Wolfson Economic Prize

It seems a clever fellow in Britain has realized that it is better to plan ahead for a country leaving the Euro rather than doing something stupid in a panic at the last minute. So he has made this prize proposal:

Click to access Wolfson_PR_EN.pdf

The prize is directed more at economists, but that should not deter the 75% of the population who have more common sense than economists taking a run at it.

There is a scene in the movie Moneyball where Beene fires his arrogant, useless head scout, who thinks that because he’s been scouting for 25 years and doing the same (wrong) things as all the other head scouts that he’s in the right and shouldn’t change. Then he appoints someone with almost no baseball experience as the new head scout.

That scene is so true, and not just for baseball. Wrong ways of doing things get entrenched and become “conventional wisdom” when they are really just sophistry.

Sometimes the solutions have to come from people who haven’t drunk the koolaid.

Remember that all these economists and other pie in the sky planners have created a series of worldwide economic disasters that were wholely predictable and avoidable if anybody with an iota of common sense had been involved in the process.

The first place to start is with the kinds of issues raised in the book “Decision Traps”.

The mental error that jumps right out of the pages from the debate on countries leaving the Euro is that there will be instant chaos, any businesses in the country with foreign debt or holdings will become instantly bankrupt, etc.

The way most commentators look at it, it is as if on Monday you are in the Euro, and on Tuesday you have some mad rush to the printing presses to start a new currency.

Of course there is no orderly way to do that and that is why some commentators are saying that the prize is unwinnable. Switch currencies like flipping a light switch and there will be months of anarchy. There is no orderly way of doing this.

On the other hand, consider this.

In many places near the border of Canada and the US, American businesses will accept Canadian money and Canadian businesses will accept American money.

The currencies are often treated like legal tender even where, strictly speaking, they are not, and the businesses use their own discretion in adopting exchange rates for accepting the other currency.

So to some extent, Canadian money is used as currency in the US, and US money is used as currency in Canada.

Canada has never had to withdraw from the US dollar for such an arrangement to work, nor has it ever been a part of the US dollar. Lack of control over the fiscal policies of the other country has in no way been an impediment to this rational approach.

In the United States, there have been some communities that have developed a localized currency that is accepted by local businesses. There is limited utility as far as outside communities go, but it serves a purpose of keeping the local economy going.

Money is after all just a form of extended barter. Money solves the key problem with basic barter, that if you have fish to sell and you want to get tomatoes, it is highly inconvenient to have to search for somebody with tomatoes who wants your fish. it is much better to have a system of markers that values different kinds of contributions on a roughly fair basis and has universal recognition.

Money just facilitates the exchange of goods or services but there isn’t anything magical about it. You could use tree bark if it was universally recognized. Whatever currency it is, the currency is only important for what it signifies and that has been lost in the shuffle. It is just bits of paper or linen. It is a proxy for other values.

The issues is not about money or currency. It is about exchanging goods and services and keeping that going. The lack of a trusted currency as a medium is an impediment to this exchange but the problem is not the flow of coins and paper, it is things like ensuring that people have food to eat. If we think about this as just a currency issue without drilling down to the real issue we will miss solutions.

Another impediment is the binary thinking, Sith lord thinking, you are either in or you are out.

What do people think will happen with the Euros that are already in Greece if Greece were to leave the union? Do you think they would put all of the Euros in Greece in trucks and dump them across the border?

The real issue here is exclusivity, the agreement that all countries will use just one currency. There isn’t any practical way of preventing Greece or the Congo for that matter from using the Euro as currency. What would you do, send in armed forces and take all the Euros?

Do you know what the official currency of Ecuador is? The American dollar.

If currency devaluation is a greater fear than the lack of ability to print money, and the country has the means to attract the appropriate currency in sufficient quantity, unilaterally adopting the other currency is a viable option and requires no formal treaties or agreements.

There is also no reason why you can’t, as with Canadian and US border towns, have two [or more] recognized currencies.

You don’t require anybody’s permission to do this.

Think about this: what does it mean to “leave” the Euro?

If it means anything other than the loss of exclusivity, then all 17 countries have already left the Euro and they haven’t realized it yet.

Really, every single Eurozone country has the same rights and privileges of Equador using the US dollar as a currency. All 17 have already left the Euro and they just haven’t realized it. A foreign power, the ECB, has total control over it. It isn’t their currency, it’s the ECB’s currency.

The Greeks can reintroduce the drachma without getting rid of the Euro.

In order for a new drachma to become establlished there would likely have to be some goods or services offered exclusively in it. It would also be better to have both a Euro and a drachma component to wages at the outset.

Greece may be ideally suited for such an approach as 40% of the population works for the government. That must mean that a diverse range of things are run by the government. If your currency is backed by electricity, food, water, etc., who needs gold? If there is a guarantee that x number of drachmas will always give you a fixed quantity of certain things it will have value.

The net could also be used.

As with the small communities in the US that have taken to issuing a local currency (which is not a counterfeit as it is not an imitation of the dollar), I can forsee in the future that at some point, people are going to be establishing their own neighborhood or online “currency communes” as a routine matter of course.

Governments hate this kind of thing and call it a gray market or worse, and try to tax and penalize people that are working on a quid pro quo basis as if there were something criminal about the government not getting a cut of all human activity.

Is all of society supposed to be run for the benefit of government and big corporations, or should it be the other way around?

Really such activity ought to be encouraged. It will revitalize society, get the real economy going and make better conditions for all. If government doesn’t like such arrangements because of the tax issue, they can shove it up their .

A country falling into disarray will be far more resilient if the population is already set up to maintain the liquidity of the exchange of goods and services regardless of what happens to money. If you are a plumber and you need your car fixed and your neighbor is a mechanic and needs his plumbing fixed, there’s an obvious solution and if neither of you have money it is even more important that you be able to exchange services without penalty. If neither have money the problems won’t get fixed by anybody unless there is a non-monetary arrangement.

I see that as the next step in the evolution from basic barter. Basic barter is constipated. Government moderated extended barter through currency is still constipated because if the government or financial institutions are inept the currency becomes the source of constipation in the trade of goods and services.

Because that is what you are really trading, not currency. Currency is just a form of tradable IOU note.

Government should facilitate or get out of the way.

If a country is being weaned off a currency such as the Euro and installing another as the primary currency, there will be growing pains. It will be easier on the population if they can set up a local exchange of goods and services if they need to.

The most logical ultimate basis for a currency is I think one unit being equivalent to one hour of work, any work, at a roughly standardized pace.