The Underlying Problem with Mark Carney's Book, Value(s)
It's also the problem with economics itself.
I read through Mark Carney’s book, Value(s), especially the parts about economics. I was particularly interested in his take on what happened during in Canada during the global financial crisis. His view of Jim Flaherty’s talents as a Finance Minister were, in my view, generous and even excessively polite. Harper and Flaherty’s policies were incredibly damaging and destructive to my own province, Manitoba - closures, privatizations, and six straight years of frozen transfers led to tragedy.
I’ve already written about the many ways in which the Conservative government of the day instituted policies that made that crisis worse in Canada, as well as the bungled, inconsistent and flailing fiscal response. As many have noted, according to economics of the day - and today - the crisis of 2008 was not supposed to be possible.
In the 1930s, FDR’s New Deal was not just government spending to stimulate the economy. FDR launched hearings and inquiries into what went wrong during the crash, and new legislation, regulation and oversight were introduced in order to keep Wall Street from stealing everything that wasn’t nailed down - which they had done.
The crisis of 2008 has never been resolved. William White - a Canadian former central banker who advised the Bank for International Settlements and warned Alan Greenspan that a crisis was imminent, starting in 2003, has made the point that every effort by central banks to resolve a crisis has made the next one worse.
The roots of this crisis are in the neoliberal / neoclassical economic revolution in the 1970s, which altered the entire landscape of the economy: tax and fiscal policy for elected government, monetary policy for central banks, shareholder value in corporations all changed, with further impacts on finance and stock markets, real estate, real economy businesses, and workers.
I’ve written extensively on how none Friedman et al’s premises of the economy work, but you can think of the shift this way.
Between about 1945 and 1975, when New Deal policies were still in place, it was considered the golden age of capitalism. In Canada, the UK and the US there were high income taxes (top marginal rate exceeded 90%), corporations paid a greater share, and governments would invest in public infrastructure, education and other programs that were considered “a factor of production,” reduced costs for the public, including for business, resulting in greater shared prosperity.
In The Wealth of Nations, Adam Smith pointed out that inflation - price hikes - were driven by cartels. ““People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” With separate business owners choosing to collude instead of compete. When cartels, oligopolies and monopolies all have pricing power and together dominate a market, they can use that power to extract above-market returns, especially in a crisis.
Instead of recognizing this, Friedman argued that all inflation is caused by government deficits, in what I have described as one of the most pernicious lies of the last half-century.
These new policies transformed the economy.
Instead of the having the wealthiest people and corporations - with the highest wealth and incomes - pay taxes on their profits, and having those funds recycled into public investments, barriers to growing concentration of wealth and income were eliminated. It wasn’t just workers who have seen their incomes stagnate or drop: so have “real economy” businesses - industrial capital. Industries was bought up and production offshored, with endless mergers and acquisitions which involve plant closures and firing millions of people.
The myth is that “the market changed, therefore we had to…” when these are deliberate policy decisions.
In the late 1970s and early 1980s, when these changes were being cemented into place, it completely changed who was going to pay for economic recovery everything in a recession.
The schemers behind the 1970s neoclassical revolution emphasized that balanced budgets were essential. There have been plenty of jurisdictions - including the province I live in, Manitoba, that have outlawed Keynesian economics and balanced budgets.
Friedman argued that independent central banks alone should do it through monetary means. If the economy needed stimulating, instead of governments taking on debt for fiscal spending or investment, that independent central banks would act, so that the private sector, not government, would make the investment decision.
The result was that instead of government taking on debt in an economic emergency, which everyone in society can help pay off, private individuals and families took on debt instead. The “boom” of the 1980s after was driven by private credit - consumer credit cards were deregulated and real estate soared.
It is not an exaggeration to say that the burden of stimulating the economy was shifted from government debt to private debt. That debt was used overwhelmingly for one purpose: buying and driving up the price of real estate.
There are a number of big lies about housing, based on big economic misconceptions. In the U.S. and elsewhere, we’re seeing crimes against humanity and sadistic policies being enacted because people are being told that immigrants are to blame for low wages, or for high housing costs, or that it is simply a mismatch of supply and demand.
The reality is that the price of housing has been massively inflated due to central banks’ deliberate efforts to stimulate the economy by lowering interest rates and expanding the money supply through the private extension of credit. When mortgage interest rates go down, it means that across the entire economy, credit goes up. Not only are individual workers or families expected to take on hundreds of thousands of dollars in debt, it is an economic stimulus that is inherently regressive in its effects in multiple ways.
When I say that governments have shifted the burden of debt from themselves onto private individuals, I am not exaggerating for effect. The correlation between private and public debt is 1:1, as this remarkable chart from Statistics Canada shows.
What this means is that when governments enact austerity, in the macroeconomy, they are not achieving savings, at all. It just shifts the burden back and forth. The costs will be paid by someone else: it may be their money, or it may be their life.
Monetary stimulus by manipulating interest rates means the people who need relief the most will always get it on the worst terms - a higher interest rate and harsher terms. The people who already have vast wealth or income who need the stimulus the least- can suddenly access vastly more credit - exponentially more.
This low cost finance does go into “greenfield” investments in new industrial capital, or the creation of new value or new companies at all. It’s used to juice the price of assets and property to flip it in the short term: existing companies, real estate, stock buybacks, and manic speculation on fringe investments that have zero intrinsic value - beanie babies, sports trading cards, tulip bulbs.
Debt-driven speculation starts to drive the crisis, because it starts to warp the economy into a game that is controlled only by a few players. That is where we are now. The hyperconcentration of market power which defines oligarchies starts to impoverish the vast majority because the financial, “hype” economy starts to break the real economy.
In Canada and around the world, the economy-wide effect has been to inflate and maintain the size of the mortgages so that they can be sold as investments to someone other than the homeowner.
There are two markets being mixed here. It’s not about the supply and demand of housing, which has real-world constraints, it’s about the supply and demand of mortgages.
In the housing market, if you are buying a house with a mortgage, you are not the investor: you are the investment. A huge segment of our economy - and economies around the world - is based on a fairly small number of wealthy individuals betting that the working and middle class will be able to keep paying their mortgages. When their bets soured - as they did in 2008, millions of people lost their homes, while the investors were bailed out.
As people have pointed out, this can hardly described as capitalism, much less free market capitalism. The Global Financial Crisis really needs to be seen as a classic American scam - one of the biggest of all time.
What do you even call an economic system like this? One commenter suggested “Financial communism” and in the U.S. and other countries, they’re finding common ground with Crypto-Fascists. The reason for the “horseshoe theory” of the extreme far-right and far-left joining is that their hatred of authority and the law, not always because government is oppressive, but because they are gangsters and criminals who want to be able to commit crimes and rule through terror and never face any consequences for it.
For decades, every step of this central bank monetary economic stimulus has made inequality exponentially worse. Lowering interest rates to encourage people to borrow means that the more you already have, the more you can borrow at even better rates. Those loans then distort the economy, financing the concentration of wealth and establishment of oligopolies with their oligarchs. Then, during bailouts, the investors who were losing money because their bets went bad were sheltered from the fallout of their bets gone wrong, and the costs of failure were shifted onto everyone else - homeowners and communities and businesses that were devastated as the costs of a giant private sector bet gone wrong fell on the public to pay.
The fact that we are trying to use mortgages on people’s homes as an investment, on a massive scale, is why we have a housing crisis in Canada, but it’s not just us, or the U.S.: It’s a global problem in countries as geographically distant and economically independent as Canada, the UK, New Zealand, Australia and many more.
All of those countries have a chart of housing prices that looks like this:
Prices soared during the pandemic, not because of immigration, but because central banks dropped interest rates to near zero and printed extra money in the form of Quantitative Easing with the specific goal of encouraging consumers and businesses to borrow more to stimulate the economy, instead of direct fiscal investment by government that could be tailored to need.
Central bank interest rates, not immigration, must be the major cause of soaring house prices, because of the pandemic - an event that was apparently so traumatic we’ve forgotten it happened. Immigration slowed during the pandemic (partly because processing times increased). It’s interest rates that drove up prices - and a debt-fuelled buying spree), and prices have stabilized or been dropping because the central bank hiked interest rates to “cool off the economy,” which is to say, by engineering a recession and bankruptcies.
The chart of house prices above is from the CMHC report that claims Canada needs to build insane numbers of houses in order to increase supply enough to reduce demand and bring prices down. As a consequence of this plan, the Federal Government has essentially greenlit the demolition of many neighbourhoods to increase “density” through multi-unit construction, which will not lower house prices as they need to. The prices are not being held up by too much demand. They are being held up like tentpoles by the trillions of dollars in mortgages that are bankrupting Canadians and sucking money out of the economy faster than it is growing, because those trillions in debt are all overinflated assets for bankers and investors.
This is the root of the crisis that has led to the current economic maelstrom of chaos, corruption, lunacy and destruction. We are living in a massive global asset bubble that has been collapsing for three years. The real reason behind all this fighting about “work from home” is that commercial real-estate has been in a depression since 2022. It’s not about productivity: it’s because landlords have no tenants to pay their mortgages. It’s not about what’s good for workers or their business: it’s about what’s good for the investor in the building they operate in.
There’s a saying, derived from parenting, that explains the current situation. “When you find yourself screaming, it’s because you don’t have a plan.”
We are in an economic trap, because no one can figure out how the price of housing can go down without hurting a lot of people. This is not just a real problem, it is the fundamental problem facing Canada and other countries.
The problem is that if house prices go down, the many, many people and institutions who are relying on the mortgages for income or revenue may lose money or go broke. No one can figure out how to escape the economic trap for ourselves - how can you make housing affordable again - truly affordable - when the higher the price, the better the return for investors - at the expense of the people living in the investment.
That was spelled out plainly in this article in the Globe and Mail: “The bitter truth is that cheaper housing means a retirement crisis for homeowners”
It is a far larger crisis: the massive asset bubble created by central bank policies is the single greatest risk to the entire Canadian economy and our financial system.
It is not government overreach, excess regulations or taxation that are throttling the economy - it is private debt levels themselves that have driven up the cost of property - from housing to commercial real estate to farmland.
This is the creeping financialization that has been consuming and undermining equity investments and productivity, while raising the cost of overhead for the entire economy.
For all that there are some bitter truths, recognizing that we are in a genuine crisis is critical to acting.
CMHC has already rolled back its goals on reducing house prices, which means they are acting for the lenders. It cannot be emphasized enough what a bad idea this is: people’s houses are not productive assets. Their value is derived from their capacity to extract rent for something that is a necessity of life - shelter.
Governments have been twisting themselves in knots to deal with this, but the problem is that as a country, we have encouraged the massive over investment in real estate, on the credit of millions of individual, private Canadians. It has been a malinvestment, aided and abetted by every level of government and the industries who benefit from a property boom: the FIRE sector - Finance, Insurance and Real Estate, because as prices rise and they can all make more and more money without doing more work.
These are all well-known phenomena from economic history - from the work of Henry George for example and the reason some have advocated for “One Big Tax” which applies to rents and to property, like a land value tax.
There are sensible, achievable ways of negotiating changes to financial arrangements where the Federal Government, the Bank of Canada and CMHC have extraordinary powers to provide structured relief to take the economy out of crisis and ensure that people have secure retirements. One area where the Federal Government has full authority to act is through payments to individuals that can and should mitigate the crisis.
You can browse through my other posts for examples of solutions, and I have written an entire book that explains what the problem is, why we are misdiagnosing it, and how it could be addressed - “Bring on the Brand New Renaissance”, and William White and others have called for orderly debt restructuring, which, I believe, paired with equity investments and a high-pressure economy will deliver actual, real-world benefits for everyone.
Values & Meaning
The very title “Value(s)” invokes multiple meanings - the singular, “value” being attached to market or economic value, values as being moral or spiritual principles that govern our sense of right and wrong, and even a spreadsheet.
There are two deeper problems here, not just for Carney, but economics itself. Other disciplines usually have some kind of philosophical theory of knowledge that underpins it, often wrestling with moral or ethical considerations.
The law has jurisprudence, and it varies from place to place. The development of philosophy, and logic around the world informed the development of mathematics, physics, and sciences, and religions and faiths and spiritualities also have philosophies and ways of thinking and ordering their world.
The point of all of this is to separate fact from fiction, and reality from make believe. Value is about whether we think something is important or not, and how important it is to others. How are we determining whether the information we are looking at is important or not, and how important is it?
Neoclassical economics, in which Carney is an expert, has no such intellectual underpinning. In September 2016, Paul Romer, who is a former chief economist of the World Bank, wrote a paper called “The trouble with macroeconomics” that lamented just that.
In the introduction, Romer writes:
“For more than three decades, macroeconomics has gone backwards. The treatment of identification now is no more credible than in the early 1970s but escapes challenge because it is so much more opaque. Macroeconomic theorists dismiss mere facts by feigning an obtuse ignorance about such simple assertions as "tight monetary policy can cause a recession." Their models attribute fluctuations in aggregate variables to imaginary causal forces that are not influenced by the action that any person takes.”
Romer is serious when he says “imaginary” - or invented - information is being used to construct and inform economic models, and has for over 40 years:
“Macroeconomists got comfortable with the idea that fluctuations in macroeconomic aggregates are caused by imaginary shocks, instead of actions that people take, after Kydland and Prescott (1982) launched the real business cycle (RBC) model… In response to the observation that the shocks are imaginary, a standard defense invokes Milton Friedman’s (1953) methodological assertion from unnamed authority that "the more significant the theory, the more unrealistic the assumptions (p.14)."
More recently, "all models are false" seems to have become the universal hand-wave for dismissing any fact that does not conform to the model that is the current favorite. The noncommittal relationship with the truth revealed by these methodological evasions and the "less than totally convinced ..." dismissal of fact goes so far beyond post-modern irony that it deserves its own label. I suggest "post-real."
This is not a minor problem. Romer walks his way through equations and points to all the imaginary assumptions that are being plugged in, and there are many.
In the context of the law and justice, there are volumes of precedent, legislation, jurisprudence, constitutions, within the additional context of professional regulation, that all provide a framework for what is important, as well as setting out criteria for why it’s important.
As a simple example, let’s consider the principle of the criminal law, that in order to be convicted, the prosecutor must prove both a bad act, and a guilty mind. The way that crimes are defined by degree express how this is applied.
First degree murder is killing someone after planning to do so. If you’re the accused, the point here is that you had a choice not to do it, and you did. You acted deliberately and maliciously - “with malice aforethought.” That gets the worst punishment.
Second degree murder is killing someone suddenly or impulsively. The killing happened, and was deliberate, but it happened spontaneously. This gets a less severe punishment.
Manslaughter is where your deliberate action leads to a person’s death, but there was no intention to kill. This is the lightest punishment.
Even if the cause of death in each case was identical - being struck by a car - what makes the difference in the charge is the mental state of the perpetrator.
This then raises questions about whether people can form intent, or are have the full awareness and understanding of the consequences of their decisions. They may lack full mental awareness - as children, or people with dementia, brain injuries or temporary psychosis all might.
All of these principles reflect our own sense of morality as well as fairness, and what is just? Jurisprudence asks questions about what matters to us, and why, and sets out tests, that help us assign value to information. The judge or court will assign meaning and significance to evidence - whether it was relevant, or true or not - in a ruling or decision, which is in effect a declaration of meaning.
I make this point because the law has this underpinning about what constitutes evidence, and how to process it. Other disciplines do as well - not just the “hard sciences” but what were called the “liberal arts”.
Across the humanities, in philosophy and what is known as “critical theory” which are really the successive waves of philosophers and thinkers through history. They exist in cultures everywhere in the world, but here we are talking about Western philosophical underpinnings, of which the people positioning themselves as “saviors” of Western Civilization are woefully ignorant.
On a brief aside: I’ve come to realize that the far-right people who think they are saving Western Civilization because they think it was defined by the Crusades and driving Muslims out, including out of the Holy Land, and not thousands of years of knowledge and thinking that have generated incredible innovation, prosperity and political freedom.
It is not just the hard sciences that have these epistemological standards. The other disciplines in the humanities might have different schools of thought, but there was still an expectation that they would meet certain critical standards. This can be seen as “gatekeeping” and there are plenty of examples of people lording their hermetic knowledge above others.
However, by critical standards I mean meeting the minimum threshold - not being obviously inaccurate, having no evidence, trafficking in conjecture or making assumptions that are unsupported.
Economics has no such underpinning, and this is true of almost all economics, especially when it comes to defining money.
The problem is particularly bad with neoclassical economics, which is still the major economic paradigm right now. It operates on an incredibly simplistic model of the economy.
Understanding values and meaning with a theoretical foundation based in hard science: Information Theory
While I have worked in public policy research for many years, my undergraduate degree was in literature with a minor in philosophy, and my master’s degree in literature proposed a theory of meaning that did have a firm empirical and theoretical foundation, based in information theory, which has extraordinary explanatory power as well as practical and proven applications. Information theory, and its cousin cybernetics help explain information and control systems across multiple disciplines - biology, language, genetics, engineering.
I’ve joked that had I taken basket-weaving rather than an English degree, I would at least be able to say I work with my hands.
However, the education that I did enjoy, in which I have a graduate degree, actually does help me tell the difference between reality and make-believe, for this reason: story-telling has its own conventions, structures and tropes and techniques that are used by creators and artists with the aim of creating a particular effect or generating a particular response from the audience - comedy, drama, tragedy, horror, suspense, and in the realm of political communications and propaganda, myth-making, demonization, disgust.
Understanding these conventions helps you separate the wheat from the chaff, because actual human conversations, experiences and history itself do not follow these “just-so” stories.
You also learn that there are many different ways to interpret information, and that you may need to consider or balanced two different or competing interpretations, each of which may be valid depending on the situation or context.
One of the basic differences here is whether a discipline is descriptive or prescriptive. If it is descriptive, as with the “hard sciences” like physics, chemistry, math and professions like engineering, medicine and the law, all have oversight and enforcement around professional practices to identify and weed out fallacies, errors, to ensure that information that is informing decisions is reliable and can be the basis for acting or reacting and getting the result we want: building a bridge that’s safe to travel on, correctly diagnosing a disease and treating it effectively. These are decisions that they know can mean the difference between life and death.
Then there are prescriptive disciplines, which is what mainstream, orthodox economics has become. Neoclassical and neoliberal economics do not accurately and impartially describe the functioning of the economy. The Global Financial Crisis and the Euro Crisis both showed that. Alan Greenspan conceded his view of reality was wrong.
Neoclassical economics is prescriptive; it is really a set of rules that are to be followed. As a discipline, it is much more like an organized religion, with the unfortunate drawback that its practitioners think they are scientists, not priests reciting dogma.
My graduate thesis was about applying the established science of information theory as an empirically valid foundation to explaining meaning in language, and how language can be used to change a person’s identity.
It is not as complicated as it sounds.
First is the idea that if you can convince or show someone that they can see a different way to look at the world, it changes who they are. A new interpretation or new information can alters how they experience and react to the world. Their identity changes, both in stories and in real life.
In real life, people learn and are taught ways to interpret the world - what is important, and this defines who they are. Their culture is information - language, stories, music, recipes faith, profession, title, group affiliation. All of experience through the senses and thoughts are information. Logic and mathematics are information.
Information theory was first developed by Claude Shannon and Norbert Weiner. It was explained in Shannon’s paper, which is remarkably easy to read, A Mathematical Theory of Communication.
Weiner coined the term “cybernetics.” Both are the underpinning of game theory, which was the subject of Mark Carney’s thesis at Oxford.
The problem Shannon was trying to solve in working out information theory was how to send a message through a noisy channel. He realized this was a matter of entropy - the amount of order and disorder in a system. He had a number of incredible insights, supported by math and vindicated by incredible advancements in information technology that were the direct result of his ideas, in what was described as the most important Master’s Thesis of the 20th century.
His theory of information was not limited to electronic communications technology: it applies to all forms of information - for example, all of the information that affects our senses through nerve signals that convey- heat, cold, pressure, light, sound, and chemicals through taste and smell, down to DNA and genetics, as well as the ways in which other organisms, including infectious diseases, up to the societal level of laws, rules, language, money. Being informational is a fact of life and existence.
Shannon recognizes that the way you make sure you get your message across is through redundancy. Redundancy provides order and structure to a message. When you graph the axis of entropy, with total unchanging order at one end, and ever-changing chaos and noise at the other, it should be no surprise that the maximum number of possibilities is in the centre. There, it means enough flexibility to allow for many alternatives, and enough stability to ensure the changes hold.
This uncertainty is an important part of whether something is signal, noise, or silence. Information requires orderly change in the medium, where the receiver is not completely certain about what will come next. As the receiver gets the message, the uncertainty is resolved. If you’re in suspense about what’s coming next: the matter of uncertainty to be resolved operates along variable spectrum of results. It might be just what you were expecting, much worse or much better than you expected.
A single piece of information, on its own can have no significance: the context around it is everything - its place. That context is generated by a code - a form of compressed information - like a set of rules or formulas, that when calculated and expanded across the matrix creates a pattern of likelihoods and probabilities.
That code provides the context that helps you send messages over a noisy channel while making sure it makes it through and can be reassembled at the other end.
When you send a message, it is encoded at the transmitter and decoded by the receiver. This is the diagram from Shannon’s paper on mathematical communication.
If it’s a phone call, the sounds you make vibrate the membrane on a microphone in a magnetic field, which is converted from sound waves in the air into pulses of electricity, or a digital signal - patterns of 0s and 1s that which may be bursts of light or instructions to instruct millions of individual switches on a device that they should be in the on or off position.
In order to stand out from the noise, the code reinforces certain parts of the message through redundancy - doubling and redoubling. This is a physical change in state, and so it requires energy and effort. Information is an energy intensive process, and there is a real cost in energy to move all the parts of a system from one state to another in a coordinated way.
At the receiver, the signal is then decoded - the structured patterns of the signal are converted from zeroes and ones or structured electrical pulses and used to vibrate a speaker diaphragm, which turns into sound waves that our ears can hear and our brain understands as language, which is its own code.
However, there are multiple dimensions to information beyond a message.
The code itself is information: it can be seen as a set of rules or instructions for interpreting signals.
This has two remarkable implications. One is that, because a code is information, you can send it as a message. You can include in a message the key to its own interpretation.
If this sounds hard to wrap your head around, imagine sending an encoded message along with the key to decode it. At a more complex - but perhaps more relatable - level, imagine downloading software. Programs and applications are built entirely out of code, and they run as virtual, simulated machines, which use algorithms to translate signals and instructions.
This aspect of information as instruction - as a command - opens up a vitally important realm of understanding information that is generally not recognized. Information is not just a message, or ideas, or symbols.
Information can also be a command - it can, and is used to control - through instructions, requests and commands that can direct and compel real world action - whether it is in automation or the behaviour of a living being.
This grew directly out of the development of automated targeting systems for anti-aircraft guns in the Second World War.
Wiener’s insight in cybernetics was that information can send a command, using the same language you would use to convey any other kind of information. The only difference between “the ball is in the yard” and “go get the ball in the yard” is that one is in the “imperative mood” — it is an order.
Weiner coined the term cybernetics “from the Greek word kubernetes, or “steersman,” the same Greek word from which we eventually derive our word “governor” and “government.” (Weiner, 1954). The Greek steersman would lean on a rudder like an outsized oar - he not only controlled the direction of the ship through continual shifting movements, but the oar was also a source of information about the speed and movement of the ship in the water. Weiner wrote:
“In giving the definition of Cybernetics in the original book, I classed communication and control together. Why did I do this? When I communicate with another person, I impart a message to him and when he communicates back with me, he returns a related message which contains information primarily accessible to him and not to me.
When I control the actions of another person, I communicate a message to him, and although this message is in the imperative mood, the technique of communication does not differ from that of a message of fact. Furthermore, if my control is to be effective, I must take cognizance of any messages from him which may indicate that the order is understood and has been obeyed.” (Emphasis mine).
The very first words ever spoken over a telephone, by Alexander Graham Bell to his assistant, Watson, were both communication and command: “Watson, come here. I need you.”
All of these are reasons that we can build “virtual” machines and mathematical models that simulate real-world interactions. The processing power of information technology is about processing vast quantities of information, but this is also what brains and bodies do.
The reason we can model these systems virtually, as information, is because the system that is being modelled - biology, language, or market interactions - are fundamentally information systems, and always have been.
What is new is that we have a mathematical and accurate way of understanding these systems as they actually are - instead of by assumption or the construction of a model that works by analogy.
We tend to use systems we understand as an analogy to explain how systems work - systems and formulas that describe interactions in physics and engineering are applied, inaccurately to systems that are informational - including the economy.
For example, if we think of rules of Newtonian physics - every action has an equal and opposite reaction: there is a sense of direct proportion.
With information systems, you have an entire information system that is already up and running and energized. It’s a question of pulling the right lever, or finding the key that turns a certain lock. It works on instructions, not effort.
James K Galbraith, who is the son of the great Canadian liberal economist J K Galbraith, has proposed a new economics based on entropy, when entropy itself is only a measure of disorder.
The money economy is entirely informational - it is a set of human arrangements, rules, and tokens that organizes people and their relationship to each other as well as the world we live in.
They are right out in the open: money, finance, deals, contracts, debt, laws and regulations.
These are human organizations and transactions - the transactions of the economy itself are entirely information that points to the real world - people, resources, food, water, energy, machines, property rights - but it is not a faithful model of it.
Neoclassical macroeconomics in particular does not model these transactions: its models don’t even include banking, money, debt or even multiple actors in the economy. The transactions simulate barter, which is irrelevant in a system that actually has money.
So we need to remember, and consider that there is this entire system of human value that is informational that governs human behaviour, actions and decisions. Because information is a kind of order, you can conjure it out of nothing. We create laws and regulations and money and rules out of nothing, and we can delete them as well, but while they exist they have meaning.
But this entire edifice and dynamic structure of the economy, which behaves according the rules of information, operates in parallel with the real world where the rules of physics, and biology, and animal need all still apply, and where the inexorable march of time, decay and rust all still exist. Crops, soil, water, sun, energy, food, shelter, resources.
The natural environment, even when is crafted and shaped by human activity and design, is not informational. It is real.
What happens, and what has happened with economics and with human political power structures, is that we demand that the world conform to these information structures - financial obligations, debt, and the need for return on investment.
The very things that are the most ephemeral - human commitments and highly changeable information - are treated as an iron law that must be followed.
Instead of altering the information structure of the economy to be more realistic, we distort and warp reality to conform to the economy.
We refuse to use financial solutions to address what are fundamentally financial problems.
Take the example of poverty and affordable housing in Canada. The problem is what I described above. For 50 years, buyers have been expected and encouraged to take on more and more debt, driving up the cost of housing and rent.
Instead of taking financial reform measures that would lower prices while finding alternate support measures for investors, we do anything but. We try to control house prices by manipulating the number of people - increasing or cutting off immigration, or reducing regulation to increase the number of houses.
That is the final problem with Carney’s book, and the ideas of values - values, too are informational. The idea seems to be that the system is fine, we just have to get people with the right values to run it. That’s a necessary condition, but not a sufficient one for change.
The hyperconcentration of wealth into the hands of a very people and families is fertile ground for corruption and control. When vast swathes of the economy are owned by only a handful of people, even if they have hearts of gold they are vulnerable to corruption, threat and intimidation. Imagine if a corrupt criminal were to ascend to a position of power in an economy that was already dominated by only a handful of people. They would only have to control a few of them - through people to control the entire economy.
From crypto-bros to modern capitalism in its current degraded state, the mistake is thinking that money, like an object, has intrinsic value of its own.
When Carney’s talks about money in terms of the gold standard. I thought this was both interesting, and odd, especially in a Canadian context.
That is because for almost all of its history, Canada was never on the gold standard.
But the reality is that the gold standard itself - the value of dollars when they were pegged to the gold standard - was still a decision where the price of gold was determined by legislative fiat. It was not just that people are buying gold on the world market. Governments that had the gold standard would legislate the value of gold in dollars.
There’s something very basic with how we talk about money and gold. We say that money, and gold, are both “stores of value.”
So, if gold is supposed to back money, what backs gold?
How is value “stored” in gold, or in money?
The value of gold is not in its use, but because it is has become an agreed upon material that we can use to get actual money. People who have gold don’t usually spend it. Gold has very few practical uses: as an element, it’s one of the noble metals, so it reacts with almost nothing, which is the same reason it endures. That means unlike nearly every other substance, it doesn’t decay, can be divided and is hard to destroy, much like diamonds.
Because of gold and diamonds’ incredible durability, they can’t and won’t be consumed by either animals or the elements. They are not just symbols of the eternal, they are the closest expressions we have to it.
Our fixation on these durable tokens, as well as coins and bills - mean we think of money as an object, when it has always been a symbol. It’s not an item, when it’s information, a command and a promise, enforced by the community - a society and their government.
We are trapped by an economics that is divorced from reality, because they don’t rise to level set by the humanities for intellectual rigour, to say nothing of the level set by scientists. Almost all economics is so grounded in assumptions and political delusions of grandeur that it is a pseudoreligion, with its practitioners using calculations to cast horoscopes. That includes neoclassical, Marxist and Austrian, to name a few.
Of course there are sensible answers to all of this. I have tried to provide some, in my book and in a separate piece setting out the implications of recognizing that all money is information and control, here.
We recognize there are some things that must not be for sale - not children, not humans or organs, not votes, not the decisions of judges and juries or politicians, because it is immoral and corrupting.
All the value of money is human value. The sooner we start dealing with that reality, the better.
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DFL
Incredible read. While most of the article was somewhat over my head, I found my self enthralled. Hopefully PM Carney draws Lamont into his circle as an economic contrarian.
Interest rates are determined by the Central bank based on the false assumption that higher rates lowers inflation, which is like saying a sledgehammer kills mosquitos. High rates provide UBI for the already-rich (risk-free income from Treasuries , for no work) in proportion to how rich they are.
The Canadian Government spends the CDN $ into existence and taxes it out of existence. It does not have to borrow CDN $. Just spend to release the real resources a healthy society needs to prosper. Anything we can do…we can afford. ( we are self-funding).