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Proposals - Finance

Page history last edited by Paul Hazelden 2 years, 8 months ago

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Finance

 

It seems that all the human activity we are concerned about is driven by money, so money must be part of the solution.  One obvious detail: the world is run by accountants, so if we want to make a fundamental change to the world, we need to change what the accountants do.  At present, we give people a financial incentive to wreck the world - by pollution, global warming and environmental degradation.  This is utterly insane, so we need to find ways to reverse this incentive.  The challenge breaks down into several parts.

 

  • How do we connect cash value with intrinsic value?
  • How do we restrict the ability of people to make money by destroying the world?
  • How do we enable people to make money by doing things which enhance the world?

 

If we do not succeed in reforming our financial systems, then we will need to find - and continue to find - vast sums of money to pay people to not destroy the plant, and to do things which help the plant thrive.  According to a recent report (July 2021), the European Commission has unveiled new plans to galvanise the private sector to invest in sustainable projects and help governments finance the green transition: 350 billion euros a year, on top of the 150 billion euros a year already needed for other environmental goals.  My prediction is: even if they raise this money, it won't be enough if all the underlying incentives continue to pull people the opposite way.

 

 

Strategies

Value the Valuable

Fundamentally, the current economic system does not recognize either the value of the natural world or its limitations. 

 

As Mark Carney recently said in a New Scientist 'Features' interview, "We can price Amazon, the company, but value is only ascribed to the Amazon when it is destroyed." (20 March 20021, page 45)

 

 

Reform the Stock Market

The Stock Market has an important role: to enable people who have money to invest in companies which need money.  Before the Stock Market, investment in a company depended on a personal relationship, and the investment was expected to last for decades.  A few rich friends owned the company and, if it was successful, controlled the future.  Now, instead of owning one of 4 shares, we might own one or two of 10,000 shares.  These days, companies issue far more shares, and far more people are able to invest in them - all of which seems good.

 

But if the purpose of the Stock Market is to enable people to invest in a company and share its fortunes, is there any need for shares to be traded thousands of times a second?  This is not about investing in companies - it is about 'playing the market', spotting the trends and gambling that they will continue long enough to enable you to make a profit from them.  But most of the volatility in the Stock Market comes about from this short-term profit-making and profit-taking.  if a share could not be traded for a period of time after it was bought, this would dampen down the speculation and help move the Stock Market back to its original purpose.

 

How long would you have to wait before a share could be sold again?  I don't know. Maybe a minute would make a difference.  Maybe an hour, or a day, or a week.  We could experiment, once the concept was agreed in principle.

 

 

Reform Financial Services

Only allow a service to be provided if it can be demonstrated to provide a social benefit: simply saying that I can make money from doing this is not sufficient justification.  Financial services do not generate wealth, so transactions are a zero-sum game: if I am making money, someone else is losing it.

 

 

Replace GDP

Our politicians and media fixate on GDP.  We are desperately afraid of going into a recession, and a recession is defined as two quarters of decline in GDP.  But there are several obvious points we need to remember.

  • One number cannot tell you the health of the economy.  The UK economy is probably more complex than the human body (after all, it both affects and depends in part on the health of many human bodies), so how would you feel if the people deciding your treatment picked just one number to tell them to whether you were healthy?  The very idea is insane, whether you are talking about your body or the economy.
  • If you want to measure activity, then GDP is measuring the wrong things.  If GDP is supposed to be a good thing, and we are pleased when GDP increases, then why do we allow bad things to make GDP increase?  If I go on a car journey and don't have an accident, then burning a little petrol is the only significant financial activity: GDP increases by a few pence.  On the other hand, if I go on a car journey and have an accident, all kinds of financial activity is generated: garages get work, maybe tow companies get work, insurance companies get work, maybe hospitals get work, maybe car hire companies get work, maybe I even have to buy a new car and the car manufacturers and their sales staff get work.  GDP is increased by thousands of pounds.  Success!  We have built a system which behaves as if things going wrong and breaking is a good thing.  If we want to measure economic activity and treat it as a good thing (which I don't necessarily accept), then at least distinguish between the economic activity we want (such as people making things and growing things) and the economic activity we don't want (such as things breaking and people getting sick). 

 

 

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