[p2p-research] The problems of debt

[Ryan Lanham]

I've been asked to explain debt problems as influenced by technology.  I'll
try.

Here's my "theory".  Many others share or have versions of something
similar.  I claim no originality.  I've posted several versions on this
list.

1. Growth occurs when someone produces something others value.  The sum
total of value is the economy.
2. In the past, it was a matter of work and labour to produce something of
value...like digging a hole where a hole was wanted.
3. People learned to take money that was not in use and to use it by
borrowing it and then buying value-production which was then placed on sale.
4. The process of 3 entails risk.  Risk was rewarded by profit.
5. The system of 3-4 really works quite well so long as profit is likely.
6. In a world where learning and high productive machinery requiring low
skill levels is readily available (i.e. post 1990 or so) making profit is
harder.  7. Item 6 is especially true if innovation is not protected by the
state (e.g. through intellectual property.)
8. Because profit is harder especially in tangible goods and services
(because of technology and learning distribution) credit is harder.
9. When credit became hard, the incentives to cheat increased.  People lent
money badly and then cleverly sold the bad loans to others who didn't
understand.
10. When 9 happened, the state had to decide whether huge firms fulfilling
important institutional roles would die, or be saved.
11. Nearly all states, especially in Japan and Europe, chose to save old
institutions (e.g. Royal Bank of Scotland), or in the US, AIG.
12. There is now an open question as to whether markets can still create
value (e.g. the iPod) in such a way that debt is justified.  If not,
capitialism in the form that creates ready growth through using unused money
is screwed.
13. When money goes unused, it is difficult to create new money and growth
of value.  There is no/little incentive to innovate.  This can be called
"deflation."
14. Deflation is more dangerous to capitalism by far than inflation.
Deflation means shrinkage of an economy because unused money becomes more
valuable by sitting than by being used.  Thus, people become even more risk
averse.
15. When 14 happens for a long time (e.g. Japan) then demographic and
institutional patterns start to become unsustainable.
16. When 15 happens, we do not understand the long term outcomes, but they
don't seem good.


-- 
Ryan Lanham
rlanham1963 at gmail.com
Facebook: Ryan_Lanham
P.O. Box 633
Grand Cayman, KY1-1303
Cayman Islands
(345) 916-1712
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