete with coffee) at Pope’s Head Alley in 1769 – just in time for the Atlantic to explode with cannon and cutlass.

There is something particularly fascinating in the colorful history of the birth of modern insurance.  Edward Lloyd knew the value of reliable information and used it to sell coffee to speculators.  John Julius Angerstein, the rate setting moral icon of Lloyd’s in the 1770s, knew that getting a jump on everyone else’s access to information was even more important.  Like the infamous Napoleonic wartime knowledge advantage that gave the Rothschilds their control of the banking system, Angerstein’s intelligence gathering collaboration with the British Navy cemented the unrivaled dominance of Lloyd’s in the market.  It’s not surprising that the 1820s competition to Lloyd’s came from Nathan Rothschild!  And while the tolling of the Lutine Bell was an essential form of leveling information asymmetry – everyone knew the conclusive facts at once – the most successful underwriters actually realized that timing of knowledge was more important than the knowledge itself. 

And here is the subtle fascination I have with this seemingly pointless, obvious fact.  Insurers, like today’s high frequency, low latency quantitative traders, exist solely based on an anomaly within our ‘civilized’ societies – a willingness to reflexively pay for the illusion of time.  When it comes to monetary-associated events, our behaviors are more similar to a reflex then a cognitive process. 

Now let me diverge for a moment for those of you who did not sit through Dr. Bruce Craig’s neural physiology lectures.  Peripheral nerves in the skin and soft tissue do a great job of triggering digital (on / off) responses.  While they are constantly stimulated, they do not trigger a response until there is sufficient stimulus at which point they have an “all-or-none” consequence.  When they fire, the neurons rush information to the spinal cord which immediately and dramatically links sense to muscle stimulation which again acts in an “all-or-none” fashion.  When you touch a hot stove, for example, your recoil is not carefully considered.  Rather it is instantaneous and reckless.  Your brain finds out about your reflex as a completed event and has no time to override the muscle response.  Considered, organized cognitive motion, in contrast, synthesizes numerous inputs – vision, distance, wind, sound, balance, capacity – and then formulates a recruitment of activation which can anticipate outcomes and then orient efforts to manifest them.

We know that events perceived to be adversity will happen throughout life.  We’ve been advised that speculators (known as insurers) should be paid a “premium” (ironic in its common derivation to the concept of a reward for a game of chance) for taking an ‘unknown’ tomorrow’s risk today.  And we know that, in most instances, when ‘bad’ things happen, these entities actually pay what they’re contracted to perform.  Societies’ willingness to transfer money to surrogates of accountability has become a ubiquitous feature of our current system.  And these surrogates actually respond – like spinal reflexes – in a timely fashion (most of the time).  But this too, is interesting. 

The Lutine Bell’s single strike meant that it was time to pay for a loss.  Everyone who had been paid to take the risk was now called to account – immediately.  Famously, Cuthbert Heath, a famous property and casualty underwriter from Lloyd’s who insured properties in San Francisco at the time of the 1906 earthquake paid not only those who had earthquake damage but paid, “all policyholders in full, irrespective of the terms of their policies.”  And herein lies a more interesting temporal nature of how the system ‘works’ for the surrogates.  By creating a near instantaneous settlement – like the spinal reflex – the societal ‘brain’ is informed of the completed event (loss and recovery) rather than taking the time to consider premiums paid to claims made.  And this time function is as, or more, important to the reinforcement of the denomination of risk than the timing of information referenced above.

An insurer and a quantitative trader are like highly refined spinal reflexes in our monetary system.  Their intelligence gathering has to involve a long-arc synthesis of observations that anyone could make but few do.  They need to be sensitive in the periphery and be masters of subtleties in large volumes of information deemed too tedious to occupy the average person’s attention.  Then, they need to modulate their behavior to evidence immediate capacity to perform – pay a claim or execute a trade – drawing as little attention to the proportionate scale of inflows and outflows as possible.  If these two dynamics are managed well, profits are amassed.  And with complex computational models which have mapped humanity’s behavioral reflexes with hyper-evolutionary efficiency, those who have sensed the most over the longest observational period will always have the coffee-house advantage. 

What I find ironic is the absence of a counter-narrative.  The model of Lloyd’s has profitably traded on temporal human reflexes surrounding loss for over three centuries.  The core principles which make insurance and quantitative speculation work have evidenced greater continual profitability than any other venture without significant government intervention or support.  In other words, We The People have predictably behaved around fear of property and life loss more consistently than we’ve done much of anything else.  So what would a system look like if it was built around presumption of resilient access to abundance?  What if our starting position was that we’ll be fine no matter what?  What type of transactions would be structured and traded around the ability to participate in the productivity to come?  I’m not talking about speculative futures which themselves were a form of insurance against future price uncertainty; I’m talking about real shared alignment against known, model-able, persistent enough.  What would accounting look like if we didn’t see a binary world of ‘gains’ and ‘losses’ but rather we saw a world of interdependent sufficiency in which wealth was informed by our ability to access resilient capacity rather than surrogate future ‘uncertainty’?  The answer is that it looks a lot different, and last night, in a coffee-shop in London, that future was born.  Ring the bell twice!  We're heading into turn two!

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