The end of money!!!!

Are you happy with the current monetary system? Do you think, it needs improvements?

For instance, I have some pet peeves like:-

1) Why, do I have to worry about my survival if the stock market(to which I am not privy) crashes.

2) Why do some bankers in suits have control over my life?

3) Why can't I live on an island in Italy, in a castle, surrounded by servants who would do my every command and never have to work a day, while Vijay Mallya can...;)?

Well, my pet peeves aside there is a small but clear dissatisfaction growing in people of our generation regarding the status quo of today's economies.

• We all seem to have comfortable yet highly stressful lives.
• We don't have to worry about food and yet slave for longer than farmers in a village.
• We have higher life expectancies and yet we fall prey to a larger set of stress related disorders.
• We have umpteen free land and yet are forced to live in polluted, over-crowded cities in small "caves".

Of course, the problems above are for those who are relatively affluent. It is a wonder that in what we call an advanced world there is still poverty, malnutrition, hunger and frankly living conditions not suited for farm animals.

We have two outdated systems responsible for this:

1. Our monetary systems
2. Our political systems

In this post I shall talk of only the monetary systems.

Monetary Systems

The concept of "money" or monetary systems evolved as a means of distributing "limited" resources among people. The major two systems Capitalism and Communism follow different ways to do this.

Capitalism believes that resources should be distributed based on the laws of profit, supply and demand. Hence, if there is no profit there should be no resource distributed(even for high demand).

Communism follows the other way around, where a group of guys in ties decide who gets what.

Needless to say, both systems are flawed , though "regulated" capitalism or mixed economies have slowly gained precedence.

But there is a major flaw!!! Both, systems are based on the fact that there is a shortage of "resources". In fact Capitalism actually encourages this shortage of resources.

A good example is that of the diamond industry. Diamond, is one of the most abundant forms of mineral on the world and there is no shortage of it. (If diamond was rare, you would have diamond investment funds like gold bonds. Diamond prices are a product of a cartel and hence are not good investment instruments.) Yet, it is sold at exorbitant prices to consumers mainly through a slick marketing campaign.

This would have been ok, if it was meant to just satisfy the ego's of some star-studded bimbos and rich people. However, diamond mining and trade has lead to the largest human rights violations in Africa as we all know from the whole blood diamond thing. The sale of diamonds has directly financed the many revolutions in Africa causing the loss of millions of human life.

Abundance

To see if an alternative system of living is possible, we need to look at which resource is actually "scarce" in the current world. The basic stuff food, water, shelter are more or less abundantly available.

1) Energy- There are numerous abundant sources of natural energy. We have the technology to tap it!! Yet, oil conglomerates cannot allow this as it would break their hegemony.

2) Minerals- Our reliance on rare minerals is getting lower and lower. We have synthesized enough replacements for the rare ones and have techniques that can help easily re-use the rare ones.

3) Office Space in Nariman Point- Now this is clearly a man-made scarcity. By using modern communication methods, one does not need to keep his office at Nariman Point.

Ultimately, I believe that modern technology has given us the means to live life comfortably for all of the 6 Billion plus people on the planet, yet it's the very monetary and political systems that we have designed that don't allow the free flowing distribution of this "abundance".

The path ahead- Technologism

Any system comes to a breakdown point when enough people realize that it is not meeting it's objectives or the objectives themselves change.

Most people would agree on the following vision of an ideal society(details may be hotly debated):-

1) Everyone should have all the basic necessities of life which includes free medical care, shelter, education, food, ability to travel to exotic places, iPods, Latptops and whatever else their heart desires.

2) People should strive to work for a purpose other than simply money. All people, should do higher level things like advance Art, Science , Sports etc and stop having to do lower level jobs like farming, ticket collection , factory workers, management!!! which can be easily automated by robots.

In such a society above, money would not be an important thing.

Many, of you would be wondering, that this is just a pipe dream!!!. But, take a look at the following statistics:

1) The number of farmers in the world have declined from 90% of the population 300-400 years ago to around 33%. (This is also an inflated number. Many people are still farming because there is nothing else for them to do).

2) Automation has lead to job losses of millions world-wide.

The funny thing is that the affects above are due to "Capitalism" and the "Money System". In an effort to increase profits, corporations must cut costs by bringing in more automation. However, what the current systems have not yet addressed is what happens to people who are no more working!! In the current system, they die poor and jobless. Most, of them find other jobs or are protected by social safety nets.

But, what would happen when a tipping point is reached say when Robotics finally arrives and even the few manufacturing jobs available are lost. With no workers, to manage what would happen to the supervisors and the operational managers?

With a major part of the economic work-force unemployed and unable to purchase goods in a traditional system, what would happen to the "Upper Managers" and "Financial Analysts"?

In other words, the whole system would come falling down like a pack of cards to be replaced by a new system, one in which technology would decide the distribution of goods and a new social order is created.

But, what has all this got to do with me today?

Many of you reading the blog at this point may be thinking, yawn....this is just another psuedo-intellectual lecture. None of this is going to change in my life and when this happens good luck to the guys alive them. As for me, I am going to go to work tomorrow since I still have to pay home loans and it still costs money to watch movies......

However, the world needs you!! A system will always change when put under stress. But, the new system , the details, will depend on what ideas are generated years before.

Communist ideas came in the late 1800's, yet it was not until 1920's (Russia) that they could be put in practice. The ideas of many famous philosophers bore fruit years and years later.

We as today's generation have a moral responsibility to start "visioning" this future which we know is inevitable. We need to come out with great ideas for this future and bring about the small small changes that will ultimately lead to the tipping point of a better societal and economic structure.

Many organizations already do this. I strongly encourage people to see the ideas by http://www.thevenusproject.com/ who are trying to envision such societies.

If a system collapses suddenly(As the French found out during the French revolution), violence is usually a by-product and in our case if we do not evolve to a better society, we will regress into the dark ages as the religious zealots use the resentment generated by the current system to become anti-technologists and bring us into perpetual decline!!!

The choice is yours..........

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Money Money Money, must be funny in the rich man's world

How much does money, control our world? Our education, our lifestyle, our money, even the fact that I am blogging on blogger and not selling tea in a stall is because of the amount of money I earn and our economy. I have always been interested in what exactly is money and what is this great "engine" that we call an economy.

I have recently seen the movie Zeitgiest addendum and boy does the movie scare me. I will talk about two scary aspects of money not well known to people outside trained economists.

1) What is a 1$ note(or any other currency note) :- A 1 dollar note is a "loan" given from the Federal Reserve Bank of America to the Govt. and other banks. The FED expects the loan to be returned with "interest". Now, the questions is if every note that the FED(or indeed any other central bank) issues is a "loan" then to pay the "loan" one needs more money, hence more notes, but these are again "loans". Even a non programmer can see the infinite loop here?

Basically, the main job of a central bank is to "kick-start" the money supply by supplying loans to the govt. of a country.

2) Fractional Reserve Banking: This is the second aspect of the system and was what most astounded me.

Mummy asks Pappu:- "Pappu if a bank has 10$ of money with it and it lends that to a person, how much money does the bank have".

Pappu:- "Mummy 0".

Of course, Pappu has not done a course in economics and he has failed again!!!

When bank lends 10$, 10$ is magically created in the economy !!! So now the total money supply in the economy is actually 20$(Magic!!!). The funny thing is if this 10$ is loaned to some other bank who loans it further another 10$ is created..out of nowhere.

Well actually, the amount of money created reduces with every bank lending since "central banks" need a certain reserve amount be there in the bank deposit which is a fraction of the "loans" made out. This means that Bank A (who originally got the loan) can only lend 8$(if the Fractional Reserve Ratio is 20%) and Bank B can lend up-to 6$ and so on.

The chart[source: Wikipedia] shows how a 100$ deposit magically becomes 500$.

As an engineer the chart looks just like a chart of an engine. Of course, for a given Fractional Reserve Ration the amount of money supply in the system approaches a limit as shown above!!!

The conclusion of the two points above is "Money" is "Debt or Loans". All "Money" is "Debt", and hence all "Money" needs to be re-paid. That means the "Money" supply needs to continuously increase.

But where does all the Debt get paid from? Well from you and me, from start-ups and companies and all those who borrow. Further loans, are actually finances from deposits we make!!!

Anyone can recognize the fundamental problem here!! Someone will not be able to pay back his loans, someone will go bankrupt, it is the nature of the system , some bank will go insolvent

And this is the main reason for the boom-bust, depression and all economic cycles as for "inflation" and a steady price rice.

What happens if loans are not paid back to the bank and depositors start withdrawing money- You have a depression like the sub-prime crisis we faced.

Things become more complicated if you add a Stock Market Bubble to this!!! (That would be another post).

This enormously complicated engine is "tinkered" around by a "handful" of bankers around the world and it is there decisions that affect our lives!!! Make a policy mistake and viola, I could be flipping burgers at Mc Donalds or maybe writing a lot more blog posts, since unemployed people write more!!!!

Many believe that it's the bankers that are the cause of all depressions , wars , coups etc and are the real masters of the world. It is hard to refute such an argument.

The movie goes on the show how Money controls other things like Crime(with the exception of crimes of passion all serious crime has a direct or in-direct relation to money!!!).

All the above scares me and makes me believe that there should be a better way a better system. Can we have a world without money? No, not a communist egalitarian society but a world without money?

That will be the topic of my next entry!!.

Why managers in Indian IT never get laid-off

A few months ago the economic recession really began to be felt by IT companies in India. The meltdown had started months ago, but the only effect till March this year was less work for most people(including myself).

Then they started. Lay-Offs, Virtual Benches, call them what you may. There was fear in the ranks of developers, confusion and hurt!!!

Unlike the West, the Indian attitude to Jobs is still to look at them as part of their life and family. Hence, Indian IT 'HR' constantly tries to paint the "family" picture. This is especially true when a project's fortunes are going south. I am sure many of us have heard statements from managers in tough projects(or when a tough project gets over) that we are a family and we have to pull together only to be replaced by the words- "It is after all a business" during tough times.

During the hard time(I think they are finally getting over) many people asked me as to why only developers got the "can" and why most managers(incompetent as they may seem to the developers) did not. There were clearly a lot of management grade people whose salaries could have saved the jobs of 10-15 lower level developers.

The answer is really fundamentally in the nature of the business. Silicon Valley was started out in garages by "Geeks" , "School Drop-outs"; many of them wanting to make something cool and some succeeding.

Indian IT however, was started mostly by management graduates who took to programming services as a way of making quick money.

Indian IT was fundamentally started to not be "Cool" in a geek sense of the way. It needs to be predictable. They need to make "Average Software" with just enough quality for clients to accept them.

Indian IT companies are fundamentally about "Project Execution", "Client Management" etc. It is about delivering a service on time with just enough quality to keep the client happy. Frameworks and structures in most Indian Software organizations are geared to do exactly that. 6 Sigma, CMMI etc are all geared for predictable software project execution and by their very nature do not want or need innovation.

Hence, the "core" talent or cream of an Indian IT company is it's project management skills.

Does that mean developers and technical people in general are not important?

Developers are important, but only a select few who can guide a project(and they also to a certain extent) . Most companies are over-staffed with developers for two major reasons:

1) To take care of a sudden demand

2) To bill higher, especially in Time and Material Assignments.

Hence, when it comes time for a lay-off due to a business constriction it is the developers who need to go first.

Managers however get "Fired". Again, because they are the core team of a company they are not supposed to "mess up". Companies, rarely if ever "fire" a developer for incompetence during good times. They are usually transferred to another account where they do not need to be that competent.

A lot of Indian IT service companies are now turning to being "Product Based" or "Solution Driven" companies. However, they are stuck in this fundamental dichotomy. Their entire DNA, processes, structures and people are oriented around a project delivery based , service based framework. Now, they need to transition to a new "Innovation" based models where traditional thinking doesn't work.

The challenge is heightened by the fact that these companies are transitioning and hence have to maintain both a service focus and solution innovation.

Will Indian IT rise above services and become truly innovation driven, is still to be seen? My bet is on new start-ups rather than existing companies. I leave you with a funny dilbert: