How Pascal's Wager Underpins Modern Consumerism

Pascal's Wager, I believe, is based on three principles, which to Pascal seemed logical, but I do not accept. They are

- Black and white choice
- Not possible to know the truth
- Self interest dictates our decision

Pascal's Wager was just possibly a tongue in cheek comment. He was famous for using satire and ridicule in his writing. But on the other hand, he was a convert to Christianity, and was reputed to be quite an angry and morose person, so... probably he meant it.

Pascal used his idea of the wager to convince people that they should believe in God. Ironically, it does not argue that God exists, just that you would be better off acting as though God exists. So he was really telling you to pretend you believe in God, even if you really don't. Or at least start by pretending you believe in God and one day maybe you will genuinely believe in God.

Pascal was interested in gambling, and he invented a primitive roulette wheel. Got into a lot of arguments about whether a vacuum could exist. He opposed the "Rationalism" argued by Rene Descartes. i.e. "any view appealing to reason as a source of knowledge or justification". In politics, this rationalism has led to something between "internationalism" and "realism".

I am beginning to remember why I stayed away from Philosophy courses at University. All these philosophical offshoots seem to be a jumble of ideas that do not follow logically. For example, I might disagree with Pascal's conclusion about the belief in God, and I am more inclined to Rationalism instead. But I don't really see that Rationalism is the opposite of Pascal's Wager, in that Pascal was simply using rational thought about belief in God. In politics, Rationalism apparently leads us to two views, Internationalism, (that I believe in) and Political Realism (which to me seem like just another offshoot of Pascal's Wager).

Internationalism holds that all nations of the Earth are more or less equal and should cooperate rather than try to dominate each other, Political Realism holds that national interest should take precedence over ideology.

Pascal wrote about his wager in the 1600's, and his idea is even more important today as the philosophical underpinning of all spam, lotteries, all propaganda, all consumer marketing, the "invisible hand of the free market" and all of George W. Bush's decisions.

Let's take spam for an example of Pascal's wager, from the point of view of the sucker who falls for it. You receive an email, let's say it is promising you a larger something. First, your mind is focused on a simple choice, which is limited to a binary on/off decision: to have a small one or a large one. Second, you have no way of knowing the truth of any of this: Can this product help you or not? Do you actually have a small one or not? You do not know. And third, your self interest is to be happy, and you are being told that happiness depends on answering this email. Like Pascal's wager about God, you are told you have nothing to lose by answering (money back guarantee), and everything to gain. If everybody was rational, no spam would ever get any replies. But if some people make decisions in the framework of Pascal's Wager, some people will reply.

The converse of Pascal's wager would be something like this.

- There are grey areas in any choice, and other alternatives to the two being presented.
- Ultimate truth may not be possible, but seeking the truth is a moral obligation.
- Self interest should not take precedence over truth.

If everyone made decisions according to the converse of Pascal's Wager, not only would it mean and end to spam, but possibly an end to free enterprise and consumerism as well. But of course, it is one thing to talk about denying self interest, and quite something else to do it.

Picture: That's a modern roulette wheel. Mathematically, you would do better at a roulette wheel than with a lottery ticket. (although in both the odds are that you lose)

There are Limits to Human Intelligence

"We have met the enemy and he is us" has got to be one of my favourite quotes of all time, by cartoonist Walt Kelly who drew the cartoon Pogo.

The meaning is that we are our own worst enemy, or that we do things that ultimately hurt ourselves. It's not like we set out to be our own worst enemy, we probably get there by degrees and through inattention or pure stupidity.

So here is an article "Human Failings Led to Oil Disaster" about how the oil spill in the Gulf of Mexico was likely caused by human error. And not just one error, but a series of errors that could be referred to as systemic human failure.

In the article is an analysis of typical failures, and mention is made of other large scale human failings, the Financial Meltdown of 2008, and the Three Mile Island nuclear accident. It's interesting that while one individual human error is hard to predict, it seems like large scale systemic human failure might be quite predictable.

"This isn’t just about oil. It’s a challenge for people living in an imponderably complex technical society."

New York Times

We had our own massive failure in Ontario back in 1997. Actually, like all massive human failures it started before 1997, but the whistle was blown and the plug was pulled in August 1997. Ontario Hydro, after a run of embarrassing accidents, and finding drug paraphernalia in the control rooms of their nuclear reactors, had called for an independent assessment of the situation, and was persuaded to shut down most of the nuclear power system indefinitely. The verdict, reduced to it's simplest form, was that normal Canadians could not be expected to run something as complicated and dangerous as a nuclear generating system safely.

http://www.ccnr.org/nucaware_hydroletter.html

http://www.encyclopediecanadienne.ca/index.cfm?PgNm=TCE&Params=M1ARTM0011388

The shutdown was huge, and cost Ontario taxpayers billions of dollars, and was more or less the end of nuclear power in Canada.

The cartoon series called "The Simpson's" was based on and around the operation of a nuclear power plant. Homer, pictured above, is the main character, and one of the all time stupidest characters to ever lead a normal life in a cartoon, was the employee in charge of the nuclear reactor's control panel. And for all his stupidity, Homer's behaviour was not really outside the bounds of what you might expect to see in normal people you see in the street, not to mention neighbours, friends, even relatives.

I think there are many more examples of these large scale mental breakdowns, but how about this small one. Back in 1961, people drove around without seatbelts or airbags, drunk out of their minds, with the kids rolling around loose in the back of the car. Today, drivers are sober (more often than not), the babies are in their restraining harnesses, and cars are huge "safe" SUV's with air bags and anti-lock brakes. But now the drivers are reading the newspaper or text messaging at 100 km/hr. Although on a personal scale, it proves that the saying from Pogo "We have met the enemy and he is us." is still as true as ever. As we develop ever more complex systems, the most serious problem to face mankind is plain old lack of brainpower.

Zen and the Art of Traffic Gridlock

Most people think they know what gridlock is, but I want to go over it again because it happens to highlight one of the most important principles in civilization, and if we could solve gridlock, we could solve any human problem.

Lets start with the basics. In a crowded city, such as New York which happens to be laid out in a grid, traffic will occasionally come to a complete halt in a feedback chain reaction. Imagine a city block which has an intersection at each corner, when traffic is very heavy. Now imagine what happens at one of those intersections when the light turns red, but some cars are stuck in the intersection and cannot move forward or back. Now the cars with a green light cannot move either, because of the cars in the middle of the intersection blocking their progress. Immediately, more cars become blocked behind them, and if the line stretches back to their previous intersection, then that one also becomes blocked the same way, and the chain reaction will now occur in all four corners of the block. And with one city block completely stuck, neighbouring blocks will also get stuck the same way. That is what we call gridlock.

In principal, gridlock can happen in places other than a grid, I have seen pictures of gridlock even in a traffic roundabout, where a line of buses in the circle may block and exit to the roundabout, when they get stopped by slow traffic, and the feedback loop quickly travels back around the entire roundabout to lock it down solidly. These traffic jams are apparently very hard to break up.

The root cause of gridlock comes down to human nature. Each independent driver is trying to get through the traffic as quickly as possible. So they may make a decision which superficially may help them get a head a little further. But their decision blocks another driver, and the feedback from that eventually blocks the entire traffic flow for the whole city. The psychology of this is very interesting, because even if you explain to each driver how to act in order to ensure the free movement of traffic, they will continue to behave in such a way as to move themselves ahead of the rest, which gridlocks the traffic, where they themselves will be stuck for hours.

So if I may define the gridlock mentality as one where a person will make some small action to serve themselves. seemingly at the expense of only a few others, but the the effect on the others multiplies around in such a way that it brings down the whole system, including the original perpetrator.

The solution for gridlock is for drivers to not move ahead if doing so will block the cross flow of traffic. After all, the cross flow is not really competing with you. Those divers are not trying to get ahead of you, they are just going their own way, but need to cross your path to get there. You must not enter an intersection even on a green light, if there is no place for you on the other side. But it is hard to get everyone to understand this is the problem. In other words, moving ahead is not always wise if you want to keep moving ahead.

Politics, economics, and war also suffer from gridlock mentality. This is the kind of "self interest" that gives a temporary advantage to one person while starting the chain reaction that brings down the whole system for everyone. Think of the big banks, that get spooked by bad economic news, and withdraw their loans to protect their own interests, which shuts down those borrowers' businesses, which in turn lay off employees, who in turn withdraw their money from the banks, thus driving the banks out of business anyway. The circular chain reaction always comes back to the starting and then spreads further.

This gridlock mentality applies to a military occupation, where soldiers are torturing and killing innocent civilians to get information, the negative effect of which multiplies to more civilians turning against the occupiers until they finally have to give up. A small advantage one minute, torturing and killing happily to "stay safe". But the advantage in temporary security turns millions of people against the occupiers, and the war is lost. Terrorists are always trying to find ways to enhance the "gridlock" effect against the occupying forces.

The temptation to gridlock mentality is the fatal flaw of pure free market capitalism, just as lack of incentive is the fatal flaw of communism.

Two thousand years ago, a man appeared on Earth with the solution to gridlock. "Do unto others as you would have them do unto you". "love your neighbour and your enemy" and "let he who is without sin cast the first stone." Instead of listening to him, he was crucified by the very people who two thousand years later would invent gridlock and laissez faire capitalism.

One day, maybe all people will understand how their own innocent (but self serving) actions sometimes start a chain reaction that comes back to bite them in the rear end.

Pictures: A diagram of gridlock from Wikipedia, and a gridlocked traffic circle.

CBC TV: Kevin O'Leary, Eco-preneur or Guru of Greed?

Last night I saw Kevin O'Leary, the CBC's new guru of greed. He may one day be to finance, what Don Cherry is to hockey. He is on a show called the "Lang and O'Leary Exchange". As it says in his bio on CBC, "O'Leary is opinionated, ruthless, he hungers for big deals and loves to take control. Yet he made his millions helping children learn how to read." Isn't that sweet? He also calls himself an "Eco-preneur", because his company "Englobe" saves the environment. Well if he's an ecopreneur, I'm a skeptopreneur.*

Kevin was speaking about the proposed US regulations that will prevent banks from creating another financial crisis, and he proclaimed that Obama's regulations are going to destroy the only thing that is actually making money any more. According to Kevin our only way to wealth is by using ever more complicated investment "strategies" (I call them PWDs, or Pacts with the Devil). Kevin also says about Obama "Somebody has to stop him!!!". Kevin wants to see the American banking CEO's left alone, because "They are greedy people, and greed is good!!!" and "They are my kind of people."

Apparently, Kevin is no longer the kind of people who make their millions helping little children learn to read.

Does this seem right? You take a pile of money, and double it just by swapping things around and playing with the figures. Forget about lending money to businesses and homeowners when you have this kind of return on investment available.

Personally I think the banking CEO's have now completely lost their minds. I heard one of them, in front of a senate inquiry tell this story to explain the financial crisis. He said "My daughter called me from school, she was worried because she heard there was a financial crisis. She said 'Daddy, everybody says there's a financial crisis. What's a financial crisis?' and I told her 'A financial crisis is something that happens every five to seven years'".

I have no idea why a banking CEO found it necessary to tell this childish story to a senate inquiry, or actually why the CEO himself would be worth tens of millions a year, when he is incapable of running a bank that does not collapse every few years, and thinks financial crashes as normal. He doesn't even seem to be interested in why they happen or how to stop them. Apparently he makes money no matter what. Then the inquiry had to listen to a CEO who explained how they were cutting secretary's salaries to make the bank run better. I don't want them to cut secretaries' salaries, I want them to cut the CEO's salaries. And cut the million dollar bonuses.

So apparently we don't make money with hard work, with thrift or saving any more. The way to riches is with accounting tricks, Ponzi schemes, golden parachutes, bailouts and a call upon the power of "Greed". Is that really the way to prosperity? Even if we don't think so now, put Kevin O'Leary on TV for a while, and some Canadians are going to believe him.

Footnote
* About "Environmental" companies like O'Leary's Englobe, and why this raises red flags for me. About ten years ago I invested in a company called "Phillips Environmental", which was in the same business as Englobe, getting rid of waste, toxic stuff etc., with an emphasis on re-use of chemicals. It did sound promising, and they did a lot of business, because there is so much demand for the service. A nice clean way to get rid of every kind of hazardous toxic waste, with no liability for the customer. Unfortunately, in this business, the customers rarely ask questions once the waste is gone. If the customers don't care, then who does? The owners of the waste removal company are the only ones who care whether they live up to their promises. This is an unusual ethical challenge. Phillips succumbed to the temptation, and started dumping their toxic waste illegally, and got caught. I luckily had gotten out early, because I know somebody in the environmental movement. When I told her of my "green" investment, she said "I don't think so". She had been asking questions about Phillips Environmental, and they were blocking her from finding out what they were up to. Now I don't think I would ever trust an environmental company led by someone who says "greed is good", and "greedy people are my kind of people". I would be more likely to start an investigation.

The Myth of Limitless High Priced Oil

Here is a comment off the Internet about why we should not invest in alternate energy right now.

"Crude oil, next to water, is the most plentiful liquid in our globe. We are not in danger of running out of crude for at least 100 years — probably much longer. The supply during this period would be limited by the price, not by any metaphysical limit of the amount of crude oil. A higher price will produce massive amounts of crude. There is no reason, at this point, to impoverish our nation with a new system of expensive, unproven “sustainable energy.” Does anyone have any doubt that by 2100 we will have found new ways of tapping nature for our energy needs?"
by derekcrane

To me it does not matter whether we have more or less oil than water, or whether oil is second or tenth on the list of earth liquids, or even if oil is a liquid, gas or solid. However, an estimate of the number of years left is worth knowing, and although 100 years seems to have been picked out of the air, I'm going to go with it, as I have nothing better to offer.

Derek is quite right in stating that the price will dictate the amount of oil available. But is he aware that there are two sides to the price issue? Side 1. How much it costs. Side 2. How much you can afford to pay. Derek seems to ignore the affordability, probably thinking that America will always have enough money to pay for the oil no matter how much it costs.

It is very complicated calculating the real cost of oil. It's not just the cost per barrel on the market alone. It's how much more money was wasted, either in trying to obtain oil (whether successful or not), transporting and extracting the oil, in protecting your oil supplies, defending supply routes, or in trying to deny other people access to oil that you want for yourself. Also in trying to fight an evil dictator who happens to be sitting on top of the world's richest oil reserves. All these problems get worse as the oil gets more scarce, and more valuable. For example, the more an oil tanker is worth, the harder pirates will try to capture it.

Was the war in Iraq priced into the cost of oil in the US? Then oil would cost a lot more, but instead the cost of the war was largely assigned to a military budget, and paid for out of the general tax pool. Which means basically money was borrowed from China, because the US tax pool does not want to pay for anything. If an unlimited supply of oil was available in the US, maybe the war would not have taken place. If oil was cheap, Saddam would be no threat.

Another cost that is not being calculated is the cost of global warming. Maybe that cost will turn out to be zero, but it would be prudent to budget for it anyway, starting now. Lets say the US military is right in it's estimate that global warming is going to cause a big (and expensive) security threat. That cost is not being assigned to oil right now, but it probably should be.

As oil gets harder to find, it takes more oil to produce the oil, so the price does not go up linearly, it goes up exponentially. In Canada's tar sands, we may already be operating at less than 50% efficiency, where two barrels of crude are burned to extract one barrel.

Not only is the price of oil going up, but your buying power is decreasing. In fact, already America does not have enough money to pay cash any imports, including oil, imports are financed by borrowing. It takes years to build up a debt but the lender (mostly China) can pull the plug in minutes when they think they no longer need you. At the point where your loans are called in, you no longer have enough credit to continue importing oil. When that happens, do you really care whether or not there is any oil left?

The world used to have lots of alternate sources of energy, but the exploitation of oil has just about eliminated any competing energy source. That's because oil has more bang for the buck than anything but atomic energy. Other energy sources, such as hydroelectric, solar, wind power are at least ten times as dilute, which makes them expensive and non-competitive. Especially so when so much of the secondary cost of oil is being hidden in military budgets and government subsidies.

Why should we invest in alternate energy starting right now? Because if we do nothing now, we are wasting time we will need to develop new technologies. Waiting till the last minute (even if it is more than a hundred years from now) and hoping for the best is not a good plan. Right now we can afford to do the research, and we have unemployment since all our manufacturing process has gone to China. We would not really miss the money invested in developing alternate energy sources, or in reducing our energy consumption. Using a word like "impoverish" is quite an overstatement for a country that spends billions of dollars a year in useless doodads from China, that get tossed in the landfill within weeks for some new toy.

Picture: from http://earthfirst.com/oil-about-to-run-out-leading-energy-expert-says/

Economics 101: The House of Cards

To make sense of economics on a national level, you must first recognize that national economics are not like personal economics. Just because somebody is able to balance their checkbook and pay their utility bills on time does not qualify them to advise the government on economic matters. Especially if those people spend time praying to Jesus to win the lottery. So let's not listen to people who claim that because they have "common sense", that they can tell you what's wrong with the government policies.

On the other hand, it should not be impossible for the average person to understand some of what is going on with the economy nationally. Let's start with money. For an average person, money = wealth. For a country, money does not really equal wealth, at least not the way it does for private citizens. Unless those citizens can print their own money. Because the government can do that.

One other difference between national economics and personal economics is the theory of probability. On a personal level, you can decide what day to buy a car, or buy a house, or quit a job. But on a national level, the economy is made up of millions of people making those decisions, and the government tries to control the probability of the decisions through taxation, or interest rates. The reason the government tries to control the probability (or even things out), is because it will never do to have nobody buy a car for three years (for example) then all of a sudden everybody wants one on the same day. The average person is accustomed to being able to go without buying a car for three years, but that only works because other people are buying cars at different times to keep the factory in business. In national economics it's important to understand this concept of probability. Or at least know that it exists.

The reason I brought up the concept of probability now, is that people actually used to understand this much better. It was well known back in the thirties that if everybody tried to take their money out of a bank at the same time, and nobody was putting money in, the bank would collapse. Many banks collapsed for exactly this reason. Since then the government made rules, and set up institutions, to stop this from happening. The unfortunate side effect is that so many people today have no clue that it could ever happen. And so there is no understanding of the rules or the institutions that keep it from happening.

Just last month, we has a "crisis" with H1N1 flu shots. Why? because on Friday, nobody wanted to get their shots. Saturday a little boy died of H1N1 playing a hockey game. Monday, everybody in Canada wanted their shot on the same day. The fact that there were long lines was not a failure of the government, it was simply a failure of random probability at vaccination centres. I was quite amazed to see that nobody on TV at least, understood this in their commentaries.

We have definitely entered an age where not only are people increasingly ignorant of how things work, including the laws of probability, but they are also ever more vocal in their complaints about how things are getting done. An example of this was the attempted ouster of Stephen Harper last year, that many people misinterpreted as a "coup d'etat" but it was actually part of parliamentary tradition dating back to when Canada was born.

One of the problems with a Free Market Capitalist economy is that it is prone to periodic booms and busts. This the opposite of a communist planned economy. While most people understand that in a free market economy, prices tend to be set by "the invisible hand of the market", they do not understand that, if left alone, this would result in wild swings of prices that would eventually crash the economy. So some fiddling under the table is required to keep things stabilized.

Back in the depression, it was discovered that the government could actually help get the economy going by boosting its spending at a time when all privately owned companies were cutting back. This theory has been tested again and again. Strangely it is still not without controversy, free market extremists believe that Governments should do nothing to interfere with the "invisible hand" of the market. And for some reason you hear a lot of their discredited opinions on TV.

In this controversy, I believe in government intervention, as do almost all serious economists. I see it this way. The government acts kind of like any other business in the economy except that it is much bigger. So when every other business is slashing its costs and laying off people, the government can go ahead and boost its spending to even things out. Of course it's not as simple as that, but you can see how, if the government did the same as everyone else in a recession, you would have your classic panic situation similar to a run on a bank.

One more supposedly common sense idea that needs to be explained. These days, it is common to hear people proclaim that taxes are theft. That is nonsense. Taxes are not theft. Taxes are the price you pay to live in a country that provides services that you use every day, even though many of them you may be unaware of. Police, fire departments, the army, the schools, the justice system, the roads, the safety of food you are served in restaurants. As we learned in Ontario a few years ago, even the purity of the drinking water is assured by the government. We tried to cheap out and people died. Then everybody lost confidence in our drinking water and a new industry sprang up to sell bottled water that was no better than free drinking water but cost a thousand times more. Then our garbage dumps started filling up with empty water bottles, and finally we are starting to go back to drinking water from a tap. All that nonsense and waste, just because our "common sense" conservative government thought it made no sense to check the drinking water.

No matter what you might hear, taxes are a price you pay for living in this country. The only theft that happens is when you cheat and don't pay. And its about time we got some real experts on TV explaining our recession. It may be harder to understand, but there's no excuse for the nonsense that people are being fed daily about economics.

Buggywhips and the Green Car Challenge

Jay Leno is back on the air, and I'll admit I usually like listening to him. Last night, though, his guest was Rush Limbaugh, one of the most widely listened to radio hosts in the USA, who also (in my opinion) is an ignorant right-wing ass. OK now I got that out of the way, I will make my own comment on the appearance, as I finally decided to watch, in a very close decision.

Jay took issue with Rush's criticism of Obama for bailing out the auto industry. Jay's point was that he wanted cars to be made in the USA. Rush's point was that you had to let the market take its course, and Rush was certain that whatever the market did would be good. I am not sure that sending all the manufacturing jobs to China would be the best outcome, which is exactly what Jay was worried about too. Jay Leno represents the average American with general knowledge who can also use reason. The Rush came back with an analogy of the type that I love because it is so easy to turn around against the perpetrator.

Rush said that the car industry today is like the buggy whip industry of a hundred years ago. Let it fail, something better will come along if you just leave the free market alone. What Rush appears to not understand about this analogy is that buggy whips are not like cars. Buggy whips are so easy to make that even I could make one. And if you really need to hit a horse, maybe a long stick would do in a pinch. The buggy whip industry died a natural death. But manufacturing a car is complicated, and involves many different processes. From making steel to developing electronics. If manufacturing moves away from the USA, all that will be left is an unskilled and almost defenseless country with no domestic manufacturing. When the factories have gone, they do not come back.

Rush's highly paid job is not a productive one. Rush is more like a parasitic disease on America society - destroying knowledge with disinformation, building up senseless fear and promoting class warfare. If the free market had any say, Rush would be broadcasting only to some county of Oklahoma where nobody knows the name of the first president of the USA. It is the lack of free market competition that allowed Clear Channel Communications to buy out all the competitive radio stations and replace them with the sea-to-sea drone of Rush Limbaugh's ignorant rants.

What Rush has done to radio, he wants to do to the American car industry - destroy it.

But nothing illustrates Rush's lack of character more than the "Green Car Challenge" Jay has set up a race track with obstacles, and he wants some of his guests to drive an electric Ford Focus around the track as fast as possible. Last week, Drew Barrymore was a good sport and did a nice job, missing the cutouts of Al Gore on the second lap. Rush seemed quite a poor driver to me, and refused to wear the helmet. He gave up on the last lap and simply ran back and forth over the cutout of Al Gore, then said he lost on purpose. Jay kept up his cheerful demeanor, but I think I know how he felt.

Economics 101: A Slow Day in a Texas Town

There is a story being circulated on the Internet that seems like propaganda, because it is found mostly on libertarian or conservative websites, and because it mentions Texas. Here is the story followed by my take on it.


It is a slow day in the East Texas town of Madisonville. It is raining, and the little town looks totally deserted. Times are tough, everybody is in debt and everybody lives on credit. On this particular day a rich tourist from the East is driving through town. He enters the only hotel in the sleepy town and lays a hundred dollar bill on the desk stating he wants to inspect the rooms upstairs in order to pick one to spend the night.


As soon as the man walks up the stairs, the hotel proprietor takes the hundred dollar bill and runs next door to pay his debt to the butcher. The butcher takes the $100 and runs down the street to pay his debt to the pig farmer. The pig farmer then takes the $100 and heads off to pay his debt to the supplier of feed and fuel. The guy at the Farmer's Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has lately had to offer her "services" on credit. The hooker runs to the hotel and pays off her debt with the $100 to the hotel proprietor, paying for the rooms that she had rented when she brought clients to that establishment. The hotel proprietor then lays the $100 bill back on the counter so the rich traveler will not suspect anything.


At that moment the traveler from the East walks back down the stairs, after inspecting the rooms. He picks up the $100 bill and states that the rooms are not satisfactory...... Pockets the money and walks out the door and leaves town.

No one earned anything. However the whole town is now out of debt, and looks to the future with a lot of optimism.That, ladies and gentlemen, is how the United States Government is conducting business today.

If that doesn't scare the hell out of you, then I don't know what will.


Well, one thing is sure, after this, I will not be leaving any hundred dollar bill on any hotel desks in Texas!

This paradox actually does illustrate one point quite well, the usefulness of non gold based paper currency. Which I think is the opposite of what was intended, knowing that Ron Paul opposes any currency not backed by gold. In this example you may notice that everybody actually had zero net debt. A simple way to clear up their outstanding debts would be if the hotel manager had written an IOU "payable to bearer" for $100, handed it to the butcher and waited until it came back from the prostitute - then he could tear it up, and everybody starts over. No U.S. currency is even required, just a paper with some reputable signature. Although, having been to Texas I'm pretty sure that the equivalent in Canadian currency would not have worked at all!

One other thing, the statement "no one earned anything" is actually false, in that each person had provided some goods or services to earn $100, the only thing lacking was a "medium of exchange", similar to what happens when credit shrinks. In this case, the $100 bill did the trick. But another medium of exchange could have worked too.

This story is interesting to me because it actually resembles what used to go on in isolated fishing communities in north east Quebec during the winter when the supply boat could not get through. In the absence of a bank, or of any outside trade, people would simply write checks to each other, which would then be passed around almost like currency until the supply boat came back in the spring with its on board bank branch. Then the residents of the village who were holding the checks at the time could clear them.

Forward to the Past

Over the past twenty years the productivity of North Americans has declined, while the standard of living has continued to go up.

Back in the fifties, Americans produced more cars than anyone else, built the Interstate highway system, built planes, boats, televisions, stereos, refrigerators, boots, tools, atomic bombs, washing machines, as well as putting up houses and everything else. Then an erosion of jobs began, taking industries away from North America and moving them to low-paying countries. First transistor radios in Japan, then other countries such as Mexico, Indonesia, and Taiwan. In the last 20 years or so, China has become the major producer of our consumer goods. Meanwhile we have lost most of our industrial base, along with all the jobs they provided. Those jobs have been replaced with burger flipping jobs or part time jobs, including the "Wal-Mart Greeter" jobs.

The reason we didn't react to the decline in productivity is that our standard of living has not declined along with it. Actually, our standard of living, measured in consumer goods, has gone up, not down. This seems to fly in the face of logic. The less we produce, the more we have. We now have more cars than people, more TV's, bigger houses, with more bathrooms and garages than ever before. We go on more vacations to more exotic places, we own bigger cottages ever further from their home, and we have more toys such as RV's, boats, planes and motorcycles.

How is it all possible? Well more credit is available for one thing. We know not where this credit originates, but we do know that when we go down to the bank to get a mortgage, we are approved more easily than before, we lie about our income more easily, we get lower down payments and lower monthly payments for anything we buy. So part of our easy life is easy credit. Another part is our inheritances. Those hard-working and frugal (that ugly word!) parents who made it through war and depression are dying and leaving surprisingly large sums of money to their children who promptly use it to leverage more credit to ratchet up their standard of living once again.

I'm not going to go into why we even want a higher standard of living. I'm going to assume that it's natural and even without the inundation of commercial advertising, we would still want to have more, bigger and shinier stuff.

Maybe something needs to be done at last. Let's consider the latest market crash, and bankruptcy of Chrysler, General Motors plus the millions of jobs lost and houses foreclosed. We need to get serious about reducing our standard of living. Or it's a sign that we need to start being more productive - meaning building things, or at least creating jobs that are more productive than Wal Mart Greeter.

Actually, would it be so bad if we went back to the standard of living of our parents? High school kids would not automatically have their own cars. Wal-Mart Greeters would not be living in three-car garage, six bathroom mansions. In the summer we would go to the nearest beach, not the furthest one on Earth. I should not have to go through the whole spiel, since at least some of us remember life in the fifties and sixties. By today's standards, the way we lived in the sixties would be considered utter grinding poverty. But if we went back to the material level of comfort of those times would we really suffer all that much?