Morality clause

Legal is not always fair

What is legal isn’t always fair. Perhaps the role of morality in law is too small. Because people have different views about what is right and what is wrong, the prevailing liberal view in many Western societies is that people should be free to do as they please unless their actions harm others. But even that view may justify a greater role of ethics in law.

Moral issues can be contentious and people reason according to their beliefs and political views. The following arguments may illustrate that:

  • Social liberals might be concerned with the rights of criminals in jail but not of the rights of unborn children who are innocent of any crime.
  • Conservatives might be concerned with the fate of unborn children but as soon as they are born in misery their compassion suddenly vanishes.

It is easy to simplify matters in this way but this is how issues are framed in disputes. And as soon as you are dragged into a dispute yourself, it is hard to remain moderate. Moral issues tend to be complicated. Euthanasia can be an act of compassion but it might be turned into a means of getting rid of undesired people. Perhaps a criminal has had a poor upbringing and never realised that he had a choice but making criminals suffer can alleviate the pain felt by their victims and give them a sense of justice.

Social liberals and conservatives have moral views and can be passionate about them. This is difference of opinion rather than an absence of ethics from one or both sides. Rational debates might help to clarify these matters and to balance the laws on these issues.

There are areas where an infusion of ethics may be advised, most notably where business meets law. A research showed that CEO is the job with the highest rate of psychopaths while lawyer comes in second,1 probably because traders in financial markets were not included in the survey. Media came in third, possibly because these findings come from a British research. The British tabloids are rather unique in the world with regard to ethics. Salespeople make a rather unsurprising fourth position.

Vulture capitalism

Rural areas in the United States are turning into an economic wasteland. Closed down factories and empty malls dominate the landscape. Communities are ravaged and drug abuse is on the rise. One reason for this to happen is that jobs are shipped overseas. Several factors contributed to this situation, but a major cause is CEOs not caring for people and communities. In many cases other solutions were possible.

Paul Singer is wealthy hedge fund owner. He made a fortune by buying up sovereign debt of countries in trouble such as Argentina and Peru at bargain prices and starting lawsuits and public relation campaigns against those countries to make a profit on these debts at the expense of the taxpayers of these countries.2

In the United States Singer bought up stakes of corporations in distress. He then fired workers so that the price of his shares rose. In the case of Delphi Automotive he and other hedge fund managers took out government bailouts, moved jobs overseas, and cut the retirement packages of employees so they could make a huge profit.2

Vulture capitalists prey on patients too. They buy patents on old drugs that are the standard treatment for rare life-threatening diseases, then raise the price because there is no alternative. Martin Shkreli was responsible for a 6,250% price hike for the anti-retroviral drug Daraprim. Many people died because of his actions.3 Perhaps he should be in jail for being a mass murderer but he is not because what he did is legal.

Profiteering at the expense of the public

In the years preceding the financial crisis of 2008 there was a widespread mortgage fraud going on in the United States. Few people have gone to jail because much of what happened may have been morally reprehensible but was considered legal. Financial executives and quite a few academics share this view.4 And so nothing was done. Perhaps it is still possible to prove fraud but that may take years if it ever succeeds.

Healthcare is another domain for fraudsters. Patients are often not in a position to bargain. Perhaps that is why privatised healthcare tends to perform so poorly compared to government organised healthcare. In 2015 the Dutch government introduced the Social Support Act, making municipalities responsible for assisting people who are unable to arrange the care and support they need themselves.5

Municipalities were often ill-prepared. One of the issues that still persist is fraud perpetrated by several private contractors at the expense of the taxpayers and people in need. The Dutch prosecution is overwhelmed by fraud cases and it is not always possible to get a conviction because private contractors made use of loopholes in the law. Until these loopholes are fixed, their actions remain legal.6

In the United States hospital bills are feared. A routine doctor visit for a sore throat can result in a $ 28,000 medical bill.7 And so many people in the US go without healthcare because they can’t afford it. Efforts to reform healthcare in the US haven’t succeeded, perhaps because those who send $ 28,000 bills for sore throats have plenty of money to bribe politicians into keeping the US healthcare system as it is.

Attributes of the law

First we have to recognise why it is so hard to prevent these things from happening. On the political front it is because once politicians are elected, they can do as they please until the next election. Lobbyists prey on them. Citizens have few means of correcting politicians, except in Switzerland. The Swiss have direct democracy. Swiss citizens can intervene in the political process when they see fit and fix laws if they think that is needed. Direct democracy might help to fix many of these issues.

Laws are often made with the best intentions but you can’t test them in a simulation to see how they will work out in practice. So, once they are introduced, problems pop up. The process of lawmaking is slow and it often takes years before issues are fixed, if they are fixed at all because lawmaking is often political process. Changes in the law can be subject of a political process and that can make it rather complicated.

Even more importantly, the underlying principles of law cause certain restrictions that benefit the savvy. The law is the way it is for good reasons. No-one should be above the law and people as well as businesses should not be subject to arbitrariness. The rule of law implies that every person is subject to the law, including lawmakers, law enforcement officials, and judges. And it is agreed that the law must be prospective, well-known, general, treat everyone equal, and provide certainty.

Laws being prospective means that you can only be convicted for violation of laws in force at the time the act was committed. Legal certainty means that the law must provide you with the ability to regulate your conduct, meaning that the law must be sufficiently precise to allow you to foresee the possible consequences of a given action. Businesses prefer the laws to stable. They make investments for longer periods of time. If laws change then they may be faced with losses. If laws are unstable, investments may not be made, and a country may end up poorer.

With the rise of neoliberalism came the era of shareholder capitalism. Making profits became a goal in itself. Greed was good. Wall Street traders and CEOs were seen as heroes even when they were psychopaths outsourcing jobs for no other reason than making more profit. Often there was little consideration for the planet, people and communities. Consumers prefer the best service at the lowest price so businesses were pressed into cutting costs and moving jobs to low-wage countries. Businesses must remain competitive to survive. The moral issue comes maximising profit at the expense of the planet, communities and people.

A bigger role for ethics

More and more people start to believe that ethics should play a bigger role in business. The Internet enables activists to put pressure on corporations. It may however not be enough to shame corporations who misbehave or to press consumers into buying goods and services that have been made with consideration for the planet, communities and people. Corporations must remain competitive and so they are not inclined to make real changes if that increases their costs. Levelling the playing field with regulations is an option but that may not be sufficient. Perhaps the law needs a morality clause, making specific forms of unethical behaviour unlawful.

A randomly selected jury of laypeople could make verdicts in these moral issues. Perhaps it is better that the legal profession stays out of these matters.

There are a few issues that come with a morality clause. First of all, ethics in business can be a political issue. It contradicts the prevailing neoliberal view that as much as possible should be left to the markets. It can also affect legal certainty, meaning that it will be harder for businesses to predict whether or not a specific action is legal. Business owners may incorrectly guess moral sentiment and believe they did nothing wrong. That might reduce the available investment capital for questionable activities. And if immoral profits and bonuses from the past are to be confiscated, that may affect the prospectiveness of the law. But you may not like to live in a world ruled by psychopathic mechanisms like maximising profit at the expense of people and the planet so a morality clause in the law is an idea worth considering.

Featured image: Of course the laws are always functional. Loesje. Loesje.org.

1. The Wisdom of Psychopaths: What Saints, Spies, and Serial Killers Can Teach Us About Success. Kevin Dutton (2012).
2. The death of Sidney, Nebraska: How a hedge fund destroyed ‘a good American town’. Charles Couger, Alex Pfeiffer (3 December 2019). Fox News. [link]
3. Vulture capitalists prey on patients. The Sacramento Bee (22 September 2015). [link]
4. How Mortgage Fraud Made the Financial Crisis Worse. Binyamin Appelbaum (12 February 2015). New York Times. [link]
5. Social Support Act (Wmo 2015). Government of the Netherlands. [link]
6. Gemeenten starten onderzoek naar Albero Zorggroep. Eelke van Ark (31 October 2019). Follow The Money. [link]
7. How a routine doctor visit for a sore throat resulted in a $28,000 medical bill. CBS News (31 December 2019) [link]

Was Marx right about capitalism destroying itself from within?

One of the core tenets of Marx’s work is that capitalism will be undone by internal contradictions that would manifest as ever-greater crises that would eventually destroy the system from within. If it turns out the current version of global capitalism is indeed unraveling due to its internal contradictions, it would be valuable to understand this now rather than later.

Read more:

https://www.oftwominds.com/blogjan20/marx1-20.html

Since the failure of communism Marx has been politically incorrect even though what he had to say about capitalism could be of great value.

There are two trends within capitalism, which are wealth creation and wealth concentration. Wealth concentration at some point may hamper wealth creation if the people at the bottom have not enough money to spend to make capital profitable.

The oversupply of capital or the lack of demand caused by lagging wages Marx foresaw may be the primary cause of the low and negative interest rates we have now. After the next recession we may never see positive interest rates again.

Read more:

https://www.naturalmoney.org/blog/190817.html

 

Beautiful countryside in southern California

Capital for the future

Making the economy sustainable may require an unprecedented amount of capital in the form of knowledge and outfits like solar panels, sustainable farms and energy-efficient transportation systems. It is hard to imagine that it can be done. And imagining it is still a lot easier than really doing it. It is going to require some economic magic to divert investment capital from destructive activities to the future of humanity. We may need more useful capital and less consumption.

Perhaps the invisible hand can be of some help. It is easier to finance a great endeavour from investments than from taxation because nobody wants to pay taxes but everybody is happy to invest. It is the secret of the success of the European empires that conquered the world after the Middle Ages. England, France, Spain and the Netherlands were much poorer and smaller than China, India or the Ottoman Empire, but they didn’t finance their conquests with taxation, but with the use of investment capital.1

Europe won out because European conquerors took loans from banks and investors to buy ships, cannons, and to pay soldiers. Profits from the new trade routes and colonies enabled them to repay the loans and build trust so they could receive more credit next time.1 The same logic may need to be applied to making the economy sustainable. The challenge is so enormous that it may never be possible to finance it by taxes. Nowadays interest rates are so low because there is plenty of investment capital.

It’s the economy stupid!

It is often argued that the economy is unsustainable because of short-term thinking. The economy must grow in order to have positive returns on investments. And it is believed that returns on investments need to be positive otherwise the economy would collapse. The economic time horizons of individuals are reflected in their time preferences. The time horizon of the economy as a whole is reflected in the interest rate.

The lower the interest rate, the longer the time horizon of the economy could be. The following example from the Strohalm Foundation can illustrate this:

Suppose that a cheap house will last 33 years and costs € 200,000 to build. The yearly cost of the house will be € 6,060 (€ 200,000 divided by 33). A more expensive house costs € 400,000 but will last a hundred years. It will cost only € 4,000 per year. For € 2,060 per year less, you can build a house that lasts three times as long.

After applying for a mortgage the math changes. If the interest rate is 10%, the expensive house will not only cost € 4,000 per year in write-offs, but during the first year there will be an additional interest charge of € 40,000 (10% of € 400,000).

The long-lasting house now costs € 44,000 in the first year. The cheaper house now appears less expensive again. There is a yearly write off of € 6,060 but during the first year there is only € 20,000 in interest charges. Total costs for the first year are only € 26,060. Interest charges make the less durable house cheaper.2

Without interest there is a tendency to select long-term solutions. Interest charges make long-term solutions less economical. Interest promotes a short-term bias in the economy. It may explain why natural resources like rainforests are squandered for short term profits. If interest rates are high, it may be more profitable to cut down a rainforest and to put the proceeds at interest rather than to manage the forest in a sustainable way.

Only, things are not as simple as the example suggests. For example, the building materials of the cheap house might be recycled to build a new house. And technology changes. For example, if cars had been built to last 100 years, most old cars would still be around. This could be a problem as old cars are more polluting and use more fuel. Nevertheless, the example shows that long-term investments can be more attractive when interest rates are lower.

This also applies to investments in renewable energy. For instance, a solar panel that costs € 100, lasts 15 years, and generates € 150 worth in electricity in the course of these 15 years, is feasible at an interest rate of 5% but not at an interest rate of 10%. Many investments in making the economy sustainable may have low returns and are only feasible when interest rates are low. Low and negative interest rates can also deal with low economic growth. That may be needed for living within the limits of the planet.

Living within the limits of the planet

When interest rates are negative, the time horizon of the economy could go to eternity so that it makes sense to invest in making the economy sustainable. A few examples from history can illustrate this. In the Middle Ages some areas in Europe had currencies with a holding fee like Natural Money. As there hardly was economic growth, interest rates were negative. It was the era of Europe’s great cathedrals. These cathedrals were built for eternity. As better investment opportunities were absent, wealthy towns people spent their excess money on cathedrals.3 For similar reasons, the people of Wörgl planted trees as the proceeds of the wood were expected to occur in the distant future.3

A bit of calculus shows why. At an interest rate of 5%, putting € 1 in a bank account turns into € 1,05 after a year, so you would rather have € 1 now than in one year’s time, even when you need the money in one year’s time. That’s because you can put the money on a bank account at interest. At an interest rate of 5%, € 100 in one year’s time is worth € 95.25 now. The distant future has even less value. The same € 100 in one hundred year’s time is worth only € 0.59. And € 100 after 1000 years has no value at all in the present.

At an interest rate of -5%, you would prefer to have the money when you need it, otherwise you would end up with less. At an interest rate of -5%, € 100 in one year’s time would be worth € 105. The same € 100 in one hundred year’s time would be worth € 13,501 now. And € 100 after 1000 years would be worth more than everything there is in the present. Income in the distant future is also very uncertain, so it is unlikely that investors will shift their time horizon to 1,000 years, but this logic may help us to come into terms with the limits our planet poses on human activities.

Living within the limits of the planet may require unprecedented investments in the future. These investments may require low or even negative interest rates as their returns may be low. Only low and negative interest rates can make these investments economical. Everyone who has money to save can help by shifting money from consumption to saving and investing. The more people act like capitalists, the lower interest rates may go, and the more sustainable the economy may become.

Capitalists think that money spent on a frivolous item is money wasted, because when you invest your money, you will have more money that you can invest again. Capitalists hardly care about interest rates. They will save and invest anyway because of their capitalist spirit. Rich people may be encouraged to save even more if luxuries that use a lot of natural resources and energy aren’t available any more. One can think of luxury yachts, private jets, but also of travel by airplane for holidays. When energy becomes a constraint, local products may replace long-distance trade.

Featured image: Beautiful countryside in southern California. James McCauley (2005). Wikimedia Commons. Public Domain.

1. A Brief History Of Humankind. Yuval Noah Harari (2014). Harvil Secker.
2. Poor Because of Money. Henk van Arkel and Camilo Ramada (2001). Strohalm.

Clutching at a straw

When I was eighteen years or so I once read The Limits of Growth. That’s depressing stuff, most notably if you’re young and expect to live for another sixty years or so. Doom seemed imminent and I would probably live to see it happen. That was the moment when my views about the future turned grim. Before that I hardly had views about the future at all. A few years later I became an environmentalist and a member of Friends of the Earth in Groningen. Friends of the Earth does research and tries to convince people that they should change their lifestyles. Friends of the Earth also lobbies with politicians and pressures corporations. And sometimes we protested.

One day we blocked the entrance of Groningen Airport to protest against the government subsidies for the airport. The city council felt that Groningen needed an airport but Groningen wasn’t big enough to make it profitable. When we were sitting there, the police came to remove us, and it suddenly became clear to me that activism didn’t help. Politicians will be voted out of office when they are serious about solutions. Businesses will go bankrupt if they take appropriate action unless all other businesses do the same. The required measures are extremely costly and will affect our lifestyles so profoundly that it would never happen in the current political and economic system.

Once being over a cliff, a cartoon character can only clutch at a straw. And only in cartoons the straw might hold. Friends of the Earth in Groningen worked together with the Strohalm Foundation. The meaning of the Dutch word strohalm is straw. According to Strohalm, the economy must grow because of interest, and that’s destroying the planet. It is ‘grow-or-die’ because interest rates need to be positive. Any solution begins with ending interest, they believed, and interest causes a lot of other problems too, like poverty and financial instability. Strohalm’s idea was banning interest and charging a fee on money as Silvio Gesell had proposed, so that it would be attractive to lend out money without interest.

Economists didn’t take interest-free money seriously. If you can receive interest elsewhere then why would you lend out money without interest? And if you can borrow money at an interest rate of zero, you would borrow as much as you can and put it in a bank account at interest. Therefore, interest-free money with a holding tax would never work, at least so it seemed, and it didn’t take long before I realised that too. Only, that wasn’t satisfactory. Accepting doom is like committing suicide. If interest is the root of many social and environmental problems, and may destroy human civilisation, you can’t ignore that. And perhaps it could work. During the Great Depression it had been tried in a small Austrian village and it was a stunning success.

For years I used public transport as much as possible, but at some point I began to realise that it was all pointless. More and more people started driving SUV’s. They didn’t care. It didn’t matter what I do. A car can make your life more comfortable and I had no higher morals than other people.

A few years later, in 1998, I became a freelance IT specialist. I made a lot of money so I had money to invest. My first investments were small and not very successful. That was because I believed that the profits of corporations matter. But investments in loss-making internet startups did very well while profitable corporations did poorly. And so I came to believe that I had to stay informed about the developments in the financial markets. In 2000 I joined the investment message board Iex.nl.

On the message board was a day trader who shared all kinds of conspiracy theories with us. For instance, if the markets were about to collapse, a secret group called Plunge Protection Team would come to the rescue. He was ridiculed, but after the internet bubble popped, markets often miraculously recovered when they were about to crash.

And gold often crashed because of sudden selling. The day trader believed central banks wanted to keep confidence in their currencies. If the gold price were to rise, he claimed, people would lose trust in central bank currencies. This was new to me, and probably it wasn’t true, but I already had bought some gold because I didn’t trust financial markets and the people operating them. I was not good picking stocks, and I was too risk averse to be very successful in the stock market, but the gold turned out to be a good investment as I held on to it for decades.

In 2001 after the Internet bubble had popped I pitched the idea of interest-free money on the message board. My lack of knowledge was eclipsed by my zeal and lengthy discussions followed. On the Internet people from different backgrounds and different knowledge can be in one virtual room and participate in a discussion. I was rebutted time after time, but as these discussions went on, my knowledge of the financial system increased and I became aware of the issues that had to be resolved in order to make interest-free money work.

As a gold investor I became familiar with the Austrian School of Economics. This group questions money creation by banks and the need for central banks. They pointed at the inflation caused by money creation and central banks. At some point all the debt banks create would eventually collapse the financial system and money would be worthless, they believed.

And so two opposing fringe ideas, interest-free money with a holding tax and Austrian School, were challenging each other in my mind, which may be how Hegelian dialectic is supposed to work. In 2008 this resulted in a resolution and the idea of Natural Money was born. The economy can do better without interest so returns for investors can be higher. As positive interest rates are not allowed, the money may rise in value, so that interest-free money can give better returns. Hence, interest-free money was possible, perhaps even inevitable. In the following decade I integrated modern main stream economics into the theory of Natural Money. This research can be found on the website Naturalmoney.org.

Featured image: Roadrunner and Wile E. Coyote. Warner Bros. [copyright info]

Illustration for the first edition of Utopia

Welcome to Utopia

Until very recently nearly everyone lived in abject poverty. Most people had barely enough food to survive. In 1651 the philosopher Thomas Hobbes depicted the life of man as poor, nasty, brutish, and short.1 Yet, a few centuries later a miracle had happened. Nowadays more people suffer from obesity than from hunger while the life expectancy in the poorest countries exceeds that of the Netherlands in 1750, the richest country in the world in the wake of the Industrial Revolution.

In 1516 Thomas More wrote his famous novel about a fictional island named Utopia. Life in Utopia was nearly as good as in the Garden Of Eden. The Utopians worked six hours per day and took whatever they needed. Utopia means nowhere but the name resembles the word eutopia which means a good place. The pun may have been intended by More. His book inspired writers and dreamers to think of a better world while leaving the hard work to entrepreneurs, labourers and engineers. Today many people have more than they need but still we work hard and feel insecure about the future.

Why is that? The answer lies within the dynamic of capitalism. The capitalist economy must grow. It is not enough that people just work and buy the products they need. They must work harder to buy more, otherwise businesses will go bankrupt, investors will lose money, and people will be unemployed and left without income. To forestall this disaster, we are made to believe that buying more stuff makes us happy.2

Capitalism brought us prosperity so most of us won’t ask questions like why are there still poor people or are there limits to our desires? It might feel like biting the hand that feeds us. And answers aren’t easy to come by. Alternatives to capitalism made people poor. Capitalism may have helped to reduce poverty more than anything else. But the dynamic of growth appears to be halting when people are going into debt to buy stuff.

Perhaps before long we live inside our own make-believe fairy tale virtual realities writing our own life’s stories. In that case we won’t need a lot of stuff any more. Finally there could be enough for everyone, and perhaps far more than that. Machines may do more jobs so more people might have more leisure time. That might happen because we ourselves may live inside such a virtual reality already. So in the future there may be no economy or even money but for now we may need a way to make the economy flourish without the need for growth in order to make this possible.

Featured image: Illustration for the first edition of Utopia by Thomas More.

1. Leviathan. Thomas Hobbes (1651).
2. A Brief History Of Humankind. Yuval Noah Harari (2014). Harvil Secker.