Earlier we introduced readers to a new proposal for monetary system reform (Earth Reserve Assurance or ERA) authored by economist Joseph Potvin. Joseph is part of a group of economists from whom I seek input occasionally about what might be done to try and improve our present monetary system in the future. Since that is the one of main premises for this blog, naturally I follow their discussions with keen interest. In the past I have featured various proposals from this group here and included those on our page of ideas for monetary system reform.
Joseph kindly agreed to take time from a very busy schedule to do an in depth Q&A interview on his new proposal and how he got started on this project which now covers many years of research and work. The interview will be presented two parts. The first part below introduces you to the author and provides the historical background for his interest in this project. Part II delves into the proposal in detail. I will add a few brief concluding comments at the end of Part II.
Q: What prompted you to work on the Earth Reserve Assurance (ERA) proposal?
A: I'll have to explain this trajectory in a few steps:
1) I first put together the Earth Reserve monetary concept in 2006 while working as a senior economist at Canada's Treasury Board Secretariat. I could sense that the monetary and financial system based on market sentiment alone would go 'poof' at some point, and when it did, there had better be something else designed, researched and capable of prompt implementation. Few others seemed concerned, so on my own time I researched and wrote what I figured may be the essentials of a workable system. Several earlier influences are summarized below, but by mid-2007 I had completed a 30-page design summary entitled "GREEN Money, RED Tax" (GREEN is "Global Resource and Ecosystem Exchange Norm"; and RED is for "Resource and Ecosystem Degradation"). I started sharing this around. However I was reframing so many premises of economics 101 that few others could make sense of my starting points.
2) I could understand why my own reformulation of money would be inaccessible to other economists. Also it was obvious to me why a global community of eminent economists and investors would not be looking to some mid-level government staff economist or project consultant to rewrite the fundamentals of the domain. What I did have difficulty understanding is why a proposal as obvious and reasonable as Ben Graham's Commodity Reserve monetary system in the 1930s and 40s failed to make any headway either, despite his pinnacle role as the "Dean of Wall Street", and all the supportive contributions from luminaries across the spectrum from Hayek to Kaldor and Tinbergen. Even with the highest level of international and multi-generational persistence, no global multi-currency commodity standard has emerged to anchor the value and quantity of money. In the 1950s Milton Friedman provided the most comprehensive discussion of reasons for its non-adoption. So again, on my own time, I took every criticism of the commodity reserve that I could find, and treated it like "a bug report". In the pragmatic approach to systems development that I had learned from my previous decade and a half working closely with software developers, I set about to try to fix every reported design bug in Graham's commodity reserve monetary proposal. And that's how I came around to the idea of shifting the commodity reserve concept back one stage in the value chain, so that Earth itself would be the warehouse. This paper got noticed by Dr. George Athanassakos, Professor of Finance and the Ben Graham Chair in Value Investing at Ivey Business School, Western University. He invited me to be a keynote speaker at the Second Annual Symposium on Value Investing in Greece, part of the 16th Annual Conference of the Multinational Finance Society. Given the venue, my paper "Beyond Ben Graham's Currency Proposal: Retrospect and Evolution" focused entirely on the economics of Graham's commodity reserve concept and the reasons it has never been adopted. But I included an annex entitled "Brainstorming an Earth Reserve Currency Standard". ("Earth Reserve" was a more appropriate name than "GREEN Money".) Perhaps because I was a non-academic economist at an academic conference, the Chair of the Multinational Finance Society wrote me afterwards to inform me that my paper would not even be sent to reviewers for inclusion in the conference proceedings. In light the global monetary and financial collapse of 2007-2009, I found that to be most interesting. Fortunately, Dr. Athanassakos was more accommodating, hosting the paper on the Institute's site at Western University. Later a prominent full professor of economics at one of the top American universities told me not to be surprised. That senior academic also had unconventional economic design papers rejected outright by publishers.
3) That was all about a decade ago. Really though, to answer what prompted me to come up with the Earth Reserve proposal, permit me to reach back three decades. Each summer throughout the early 1980s I worked on ships, dredges, helicopters and barges in offshore oilfield construction in the Mackenzie River and Beaufort Sea to finance my undergraduate degree in economics at McGill ('83), and my masters degree in economic geography at Cambridge ('86). As a student of economics I noticed that the stricter the penalties associated with environmental protection rules in those ecologically sensitive regions, the lower was the social incentive for on-site personnel to report incidents. I didn't sense a flaw in the people who kept things quiet; I felt there was an underlying flaw in the design of the incentive structure. So I got to thinking about what would align micro-level decisions with the macro-level objectives of protecting the ecosystems that we're in.
4) In 1989, when I was 30, I wrote an analysis for a small science-based think-tank, about the economic effects in the US national accounts of the Valdez oil spill. I roughly demonstrated that the net effect of the disaster was an ADDITIONAL $1B in US GDP growth, because of all the new wages and profits generated by the clean-up activites and impact studies. What I realized, by logical corollary, was that diminishing the UV-filtering capability of the stratospheric ozone layer would increase sales of hats, sunglasses, sunscreen, and oncology treatments. Similarly, diminishing the depth, fertility and natural irrigation of agricultural topsoil would increase sales of fertilizer and the development of industrial irrigation projects. I wondered what proportion of economic 'growth' was actually based on recreating, fixing or substituting commercially-produced goods, services and infrastructures, for various non-market primary commodities, functions and configurations that are freely supplied by the Earth but which we are dismantling or undermining? My mind got to reflecting on how economics might be reframed so that accounting for economic production would be net of Earth deconstruction.
5) That paper got me hired onto the core drafting team of Canada's Green Plan, to initiate steps towards the extension of Canada's national accounts to resources and ecosystems, and to design fiscal instruments to incentivize resource conservation and ecosystem protection. Immediately I could see that our Department of Finance, notwithstanding bright and keen individuals there, was constrained to a very narrow fiscal policy menu. Meanwhile at this time I was also invited by the Director of the World Bank's Environment Division to assist on value-for-money methodology when analyzing debt-for-nature swap transactions. And all this led to my being asked to coordinate an initiative for the Minister of Environment on integrated economic-ecological/resource indicators for decision-making. I was able to bring systems ecologist C.S. Holling and economist Herman Daly into that work. Two additional assignments followed as an economist under contract to inter-jurisdictional councils of deputy ministers, one of which led to my 50-page report: "Institutional Options to Apply Ecosystemic Research in Policy".
6) Once those projects were delivered, I felt an internal need to bring far more formal scientific rigor to my work, so I enrolled in a doctoral program in Systems Design Engineering at University of Waterloo. Some elements of my early practical explorations in that direction caught the attention of the Administrator of the new Global Environment Facility, who contracted me to prepare a technical approach, resulting in a report: "Classification and Appraisal Criteria for Conservation Investments: A Proposed General Framework". This was core to my doctoral dissertation, and it's where the detailed design for the Earth Reserve monetary system (aka GREEN Money) started. But the university administration told me that I could not receive consulting fees for my dissertation research. They did not agree with my perspective that this was no different than a research grant or a co-op assignment. I had a young family to support, but my research towards the systems design engineering of a ecologically-sound monetary system fit none of the categories of the research granting bodies. (Was it economics? Engineering? Or environmental studies?) They left me no option but to leave. Which I did, and carried on my career as an international applied economist working under project-based contracts in multiple countries through various firms and independently. Much more occurred in the following 20 years to shape my design of Earth Reserve Assurance. I'm most pleased to say that it now has a suitable informatics platform for deployment, currently in alpha testing. But my comments above cover its origins.
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