Category Archives: Economics

One Structural systemic cause of the GFC – a shift of share ownership from individuals to institutions

I am a great believer that if you know how a system is structured you will be able to predict how it performs in different environmental conditions.

As the chart below indicates there has been a fundamental shift in who owns shares in the USA over the last 50 years.

Prior to the start of financial deregulation – which really started with the removal of the constraints of the gold standard in 1971 -shares were predominantly owned by individuals.

There has been a large structural Shift in share ownership in the last 50 years

The majority of shares are now owned by institutions who hold them on behalf on individuals. These institutions compete with each other to deliver the highest returns. Performance is measured by the quarter and Funds managers are similarly rewarded for short term performance – but with zero claw back of performance pay if performance subsequently declines.

This leads to herd like behaviour by the institutional funds managers. If the market starts going up – like right now in December 2009 – they need to be in the rising market otherwise they will be left behind in the performance tables.

It does not matter if these funds managers know that the markets are overvalued and likely to collapse some time soon. If and when the markets collapse they will once again be able to claim deniability – “we couldn’t see it coming” will be the cry. Fund managers will point to the fact that all the other funds were doing the same – how can they be blamed for not seeing when they are doing the same as everyone else. There is safety in the herd.

If you want to know where high CEO pay came from, part of the answer lies in institutional share ownership.

As for the gambling behaviour of the Banks – this too took a jump when Investment banks shifted from partnership to public ownership. Who in their right mind would risk leveraging 40:1 with their own money?

And right now the situation is even worse. Banks like Goldmans are reporting big profits but these are coming only from trading. The same pattern is in the other banks. The only place they are making money is by high frequency trading – leveraged trading using other peoples money. This in itself is driving up the share market.

And when the markets crash and the banks suddenly look sick again it will be high street on the hook again to bail them out. They have now become too big to fail and they know it. They can do anything they want and get away with it.

And this is supposed to be Democracy.

Alan McCrindle

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“Financial Depth” and sophistication or “diminishing Marginal returns” and Collapse




The thing about data is that it can made to say what ever you want it to say. A few weeks ago I read a quote to the effect – statistics is boring science fiction. It appealed to my sense of humour.


A few weeks ago I was looking through the latest report on Global Finance by the McKinsey Global Institute.- Mapping Global capital markets (the 5th edition).

In this report they present a concept they call the  “Map of Global Financial Depth”. Basically it is plot of per capita GDP of various countries versus the value of all the finance that was required to generate these GDPs (as a percentage of the GDP).


As their graphic indicates there appears to be a trend which they have called financial depth  – a mark of sophistication and modernity.

In essence, the data appears to be saying that countries with high per capita GDP can only achieve this with high financial depth. The very way that the graphic is presented, with a positive trend line that starts to increase vertically at the end, equated with a “mature” market, suggests that high “financial depth” is something to aspire to.




But hang on a moment. This data is saying something else too. It is saying that there are diminishing marginal economic returns.


 While Indonesian’s manage to generate one dollar of economic output with one dollar of finance for an annual per capita income of about $6.000 and the Czech’s generate $25,000 using $1.50 of finance to generate every dollar, modern economies require $4.50 of finance to generate every dollar of income.


Have a look at this data presented in a slightly different format and for one country – the USA – over an extended time period. The reality of the diminishing marginal productivity of capital is very clear – moreover it is trending “downwards” rather the Mckinsey “upwards ” chart. And,  if you take the liberty of projecting the trend line over time we might find that as soon as 2014 we are in a position where additional capital actual starts to destroy the economy!!



Diminishing marginal productivity of debt - usa

Diminishing marginal productivity of debt - usa





The USA economy could start start shrinking as early as 2014

The USA economy could start start shrinking as early as 2014





And the problem with this is that it was this  phenomenon that caused the collapse of 24 complex societies in the past. Joseph Tainter studied the development and subsequent collapse of 24 complex societies and came to the conclusion that as they became more complex they required an increasing amount of energy to run. Unfortunately he noticed that in each case, there was a diminishing marginal energy return As the complexity of each society increased problems arose that required solutions that were increasingly complex and increasingly expensive . At the point where the energy return on the energy invested in new solutions dropped below zero the society collapsed.  


The key driver of human progress has been our capacity to harness energy. For example, some estimates suggest that our current modern western lifestyle requires the equivalent of 140 slaves per person – the rate for the USA today is around 300. We have only managed to achieve this through cheap, non-renewable, fossil fuels. It is no coincidence that the industrial revolution and our capacity to harness coal as an effective energy source occur at the same time. 


Where will this energy come from in the future?




My take on this data is that it indicates how we are, and have been,  “consuming our future” in an unsustainable way.

Free-market capitalism may have finally collapsed. The question of how this is about to play out in global society is unclear but I am expecting substantial societal collapse as a consequence.

Anyone who believes that governments will be able to rescue the world from a depression has not understood the economics and the psychology of the situation.


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Inflation in Zimbabwe – winners and losers

Yesterday I was talking to an old friend of mine in Zimbabwe, a white guy who used to live next door to me. I asked him what life was like there and how inflation was effecting life.


Inflation: To the moon and back but a money spinner for the wealthy


When I left Zimbabwe, one Zimbabwe dollar was about equal to one US dollar. Apparently, at the current exchange rate, if you piled up all the one dollar Zimbabwe bills it would take to buy one US dollar on top of each other they would more than reach the moon and back!! 


For people like my father who get a government pension, the total annual amount is apparently not enough to buy one coffee a month.


But on the other hand there are people who are making big money out of inflation. He gave an example of a common friend who had borrowed the equivalent of US$300,000 for one year from a bank in Zimbabwe. Apparently the moment he got the money he managed to convert it into US dollars. When the time came to pay the money back at the end of the year it cost him the equivalent price of two coffees in US dollars. In other words he had made US$300,000 in one year for the price of two coffees and all he had done was borrow in Zimbabwe dollars, convert to US dollars and hold.


So who is losing out on this deal – the average person on the street who has their money in the bank. Yet another case of privatising the gains and socialising the loses. The Zimbabwean equivalent of a Wall street banker.


So if you think life is tough in Zimbabwe it is for many but for many others it is still the “good life”. If you simplistically measure the quality of life by the antiquity of the cars people drive then apparently Zimbabwe is doing better than New Zealand!

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Quiz: Are you a COMMUNIST or a CAPITALIST?

Quiz: Are you a Communist or a Capitalist?


To find out simply answer these questions.


1. Do you want fewer and fewer options as a consumer as small independent businesses and genuine free enterprise are marginalised or crushed?


2. Do you want the public to be at the mercy of a small cartel of unaccountable despots?


3. Do you want to be continuously assaulted by relentless propaganda?


4. Do you want your economic system to be doomed to end in failure?


If you answered YES to most or all of these questions then YES you are a communist or a capitalist.


If you like this sort of satire it is from a 4 part series titled Silly Money by Bremner, Bird and Fortune. Replays are available on Googlevideo

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High-speed broadband growth unsustainable: expert – Is “cloud computing” another securitisation delusion?

For me cloud computing looks like another securitisation folly.  And new research out of the University of Melbourne that shows that the current high speed broadband growth is unsustainable makes me think I am on the right track.


To date all I have heard is the positive side of the cloud computing story. 


The main argument is that Cloud computing is going to cost us less because of centralisation. For example when we run software as a service, instead of as individual programs on our computers, we will no longer have to worry about the costs involved with updating the software. It will all happen centrally. Moreover we will be able to share servers with others  –  the old economies of scale argument.

While I accept these arguments I disbelieve the thesis that cloud computing will be cheaper in the “long run” and when all “externalities” are included.

 Cloud computing involves an evolutionary step – evolution implies an increase in complexity and increased complexity costs more. The fact that it appears to be costing less tells me that the people who are adding up the costs have either done their sums incorrectly or they have excluded some costs.


So what costs could they have excluded?


Let me take a guess. I reckon that as cloud computing takes off, we will suddenly see costs increasing faster than people expected. There will also be additional costs that they never thought about.  And finally, they have excluded the costs of fixing the problem if, and when, there is a big collapse.


Cloud computing is like securitisation in that it increases vulnerability and risk to the recipient – it doesn’t reduce it.  If something goes wrong in the cloud, everyone connected to that cloud goes down. System resilience declines as centralisation increases.  And something like a collapse of a computer system will harm more than just the isolated computer system – as computers become more embedded in everyday processes the potential for an “isolated”  computer crash to have an impact on systems that were perceived to be “unrelated” increases.


I wonder if security costs have been considered effectivily. My thoughts are that as the volume of traffic in the “cloud” increases it will become increasingly vulnerable to being corrupted by a virus. This is especially true because of the “virtualisation” that much of the cloud is based on. With information flowing in and out of clouds from everywhere, there will have to be some virus check on the data . My intuition tells me that the relationship between this cost and traffic volume will be non linear and that for this reason costs will end up much higher than predicted.


Has the analysis included all the direct and indirect infrastructure that will be required to make cloud computing a reality or has this been takes as pre-existing? It looks like their may have been some false assumptions made about the ability of the existing infrastructure to deliver the bandwidth required for cloud computing. Research by scientists at the University of Melbourne say that the growth of the high speed broadband, on which the whole of cloud computing us dependant, is unsustainable. The only way for it to work is if more money is put into the infrastructure and use more energy.


This research, which shows that the growth in demand for high speed broadband services could make services slower, is to be presented at a Symposium on Sustainability and the Internet this week. 

The university’s Dr Kerry Hinton says it shows the growth of the internet is not sustainable.

“We’ll find that the network will actually grind to a halt, the reason being that the machines at the core of the internet that actually route the packets through the network, they can chew up more and more energy,” he said.

“We’re getting to the stage that the amount of energy they consume is so great that we can’t get the power into them and we can’t get the power out of these machines.

“If we plan carefully and start thinking ahead and making sure the technology we use is becoming more energy efficient, so we make the internet more sustainable, then we should be okay.

“But the key message is if we don’t plan ahead and start thinking what does this mean, and we continually roll out more and more services through the internet, that’s when the trouble will start.”


Beware of gods bearing false promises. The moral of the story is that if  something is more complex it will cost more. Joseph Tainter did a study of the collapse of 24 complex societies. These societies all collapsed for the same reason. They all reached a point where their demand for energy outstripped their capacity to supply it. We forget that economic progress is a function of per capita energy use. Every time these societies hit a new problem they solved it with a solution that was more complex that the problem. This drove the energy demand up.

How sustainable is our economic infrastructure? We have built a whole system on the basis of cheap energy from fossil fuels. What will happen when the price of energy increases? How much of what we do will be sustainable or even the best way to do something?

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What has the UNs idea of Sustainable cities and sub-prime got in common?



The Economist Magazine has an article titled Sub-prime with the subtitle: Greener thinking for the poorer cities.


I like the title “sub-prime” but for a different reason. And I would use the subtitle – “Shuffling deck chairs on the Titanic”.


The article talks about World Habitat Day which was marked by a prize rewarding smart urban planning. Habit is a United Nations’ organisation tasked with improving our urban fabric. In the next 20 years 2 billion people are going to move into cities from the land. That is equivalent to almost one third of the current global population.




“It’s the equivalent of adding a Pittsburgh, Manchester, or a Hanoi to the planet every week,” says Michael Cohen of the New School in New York, one of a group of urbanisation experts gathered at Habitat’s headquarters in Nairobi recently to help the agency map out a plan to raise public awareness of a potentially grim future.

The group apparently had a problem agreeing what Habitat’s tentative campaign slogan of “sustainable urbanisation” meant. Apparently, one thought is to emphasise the positives of cities. They can be the solution instead of the end game. Properly managed they can slash emissions, grow knowledge and creativity, and haul billions of poor out of poverty. Really – raising people out of poverty? For how long? That is what the sub-prime housing market in the USA was supposed to do and for a while it looked like it was working – housing prices could keep on increasing for ever couldn’t they! House price multiples of 9 times median earnings were suddenly sustainable in the long term even though historically the sustainable ratio was more like three. 


When is humanity really going to wake up to the fact that it is running up an ecological debt – and probably has been doing so since the 1980’s.




“Sustainable cities?” – really. 1984 double speak – hire the spin doctor and create a music clip for MTV, recruit a Hollywood star and everyone will live happily ever after?.


It seems like these guys at the UN are smart enough to be able to identify the underlying facts about the nature of the demand of cities on our ecological support system but then fail to take the next step and identify the consequences.


From a big picture perspective, these new cities are the equivalent of the new housing stock created by the sub-prime lending in the USA. They are adding to an unsustainable debt burden to the planet that will eventually burst.


 Just like the sub-prime housing debt market in the USA was the straw the broke the camel’s back of an unsustainable global financial debt, the sub-prime ecological debt market, created by new cities, will be the straw the breaks the back of an unsustainable global ecological debt. People moving from the land to the cities will at least triple their energy consumption


The earth is heading for it’s Titanic iceberg moment. This time we have the data. We don’t need rocket science to work this one out. The mathematics is very simple. 


Consider this question. Imagine there is a pond with lilies growing in it. The surface area of the pond covered by the lilies doubles each day. The pond starts empty and is fully covered by the lilies on day 30. On what day is the pond half covered by lilies? The answer is day 29. In other words right up until day 29 everything looks fine and we still have a lot of room to play with. Then it all goes wrong very quickly.


We are not dealing with linear issues – moreover we don’t just have the one exponential issue –  we have multiple exponential growth factors combining with each other like population growth, energy consumption and per capita consumption on non renewable resources. We might well ask ourselves – if we use the lily in the pond model, what day are we on?


The powers that be – like this example of the UN – are smart enough to get the basic numbers right, this is not the issue. It is what happens to those numbers – how they are interpreted – that is the issue. Analysis will show that the global and national institutions that run the show have a world view that was shaped by past experience. This is normal. The problem though is that what we called “progress” and successful in the past, in a planet where the global human population was much smaller and only a small proportion of that enjoyed the benefits of that progress and success, has now turned into a problem which threatens our survival in this new environment.


As Einstein said – you can’t solve a problem with the same level of thinking that caused it. Progressive, enlightenment thinking, reductive science, competition, free-markets, democracy – these are belong to the world view or thinking that delivered us this personal freedom and economic growth that we take for granted and are even today fighting for. 


I don’t want to go back to an authoritarian or war lord past or live in a cave. So what is to be done?


Clearly we are finding it difficult to come to terms with the fact that our world view is inadequate. The first step is to acknowledge this and change our language. We need to stop calling free-markets a success and stop deluding ourselves that the growth of cities can be sustainable.

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Why we won’t be rescued from a global recession by the “Chinese Consumer”


The great thing about the internet is the speed at which you can do research. When I heard commentators claiming that China was going to save the world from recession by transforming itself into a bunch of consumers who would take up the slackening demand of western consumers I could hardly believe what I was hearing.


Is there something about the majority of economists that makes them incapable of understanding how real humans behave? What is it that stopped these commentators from asking the simple questions – how are we going to transform human behaviour so quickly? Has this type of mass transformation of human behaviour ever happened in the past? When it has, how long did it take and what mechanisms were used? Moreover, are there examples where this shift from saver to consumer occurred in a deteriorating economic environment?



One of the reason that we in this current global financial meltdown and that we are in an equivalent, but as yet unacknowledged, ecological meltdown, is that we have been seduced by a number of false beliefs.


Bubbles and cycles are nothing new – everything in life is subject to the cycle of birth, growth and final decay. And the delusions that inevitability accompany these bubbles are nothing new. New false beliefs are a key part of what drives bubbles  – The key false belief system is that this time it is different – we have a “special case”. Here are a few examples you might recognise.


– it is not a bubble

– the growth of China and India have rewritten the old economic rules

– we are in a super-cycle 

– house prices never fall 

– the world has de-coupled  (the world is more connected that ever before)

– Securitisation reduces risk (to the person who issued the security but it acts like a virus and spreads risk and hides it amongst the purchasers of the security)

– The Masters of the universe actually understand what is going on

– Free markets allocate capital efficiently 

– People act rationally


One of the few remaining and as yet undiscredited beliefs that I have difficulty agreeing with is the story that we will be rescued from this meltdown by the “Chinese consumer”. 


The assumed logic in this belief is that China will defy the global slow down. We are being told that it is a “special case”. And that while growth will slow down from around 11% due to a decrease in global demand for Chinese exports it will remain high at around 9% for two reasons. First, the domestic infrastructure construction boom will go one unabated. Second, domestic demand will increase because the Chinese consumer will pick up a lot of slack by suddenly consuming more.




My thoughts are that we are projecting our wishful thinking onto the Chinese. It is easy to project onto someone you don’t really know anything about. And we are imagining that the Chinese must be just like us – a nation of consumers.


I have a bit of difficulty with the story. My prediction is that Chinese consumers will do the opposite – in the current uncertain economic climate they will save more rather than spend more. They will act like the rest of the humans in the world would do in this type of situation rather than a special case.


Moreover, the Chinese have not yet developed into American consumers and they may never do. Americans used to value hard work and saving for the future like the Chinese do now – and many of them still do. The conversion of the American population to the “religion” of consumerism and the source of happiness is a relatively new phenomena. 


The reality is that Chinese private consumption has been falling as a proportion of GDP for a number of decades – so why should we expect it to suddenly change tack? Surely there has to be reasons that it has been falling. What might these reason be and are they going to change overnight to get the boos in private consumption that is being predicted?


Lets start with the facts – Chinese private consumption has falling for decades (as has private consumption in most of Asia)

In 2006 the IMF did some specific research aimed at trying to understand the trends and drivers of Private Consumption in Emerging Asia. They were particularly concerned with the falling trend in China.




Source: IMF, Asia and Pacific Regional Outlook, Private Consumption in Emerging Asia, Sept 2006, page 59


More recent data from the Asian development bank indicates this trend has been continuing – the data that underpins the figure that breaks down the components of GDP combines private and government consumption into a gross consumption figure. This has fallen from 57% to 51.3% predominantly because of falling consumer spending.




Economic growth data shows that private consumption growth has contributed a steady but declining share of the total increase in annual growth rate of  2.7% points. A growth in the contributions by net exports and government consumption has offset the decline in contribution by investment.







So what has been driving this fall in private consumption and can we expect to see it turned around in the very short term?


Decreased consumption means increased saving. Why have the Chinese saved more? What has changed? The suggestion is that there have been two big changes to life in China that have driven the need for the people to increase their savings rate. The first is the breakdown of state supplied services – medical, educational, and pension costs that used to be met by the communist state now needs to be paid for by the people.  They are saving to be able to afford to be able to afford to pay for future education and health bills.


The second is the one child policy. The argument is that people  in rural economies usually have more children than people in urban communities because in rural communities children are an asset that can do work and provide protection in old age. In urbanised communities children no longer contribute economically, instead they become a financial drain. For the rural community, the one child policy means that people now have to rely on personal savings rather than children to provide for them in old age.


My argument is that none of the factors that has driven the Chinese to save more has changed enough or is amenable to fast change. Moreover, even if the government were to instantly reverse the one child policy and re-institute free education and health, we would not see an instant transformation of Chinese into consumers. This is not a computer game where you change the rules and people instantly change.

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Diminishing Marginal Returns and Societal Collapse – How close is the USA to the tipping point?






Yesterday I came across this chart . I am assuming it is using the correct data but I haven’t checked. If the data and the trend line are correct we should be very worried – very very worried. Why?


This chart is measuring the economic return from new investment in the USA. It is suggesting that there is a trend of diminishing marginal returns. The latest data suggests that for every dollar of new debt there is only 20 cents of economic growth and this could hit zero by 2014. A resurgence of the oil price could speed this process up.


And when the incrimental debt to incrimental debt ration dips below zero new investment will start to shrink the economy rather than expand it. 


Why we should be concerned with this is that Joseph Tainter, author of The Collapse of Complex Societies, discovered that the common cause behind the collapse of 24 societies that he studied was “diminishing marginal returns”.


The story of human progress is a story of our increased capacity to harness and use energy – our modern western lifestyle requires nearly four times the amount of energy per person to maintain than it did 100 years ago. This has only been possible because of cheap oil and this will not last forever.





Moreover, the infrastructure and economy of the USA has been built on the basis of cheap oil and cheap transport. This has left the US economy with very poor resilience.

Tainter’s study showed that as societies become more complex they create problems that they try to solve by adding greater layers of bureaucracy. This complexity costs energy. All around the world we see governments growing larger and consuming a greater proportion of GDP. Even the Republican party – the party of small government – has increased quickly under George Bush. And the latest round of bailouts are a further example of the added costs of government costing more money to try to solve problems brought about by the complexity of financial derivatives.


Tainter is not the only historian to suggest diminishing marginal returns lead to societal collapse. Thomas Homer-Dixon has suggested that societal collapse occurs when the Energy return on Energy Invested, or EROEI, approaches 1:1. When EROEI falls below 1:1 it takes more than one unit of energy to harvest one unit of energy and collapse occurs – in today’s world energy and money are equivalents.


Tainter describes collapse occuring by one or more of 3 models


1. The Dinosaur

2. Runaway Train

3. House of Cards


By his definition we fit the Runaway Train model as a society that only functions when growth is present. We are a suicide machine and capitalism is a runaway train. Look at how China is responding to a fall in economic growth from 11.9% to a projected 8% – it has committed over $600B to re-stimulate demand. Even at a growth rate of 11.9% China is only generating 12 million new jobs a year. It needs to generate 24 million new jobs p.a. just to keep unemployment at 25%. So even at this rate unemployment is increasing at the same time as inequality is increasing. (Source Asian Development Bank).


In his recent book, The writing on the Wall China and the West in the 21st Century, Will Hutton quotes that China is destroying it’s arable land at the rate of 5% p.a. This seems unbelievable to me and I have not been able to find a source to confirm it. You don’t have to be very good at maths to work out that at this rate of destruction there would be no arable land left in 20 years.


And for those people who suggest that technology will come along and solve the problem, I have two questions. What money will we use and who will invest if the environment is unstable? History has shown that innovation only occurs in stable environments. The human race is rapidly losing its resilience. Democracy is an unaffordable system for the whole planet. It has only appeared succesfull because we measure success in the short term and its benefits have been confined to a few.


The history of human civilisation could easily be simplified into two parts – pre and post industrial revolution. In almost any chart you look at that has anything to humans over the last 50,000 we inevitably see the same “profile” – the classic hockey stick shape with exponential growth in the last few hundred years.


Pre-industrial life has been called a Malthusian trap. Any extra energy that was captured by human’s ended up as extra population rather than as an investment in technology and an increase in average per capita energy usage. I heard the historian Niall Ferguson describe this period as largely a story of subsistence farmers dominated by a few elites. My opinion is that this is an over simplification but the point is that there is an equilibrium between energy harnessed by humans and energy used by humans and this is especially the case in populations that did not posses the technology to store food surpluses.

Modern technology has not only given us the capacity to store food surpluses but it has also given us the capacity to increase the “energy yield” for a given area of land. This has allowed us to increase the carrying capacity of the land. But how sustainable is this? What would happen if energy became more expensive? How much of technology is really only a way of “stealing our future” dresses up as “progress”.


Take the example of Australia. Before the arrival of white settlers Australia was home to between 700,000 and 900,000 Aborigines. Given that they had been here for at least 50,000 years it is probably safe to assume that this was the equilibrium population level for their level of technology. Compare this to the current population of approximately 23 million where Australia is a net food exporter.

But look at bit deeper and you will discover that this has come at a cost. As a result of “modern” farming methods least 25% of the original agricultural land has been turned into desert or has such a high salt content in it that it can’t be used for agriculture. Aquifers have been pumped dry and the water for the major farming area is over allocated. The food production and distribution system is totally dependant on fossil fuels for fertilisers and mechanisation. But fossil fuels are set to run out and will become more expensive before they do.

Anyone who looks at these facts and denies that we have “stolen from our future” and destroyed our capital to get where we are is in denial.  And what is our response? To look for further economic growth and population increase. This is insanity.

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Rediscovering Ancient Wisdom to save the human race

One of the by-products of modernity and the notion of constant progress is that Traditional ideas have been discarded for the new. In the Modern world view, reductive science is the measuring stick by which we make sense of the world – we know and we believe because we can measure and experiment. If we can’t measure and verify under controlled conditions we reject. 


The unintended consequence of making sense of the world this way is that we exclude anything that we can’t objectively measure and quantify – anything subjective is invalid. 


In the medical world the consequence is that we have a medical system that rejects the role of thoughts and emotions on health because they can’t be measured. Any talk of an energy system that can’t be measured is rejected. The end result is we treat what we can measure and that is the external manifestation of disease – the symptoms. The “hidden” causes of the disease remain untreated.


 In the economic world the consequence is that we have the free-market system that externalises costs. The present result of this world view is that we have built ourselves an unsustainable economic model. We are destroying our ecological support base and claiming that this model is a success story that the rest of the world should embrace. For example, global commercial fish stocks are projected to be zero by 2050. We are loosing ecosystem services from forests at the rate of $2-$5T p.a. and rising – this is two to three times the size of the projected losses of the current economic meltdown.

Who are we to look to for leadership to extricate ourselves from the mess we are in? The leaders of this world – politicians and business people – are locked into a view of the world that rewards them for short term “profits”. The “rules” of the system reward behaviours that deliver short term “benefits” at the cost of the destruction of the asset base that delivers them.

Clearly we need a new way to look at the world if we are to come out of this one alive as a species. This means that we have to reconsider our place in the world and how it works. Reductionism has failed as a model.  We need models that include the complexity and the interconnectedness of the planet and the whole universe. We need models that place humans in the larger system of Nature, as part of the system and dependant on it for survival. We need models that take into account the long term.


Our health and the health of our planet are at stake. My opinion is that the roots of our new human health problems and the health of the planet are connected. We will be unable to heal the planet if we cannot heal ourselves. We need to find a way to live in harmony with our own individual natures as well as with larger Nature.


 Our major diseases in the western world are now self created “chronic diseases” – the product of living a lifestyle and eating food that our bodies were not evolved to cope with. We are suffering from an intelligence failure. We do not understand our own natures and how we work. As a result we don’t know how to live in harmony with ourselves.


In my opinion there are existing models of the universe, the world and life that can help us understand ourselves and the world and live in harmony with it. These are the models of Yoga, Ayurveda, Chinese Medicine and the like. However most of these models have been discarded  by modernity because of their antiquity and their lack of scientific validation. Famous scientists like Richard Dawkins have written them off as Mumbo Jumbo. Yet Richard Dawkins is wrong. His blind faith in the validity of scientific research as indisputable truth is not born out by John Ioannisis’s work that has demonstrated that most published research findings are false.


As it turns out subjects like evolutionary biology and genetics are changing the way that scientists think. It is no longer a case of Nature vs Nurture. It is now Nature via Nurture. These scientists are rediscovering the principles of Yoga, Ayurveda, Chinese medicine (and even Jyotish) without knowing it.


One of my interests is to facilitate the reclamation of ancient wisdom for the good of all species.


Every day on the internet I see stories about new discoveries that are really only rediscoveries of the principles of Yoga, Ayurveda and Chinese medicine. Most of the time these stories make no reference to these traditional systems as the source of their inspiration.


The result of this failure to connect scientifically validated rediscovery with ancient wisdom is that we take longer to join the dots. 


My view is that we will eventually rediscover Ayurveda and Chinese Medicine because they are more accurate models of how the world works than reductive science. In modern science speak they are complex adaptive systems models.

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Questions and Lessons from the collapse of ABC learning

The Fin Review last weekend had an interview with Eddy Groves. One of the excuses that he gave for the company failing was he only passed on half of the Howard Government’s 10% increase in childcare benefits as price increases.I

This raises an interesting question. If it is a valid statement it implies that Eddie knew in advance that the government was going to raise subsidies – it was part of the assumptions in his business model. So just how could this possibly be the case? Guaranteed increases of subsidies wasn’t public knowledge and couldn’t be guaranteed without “inside assistance”. Moreover the idea of raising subsides – ostensibly to take the pressure of child care costs of battling parents – was being criticised by observers who correctly predicted that in an undersupplied market, subsidies would flow to the owners of childcare centres, who would raise prices, rather than to the needy parents we were told it was aimed for.


So for my part we need to be looking very closely at the Howard government. How did the subsidies get passed, who voted in favour of them, did any of these people get back handed in any way?


The whole story of ABC is a scam from start to finish.


The AFR story was billed as – How I lost an Empire. The more interesting question is how did an “Empire” get to form in the first place? This is a corporate business model that was doomed from day one. The fact that an unsustainable business could get to the size it did meant that many people had to make mistakes – bankers, investors, regulators, journalists etc.


When ABC first came on the horizon I couldn’t believe it. How was a corporate business with corporate overheads going to make any money in a regulated business where non profit making companies determined the competitive dynamics? It was straight business strategy 101 – an un-defensible backyard business, low entry and exit costs, no way to get price or cost advantages. In BCG we used to call these “backyard” businesses.


So how is it that so many people have been taken in? Banks who lent the money. Analysts who recommended the stock. Investors who bought the stock. Governments who regulated the industry. Journalists who reported on the story?


We have a bunch of incompetents at the top masquerading as experts. It is the “Peter principle” in action. People like Terry McCrann clearly still haven’t understood that the private corporate model doesn’t work in an industry with these characteristics – this is what he had to say about ABC on the 6th November in the Courier Mail – “This corporate entity is now clearly doomed. Ironically, in large part because it IS a viable business.”


ABC a viable corporate business? Terry can’t have been looking at the same accounting figures that I saw. But it is more than that. It is emblematic of a lack of understanding about how the world works.


All around us we have examples of corporate entities replacing small operators. Our world is being hollowed out. Competition is replacing the social glue that maintains cohesion and stability in society. Why? Because it is more profitable in the short run. Because the rules of the system privatises the benefits and externalise the social costs. Deep pockets can be used to drive out competition from smaller operators


All around us are the wake up calls that we need to rethink our values and our world view. How many of the things that we think are our great success are going to turn out to be our great disasters and why? What is it about the way that we look at the world that allows us to see the current financial crisis as  a disaster while every year we loose 2-3 times the projected size of this loss in lost ecosystem services from forests alone?


There are many lessons to be learned from this story

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