The Natural Economy

Every economy on Earth is facing large problems. The slow down in the USA, tackling environmental policy in Europe, controlling the effects of growth in China, and providing basic services in Africa are all examples of the looming problems. The fact that policymakers are missing is that the economy is a system, and like any other system it's made of entities, subsystems, and processes. These Comparing it to another system such as the life system on Earth:

	Economy	Environment
Entity	Individuals, companies	Organisms
Subsystem	Geographic, Online	Ecosystems
Processes	Investment	Reproduction
Interactions	Trade, Employment	Predator/Prey
Governing Laws	Regulations, Policy	Laws of Physics

The similarities are intriguing. Every participant is acting in their own interest which causes new entities to fill niches (Such as lichens in nature. The long tail in ecnomics). These innovators help to expand the system (certain plants grow faster in recently burned forests. The tech industry provides jobs to many recently impoverished populations). Resources flow throughout the system (Energy and water in nature. Money moves through trade and investment in the economy). Some act as buffers (Trees to absorb CO2. Banks for lending.) while others inadvertently work together (The tiny fish that clean sharks' teeth. The joint ventures between multinational corporations).

This leaves questions unanswered though. Why hasn't the success of industrial nations spread to the destitute parts of Africa? Why can't even well developed economies be sustained without government management the way the earth sustains life without having to alter the natural laws? I believe the answers are in the laws: the laws crafted always have unintended consequences (sort of like how every drug has side effects). These mismanaged regulations act like an economic pollution, disrupting the entire system.

Milton Friedman proved to most of the world that the less regulation and government intervention in economic affairs is better for the economy. I think it caught on so well because laws intended to solve one problem usually creates other problems. The regulation we humans make are not 'natural' or universal like laws of nature. As an example, gravity has an effect in all situations, from the planets circling or limiting flight to certain creatures on earth. The difference is the effect of the law of gravity always serves the purpose of maintaining equilibrium. Tax laws provide loopholes, energy subsidies that keep rates low discourage more expensive renewable energy, i.e., the laws we create are imperfect. This is likely because most laws crafted are reactive instead of proactive. (This is inherent in democracy because it requires consensus.)

The idea is that as a society we should work towards making our economy more 'natural' in this sense. It will provide more stability and equality for all. The process will not be easy, like science it must constantly be reexamined with increasing understanding. This will be hard to reach consensus on as the system is so complex. I think the best idea would be to start with tenants we can agree on such as achieving energy security or easing the forces that keep more people from investing in retirement rather than relying solely on pensions. It will take time and there will be mistakes, the central bank had to learn how to work as well as they do now (it's been seventy something years since we've had a worldwide depression). It may be a pipe dream but you've gotta have some hope.

What are your thoughts o n the matter?

The EU Goes Mediterranean

According to this article from Reuters, there different members of the European Union are squabbling over a proposal to create a 'Mediterranean Union' to expand and augment the goals of the European Union. Sarkozy could not be more ahead of his time by proposing this. For those who don't know more about this issue, information can be found here and here. It appears the most common reason for criticism is that the current EU members and the EU Commission are afraid of funding and resources being diverted from EU goals, such as setting up a Mediterranean Investment Bank. This argument has some valid points, after all there is only so much time, money, and political will to go around. The argument for the Mediterranean Union has noble goals as well, such as spreading human rights, development aid, and democracy to Mediterranean Nations. Another problem with the proposal is that many of the prospective nations are ruled by authoritarian governments that the EU doesn't want to blindly give funds without any oversight. This is also a valid concern but it must be dealt with because the nations with these types of governments are the most in need of civil freedoms. Similar issues arose in the 1950's and 60's when the EU was beginning form and the solution was to keep the process slow and focus on areas of agreement and mutual benefit such as the European Coal and Steel Community. I think this lesson would be well applied in this situation. Encouraging a few coastal Muslim countries to embrace freer trade agreements could lead to them adopting more secular laws and human rights as well as helping Europe and Middle East/North Africa to diversify their economies and generate employment.
Do you think this plan could work? How would you approach the situation?

Another Desalination Plant

According to a recent article on reuters, Peru has begun using desalination to meet water needs. This method is becoming increasingly common, especially Cyprus and parts of Africa/Middle East. It is only a matter of years before severe water shortages hit the Southern U.S. from Georgia to the Southwest and the Coast of California. The U.S. should start investing in water infrastructure projects and increasing water efficiency, preferably before aquifers are depleted. The major challenge to overcome is developing a way to finance these initiatives that satisfies all parties. Ideally it would be made of mostly private sector financing to spur job creation. During the great recession many public works projects were initiated to improve the economy. The current economic outlook (many consider a recession as of 03/07) would warrant some sort of government investment, and this type of investment would improve the economy and the lives of citizens for years after the project is completed.

What are everyone else's thoughts on the issue?

The Biggest Problem Facing the Federal Government

1. Healthcare

2. The War in Iraq

3. National Debt

4. Mortgage Crisis

5. Taxes

6. Iran's Nuclear Government

7. Education

8. Immigration

9. Global Warming

10. Terrorism

These are probably the 10 biggest problems that come to mind (in no particular order). If this is true the problems seem almost too complex to solve due to the interactions of each issue and how altering one system creates new changes in all related systems. An example of this:

Providing amnesty new large amounts of immigrants creates strains on the healthcare and education systems, which would require more infrastructure to be built such as more grade schools to educate them and hospitals to treat them, which would have to be paid for taxes and/or bonds, either of which would affect the tax system or the national debt. Also, there would be a shortage of trained teachers and healthcare professionals so more immigrants would be required to fill the gaps and the cycle could start all over again.

With each interlocking piece the puzzle becomes more complex. The way to exploit this is to break it all down to the simplest, underlying issue. In this case one word can sum it all up: goals

Goal-setting and goal-oriented are two requirements found on most job ads (don’t believe me? Search monster.com). This doesn’t just mean setting a vague, “aspirational” goals, it means setting precise, quantitative goals and a plan to achieve it. The federal government (and many state governments) does not follow this policy even though any corporation that wants to remain competitive does. An example of this:

The Department of Education’s mission as quoted from the website is “to promote student achievement and preparation and ensuring equal access.” This is a great goal but the problem with it is how do you measure progress towards achieving it, how do you know if education is improving or falling apart, how do you tell what is holding back the current level of education from being even better. In contrast, a CEO has to provide a plan (including concrete steps and benchmarks) to board members on how he/she is to improve the competitiveness of a company.

An issue that may be brought up is that not every department needs to improve. This is dangerously wrong because we always need to be moving forward and there are very few things we do better than no one else and there is always room for improvement.

The benefits achieved from this type of reform would be numerous. This system would provide a results oriented central government. Citizens should embrace it because it provides a purpose for the tax dollars the government collects. Political parties would benefit because they could directly compare the success of departments under presidents of different political parties. Even special interest groups should approve of this because they could merge their goals into the goal of the relevant department. If each president had to determine goals for each department, it would provide an open channel for concrete reforms. It would also be easier for undecided voters to choose a candidate because rather than seeing how candidates stand on isolated issues it would let the voters see the more comprehensive direction that candidate would take the country.

But this is just one stranger’s rambling thoughts. It’s a free country; voice your opinion on the subject.