At the intersection of technology, finance and the Pacific Rim.

Friday, April 17, 2009

Mr. Soddy’s Ecological Economy
By ERIC ZENCEY, from NY Times International Edition, April 11

Full commentary is here.

Frederick Soddy, born in 1877, was an individualist who bowed to few conventions, and who is described by one biographer as a difficult, obstinate man. A 1921 Nobel laureate in chemistry for his work on radioactive decay, he foresaw the energy potential of atomic fission as early as 1909. But his disquiet about that power’s potential wartime use, combined with his revulsion at his discipline’s complicity in the mass deaths of World War I, led him to set aside chemistry for the study of political economy — the world into which scientific progress introduces its gifts. In four books written from 1921 to 1934, Soddy carried on a quixotic campaign for a radical restructuring of global monetary relationships. He was roundly dismissed as a crank.

He offered a perspective on economics rooted in physics — the laws of thermodynamics, in particular. An economy is often likened to a machine, though few economists follow the parallel to its logical conclusion: like any machine the economy must draw energy from outside itself. The first and second laws of thermodynamics forbid perpetual motion, schemes in which machines create energy out of nothing or recycle it forever. Soddy criticized the prevailing belief of the economy as a perpetual motion machine, capable of generating infinite wealth — a criticism echoed by his intellectual heirs in the now emergent field of ecological economics.

Following Soddy, Georgescu-Roegen and other ecological economists argue that wealth is real and physical. It’s the stock of cars and computers and clothing, of furniture and French fries, that we buy with our dollars. The dollars aren’t real wealth, but only symbols that represent the bearer’s claim on an economy’s ability to generate wealth. Debt, for its part, is a claim on the economy’s ability to generate wealth in the future. “The ruling passion of the age,” Soddy said, “is to convert wealth into debt” — to exchange a thing with present-day real value (a thing that could be stolen, or broken, or rust or rot before you can manage to use it) for something immutable and unchanging, a claim on wealth that has yet to be made. Money facilitates the exchange; it is, he said, “the nothing you get for something before you can get anything.”

Problems arise when wealth and debt are not kept in proper relation. The amount of wealth that an economy can create is limited by the amount of low-entropy energy that it can sustainably suck from its environment — and by the amount of high-entropy effluent from an economy that the environment can sustainably absorb. Debt, being imaginary, has no such natural limit. It can grow infinitely, compounding at any rate we decide.

Whenever an economy allows debt to grow faster than wealth can be created, that economy has a need for debt repudiation. Inflation can do the job, decreasing debt gradually by eroding the purchasing power, the claim on future wealth, that each of your saved dollars represents. But when there is no inflation, an economy with overgrown claims on future wealth will experience regular crises of debt repudiation — stock market crashes, bankruptcies and foreclosures, defaults on bonds or loans or pension promises, the disappearance of paper assets.

Monday, April 13, 2009

India and US Revival

Anand Giriharadas who writes for the New York Times international edition, had what I thought was a perceptive view of the US (and maybe India). Go here for the full commentary and the key snippets are here:

The American superstructure is burning down. But the foundation, of
diversity, creative destruction, democracy — these things live on and
will, one imagines, underpin a revival before long.

I worry far more for the developing world, for places like India,
which has been mimicking the American superstructure without building an
equivalent foundation, pursuing the effect without the cause.

India seems, on the surface, to have arrived. There are the
requisite global luxury boutiques; restaurants that serve sophisticated food in
tiny portions with something called coulis drizzled across the plate; Indian
firms that make multibillion-dollar acquisitions; software companies that write
code for the world; songs that win Oscars and hearts many thousands of
miles away.

But perhaps it has all come too quickly, and served to
crowd out the hard slog of constructing a modern society in more than name
alone. Yes, India has Louis Vuitton, but how easy is it to be gay there? Yes,
its companies have dazzled the world, but why do their workers complain still
about the hierarchical, soul-draining work culture? Yes, it won an Olympic gold
medal last year, but why has it been so hard to recast servants as people paid,
not born, to serve?

Success is distracting, and it distracts one, above all, from
failures. And so the result in India is a revolution that feels borrowed,
without all the preceding layers on which to stand.

Today in America a whole way of life is crumbling. But, just as
fast, new visions are taking hold. New notions of permissible state intervention
in the economy; a new questioning of the culture of debt. As an old
superstructure withers, the robust foundation seems ready to birth the eternally
improbable new.

But in India, to which I will soon return, one fears that the
society will succumb yet again to the empire’s joke. Empires bring an alien way
of life to a land; and then they leave and move on. But the colonized, cut off
from the source of their own behavior, keep repeating the old patterns, which is
why Indians still say ‘‘cantonment’’ and ‘‘alight,’’ long after most Britons
have ceased and desisted.

Wednesday, April 08, 2009

Deal-making and Obama

Much of deal-making is finding and negotiating the right word into documents, especially contracts. The NY Times reports on Obama mediating between Sarkozy and Hu Jin Tao:

For a tense hour on Thursday, Mr. Sarkozy and President Hu Jintao of China were going back and forth about tax havens. In a large conference room at the Excel Center, surrounded by 18 other world leaders, the two men sniped at each other, according to officials in the room.
Mr. Sarkozy wanted the big communiqué produced by the Group of 20 to endorse naming and shaming global tax havens, maybe even including Hong Kong and Macao, which are under China’s sovereignty. Unsurprisingly, Mr. Hu was having none of it. He appeared angry that Mr. Sarkozy was effectively accusing China of lax regulation, and that the French leader was asking China to endorse sanctions issued by the Organization for Economic Cooperation and Development, a club of wealthy nations that Beijing has yet to join.

According to accounts provided by White House officials and corroborated by European and other officials also in the room, Mr. Obama escorted both men, one at a time, to a corner of the room, to judge the dispute. How about replacing the word “recognize,” Mr. Obama suggested, with the word “note?”

The result: “The era of banking secrecy is over,” the final communiqué said. “We note that the O.E.C.D. has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.” Hong Kong and Macao did not appear on the list.

And what is his style that helps enable this mediation? A picture says a thousand words: Go here.

Thursday, April 02, 2009


For a perspective on the prospects of India, Charlie Rose interviewed Nandan Nielekani, Co-Chairman of Infosys and Tom Friedman of the NY Times. Infosys is one of India's leading IT outsourcing companies.