I’ve finally finished Tim Harford’s book “The Undercover Economist”. I highly recommend it to anyone who wants to gain some insight into the economic questions that really effect us.

Forget about the behaviour of small firms or the slope of the IS/LM curve. Think about why people get out of bed in the morning, pay silly prices for a cup of coffee and can’t build a business on Cameroon. Think about how China has grown so fast. How did it happen? Why?

I was lucky enough to attend a lunch last Friday in Wellington (thanks Jim for the head’s up) and hear Tim talk about his new book “The Logic of Life”. I’m looking forward to reading it. It crosses back and forth across the social science spectrum which i believe is incredibly important for an economist to do.

It’s not just about numbers and graphs. As Tim says, it’s about people and the things they do, resources they use and how and why they do it. When I studied economics (University of Manchester 1987!) we lived in a faculty of social science with the option to major in one of 11 different topics as diverse as social anthropology to accounting and finance. These days you’re likely to find economics buried in the commerce faculty.

This approach has failed the student as it presents economics as being about business and numbers. It isn’t at all. Those are merely outcomes and outputs. How people allocate scare resources is a combination of anthropology, psychology, politics, finance, geography , history and so on.

The silo approach that many universities have taken goes counter to the understanding we have developed of systems and the extra efficiencies that coherence or consilience brings.

Economists like Tim Harford will bring new interest to this critical subject and hopefully widen the lens that it is viewed through. After all any economist who can discuss the market for blow jobs with a straight face has to be on to something

Tough choice eh…..well not for jewelry lovers. The gold bugs have been enjoying the ride up in the price of gold as well as making fun of Gordon Brown who unloaded a huge brick of the UK gold reserves back in 2001 much to the chagrin of UK taxpayers.

But with the $ swift decline into obscurity the fans of something more solid than the US Treasurer’s signature on a piece of paper are clamoring fro the return of the Gold Standard as a way of preserving the value of paper and controlling the impulse of bankers to keep printing the stuff.

Well yes that does seem to be a problem. I’ve touched on this before when looking at how the Bank of England experienced several runs just after it was formed. Why? Because they printed way more paper than they had in reserves of gold. So gold or no gold, there is nothing to stop authorities or private banks printing paper or more accurately filling up spreadsheets with lots of numbers.

I’m ambivalent on this gold business. Storage issues, never mind the horrendous process of digging the stuff out of the ground, present problems as do the ability to carry it safely but really its a confidence thing.

Readers of this blog should hopefully know by now that money is an artificial construct. We can make it anyway we like. It’s created into existence in some form in order that we can exchange goods, services and labour in an efficient manner.

It is subject to the laws of supply and demand like any other product or service.

William Rees-Mogg makes some interesting points about it here but the reality is still the same gold or no gold. We must control the supply of money. 1:1 exchange for gold is a way to do that but its so last century. Surely we can come up with a smarter way of doing it.

My favoured approach is for a central monetary authority to issue interest free new money into the system directly. that supply of money (the only supply) could be controlled on an annual basis responding to set limits, constraints and changes in demand, population etc.

Goodbye interest, goodbye inflation and goodbye financial markets as we know them.

Gold bugs or not, we have to do something about the current system before it blows up and makes the 1930s depression look like an afternoon tea party.

The P2P lending sector is growing all the time with the main companies starting to increase custom and size. The rise of P2P lending is helping bring money and its nature into the wider consciousness. Alongside this sits other proposals for fully distributed money systems. Many of these revolve around traditional and tested complimentary currencies such as LETS, Time$ and other locally based systems.

One proposal is Ripple. It’s been around for a few years and there is some good information on the site including the initial paper from Ryan which I have posted up in the research section. There’s plenty of commentary around about it which is worth a look at. Essentially it proposes to replace bank created debt money with personally created credit through a fully distributed network based system. What is good about this proposal is that it takes the concept of local currency systems to its logical conclusion which is a globally based one with servers finding the right path to the appropriate relationship or network.

The most important part of this is identifying that most of what we think of as money is in fact simply an IOU. So why should banks create this? Well the main reason is trust. What Ripple proposes is the creation of that trust through networks, which as we know are already widely in use.

Jamesey proposes a further layer on top of this adding in microfinance structures and leveraging off the Paypal system.

We also have very well embedded and established credit card systems (Amex and Visa) who already have the distribution systems. So the trust system is going to be a key issue. Who is in your network? Who can you trust? I’d suggest and I hope that VortexDNA will play a role in helping this kind of global protocol to develop.

The main problem is the control of supply. One would like to think that a complex system, such as proposed, would regulate itself constantly adjusting to feedback. We know that the current system is close to imploding because of rampant money creation. So cculd it be any worse? Could governments participate also?

It’s open season and anything is possible.

For those who haven’t read it yet here is link to the complete report on the future of search. It’s an eye opening read and hopefully will give rise to new ideas, new research and even new businesses.

For me it is the democratic nature of the web that excites me. For now i’ve just focused on the delivery of the architecture that will make us form the web around us rather than having to shop through designated ports.

I think that is well on the way to happening.

I’m also thinking about the impact on governance. By this i mean the way we allow ourselves to be governed: our electoral processes, our engagement and involvement in political systems and how we make ourselves heard.

The coming versions of the web will not just make business more efficient, or general life but our political systems, our governments who eat up 30-50% of our GDP depending where you live.

The ultimate political feedback and citizen engagement system is going to rise up from the web. The powers that be are not likely to embrace this as many of them will be out of a job.

E-government is a web 1.0 framework. Imagine what it could look like in future versions. Maybe we can set up a  dream team for that?

Thanks to Kaila i’ve been considering the future of search in 2010 or more to the point the future of search itself.

It didn’t take me long to realise that search is going to replaced by receive. How annoying is that to all those businesses involved in SEO

But seriously if we are still searching in 2010 i will be surprised because by then the web should be evolving into a living and breathing system. This system will not be a library which we dip into hoping that we will find what we are looking for but will be part of us.

Simply put we will become the system.

We won’t need to search anymore as we will be the filter through which information, that we both want and may be interested in, will flow.

Search is an external process: Receive is an internal process.

Relevance technologies will be key to this evolution as will as filtering systems. Receive will be an intelligent learning system. I’m looking forward to this.

Which is the best receive engine?…..that will be the question.

The recent financial crisis has made me think more about how important money is in our lives. Without the liquidity (cash) pumped into the system by the Federal Reserve the whole financial system could, and probably would, have siezed up.

By that i mean the flow of money would have dried up and banks would have stopped lending and peopl would have run out of money and been queueing at the banks to get cash out. Of course there isn’t any but you knew that already

It shows us two important facets of our society: one is that we depend on the financial system for our daily lives; two is that we are living on the verge of a serious breakdown. It’s a bit like trying to stay on top of the bills.

I don;t know if there are any readers who remember the Depression but they will understand what i am talking about.

I believe we are all systems within systems, whether at the atomic level, individual being or universe. Systems depend on flow and feedback in order to keep stable. We need energy through food or sunlight to survive.

The parellels of the financial crisis and oil crisis are interesting. I remember back towards the turn of the millenium when we had a mini crisis in the UK when oil deliveries were delayed . The supermarkets were within 24 hours of running out of food since they used just in time delivery. The crucial importance of energy (in the form of oil) was highlighted but more than that it showed how close to the edge we were living.

We depend on a continual flow of energy to survive. This brings me to love. Yes that old favourite. We can’t do without that either. The great thing about love is that it is free and easy to give. But as we know, when love is lacking and not flowing our system breaks down: into war, violence, depression and death. Without a flow of love nothing is worth living for. We can see the effects all around us.

Surely love is something we can never run out of