If I have seen further it is by standing on the shoulders of giants.

Saturday, June 30, 2012

Fractional Reserve Banking and the Federal Reserve: The Economic Consequences of High-Powered Money | Ron Paul | Domestic Monetary Policy and Technology Subcommittee

This hearing, entitled "Fractional Reserve Banking and the Federal Reserve: The Economic Consequences of High-Powered Money," will be held on Thursday, June 28, at 2:00 p.m. in room 2128 of the Rayburn House Office Building.

Witnesses scheduled to testify:
Dr. John Cochran, Emeritus Professor of Economics and Emeritus Dean, School of Business, Metropolitan State College of Denver Dr. Joseph Salerno, Professor of Economics, Lubin School of Business, Pace University Dr. Lawrence H. White, Professors of Economics, George Mason University

"Fractional reserve banking underpins the entire banking system, yet its effects on society are completely ignored. Our financial system consists of vast amounts of credit pyramided on top of very small amounts of real savings-- all backstopped by explicit and implicit government guarantees. This poses significant risks to the stability of the economy and monetary system, which ought to give pause to any serious observer of financial markets. Hopefully this hearing will create a greater understanding among the American people about the nature of the banking system, and begin the movement towards serious systematic reform. The American people deserve a financial system that is stable and efficient; one that operates without taxpayer subsidies and bailouts." - Congressman Ron Paul

Hearing June 28 2012 Fractional Reserve Banking

Friday, June 29, 2012

Do We Really Need a Central Bank? | Steven Horwitz

Steven Horwitz gave this lecture entitled "Do We Really Need a Central Bank?" at the Future of Freedom Foundation's Economic Liberty Lecture Series at George Mason University on December 2, 2009.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University in Canton, NY. He is the author of two books, Microfoundations and Macroeconomics: An Austrian Perspective (Routledge, 2000) and Monetary Evolution, Free Banking, and Economic Order (Westview, 1992), and he has written extensively on Austrian economics, Hayekian political economy, monetary theory and history, and the economics and social theory of gender and the family.

His work has been published in professional journals such as History of Political Economy, Southern Economic Journal, and The Cambridge Journal of Economics. He has also done public policy research for the Mercatus Center, Heartland Institute, Citizens for a Sound Economy, and the Cato Institute. His current project is a book tentatively titled Classical Liberalism and the Evolution of the Modern Family. Horwitz currently serves as the book review editor of The Review of Austrian Economics and as an academic advisor for the Heartland Institute and a contributing editor to Critical Review and Journal des Economistes et des Etudes Humaines. A member of the Mont Pelerin Society, he completed his MA and PhD in economics at George Mason University and received his A.B. in economics and philosophy from The University of Michigan.

Steven Horwitz at FFF: "Do We Really Need a Central Bank?"

MUST WATCH! Four Principles for the Open World | Don Tapscott [TED]

The recent generations have been bathed in connecting technology from birth, says futurist Don Tapscott, and as a result the world is transforming into one that is far more open and transparent. In this inspiring talk, he lists the four core principles that show how this open world can be a far better place.

Don Tapscott: Four principles for the open world

MUST READ! A Conversation With Bill Gates About the Future of Higher Education

Bill Gates never finished college, but he is one of the single most powerful figures shaping higher education today. That influence comes through the Bill & Melinda Gates Foundation, perhaps the world's richest philanthropy, which he co-chairs and which has made education one of its key missions.

The Chronicle sat down with Mr. Gates in an exclusive interview Monday to talk about his vision for how colleges can be transformed through technology. His approach is not simply to drop in tablet computers or other gadgets and hope change happens—a model he said has a "really horrible track record." Instead, the foundation awards grants to reformers working to fix "inefficiencies" in the current model of higher education that keep many students from graduating on time, or at all. And he argues for radical reform of college teaching, advocating a move toward a "flipped" classroom, where students watch videos from superstar professors as homework and use class time for group projects and other interactive activities. As he put it, "having a lot of kids sit in the lecture class will be viewed at some point as an antiquated thing."

The Microsoft founder doesn't claim to have all the answers. In fact, he describes the foundation's process as one of continual refinement: "to learn, make mistakes, try new things out, find new partners to do things."

The interview comes on the eve of Mr. Gates's keynote speech at an event Tuesday to celebrate the 150th anniversary of the Morrill Act, which created the nationwide system of land-grant colleges. The "convocation" will be held in Washington, D.C., sponsored by the Association of Public Land-Grant Universities.

Q. You have been interested in education for quite a while. I was looking back at your 1995 book, The Road Ahead, and you laid out a vision of education and how it could be transformed with technology. It seems like some of that vision is still only just emerging, so many years later. Did it take longer than you thought it would?

A. Oh sure. Education has not been changed. That is, institutional education, whether it's K-12 or higher education, has not been substantially changed by the Internet. And we've seen that with other waves of technology. Where we had broadcast TV people thought would change things. We had early time-sharing computing—so-called CAI, computer-assisted instruction—where people could do these drills, and people thought that would change things. So it's easy to say that people have been overoptimistic in the past. But I think this wave is quite different. I think it's more fundamental. And we can say that individual education has changed. That is, for the highly-motivated student, the ability to go online and find lectures of various length—to see class materials—there's a lot of people who are learning far better because of those materials. But it's much harder to then take it for the broad set of students in the institutional framework and decide, OK, where is technology the best and where is the face-to-face the best. And they don't have very good metrics of what is their value-added. If you try and compare two universities, you'll find out a lot more about the inputs—this university has high SAT scores compared to this one. And it's sort of the opposite of what you'd think. You'd think people would say, "We take people with low SATs and make them really good lawyers." Instead they say, "We take people with very high SATs and we don't really know what we create, but at least they're smart when they show up here so maybe they still are when we're done with them." So it's a field without a kind of clear metric that then you can experiment and see if you're still continuing to achieve it.

Q. So who's to blame? Are there things like the U.S. News rankings or other pressures that give colleges the wrong incentives?

A. Well there certainly is a perverse set of incentives to a lot of universities to compete for the best students. And whether that comes out in terms of being more selective or investing in sort of the living experience, it's probably not where you'd like the innovation and energy to go. You'd like it to go into the completion rates, the quality of the employees that get generated by the learning experience. The various rankings have focused on the input side of the equation, not the output.

Q. There's a moving moment in Walter Isaacson's biography of Steve Jobs that describes a time when you visited Mr. Jobs at his house not long before his passing, and the two you reflected on the innovations you both led in technology. I understand that one thing Steve Jobs asked you that day was about how technology could change education. What did you tell him?

A. Well, I'd been involved in the education space because of my full-time foundation work. And so I'd been able to get out to various charter schools, to inner-city high schools, to community colleges, different universities, and learn about the financial situation about what discourages kids. And based on that, you get more of a sense of, OK where can technology come in? If the kids don't have to come to the campus quite as often, that would be good. But then what's the element that technology can't deliver? And it's through that that I really have developed a lot of optimism that we can build a hybrid. Something that's not purely digital but also that the efficiency of the face-to-face time is much greater. Where you take the kid who's demotivated or confused, or where something needs to be a group collaboration as opposed to the lecture. So I talked about the vision and what type of innovators we should draw in.

Q. Getting to some of those ideas, you're famously not a college graduate, since you left Harvard early to start Microsoft. So I'm curious what you think of EdX out of Harvard and MIT. What do you think of that model of certificates or badges for taking free online courses?

A. Well at the end of the day you've got to have something that employers really believe in. And today what they believe in by and large are degrees. And if you have a great degree then you're considered for jobs, and if you don't have that degree there's a lot of jobs you won't get consideration for. And so the question is, Can we transform this credentialing process? And in fact the ideal would be to separate out the idea of proving your knowledge from the way you acquire that knowledge. So even though I only have a high-school degree, I am a professional student. That is, I like to watch courses and do things online. So things like OpenCourseWare, the various lectures that have been put online, I consume a lot of those because I'm very interested.

Continue reading - A Conversation With Bill Gates About the Future of Higher Education

On Business's Role in Higher Education

On Tablets in the Classroom

On the Meaning of MOOC's

On the Role of Technology in Academe

On the Future of His Foundation

On the Future of ‘Place-Based’ Colleges

On Why There Won’t Be a Gates U.

Thursday, June 28, 2012

How Arduino Is Open-Sourcing Imagination | Massimo Banzi [TED]

Massimo Banzi helped invent the Arduino, a tiny, easy-to-use open-source microcontroller that's inspired thousands of people around the world to make the coolest things they can imagine -- from toys to satellite gear. Because, as he says, "You don't need anyone's permission to make something great."

Massimo Banzi: How Arduino is open-sourcing imagination

Amazing Google Glasses Demonstration at Google I/O 2012 | Project Glass

Google Glasses Live Demonstration - During the Google I/O 2012 keynote, the audience was about to experience an amazing demonstration of Google Glasses.

Amazing Google Glasses Demonstration at Google I/O 2012

Monday, June 25, 2012

Driving Innovation & Breakthroughs | Peter Diamandis | Singularity University

Peter Diamandis shares his insights on exponentially growing technologies.

Abundance - Peter Diamandis

Extra: At Singularity University: World's biggest problems also biggest market opportunities

A New Type of Mathematics | David Dalrymple [TEDx]

Accepted to MIT graduate school at 14 years old — the youngest ever — David Dalrymple will share his deep insight into the future of mathematics.

TEDxMontreal - David Dalrymple - A new type of mathematics

MIND-BLOWING SPEECH! Victoria Grant, a 12-year old girl, Explains The Banking System

12-year old Victoria Grant explains why her homeland, Canada, and most of the world, is in debt. April 27, 2012 at the Public Banking in America Conference, Philadelphia, PA.

Victoria Grant

THE PRICE OF INEQUALITY: How Today's Divided Society Endangers Our Future | Joseph Stiglitz

Joseph Stiglitz, Nobel Memorial Prize in Economic Sciences recipient (2001) , visited Google on June 12, 2012 to talk about his new book THE PRICE OF INEQUALITY: How Today's Divided Society Endangers Our Future.

The 1 Percent's Problem
"Why won't America's 1 percent—such as the six Walmart heirs, whose wealth equals that of the entire bottom 30 percent—be a bit more . . . selfish? As the widening financial divide cripples the U.S. economy, even those at the top will pay a steep price."

Authors@Google: Joseph Stiglitz

Out-of Body Experiences, Consciousness, and Cognitive Neuroprosthetics | Olaf Blanke [TEDx]

What is a conscious self ? What exactly makes an experience a subjective phenomenon ?
Starting with the neurology of out-of-body experiences and the breakdown of bodily mechanisms of self-consciousness, this talk presents novel neuroscience data on selfconsciousness and subjectivity in healthy subjects using techniques from cognitive neuroscience and engineering-based technologies such as virtual reality and robotics. It translates these research findings to the bedside and show how control over the brain mechanisms of our daily "inside--body experience" can join forces with neuro-engineering and thus impact treatments for patients with amputation and spinal cord injury.

Olaf Blanke is director of the Center for Neuroprosthetics at the Ecole Polytechnique Fédérale de Lausanne (EPFL), holds the Bertarelli Foundation Chair in Cognitive Neuroprosthetics, and is consultant neurologist at the Department of Neurology (Geneva University Hospital). He received his MD and PhD in neurophysiology from the Free University of Berlin. Blanke's research targets the brain mechanisms of body perception, corporeal awareness and selfconsciousness, applying paradigms from cognitive science, neuroscience, neuroimaging, robotics, and virtual reality in healthy subjects and neurological patients. His two main goals are to understand and control neural own body representations to develop a neurobiological model of self-consciousness and to apply these findings in the emerging field of cognitive and systems neuroprosthetics. His work has received wide press coverage; he is recipient of numerous awards.

TEDxCHUV - Olaf Blanke - Out-of Body Experiences, Consciousness, and Cognitive Neuroprosthetics

Understanding the Human Brain: A Test of Global Collaboration | Henry Markram [TEDx]

Knowledge of the brain is highly fragmented and we have no way to prioritize the many experiments needed to fill the gaps in our understanding. It is time for a strategy of global collaboration, where scientists of all disciplines work together to solve this problem. We propose building a platform to catalyze efforts, integrate knowledge, and use supercomputers to simulate what is known about the brain, to predict gaps in our knowledge of the brain, and to test hypotheses about how it works.

Henry Markram is the Coordinator of the Human Brain Project, a proposed international effort to understand the human brain. His research career started in medicine and neuroscience in South Africa, then at the Weizmann Institute in Israel, at NIH and UCSF in the United States, and the Max-Planck Institute in Germany. In 2002, he joined the EPFL, where he founded the Brain Mind Institute. His career has spanned a wide spectrum of neuroscience research, from whole animal studies to gene expression in single cells. He is best known for his work on synaptic plasticity. In the past 15 years he has focused on the structure and function of neural microcircuits -- the basic components in the architecture of the brain. In 2005, he launched the Blue Brain Project: the first attempt to begin a systematic integration of all biological knowledge of the brain into unifying brain models for simulation on supercomputers. The strategies, technologies and methods developed in this pioneering work lie at the heart of the Human Brain Project.

TEDxCHUV - Henry Markram - Understanding the Human Brain: a test of global collaboration

Sunday, June 24, 2012

MUST WATCH! Medicine's Future? There's An App For That | Daniel Kraft [TEDx]

At TEDxMaastricht, Daniel Kraft offers a fast-paced look at the next few years of innovations in medicine, powered by new tools, tests and apps that bring diagnostic information right to the patient's bedside.

Daniel Kraft: Medicine's future? There's an app for that

Saturday, June 23, 2012

Quantum Computation | Michelle Simmons [TEDx]

There is a shift coming in the very nature of computing which is being led by the likes of quantum physicist Michelle Simmons. Michelle wants you to put the binary world of ones and zeros on the shelf for a moment, as she introduces you to the idea of computing with atoms.

Michelle has always wanted to undertake the hardest research in the hardest subject: quantum physics. Her eccentric schooling, coupled with the sudden death of her PhD supervisor means she has spent most of her career teaching herself. Michelle is the Director of Australia's Centre of Excellence for Quantum Computation and Communication Technology. This year, she and her team announced they had made the first ever single atom transistor. They now sit on the threshold of delivering the first ever quantum computer to the world.

TEDxSydney - Professor Michelle Simmons -- Quantum Computation

Friday, June 22, 2012

MUST READ! The Scam Wall Street Learned From the Mafia | Matt Taibbi

Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you're probably either in the municipal bond business or married to an antitrust lawyer. Even then, all you probably heard was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most inscrutable, jargon-packed legal snoozefests since the government's massive case against Microsoft in the Nineties – not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or Anthony "Tony Ducks" Corallo.

But this just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.

In fact, stripped of all the camouflaging financial verbiage, the crimes the defendants and their co-conspirators committed were virtually indistinguishable from the kind of thuggery practiced for decades by the Mafia, which has long made manipulation of public bids for things like garbage collection and construction contracts a cornerstone of its business. What's more, in the manner of old mob trials, Wall Street's secret machinations were revealed during the Carollo trial through crackling wiretap recordings and the lurid testimony of cooperating witnesses, who came into court with bowed heads, pointing fingers at their accomplices. The new-age gangsters even invented an elaborate code to hide their crimes. Like Elizabethan highway robbers who spoke in thieves' cant, or Italian mobsters who talked about "getting a button man to clip the capo," on tape after tape these Wall Street crooks coughed up phrases like "pull a nickel out" or "get to the right level" or "you're hanging out there" – all code words used to manipulate the interest rates on municipal bonds. The only thing that made this trial different from a typical mob trial was the scale of the crime.

USA v. Carollo involved classic cartel activity: not just one corrupt bank, but many, all acting in careful concert against the public interest. In the years since the economic crash of 2008, we've seen numerous hints that such orchestrated corruption exists. The collapses of Bear Stearns and Lehman Brothers, for instance, both pointed to coordi­nated attacks by powerful banks and hedge funds determined to speed the demise of those firms. In the bankruptcy of Jefferson County, Alabama, we learned that Goldman Sachs accepted a $3 million bribe from J.P. Morgan Chase to permit Chase to serve as the sole provider of toxic swap deals to the rubes running metropolitan Birmingham – "an open-and-shut case of anti-competitive behavior," as one former regulator described it.

More recently, a major international investigation has been launched into the manipulation of Libor, the interbank lending index that is used to calculate global interest rates for products worth more than $3 trillion a year. If and when that case is presented to the public at trial – there are several major civil suits in the works here in the States – we may yet find out that the world's most powerful banks have, for years, been fixing the prices of almost every adjustable-rate vehicle on earth, from mortgages and credit cards to interest-rate swaps and even currencies.

But USA v. Carollo marks the first time we actually got incontrovertible evidence that Wall Street has moved into this cartel-type brand of criminality. It also offered a disgusting glimpse into the enabling and grossly cynical role played by politicians, who took Super Bowl tickets and bribe-stuffed envelopes to look the other way while gangsters raided the public kitty. And though the punishments that were ultimately handed down in the trial – minor convictions of three bit players – felt deeply unsatisfying, it was still a watershed moment in the ongoing story of America's gradual awakening to the realities of financial corruption. In a post-crash era where Wall Street trials almost never make it into court, and even the harshest settlements end with the evidence buried by the government and the offending banks permitted to escape with no admission of wrongdoing, this case finally dragged the whole ugly truth of American finance out into the open – and it was a hell of a show.

This was no trial scene from popular lore, no Inherit the Wind or State of California v. Orenthal James Simpson. No gallery packed with rapt spectators, no ceiling fans set whirring to beat back the tension and the heat, no defense counsel's resting a sympathetic hand on the defendant's shoulder as opening statements commence. No, the setting for USA v. Carollo reflected the bizarre alternate universe that exists on Wall Street. Like so many court cases involving big banks, the proceeding looked more like a roomful of expensive lawyers negotiating a major corporate merger than a public search for justice.

The trial began on April 16th in a federal court in Lower Manhattan. The courtroom, an aerielike setting 23 stories up, offered a panoramic view of the city and the East River. Though the gallery was usually full throughout the three-plus weeks of testimony, the spectators were not average citizens come to witness how they had been robbed blind by America's biggest banks. Instead, there were row after row of suits – other lawyers eager to observe a long-awaited case, one that could influence the outcome in a handful of civil suits pending across the country. In fact, the defendants themselves, whom the trial would reveal as easily replaceable cogs in a much larger machine of corruption, were barely visible from the gallery, obscured by the great chattering congress of prosecution and defense attorneys.

Only the presence of the mostly nonwhite and elderly jury, which resembled the front pew of a Harlem church, served as a reminder that the case had any connection to the real world. Even reporters from most of the major news outlets didn't bother to attend. The judge in the trial, the right honorable and amusingly cantankerous Harold Baer, acknowledged that the case was not likely to set the public's pulse racing. "It is unlikely, I think, that this will generate a lot of media publicity," Baer sighed to the jury in his preliminary instructions.

Continue reading (Long read) - The Scam Wall Street Learned From the Mafia

Labor’s Paradise Lost | Robert Skidelsky | Technological Unemployment

As people in the developed world wonder how their countries will return to full employment after the global recession, it might benefit us to take a look at a visionary essay that John Maynard Keynes wrote in 1930, called Economic Possibilities for our Grandchildren.

Keynes's General Theory of Employment, Interest, and Money, published in 1936, equipped governments with the intellectual tools to counter the unemployment caused by slumps. In this earlier essay, however, Keynes distinguished between unemployment caused by temporary economic breakdowns and what he called "technological unemployment" – that is, "unemployment due to the discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour".

Keynes reckoned that we would hear much more about this kind of unemployment in the future. But its emergence, he thought, was a cause for hope, rather than despair. For it showed that the developed world, at least, was on track to solving the "economic problem" – the problem of scarcity that kept mankind tethered to a burdensome life of toil.

Machines were rapidly replacing human labour, holding out the prospect of vastly increased production at a fraction of the existing human effort. In fact, Keynes thought that by about now (the early 21st century) most people would have to work only 15 hours a week to produce all that they needed for subsistence and comfort.

Developed countries are now about as rich as Keynes thought they would be, but most of us work much longer than 15 hours a week, although we do take longer holidays, and work has become less physically demanding, so we also live longer. But, in broad terms, the prophecy of vastly increased leisure for all has not been fulfilled. Automation has been proceeding apace, but most of us who work still put in an average of 40 hours a week. In fact, working hours have not fallen since the early 1980s.

At the same time, "technological unemployment" has risen. Since the 1980s, we have never regained the full employment levels of the 1950s and 1960s. If most people still work a 40-hour week, a substantial and growing minority have had unwanted leisure thrust upon them in the form of unemployment, under-employment and forced withdrawal from the labour market. And, as we recover from the current recession, most experts expect this group to grow even larger.

What this means is that we have largely failed to convert growing technological unemployment into increased voluntary leisure. The main reason for this is that the lion's share of the productivity gains achieved over the last 30 years has been seized by the well-off.

Particularly in the United States and Britain since the 1980s, we have witnessed a return to the capitalism "red in tooth and claw" depicted by Karl Marx. The rich and very rich have become very much richer, while everyone else's incomes have stagnated. So most people are not, in fact, four or five times better off than they were in 1930. It is not surprising that they are working longer than Keynes thought they would.

But there is something else. Modern capitalism inflames, through every sense and pore, the hunger for consumption. Satisfying that hunger has become the great palliative of modern society, our counterfeit reward for working irrational hours. Advertisers proclaim a single message: your soul is to be discovered in your shopping.

Aristotle knew of insatiability only as a personal vice; he had no inkling of the collective, politically orchestrated insatiability that we call economic growth. The civilization of "always more" would have struck him as moral and political madness.

And, beyond a certain point, it is also economic madness. This is not just or mainly because we will soon enough run up against the natural limits to growth. It is because we cannot go on for much longer economising on labour faster than we can find new uses for it. That road leads to a division of society into a minority of producers, professionals, supervisors, and financial speculators on one side, and a majority of drones and unemployables on the other.

Apart from its moral implications, such a society would face a classic dilemma: how to reconcile the relentless pressure to consume with stagnant earnings. So far, the answer has been to borrow, leading to today's massive debt overhangs in advanced economies. Obviously, this is unsustainable, and thus is no answer at all, for it implies periodic collapse of the wealth-producing machine.

The truth is that we cannot go on successfully automating our production without rethinking our attitudes toward consumption, work, leisure, and the distribution of income. Without such efforts of social imagination, recovery from the current crisis will simply be a prelude to more shattering calamities in the future.

Source: Guardian - Return to capitalism 'red in tooth and claw' spells economic madness

The Sensory Effect | Ray Kurzweil

Ray Kurzweil delivers "The Sensory Effect" keynote speech at the NY Tech Meetup. Ray talks about exponential growth, the role that information systems will play in the future of healthcare, artificial intelligence and additional topics.

Ray Kurzweil - "The Sensory Effect"

The 100,000-Student Classroom | Peter Norvig [TED]

In the fall of 2011 Peter Norvig taught a class with Sebastian Thrun on artificial intelligence at Stanford attended by 175 students in situ -- and over 100,000 via an interactive webcast. He shares what he learned about teaching to a global classroom.

Peter Norvig: The 100,000-student classroom

Thursday, June 21, 2012

A Date with History: 17 yr old Brittany Trilford Addresses World Leaders at the UN Earth Summit

Brittany Trilford Speech to UN Rio+20 Summit Opening Ceremony

Tena Koutou from New Zealand. My name is Brittany Trilford. I am seventeen years old, a child. Today, in this moment, I am all children, your children, the world’s three billion children. Think of me for these short minutes as half the world.

I stand here with fire in my heart. I’m confused and angry at the state of the world and I want us to work together now to change this. We are here to solve the problems that we have caused as a collective, to ensure that we have a future.

You and your governments have promised to reduce poverty and sustain our environment. You have already promised to combat climate change, ensure clean water and food security. Multi-national corporations have already pledged to respect the environment, green their production, compensate for their pollution. These promises have been made and yet, still, our future is in danger.

We are all aware that time is ticking and is quickly running out. You have 72 hours to decide the fate of your children, my children, my children’s children. And I start the clock now… tck tck tck.

Let us think back to twenty years ago - well before I was even an inkling in my parents’ eyes - back to here, to Rio, where people met at the first Earth Summit in 1992. People at this Summit knew there needed to be change. All of our systems were failing and collapsing around us. These people came together to acknowledge these challenges to work for something better, commit to something better.

They made great promises, promises that, when I read them, still leave me feeling hopeful. These promises are left – not broken, but empty. How can that be? When all around us is the knowledge that offers us solutions. Nature as a design tool offers insight into systems that are whole, complete, that give life, create value, allow
progress, transformation, change.

We, the next generation, demand change. We demand action so that we have a future and have it guaranteed. We trust that you will, in the next 72 hours, put our interests ahead of all other interests and boldly do the right thing. Please, lead. I want leaders who lead.

I am here to fight for my future. That is why I’m here. I would like to end by asking you to consider why you’re here and what you can do. Are you here to save face? Or are you here to save us?

A Date with History: 17 yr old Brittany Trilford addresses world leaders at the UN Earth Summit

Organisms as Applications | Andrew Hessel | Synthetic Biology

Presentación de Andrew Hessel en el seminario "Tecnologías exponenciales para resolver los grandes problemas de la humanidad" desarrollado por el Centro de Innovación TECHO y Movistar Innova en Marzo de 2012.

Presentación de Andrew Hessel en Seminario CI-Movistar Innova

Incredibly Young and Smart Entrepreneurs Aiming for the Moonshot | 20 Under 20 | Thiel Fellowship

The dropouts, the misfits and wunkerkinds. The young and the fearless. They come every year to Silicon Valley. And mostly, they have come on their own.

It wasn’t until last year there that was a dedicated program for them. The famously contrarian and libertarian investor Peter Thiel created a fellowship for twenty people under the age of 20. The mission was to find uncommonly brilliant young people and get them to forgo the traditional path of college. The first class went on to start companies, raise several million dollars in venture capital or work on complex technical problems in biology.

Now Thiel’s foundation is on its second year. What the foundation looks for actually hasn’t changed all that much, the foundation’s co-founder Jim O’Neill tells us. The application form still has Thiel’s very famous interview question, which probes for a person’s capacity to think independently. He asks, “Tell us something about the world that you think is true that most people think is not true.”

There is also another variant of this question later on, which asks: “What is one thing that exists today that you would like to make absurd in 20 years?”

“We’re looking for intellectual independence and a determination to make something new and to make it work,” O’Neill says.

Some of fellows are exactly what you would expect — if anything predictable could ever come out of this program. There is the youngest person to have ever created nuclear fusion, Taylor Wilson. (An excellent story about him from Popular Science is right here.)

There is also a pair that’s working on biomedical imaging with the vision that it could one day be precise enough to spot as few as 10 cancer cells.

“Doctors often use mainly qualitative information in diagnosing disease,” Anand Gupta said in a presentation at the San Francisco Palace of the Fine Arts earlier this year. “Biomedical imaging has the density, structure and information to provide more rational tools to find disease.”

Yet another fellow, Harvard student Connor Zwick, has an iPhone app that makes enough to bring him a livable income. It’s a Flashcards app, which seems simple at the surface level. But he thinks about it as a learning network that responds and adapts to how people progress with intaking new material.

Another fellow Chris Olah got hooked on 3D printing when he was a teenager spending time at Toronto’s Hack Lab. He had already dropped out of college.

“The time obligations of university made it difficult to work on projects that I wanted to pursue,” he said in an interview. “There are only so many hours in a day.”

Some of the projects can easily be turned into consumer web startups, while others are more research-oriented. Some problems the fellows are attacking can be solved by brute technical force, while others are far more political like health care. Ilya Vakhutinsky, for example, is trying to automate home care after working on data visualization at a plasma physics laboratory.

Even though Thiel believes that we may be in a “higher education bubble,” there aren’t any plans to scale the fellowship beyond 20 people a year. O’Neill says it should inspire others to take the same leap in thinking critically about whether they need a university degree or not.

Here are the fellows:

Clay Allsopp
(20, Raleigh, NC) thinks people should be able to forget about technology and simply focus on being creative. His start-up, Apptory, helps individuals and businesses create and distribute content for touch-screen devices, using an intuitive, easy-to-understand interface.

Dylan Field
(20, Penngrove, CA) envisions a world where people define themselves by what they create rather than what they consume. Currently stopped out of Brown University, Field is working with his former classmate Evan Wallace on making better creative tools.

Kettner Griswold
(19, Bethesda, MD) and Paul Sebexen (19, Staten Island, NY) are stopping out of school to work on a benchtop genome synthesis device, which will allow individual laboratories and medical practices to synthesize large genetic constructs in-house for an unprecedented low recurring cost. This product would massively disrupt the fields of biotechnology and health care, fueling innovation and stimulating interest and research sector-wide.

Anand Gupta
(20, Palo Alto, CA) and Tony Ho (19, San Jose, CA) are using their expertise in biology and computer science to transform the way doctors diagnose patients. Their service will enable doctors and researchers to receive quantitative analysis of biomedical images, allowing for faster, more accurate diagnoses of complex diseases – and more lives saved.

Spencer Hewett
(20, Bryan Mawr, PA) has an insatiable passion for inventing that extends far beyond the confines of one particular industry. As a Thiel fellow, he will focus on No-Q, a fusion of radio-frequency identification (RFID) and mobile payment technology that will eliminate both checkout lines and shoplifting.

Yoonseo Kang
(18, Mississauga, ON, Canada) recognizes that society’s potential for innovation and abundance can only be achieved if knowledge and the factors of production are accessible for everyone. With that in mind, Yoonseo sees open-source hardware as the key for enabling communities around the world to vastly increase their productive potential and together engage in strategic economic collaboration. To that end, he is working with Open Source Ecology to develop the Global Village Construction Set, the 50 industrial machines that it takes to build a civilization with modern comforts.

Jimmy Koppel
(20, St. Louis, MO) has a passion for software engineering – and a plan to make it much more efficient. Modifying software today often involves hundreds of thousands of small, similar adjustments that require a great deal of time and money. James will fix that problem by developing new tools to automate the process.

Ryan Lelek (19, Schererville, IN) developed a passion for entrepreneurship at the age of 15, when he established his first “instant streaming” start-up. Now he’s dedicated to disrupting the computer industry, using new advances in hardware, software, and network technology. As a Thiel Fellow, he’ll continue to change the world by creating simple technology tools that empower people.

Ritik Malhotra
(19, San Jose, CA) Ritik began programming at age 8; started a popular web forum at the age of 12 that grew to over 32,000 members; and ran a web hosting and software consultancy business at the age of 13, garnering over a 600x return on his initial investment. Now he wants to provide a streamlined way of discovering, sharing, and distributing content over Facebook, Twitter, and other social media services. As a Thiel Fellow, he’ll first work to build a service that allows users to share interesting media, scraped from all around the web, focusing primarily on user growth in order to build a thriving community.

Chris Olah
(19, Toronto, ON, Canada) wants to use 3D printing to reduce the scope of scarcity. His goal: empower anyone with a 3D printer to make educational aids, basic scientific equipment, and tools that improve their quality of life. He is currently working on a project called ImplicitCAD, which is a math-based attempt to reinvent computer-aided design and make it more affordable.

Semon Rezchikov
(18, Hillsborough, NJ) is eager to explore how synthetic biology, nanotechnology, and social network dynamics intersect. As a Thiel Fellow, he wants to develop more flexible bioautomation technologies to improve the design cycle speed, and then use those technologies to create a library of truly reliable parts – making synthetic biology more like engineering and less like science.

Omar Rizwan (18, East Hanover, NJ) wants to change the world through the control and analysis of information. Specifically, he plans to speed up progress in the field of artificial intelligence by working on the analysis of big data sets. He will aggregate large sets of data from many different Internet sources and use them to tease out trends and draw conclusions.

Tara Seshan (19, New Fairfield, CT) is dedicated to improving public health worldwide, using technology, simple solutions, and community-based change. To that end, she is developing a tool that influences analysis of data, monitoring and evaluation, and public health decision making. As a Thiel Fellow, Tara will explore developing tools that enhance public health programs that can be implemented in low-resource settings.

Noor Siddiqui (17, Clifton, VA) is inspired to galvanize people for the good of others. As a Thiel Fellow, she will work to give students across the globe access to upward mobility – and industries access to an untapped work force – with the goal of mobilizing one billion people in the next decade.

Charlie Stigler
(19, Pacific Palisades, CA) has years of experience as an entrepreneur and engineer, having written the popular open-source study application, SelfControl, and founded two Web start-ups. Now he’s working on Zaption, an application that improves the usual workflow for educators and collaborators by allowing video to be integrated into interactive Web experiences and studies. He believes this technology can help solve fundamental problems, starting with that of the U.S. education system.

Ilya Vakhutinsky (20, Fair Lawn, NJ) wants to revolutionize the way the technology and health care communities work together. He is working to create a more open and transparent health care system, drastically lowering the cost of care and empowering patients to make better decisions.

Taylor Wilson (18, Texarkana, AR) became the youngest person in history to create nuclear fusion. Since then, he has produced the lowest-cost and lowest-dose active interrogation system for the detection of enriched uranium ever developed. As a Thiel Fellow, Taylor will focus on both counter-terrorism and the production of medical isotopes for use in the diagnosis and treatment of cancer.

Connor Zwick (18, Waukesha, WI) is passionate about education – which is why he has set out to revolutionize our country’s antiquated system using technology. As a Thiel Fellow, he will focus on Flashcards+, a mobile educational platform with a base of over 1.5 million downloads that allows anyone to learn anything using crowd sourced generated content from a database of more than 400 million flashcards.

Source: Nuclear Fusion, 3D Printing, Biomedical Imaging: What Thiel’s New 20 Under 20 Fellows Are Attacking

Read also: What Happened to the Future? by Bruce Gibney | Founders Fund

Wednesday, June 20, 2012

MUST WATCH! THRIVE: What On Earth Will It Take?

THRIVE is an unconventional documentary that lifts the veil on what's REALLY going on in our world by following the money upstream -- uncovering the global consolidation of power in nearly every aspect of our lives. Weaving together breakthroughs in science, consciousness and activism, THRIVE offers real solutions, empowering us with unprecedented and bold strategies for reclaiming our lives and our future.

Visit: Thrive

THRIVE: What On Earth Will It Take?

Saturday, June 16, 2012

What Money Can't Buy - The Moral Limit of Markets | London School of Economics

Speaker: Professor Michael Sandel
Discussants: Stephanie Flanders, Professor Julian Le Grand, Rt Revd Peter Selby
Chair: Ann Pettifor
Recorded on 23 May 2012 in St Paul's Cathedral, London.

Is there something wrong with a world in which everything is for sale? If so, how can we prevent market values from reaching into spheres of life where they don't belong? What are the moral limits of markets?

Noted public philosopher and Harvard professor Michael J. Sandel will explore some of these pressing questions with responses from Stephanie Flanders, Professor Julian Le Grand and Bishop Peter Selby. St Paul's Cathedral is delighted to host a discussion on this vital topic within a sacred space in order to explore the intersection between faith, morality and markets and the power that money has in our lives. Questions and comments from the audience will be taken.

Michael J. Sandel is the Anne T. and Robert M. Bass Professor of Government at Harvard University, where he has taught political philosophy since 1980. His recent book, Justice: What's the Right Thing to Do? relates the big questions of political philosophy to the most vexing issues of our time. His new book, What Money Can't Buy: The Moral Limits of Markets, has just been published. At Harvard, Sandel's courses include Ethics, Biotechnology, and the Future of Human Nature, Ethics, Economics, and Law, and Globalization and Its Critics. His undergraduate course, Justice, has enrolled over 15,000 students, and is the first Harvard course to be made freely available online and on public television. A recipient of the Harvard-Radcliffe Phi Beta Kappa Teaching Prize, Sandel was recognised by the American Political Science Association in 2008 for a career of excellence in teaching. He has been a visiting professor at the Sorbonne (Paris), delivered the Tanner Lectures on Human Values at Oxford University, and in 2009 delivered the BBC Reith Lectures. In 2010, China Newsweek named him the "most influential foreign figure of the year" in China.

Stephanie Flanders has been a reporter at the New York Times (2001); a speech writer and senior advisor to the US Treasury Secretary (1997-2001); a Financial Times leader-writer and columnist (1993-7); and an economist at the Institute for Fiscal Studies and London Business School. She became BBC economics editor in April 2008. She has won numerous awards, including the 2010 Harold Wincott Award for online journalism. She blogs at Stephanomics.

Julian Le Grand is the Richard Titmuss Professor of Social Policy at the London School of Economics. He is an Honorary Fellow of the Faculty of Public Health Medicine, a Trustee of the Kings Fund, and a Founding Academician of the Academy of Learned Societies for the Social Sciences. He has an honorary doctorate from the University of Sussex. In 2003-5 he was seconded to No 10 Downing St as a senior policy adviser to the Prime Minister. As well as his position at No 10, he has acted as an adviser to the President of the European Commission, the World Bank, the World Health Organisation, the OECD, Her Majesty's Treasury and the UK Departments of Health and Work and Pensions.

Dr Peter Selby was Bishop of Worcester from 1997 until 2007 and in 2001 was also appointed to Bishop of Prisons, a post from which he also retired in September 2007. Dr Selby's interest in prisons is long-standing, and he is himself the son of refugees, and served for a time as the Chair of the Asylum Committee of the Refugee Council. His concern for prisons and the criminal justice system extends back to 1965 when he served as an interim chaplain at San Quentin, California, as part of his ministerial training.

Ann Pettifor is director of Policy Research in Macro-Economics (PriME), and a senior fellow of the New Economics Foundation. She is the author of The Coming First World Debt Crisis which was published in 2006

What Money Can't Buy - the moral limit of markets

Tuesday, June 12, 2012

The Integrated Circuit of Biology | Stephen Quake [TEDx]

Stephen Quake studied physics (BS '91) and mathematics (MS '91) at Stanford University before earning his doctorate in physics from Oxford University as a Marshall scholar ('94). Thereafter, as a postdoc in Nobel Laureate Steven Chu's group at Stanford, he developed techniques to manipulate single DNA molecules with optical tweezers. In 1996 Steve joined the faculty of Caltech, where he was ultimately appointed Thomas and Doris Everhart Professor of Applied Physics and Physics. In 2004 he returned to Stanford to help launch a new Department of Bioengineering, where he is the Lee Otterson Professor and co-chair. Steve has received "Career" and "First" awards from the National Science Foundation and National Institutes of Health (NIH), was a Packard Fellow, was awarded an NIH Director's Pioneer Award, and is an investigator of the Howard Hughes Medical Institute. He is a founder and scientific advisory board chair of Fluidigm, Inc. and Helicos Biosciences, Inc.

TEDxCaltech - Stephen Quake - The Integrated Circuit of Biology

Saturday, June 9, 2012

MUST READ! John Maynard Keynes: A Vision for the Future or a Ghost from the Past?

(This paper was presented as the keynote address at the Seventh Annual Moral Foundations of Capitalism Conference hosted by the Clemson Institute for the Study of Capitalism in Clemson, South Carolina, on May 30, 2012)

The current economic crisis that has engulfed the United States and much of the rest of the world over the last few years, has seen a dramatic revival in the economic ideas and policy prescriptions of the most famous British economist of the 20th century, John Maynard Keynes. This has seemed surprising to some, since it was presumed that traditional Keynesian Economics was more or less relegated (to use Karl Marx's phrase) to "the dustbin of history."

After dominating the economics profession for more than a quarter of a century following the Second World War, Keynesianism had been challenged by various "counter-revolutions" in Macroeconomics beginning in the late 1960s and 1970s. They had taken the forms of Monetarism, Supply-Side Economics, New Classical or Rational Expectations Theory, New Keynesianism, and even Austrian Economics, following the awarding of the Nobel Prize to F. A. Hayek in the 1974.

The fact is, however, that neither Keynes nor his economics have ever been gone or replaced. Keynesian Economics has continued to dominate and hold sway over the way the vast majority of economists think about and analyze the nature of economy-wide fluctuations in employment and output.

The Legacy of Keynes's "Demand Management" Economics

It is the idea that government must manage and guide monetary and fiscal policy to assure full employment, a stable price level and to foster economic growth. Some of the terms of the debate may have changed over the last half-century or so, but the belief that it is the responsibility of government to control the supply of money and aggregate spending in the economy persist-s today just as much as it did in the 1940s.

The modern conception of "demand management" is a legacy of John Maynard Keynes's 1936 book The General Theory of Employment, Interest and Money. The impact of Keynes's book and its message should not be underestimated. Its two central tenets are the claim that the market economy is inherently unstable and likely to generate prolonged periods of unemployment and underutilized productive capacity, and the argument that governments should take responsibility to counteract these periods of economic depression with the various monetary and fiscal policy tools at their disposal. This was bolstered by Keynes's belief that policy managers guided by the economic theory developed in his book could have the knowledge and ability to do so successfully.

No less important in propagating his idea of demand management economic policy was Keynes's literary ability to persuade. As Leland Yeager expressed it, "Keynes saw and provided what would gain attention − harsh polemics, sardonic passages, bits of esoteric and shocking doctrine." Keynes possessed an arrogant amount of self-confidence and belief in his ability to influence public opinion and policy.

Austrian economist Friedrich A. Hayek, who knew Keynes fairly well, referred to his "supreme confidence . . . in his power to play on public opinion as a supreme master plays his instrument." On the last occasion he saw Keynes in early 1946 (shortly before Keynes' death from a heart attack), Hayek asked him if he wasn't concerned that some of his followers were taking his ideas to extremes. Keynes replied that Hayek did not need to be worried. If it became necessary, Hayek could "rely upon him again quickly to swing round pubic opinion—and he indicated by a quick movement of his hand how rapidly that would be done. But three months later he was dead."

Even today, respected economists argue that Keynesian-style macroeconomic intervention is needed as a balancing rod against instability in the market economy. One example is Robert Skidelsky, the author of a widely acclaimed multi-volume biography of Keynes and the recently published, Keynes: The Return of the Master (2009)?.

A few years ago Professor Skidelsky argued that capitalism has at its heart an instability of financial institutions and, "This insight by Keynes into the causes and consequences of financial crises remains supremely valuable." In any significant economic downturn, government should begin "pumping money into the economy, like pumping air into a deflating balloon."

Keynes first established his reputation as a public figure in the immediate aftermath of the First World War. During war, he had worked in the British Treasury. In 1919 he served as an adviser to the British delegation in Versailles. But frustrated with the attitude of the Allied powers toward Germany in setting the terms of the peace, Keynes returned to Britain and published The Economic Consequences of the Peace, in which he severely criticized the peace settlement.

In 1923, he published A Tract on Monetary Reform, in which he called for the end of the gold standard, suggesting a national man-aged paper currency in its place. He strongly opposed Great Britain's return to the gold standard in the mid-1920s at the prewar gold parity. He argued that governments should have discretionary power over the management of a nation's monetary system to as-sure a desired target level of employment, output, and prices.

In 1930 Keynes published A Treatise on Money, a two-volume work that he hoped would establish his reputation as a leading monetary theorist of his time instead of only an influential economic policy analyst. However, over the next two years a series of critical reviews appeared, written by some of the most respected economists of the day. The majority of them demonstrated serious problems with either the premises or the reasoning with which Keynes attempted to build his theory on the relationships between savings, investment, the interest rate, and the aggregate levels of output and prices. But the most devastating criticisms were made by a young Friedrich A. Hayek in a two-part review essay that appeared in 1931-1932.

Hayek argued that Keynes seemed to understood neither the nature of a market economy in general nor the significance and role of the rate of interest in maintaining a proper balance between savings and investment for economic stability. At the most fundamental level Hayek argued that Keynes's method of aggregating the individual supplies and demands for a multitude of goods into a small number of macroeconomic "totals" distorted any real understanding of the relative price and production relationships in and between actual markets. "Mr. Keynes's aggregates conceal the most fundamental mechanisms of change," Hayek said.

Keynes devoted the next five years to reconstructing his argument, the re-sult being his most famous and influential work, The General Theory of Employment, Interest and Money, published in 1936.

Keynes argued that the Great Depression was caused by inescapable irrationalities in the market economy that not only created the conditions for the severity of the economic downturn, but necessitated activist monetary and fiscal policies by government to restore and maintain full employment and maximum utilization of resource and output capabilities. For the next half-century Keynes's ideas, as presented in The General Theory, became the cornerstone of macroeconomic theorizing and policy-making throughout the Western world, and continue to dominate public policy thinking today.

John Maynard Keynes and the "New Liberalism"

What where the wider philosophical principles and ideas behind Keynes views about a market society? In 1925, John Maynard Keynes delivered a lecture at Cambridge titled "Am I a Liberal?" He rejected any thought of considering himself a conservative because conservatism "leads nowhere; it satisfies no ideal; it conforms to no intellectual standard; it is not even safe, or calculated to preserve from spoilers that degree of civilization which we have already attained."

Keynes then asked whether he should consider joining the Labor Party. He admitted, "Superficially that is more attractive," but rejected it as well. "To begin with, it is a class party, and the class is not my class," Keynes argued. Furthermore, he doubted the intellectual ability of those controlling the Labor Party, believing that it was dominated by "those who do not know at all what they are talking about."

This led Keynes to conclude that all things considered, "the Liberal Party is still the best instrument of future progress—if only it has strong leadership and the right program." But the Liberal Party of Great Britain could serve a positive role in society only if it gave up "old-fashioned individualism and laissez-faire," which he considered "the dead-wood of the past." Instead, what was needed was a "New Liberalism" that would involve "new wisdom for a new age." What this entailed, in Keynes's view, was "the transition from economic anarchy to a regime which deliberately aims at control-ling and directing economic forces in the interests of social justice and social stability."

A year later, in 1926, Keynes delivered a lecture in Berlin, Germany on, "The End of Laissez-Faire," in which he argued, "It is not true that individuals possess a prescriptive 'natural liberty' in their economic activities. There is no compact conferring perpetual rights on those who Have or on those who Acquire." Nor could it be presumed that private individuals pursuing their enlightened self-interest would always serve the common good.

In a world of "uncertainty and ignorance" that sometimes resulted in periods of unemployment, Keynes suggested "the cure for these things is partly to be sought in the deliberate control of the currency and of credit by a central institution." And he believed that "some coordinated act of intelligent judgment" by the government was required to determine the amount of savings in the society and how much of the nation's savings should be permitted to be invested in foreign markets as well as the relative distribution of that domestic savings among "the most nationally productive channels."

Finally, Keynes argued that government had to undertake a "national policy" concerning the most appropriate size of the country's population, "and having settled this policy, we must take steps to carry it into operation." Furthermore, Keynes pro-posed serious consideration of adopting a policy of eugenics: "The time may arrive a little later when the community as a whole must pay attention to the innate quality as well as to the mere numbers of its future members."

This agenda for an activist and planning government did not make Keynes a socialist or a communist in any strict sense of these words. Indeed, after a visit to Soviet Russia he published an essay in 1925 strongly critical of the Bolshevik regime. "For me, brought up in a free air undarkened by the horrors of religion, with nothing to be afraid of, Red Russia holds too much which is detestable . . . I am not ready for a creed which does not care how much it destroys the liberty and security of daily life, which uses deliberately the weapons of persecution, destruction, and international strife . . . It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here."

But where Soviet Russia had an advantage over the West, Keynes argued, was in its almost religious revolutionary fervor, in its romanticism of the common working man, and its condemnation of money-making. Indeed, the Soviet attempt to stamp out the "money-making mentality" was, in Keynes's mind, "a tremendous innovation." Capitalist society, too, in Keynes's view, had to find a moral foundation above self-interested "love of money."

What Keynes considered Soviet Russia's superiority over capitalist society, therefore, was its moral high ground in opposition to capitalist individualism. And he also believed that "any piece of useful economic technique" developed in Soviet Russia could easily be grafted onto a Western economy following his model of a New Liberalism "with equal or greater success" than in the Soviet Union.

That Keynes had great confidence in an a state-managed system of "useful economic technique" was clearly seen in the following comparison he made, also in the mid-1920s, between a regulated wage system in the name of "fairness" between social classes and market-determined wages, which he condemned as "the economic juggernaut." Said Keynes:

"The truth is that we stand mid-way between two theories of economic society. The one theory maintains that wages should be fixed by reference to what is "fair" and "reasonable" as between classes. The other theory – the theory of the economic juggernaut – is that wages should be settled by economic pressure, otherwise called "hard facts," and that our vast machine should crash along, with regard only to its equilibrium as a whole, and without attention to the change in consequences of the journey to individual groups."

With the coming of the Great Depression, however, Keynes once again rejected the idea of a free market solution to the rising unemployment and idled industry that intensified following the crash of 1929. In his writings of the 1920s and early 1930s, advocating a "New Liberalism" and a deficit-spending government to "solve" the Great Depression, were the premises for the Keynesian Revolution that would be officially inaugurated with the publication of The General Theory of Employment, Interest and Money. With those ideas, Keynes produced one of the greatest challenges to the free market economy in the twentieth century.

Keynes and Keynesian Economics

The General Theory of Employment, Interest and Money was published on February 4, 1936. The essence of Keynes's theory was to show that a market economy, when left to its own devices, possessed no inherent self-correcting mechanism to return to "full employment" once the economic system has fallen into a depression.

At the heart of his approach was the belief that he had demonstrated an error in Say's Law. Named after the nineteenth-century French economist Jean-Baptiste Say, the fundamental idea is that individuals produce so they can consume. An individual produces either to consume what he has manufactured himself or to sell it on the market to acquire the means to purchase what others have for sale.

Or as the classical economist David Ricardo expressed it, "By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person . . . Productions are always bought by productions, or by services; money is only the medium by which the exchange is effected."

Keynes argued that there was no certainty that those who had sold goods or their labor services on the market will necessarily turn around and spend the full amount that they had earned on the goods and services offered by others. Hence, total expenditures on goods could be less than total income previously earned in the manufacture of those goods. This, in turn, meant that the total receipts received by firms selling goods in the market could be less than the expenses incurred in bringing those goods to market. With total sales receipts being less than total business expenses, businessmen would have no recourse other than to cut back on both output and the number of workers employed to minimize losses during this period of "bad business."

But, Keynes argued, this would merely intensify the problem of unemployment and falling output. As workers were laid off, their incomes would necessarily go down. With less income to spend, the unemployed would cut back on their consumption expenditures. This would result in an additional falling off of demand for goods and services offered on the market, widening the circle of businesses that find their sales receipts declining relative to their costs of production. And this would set off a new round of cuts in output and employment, setting in motion a cumulative contraction in production and jobs.

Why wouldn't workers accept lower money wages to make themselves more attractive to rehire when market demand falls? Because, Keynes said, workers suffer from "money illusion." If prices for goods and services decrease because consumer demand is falling off, then workers could accept a lower money wage and be no worse off in real buying terms (that is, if the cut in wages was on average no greater than the decrease in the average level of prices). But workers, Keynes argued, generally think only in terms of money wages, not real wages (that is, what their money income represents in real purchasing power on the market). Thus, workers often would rather accept unemployment than a cut in their money wage.

If consumers demand fewer final goods and services on the market, this necessarily means that they are saving more. Why wouldn't this unconsumed income merely be spent hiring labor and purchasing resources in a different way, in the form of greater investment, as savers have more to lend to potential borrowers at a lower rate of interest? Keynes's response was to insist that the motives of savers and investors were not the same. Income-earners might very well desire to consume a smaller fraction of their income, save more, and offer it out to borrowers at interest. But there was no certainty, he insisted, that businessmen would be willing to borrow that greater savings and use it to hire labor to make goods for sale in the future.

Since the future is uncertain and tomorrow can be radically different from today, Keynes stated, businessmen easily fall under the spell of unpredictable waves of optimism and pessimism that raise and lower their interest and willingness to borrow and invest. A decrease in the demand to consume today by income-earners may be motivated by a desire to increase their consumption in the future out of their savings. But businessmen cannot know when in the future those income-earners will want to increase their consumption, nor what particular goods will be in greater demand when that day comes. As a result, the decrease in consumer demand for present production merely serves to decrease the business-man's current incentives for investment activity today as well.

If for some reason there were to be a wave of business pessimism resulting in a decrease in the demand for investment borrowing, this should result in a decrease in the rate of interest. Such a decrease because of a fall in investment demand should make savings less attractive, since less interest income is now to be earned by lending a part of one's income. As a result, consumer spending should rise as savings goes down. Thus, while investment spending may be slackening off, greater consumer spending should make up the difference to assure a "full employment" demand for society's labor and resources.

But Keynes doesn't allow this to happen because of what he calls the "fundamental psychological law" of the "propensity to consume." As income rises, he says, consumption spending out of income also tends to rise, but less than the increase in income. Over time, therefore, as incomes rise a larger and larger percentage is saved.

In The General Theory, Keynes listed a variety of what he called the "objective" and "subjective" factors that he thought influenced people's decisions to consume out of income. On the "objective" side: a windfall profit; a change in the rate of interest; a change in expectations about future income. On the "subjective" side, he listed "Enjoyment, Shortsightedness, Generosity, Miscalculation, Ostentation and Extravagance." He merely asserts that the "objective" factors have little influence on how much to consume out of a given amount of income—including a change in the rate of interest. And the "subjective" factors are basically invariant, being "habits formed by race, education, convention, religion and current morals . . . and the established standards of life."

Indeed, Keynes reaches the peculiar conclusion that because men's wants are basically determined and fixed by their social and cultural environment and only change very slowly, "The greater . . . the consumption for which we have provided in advance, the more difficult it is to find something further to provide for in advance." That is, men run out of wants for which they would wish investment to be undertaken; the resources in the society − including labor − are threatening to become greater than the demand for their employment.

Keynes, in other words, turns the most fundamental concept in economics on its head. Instead of our wants and desires always tending to exceed the means at our disposal to satisfy them, man is confronting a "post-scarcity" world in which the means at our disposal are becoming greater than the ends for which they could be applied. The crisis of society is a crisis of abundance! The richer we become, the less work we have for people to do because, in Keynes's vision, man's capacity and desire for imagining new and different ways to improve his life is finite. The economic problem is that we are too well-off.

As a consequence, unspent income can pile up as unused and uninvested savings; and what investment is undertaken can erratically fluctuate due to what Keynes called the "animal spirits" of businessmen's irrational psychology concerning an uncertain future. The free market economy, therefore, is plagued with the constant danger of waves of booms and busts, with prolonged periods of high unemployment and idle factories. The society's problem stems from the fact that people consume too little and save too much to assure jobs for all who desire to work at the money wages that have come to prevail in the market, and which workers refuse to adjust downward in the face of any decline in the demand for their services.

Only one institution can step in and serve as the stabilizing mechanism to maintain full employment and steady production: the government, through various activist monetary and fiscal policies.

In Keynes's mind the only remedy was for government to step in and put those unused savings to work through deficit spending to stimulate investment activity. How the government spent those borrowed funds did not matter. Even "public works of doubtful utility," Keynes said, were useful: "Pyramid-building, earthquakes, even wars may serve to increase wealth," as long as they create employment. "It would, indeed, be more sensible to build houses and the like," said Keynes, "but if there are political or practical difficulties in the way of this, the above would be better than nothing."

Nor could the private sector be trusted to maintain any reasonable level of investment activity to provide employment. The uncertainties of the future, as we saw, created "animal spirits" among businessmen that produced unpredictable waves of optimism and pessimism that generated fluctuations in the level of production and employment. Luckily, government could fill the gap. Furthermore, while businessmen were emotional and shortsighted, the State had the ability to calmly calculate the long run, true value and worth of investment opportunities "on the basis of the general social advantage."

Indeed, Keynes expected the government would "take on ever greater responsibility for directly organizing investment." In the future, said Keynes, "I conceive, therefore, that a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment." As the profitability of private investment dried up over time, society would see "the euthanasia of the rentier" and "the euthanasia of the cumulative oppressive power of the capitalist" to exploit for his own benefit the scarcity of capital. This "assisted suicide" of the interest-earning and capitalist groups would not require any revolutionary upheaval. No, "the necessary measures of socialization can be introduced gradually and without a break in the general traditions of the society."

This is the essence of Keynes' economics.

Continue reading (Long Read) - John Maynard Keynes: A Vision for the Future or a Ghost from the Past?

The Quantified Self: Within 20 Years No Doctors Needed | Yuri van Geest [TEDx]

More openness, more measurement, more technology! Yuri van Geest believes we are approaching a singularity where we will switch from a local, linear, world of scarce resources to a global, exponential world of abundance. We can already measure many aspects of ourselves from our heart rate to our DNA profile. This quantified self is the interface between the external world and our internal self and could lead to everything from personalized services based on our genomes to the end of healthcare as we know it.

Yuri van Geest specializes in mobile Internet, biotech, singularity and visions of the future. His key themes are Innovation and Inspiration and he's experienced as an international speaker on these subjects. Recent examples are his speeches at Mobilize in San Francisco, Innovation Platform and Nijenrode MBA.
Yuri van Geest is considered to be one of the 100 best marketers of the Netherlands. He also is the exclusive ambassador of Netherlands for the Singularity University (Silicon Valley) driven by NASA and Google and CO-founder of TEDxAmsterdam.

TEDxBrainport 2012 - Yuri van Geest - The quantified self: within 20 years no doctors needed

Making the Food of the Future | Kjeld van Bommel [TEDx]

Kjeld van Bommel obtained his master's degree in Chemical Technology (1995) and subsequently his PhD in Supramolecular Chemistry (2000) from the University of Twente. After a postdoc in Japan he returned to the Netherlands and joined the Biomade Technology Foundation where he worked for 5 years on the development of gels for drug delivery and other applications. Since 2006 he has been working for TNO where he currently focuses on the development of various innovative food processing technologies, among which a food printer.

TEDxBrainport 2012 - Kjeld van Bommel - Making the food of the future

Friday, June 8, 2012

AUSTRALIA REVOLT - Thousands of Melbourne teachers on strike, close 84 Victorian schools

More than 10,000 teachers dressed in red and holding placards met at Melbourne's Hisense Arena today and marched to Parliament House, in what the Australian Education Union (AEU) said was the largest strike action in the state's history.

They are angry Premier Ted Baillieu has failed to honour his pre-election promise that Victorian teachers would be the nation's best paid.

Instead, the Government has offered to make 30 per cent of them the the highest paid within their level in Australia.

AEU Victoria president Mary Bluett said as many as 30,000 teachers across Victoria walked off the job and more than 150 schools closed today.

Teachers were steeling themselves for a long campaign, with further strike action likely in the third term, she said.

"They are very determined. They are preparing for a long and strategic campaign and committing themselves totally to that campaign for however long it takes,'' she told reporters.

Educators rejected performance pay, as teaching was a collaborative profession and overseas evidence suggested in many cases it worsens student outcomes, Ms Bluett said.

"You reject it, it won't happen - nadda, never,'' she told the cheering crowd.

"Teachers get the best outcomes when they are working together, not competing against each other.''

The union wants a 30 per cent pay rise over three years for teachers and support staff and a reduction in the number of teachers on contracts.

Minister for the Teaching Profession Peter Hall said 30 per cent of teachers would be the best paid within their category when compared with interstate colleagues.

He said under the Government's offer, teachers' salary range would span from $62,000 for graduates to $103,000.

Continue reading - Thousands of teachers strike for better pay, conditions and prepare for long IR campaign

Vatican bank-money, mystery and monsignors

For a financial institution whose ATMs offer Latin as a language option, whose offices are below the pope's windows and where tellers work under the gaze of crucifixes, one might assume the Vatican bank would have a dispensation from earthly travails.

But new judicial woes and internal upheavals at the bank, officially known as the Institute for Works of Religion (IOR), have raised new hurdles for the Vatican, just as it entered the final stretch of years of efforts to join the international club of financial righteousness.

On May 24, in the type of corporate drama rarely seen in the Vatican, Ettore Gotti Tedeschi, 67, the Italian president of the IOR, stormed out of the bank's executive offices.

He had spoken for 70 minutes non-stop in the boardroom to defend his management but left in a huff when it became clear that the other four board members were intent on approving a no-confidence motion against him.

Gotti Tedeschi, a conservative Catholic who heads the Italian retail unit of Spain's Banco Santander, went to his car in the Sixtus V Courtyard and left the Vatican via the nearby Saint Ann's Gate, receiving a customary crisp salute by a Swiss Guard oblivious to the drama that had just unfolded.

"During the deliberations, at 4:00 p.m., you abandoned the premises of the Institute without notice and without waiting to receive notice as to the results of the no-confidence vote," says a memorandum of the meeting seen by Reuters.

A day after the astonishing arrest of the pope's butler in an affair of purloined documents, and 30 years after a Vatican-linked financier known as "God's Banker" was found hanged from a bridge in London, the last thing the Holy See needed was more headlines about its bank, housed in the 15th-century Tower of Nicholas V, which Pope Benedict can see from his bedroom window.

For the past two years the Vatican, a 108-acre sovereign city-state surrounded by Rome, has been pulling out all the stops to make the "white list" of states that comply with international standards against tax fraud and money laundering.


Recently, the T-word - transparency - had become a mantra in the Vatican, which hoped a decision by European financial institutions would soon allow it to put its bank's often murky past behind it for good.

But since May 24, the T-word has been wielded as a weapon by both Gotti Tedeschi and those who showed him the door.

"I have paid the price for transparency," Gotti Tedeschi told Reuters just a few minutes after the no-confidence vote.

Board members who voted him out said the opposite was true.

"Categorically, this action by the board had nothing to do with his promotion of transparency," said Carl Anderson, one of the five external financial experts who make up the board.

"In fact, he was becoming an obstacle to greater transparency by his inability to work with senior management," Anderson, the American head of the worldwide Catholic charity group, Knights of Columbus, told Reuters.

Another person familiar with the matter said: "It was not a question of 'let's plot the demise of this man', as Italian newspapers might lead one to believe. There were many pleas from many people saying, 'Come on, you have to start acting like a president'."

The confidential memorandum listed nine reasons for the move against Gotti Tedeschi. It accused him of failure to carry out basic duties, failing to attend board meetings, "progressively erratic personal behavior" and "exhibiting lack of prudence and accuracy in comments regarding the institute".

But the memo gave a clue to something perhaps more worrying: "Failure to provide any formal explanation for the dissemination of documents last known to be in the president's possession."

The careful wording appeared to be used so as not to accuse Gotti Tedeschi of personally leaking documents but suggesting they may have reached the media through an intermediary.


Gotti Tedeschi's abrupt departure came one day after Pope Benedict's butler, Paolo Gabriele, was arrested in the most clamorous chapter so far of the so-called "Vatileaks" scandal, in which sensitive documents have appeared in the media since January, including some related to the IOR's transparency bid.

That bid began late in 2010, when the Vatican, the world's smallest state, with around 500 residents, drafted new financial transparency laws and set up internal regulations to make sure its bank and all other departments adhered to international standards on money laundering and terrorism financing.

The move was an attempt to make the "white list" of the Paris-based Financial Action Task Force (FATF), a body that lists states according to their compliance with those standards.

The Vatican established an internal Financial Information Authority (FIA) along the lines of other countries and promised to liaise with the FATF and law enforcement agencies.

But leaked documents appeared to show a conflict among top Vatican officials over just how transparent the bank should be about its dealings before the new laws came into force in 2011.

Continue reading - Reuters - Insight: Vatican bank-money, mystery and monsignors

Wednesday, June 6, 2012

MUST READ! George Soros Remarks on Euro Crisis

Remarks at the Festival of Economics, Trento Italy

June 02, 2012

Ever since the Crash of 2008 there has been a widespread recognition, both among economists and the general public, that economic theory has failed. But there is no consensus on the causes and the extent of that failure.

I believe that the failure is more profound than generally recognized. It goes back to the foundations of economic theory. Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly valid laws governing reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore.

Scientific method needs an independent criterion, by which the truth or validity of its theories can be judged. Natural phenomena constitute such a criterion; social phenomena do not. That is because natural phenomena consist of facts that unfold independently of any statements that relate to them. The facts then serve as objective evidence by which the validity of scientific theories can be judged. That has enabled natural science to produce amazing results.

Social events, by contrast, have thinking participants who have a will of their own. They are not detached observers but engaged decision makers whose decisions greatly influence the course of events. Therefore the events do not constitute an independent criterion by which participants can decide whether their views are valid. In the absence of an independent criterion people have to base their decisions not on knowledge but on an inherently biased and to greater or lesser extent distorted interpretation of reality. Their lack of perfect knowledge or fallibility introduces an element of indeterminacy into the course of events that is absent when the events relate to the behavior of inanimate objects. The resulting uncertainty hinders the social sciences in producing laws similar to Newton’s physics.

Economics, which became the most influential of the social sciences, sought to remove this handicap by taking an axiomatic approach similar to Euclid’s geometry. But Euclid’s axioms closely resembled reality while the theory of rational expectations and the efficient market hypothesis became far removed from it. Up to a point the axiomatic approach worked. For instance, the theory of perfect competition postulated perfect knowledge. But the postulate worked only as long as it was applied to the exchange of physical goods. When it came to production, as distinct from exchange, or to the use of money and credit, the postulate became untenable because the participants’ decisions involved the future and the future cannot be known until it has actually occurred.

I am not well qualified to criticize the theory of rational expectations and the efficient market hypothesis because as a market participant I considered them so unrealistic that I never bothered to study them. That is an indictment in itself but I shall leave a detailed critique of these theories to others.

Instead, I should like to put before you a radically different approach to financial markets. It was inspired by Karl Popper who taught me that people’s interpretation of reality never quite corresponds to reality itself. This led me to study the relationship between the two. I found a two-way connection between the participants’ thinking and the situations in which they participate. On the one hand people seek to understand the situation; that is the cognitive function. On the other, they seek to make an impact on the situation; I call that the causative or manipulative function. The two functions connect the thinking agents and the situations in which they participate in opposite directions. In the cognitive function the situation is supposed to determine the participants’ views; in the causative function the participants’ views are supposed to determine the outcome. When both functions are at work at the same time they interfere with each other. The two functions form a circular relationship or feedback loop. I call that feedback loop reflexivity. In a reflexive situation the participants’ views cannot correspond to reality because reality is not something independently given; it is contingent on the participants’ views and decisions. The decisions, in turn, cannot be based on knowledge alone; they must contain some bias or guess work about the future because the future is contingent on the participants’ decisions.

Fallibility and reflexivity are tied together like Siamese twins. Without fallibility there would be no reflexivity – although the opposite is not the case: people’s understanding would be imperfect even in the absence of reflexivity. Of the two twins, fallibility is the first born. Together, they ensure both a divergence between the participants’ view of reality and the actual state of affairs and a divergence between the participants’ expectations and the actual outcome.

Obviously, I did not discover reflexivity. Others had recognized it before me, often under a different name. Robert Merton wrote about self-fulfilling prophecies and the bandwagon effect, Keynes compared financial markets to a beauty contest where the participants had to guess who would be the most popular choice. But starting from fallibility and reflexivity I focused on a problem area, namely the role of misconceptions and misunderstandings in shaping the course of events that mainstream economics tried to ignore. This has made my interpretation of reality more realistic than the prevailing paradigm.

Among other things, I developed a model of a boom-bust process or bubble which is endogenous to financial markets, not the result of external shocks. According to my theory, financial bubbles are not a purely psychological phenomenon. They have two components: a trend that prevails in reality and a misinterpretation of that trend. A bubble can develop when the feedback is initially positive in the sense that both the trend and its biased interpretation are mutually reinforced. Eventually the gap between the trend and its biased interpretation grows so wide that it becomes unsustainable. After a twilight period both the bias and the trend are reversed and reinforce each other in the opposite direction. Bubbles are usually asymmetric in shape: booms develop slowly but the bust tends to be sudden and devastating. That is due to the use of leverage: price declines precipitate the forced liquidation of leveraged positions.

Well-formed financial bubbles always follow this pattern but the magnitude and duration of each phase is unpredictable. Moreover the process can be aborted at any stage so that well-formed financial bubbles occur rather infrequently.

At any moment of time there are myriads of feedback loops at work, some of which are positive, others negative. They interact with each other, producing the irregular price patterns that prevail most of the time; but on the rare occasions that bubbles develop to their full potential they tend to overshadow all other influences.

According to my theory financial markets may just as soon produce bubbles as tend toward equilibrium. Since bubbles disrupt financial markets, history has been punctuated by financial crises. Each crisis provoked a regulatory response. That is how central banking and financial regulations have evolved, in step with the markets themselves. Bubbles occur only intermittently but the interplay between markets and regulators is ongoing. Since both market participants and regulators act on the basis of imperfect knowledge the interplay between them is reflexive. Moreover reflexivity and fallibility are not confined to the financial markets; they also characterize other spheres of social life, particularly politics. Indeed, in light of the ongoing interaction between markets and regulators it is quite misleading to study financial markets in isolation. Behind the invisible hand of the market lies the visible hand of politics. Instead of pursuing timeless laws and models we ought to study events in their time bound context.

My interpretation of financial markets differs from the prevailing paradigm in many ways. I emphasize the role of misunderstandings and misconceptions in shaping the course of history. And I treat bubbles as largely unpredictable. The direction and its eventual reversal are predictable; the magnitude and duration of the various phases is not. I contend that taking fallibility as the starting point makes my conceptual framework more realistic. But at a price: the idea that laws or models of universal validity can predict the future must be abandoned.

Until recently, my interpretation of financial markets was either ignored or dismissed by academic economists. All this has changed since the crash of 2008. Reflexivity became recognized but, with the exception of Imperfect Knowledge Economics, the foundations of economic theory have not been subjected to the profound rethinking that I consider necessary. Reflexivity has been accommodated by speaking of multiple equilibria instead of a single one. But that is not enough. The fallibility of market participants, regulators, and economists must also be recognized. A truly dynamic situation cannot be understood by studying multiple equilibria. We need to study the process of change.

The euro crisis is particularly instructive in this regard. It demonstrates the role of misconceptions and a lack of understanding in shaping the course of history. The authorities didn’t understand the nature of the euro crisis; they thought it is a fiscal problem while it is more of a banking problem and a problem of competitiveness. And they applied the wrong remedy: you cannot reduce the debt burden by shrinking the economy, only by growing your way out of it. The crisis is still growing because of a failure to understand the dynamics of social change; policy measures that could have worked at one point in time were no longer sufficient by the time they were applied.

Since the euro crisis is currently exerting an overwhelming influence on the global economy I shall devote the rest of my talk to it. I must start with a warning: the discussion will take us beyond the confines of economic theory into politics and the dynamics of social change. But my conceptual framework based on the twin pillars of fallibility and reflexivity still applies. Reflexivity doesn’t always manifest itself in the form of bubbles. The reflexive interplay between imperfect markets and imperfect authorities goes on all the time while bubbles occur only infrequently. This is a rare occasion when the interaction exerts such a large influence that it casts its shadow on the global economy. How could this happen? My answer is that there is a bubble involved, after all, but it is not a financial but a political one. It relates to the political evolution of the European Union and it has led me to the conclusion that the euro crisis threatens to destroy the European Union. Let me explain.

I contend that the European Union itself is like a bubble. In the boom phase the EU was what the psychoanalyst David Tuckett calls a “fantastic object” – unreal but immensely attractive. The EU was the embodiment of an open society –an association of nations founded on the principles of democracy, human rights, and rule of law in which no nation or nationality would have a dominant position.

The process of integration was spearheaded by a small group of far sighted statesmen who practiced what Karl Popper called piecemeal social engineering. They recognized that perfection is unattainable; so they set limited objectives and firm timelines and then mobilized the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step. The process fed on its own success, very much like a financial bubble. That is how the Coal and Steel Community was gradually transformed into the European Union, step by step.

Germany used to be in the forefront of the effort. When the Soviet empire started to disintegrate, Germany’s leaders realized that reunification was possible only in the context of a more united Europe and they were willing to make considerable sacrifices to achieve it. When it came to bargaining they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement. At that time, German statesmen used to assert that Germany has no independent foreign policy, only a European one.

The process culminated with the Maastricht Treaty and the introduction of the euro. It was followed by a period of stagnation which, after the crash of 2008, turned into a process of disintegration. The first step was taken by Germany when, after the bankruptcy of Lehman Brothers, Angela Merkel declared that the virtual guarantee extended to other financial institutions should come from each country acting separately, not by Europe acting jointly. It took financial markets more than a year to realize the implication of that declaration, showing that they are not perfect.

The Maastricht Treaty was fundamentally flawed, demonstrating the fallibility of the authorities. Its main weakness was well known to its architects: it established a monetary union without a political union. The architects believed however, that when the need arose the political will could be generated to take the necessary steps towards a political union.

But the euro also had some other defects of which the architects were unaware and which are not fully understood even today. In retrospect it is now clear that the main source of trouble is that the member states of the euro have surrendered to the European Central Bank their rights to create fiat money. They did not realize what that entails – and neither did the European authorities. When the euro was introduced the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital; and the central bank accepted all government bonds at its discount window on equal terms. Commercial banks found it advantageous to accumulate the bonds of the weaker euro members in order to earn a few extra basis points. That is what caused interest rates to converge which in turn caused competitiveness to diverge. Germany, struggling with the burdens of reunification, undertook structural reforms and became more competitive. Other countries enjoyed housing and consumption booms on the back of cheap credit, making them less competitive. Then came the crash of 2008 which created conditions that were far removed from those prescribed by the Maastricht Treaty. Many governments had to shift bank liabilities on to their own balance sheets and engage in massive deficit spending. These countries found themselves in the position of a third world country that had become heavily indebted in a currency that it did not control. Due to the divergence in economic performance Europe became divided between creditor and debtor countries. This is having far reaching political implications to which I will revert.

It took some time for the financial markets to discover that government bonds which had been considered riskless are subject to speculative attack and may actually default; but when they did, risk premiums rose dramatically. This rendered commercial banks whose balance sheets were loaded with those bonds potentially insolvent. And that constituted the two main components of the problem confronting us today: a sovereign debt crisis and a banking crisis which are closely interlinked.

The eurozone is now repeating what had often happened in the global financial system. There is a close parallel between the euro crisis and the international banking crisis that erupted in 1982. Then the international financial authorities did whatever was necessary to protect the banking system: they inflicted hardship on the periphery in order to protect the center. Now Germany and the other creditor countries are unknowingly playing the same role. The details differ but the idea is the same: the creditors are in effect shifting the burden of adjustment on to the debtor countries and avoiding their own responsibility for the imbalances. Interestingly, the terms “center” and “periphery” have crept into usage almost unnoticed. Just as in the 1980’s all the blame and burden is falling on the “periphery” and the responsibility of the “center” has never been properly acknowledged. Yet in the euro crisis the responsibility of the center is even greater than it was in 1982. The “center” is responsible for designing a flawed system, enacting flawed treaties, pursuing flawed policies and always doing too little too late. In the 1980’s Latin America suffered a lost decade; a similar fate now awaits Europe. That is the responsibility that Germany and the other creditor countries need to acknowledge. But there is now sign of this happening.

The European authorities had little understanding of what was happening. They were prepared to deal with fiscal problems but only Greece qualified as a fiscal crisis; the rest of Europe suffered from a banking crisis and a divergence in competitiveness which gave rise to a balance of payments crisis. The authorities did not even understand the nature of the problem, let alone see a solution. So they tried to buy time.

Usually that works. Financial panics subside and the authorities realize a profit on their intervention. But not this time because the financial problems were reinforced by a process of political disintegration. While the European Union was being created, the leadership was in the forefront of further integration; but after the outbreak of the financial crisis the authorities became wedded to preserving the status quo. This has forced all those who consider the status quo unsustainable or intolerable into an anti-European posture. That is the political dynamic that makes the disintegration of the European Union just as self-reinforcing as its creation has been. That is the political bubble I was talking about.

At the onset of the crisis a breakup of the euro was inconceivable: the assets and liabilities denominated in a common currency were so intermingled that a breakup would have led to an uncontrollable meltdown. But as the crisis progressed the financial system has been progressively reordered along national lines. This trend has gathered momentum in recent months. The Long Term Refinancing Operation (LTRO) undertaken by the European Central Bank enabled Spanish and Italian banks to engage in a very profitable and low risk arbitrage by buying the bonds of their own countries. And other investors have been actively divesting themselves of the sovereign debt of the periphery countries.

If this continued for a few more years a break-up of the euro would become possible without a meltdown – the omelet could be unscrambled – but it would leave the central banks of the creditor countries with large claims against the central banks of the debtor countries which would be difficult to collect. This is due to an arcane problem in the euro clearing system called Target2. In contrast to the clearing system of the Federal Reserve, which is settled annually, Target2 accumulates the imbalances. This did not create a problem as long as the interbank system was functioning because the banks settled the imbalances themselves through the interbank market. But the interbank market has not functioned properly since 2007 and the banks relied increasingly on the Target system. And since the summer of 2011 there has been increasing capital flight from the weaker countries. So the imbalances grew exponentially. By the end of March this year the Bundesbank had claims of some 660 billion euros against the central banks of the periphery countries.

The Bundesbank has become aware of the potential danger. It is now engaged in a campaign against the indefinite expansion of the money supply and it has started taking measures to limit the losses it would sustain in case of a breakup. This is creating a self-fulfilling prophecy. Once the Bundesbank starts guarding against a breakup everybody will have to do the same.

This is already happening. Financial institutions are increasingly reordering their European exposure along national lines just in case the region splits apart. Banks give preference to shedding assets outside their national borders and risk managers try to match assets and liabilities within national borders rather than within the eurozone as a whole. The indirect effect of this asset-liability matching is to reinforce the deleveraging process and to reduce the availability of credit, particularly to the small and medium enterprises which are the main source of employment.

So the crisis is getting ever deeper. Tensions in financial markets have risen to new highs as shown by the historic low yield on Bunds. Even more telling is the fact that the yield on British 10 year bonds has never been lower in its 300 year history while the risk premium on Spanish bonds is at a new high.

The real economy of the eurozone is declining while Germany is still booming. This means that the divergence is getting wider. The political and social dynamics are also working toward disintegration. Public opinion as expressed in recent election results is increasingly opposed to austerity and this trend is likely to grow until the policy is reversed. So something has to give.

In my judgment the authorities have a three months’ window during which they could still correct their mistakes and reverse the current trends. By the authorities I mean mainly the German government and the Bundesbank because in a crisis the creditors are in the driver’s seat and nothing can be done without German support.

I expect that the Greek public will be sufficiently frightened by the prospect of expulsion from the European Union that it will give a narrow majority of seats to a coalition that is ready to abide by the current agreement. But no government can meet the conditions so that the Greek crisis is liable to come to a climax in the fall. By that time the German economy will also be weakening so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities. That is what creates a three months’ window.

Correcting the mistakes and reversing the trend would require some extraordinary policy measures to bring conditions back closer to normal, and bring relief to the financial markets and the banking system. These measures must, however, conform to the existing treaties. The treaties could then be revised in a calmer atmosphere so that the current imbalances will not recur. It is difficult but not impossible to design some extraordinary measures that would meet these tough requirements. They would have to tackle simultaneously the banking problem and the problem of excessive government debt, because these problems are interlinked. Addressing one without the other, as in the past, will not work.

Banks need a European deposit insurance scheme in order to stem the capital flight. They also need direct financing by the European Stability Mechanism (ESM) which has to go hand-in-hand with eurozone-wide supervision and regulation. The heavily indebted countries need relief on their financing costs. There are various ways to provide it but they all need the active support of the Bundesbank and the German government.

That is where the blockage is. The authorities are working feverishly to come up with a set of proposals in time for the European summit at the end of this month. Based on the current newspaper reports the measures they will propose will cover all the bases I mentioned but they will offer only the minimum on which the various parties can agree while what is needed is a convincing commitment to reverse the trend. That means the measures will again offer some temporary relief but the trends will continue. But we are at an inflection point. After the expiration of the three months’ window the markets will continue to demand more but the authorities will not be able to meet their demands.

It is impossible to predict the eventual outcome. As mentioned before, the gradual reordering of the financial system along national lines could make an orderly breakup of the euro possible in a few years’ time and, if it were not for the social and political dynamics, one could imagine a common market without a common currency. But the trends are clearly non-linear and an earlier breakup is bound to be disorderly. It would almost certainly lead to a collapse of the Schengen Treaty, the common market, and the European Union itself. (It should be remembered that there is an exit mechanism for the European Union but not for the euro.) Unenforceable claims and unsettled grievances would leave Europe worse off than it was at the outset when the project of a united Europe was conceived.

But the likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany. It would leave Germany with large unenforceable claims against the periphery countries. The Bundesbank alone will have over a trillion euros of claims arising out of Target2 by the end of this year, in addition to all the intergovernmental obligations. And a return to the Deutschemark would likely price Germany out of its export markets – not to mention the political consequences. So Germany is likely to do what is necessary to preserve the euro – but nothing more. That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments. That would turn the European Union into something very different from what it was when it was a “fantastic object” that fired peoples imagination. It would be a German empire with the periphery as the hinterland.

I believe most of us would find that objectionable but I have a great deal of sympathy with Germany in its present predicament. The German public cannot understand why a policy of structural reforms and fiscal austerity that worked for Germany a decade ago will not work Europe today. Germany then could enjoy an export led recovery but the eurozone today is caught in a deflationary debt trap. The German public does not see any deflation at home; on the contrary, wages are rising and there are vacancies for skilled jobs which are eagerly snapped up by immigrants from other European countries. Reluctance to invest abroad and the influx of flight capital are fueling a real estate boom. Exports may be slowing but employment is still rising. In these circumstances it would require an extraordinary effort by the German government to convince the German public to embrace the extraordinary measures that would be necessary to reverse the current trend. And they have only a three months’ window in which to do it.

We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be. The future of Europe depends on it.

Source: Remarks at the Festival of Economics, Trento Italy

Read also: Soros: Europe's Three-Month Window by Gary North