Davos at a dangerous crossroads

For forty years professor Klaus Schwab has corralled business leaders, politicians and NGO leaders to come to Davos and to work together. In preparation for these annual meetings many other meetings are held and there are many ongoing initiatives that promote trans-institutional collaboration.

This week some 2500 participants, half of whom are corporate business leaders, will congregate under the ambitious theme “Rethink, redesign and rebuild.” As a matter of fact, the World Economic Forum (WEF) has a special initiative dedicated to redesign. “The Global Redesign process is integrating the Forum’s diverse communities through a series of meetings and activities structured to promote integrated thinking and develop concrete proposals to update and upgrade structures of international cooperation in a wide range of areas.”

Both the WEF and the world are at a dangerous crossroads, both are at an inflection point where hard choices are to be made, that bring either death or life to people, species and planetary systems. Though redesigning, particularly the redesign of global financial structures, receives top attention, the WEF rethinking focus is weak. It stops at some reformist proposals while the international monetary, financial, economic and commercial systems continue to their work, i.e. enriching the few, impoverishing the many and imperiling species and planet.

At this dangerous crossroads of an aggravating climate crisis, an economic crisis that continues to keep millions of individuals out of work, and a financial system that is still out of control transformational rethinking would include at least three major components. They are integrated in a transformational system, called the Tierra Fee & Dividend (TFD) system.

The TFD first of all addresses itself to the climate crisis and proposes a Fee & Dividend system rather than the going cap-and-trade system. The latter is a second rate carbon reduction methodology, because it is not fast, formidable and fair enough.

While this fee and dividend system or similar tax systems will soon regain the upper hand among the half dozen carbon reduction methodologies, the Tierra Fee & Dividend system’s second component of adding a carbon-based monetary dimension to this Fee & Dividend system is at the bottom rung of acceptance, because it has only recently been proposed and it demands an integration of three distinct disciplines. The International Institute of Monetary Transformation is working on a re-carbonization monetary standard with its carbon-based international reserve currency of the Tierra that would be part of an updated International Clearing Union, proposed by John Maynard Keynes during the Bretton Woods UN Monetary and Financial Conference of 1944. This carbon based monetary system’s international reserve currency and its Tierra International Clearing Union also derive some its rationale from the recommendations of the UN Stiglitz Commission of June 2009.

In order for this TFD system to work the public sector has to reclaim the money creation function from privately-owned banking systems and engage in efficient regulation of financial flows via the Tierra International Clearing Union which, in Soros’ words, is to be the “global sheriff”. This governmental role is to be fully coordinated across the G192, because otherwise “financial arbitrage” is going to take place, particularly by the TBTF financial corporations.

At this crossroads that is full of peril, but also full of promise, the choice becomes choosing between a route of muddling with some minor reforms here and there, and a route of transformational rethinking and redesign that addresses the economic and climate crises systemically and builds towards an equitable, sustainable, and, therefore, stable international monetary system that, as Barry Eichengreen has it, is the glue that binds monetary, financial, economic and commercial systems together.

CENTRAL BANKS, INFLATION, IMF, UN AND THE TIERRA PARADIGM

CENTRAL BANKS, INFLATION, IMF, UN AND THE TIERRA PARADIGM

29 June 2009

In present macroeconomics thinking central banks are to be independent. They are supposed to be beyond politics. They have to focus on avoiding inflation which is considered to be combated by all means.

There are several assumptions here that make this position untenable. The most egregious assumption is that monetary policies can be above politics. The second one is that inflation is the most important or sole policy objective of central banks. A third one is that monetary policy, related to the first assumption, is to be developed by the macro-economic discipline.

One of the main shortcomings of macroeconomics, according to Jonathan Kirshner, is its focus on aggregate statistics with the neglect of distributional ones. By focusing on the aggregate one is not forced to look at the politics of a monetary decision which always deals with the distribution of benefits and burdens across groups. Thus, setting monetary policy is as much a macroeconomic effort as it is a monetary diplomacy or a sociology of money effort.

Given that a central bank has to set monetary policies that benefit all groups and, in these times of climate emergency, the planet, it necessarily is to be part of the political process and is not to be separated from a messy democratic process. Consequently, a central bank is to be part of the public sector’s democratic process and not to be placed above or below it. The US Constitution, as a matter of fact, stipulates to that effect, though the 1913 Federal Reserve Act, by a very political (and unfair) process, officially placed it outside the public sector.

Why is it that central banks have such missionary zeal in pursuing the inflation objective? Because it is in the interest of the financial community and of privately owned banks that owe most financial assets. They do not want them to be devalued by inflation. Notwithstanding the 1913 stipulation that the Fed is run by an equal number of financial and non-financial governors, the financial community has held sway and thus inflation fighting continues as its most important objective. During this financial and economic crisis that was caused by that financial community the Fed is now pursuing other objectives, one of them, unfortunately, is giving priority to bailing out big international banks without transforming them and the international monetary, financial, economic systems.

What has the IMF to do with central banks? In this blog that is mostly focused on the international dimension of the monetary system the answer is: quite a lot. It is mainly guided by a macro-economic approach that is neo-liberalist in its approach. It was in May 1997 that a drastic revision in its Articles of Agreement was proposed to have its powers of balancing payments of states—poorly done given the endless excesses and surpluses in the balance of payments –was to be augmented by promoting the neo-liberal economic philosophy adhered to by Washington and other members of the G7. Thus, the IMF became the globalizer par excellence of that economic approach with its Structural Adjustment Policies and, of course, with the requirement that member states establish “independent” central banks. It is more than any other international institution together with its sister organization, the World Bank, that has made the present economic crisis a global crisis.

Within the context of this entrenched neo-liberal architecture that is promoted by the G8/20 in their conferences and summits is to be placed the efforts of United Nations which pursues the wellbeing of all peoples and groups and the wellbeing of the planet. Outstanding in this regard is the outcome document of recently concluded Conference On The Financial And Economic Crisis And Its Impact On Development and the opening and closing address of the president of the General Assembly, Father Miguel D'Escoto Brockmann, MM. The Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System or the Stiglitz commission made several important monetary proposals that became part of that outcome document.

The Tierra International Monetary Paradigm goes one step further in its monetary proposals as does the Stiglitz Commission. They constitute transformational change in the international monetary system. In its pursuit of the integration of the challenges of the economic and climate crises, the Tierra paradigm bases its monetary architecture on a reserve currency that is a carbon based. It would become part of the carbon account in a nation’s balance of payments. The development of the Tierra Monetary Paradigm is using an integrated approach of the disciplines of sustainability economics, the sociology of money, climate science and climate ethics. Its vision is based upon the Earth Charter, the 21^st century successor of the Universal Declaration of Human Rights of the 20^th century. Its historical challenge is seen in the context of the emerging sustainability revolution that is the successor of the earlier agricultural and industrial revolutions. 

Tierra as a transformational road

TWO PARALLEL UNIVERSES AND HUMANITY’S HOPE

May 18, 2009

About six months ago during the acute global economic crisis and the ongoing climate crisis I set out with the determination that I as a sustainability sociologist with experience in international relations and development should be able to come up with a plausible direction forward.

I think I found that plausible direction in the pursuit of carbon based international reserve currency, called the Tierra. It is a demanding direction that represents a transformational change in the international monetary system.

Transitioning from the present national international reserve currencies system of dollars, euros, and yen is being advocating by the UN GA President's Commission on Monetary and Financial Crises and also pushed by China as part of the G20 process. We will see nations changing their nationally-based reserve currencies into Special Drawing Rights (SDRs). However, we need a second transition from these SDRs to Tierras. That transition is transformational and, ipso facto, difficult, demanding, but necessary if we want to resolve the economic crisis through resolving the climate crisis.

In his New York Times column “The Perfect, The Good, The Planet of May 18 economist Paul Krugman thinks that “It’s decision time on climate change.”  He supports the Waxman-Markey bill on cap-and-trade, arguing that the pursuit of a perfect bill should not prevent the good of an imperfect bill to emerge. Cap-and-trade is a start and better than a carbon tax. However, the Tierra is a transformational carbon reduction methodology that would provide an institutional mechanism via the carbon account of a nation’s balance of payments to transfer funds from ecological debtor nations in the global North to ecological creditor nations in the global South.

Transitioning to the Great Transformation of the Tierra and its Tierra International Monetary Union (TIMU) Architecture is where the two parallel universes and humanity's hope comes in. There is the Questionable Quad universe and the universe of humanity's hope’.

The Questionable Quad universe is the universe that is supported by the G8 and, by extension, the G20. This universe is questionable and has to be challenged. In its reformist economic proposals it still is on a road that does not consider the economic and climate crises simultaneously. The universe of humanity's hope, the United Nations, is on a road that starts considering the two crises simultaneously. If the UNFCCC, the UNGA President’s Commission and UNCTAD and other UN organizations were to go for the Tierra and its TIMU Architecture we would have a transformed international monetary system where a World Central Bank would start administering the carbon accounts of the nations and become the instrument for the financing for development and the necessary climate mitigation and adjustment measures.

Presently, the Questionable Quad and the UN universes are still parallel universes which, with some minor linkages, are to be brought into the one universe that represents humanity’s hope, i.e. a reformed UN. It is a UN that is able to measure up to the integrated social, economic and environmental vision of the Earth Charter, the value base of the sustainability revolution and its sustainable communities development paradigm. The latter paradigm expresses itself in a bioregional economics approach with frugal trade structures that replaces uncontrolled corporate globalization with its market fundamentalism and privatization philosophy.

This Tierra proposal may not seem plausible because it reaches beyond the   general bounds of present thinking on either the economic or climate crises. Start thinking in solving the two crises simultaneously, the proposal becomes more plausible. People are asked to think outside the box, in other words to think transformationally. Here is proposal which may seem far out and it is, because it is not re-formist, but trans-formist or transformational. It does not use the present form; it goes beyond the present form of the international monetary system. It is radical, because it goes to the root of the monetary, financial, economic systems by making a small change with big consequences in the international monetary system which is the glue that binds those three systems together.

 Details about the context and constraints, the six components of the TIMU Architecture and the challenges of the global community, the UN and the US are presented in TIMU: The Transformative Approach to Monetarily Solve the Economic Crisis by Solving the Climate Crisis which is to be published at end of the summer of this axial year 2009. For a summary see the various versions of the Tierra Manifesto of 2009 on www.timun.net  

The Battle for the Soul of Capitalism

THE BATTLE FOR THE SOUL OF CAPITALISM.

These terms were used in NPR’s reporting about the G20 Summit this morning. At the same time the Wall Street Journal (4/2/2009) had an article by Daniel Henninger entitled “Is This the End of Capitalism?”

Henninger argues that capitalism doesn't need a fundamental fix and didn't subvert the US economy. Overbuilt housing did. Inflated housing also undermined the economies of the UK, Ireland, and Spain. Yet new "saviors" of capitalism--oblivious to this--are appearing every day, including China, the IMF, and France's Sarkozy. Henninger says that far from running from masses of protesting anticapitalists, the G-20 summit is notably short because its goal was accomplished before the first delegation arrived. He suggests that the recession of 2009 provides the Left with the opportunity it has craved since Reagan took the White House to turn America back toward public-sector power and away from free enterprise. (Summary by editor@opinionsource.com)

Knowing and understanding the thinking of one’s opponents is an important part of coming to a solution that all sides can agree upon.

In order to come to such solution it is more important to have the different parties surface their basic biases, assumptions, and values and try to find a common value base. One such process has been happening in the last ten years or so, all over the world, across disciplines and classes. It resulted in the Earth Charter which can be considered the 21^st century successor of the 20^th century Universal Declaration of Human Rights.

Battling for the soul of capitalism is taking place, not only now, but for many decades. One of the outstanding proponents for a transformed capitalism is William Greider who wrote a book about the soul of capitalism and many other related issues. The many civil society organizations or CSOs that are engaged in monetary and financial matters particularly in relation to the G20 Summit in London such as www.rethinkingfinance.org,  www.brettonwoodsproject.org  and www.timun.net are also in diverse ways working towards transforming monetary, financial, economic systems which, in essence, is a battle for the soul of capitalism. It is to be a monetary, financial, economic system that integrates the social and ecological demands of the times within a vision of a thriving Earth Community on a thriving planet as elaborated in the earlier mentioned Earth Charter.

US Bailout plan is a poor substitute for transformational banking change

THE BAILOUT PLAN IS A POOR SUBSTITUTE.