Time to Abolish Paper Money

After the US led invasion of Iraq in 2003 the US sent $12 billion dollars in greenbacks in aid.

A new unit of measurement was born.  The pentagon worked out that  one giant C-130 Hercules cargo plane could carry $2.4 billion in shrink-wrapped bricks of $100 bills.

Nearly three ‘Hercules’: $6.6 billion dollars has gone missing.

According to hearings in congress reported in the LA Times

‘Millions of dollars were stuffed in gunnysacks and hauled on pickups to Iraqi agencies or contractors’

Now it cannot be traced and probably never will be.  After all if a few truckloads of cash arrive at your front door its like Whisky Galore.

Its probably the largest crime in history, setting aside the amount rumoured to be  in the Swiss bank accounts of a few Gulf emirs.

Cash in paper form is now as antiquated as great clunking hoards of gold specie.

Its technologically obsolete, and a huge opportunity for crime.  Many crimes such as mugging would be impossible if we did away with it.

Worst of all though it is a huge risk to the economy, why?

Threefold, firstly with paper money its hard to have interest rates less than 0%.  This is a bad thing because if you have deflation, which we might have with a double dip, you need negative rates to get people to spend again and avoid a deflationary spiral.

This relates to the second reason, where people have preference for cash in hand as opposed to bank deposits this drains liquidity from banks.  If lots of people have this preference at once it can cause a liquidity shock, a draining of aggregate demand and possibly a credit crunch or even a banking crisis.  Money kept in banks is available for fractional reserve investment.  With the supply of savings increased and the demand for investments constant interest rates would be pushed down.

Finally you cant really avoid tax through the cash economy.  This also makes it hard to employ illegal labour, who maynot be able to obtain bank accounts.

Japan seriously considered abolishing paper money in 1995 faced with years of deflation.  And a number of economists backed the move.

Technologically it is now possible with not only pin and chip cards but also the forthcoming near field devices which are more convenient for small transactions.

There have been few attempts to abolish paper money in history, and the one that did abolished all money, as well as all property etc, so it is not a good comparison.

This does illustrate that such a move would be viewed with huge suspicion by some that it was a plot to steal paper wealth.  I cant see it being done without measures to increase public faith and stakes in banking.

Capitalisms Last Frontier #7 The Steppe Frontier – The Genesis of Empires

The concept of the Steppe Frontier has been introduced in a highly discussed work in 2009 by Ecologist Peter Turchin called ‘A Theory for the Formation of Large Empires’. His concept of the ‘Steppe Frontier’ has two fundamental presumptions.

First, there is a steep gradient in average rainfall. The well-watered side of the ecological frontier is inhabited by settled agriculturalists, while pastoral nomads occupy the arid zone. Second, pastoralist nomads have both the incentive and ability to take agricultural products away from farmers by force.

This ecological frontier is of course the global margin of cultivation between arid and pastoral regions. Turchin, as a Russian, uses the old term Steppe Frontier which holds the same importance in Russia as the term Western Frontier in America, it is clear from his context however that Turchin is really referring to a pastorial frontier, between pastoralism and semi-arid or arid regions of several biotypes.

The theory arises from the tendency for  large empires to arise at interfaces between settled and nomadic societies.

Turchin gives as an example the recurrent state formation in East Asia: China has been unified 14 time, and on all but one occasion the unification proceeded from North (and most frequently, Northwest) towards South. Simultaneously, a series of nomadic imperial confederations arose on the steppe side of the Inner Asian nomad/settled frontier. According to his analysus over 90% of megaempires arose within or next to the Old World’s arid belt, running from the Sahara desert to the Gobi desert.

The idea of the model is that the inequality  in military power between the mounted archers and the farmers puts farming communities under selective pressure to unite to better resist the predation from the steppe. In turn, the nomads are forced to unite to be able to overcome the defenses of the emerging agrarian states. The scale of empire on both sides of the steppe frontier mutually increase.

This theory is attractive for a number of reasons. It does not rely on preconceptions of ‘oriental’ civilisations, rather focussing on the mutual dynamics of changing societies at the edge of the margin of cultivation.  These preconceptions, with their assumptions of inherent ‘despotism’ and ‘backwardness’ have hindered several centuries of historical theorising about pre-capitalist civilisations – in particular conceptions of Hydralic States in Weber, Oriental Despotism in Marx and their unification in  Wittfogels conception of Hydralic Civilisation (a future section will deal with these ideas). It also might help explain the centrality of Mesopotamia, with arid frontiers on two sides.

Peter Turchin has helped launch a new field – derived from applying ideas from population dynamics to the dynamics of history.  The field is called cliodynamics.   A deliberate play, and deliberate threat, on the field of Clionomics, the application of otrthodox ideas of neo-classical economics to history.

The expansion of turf is doubly interesting in that it was the extension of older ideas of population and subsistence into explanations of society, pioneered by the likes of Cantillon, Mathus and Ricardo, which defined the sphere of political economy.  We are now seeing a new extension but built on new and more robust mathematical foundations.

As Turchin says on his website

Are there ‘laws of history’? We do not lack hypotheses to investigate – to take just one instance, more than two hundred explanations have been proposed for why the Roman Empire fell. But we still don’t know which of these hypotheses are plausible, and which should be rejected. More importantly, there is no consensus on what general mechanisms explain the collapse of historical empires. What is needed is a systematic application of the scientific method to history: verbal theories should be translated into mathematical models, precise predictions derived, and then rigorously tested on empirical material. In short, history needs to become an analytical, predictive science.

This is audacious as this the very ground on which materialist concepts of history, especially Marxian conceptions, call their own. But in utilising the tools of systems dynamics, unavailable in the 18th or 19th centuries causation can be seen as complex and multidirectional, with processes of positive and negative feedback, hysteresis homoeostasis and non-linear relationships.

This embrace of complexity is of especial relevance when considering the relationship between state power, violence, means of social control and economic gain. It avoids the problems of the marxian base-superstructure model, which as we saw in the last section has the fatal flaw of being unable to explain the rise of capitalism and persistence of pre-capitalist ways of producing. But importantly it does not lose the focus on the physical and environmental, on subsistence and flows of actual things. A focus often lost in the many post-everything models which focus on systems of power and ideas unachored in the threat of hunger or death.

The Cliodynamics approach is clearly an outgrowth of the World Systems approach of Immanueal Wallerstein and the French Annales School. The assumptions of multiple paths of evolutionary development, the focus on trans and international relations and interfaces, and the focus on long-term processes and geo-ecological regions as unit of analysis all come from these approachs. The world systems approach has however been hesitant to describe itself as a theory.The reason surely is its origins as an outgrowth from marxian ideas. A very heterodox approach to explain what was poorly explained and what could not be explained by Marx’s ideas.

If we have a hint of a better and more universal systemic approach towards political economy and historical change then we need to press such approaches into service in helping to answer the big unaswered questions of history, of why some societies have collapsed, or thrived, and what it tells us about the future of our own society.

Jabbed – the Political Economy of Vaccination Aid

David Cameron has announced a staggering £814 towards the GAVIA vaccination alliance, more than twice as much as any other country & the Daily Mail is not happy, and it is clearly a jab in the eye to the grumbling blue tories.

GAVIA is a remarkable organisation with an interesting history.  It spawned out of the experience of  International AIDS Vaccine Initiative (IAVI), founded by Seth Berkley (dar left).  In 1996 while working for the Carter Presidential Center in Atlanta, Berkley was assigned as an epidemiologist at the Ministry of Health in my adopted country of Uganda.

Seth was concerned the global vaccination hunt was going poorly.  Patients lobbiests demanded treatments, but pig pharma saw little effort in investing in research when the majority of sufferers lived in poor nations.  Seth formed a global partnership, convincing NGOS and national governments and international organisations to invest in research, and big pharma to cross subsidise third world vacinations from first world profits.

The effort was widely successful and in 2000 spawned GAVI, looking at vaccination across the board.  Seth took over full time as CEO in March of this year.

Bill & Milinda Gates have been GAVIAs main private funders.  They were hard nosed in funding a project that worked.

Indeed since 2000 it has probably saved over 5 million childrens lives.  This will probably soom gain Seth Berkley the noble peace prize (the last person to contribute anything like this much to humanity was Dr Norman Borlaug (who won in 1970 and is credited with saving 1 billion people from starvation).

GAVIA would not be anything like as successful though if big pharma had not been scared to death from the threat of countries such as Brazil, India and South Africa to develop IP free low cost alternatives to many western medicines.  Hence they needed a plan B which effectively is the third world paying lower, but still not cheap, prices, subsidised by higher prices in the developed world.  The tiered pricing is much like the seats on a ryanair plane.

Governments are funding the difference as the third world prices are expensive.  They are willing to do so as it removes the chances of corruption, has an immediate health and economic benefit, and of course the money recycles into the pockets of big pharma – funded of course by the tax payer.

Berlusconi ‘We will have to abandon Nuclear Power’

After a referendum today with more than 50% turnout – despite every effort by him to keep the turnout down. He told a press conference in Rome that his government would now throw all its energy into developing renewable sources.

Not a time to be investing in even a French Nuclear Energy Company.

I have no doctinal objection to Nuclear Power, however a series of technical breakthroughs over the last 5 years now mean that it is practical and affordable to achieve, which it wasn’t before, a 100% renewable, and a 100% carbon free, energy and transport sector within 30 years.

I’ll be writing more on this over the next few weeks, including on how we can go further; how good urban planning can acheive carbon negative cities, and how as a result we both reverse global warming and not live puritanical existences.

The Rise of the ‘Argos Catalogue Family’ – Argos pulls PR masterpeice

The term Argos Catalogue Family has entered general parlance in the last few weeks.

It comes from the tail of a London teacher who asked his class to bring a book from home to discuss with the class, and a boy bringing the Argos catalogue as it was the only book they owned.

The Evening Standard used the term – the first to do so in print media I think – last week highlighting the poor case of a little girl in Northolt who mum couldn’t help her read  and whose family owned no books and couldn’t afford them.
Argos must have been rightly worried about the image this gives them and they have pulled off a masterstroke, giving the little girl over £500 pounds of books, to her evident delight.

Aurella ran into her room after getting home from school and came to a sudden halt as she took in the amazing sight in front of her. “Oh my goodness!” she shrieked. “Who are these for?”

On the table were four large boxes piled on top of each other. The seven-year-old picked up one box, tottered under its weight, set it down on the floor, and tore off the wrapping. “Tracey Beaker!” she yelled, laughing…She picked up the next couple. “Hello Kitty! My best book ever! Horrid Henry!” Her smile could not get any bigger.

For the next 45 minutes, the girl we wrote about as symbolising the “Argos Catalogue family”, the one in three without a single book of their own except for shopping catalogues, opened box after box of books. She was barely able to contain herself.

There were more than 50 books in a bumper £500 hamper…They provided this inspiring child – who came from Poland unable to speak a word of English and did not have a book of her own until today – with an instant library.

She stood back, surveyed the mountain of books that stood almost as tall as she did, and shook her head in disbelief. “I have never had so many presents,” she said. “This is the best day of my life!”

Back at her flat in Ealing, the first thing Aurella did was compose a letter in her best “joined-up writing” to Argos. “To Argos from Aurella,” she wrote. “Thank you Argos and thank you for the books.

“We must put the books out, mum,” she said. “Until the weekend. Then we go buy bookshelf – from Argos!”

The response of Argos,  was magificent, of course with launching an online bookstore you can now get more than one book from them, and now everyone knows about it.

Lets hope they use their new endeavour to help many more children through the Standard literacy initiative.

Decision Theory for Planners #107 Bungs and How to Unbung Them

A chain is only as string as its weakest link.

A bit of a cliché, but the trouble is we cant always wave the weakest link goodbye, we have to manage it.

This is where the Theory of Constraints (TOC) comes in (constraints in the sense of problems bunging up a process, not a spatial designation).  It was introduced in the 1984 book The Goal by Dr. Eliyahu M. Goldratt.  It was based on an earlier idea called the theory of bottlenecks but Goldratt greatly popularised it in the English Speaking World.  It really is one of the very few books id recommend that any manager has to read.

The book is unusually written as a novel, of a manager struggling to save a failing factory.  Through a series of dialogues the protaganist works out the solutions himself through challenging conventional wisdom.  He works out that the business really has only one goal, not to maximise output but to make money.  He then set out to work out how to measure how the money he was spending on costs translated to sales.

He figured out he needed to measure three things (ill use the modern treatment rather than the early version in the book):

  • Throughput is the rate at which the system generates ‘goal units’ e.g. money through sales.
  • Investment -the money tied up in the system. This is money associated with inventory, machinery, buildings, and other assets and liabilities.
  • Operational expense the money the system spends in generating “goal units.” – translating investment to throughput.

The same approach can be used in public services if the concept of sales is replaced by one of the ‘goal output’ of the service.

At the heart of this is a critique of traditional concepts of cost accounting.  If a unit needs to save money cut costs.  The problem is that across the board cuts can just as easily lose you money – or of course make the service much less value for money.

When cost accounting was developed in the 1890s, labour was the largest fraction of product cost, and hours if work could be highly variable. Cost accountants, therefore, concentrated on how efficiently managers used labour since it was their most important variable resource, & many managers are still evaluated on their labour efficiencies, and many “downsizing,” “rightsizing,” and other labor reduction campaigns are based on them.

Now, however, workers who come to work on Monday morning almost always work 35-40 hours or so; their cost is more fixed rather than variable.

This approach is important because it allows focus on how of constrained resources restrict the achievement of an organisations goals.

Imagines a body has to process 1000s of forms – a not unfamiliar example to planners – before it can progress a plan.

Now imagine there was only one workstation and only one person to enter them – in the language of the Theory of Constraints the  both the number of workstations and the number of operators would be bottlenecks – constraints.

Now lets say that it was found that to process the forms within 1 month you needed an extra 5 workstations and 5 operators. Imagine the operators were hired on a temporary contract.  The constraint would not shift to the workstations and no longer the operators. Lets now say that 6 workstations were leased but sat in a box because there was noone to set them up.

Along comes a cost accountant keen to downsize.  They send the workstation back, they are overhead.  They sack the operators.  Now by their books they have radically improved efficiently.  However the one original person will now have to take 6 months to enter all the data.  During the extra 5 months all of the co-workers salaries have to be paid, and the output is 5 months late.  The real costs, measured in terms of achieving the goal, costs have not gone down they have dramatically gone up.  Those staff and the workstations was not an operational expense but an investment.

This is one of the reasons why organisations should operate on the principle that everything is a project and of zero-based budgeting.  Otherwise overhead costs of staff are not properly accounted.

The Theory of Constraints is based on the premise that the rate of goal achievement is limited by at least one constraining process. Only by increasing flow through the constraint can overall throughput be increased.

Assuming the goal of the organization has been articulated  the steps are:

  1. Identify the constraint (the resource or policy that prevents the organization from obtaining more of the goal)
  2. Decide how to exploit the constraint (get the most capacity out of the constrained process)
  3. Subordinate all other processes to above decision (align the whole system or organization to support the decision made above)
  4. Elevate the constraint (make other major changes needed to break the constraint)
  5. If, as a result of these steps, the constraint has moved, return to Step 1.
The concept of subordination means that once a bottleneck has been identified improving throughout anywhere else in the business process wont increase the output overall one iota.  Things will still stack up infront of the bottleneck.
Elevating the constraint means that if you have done all of the above and it is still a constraint you need to invest to increase capacity, but only to the extent that it remains the constraint otherwise the investment is waisted.

Using these principles you will find that constraints will often switch and switch back, you need to be constantly improving.

A major way to avoid constraints being a problem is to utilise the concepts of ‘pull’ management introduced in the previous lecture.   This is through the idea of ‘Drum Buffer Rope‘.

The rope is the ‘pull’ of resources from upstream.  The drum is the rate of the business process.  The buffer is what protects the drum from being held up by the constraint.

Think of poor dad in this diagram.

To keep going he cant go faster than the pull of the rope.  Unless he slows down to a crawl the rate he goes out will be determined by the variability of how quickly his toddler behind goes, although the impact of this will be significantly reduced if the toddler is at the end of an elastic cord, in which case his speed will be defined by the length of the cord.

The idea of a buffer is to protect a process from a variable constraint.

It is surprising perhaps that this concept has not been used more in planning, especially in infrastructure planning, as infrastructure is a classic constraint.

Heres an example of where $85 million was spent on removing a bottleneck, to no effect on the level of service.

One good example of where it has been used successfully is concerning the upgrading of the East Coast Line. Conventional wisdom held that the main constraint was the notoriously narrow Welwyn Viaduct. This study found it wasnt, and that upgradings elsewhere on the network were needed.

These ideas are just as powerful when looking at constraints in time – project plans – the next section.

Christchurch – A Plan to Rebuild?

Christchurch, the Garden City, was hit today by the third earthquake in 18 months,  after the second it was estimated that as many as a third of the buidings in the ‘red zone’ of Central Business District were demolished or will need to be.  Even more damaging was the disruption to water and other utility networks across the city.

Renowned local Architect Ian Athfield has been selected to replan the city.  Highly original his ‘cartoon’ houses, once the butt of jokes, are now highly regarded.  With Heritage New Zealand lobbying to get some listed.  He has been fiercly critical of Christchurch planning rules in the past.

Lets hope his plan rises to the challenge.

The omens from the City arnt good.  The Mayor has issued a press release making it sound like hes kicking off a leisurely LDF review not bringing a city back from the brink.  The role of Ian Athfield also seems too narrowly defined without proper responsibilities or resources.

He has already had to issue an ultimatum – and considerable reaction – good on him

‘abandon the one-way system roading network or he walks from the post-earthquake rebuild.

Athfield also demanded a rerouting of the city’s bus system, another essential step to attracting more people to a reconstructed central business district.

“My bottom line is no one-way streets and no unnecessary buses through the city,” he said.

“If that’s not accepted then I’m not really interested in being involved.

…the city should no longer be dictated to by traffic engineers.

Athfield refused to back down and criticised so-called “heritage huggers” for refusing to believe the structural strengthening of some old buildings was required.

However, he did advocate the restoration of some iconic landmarks buildings to their former glory including Christ Church Cathedral, its Catholic counterpart, the Arts Centre and the Provincial Chambers.

The city’s new transportation needs will be debated when a task force is established to oversee Christchurch’s recovery – a process that could take more than a decade to reach fruition.  His plan to stop trams running through the city centre though seems crazy.

The public has already put forward 40,000 comments, in a city of 370,000, and transport issues are proving key.

As we know from San Fransisco, already offering to help, and the 8 world heritage cities of the Val de Noto in Scicily cities can rise from Earthquakes many times finer.  Whilst Kobe, devasted in 1995, has been rebuilt (at a cost of 2.5% of GDP).

National Planning Policy Framework Forensics#12 Assessing Business Space Requirements

This section compares the NPPF draft to PPS4, in terms of development plan land and floorspace requirements.

Page 10 of the NPPF maps closely to section EC1 of PPS4.  Here is a side by side comparison.

work together with county and neighbouring authorities and with local enterprise partnerships to prepare and maintain a robust evidence base to understand both existing business needs and likely changes in the market; work together …preparing local economic assessments to prepare and maintain a robust evidence base to understand both existing business needs and likely changes in the market.Ensure that the volume and detail of the evidence they gather is proportionate to the importance of the issue
work closely with the business community to understand their changing needs and identify and address barriers to investment, including a lack of housing, infrastructure or of viability. (No mention)
Assess the requirements for land or floorspace for economic development, including both the quantitative (how much) and qualitative (what type) requirements for all foreseeable types of economic activity over the plan period, including for retail and leisure development; assess the detailed need for land or floorspace for economic development, including for all main town centre uses over the plan period.  Identify any deficiencies in the provision of local convenience shopping and other facilities which serve people’s day-to-day needs
Assess the existing and future supply of land available for economic development and its sufficiency and suitability to meet the identified requirements. Reviews of land available for economic development should be undertaken at the same time as, or combined with, strategic housing land availability assessments and should include a reappraisal of the suitability of previously allocated land; assess the existing and future supply of land available for economic development, ensuring that existing site allocations for economic development are reassessed against the policies in this PPS, particularly if they are for single or restricted uses. Where possible, any reviews of land available for economic development should be undertaken at the same time as, or combined with, strategic housing land availability assessments
Assess the role and function of town centres and the relationship between them, including any trends in the performance of centres; (nothing in terms of evidence, only plan making)
Assess the capacity of existing centres to accommodate new town centre development assess the capacity of existing centres to accommodate new town centre development taking account of the role of centres in the hierarchy and identify centres in decline where change needs to be managed
Assess locations of deprivation which may benefit from planned remedial action. At a regional level…identify locations of deprivation to prioritise for remedial action and to address the drivers of decline within these areas.For retail and leisure development…. in deprived areas which lack access to a range of services and facilities, give additional weight to meeting these qualitative deficiencies. However, any benefits in respect of regeneration and employment should not be taken into account, although they may be material considerations in the site selection process

Apart from being a shorter section the role of the evidence base remains the same.  Surprisingly it doesn’t take on board the latest thinking on city growth strategies – i.e. those influenced by Michael Porter, Paul Krugman and others work on the competitiveness of places and planning for clusters .

The reference to working with the Business Community is welcome.

Key change in terminology, ‘need’ is replaced by ‘requirements’  I have been advocating this for years as the term ‘need’ implies a subjectivity.  In the later section on retail and leisure decisions ill look at how such requirements are defined. The ‘quantatitve’, ‘qualitative’ categorisation is retained but a later section is inconsistent, at one point referring to requirements, at another to needs.  The categorisation now also applies to non retail/leisure uses which is a good thing.  Too often LPAs have claimed to have a sufficient supply when much of it is so clapped out it can be used for little more than dry storage.

The draft NPPF retains the key problem of PPS4 which is that is an entirely non-spatial document, looking only at gross floorspace ledgers.  It should be a planning document not an accounting one. There is no reference to ensuring that business space is retained and provided at optimum locations for the required use, or that land use is at its optimum overall.  There is no reference to positively managing change in business requirements, both to achieve growth if new areas are needed, or to manage land use change if older industrial areas no longer meet modern business needs.

No longer a reference to town centre uses, just retail and leisure.  Could imply a weakening of ‘town centre first’ policy.

No mention of assessment of local convenience requirements.  Not necessarily a bad thing as this sector is hard to plan for.

The shortening of the section on assessing capacity of town centres is problematic. This wording was added to prevent small centres being allocated large amounts of retail out of all proportion with their size and raiding retail spending from neighbouring planning authorities.

Taking away the references to understanding the drivers of decline is a step backwards.

It would seem it is now acceptable to take regeneration and employment concerns into account for retail/leisure developments outside town centres.  It was too strict before and now too loose.  Why should a Tesco or Sainsburys now look for a town centre site in a northern city at all when they can claim regeneration benefits for other out of town sites?  A few key appeal decisions in recent years would have gone the other way. It should state that regeneration and employment benefits are material, but for town centre uses should also consider potential harm to regeneration and employment from their location in out of centre locations.  That to my mind strikes the right balence.

Dubai Scraps Half its Real Estate Megaprojects

The prospectus for a dollar  bond issue on the London Markets has forced the Dubai government to fess up on the extent of the pain from its property boom and bust.  Dubai has been experience yield problems and it is still pressing ahead with major airport projects, hence the need for international finance.  With a final settlement reached with creditors on the debts of State owned Dubai World in March the emirate can return to the international money markets.

Property prices have fallen nearly half since their 2008 peak and the prospectus shows that the Dubai Real Estate Regulatory Authority, set up to clean up the mess and fairly reticent so far about its dealings, cancelled 217 out of 250 overhang projects. It expects 237 of them to be completed “in due course”.

Dubai is a classic example of how a weak planning system can allow supply to dramatically overshoot demand.   Many of the projects originally waved through were mutually exclusive, fighting for the same access points and road space on Duabis congested Cornice roads.  As only the first to complete could feasibly go ahead it forced a race by developers for their schemes to finish, and when they did there was a huge glut.  A whole economy based on real estate not underpinned by demand from other sectors of the economy .and where demand for housing pushed out demand for international inward investment in offices, which a tax free country should otherwise be highly attractive

The problem has been made worse by the system of ‘strata title’ where larger buildings can be broken up into smaller lots.  This means international property investors, keen to secure larger buildings with long term tenants, are dettered by having to negotiate with 10s of owners.

Mortgage lenders hold about $16bn of toxic home loans, but so far their are only around 200 cases in the courts with only one repossession so far.  This indicates, that as elsewhere in the world, forbearance is the norm as lenders fear a deleveraging spiral.   This factor alone indicates that Dubai prices have a considerable way to hit the bottom.

As in the UAE more widely many projects were financed by cash and continued building, even to this day, this has added to a supply overhang.