Monday, November 14, 2016

All of Life Is a Beautiful Exchange




An excellent article.  Successful governance is very much about producing a harmonious balance that optimizes the gross value for all participants.  It is also difficult as dominant participants want to preserve their natural inefficiencies as some sort of entitlement.

Usually it has come down to access to capital and this has distorted much of our economy for decades.

Factory farms are already proven to be an unsatisfactory solution.  The alternative will also employ millions gainfully and create far more wealth.  The limitation happens to be capital.
That is merely one example..

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All of Life Is a Beautiful Exchange



Many of us in the Northern Hemisphere, Earth are enjoying autumn. For me, every year at this time the weather is comfortable, waves are up for surfing, beaches are empty, and for those of us more northern, the leaves of deciduous plants are changing colors, providing us vibrant purple, red, orange, yellow, and green nature scenes. 


Let’s appreciate the wonders of a world of organic feedback signals that naturally guide everything from the smallest particles in the universe to complex human relations. I enjoy observing the natural world and learning from the individuals who have studied it for millennia. Do you know why leaves change colors? The Earth, it seems, has been revolving for more than 4 billion years around the Sun, as the Sun itself travels through the Universe. 
When the Earth reaches this part of its annual path, the northern hemisphere is tilted away from the Sun’s light and heat. Because of the shortening of the length of daylight and cooling temperatures, leaves are signaled chemically to stop their food production. When chlorophyll, the extraordinary green chemical that absorbs from sunlight the energy that is used in converting carbon dioxide and water into so much of the world’s food, sugars, and starch, breaks down, the yellow to orange pigments of carotenes and xanthophyll are unmasked. Other chemical reactions develop red anthocyanin.

Tree Signals

In the book, We Discover, Suzanne Simard tells the story of growing up in the forests of the Pacific Northwest, Canada and how she made her sensational discoveries in forest undergrowths that also involve signaling and feedback.

“[We showed] that Douglas-fir and paper birch were intimately interconnected in a diverse mycorrhizal fungal network. Even more, we reported that photosynthetic carbon moved back-and-forth between the two tree species through this network, but with net transfer from birch to fir. The net gain in carbon by fir was enough for the trees to make seeds and reproduce. We also found that the more shade birch cast on its fir neighbors, the more carbon it donated…Eventually, we discovered that the direction of net carbon transfer changed over the growing season, with Douglas-fir sending some of its carbon back to birch in the spring and fall when birch was leafless…We found that old trees rapidly transmitted carbon, nitrogen and water to the seedlings, increasing their nutrition, survival and growth. In drier climates where the forests experienced drought stress, old trees transmitted more water to connected seedlings than did trees in wetter forests where they were replete. Thus, this intricate below ground telecommunications system appeared essential for the recovery and resilience of the forest under stress…Mycorrhizal networks have also served like telegraphs for transmission of biochemical signals. We have recently discovered that injury to one tree resulted in the transmission of defense signals through the connecting mycorrhizal mycelium to neighboring trees, even though they were a different species. These neighbors responded with increased defense-gene expression and defense-enzyme activity, resulting in increased pest resistance.”
Amazing and beautiful, isn’t it?

Though the structures and rigors of school can squelch enthusiasm for learning and creativity, I remember, while cramming for biochemistry tests towards my undergraduate degree in Biology, still marveling at the intricate dramatic events happening within living cells and on their surface membranes and through their ion channels that continuously respond to shifting electrical and osmotic gradients creating the performance of cells’ functions.

It was later, during my medical training, that I learned how calcium, sodium, and potassium flowing through their channels in the heart’s nerve and muscle cells rhythmically create cycles of electrical impulses, action potentials, depolarizations, contractions, and repolarizations, that keep our hearts beating and beating in time. 

In physics classes, I learned about the physical forces that act upon everything in the universe, that for every action there is an equal and opposite reaction. In Chemistry classes, we studied how conditions need change for chemical reactions to occur. We learned about catalysts and rate-limiting steps, how collisions between molecules must be strong enough to break molecular bonds in the reactants, resulting in a rearrangement of atoms to form a product or products.

Feedback Mechanisms

Maintaining our bodies’ homeostasis is complex, but handled through feedback signals from various circulating molecules.During my medical training, I most enjoyed learning human physiology, particularly the tremendous array of feedback mechanisms in human bodies. These occur on the molecular and cellular levels, as discussed above, but also grossly across organ systems. The endocrine system, for example, which controls our hunger, thirst, sleep and wakefulness, body temperature, growth, metabolism, energy, mental vigor, digestion, nutrient absorption, blood sugar levels, our fight and flight mechanisms, water balance, blood pressure, sex hormone cycles including menstruation and reproduction, is constantly active within these feedback loops. 

Maintaining our bodies’ homeostasis is complex, but handled through feedback signals from various circulating molecules, including hormones, ions, sugars, etc., that bind to receptors on glands’ cell surfaces stimulating or inhibiting hormone secretions by glands, autonomic nerve impulses, and other bodily processes.

Importantly, we also learned how malnutrition, insult, trauma, infection, cancer, toxins, even excess nutrients such as sugar and even water, harm our bodies by disrupting these natural balances.

Interconnected Systems

These patterns and systems seem to exist throughout organic, ecological, and animal systems. Like the trees in forests and the cells in living organisms, humans too are “intimately interconnected” to each other. One such important way is through our markets, the mechanisms we’ve used for millennia to interact and trade our labors, goods, services, capital, technologies, discoveries, cultures, arts, music and rhythms, ideas, compassion. And, we humans also naturally respond to signals and incentives. And, also like those varying tree species, human individuals, and communities possess various skill sets and comparative advantages. Like the forest, trading on our diversification and specialization provides mutual benefit allowing us, individually and communally, to survive and prosper. 

When we are free to commune voluntarily, these systems are more so efficient, just, and peaceful, creating more wealth. When we are free to commune voluntarily, these systems are more so efficient, just, and peaceful, creating more wealth. It is wealth that enables us to educate ourselves and our children, provide for our health care and safety, nourish ourselves with healthy foods, enjoy hot outdoor showers, protect our environment, aid others, and engage in the activities in which we delight.

We Must Cooperate

The parable, and now it’s beautiful animated movie, I, Pencil, expertly demonstrates the division of labor among humans cooperating peacefully worldwide while responding to signals and incentives in acting in their self-interests. As wonderful as it is, the world in which we live is one of scarcity. We must produce in order to consume, so we combine our labor with the nature-given resources available to us. Humans, like other animals, have a constant need to choose among alternate labors. Humans also have the good fortune to have the problem of choosing among capital and technologies. Therefore, we also must judge when to save, rather than consume, to create capital for future, more efficient, production.

The price system solves the complicated problem of choosing which alternative applications of labor and capital individuals and communities use to meet the many different needs and wants of different urgencies around the planet. There exists a natural interplay of fluctuating interrelationships of costs of production, prices, and profits. 

Most of us understand how supply and demand affect prices. The more individuals want a product or service (A), the more they are willing to pay for it, increasing the profit for producers and signaling them to supply more of ‘A.’ Others interested in earning profit are then incentivized towards producing this commodity and abandon producing others (B, C, D…), the supply of which falls. The increased supply of ‘A’ reduces its price and also the profit margin (towards the general profit margin across industries of similar relative risk.) The freer, more organic, the market, the more prices for customers and profits for producers trend towards zero.

When the demand for ‘A’ falls or supply is too high and prices drop, the least efficient producers of ‘A,’ whose costs of production are the highest, move on towards different industries where they have more comparative advantages and can provide these commodities more inexpensively to consumers.
Industries expand at the expense of other industries, as labor, land, and capital are diverted, although aggregate/total production may increase. It is in this way that different commodities are naturally regulated. One can see how the organic price system helps producers provide for us the goods and services we most need and want at the least cost to society, increasing our standards of living, i.e. wealth, and minimizing scarcity. 

Disruptions

It takes some consideration to understand the opportunity costs. One can likely also infer how political bureaucratic interventions, infections, e.g. price-fixing, subsidies, tariffs, deflected costs, and liability caps, can disrupt and poison this natural system, making it less efficient and impoverishing us.

Henry Hazlitt wrote, ”The whole of economics can be reduced to a single lesson ... The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson.”

It's easy to see the beneficiaries of public subsidies - a corporation, bank, or farmer, and those they employ and others with whom they trade. It takes some consideration to understand the opportunity costs.

Consider that without government intervention General Motors would have sold their assets to other companies allowing this capital to be used more efficiently. Legislators made claims about the jobs saved, but what of the jobs lost from where the subsidy money, if left to us, would have been invested and spent otherwise?

Unseen Costs

These lost jobs are difficult to appreciate as they would have existed in thousands of places. A free market would naturally direct the resources to the most efficient and productive activities, creating more wealth for everyone and expanded industry and employment. If we want a vital and innovative economy, there must be mobility. Affected producers will move on to more productive industries. Retarding this flexibility hamstrings the system impoverishing us.

Many people, who favor protectionist policies, are concerned about what they see as unfair competition from abroad due to competition from low-wage foreign workers, subsidies from foreign governments to their industries, and tariffs. Protectionism has rightly been called "a good label for a bad cause," because it is really an exploitation of the consumer. When a foreign government subsidizes an industry, the prices of their products fall. The citizens of that country, who pay this subsidy through taxes, suffer a lower standard of living. Their fellow citizens working in this industry benefit, as do American and other foreign consumers who enjoy the cheaper prices. And, since American and other foreign consumers pay less for particular products they have more disposable income. This increases the demand for other products, creating more jobs for workers in other more productive industries at home in the States and abroad.

Tariffs will increase the output and employment in a particular industry at home, but foreign producers will sell less to us and therefore they will have less money to spend on an array of U.S. products. This will increase unemployment in other industries in the States.  

When there are higher levels of savings in a society, banks have more money to lend and therefore naturally lower interest rates to entice entrepreneurs to borrow. The low-interest rates signal to producers that society is saving for later consumption. They may then begin projects, funded by these savings, that may take longer, but that will lead to more efficient production processes down the road.

Booms and Busts
 
Artificial credit inflation, printing money-lowering interest rates, distorts this signal by making it appear that a large enough pool of savings exists to sustain production projects. This stimulates a boom as production expands. Unfortunately, the reality, in this case, is that consumers do not have savings for later consumption, and a bust follows.

Human history and current events are littered with unfortunate examples after examples of state aggression by governments around the world causing awful harm to innocent individuals, families, and communities.We watched the housing industry boom and bust recently, dropping us into a devastating economic depression with many suffering. For decades the US Congress encouraged mortgage lenders to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing. It was an abandonment of reasonable lending practices with borrowers with poor credit characteristics getting mortgages they couldn't handle. Subprime lending soared and the housing industry boomed. 

When Congress removed the limitations of the Glass-Steagall Act while still implicitly guaranteeing coverage of banks’ losses, they eroded market mechanisms that would naturally engender restraint. In free markets, greed for profit is tempered by fear of losses. But here was a moral hazard where bankers were perversely incentivized to take high risks (malinvestments) with depositors' money as any profits would be enjoyed and any losses would be covered by present and future tax-payers. Once housing prices declined and economic conditions worsened, defaults occurred. This left the industry holding large amounts of severely depreciated mortgage assets. 

Congress then committed the same errors that prolonged the Great Depression, trying to artificially keep prices from falling. Instead of allowing overvalued financial assets to take a hit and trade on the market at true value, the government purchased overvalued assets to hold. Now hundreds of billions of dollars that is tied up in illiquid assets is money that is not put to productive use that would increase our wealth and well-being. 

Lastly, human history and current events are littered with unfortunate examples after examples of state aggression by governments around the world causing awful harm to innocent individuals, families, and communities. This is almost always met with resistance, blowback, and an ongoing cycle of violence, that we hope is losing steam.

Let’s appreciate the wonders of a world of organic feedback signals that naturally guide everything from the smallest particles in the universe too complex human relations. By freeing them to work efficiently, to engage in ever more beautiful exchanges, we will all enjoy a more just, greener, prosperous, and peaceful existence.

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