Debt and Transparency

If one wishes to create a just deserts economic system in which benefits recieved are related to contributions made, then economic transparency is a must.

Debt is one of the many instruments that societies use to adjust the benefits that different individuals and groups receive out of the total production of the society, and it has some commonalities with the others and some differences. One of the commonalities is that it is used to transfer production benefits from one individual or group to another individual or group. Taxes, subsidies, fees, fines, wages, salaries, tolls, alternative remuneration, and many others share this trait. One can design a socio-economic system using any of them to adjust the allocation of benefits among the individuals and groups, and a change in one of them, for example, a revision of the tax rules, can be thought of having a primary purpose of taking some wealth or income from one subset of the population and delivering it to another subset. Of course there could be a three-way redistribution or a four-way, and while these are interesting, let’s just look at the simplest case.

Debt is a number on an accounting ledger. The movement of benefits occur when the magnitude of the debt is changed, or the interest on the debt, if there is any, is paid. If A owes a debt to B, if the debt is increasing, A is receiving some benefits accounted for by that, and B is losing some. If A pays interest on the debt to B, B is receiving some benefits and A is losing some. If the debt is forgiven, A is receiving some benefit and B is losing some. If the debt is paid off, B is receiving some benefits and A is losing some.

If there is some higher-order regulation going on in the society, so that, for example, the governance is seeking to have some influence on who gets benefits and who loses them, they can do so fairly directly by taxation, which is typically within the purview of a government. Taxation, positive or negative, of the payment of interest on a debt can be done, and was historically part of the US code for many years before being eliminated. It was negative during that period for the payor, and still is for mortgage interest. Taxation, like every other type of transfer of benefits, has side effects, in that individuals and groups adjust their behavior based on their total benefits, including both debt and taxation. It also, like every other type of transfer of benefits, is gamed by those involved with it to maximize their own received benefits.

Like wages and salaries, debt can be transparent or opaque. However, with wages and salaries, the side losing benefits, the payer of the wages or salaries, is likely to be obvious, except for some small fraction of the remunerated work done. The payees are also fairly obvious, but the amounts can be confidential. With debt, it is the custom that one side is transparent and one side is opaque.

When an individual takes out a debt from an institution, it is really a debt between that individual and the owners of the institution. For an individual taking out a debt for the first time, or even beginning the arrangements for an eventual debt, the individual would not be disclosing any other debts, as there would be none. However, as part of the process by which an individual demonstrates his ability to handle the terms of the debt, the individual taking out a debt is forced to reveal all his other debts, as well as economic information which might inform the potential creditors about the individual’s likelihood of repaying that debt or otherwise complying with the terms of the debt. This information is in the direction of transparency.

Despite this, there is no comparable transparency on the part of the grantors of the debt. If it is an individual, there is no block of information on this individual’s total loans or other financial information. Perhaps for the purpose of the immediate loan, this is not relevant, as if the loaning individual has the wherewithal available, then it is irrelevant to the debtor what the other financial conditions of the creditor is, unless there is something in the contract that makes it relevant, for example, allowing the loan to be called in under certain conditions.

For the purpose of a governance-wide understanding of the financial condition of the population they govern, it is relevant. Because there are multiple feedback loops which can severely distort the benefits distribution in a governed area, this type of information would provide governance and anyone else who wanted to know, for example investigative reporters, with some data to help them form their conclusions. To be more specific, if it was true than ten individuals owned almost all the debt in a large region, and this was unknown, then those in governance could not readily assess what might happen under different sorts of regulations relating to debt and its associated details. Having this level of concentration of ownership of debt would indicate that the feedback loops associated with massively unequal distribution of wealth and income had already taken hold. Specific remedies to this type of distortion of the economic landscape could not be done so easily.

What is the value that a one-sided type of transparency, in this discussion related to debt but generally applicable to all economic transactions, relationships and conditions? Is it of value to the debtor that his/her economic situation be laid open to scrutiny by anyone seeking to consider him/her as a potential recipient of a loan, and then of value to the creditor that his/her economic situation be completely concealed? Rather, both of these situations, where the informational advantage is solely on the side of the creditor, are of value to the creditor and of potential harm to the debtor. The real difference is not simply related to some individual transactions, but it is intimately related to the ability of those in governance, those who study economics, and those who are concerned about the long-term stability of the socio-economic situation to understand quantitatively and specifically, what the actual distribution of benefits within the society is, how these relationships are structured, and how they change. This information protects the status quo, as zero change is typically the default decision made or advised on in the absence of information sufficient to draw any conclusions. This, for individual transactions, a one-sided transparency or even a two-sided transparency to these particular parties damages the long-term stability of the society.

There could be objections to the concept of transparency on the grounds that many or most transactions are not between individuals, but between an individual and a group, such as a partnership, company or corporation, or between two such groups. The objection is non-substantial however, as there must be ownership rights of any such group that ultimately lead to individuals. A bank, as an example, is owned by its stockholders or partners, and by dissecting the fractional ownership of any group down to the individuals behind the group, clarity can be obtained for all types of transactions. Another objection might be to the fact that there are transactions between individuals or groups within one governance region and individuals or groups within another one. This also subsides under the condition that any transaction or contract must be with one region, either as it was stated as one of the conditions of the transaction or contract that one of the two possible regions was to be the legal home, or because, in the absence of such a stipulation, that the one in which the contract was concluded is the legal home. In the age of the internet and video communications, having the stipulation could be made mandatory for any legal transaction involving individuals or group from two distinct governance regions.

What actions might be taken by the governance region, once it was armed with all necessary information gained by such transparency conditions? First off, statements would be rephrased. Instead of: “Such and such a subset of individuals has too much debt”, the same situation would be “such and such a subset of individuals has granted too much debt and has amassed resources allowing that which are far beyond anything that could be accumulated by a just deserts socio-economic system and such and such other group has been loaned money by them in excess of what is reasonable for them to pay.” The one-sided statement lacks so much clarity that it would be hard for the governance to decide what to do in response to it.

Demands for privacy in this or some other financial areas sometimes revolve around the fact that financial information provides an advantage in negotiations. However, stated another way, it means that some parties, individuals or groups, might be deluded by their own assumptions, or mislead by another party, if there was not full financial disclosures by both parties to all transactions. To campaign for the right to delude and mislead is not the most promising course for a subset of people trying to gain favor from people involved with setting up a new socio-economic system. Neither is a cause for privacy made by the desire of some to conceal accumulations far in excess of what could be possible if earnings were made proportional or less to the amount of contributions, measured by the combination of time and talent and excluding secret information. Thus, it would seem that a socio-economic system based on just deserts principles would demand a high degree of economic transparency everywhere in the system.

Monopoly Taxes

Monopolies are ubiquitous in a socio-economic system, and should be treated from the first in designing such a system. This post discussed their variety and a means of taxing them so as to minimize the negative effects.

A monopoly is a corporation or interconnected group of corporations acting together who control a large fraction of the market share of some class of product. One could have a monopoly in a commodity, such as corn or steel or lithium, or a manufactured product, such as the works of Mark Twain or cell telephones or automobile exhaust systems, or even services, such as plumbing or visa applications or computer repair. These are examples of the class of products, or services, which could be affected by a monopoly. They could also be wide-ranging in scope, such as with a supermarket corporation which controls all imported food, not some individual food commodity, or a fossil fuel corporation, or a electrical energy corporation or many other examples.

Monopolies might be good as they could be more efficient than a myriad of other smaller companies which together met the demand for the product, or provide less expensive products, if they were able to use monopoly strength in the inverse direction, such as by demanding from non-monopolistic suppliers that they maintain low prices. They could have superior products, as if they demanded employees or subcontractors to have a high level of education and experience, as with electricians and doctors. They could have less environmental burden if they occupied less space with some centralized distribution network. Surely inventive public relations people from monopolies could come up with even more benefits.

Monopolies might be bad as they could raise prices and profits on the products they supply, as they were free from the effects of competition, or free to a sufficient extent such that their benefits outweighed their non-competitive pricing. There could easily be a time effect, with a particular monopoly using the benefits, as seen by consumers or clients, during the period of formation of the monopoly, and later a net deficit, as the profiteering from these same customers and clients became more and more dominant.

In a novel economic system, being designed to provide benefits across society, what should be the treatment of monopolies? If the government or governments in the jurisdictions being considered become involved with economics, they could well encounter monopoly situations, and may want to decide on some regulations. What to do?

There are two feedback loops involved here. One involves the growth of the monopoly. As it becomes larger, mastering a larger share of some particular product, the benefits may kick in, and its efficiency may assist in eliminating competition, simply by being more efficient or convenient for consumers and clients. The other effect that happens is that they obtain more economic power, such as saved capital, which may allow them to purchase their competition, or otherwise influence them to go out of business or merge. This can happen if monopoly effects occur in one geographic location first, allowing the amassing of capital, which is then used in another geographic location, and then another, enlarging the area where monopoly effects occur.

The second feedback loop is the typical one where the corporation begins to suborn the politicians involved in governance, so that any regulation to remedy the ill effects of a monopoly is thwarted before it is ever begun, as the corrupted politicians simply use their own public relations messages to obscure its existence or otherwise excuse their failure to take actions. Thus, two strong feedback loops serve to initiate and encourage monopolies to come into existence and grow and eventually take over the market for some product.

Infrastructure costs can assist in the formation and activity of a monopoly. If the initial costs of a transportation network, such as an airport or highway network, or a distribution pipeline, such as for water or electricity or information, or a collection system, such as waste disposal or a stock market, are very high compared to the remainder of the costs involved, no competition can afford to build a similar system, and if the infrastructure is owned by some entity that also provides services or products via the system, a monopoly is immediately in force, even without any other actions on the part of the provider. Thus there are two distinct classes of monopolies, one which is thrust into being by the necessary existence of a single network of something or other involved with a product, and another which arises without the aid of any item of infrastructure.

There may be other classes of monopolies which depend on the unique existence of some single item. For example, if there is only one known mine of a particular ore that has sufficient content of a particular commodity, and the mine is owned by one competitor, an instant monopoly exists. The same happens if the number of mines is plural, but they are all owned by one competitor, or one competitor makes covert arrangements with the owner or owners of the mines which will lead to the generation of a monopoly and the subsequent enlargement of profits for all those involved with that commodity. If patent or copyright laws disallow the use of some unique information, this is also an instant commodity.

Regulations, perhaps written by those politicians with close connections to the purveyors of a particular commodity or a service, which control the sales of it, might serve to create a monopoly. There might not even be a corporation involved in the commodity or service, just a number of individual purveyors who prefer to have entry into the group of those allowed to purvey the commodity or service limited to numbers which ensure high profits or costs to that limited number. Thus commodities can arise from limited and controlled supplies, which might be something as physical as a mine or something as intangible as regulations. This latter effect might actually be involved with improving the quality of the commodity or service, or might only be involved in giving the impression that the quality of the commodity or service is improved by the regulatory throttling of the supply. This is another effect of a monopoly that does not necessarily fall into the beneficial category or the malevolent category, but somewhere in between.

What should a socio-economic system do about such monopolies? They can only come into existence if the governance either organizes them or otherwise condones them, as with almost any other good or bad effect in the system. The socio-economic system has to work in such a way to foster monopolies for them to come into existence, and there may be multiple components of the system which have to be involved, such as finance or communication or regulation. It is necessary to go back to the goals of the socio-economic system to find out if monopolies, or a particular one, has a net benefit according to these goals. If unlimited inequality of benefits received is a goal of the system, support for monopolies would be the consequence of that choice of goal. If limitations on inequality of benefits received, distributed and consumed is a benefit, then some monopolistic arrangements might be negative in net benefit. Like everything else in a socio-economic system, the arrangements that are best are wholly dependent on the goals that are chosen. As noted elsewhere, fundamentals of the system are the allocation of benefits and their total quantity, and other goals that might be chosen, such as the ratio of manufactured products per total energy consumed, don’t have the tight connection with the population being served.

To solve the negative aspects of monopolies, government regulation can be utilized, where regulation might include both taxation and permissive or mandatory laws. Taxation is a flexible tool, as monopolies are usually involved with the provision of necessities to the population, and permissive and mandatory laws tend to interfere with it in a less gradual manner.

One form of taxation might be a simple tax based on market share. If a list of commodities can be created, and the data collection capability of the region is sufficient, market share by entity, corporation or partnership or anything else, can be calculated and a tax level on revenue or profit can be established to accomplish some aspect of the goal of both maximizing quantity of the product while ensuring its allocation is not too exclusive. Taxes on revenue is more effective as profit can be disguised very easily if management and ownership are not separated, as an individual can receive either a bounty based on fractional ownership, if that is not taxed too highly, or he could be granted a position within the entity and paid a large salary, if that is not taxed too highly. It must be remembered that human beings within a socio-economic system will incessantly game the regulations, so some ingenuity is needed to prevent the more obvious gaming tactics from being universally employed. Of course, corruption must be dealt with in this area as well as in every other area, where corruption is defined as the seeking of personal benefits by someone charged with promoting society’s benefits.

An example of a market share tax might be one on, say, the distribution of natural gas. In a region where there is only one supplier, meaning the whole region is supplied by a single corporation, there would have to be first the opening of opportunity for competition, by the ownership by governance of the means of distribution within the region and the delivery to the region. Then competitors might be taxed so that competitors with revenue under 10% of the total market share were taxed not at all, and a positive rate applied, related to higher market share. The rate would steepen as the market share approached 100%. The taxation rate curve as affected by market share would have to be chosen so as to encourage competition, in other words, to overcome the feedback effects of market share, which eventually tend to produce a monopoly and its excesses.

Any such taxation scheme would involve the definition of multiple quantities, such as the region served. And such definitions would affect the profitability of the corporations involved, and therefore would be subject to the possibility of corrupt dealing. Thus, some standards would need to be found that could be applied in default, with some requirements for special justification for deviations from the default standard. Like everything in a socio-economic system, complexity abounds.

Categories of Libertarianisms

Just defining what a particular socio-economic theory includes is difficult, when history has continued to generate more and more variations of the concept.

One of the problems of making up a new socio-economic theory is that words often associated with such theories are almost undefined, or have such a spread of definitions that using them leads to confusion. While each author using the word may have a clear definition, it differs from what was used elsewhere, meaning that comparison is difficult, typically a tedious exercise in figuring out exactly what each author meant by it. When there are multiple words needing such a explanation, simply keeping the different definitions straight is onerous. There must be a better way to use language in expressing concepts.

If a word is used to label a complex socio-economic theory, it seems to be a common practice to re-use the word when a second similar theory is constructed, even if the similarities are rather partial. Then some adjectives might be used to divide up these two somewhat similar theories, with the single-word label chosen to represent those attributes which are in common. This gets messy as well, as such theories typically cover all aspects of society, or as many as the author felt important or had time to cover, and the second and deeper levels of adjectival modification can be used to represent any subset of them. Perhaps a better way would be to label the theory by the name of the author, and in situations where there are mutual authors, one descending from another, or one modifying the work of another, or one extracting key concepts from another, just to give up in despair.

Libertarianism is one such word. It has been used since the seventeenth century to label a wide, wide variety of socio-economic theories. Some put capitalism and communism both under the umbrella, or more specifically, some varieties of both capitalism and communism there, with others outside. There seems to be no way to clean up the concept and make something quite distinct out of it, as there is such a long history of ideas and theories to which it has been attached. Scholars like to dissect the writings of previous creators of such theories, and show similarities and flows of concepts and the like. For the purpose of the creation of a new theory, histories of ideas like this are amusing, but might be distracting or even obfuscating.

Typically, almost universally, the authors of tracts or books on some specific, particular variant of a socio-economic theory are proponents of the theory. Otherwise they might be writing their missives for the purpose of gaining favor with those to whom benefits would flow if it were adopted, or justifying such a flow within an existing social arrangement. One either works for emotional benefits to oneself, or tangible benefits. Scholars might be writing dissertations on them for neither of these benefits, but to a career advantage that comes within an academic or similar circle.

Perhaps regrettably, I have no such benefits or feelings, and simply am trying to understand the essence of a socio-economic theory, principally for the amusement of seeing how ideas fit together and how a theory might be constructed out of them. It is sort of like having a set of Lego blocks as a child, and trying to make something out of them.

Two of the themes which often attract the label of libertarianism are individual liberty and a lack of government. These obviously conflict with one another, which is one reason why there are so many variations of libertarianism. When one writes in favor of individual liberty, there is an implicit list of things which can be done and a complementary list of things which cannot be done. For each of these actions which can be done, there may be consequences, and how they are treated needs to be specified as well. Then comes the idea of community, and what types of community might be formed, and after formed, managed. How do communities interact with other communities and with individuals?

Just how little government is prescribed is another matter. Some government is necessary to ensure that whatever rules the author or authors of the socio-economic theory are prescribing to the population affected are enforced. Certain libertarian variations relabel government as private security, but this is simply another form of government. When we think about a modern government and the myriad rules they prescribe as to prohibited and mandatory actions, we can obtain an idea about how much detail needs to be included in a socio-economic theory. It has been the experience of virtually all governments that legal systems grow more and more complicated with time. This should be obvious. Laws that are written serve as the system that people interact within, and so loopholes and novelties are sought to obtain personal advantage, without violating the rules that have been established. This might offend some thinkers relating to abstract notions they espouse, and so the laws have to be increased to cover these offensive behaviors.

If we want to categorize socio-economic theories, or specifically the variations of libertarianisms, there should first be some thought about how to do that, and, as before any complex task, there should be some thought about what is the goal of the definitional exercise. It may well be that many of the scholarly distinctions and classifications of libertarianism are useless for some purposes, and unless we know the purpose of the definition activity, we could easily go down that path. Some erudite explanation of the variations could be done, but they would miss the point.

What components of a socio-economic theory rise up to be the top-level distinctions between variations? Recall that there are three essential parts to such a theory: that part relating to production, that relating to distribution of that which is produced, and that relating to consumption. Recall also that many labels are completely useless in defining such a theory. Ownership is one such label. Control of the use of something is what affects production, distribution and consumption. Ownership could reside in the whole population or in individuals, some group of nobility or some class like a wealthy elite, but those that control use are the ones who make decisions that affect the lives of the citizens.

Once a specification is given as to who makes controlling decisions for these three components of a socio-economic theory, there needs to be a span of control description. Things can be controlled so as to benefit a set of individuals, and exactly who are the ones to be benefited is a critical divisor of socio-economic theories. When we use the word benefits, there is also some clarity that is needed in this area. There are tangible benefits, such as shelter, nutrition, healthcare, education and so on, and there are intangible benefits, such as entertainment, praise, competitive awards and induced self-satisfaction. Benefits are dynamic, and can they be changed over the course of a citizen’s life through his own actions, and how much and what controls are in place to limit this? Inheritance of benefits is also a detail that might be needed for the top level categorization of a socio-economic theory. The use of one’s time is also a benefit. Who decides what a person will do with their own time, and what will be the consequences of that choice?

Two key ingredients in a socio-economic theory are motivation and corruption. Motivation is good and the theory should encourage it. Corruption is bad, and the theory should discourage it. Motivation in a libertarianism variant is tied to benefits, and one type of libertarianism is that individuals and communities should make decisions as to their own actions to receive benefits. In one extreme, all benefits might flow to individuals and communities made up of voluntary associations of individuals. In the other extreme, all tangible benefits might flow to the population, with only intangible benefits flowing to the individuals and communities.

Another dimension, not connected with the benefits one, is that of disposition of time. Who decides how a person might spend their time, and how much of it is under the control of the decision-maker, whoever he might be. One end of the spectrum has someone other than the individual or community deciding what they must be doing, or prescribing a boundary around the possible activities they can undertake. The other end of the spectrum has the individual or community deciding what they will do, within some boundary that has been set in advance. There is little difference between these two from one point of view, the real difference is the degree: is there much or little activity or time required by other than the individual or community?

There are four corners of this two-dimensional categorization. In one corner is the proletarian, who receives only benefits from communal activity but few from his own, and has their choice of activity strongly limited by some community of which he is a member. In another corner is the noble, to whom benefits flow from the society in general, and whose time is wholly their own, or all their own except for some obligations to higher levels of nobility. These are opposite corners. In the other corners are the entrepreneurial individual or community or the small land-holder, who receives all the benefits from his own work and is largely free from a draft of his labor but must devote himself or itself to gaining the benefits, and the prisoner, who receives only little benefits but has little demands on his time, although opportunities are negligible.

Libertarianism is the line from the entrepreneur to the proletarian. It relates to the motivation of production. Any set of theories as diverse as libertarianism cannot be condensed to a single line, but the two-dimensional spectrum provides perhaps the top-level view of the variations. Other dimensions are deemed here to be less important, but that might be considered somewhat arbitrary.

Goals in a Socio-Economic Theory

We don’t understand much of society’s workings, such as when economic collapse might occur, so how can a socio-economic theory be created which accomplishes this?

The universe does not give us goals or purposes or rules or anything else. They are chosen by man. Man chooses according to some preferences, and these preferences are not universal. In other words, there is no genetic programming for goals or anything that might be transformed into goals, except on the individual level. So when we look at entire societies, it is a severe challenge to turn anything, such as these individual goals, into rules for citizens in the society to follow.

This challenge has been overcome in every society, whether or not the rules are recorded somehow or just taught as custom. They vary tremendously, and since social and economic rules are part of the foundation of any socio-economic theory, making choices for them without any universal guidelines is also a severe challenge.

A consistent set of goals is desirable, to the extent allowed by the complexity of social life. Inconsistent goals lead to inconsistent rules for behavior, and this can be exploited by one faction, the one possessing power and force in the society, to be able to suppress all other factions, as there will be some rules that cannot be followed due to inconsistency. These can be used as a faux legitimization of punishment or levies imposed by the power faction on individuals from other factions. In general, however, consistent goals are desirable as it leads to all citizens in the society being able to follow whatever was determined to be in the best interests of the society.

Because there are such great differences between individuals in any society, the set of goals and the rules derived from them must apply differently to different categories of individuals. There are countless categorizations possible, by age, by sex, by caste, by origin, by accomplishments, by abilities, and certainly others. Rules would follow the template: a person in this category must do this and must not do this. Rule negatives can be expressed in the rules by a slightly different template: a person in this category may do this with no interference by governance. If the set of rules is logically created, each of them would relate to some goal, and would contribute to the achievement of that goal in some incremental way.

Goals are adopted because of some emotional connection within powerful individuals, or because of legacy considerations, in other words, at some time an individual or group makes up the rules, and then they stay in place until some other powerful group finds them in opposition with their internal interests and changes them. The goals can be completely opposite: one group may find conquest to their liking, and the society is organized to accomplish that; another group in another society might find that peace through defense is what they desire to organize their society around, and yet another might seek peace through any means including servitude or vassalage.

Categorization can exist via legacy divisions or can change, gradually or abruptly. Some specific caste can suffer an erosion of their perquisites, over a long period of time. Another caste might be freed from serfdom by a single order effective on a particular instant, which might be seen as abolishing a category arising from origin. A new category might be created by a draft order, affecting for example able-bodied males between the ages of 20 and 30, a new category not utilized before in the canon of laws. A schoolchild category can be created out of the larger category of children, consisting of those between 7 and 14, for example.
Most changes in goals, categories and rules affect the economics of interactions between individuals and between an individual and society as a whole, and thus have economic impacts as well as social ones. It would seem quite presumptuous to have a socio-economic theory specify all these details, but several have made attempts at it. The difficulty is getting started, and coming up with some goals, from which other aspects can be derived.

Goals can be chosen for a variety of sources, but underlying them is the desire of the creator of such a theory to have their own emotional framework justified. An author may have revenge as a covert emotion, and want to create a consistent, appealing system which eliminates the power and prestige of the targets of his emotion. Persuasion being what it is, this is certainly possible. Incremental changes would be easier to implement that a system-wide change, so this route might be easier to navigate than coming up with a whole system revision. Picking on the status or privileges of one group and persuading to change only that might be done with even a single book, or nowadays, a single e-book.

If an author does not have any revenge motive, or similar motive generated by their experiences in life or even their own vicarious experiences, what might substitute for that? Greed is one very strong motive, and an author of a new socio-economic system might be propagandising for his own benefit, or for the benefit of a group which will subsequently benefit him, after the new system begins to flourish and be adopted. This would work for an incremental change as well, and could serve as a legitimization of ongoing changes, ones which were not motivated by society being persuaded to change, but by some evolutionary alteration under way in the society to which the writing was addressed.

Besides hate and greed, behind whatever façade the author found convenient, their might be motivations more benign. An emotional desire to help others, or some specific others, without necessarily depriving others of their positions or privileges, might serve as well. Perhaps there is a way to make a non-zero sum game out of changes in a socio-economic theory, allowing this to happen, but likely there would be some collateral damage.

There could also be over-arching goals derived from abstract qualities and quantities, such as population, standard of living, trade, health, eugenics, and more. Consider the concept of progress in the technological sense; this could be used as a goal. As an example, if this latter goal were used, the categories that matter are those related to this pursuit. One category is that of scientists, another would be engineers, and a third would be technicians, all related to the continued progress of technology. Those involved with businesses which promulgate the technology across society would be yet another.

One choice that the rules could try to enforce could be continuous progress, meaning an absence of economic collapse, war, or other social catastrophes. It is true that war might accelerate the development of technology in certain areas, as has happened in our history already, but that only could take place if the development of technology were not already being emphasized and generally pushed forward as fast as possible, which is what a socio-economic system that was being built around this idea should achieve. War can divert resources into the progress or adoption of technology, but if resources are already being diverted in this direction, what more might be done by a wartime setting? Probably very little. Lackadaisical support for technology progress could be accelerated by the needs of war, but for this to exist, the socio-economic system would have had to almost fail in its principal objective.

For war to not occur, it would be necessary to understand the various causes of war, and try to establish the rules of society so that nothing leading to war would occur. Likewise, economic collapse would also have to be understood, and the predecessor conditions leading to it would have to be avoided in some manner. How exactly would some theory prevent these two scourges of society, when the processes that lead to them are not understood? The stability of society would have to be preserved, and this would have to happen even though the society was undergoing rapid change, due to the introduction, continuously, of newer and newer technology. Technology would have to be defined to be supported, but if it is deemed to be the application of scientific knowledge to any aspect of society, then the entire spectrum of science would be supported, and the trickle-down of scientific knowledge in every area of science, as applied to any appropriate aspect of society would also have to be supported. This sounds like a recipe for continuous transformation, and under such conditions, how would war and economic collapse, and any other social catastrophe, be avoided?

Another unknown is the best manner of governance. Take for example the governance of the principal objective, the expansion of scientific knowledge. How is the choice of subject chosen for any group of researchers? How is the allocation of funds to be best managed? How is education to be handled? How are all the aspects of society which contribute to having an educated, scientifically, population to be dealt with, or even determined and listed, much less directed in the useful manner?

This simple example of a goal-directed socio-economic system amply displays that we are far from having enough understanding of even simple-to-describe components of society to be able to even suggest how they might contribute to a social goal. There might be personal opinions about any of these components, as to how they work and how they might be bent to supporting a social goal, but there is certainly no scientific understanding of the various processes that occur within each of them. Perhaps the only conclusion that can be made is that science would need to be devoted to understanding these basic social processes as the very first step of the construction of a socio-economic system that supports a goal, such as technology progress. It could be that the prevalence of war in human history has pushed technology to examine offensive and defensive technologies, but not technologies in the larger part of society. It is likely time to remedy that situation.

Balancing Trade

Trade imbalances can produce many benefits to a nation or other entity, just not net over the entire nation.

Trade is often thought of as goods moving across borders, and that is convenient for many purposes. The obvious generalization is to anything that moves across borders, whether it is people, manufactured goods, agricultural goods, ideas, various financial objects, or whatever. The generalization is useful in that it allows one to contrast trade in goods to the exchange of anything else, and possible gain some insight.

Something is inside at least one of the borders, but there doesn’t necessarily have to be an equivalent entity on the other side of the border in question. Balance means there are two specific entities, typically geographic, but not necessarily. Equivalent entity trade would be between two hemispheres, two continents, two nations or groups of nations, two states or provinces or whatever is the next division below nation, two counties or parishes or whatever is the next below states, and even down to two boroughs, or regions of one city. Single entity trade is between any one of these entities and the rest of the world. There might be two entities involved in the balance, or a thousand; with multiple entities there is a network of trade and otherwise it is simply bipolar.

What might be the benefits of balanced trade, either in some single well-defined category, or some larger quantity lumping together some set of categories? The seemingly obvious flaw with unbalanced trade is that something must compensate for the imbalance. Either the entity with the deficit in exports is agreeing to pay for the difference in trade sometime in the future or with fixed assets in the country. If the imbalance is only temporary, the fluctuations in the direction of trade balancing out over time, then imbalance is only an accounting convenience, and disappears over a long enough duration. If instead it is chronic, and the total amount accumulates with each reporting period, then after some number of periods, the debt situation fails to work. The total debt becomes too large and there is either a default or a tendering of some assets of the country to the trade principals with net surpluses.

It might be possible to talk about the short-term aspect of trade imbalance separately from the long-term aspect. In the short term, a country with a shortage simply runs an arrears for the goods it imports in excess of the goods it exports. It might seem to be doing quite well, if the costs for the total of the excess do not grow too large. The country would have a standard of living, defined any which way as a measure of how much is consumed, and that standard of living would certainly be higher than if there were no trade. But debtors always live higher than those who live within their means. The argument that the debtor is therefore somehow better off can only be made by using a very restricted use of the term ‘better off’. A consumer debtor is not ‘better off’ if some long-term integrated measure is used.

This is a contrast with the producer debtor, who might be using near-term capital to become more productive and gain the amount needed to pay off his debt, while still producing more goods than this amount. The question of when a producer debtor is ‘better off’ is more complicated that for a consumer debtor, and depends on the use of the debt amounts, the repayment terms and any other obligations, what the expectation is of his current and future productivity and how much credibility there is in these estimates, and probably a half dozen or more other factors. But the question of the consumer debtor is simple, unless there are more than one.

If a country, or other entity, thinking of allowing a trade imbalance to exist in a chronic fashion, consists of multiple separate factions, with different powers and different assets, then the division into factions might influence the decision to allow the chronic trade imbalance. Who gains and who pays is the question. If there is a separation of these activities between factions, with one set of factions gaining the increased standard of living or some other benefit from imbalanced trade, and the other complementary set of factions being responsible for paying in the long term for them, then the decision might be taken in a somewhat non-holistic way. If the factions that benefit but do not carry the burden of long-term disadvantage also control the governance of the entity, then they would certainly have the motivation to allow chronic trade imbalance. Whether they could do this would depend on how the governance was organized, for example, if there was a constitutional or customary rule that trade must be balanced, then obviously they would be prevented from taking advantage of the separation into factions in this way, until the constitutional or customary rule could be bypassed or revoked.

There could be multiple other benefits that do not fall equally to the different factions within an entity, and multiple other disadvantages that also do not fall equally. Thus, to assess if the entity is likely to permit chronic trade imbalance two factors need to be addressed: the regulatory posture of the entity as a whole, as to whether it would permit trade imbalances, however they might be measured, and the net benefit less disadvantages of the factions which have control over the decision-making on allowing chronic trade imbalances. If there are no checks or barriers for this, for example, if there were sufficient public relations output promoting it and little opposing it and no historical custom to disallow chronic trade imbalances, and some net benefit would go to the factions making the decisions, then they might certainly consider it.

As to historical custom, if chronic trade imbalances were used for long periods by one set of factions, perhaps a changing set of factions, then the custom would be in this particular entity to allow it, despite the overall net disadvantage of it. Such a long period of use of chronic trade imbalances by one set of factions would also allow plenty of time for there to have been justifications, clever or absurd, created for it, even though a sufficiently high-altitude look at it shows the overall net disadvantage. The justifications could concentrate on the differential benefits, in the short-term, and ignore the integrative disadvantages, in the long-term, and if the justifications were sufficiently convincing, eloquent, erudite and obfuscating, then there would be little in the way of barriers to the use of chronic trade imbalances on the part of one set of factions to obtain a net benefit over both the short-term and the long-term.

Once constitutional regulations, historical custom, commonly held discourse and other potential obstacles are all removed or relegated to being inconsequential, the factions with decision-making authority or influence could simply go forward and make the necessary arrangements within and without the entity to induce chronic trade imbalances. Any objections to the arrangements could be dismissed as issuing from those who are uneducated as to the details of the processes that are about to take place, or rather, have been taking place for some extended duration. An even more solid buttress against objections can be constructed if one of the factions that receives net benefits from chronic trade imbalances is the one which generates the large body of discourse on the topic. With this additional impetus, the literature would continue to be amassed on the side of the differential benefits, and the integrative holistic disadvantages could continue to be ignored.

Perhaps the most serious concern the successful set of factions would have would be the constituent parts of the group, and any efforts by some of the factions to oust others, thereby possibly concentrating these net benefits into fewer hands and thus magnifying their amounts per individual. There would seem to be a minimal set of factions necessary to organize such a takeover of the trade situation, and any other faction might be a candidate for ousting, at some time. The minimal set would consist of those involved with regulatory matters relating to trade, imbalances or other aspects, those involved with the justification of the chronic imbalance and the publication of the justification together with the suppression or at least the ignoring of any counter-arguments, and those involved in the trade process. The trade process could be quite complicated, involving many moving parts, including shipping, outside-the-entity production, inside-the-entity distribution, financial arrangements for all of this, inter-entity transportation, plus governmental regulation of any and all of this. Finally, somehow the flow of benefits has to be arranged for, as there is not necessary flow between these factions comprising the minimal set. Some processes would have to be grafted onto the trade process itself to ensure that the necessary factions all receive some share in the factional benefits gained by chronic trade imbalances. But this type of flow would not have to be overt or else could be overt but disguised in any of a huge number of ways, most of which might be laudable under some rationalizations.

Thus, chronic trade imbalances between any two entities, or between one entity and the rest of the world, might induce significant advantages to a set of factions which somehow collect all the power necessary to organize it and keep it in place. This arrangement does not have to be thought up by some genius of chronic trade imbalances, but can grow over a long period of history, if this situation continues to exist.

Corruption and Governance

Corruption is hard to even bound and catalog, and even harder to eliminate. Here are some obvious alternatives.

One of the reasons for corruption being endemic almost everywhere is the huge number of ways it can be conducted. Virtually anyone in governance who makes decisions with some discretion or options can be subject to it. This means government of any level, and also large bureaucracies that have governance over some limited domains, such as purchasing agents. A list can be made that seems to go on forever: judges involved in deciding on evidence or sentencing including incarceration and fines, police with minor offenses or when scrutiny is not present, permit controllers and inspectors regarding both timing and details, license grantors, prosecutors with discretion to pass on cases or plea bargain or try, detectives with a choice of cases to attend to, contractor selectors and those who approve on change orders, infrastructure designers and approvers including eminent domain questions, materials specifiers, those establishing tariffs and taxes and fees, medical personnel deciding who will be treated and who will not, lawyers able to mount an effective defense or offense or simply go with an ineffective one, those who route traffic, those who bargain for wages and benefits, those who organize protests or do not, those who choose sites for expositions or conferences or major sports events, and many, many more. This is simply a partial list of those who might have the opportunity to seek out or respond to corrupt offers.

The mechanisms for corruption can be diverse as well: secret meetings between the parties or agents of them, communications via public means or private means, in code or unencrypted, with payoffs specified or left vague, basic understandings of how things work that do not require meetings, and certainly others. Guarantees might exist or not. Partial payments may happen or not.

Payoffs, that which the decision-maker receives, can be legal or illegal, which depends on the laws of the jurisdiction involved. Some almost humorous situations exist where the potential corruptee, to coin a word, is also responsible for anti-corruption law, and so can leave loopholes to avoid any illegality for his/her chosen method. Payoffs can be direct or disguised as something for services rendered, either around the time of the corrupt act or later, even much later. The payoff might be a promotion, such as a judge to a higher seat. The payoff might involve a friend or relative of the corruptee rather than the corruptee him/herself. The payoff could be a legitimate cover, such as a book advance for something that will be ghost-written as part of the payoff. The payoff could be in the form of donations to any cause at all, one which benefits the corruptee or his/her friends or relatives or anyone they favor.

Corruption can be done as a barter trade, where one decision-maker does something for another, who returns the favor. It could involve a triangular trade, where A makes a decision to benefit B, who makes a decision to benefit C, who makes a decision to benefit A. There is almost no limit to the ways that corruption can happen, who can be corrupted, how and when the benefits arrive for the corruptor and how and when the payoff arrives for the corruptee. It could be as simple as a bottle of vodka for a form being filed properly or a billion-dollar tax break. It could be an expenses-paid vacation at a tropical resort or a box seat for a sold-out sports event, all in exchange for simply purchasing something or causing something to be purchased. It could be a new home at half price in exchange for a permit to build a hundred homes in a restricted area. It could be a political donation in return for using one’s influence to mask something that might otherwise be objected to by the public. It could literally be anything.

In a socio-economic system that is being devised to be an improvement over existing systems, how should corruption be handled? First off, should it simply be ignored, and the socio-economic system be constructed to be as immune to it as possible? Alternatively, should it be a main focus of the design, which mechanisms employed to reduce it? Is it even possible to minimize it, given the variety and diversity of ways in which it can occur?

One aspect is that it does take some time to set up, if on a large scale. A new appointee or electee might not be ready to commit such acts, and time is needed to soften his/her resolve to remain free from such a taint. Others might be quite ready from their first day to compromise their position. Besides the readiness or unreadiness of new position-holders to commit to corrupt actions, there might be some time needed to develop the trust involved and to generally determine how to manage the corruption. New agreements would need to be set up. Thus, some partial amelioration might be obtained in a system which requires frequent change of individuals for any position which might be subject to corruption.

Short duration appointments also eliminate one motivation for corruption, which is to secure the position for long periods. If the socio-economic system forbids this, then there is no need to utilize corrupt means to preserve a position. Although a loss of efficiency is unavoidable, that loss needs to be traded off with the gains that less corruption provide.

What exactly are the losses caused by corruption? Possible losses are as diverse as the types of corrupt actions that could be taken. Consider first purchasing and contracting decisions. If there is simply a loss of some percent in costs, this would be almost not worth much effort to stop. If the corruption could lead to a doubling or tripling of costs, then there should be some efforts to catch it and stop it which might entail a cost of a tenth or so of the total cost involved. These efforts would involve verification of designs, testing of materials, and inspection, inspection and inspection.

The other side of this aspect of corruption is that of the consequences of being found out. If there are almost none, then corruption is being aided and abetted by the system. If they are severe, the opposite situation happens. One part of this puzzle involves specifying who can discover and investigate the corruption, which includes whistleblowers. A thoroughly corrupt governance apparatus will punish any attempt at whistleblowing, so there might to be said to be a critical mass factor in corruption. When it becomes too entrenched and widespread, it will act to preserve and protect those guilty of it.

This feature means that there might have to be anti-corruption actions that are very different in a situation where almost no one is corrupt as compared to one where almost everyone in governance decision-making is. For the low incidence situation, whistleblowing and the protection provided to those who do it should be a serious deterrent. But for the high incidence situation, something outside individual action will be the only course possible. A periodic review of all possible corruption situations by investigative teams with broad powers would seem to be the only way to clear up a network of corrupt individuals.

One typical slogan used for the battle against corruption is more transparency. Some types of payments leave trails, such as financial transfers or sales of items for less than they are worth. Other types of payments leave none whatsoever, such as the promise of a promotion within some number of years following a judge’s decision on some matter. Since promotions are largely a matter of some single or multiple individuals’ review of qualifications, they are not subject to any transparency checks. Nor are extraordinarily high payments for simple services, as the selection of the amount to pay for a service of any notable is subject to the whim of the payor, and who can decide if such amounts are reasonable. Thus, some corruption is beyond the reach of any agency, as it is wholly within the bounds of potentially non-corrupt transactions, and the intent might have been not recorded or if recorded, well hidden. The other side of this unassailable corruption is when the corruption is perfectly legal, there being no law against the particular type of arrangement made. It is particularly unassailable when the same group which uses a particular type of corruption is the group which writes the regulations or laws which define the boundaries of behavior that is acceptable or not.

This last problem can be remedied in a new socio-economic system by ensuring that anti-corruption laws are written by a specialized task force which does not have any other responsibilities that could lead to them being subject to anyone’s desire to corrupt. They simply take action when needed.

Thus, anti-corruption activities include: forced short duration of any position where corruption might arise; protection for whistleblowers; a periodic special task force for investigating corruption with no fixed agenda but the responsibility to look for it everywhere possible; a specialized legislative task force with no other responsibilities than to write laws to prevent corruption, including transparency requirements and also boundaries on acceptable behavior. One further step is to made the holding of such a corruption-prone position sufficiently worthwhile, in and of itself, so that anti-corruption measures will not severely diminish the cadre of applicants. It does no good to have a strong anti-corruption tenor if it means that there are hardly any capable people interested in undergoing the scrutiny necessary to hold such positions.

Whims and Time in Economics

Here is a simple way of categorizing possible socio-economic theories into lottery and non-lottery types, and how they use time in their selection of goals.

For any new socio-economic theory, the logical starting point is to choose the goals that the socio-economic system will try to achieve. Just like one designs a refrigerator with certain goals, or a bridge or any other man-made thing, a socio-economic system needs them as well. Without goals, the system would be built from the ground up instead of the top down. Ground-up designs serve to preserve the status quo, or to try and satisfy several competing constituencies. If the real purpose of some novel socio-economic theory is to curry favor of existing important clients or groups, ground-up is the way to go.

The ground-up approach does not run headlong into the problem that a top-down theory has: figuring out what goals to design to. There aren’t any that come from anywhere, except someone’s whims. So the choices in designing some new socio-economic theory are two-fold: find some favored group to design the system to prefer and reward more greatly, or come up with someone’s whims as to a rule or principle that the system should adhere to.

Most ground-up socio-economic systems just grow and evolve, without anyone ever trying to codify them into a set of simple principles that are coherent and serve as the driver for the entire theory. Instead, there are some slogans that are used, or perhaps exposited on, that are repeated as a sort of justification of some particular part of the mash-up that such a ground-up system usually represents. When one group grows more strong, the slogans are re-used in a different context, or a few different ones are chosen from the bag of nice-sounding slogans. These are used as justification for the modifications of the previous system.

Since these systems have functioned in most parts of the world for most of human history, why would there ever be a need for a top-down system? The difficulties in coming up with such a system are very great, as they have to take into account all manner of details of human psychology, civilizational development, technology and its changes, and more. Systems which are a mash-up of existing customs simply work because everyone knows how the system works and can follow it, and the means to modify it arise out of power of various sorts, such as political influence, financial pressure, military or police force or some other. Once some center of new power arises, the positive feedback loop starts to work and the power of the new center grows, modifying existing ways of organizing the economy and the society. Society evolves and the existing mass of economic customs evolves to match it.

Nice economic treatises can be written proclaiming that the existing system is the best of all possible systems, so that there can be a feeling of completeness and rationality among all those who care about such things. The treatises can be written for any particular system, as long as the system is more than just a hodge-podge of uncorrelated and inconsistent customs that are not stable. Having such justifications often means that some goal is chosen which will serve to justify, more or less rationally, the main contentions of the existing system. Choosing a goal for the purpose of validating some existing ground-up system does not accomplish the same as choosing a goal and then deriving from it a top-down system. They are of opposite natures.

For a novel top-down system, the most significant problem is the lack of acceptance. No matter how appealing the chosen set of goals are, nor how consistent they are implemented across the whole of society, there is little motivation on the part of those in power to make changes in more than a superficial way. The preservation of existing power is a very strong urge, and since power dictates what economic system will be used, typically something like the status quo, it would seem there is almost no point to developing a novel socio-economic system. Only if the existing power structure were near collapse, leading to a vacuum, would there be any chance that a new theory might be accepted. And even in this situation, a socio-economic theory that favors the new holders of power would be better than one which was created without reference to the existing order of things.

Putting the acceptance problem aside, one benefit of developing a socio-economic system from a clean slate is that the science of economics might actually be started, with some clear basis. This set of methodology might then be used to analyze and decompose some of the ground-up systems that have been or might be proposed. A whiff of science, as opposed to more development of details, could actually improve thinking in this area. In might even lead to a surprise, if some existing socio-economic theories prove to have a good fit with the more top-down approach, even if they have arisen as justifications of existing customs.

Where would a goal for a novel socio-economic theory come from? Anyone interested in creating such a theory could likely invent several, and they would each be no more than this: some random idea, which might be called a whim, that the mind of the individual thinker comes up with. In keeping with the previous discussion, such an idea would have to define who does the production, how is the distribution allocated, and what restrictions are there on consumption. They would not have anything to do with the details or mechanisms by which these three choices were brought into being, or what type of structures were invented to enforce or preserve them. Such structures might include ownership laws, social obligations, financial institutions, governance forms and obligations, police powers and so on. All these are details on the three main choices, and for any set of choices, there could be multiple ways of having written records, hierarchical political structures, tax laws, or whatever. The details are simply the details, and bothering to emphasize them just obscures the fundamentals of the theory, which are those three choices.

The selections of these three choices might be graduated on simplicity, with the simplest being that everybody has to do some fixed amount of work, with some measure as to what constitutes work; everybody gets an equal share of the production, and consumption is limited by the need to save x percent of the production whenever there is a surplus over some fixed threshold. The theory has to define the two ‘everybodies’ in these statements, and perhaps has to figure out how to vary x year-by-year. The fixed amount of work has to be defined as well, even after some equivalence has been created between different types of work. The total amount of production scales with this fixed amount selection, but pushing it too high would mean that there was the possibility of exhaustion of individuals. Most likely there would have to be some rules on the tradeoff between leisure time or non-productive time in general, and time devoted to production.

Another extremely simple theory has production being doled out by a lottery of some structure, and distribution given by exactly the same lottery, with either one draw for both or separate draws for production and distribution. There are no end to the lottery ideas that can be used. They could be based on attributes of the individual, such as some genetic traits or some learned traits, or on the parentage of the individual, or on the geographic location of the individual, or pure chance. A combination of these effects could be used.

These two classes of theories, the non-lottery ones and the lottery ones, cover a wide range of possibilities. There is no justification for choosing any one over any other, in the top-down point of view. They are all whims, in other words, just the selection of some individual designer of the theory, based in fact on his experience and education. The universe does not tell us what to do. The individual designer could delegate his choices to some historical sources, of which there are many, but this simply means that they are either some older whims of some person, or they were the result, covert possibly, of a need to justify the advantages of some particular power-holder or power-holder-to-be at some past era.

Time comes in at this point through the back door. A previous socio-economic system with a justification, or some previous whims of some possibly very convincing authors, might be used by some designer of a novel socio-economic theory to derive his new system. But there is another way that time should enter. Almost all theories, certainly the ones which are based on justifying some status quo, but also ones which are based on some individual system designer’s whims, are based on current time. They talk about selections based on what exists now. One alternative is to choose a goal with a long-term perspective, and then try to derive the rules for production, distribution and consumption from that. A long-term perspective might state that the chosen rules should be selected to maximize the length of time existing resources will last, or maximize the growth rate of technology over the next long duration, or support the improvement of the genetic stock of mankind, or preserve some ecological properties over some long period, or many others. Mankind has not devoted much theorization to long-term perspectives, in fact, almost none. Maybe this type of socio-economic theory would provide some insights that the short-term ones do not.