Active and Passive Vices…err…Voices…err…Values!

Active and Passive Vices…err…Voices…err…Values!



Ganga Prasad G. Rao
http://myprofile.cos.com/gangar


It was a dark storm that had engulfed the FinMin. The economy was in doldrums. Inflation was rampant, and every index of production intent on taking an ‘U’ and diving south. And to complicate matters, the capital markets were all too foresighted and taking plunges after plunges anticipating the economic downturn. The Economic Advisors to the Minister had their ear-ful but had nothing to offer beyond the usual prescriptions. With elections impending, the Minister was at his wits end, receptive to any suggestion, no matter how untried and untested to shore up his party at the polls. Now there’s always one who awaits the ‘Opportunity knocks but once’ circumstance. And who could it be but the infamous Iamsly. Years,… no, decades of doing business with corrupt politicians, whom he had enriched with crumbs from the mineral resources he had exploited, had turned him a billionaire many times over. Call it the pangs of patriotism, empathy for the profession/industry, or a desire to ‘give back’ to those whom he had so mercilessly exploited, but Iamsly was willing to consider a ‘not insubstantial’ donation to a few ‘worthy’ causes, if his excesses were overlooked. Christmas is all about giving, isn’t it?

Does it take a soothsayer to predict what happens when desire meets urge? Or, when one hears a rumor of money to be given away? They turned up sooner than a fly seeks spilled syrup! …Predictably, the first one thru the door claimed to represent those impenured by Iamsly’s International mining firm, in fact representing those accursed in the ‘resource curse’ era. Rubbing shoulders, the other smiling face offered his credentials; he represented the environmentally exploited, and yet in poverty. And forcing her way between the two, the fat lady drew Iamsly’s attention with her charm as she introduced herself as the Head of the Charities for the Aborted Unborns (and,sly sly, MIAs). Behind her was a, … well, many with their begging bowls, small, large, and… hmm.

Was it strategic, genius, or a mere coincidence when Iamsly’s Advisor-Son-Heir apparent -let’s call him Ash shall we? - suggested a ‘tri-partite’ round of Golf meeting between Iamsly, the Minister and the representatives of the various Charities? Perhaps the ‘unscheduled’ mid-term elections were around the corner, for the Minister, uncharacteristically, willingly accommodated the golf picnic, albeit after insisting upon an Attorney by his side. And so, they congregated, in the shade of the White Oak by the golf course. The preliminaries behind, Ash put forth his proposal. He recalled that, over the decades, the nation had witnessed several regime changes – from democratic to dynastic, autocratic to dictatorial…and that Iamsly was an ardent supporter of consensual democracy. Ash pressed the point that tax laws were obeyed more in the exception in those ‘doldrum’ years, then fixed against the Resource barons - ostensibly so the nation could tide over its growing pains, then overturned again to accommodate a dictator’s vengeance, and now were being repealed all over again. Was it Iamsly’s fault that he was incriminated in a dozen tax claims across three decades?

The pressure of the upcoming unscheduled mid-terms must have been intense, for the Minister was all ears. He wondered what the heir had in mind to resolve the matter?Capitalizing on the opportunity, Ash was quick to his point:Shouldn’t the Government, in the spirit of ‘reconciliation’, forgive prior the elections, the (tax) excesses of years past? Referring obliquely to the 2 dozen tax cases that he would inherit, Ash, proposed that the Ministry could repeal the tax laws and permit negotiated tri-partite settlements that channelled the disputed tax amounts to ‘worthy’ causes. Couldn’t we, argued Ash persuasively, in the spirit of the Yuletide, ….ahem…. add a clause that permitted Charities and NGOs to bid for the disputed tax monies set aside in escrow accounts? Why, they could compete amongst themselves in bidding rounds by varying the ‘degree of forgivance’ they would offer to the defendant, to sway the donation their way, and thus resolve the dispute amicably. What Ash didn’t divulge was his hope that the more severe the crash crunch the NGOs and charities faced, the worthier and the less-correlated their cause, (or, the looser their principles) the larger would be the degree of tax forgivance they would risk in the bidding rounds. Plainspeak: Forgive my ‘the-axe’ excesses and I fill your stockings!.

The Attorney interrupted Ash as he outlined his proposal, and insisted that any tax settlement be recorded formally as an affidavit in the arbitration documents to be signed by the Minister. But it was the Minister who foresaw that Iamsly(and his ilk) would get away with looting the Fort Knox in broad daylight, what with several Charities bidding for the ‘escrow largesse’. Uprightly, he insisted that the ‘forgivers’ have choice aplenty as to the party with whom to engage in the ‘forgivance business’. Surprised with the Minister’s acumen, Ash presumed the Minister would also be wise to the possibility NGOs would cross-compete and forgive the grossest of sins, crimes and evasions in bidding against each other even as they defended their own turf in interests dear to them. And indeed, the Minister, fearing the subversion of Justice, sought the opinion of the bemused Attorney, who suggested a EqSF/EfSF variant, that empowered those NGOs that truly believed in their cause, to outbid the more forgiving and the less-principled amongst them, and claim restitution for the ‘unforgiven’ wrongs via the ‘Bond market – Full key’ resolution. Ash cringed at the prospect of the bond market playing volatility on his escrow until the wrong was corrected, but played along fearing the talks would break down.

In the months that followed Iamsly, Ash, and those other Iamnasty,gathered under the watchful eye of the Attorney as the various charities and NGOs – environmental, health, social, animal rights, gay rights, you name it – bid against each other to offer various degrees of ‘tax forgivances’. A case of a $10 million tax avoidance was bid up to 60% forgivance, in return for a $2 million endowment to the environmental organization.A ‘tax case’ involving oil spill in the Mid-Atlantic counted for near nothing in a settlement with a Gay rights organization – the guilty excused a good 90% of his oil spill dues. In another dispute, a firm in the dock for a Superfund NIMBY violation, was cornered with a ‘meet you half-way’ offer by the Vietnam Vets,literally for the cake!Worse, a case of ‘Leaded Gasoline with 6% Benzene’ was bid away by an EqSF environmental organization that sponsored and underwrote a new issue of ‘Education for the Poor’ bonds with the wrong.

A lonely intern whom the Attorney had accompany him, took note of the ‘principals’ and ‘principles’ involved in the ‘tax forgivance – sin encashing – fund raising’ trading sessions, in particular the implicit ‘premiums and discounts’ across the various settlements. He hoped to collect sufficient data to put together a model that would facilitate the elicitation of overt and passive values for environmental and social causes, as well as WTAs among the ‘Forgivers’,and WTPs among the ‘Forgiven’ for various environmental sins that fouled the commons. He hypothesized that an incentive existed to permit the proliferation of Charities and NGOs, staff them with unethical managers, and hold their finances on a leash, so they’d be willing, even waiting to ‘forgive and forget’ the sins, omissions and commissions of the industry for a pittance. He hoped to get a Master’s thesis out of it. As for his thesis committee, the Attorney was already weighing upon him.....and an Iamnasty waiting in the wings to fund him even an entire year.

Here’s wishing him all luck! (and, years to his life)

Au Revoir !

Transition Robonomics!

Transition Robonomics !

Ganga Prasad Rao

http://myprofile.cos.com/gangar


Economics might be the Les Miserables of Social Sciences, but that did not stop John Jetson from day dreaming between his shifts as a week-on/week-off temp at the automobile factory and the Masters he pursued at the local Community college. And day dream he did, between his gulps of beer while fixing a tyre on his Chevy….this being a warm Sunday afternoon in August ….of a world in which he would wake up to breakfast served in bed by his very personal robot, of being robot-driven thrice a week to his very own Executive office, and apprised of his appointments by a robot Secretary, then supervising robots assembling robots, ….and, not to forget, lazing in the sun between work days writing lyrics set to robot music. But an all too familiar shrill voice woke him up. With a cantankerous 2-year old on one arm and a suckling baby on the other, his wife of 4 years was berating him to find a ‘real’ job, a full-time job that would bring soup to the dinner table instead of a ‘back to school’ program in Economics at 42 that impoverished the growing family.

“God”, Jetson murmured to himself, “should have turned certain female frequencies inaudible to men”. Honestly, why would anyone want to work when robots were at his beck and call? But reality got the better of his virtual self. Only last month had the smart-alec Engineers put the finishing touches on an AI-enhanced robot assembly line at the automobile factory south of Main Street. The entire community was outraged at the carnage that followed; the labor force cut in half and their families on the road on the double. And yet, it was necessary for the Big 4th to retain its share in the auto market and survive to fight another day. Besides, there weren’t too many employers waiting to offer him wages that supported his family and the College. Caught between a rock and a hard place, Jetson Sr. wondered why labor-saving technological change, a concept he had been taught in Production Economics, should bring misery to those who could least afford it? And what could the Government do to anticipate a world of robots running our factories? Couldn’t anyone find a “…..Hey, that could be my Master’s paper, even my ticket to graduation!” With a twinkle in his eye….and a mollifying hug and kiss…Jetson Sr., set out in his run-down Chevy to the College library with a scratch pad to prove his genius and, just perhaps, start along a new road, to new career.

Thank the Good Lord for mercies small and ...hmm?,... for the library was open, perhaps anticipating sophomores returning to school for an early start on their Fall semester. Jetson found a corner table, and literally ‘hit the books’. Taught to be methodical in research, Jetson began by writing down his objective: to maximize an Aggregate Social Welfare Function, SWF, for the society in general, but in particular labor, subject to various constraints that included the nation’s macroeconomic identity, an industry aggregate profit function, a population-evolution function, a ‘labor-supply’ function, a ‘Social’ (as opposed to ‘Private’) Resource discovery-cum-Reserve transformation function, and ancillary functions governing capital, wage and price formation in the economy. The objective and the constraints identified, Jetson began by specifying the Resource-Reserve functions. There was the conundrum of specifying the process of Resource discovery, and the transformation of Resources to Reserves. He addressed it by positing a 2+1 set of functions and identities.

The first function, ResDisc, represented the process of resource discovery as a multiplicative probabilistic process: the success rate being both a function of cumulative resources discovered and the Exploration Budget, ExpBud in the current period. The latter was a function of many variables, including Lifestyle expectations, LS, discount rate, r, rental rate of Capital, v, per-capita consumption, C/Pop (= y), ratio of domestic to international (resource) prices, p/P, Population, Pop, and Economic Policies, EcPol. The identity represented the addition of discoveries to the Resource Base, RoB. To model Reserve Base, ReB, the currently economic portion of the resource base, Jetson specified a third function of domestic and international prices, p & P, technology embedded in (net) capital investment, IT, capital K, wages, w, and a variable denoting the comprehensiveness and stringency of Environmental Regulations, ESHReg.

Next, he turned his attention to a Population growth function. Given the lags and the inertia of population dynamics, he chose the widely used Koyck-lag specification around an optimal Population, Pop*:

In his model, Population responded to changes in the underlying determinants and moved toward the target, Pop*, across time periods. The target, ‘optimal’ population was influenced by Lifestyle expectations, LS, the aerial extent of the political entity, D, National wealth, W, Capital, K, per-capita income, y (=Y/Pop), the price level, p, and notably, a measure of the economic policies followed by the political entity, EcPol (an euphemism for the extent of subsidy in the economy and trade policy). The National Wealth variable, W, was the aggregate value of net monetary (Liquid assets + Equity - Debt), ‘Real’ Land Assets, Gold, and further, included the imputed net present value of natural (in particular, mineral)-resources, ReB, that passed the definition of a ‘Reserve’.

Moving next to Labor Supply, Jetson modelled the fraction of population, Lf, seeking employment at any time, t. It had as its arguments, per-capita income, y, lifestyle expectations, LS, prices, p, wages, w and Wealth, W:

Thankfully, the National Macro-economic identity was easily specified:

where Y denoted GDP, C stood for Consumption, G for Government Spending (Infrastructure, ESH and Equity), and XM represented a net trade function.

For modelling factor demands, Jetson Sr. chose an Aggregate Industry Profit function, hoping the choice would enable lateral use in macro-financial modelling. pirepresented the sum of Retained Earnings, RE, and Dividends, Div. There was an additional complication concerning the nature of technical change – whether embodied, or disembodied. Jetson preferred the simpler alternative of technology manifesting itself via capital replacement. Embedded within the Profit function was a KLEM production function enhanced with Net Technical change, IT, and EnvReg as critical endogenous variables:

Jetson realized that for a large macro-system, the evolution of prices, p, a crucial determinant of lifestyle, too was of interest. He therefore posited a price-evolution function:

in which prices moved with per-capita consumption, capital, wages, GDP growth rate, international prices, economic policy and environmental regulation.

Finally, he turned his attention to the specification of the ‘Wage Evolution’ function. Well aware of the dichotomy between macro- and micro-economics as regards the endogeneity of wages, Jetson chose to model it endogenously given his intended focus on macro-labor policy. In specifying the wage evolution function, the Sr. envisaged it to be influenced, beyond the ‘tightness’ of the labor market, by the labor-saving nature of technical change, IT, as well as capital in place, Kt-1, the ratio to domestic to international prices, and Economic Policy:

With the above definitions and specifications in place, Jetson specified the SWF, given its political sensitivity, with particular attention to the labor market. He figured the society would seek to maximize employment among those seeking jobs, Lw/Lf, per-capita income, y (= Y/Pop), wealth, W, and ESH standards, but hold down the cost of living as represented by the vector of real prices, p. Thus, motivated, the SWF function read:

Gingerly, Jetson penned the ‘grand optimization system’ to sustain Social Welfare in a dynamic, capitalist system characterized by cost-cutting, labor-saving technical change:

Solving the 12-equation model was a monstrosity given the lags and inter-dependencies, but Jetson had the benefit of an ‘equation-crunching’ optimizing software on the ‘Cloud-enabled’ library computers that aided the analytical derivation of the critical relationships. Beyond the maximized SWF (and optimal factor demands), the rules specified a) Economic policies necessary to obtain an optimum population time profile that fit the larger optimization of social welfare, b) the implied optimum rate of change of technology-embodying capital, and, c) the implied relationship between labor demand and wages consistent with a scenario of continued labor-saving technical change and population projections.

Jetson didn’t like what he saw in the outputs spit out by the optimization routine. Yes, capital accumulation and reserve addition drove output growth, but population was a damper on wages. Life-style expectation and Economic policies played an important role in the economic growth of the society. ESH Regulations impacted upon labor supply thru its impact on living standards.

The optimal short-run labor demand, L*, was of the general form:

The coefficients indicated that optimal labor use, expectedly, fell with wages and capital in place, and with the pace of introduction of labor-saving technical change. Free trade resulted in labor-saving imports in times when p > P in sectors with k/l < K/L. The implied Capital-Investment, IT* was a function of the wage-rental ratio, the ratio of domestic to international prices, Economic policy, and Lifestyle Expectations, among other factors. Labor-saving technical change, motivated by the necessity to reduce costs and increase profits, would necessarily imply either a steep reduction in labor use and/or a significant drop in real wages in manufacturing. Given the ‘momentum’ in population growth, the prevalence of per-capita, subsidy-pandering politics, the arrival of AI-enhanced robot and automation technology, and aware of the ‘sacred cow’ that employment was, Jetson foresaw a tendency to politically accommodate blue-collar labor far beyond what was cost-efficient for the technically-advanced economy. The maximization of the SWF implied the society either manipulate trade policy in labor-intensive sectors, hold back technical change, reduce labor use, or accept deep cuts in blue-collar wages to accommodate advanced, cost- and labor-saving technology. It is surprising how even otherwise ordinary people rise to the occasion in times of crises. A humble roughneck though, Jetson foresaw a distant cloud of social strife if capitalism were to be pursued to its logical end. For a society to reap the benefits of advanced technology – the outcome of an elaborate system of education and research supported annually with billions of dollars worldwide, and employing the best of global talent - it’d be necessary to resolve the issue of Manufacturing Labor-employment and wages. It would be a challenge to a society that had stressed technology without anticipating suitable policies to address its social impacts; in fact, and to the opposite, even exacerbating it in to a crisis with its per-capita-based subsidy policies. Jetson perceived an opportunity to design a policy resolution to address the same. And although he hadn’t modelled it, Jetson anticipated that in all likelihood, the rise in incomes among households in a high-efficiency, high profit world would imply a concomitant increase in demand for service-sector employees, as affluent households demanded personal attention and customized services. It was perfunctory then to first consider a flexible mechanism for facilitating the smooth transfer of Manufacturing Blue-collar labor to the Service industry. With a deep sense of responsibility to future generations, he scoped out the ‘2-pronged Jetson Proposal’: the first part being a rather simple ‘Labor Switch-Points’ module, and the second, a more involved ‘Macro-financial’ module. The intention behind the ‘Labor Switch-Point’ construct was to both inform potential blue-collar Manufacturing labor of their relative likelihood of continued employment given changes in the underlying ‘shadow wages’ upon the advent of labor-saving technical change, and simultaneously offer a formal, automated mechanism to bring about a smooth transition in to employment in the Service sector. Toward that objective, Jetson posited both a ‘Switch Point Demand’ function and a ‘Switch Point Supply’ function - akin to Excess Labor Supply & Demand functions:

Jetson modelled the Service Sector as demanding Switch points, SwPtDS; the demand increasing in Service sector Output, Ys, but decreasing in manufacturing wages, wM, and Experience, ExpM, of prospective Manufacturing employees. To factor in family-stage-specific circumstances that obstructed the transition, he included, Dep, representing the number of dependents, as an additional variable (Jetson gulped hard for what it meant in his case). In a similar vein, the Supply of Manufacturing Sector Switch points, SwPtSM increased in wages, wM, and Net Investment, IT, but decreased in own Output, YM. In addition, Jetson added a variable, FD, representing Cumulative FDs subscribed to by Blue collar labor in lieu of wages (Jetson made a mental note to explain later what he meant by his ‘Wage-FD’ strategy). It captured the employer’s proclivity to retain employees willing to sacrifice wages for long-term financial security.

The demand and supply functions specified, Jetson set the ball rolling. He required a pan-industry Labor Organization to minimize the area to the left and below the intersection of the two functions in the SwPt–wM space. The intersection of the SwPt Demand function with the SwPt Supply function (plotted against wM) revealed the optimal Switch Points, SwPt*, below which the Service Sector made ‘Wage-protected’ offers to ‘redundant’ manufacturing employees. The equilibrium SwPt* varied with both Supply and Demand factors, thus lending a touch of uncertainty and cyclicity to the process of Labor migration. The Switch Point strategy facilitated the smooth transfer of Manufacturing labor to the Service Sector while protecting wages, and offered blue-collar labor the opportunity to tune their wages and savings in line with economic and labor-market prospects.

Having designed a mechanism that provided for a smooth adjustment in the Labor market, Jetson chose strategically to aggregate the Blue-collar work force across all Manufacturing industries separate from Service Sector Employees (in which, he included the Manufacturing White Collar employees as well). Next, he bought in to the Blue Collar Pension Fund Authority, PFA, which managed FD contributions as well as the stock purchases and bond assignments to each employee’s portfolio). He intended, given his read of the future, that the Blue-collar PFA would facilitate the implementation of a policy that would, in essence, reduce the wage-rental ratio, w/v, in each sector to that consistent with a robot economy as revealed in the K*, IT*, and L* expressions. In essence, he achieved it by offering wealth compensations to induce voluntary reductions in wages. Each blue-collar employee, whether in Manufacturing or Service Sector, was offered as much in stocks and bonds as the reductions he or she accepted from wages, toward purchase of Long FDs in to his or her pension account. The FDs, and the bundled, matched Stocks/Bonds ensured employees were left at least as well-off in the immediate term, and likely wealthier in the long-run. In this manner, Jetson de-linked wages from work hours, and effectively reduced the wage-rental ratio as it applied to, or, was perceived for operational and investment decisions, thus facilitating a transition to an AI-Robot Economy. Employees too, factored in the wage reduction for their consumption decisions, but made longer term lifestyle decisions based on assets they held with the PFA.

In choosing their Stock compensation for wages ‘sacrificed’ to the future as FDs, Blue collar employees were permitted their choice of stocks between ‘Own firm stock’, a zero-correlation ‘Perpendicular firm stock’ and a broad Stock market Index fund. The Employer, however, deferred the issue of FDs funds; instead it guaranteed ‘Earned Wage Payables, EWP, issued by the PFA. EWPs represented a ‘wages payable’ against the Employer, and listed as an ‘asset’ on PFA books in the sense it was liquid and could be encashed on demand. These EWPs were taken a lien upon by the pan-industry Blue-collar Labor Union, after which the PFA issued FD credits, FDCs (a ‘legal-twist’ that Jetson leveraged for a larger resolution) to the pension accounts of its subscribers.

Yet weary from thinking thru the first part of his proposal, Jetson moved on to the second. Lest the ‘wealth compensation for wage sacrifice’ strategy be presumed a mere re-classification of compensation, and given potential impacts upon various facets of the society, Jetson hastened to unravel a larger resolution for the Robotmation economy. In his resolution, the Fed was an independent agency in charge of ensuring financial stability – a charge that included the management of currency, bank deposits, bullion, interest rates and foreign exchange. Now, the Fed, as part of its duty to ensure financial stability, managed Asset-Liability balance of the economy, with a ‘back of the envelope’ thumb rule:

In the context of his task, Jetson imagined a creative re-interpretation of the above:

The Fed accommodated the demand for currency arising from the growth in Net Assets by either permitting or issuing IPOs/FPOs, issuing FDs or Long Bonds, or by managing its Foreign Currency and Bullion operations. Jetson was no genius, but he found the EWPs (which constituted an ‘earned payable’, a ‘Receivable’ on PFA books, and upon which the FDCs were issued), both an excellent ‘raison d’etre’ and a suitable ‘collateral’ for the issue of new Currency during asset re-balancing operations. By his reckoning, the Fed, rebalanced assets and liabilities around its endogenous instruments – the issue/manipulation of Currency, Bullion, IPO/FPO, Foreign exchange and Long Bonds. Jetson first required that Bullion be adjusted to cancel out changes in the FD and Foreign currency holdings:

Thus cancelled out, the Asset-Liability balance reduced to:

By his 2-step resolution, the Fed on one hand, adjusted its bullion operations to cancel out against foreign exchange and FD(C)s issued, and on the other, issued new Currency to equal the sum of IPO/FPO and Long Bonds issued. The Fed paid for the use of EWPs by ‘sponsoring’ the conversion of FDCs to FDs that were in turn credited in to the accounts of the Blue-collareds at the PFA. The Government ‘bought’ the new issue of Long Bonds from the Fed (or, equivalently, sponsored them), and forwarded them to the PFA toward its match for the participation of employees in the ‘Robotmation scheme’. In addition, the Government strategically bought in to the IPO/FPO so it could recover tax revenues lost from ROE-based tax-credits that it offered to firms when the stock appreciated post the rise in profits following introduction of Robotmation. Compensated, on one hand, with ROE-based tax credits, and relieved of immediately making good on the EWPs, manufacturing firms offered larger discounts on their stocks to their blue-collared employees in their ESOPs to pave the way for robotmation. The discounts, funded by the deferred EWP and limited to FD subscribers, served to further incentivize the participation of the Blue-collared in the ‘Robot Economy’.

Tying the loose ends, Jetson confirmed that his 2-pronged proposal compensated the wage sacrifices made by the Blue-collared labor in anticipation of a Robot economy three ways – FDs, Employer-discounted stocks, and Government-sponsored Long Bonds. Jetson verified that the Blue-collar Union cancelled its lien on the EWPs, and the PFA recovered its FD ‘principal’ – the face value of the EWPs issued – when the Fed ‘sponsored’ the conversion of FDCs to FDs. The Employers leveraged, and made good their deferred FD obligations to the PFA, by funding a discounted Stock offer to participating employees. The Government, too, found it convenient to leverage the issue of Long bonds by the Fed toward its Bond-obligations to the Blue-collar PFA. Further, it found the IPOs/FPOs a convenient asset class to invest in and recover tax revenues lost when those stocks appreciated upon the realization of higher profits following introduction of ‘robotmation’.

The bell rang to alert users the Community College Library closed 6pm sharp. Jetson barely had a minute or two on hand. Hurriedly he scribbled that his 2-pronged solution was of a pareto-nature that benefited all stakeholders – Labor, Capitalists, the Government and the broader society. The three-way compensation to the labor, and the ‘pareto’ nature of adjustments and incentives offered to the Industry and the Government brought about a much faster transition to Robotmation than was considered feasible.

Robotmation was both an opportunity and a threat to humanity’s future. Compensated with wealth accretions, Jetson had eased the Blue-collareds in to an orderly inter-generational transfer to the Robot economy without the mass unemployment and the social strife that had bedevilled other proponents. His resolution, in fact, anticipated and reduced the threat of social discord, while preserving the opportunity of genuine economic gain that a Robot economy offered. His brand of Robonomics was, he felt, particularly appropriate to per-capita-based subsidy economies grappling with a population crisis and a large public sector– a description that fit many emerging nations. But more to his ideals, Jetson believed his proposal was an appropriate transition policy from an inefficient/per-capita, subsidy-based, socialist economy toward a high profit, distributed capital ownership-based, and more efficient Closed Cycle/Robot Economy. It’d interest policy makers and politicians alike for the manner in which it tackled a highly sensitive social issue. The Jetson brand of finance was particularly apt to....

Interrupting himself before he could be shooed away by the library staff, Jetson walked out in to the yet warm late afternoon Sun. As he got to the Chevy, the sun glinting off its windshield, he thought ‘Gotta get the steering fixed soon’.

….. And no day-dreaming on the snaky way back home either!

Half-Money, Full Sustainability!

Half-Money, Full Sustainability!

Ganga Prasad Rao
http://myprofile.cos.com/gangar


The media was full of news – of the wrong kind. Food colors and flavors poisoning the young yet growing their brains, muscles, and bones (Kidneys are disposable, aren’t they? Hey,…what are stem cells for!). Plastic bags choking every drain, nook and corner of our commons. Detergents with chemicals so toxic they put nuclear materials to shame. Untreated effluents and solid waste despoiling the rivers and our landscape. Industries, caught in the capitalist ‘more profit’ trap, shunning every social responsibility to fulfil the lifestyle expectations of investors abroad. There was no resolution to the problem despite much talk, reams of paper, twitters, blogs, even U-tube videos. Wasn’t anyone smart enough to find a common denominator across these seemingly disparate issues and design a strategy that addressed them together, simultaneously?

Perhaps the media does affect our sensibilities, for an idealist who swore by Justice and was as ‘blue’ as the median on a straight highway, took up the challenge. Much like the mythical Lord Ram, he stepped up to the ‘Bow Challenge’ after his illustrious competitors had failed at it. He realized he’d have to integrate the conflict between equity and efficiency in to his grand ‘externality’ resolution. He appreciated that the resolution must be built around logic, and further, that in-built incentives and dis-incentives were necessary to guarantee the stability of the system. Further, the involvement of the masses and even entrepreneurs would be necessary for his solution to gain any credibility.

Choosing to depart from the ordinary, the Just Idealist, as he would like to be known (Ego is no sin, or, is it?), declared open membership to, and participation in the ‘Alternate Economy’. He created 3 pots of money, which he christened ‘Equity Half-Money’, EqHM, ‘Efficiency Half-Money’, EfHM and, ExHM, Externality Half-Money. The EqHM pot was the repository of funds meant to stimulate ‘equity’ beyond capitalist consumption. The EfHM, the efficiency analogue of EqHM, served to hold funds meant for investments in firms that enhanced the efficiency of the larger economy. Funds for the EfHM were sourced from Closed-Cycle 2key Bakey, and LT Bonds; the latter being ‘No Diligence’ funds that needed to ensure a ‘Full key’ (a ‘demonstration’ of intentions to be ‘Inefficiency-, Externality- and Inequity Zero’) before entering the Equity markets. The ExHM pot held reserves for firms meant to provide services to correct environmental externalities. The ExHM Money pot was filled by a ‘Green 2key’ plus an ‘Infrastructure Gaskey’. Funds for EqHM were drawn from Gold markets, which were ‘required’ to offer ‘Inequity Utility Compensation’ (and sponsor a ‘Diamond key IPO’) in ‘Equal Opposite’ of those ‘Peace’ firms that had given up and stepped down in Gold Gaskey, short of achieving ‘Diamond’ status. Consistent with the Half-Money Pots, the Just Idealist provided for three types of firms: ‘Equity Services firms’, EqSF, ‘Efficiency Services firms’, EfSF, and ‘Externality Services firms’, ExSF.

Participants in the Alternate Economy, whether a group of individuals, an association, institution, or a firm, that engaged in a pre-approved and pre-announced set of environmentally- and socially-conscious positive acts were issued with uniquely identified ‘Money Points’, and the same was recorded to their credit (not unlike eMoney/MobileMoney). Firms earned Efficiency Points, EfPt and Externality Points, ExPt, in return for providing ‘Efficiency Services’ and ‘Externality Services’ - services not supplied in an Open capitalist economy for want of economic feasibility or regulatory incentives. EfSF firms earned EfPt by engaging in activities as diverse as R&D for more efficient, new technological processes, refining uneconomic non-recyclables, producing environmentally safer, higher quality products, and offering alternative bio-degradable formulations. ExSF firms provided environmental services such as effluent treatment and solid waste management services, for which they were paid in Environmental Points, ExPt. ExSF provided ‘Utility Compensation (UC)’ services and earned Equity Points, EqPt, in return for those services.

To ensure the EfSF and ExSF did not exploit the dedicated money pots, the Just Idealist arranged a ‘See-saw Triangular Balance’ between, on hand, the EqHM-EfHM fund pair and, on the other, the EqHM-ExHM fund pair - the former offering ‘Utility Compensation’, UC, to households to balance the support given to Closed Cycle failures in the equity markets, the burden of which they paid in their purchases. The latter sponsored UE to the masses at large in return for supporting those environmentally imprudent in the equity market. In Boom times, the ExHM sponsored UE to balance the environmental excesses of an overstretched industry even while the EfHM funded Closed-cycle R&D, and cost-cutting technological developments. In Bust, the ExHM funded environmental restoration while the EfHM underwrote UC to households at large. By supporting Closed-Cycle inefficiencies and tolerating environmental excesses in the Real Economy, but providing for compensatory enjoyment, even remedial action in the Alternate Economy, the Just Idealist was able to bring about a quasi-competitive system in which the wrongs of the present were ‘paid for’ as utility compensation in the short run, but corrected physically/economically over the long run.

Individuals or Households earned EqPt in various ways: recycling batteries, motor oil, collecting & depositing ‘un-economic’ plastic and other ‘non-recyclables, buying certified ‘bio-degradable’ goods and certified organic produce, even volunteering in specified citizen/social duties. These Equity points, transferable among members, would serve as the equivalent of free money or tickets, and further, be valid for transacting with participating EqSF businesses/events thru credit/debit cards as well as thru mobile phones. Romantic Getaways, Cruise ship vacations, Concerts, Trekking trips – activities preferred by the youth whose participation was deemed necessary for the success of the program - were offered by EqSF firms, constituted of EqHM debt capital, exclusively to Equity Point holders, in order of declining EqPt balance. However, and to retain or liven up interest and participation among the masses, EqSF firms were permitted to discount EqPt for their services to randomly chosen members using a probability-distribution-based sampling lottery.

With umpteen ways, both consumption-based and by volunteering, to collect EqPt, and as many ways to spend them, an informal price-system developed around them, guiding participants in to optimal consumption choices. In a similar way, the demand for, and supply of various efficiency enhancement and externality abatement services generated transactions that enabled the discovery of implicit shadow value of EfPt and ExPt. The overlap, on one hand, of certain Equity activities with Efficiency activities, and on the other, with Externality activities, permitted the discovery of implicit exchange values between EqPt, EfPt, and ExPt, which in turn enabled the Just Idealist to optimize utility compensation, resource allocation as well as investment and divestment decisions across the entire Alternate Economy.

The funding arrangement for firms constituted of EfHM or ExHM capital explicitly specified that the debt capital be ‘redeemed’ with ‘Whole Money’ – money obtained by pairing Half-moneys of equal value, whether ‘EqPt-EfPt’ or ‘EqPt-ExPt’. Thus paired, ‘Whole Money’ discharged an equal amount of debt on the capital account. He further envisaged that, firms, whether EqSF, EfSF, or ExSF, would have the option to exit the Alternate Economy (or choose to expand with additional debt capital) upon entirely redeeming the debt capital with ‘Whole Money’ capital. For every EfSF or ExSF firm that discharged its debt with Whole Money and graduated in to the Capitalist Economy through an IPO, an EqSF could claim to have paid off its obligations and turn debt-free. The ‘Whole Money’ strategy permitted the Just Idealist to claim that he had indeed brought about a ‘Full key’ resolution to what was ‘tainted money’ - one that would obtain a 3-way balance in the see-saw Alternate Economy, and even gain in the Capitalist Economy.

Enamoured by the prospect of participating in a ‘green’ movement that rewarded participants for their economically and environmentally-conscious choices, even out of turn, the public, particularly the youth, joined in large numbers, providing budding entrepreneurs the consumer base necessary to kickstart their operations. With the availability of easy debt toward the capital for EqSF, EfSF and ExSF, and the opportunity of exploiting a ready market in UC, many entrepreneurs came forward to service the Alternate Economy. The Capitalist Economy and the Alternate Economy served as foils to each other - the former invading upon the latter when environmentally unsustainable, or, less than diligent in its services; the latter encroaching upon the former if they turned monopolistic or inefficient, or tardy in capitalizing on capitalist market opportunities. Between the tug-of-war of the Capitalist-Alternate Economy, and the 3-way see-saw within the Alternate Economy, the markets turned competitive, the society equitable, and the environment sustainable.

As for the ‘Bow Challenge’, the Just Idealist left it to the votes from participants in the Alternate Economy !

'Boursing' My Way to Utopia !

Boursing My Way to Utopia !

Ganga Prasad G. Rao
http://myprofile.cos.com/gangar

….And Alice woke up, all blurry-eyed, not remembering a word of what she had penned while in Wonderland. After staring and blinking a few seconds, she dozed off again in to another dream, this time just as exotic. Yes, something wasvery ‘grotesque’. The entire global financial system was in disarray. Panic ruled the markets.Buffeted between fears of currency crisis, global depression, and sovereign default, the entire financial community was looking for deliverance from their Messiah. But would the Messiah deliver on their pleas?

Call it the Big Lord’s design, Satan’s test of character, or cruel fate, but the Messiah was none other than a half-baked, unemployed albeit worldly-wise Economist, who, oblivious to the utter desperation in the financial community, fancied his hand at putting the world in order, and blog his resolution to the travails of the global markets. And, pray, what was his message? The Messiah accepted the fallacies of the past world, but stood resolute in his vision of the future - a world in which the sins, omissions and commissions of the industry were addressed in an overt, balanced, flexible and comprehensiveway. Rather than focus on any one externality to the exclusion of other significant externalities, the Messiah proposedclubbing them together in to an aggregate measure of firm-level externality. Firms as diverse as power plants burning brown coal, armaments industry overstocking mines, missiles and grenades to sustain employment, mining, refining and shipping, and the pesticide industries preferring environment-damaging inorganic pesticides to safer organic alternatives, could pay off their residual, un-mitigated externality, whether associated with inputs, outputs, transportation, consumption or disposal, in the capital market.

The Messiah’s disciple wondered what theory, principles, or tenets underlay the claim to measure aggregate non-pecuniary externality, and how he would go about extracting it. Perhaps it was telepathy, perhaps the Messiah was in the mood to sermonize; regardless, he chose to reveal his logic. Short of claiming the Garden of Eden as his vision of Sustainability, the Messiah advised that no matter how wrong the world was in the present, it should turn sustainable at some future point in time. And if the roots of the current unsustainability could be traced to the industry, the seeds of sustainability too lay in reforming the industry. Since the equity markets typically operated with limited foresight, the burden of sustainability fell upon the bond market. It was by issuing long bonds to correct wrongs of the past that the Government turned the future sustainable (and financed its budget in the present). Greater the wrong, the more long bonds issued to fund remedial action across years, even decades (Fukushima?, Why does it ring a bell?). Thus, the quantumof, and price variations in the long term bond market gave an indication of the extent of the ‘externality’ outstanding. The Messiah simply ensured a balance between theexternality damages by the industry and the value of outstanding long bonds. It was by perturbing the balance while simulating a firm as a monopoly that he comprehensively gauged the magnitude of its externalities. These externalities were distributed among shares and traded away in a ‘paired-complement’ strategy by creating two externality-differentiated share and bond classes.

Despite his misgivings of correcting externalities by monetary means in an inequitable world (which pre-supposed, among other things, an efficient capital market, in particular a comprehensive Sustainability Index feeding in to Long Bond pricing formula), the Messiah went about his mission methodically. He firstcreated some terminology: an economy was comprised of ‘War Firms’ and ‘Peace Firms’. Firms that truly believed in sustainable production and manufacturing, regardless of how polluting or non-polluting their process was, were assigned the ‘Peace’ label. Hawkish firms that would rather generate excess, short-term profits than go the extra mile for sustainability were deemed ‘War’ firms. To denote the extent of potential gains in various market sections, he coined ‘ungodly’ phrases: ‘2key’, signifying large and immediate, if not ‘excess returns’ (the all too familiar ‘alpha’) as appropriate to the asset class, and ‘gas key’, denoting nominal returns, if at all. In between these extremes, he recognized ‘Bakey’ (residual), ‘Complements’ and ‘Shares’ (and an ‘Ookey’ was short for ‘You should know better’!). These constituted the various fractions of every pot of money no matter which asset class – whether equity, commodity, bond, gold, or realty. The 2key portion rewarded firms for meeting objective measures of achievement; the ‘Gas key’ was essentially a ‘Capital Protection Fund’ that provided funds to alleviate ‘performance deficiencies’in stock market firms if by merely adding volatility to those market sections. (It protected the sponsors’ capital while leveraging the short-term gains of speculators to cause volatility in the equity market). Consistent with the theme of his mission, the Messiah distinguished between ‘Externality Outstanding’, EO equity shares and ‘Externality Internalized’, EI shares.

In the next step, he conceptualized an ‘Externality Quotient’, EQ, acomprehensive externality measure representing the discounted inter-temporal monetary negative,non-pecuniary externalities as normalized by the outstanding equity base of the firm or industry. A pre-market session was designed to elicit the EQ, first for the benchmark ‘EI Equal Frontrunner’ firm (a technological and environmental leader), and then for other firms in the industry/sub-aggregate. After noting the initial ‘equilibrium’ equity and bond prices, the ‘Frontrunner Benchmark’, the Messiah ordered the simulation of each firm by projecting it as a monopoly firm operating at competitive aggregate industry price and output against a designated bundle of long-term bonds of value equal the aggregate equity base of the sector to which the firm belonged. The simulation induced a change in Sustainability indices to the extent the firm’s externalities differed from the Frontrunner Benchmark.The change in the price of the long bond bundle, post simulation, from its benchmark value due changes in the underlying environmental and sustainability indices of the long-bond pricing formula were noted. The projected Gross EQ of the monopoly was simply the change in the value of bonds relative to the ‘Frontrunner Firm’ benchmark. To obtain the net firm EQ, the Gross EQ was re-computed and re-denominated to reflect the firm’s capacity/equity share in the aggregate. That externality estimate was distributed across the utility’s base of equity shares as ‘Sustainability Deficit’, SD. Each SD-tagged equity share now represented a share in the assets and profit stream of the firm, as well as a share in the uncompensated, non-pecuniary externality liability it generated across space and time.

To ensure changes in price of long ‘SD’ bonds indeed measured an externality impact in the pre-open session, the Messiah insisted that a ‘Sustainability Index’, a Divisia index of underlying indicators, factor into LT Bond prices the impact of firm operation on EHS measures in the short, medium and long run. The indicators were chosen to represent various potential and significant damage classes. The sustainability indicators included factors as diverse as air, water and land pollution measures, as well as population, health and social indicators such as maternal and infant mortality, longevity, even violence and terrorism. These measures and indicators were themselves the outputs of underlying scientific, socio-economic and statistical models – measures that had real societal values attached to them but were not priced in to the products and equity shares. The Divisia module, equivalent to a reduced form of an externality costing model, indicated the change in long bond prices for various values of underlying determinants.

The SD-tagged ‘Externality-Outstanding’ (EO) equity share‘entitled’ the firm to generate a certain amount of externality in the course of its business. Every EO-EI share transaction in the equity market released an SD to the bond market where it was bid up or down and priced in to a longbond transaction, again of the same value as the equity transaction. Only upon the cancellation of the Equity SD-ticket in the bond market was an EO equity share converted to ‘Externality-Internalised’ EI share. The Messiah requiredevery ‘EO-EI-SD-ticket’ transaction in the ‘War Zone’ be matched by a ‘Sustainability Complement’ transaction involving a ‘Peace firm’. Thus, 2 SD-tickets were generated simultaneously from the equity market and transferred to the bond market for price-discovery and to sanctify the conversion of Long SD Bonds to SB status.

Anticipating the impracticability of every firm negotiating the bidding of its SD-ticket in the bond market, a recognized haven of the Greens, the Messiah willed a ‘Blue Optimism’ fund and ‘Green Caution fund’. The two funds took opposing positions in the Bond market and competed with other interests in the race to garner as many SD-tickets as possible. The winner - the side which converted all its outstanding SD bonds to SB and prematurely retired the bonds - qualified for a Closed-Cycle IPO 2key; the loser sponsored a ‘De-listing Bakey’. Between them, the bond funds brought about a slow replacement of ‘low dividend yield’ funds with new Closed-cycle ‘growth’ funds that enlivened the market with Growth 2key.

To hasten the transition to an ‘Externality-Internalized’ industry, the Messiah suggested a ‘virtual bifurcation’ of the stock market between the two share classes- EO and EI, the intent being to restrict certain funds and money pots to appropriate share classes.Lest there be a stampede overnight, only the ‘strictly 2key’ money pots – Growth, Opportunity, and Foresight 2keys - were restricted to the EI-section of the market, while the EO section was satisficed with Bakey, Shares, Complements and Gas keys. The Messiah’s ‘bifurcation’ induced promoters and shareholders to churn their shares from EO to EI earlier than they would otherwise, and brought about an early and comprehensive internalization of externalities. This churning of EO shares in to EI shares continued until the entire equity share base turned ‘EI’, and all bonds ‘SB’. At this point, the Messiah deemed the stock market to have ‘soft-landed’ and hailed the birth of an operating, albeit rudimentary, financially closed-cycle economy.

2key: Up to 95%; Share: 40-60%; Complement: 10-40%; Bakey: Residual, Gas key: 0-10% of ‘normal’ returns in asset class.

Now, the traders in the pit, the UPennFund managers on Wall Street,and Chicago Macro-economists pursuing their profession in the rarefied spaces of sky-high towers,alike,were in a tizzy as to how the system would adapt to the various stages of the macro-economic cycle. Once again, they approached the Messiah seeking his distilled essence. The Messiah obliged them, yet again. For each industry group, he used the pre-market session to obtain an estimate of the gross outstanding externality. He instructed the firms take sides – either ‘Peace’ or ‘War’ firms as appropriate to each. He then categorized investible funds in to ‘functional groups’: Growth, Risk Equity, Competition, Sustainable Development, Investment, Innovation, IPO, FPO– to name a few. Finally, lo and behold, the Messiah cranked up his ‘Mensa Economy'.

Boom time it was. Commodity prices spiralled up as the economy hummed and short-term interest rates firmed up. Equity prices, in particular those of ‘War’ and ‘Peace’ EO shares, gained traction. Shareholders in ‘War’ firms were beneficiaries of equity returns that were in consonance with the risk they had borne (Equity Risk 2Key). These firms also reaped rewards from a Commodity 2key Share - a return that supported Capital Retirement if in a Zero-sum with an Investment 2key in Long bonds.Peace firms, however, could only lay claim to a lesser return, a Growth 2key net of any inflation-induced bond impacts (a ‘paired fund’ return maximized by competition, hence Competition 2key). Both ‘War’ and ‘Peace’ firms shared in (own sector) IPO 2key in this phase of the economic cycle.

In the bond market, the Blue Optimism Fund exploited the low bond prices during the equity boom to buyback or exit SD-bonds while converting them to SB status by bidding away SD-tickets available at a discount from the equity market. The buyback enabled the Blue Optimism Fund to prematurely retire bonds, and facilitated the sponsoring of an IPO in the Equity market.

As the Economy peaked and entered the Bust cycle, shareholders in War firms enjoyed the Innovation 2key – a fund meant to support frontier, leading edge research. Both War and Peace firms enjoyed the Bakey returns of an Infrastructure investment fund whose primary gains went to LT Bonds. War firms were also favoured by an FII (Foresight) 2key, meant to pick winners for the early bird investor, andthe FPO 2key Satisfice, a strategic, thinly-disguised Monopoly fund, meant to expand market share by luring investors when most susceptible. These firms also benefited from a ‘paired Opportunity fund’ – a Stimulus 2key net of a Sustainability Bakey. Consistent with the Government’s view, the Opportunity fund ensured any gainaccruing to unsustainable War firms during the Bust period was ephemeral.

The story with ‘Peace Firms’ in Bust was quite different. Having accepted the vision of a sustainable industry, promoters and shareholders relied, on one hand,on the Infrastructure Bakey and a paired ‘Closed-cycle Transition 2key–TIPS’ fund, and on the other, on a paired ‘Balance2key’for equity gains. The Closed Cycle Transition ‘2key’ was essentially long bond returns net of inflation, a 2key maximized by a peaceful and cost-cutting, ‘Full Cost’ competitive economy. The Balance 2key, sourced from Equity Risk remnants (Gas key) and rising Long Bond returns, contributed to returns in this cycle, as did an Infrastructure Bakey camouflaged as Dividend 2key. In Bust, Long bonds attracted an Infrastructure 2key, a Sustainability 2key supported by excess Gold returns (Gold 2key), an Arbitrage 2key from equity and currency markets, and nominally, some Closed Cycle funds to enable aspiring firms to weather the ‘winter’. The Capital Protection Fund, CPF, (a Gold Gas key and a Commodity Gas key) preserved gains from Gold and Commodity markets among Peace firms while sowing the seed for a future 2key return. The Green Caution Fund exercised its option to bid up SD-tickets with the proceeds of its redemption from Long bonds from Peace firms even while investing in them on the equity side of the market.

In the ‘Hard Assets’ category – Land and Realty, the Messiahtrudged the simpler path.A Realty 2key supported Land prices during Bust period, while a Land Bank 2key and a Gold 2key Complement underwrote gains in Realty prices during Boom. A Land Bank gas key supported land assets in Boom, and realty assets in Bust. A Gold gas key added to Volatility in the Realty assets during Bust.

And as far as Currency markets were concerned, the Boom period was characterized by 2keys from Exports, Foreign Exchange Hedge, and FII Hedge pots. In the Bust cycle, currency markets moved with an Import 2key, and Foreign Exchange Hedge key, supplemented by FII gas key and Export gas key. A TIPS fund was distributed in 2key and gas key between the Boom and Bust cycles, albeit with a sting in the tail.

Having discussed threadbare the ideal operation of the stock market, the Messiah, sought to reinforce its utility by mentally simulating a policy goal to eliminate or minimize the Armament industry.He firmly believed that an industry as ‘bad’ and one as close to the government and its secrets as the Armament industry, would survive and proliferate, even if it meant the destruction of nations and their economies. The Messiah’s dilemma was how he would put an end to the scourge that robbed the global citizen of bread on his plate and returns in the market? How would he wind up an industry that had a long record of engendering technical innovations that bolstered the productivity and efficiency of industrially advanced nations, created business opportunities and sustained jobs – the very measures by which the Government and politicians were judged by the electorate? Could he not just give the industry the Christmas week and bull-doze the factories for bread lines come January 1? If the Messiah was no simpleton with child-like innocence camouflaging ignorance, thanks were in order to the Big Lord!

But seriously, the Messiah was aware, that behind the various wars and factional strife, was a coterie of advanced nations and industry barons heavily invested in mining and basic metal firms, in technology supporting those industries, as well as in commodity markets transacting the outputs of those industries. Fact of matter, the Messiah was so wise that he had a downright ‘unholy’suspicion: Could it be that the stakeholders and investors in those industries were forced to resort even to war to recover their investments that had been eroded by the umpteen stock market speculator-day traders? Perhaps Governments that had promised a 100% ‘Total return’ in the capital market to Hard Rock Mining and Basic Metal Industry, HRMBM firms, were obliged to consider novel ways - war and ‘peace-missions’ - to keep them, even if it meant the world was a last few steps away from a WW-III Armageddon?

Fearing the worst, the Messiah came up with a two-pronged ‘Carrot and Stick’ strategy. He decided he would, on one hand, offer the HRMBM industry a reasonable return for the risks they endured by sponsoring a ‘Stimulus 2key’ that stimulated economic demand and raised the standard of living of his followers, and on the other, simultaneously offer the armament industry an incentive to ‘downsize’, an opportunity to innovate in to a ‘non-military’ firm, and an opportunity to generate a ‘peace’ return on its investment while refraining from weapon production. To keep incentives straight, the Messiah exploited differences in intentions and outcomes between the two industries to promote a third party, Agriculture.

To facilitate the realization of the policy goal, the Messiah paired the Armament industry with the HRMBM industry, pitted them against ‘Peace Hawks’ (International Organizations) and Agriculture interests in the Bond market, and initiated equity trading in a ‘bifurcated’ stock market. In the boom-time economy, a Promoter of the Armament ‘War’ firm holding EO shares sought 2keys to realize capital gains, but was denied the same from lack of EI status. Unable to realize capital appreciation, his options were either to lobby and induce foreign policy mis-steps that enabled him to secure armament orders and exploit the Armament 2key, or fold in and submit his shares to the EO-EI conversion program. Sanity and good-will prevailed, and the Armament industry weighed its Externality Quotient in the pre-market session with intention to convert all EO shares to EI status, if eventually. As if walking a balance beam, the promoter sought to optimize, on one hand, the harvesting of 2key returns by releasing as many EO shares to the market as possible without compromising on share price, and on the other, minimize the loss of capital appreciation in the EI side of the Equity market from a delay in offering EO shares to the market. Avoiding the Armament 2key trap, he sold his EO shares to realize a ‘Depreciation2key’ with which to retire Armament production lines. The Buyer was an International Organization that monitored International military relations and managed a Peace Dividend fund. The transaction triggered an ‘SD Complement’ in the ‘Peace zone’ and an SD-ticket in the Bond market. An HRMBM ‘Peace’ firm pounced on the SD Complement and executed a similar trade to realize a ‘Competition 2key’.

Following the equity market transactions, the Bond market announced 2 SD tickets – one each from the Armament firm and the other from the HRMBM firm (both with a floor price supported by the UN/GEF/WWF). The SDs were bid up to different extents by bond market participants. The Armament SD, prized for the large risk to international peace that the industry had caused, was, again, bid away by the Peace Hawk whoapplied ‘Peace Dividend’ funds to buy in to the Bond market (which rose with infusion of the Peace Dividend 2key Share), thus ensuring a presence on both sides of the market. The HRMBM SD, comprised largely of damages to soil and ground water, was of particular interest to NABARD whose mission it was to support agriculture and which had issued agricultural bonds. It bid up the ‘exernality sin’ manifest in the SD tickets and won the right to retire the bonds prematurely when it had ‘redeemed’ sufficient number of SD tickets representing EO shares of value equal outstanding bonds in the market. The NABARD used the proceeds of the prematurely retired bonds to buy in to Land for agricultural use, thus offering a Land 2key to those invested in the asset.

In the Bust cycle, the Armament War firm had many takers for its EO shares. Shareholders had a choice between a Stimulus 2key, Innovation Funds, and Opportunity funds when offloading shares in the market. The Stimulus 2key supported Armament firms to the extent their output served non-military purposes. The Innovation 2key supported strategic research, albeit not necessarily peaceful or ‘Closed cycle’. Thus, the International Organization found it to its advantage to support the Armament firm with an Innovation 2key, and, simultaneously, buy out the SD ticket to consolidate in or exit the Bond Market. The Messiah also offered an Armament 2key, itself a Zero Sum with the Peace Dividend 2key, but only in Bakey, and only to holders of the Armament firm’s EI shares. The strategy restricted capital appreciation and ‘alpha’ to those Armament firms that had substantially converted their share base over to EI status and those that abjured the War route to profits.

The unconverted HRMBM Peace Firm EO shares, besides attracting Stimulus funds, found buyers in Closed Cycle proponents and Balance funds – the former seeking profits from lower cost consequent to enhancing the efficiency of material balances in the firm’s production process, and the latter seeking to profit from correcting the inefficient use of mining and refining capacity for production and stockpiling of arms.

In subsequent cycles, a dominant shareholder in the Armament industry, perhaps a Promoter, secured both the Armament 2key bakey for refraining from Armament production and stockpiling, and a Capital Depreciation/Retirement 2key for his ‘War EO’ shares (The Depreciation 2key was a Zero-Sum with an Investment 2key, both of which were sourced from returns generated in the Commodity market). The Capital Depreciation/Retirement2key was secured from a Peace Dividend Bond foreclosed by bidding away Armament SD-tickets in the bond market (which enabled the Promoter to claim EI status for his shares, a pre-requisite to de-commission an Armament production line or factory). The de-commissioning of Armament factory and/or the reduction in armament stockpile reduced the risk of war, which was an important factor in determining long bond prices. The consequent increase in bond prices was a reward to the Institution sponsoring the Peace Dividend Fund. The churning of the Armament EO to EI shares, induced a similar churn in the HRMBM shares, purchasing the SD-tickets from which enabled NABARD to retire its Agriculture bonds and channel them to purchase land for agricultural use – perhaps a harbinger of a nascent green revolution.

Armament factories outta business, sustained profits for metal and mining industry, a resurgent agriculture sector, an environmentally sustainable industry, and a financially-closed capital market? One would be excused for congratulating the Messiah for showing the path to sustainability, if not salvation. But the Messiah cared not to learn if his followers were ingrates. For, as he trudged his lonely path to the setting sun, he was wise to the nefarious, grand designs of those un-named bent on exploiting the opportunities and loopholes in his proposal and get the better of God in his own paradise (even if it meant a parallel, underground stock market and 8-figure signing bonuses for fresh Ivy League graduates !)

Luck, Be a Lady Tonight !

Luck, Be a Lady Tonight !

Ganga Prasad G. Rao
http://myprofile.cos.com/gangar

‘Twas approaching midnight hour, Christmas eve. A lonely truck, probably carrying frozen turkeys from Thanksgiving, snaked its way through the mountain side. The road was tortuous, even dangerous. An entire mass of snow lay directly overhead the road. As he drove through the valley, the driver’s heartbeat quickened and his eyes turned wider from years of driving experience. He hoped the rattle of his pre-CAA era 6-wheeler would not disturb the peace of the snowflakes lying deep in the snow and ice-mass. He heaved a sigh of relief after negotiatingthe perilous section of the road. Avalanches were not unheard of in these parts. Unknown to him, a draft of relatively warm wind,swepta speck of soot from his exhaust pipe and carried it upslope. As it rose along the mountain side, it was engulfed by a larger mass of air, in fact one in the mood to …Snow! Ice crystals coalesced around the soot particle and it came down upon the bulging, almost heaving mass of snow on the steep sides of the mountain…..

…..A couple hundred feet below, Fred and Tom, automobile engineers by profession, but self-proclaimed environmental engineers in spare time, had just finished tightening the screws on a cylindrical, ceramic-lined contraption in their garage. From the looks of it, it was meant to be attached to the exhaust line of freight trucks. Apparently, the engineers, who happened to wear Santa Green caps, were nastily angry with freight vehicles farting cancerous diesel soot in to the lungs of their young ones. After much thought, and, ‘trial and error’, they came up with their yet-to-be patented ‘Golf Snowball Kart Apparatus’. The Golf Snowball Kart was meant to fit in to the exhaust system of diesel road freight vehicles. It was in essence a ceramic-lined cylinder containing innumerable pea-sized carbon-spherules that were continuously ‘wetted’ by a fine spray of a surface adhesive dissolved in a volatile organic fluid. The spray served to capture soot contained in the flow of exhaust gases through the cylinder on to the surface of the spherules. As the truck engine started,the cylinder rotated on its long axis, and the carbon spherules picked up soot from the exhaust flow and gained size while falling repeatedly over the sides of the rotating cylinder. When they turned the size of a golf-ball, a size-filter pushed these ‘heavy-weights’ up the duct in to a secured compartment for physical retrieval at truck stops. Fresh spherules entered the cylinder to maintain surface area requirements. The process was continuous and counter-current and automated, requiring no driver handling or supervision.

If there was a tinge of pride and ego in the engineers, it was all too pardonable. For they had, sophistication be damned, developed a reasonable means of achieving control of cancerous diesel soot from road freight vehicles. As they raised beer mugs to cherish their daughters’ health, talk meandered from how their ‘retrofit’ could bring about control of soot from freight vehicles worldwide and even be part of a global environmental strategy. The banter led, predictably and inexorably, to the ‘dyed-in-yellow, scum of the earth’ environmental economists, who for all their ‘expertise’, had permitted the Global warming conspiracy to escalate and spread its sooty tentacles to the Arctic and the Antarctic. Surely, Environmental Engineers could put one over their Economics cousins?

With that thought, and in to their fourth mug of the evening, Fred challenged Tom to try his hand at environmental policy. Not yet appreciating the potential of their invention, Tom casually suggested a ‘Give and take, 2-way Street’ deal. “A 2 way deal? Fill me in. Our Senator is sorta friend of my in-law; he could pull strings for us in the corridors of power” guffawed Fred. Tom was not known to be greedy, garrulous or, for that matter, romantically-inclined, but four mugs of beer can work magic. Besides, opportunity knocks but once.Luck, be a lady tonight!

A stranger sight was never beheld in Small Town, Frigida. Tom, his mug of beer in hand yet dirty with grease, invoked all the intelligence bequeath to him by his forefathers, and began lecturing with his pointer at the garage drawing board choc-a-bloc with engineering math and drawings of the ‘Golf-Kart Snowball’ apparatus. He expanded on how the Government would offer a ‘hand-sheikh’ deal to the OPEC Sheikhs – a deal in which the current EV mandate, requiring a phased introduction of EV automobiles, would extend to future years and even enlarge, but at an ‘endogenous’ pace – a pace determined by the Sheikh’s willingness to curb soot from diesel-fuelled freight trucks. Why, Tom even put up a simple relation that the Sheikh would have to contend with:

%EVSHAREt = αt -β*(PAHTONS/ARTM)t-1

where, at any time, t,%EVSHARE represented the mandatory fraction that EVs must constitute in new automobiles sales, PAHTONS the aggregate tons of PAH Golf Snow balls collected from Golf-Kart ‘bins’ ("$ Saaantaaa $"), and RTM, the Aggregate Road Ton-miles from all trucks - Golf-Kart, or otherwise.Not immediately anticipating the line of Tom’s argument - even beer is alcoholic after the fourth mug – Fred wondered what the incentives were, and who would fund the conversion of an entire fleet of dirty diesel trucks.

Tom explained the expression was merely a quantitative relation within a larger, if implicit ‘Zero-Sum’ strategy, between automobile gasoline demand and freight diesel fuel demand. Essentially, the Government would offer the Sheikhs some ‘rope’ in the form of slower EV penetration in return for the capture of diesel soot from freight trucks (Privately though, Tom wondered whether the EVs were re-charged on ‘dirty power’… and Fred feared that an American Consortium had won the right to creating and maintaining the Arctic Northern Shipping Passage!). The curtailment of diesel exhaust from retrofitted freight trucks would bring about a reduction in air pollution mortality and an increase in longevity of its citizens. To get the deal going, ‘Obama the Just’, would offer a ‘sweetener’ to the Sheikhs in the form of Lithium Commodity Fund Units, LCFUs, (lithium being the ‘heartbeat’ of EVs) which represented a convenient way of participating in the rise of EVs in the automobile space, as compensation for the unilateral incursion in to the Gasoline market. Anxious to arrest the CO2 trend before it melted the thick ice over the Antarctic rocks and exposed them to the mercy of Canadian Juniors, the UNEP too would pitch in with Certified Emissions Reductions, CERs, in amount equal to the tons CO2 avoided annually from the switch to EVs – a switch the pace of which the Sheikh would decide himself.

The Sheikh could remain invested, switch or redeem LCFUs and the CERs, the proceeds from which could be applied either to retrofit trucks with the ‘Snowball Golf Kart’ apparatus, and/or to exclusively discount diesel to retrofittedfreight trucks. In effect, the Sheikh, arguably the most powerful ‘supply persona’, was offered the opportunity to control fuel demand as well, albeit in a manner compatible with the goals of the Government and the UNEP. He could now influence incremental gasoline demand by determining the extent of EV penetration in to the auto market, while controlling freight fuel demand both by offering discounts on road diesel to ‘Golf-Kart’ equipped trucks,and by underwriting the retrofitting of ‘Golf Snowball -Kart’ equipment to freight trucks.

“Have the Sheikhs decide their own fate? Yup, Sounds interesting….and practical!.....“I am all ears”. Tom, ever so sensitive to exploitation, mumbled to himself “Luck, Be a lady tonight, …. Twice over”,before continuing with his exposition.

As Tom imagined, the Sheikh would optimize profits from both gasoline and diesel markets, depending on current and perceived direction of prices in those markets, the state of the economy, and the economics of freight haulage. He would also move dynamically between CER and LCFU units anticipating price movements due changes in stage of economic expansion, the fraction of automobile fleet constituted by EVs – both presently and prospectively, and the intensity of their use – a function of the price of power recharge. Aware the EVs would otherwise encroach deeper in to his traditional stronghold in automobile gasoline market, the Sheikh would perforce seek PAHTONS by applying theLCFU/CER redemption proceeds to a Golf Snowball Retrofit program while concomitantly offering a diesel discount to induce the preferential use of retrofitted trucks.

Tom was indeed making sense. Sensing Santa in the neighbourhood, Fred pushed another mug toward Tom. As he picked his fifth mug of beer, Tom thought wistfully….If only they came this easy….

Quickly back to his senses, Tom envisaged, that in bust times, the Sheikh would prefer the ‘benching’ the dirty truck fleet, and apply CER/LCFU proceeds to retrofit them with ‘Golf-Kart-Snowball’ apparatus. Diesel discounts, if any, would be largely limited to retrofitted freight trucks plying along the rail network (the discounts being necessary as much for the Sheikh to capture soot and restrain EV growth as it was for the truck haulers to compete with Rail freight priced to ensure full utilization of its physical network in poor economic times). In boom times, the Sheikh would cash out, first from the zooming Lithium market and next from the booming CER market. The proceeds would be applied to fund a fuel discount program for retrofitted trucks at the expense of the retrofitting program, thus obtaining large reductions in diesel soot necessary to limit EV penetration in the ensuing period.

2:22am! Hmm, Time to wind up the talk, but first a final gulp. Surprised at how good a policy it turned out to be, an animated Tom explained how the incentive, on one hand, to bench and retrofit dirty trucks, and, on the other, to ply them with discounted diesel in preference over dirty trucks served as instruments for the Sheikh to tweak the environmental performance of the road freight sector, and the means to manage the product mix from his refineries. He cautioned that the rate of EV penetration would vary period to period, and from Boom to Bust - sometimes up, sometimes down, but at all times minimizing the combined impact of GHG emissions and diesel soot – an outcome agreeable to the Government and the UNEP. And as the Sheikh danced the ‘dynamic equilibrium’ in the CER, LCFU, EV and Freight markets, the truck fleet turned cleaner, a lot cleaner….and citizens breathed fuller and healthier. And the Golf balls? Tom would rather the Environmental Administration arranged to collect and verify them for accuracy, and dispose the same in scrubber-equipped thermal power plants, if admixed with an oxygen-rich combustion enhancer.

Fred stared,still reeling from Tom’s genius,and wondered if it would all work the way he foresaw it. In that instant,he heard adistant rumble and the ground shook under them. The wind whistled and whooshed at their garage doors and windows. Fearing an avalanche, the two opened the door gingerly to take a peek. And just as they heaved a sigh of relief and were to close the door, a gust of snow billowed in and filled their empty mugs on the table!

Merry Christmas!

Pull a punch, Will Ya? Not This Round !

Pull a punch, Will Ya? Not This Round !

Ganga Prasad G. Rao
http://myprofile.cos.com/gangar

These days, even the guy on the street is familiar with global warming, climate change, emissions taxes and emissions credits. After decades of wrangling, it is perhaps safe now to openly support (without triggering ‘RTI hits and FOIA misses’!) the claim that fossil fuel use has induced and accelerated climate change. Economists, ever so prescient, have proposed various schemes – from per capita emission limits to tradable, bankable emissions credits. Why, and notwithstanding the currency crisis, there is even a European Carbon Credit Trading market (that is when you trade Gouda cheese and thermal power emissions for Swiss cheese and home heating emissions!). But seriously, or more aptly, to tickle your cranial nerves, here’s one that you haven’t come across yet (unless someone smoked it outta me as I showered, and posted it before I trudged my last mile to the public computer center). So, what do I have to gain, and you to lose with a blog/column on the subject? Nothin’ much, no matter which side of the debate you stand on. And, what do I call this piece? Not my comatose day-dreaming and delirious rantings as I snake my way thru ‘Alice in Wonderland’ !

The Problem

In the beginning there were two Sultanates headed by, respectively, the ‘Blue IEA Sultan’ and the ‘Green GEF Sultan’ answerable only to the ‘World Bank Monarch’. The IEA Sultan sought the exploitation of all fossil fuel reserves and discoveries. The GEF Sultan wouldn’t hear of it until his adversary ‘diligently’ pronounced ‘Environmental Sustainability’. This impasse continued until the Big One, as the Monarch would imagine himself to be, asked them to hammer out a middle road between their polar positions. To cut the story short, and much as they hated each other, the two Sultans sat on opposite corners of the palatial hall and shouted across as to how much energy the global economy should consume and how much the earth could warm. With the world stock markets awaiting their word ever so impatiently, they decided to go with the advice of the Monarch’s scientific and economic advisors. The advisors put up charts indicating the causality and relationship between global economic output, energy intensity, carbon intensity of fuels, carbon emissions, CO2 concentration, and the Steady State Long-run global mean temperature, SS-LR-GMT, (the chosen measure for global warming) consistent with those emissions/CO2 concentration. To the relief of bond managers managing trillion dollar portfolios, the advisors also estimated the ‘Optimal Steady State Long run Global Mean Temperature’, T*, one that ostensibly maximized intergenerational global welfare while minimizing economic, environmental and social damages. The Sultans sagaciously accepted the advisors’ recommendations.

The Answer?

Required to dovetail their policies and realize the optimal SS-LR-GMT target, T*, or risk losing their Sultanate to the Monarch, the Sultans scratched their heads to come up with a solution to achieve it as early as possible without giving up either the natural resources at hand, or the profits churned up by the global economy. Wisely, they turned to their trusted Chair of Environmental Economics for answers. The academic, wizened by decades of wrangling for funds, the punches, barbs and stings from sponsors, stakeholders and critics in the academe and beyond for every paper he published in his illustrious career, chose to play a simple, yet effective ball game. He decided to pit the two Sultans in a head-to-head, multi-round boxing match!
All zealously profit-minded firms, were asked to line up behind the IEA Sultan. Those other firms that gave more than mere lip-service to ‘Corporate Social and Environmental Responsibility’ were suggested to accept patronage of the Green GEF Sultan. The Academic asked the two Sultans to administer the group of firms under them. The IEA Sultan was asked to maximize in each period, the aggregate accounting profits, Ht, of ‘n’ Blue firms under him:

The GEF Sultan was suggested he maximize a static ‘Net Resource Rent’ function, Dt,

where ‘OilRev’ stood for the total proceeds from Monopoly Oil sales to the IEA Sultan, ‘RF Outgo’, the cost of Carbon-Zero Renewable Fuel, CZRF, purchased from the IEA Sultan, P^ERt, the price of an emission right modified by the amount of change in SS-LR-GMT that it induced (the dollar price for a 1 degree temperature change in SS-LR-GMT), TProj, the current period projected SS-LR-GMT as determined by actual past period GMT, Tt-1, ERt, the emissions in the current period, and T*, the global welfare-maximizing GMT.

Now, the Blue IEA Sultan was eager to lead the Resource bandwagon, and anxious to fulfill all energy needs of the world. But, as ordained by the Divine Lord himself (The Monarch favored the Green Sultan who shared the Big One’s vision of the Earth being a Garden of Eden), the GEF Sultan cornered all rights to fossil energy production and supply. Entrusted with securing the Green Orb for the future, the GEF Sultan further sought and obtained the right to administer the Emission Rights (ER) Bank in which firms could deposit, hold and redeem their ERs.

Paradoxically, thankfully, and perhaps even appropriately, the IEA Sultan, now forced to buy Monopoly Oil from the GEF Sultan for firms under him, won both the right to control supply of ‘carbon-zero’ renewable fuels, CZRF, and the power to issue Emission Rights, ERs. Upstaged by the Green Sultan in resource rights, and green with jealousy, the IEA Sultan wrought his vengeance, first by monopolizing the production and supply of CZRF, and then, by allotting ERs free to Blue firms in amounts equal to the number of Oil barrels they purchased from him in auction each period. Blue firms could either apply the ERs toward oil consumption, bank them in an ER Bank, exchange them for CZRF barrels, or, trade them over to the Greens in ‘Blue’ ER Auctions.

His stature in the fossil energy market notwithstanding, the GEF Sultan was forced to buy CZRF from the IEA Sultan at monopoly prices and auction them to his Greens. Post the CZRF auction, the GEF Sultan also offered ‘gratis’ to Green firms those oil barrels not purchased by the IEA Sultan, on condition every barrel be consumed with an ER. Sharing their Sultan’s vision, the Greens bought ERs from the Blue firms in competitive, market-based, secret auctions. Green firms could apply the ERs to Oil consumption, exchange them for CZRF barrels, bank them in the ER Bank, and/or turn them in to their Sultan for ER credits, ERCs.

The Pay-Off

His brain sharpened by the decades of ‘walk the tightrope’, the academic tied the Sultans in to a further obligation. Fully cognizant of the conflict of interest, he specified a ‘Pay-off function’ for both Sultans - a function that determined their ‘take’ at the conclusion of each ‘boxing round’ which they themselves administered – a test of their morals and ethics. The IEA Sultan’s Pay-off function was, simply:

IEA Sultan Pay-off, POBt = ‘Blue’ Oil Auction Revenuest – Monopoly Oil Purchase Costt

The GEF Sultan’s Pay-off function was similar:

GEF Sultan Pay-off, POGt = ‘Green’ CZRF Auction Revenuest – Monopoly CZRF Costt + Aggregate Blue ER Auction Profitst

Rich Pickings? or Lean Meat!

At the conclusion of each round, the Monarch called upon the Sultans and satisfied himself that the economies were turning incrementally efficient and environmentally sustainable, even equitable. He further ensured the Sultans computed their Pay-offs only after reconciling Oil transactions in his office. In a strategy that revealed the Chair’s genius, revenues from monopoly oil sales to the IEA Sultan were distributed each round among Green firms in proportion to their ERC balance in the complement of the percentage ER profits that the Blue firms turned in to the ‘Blue ER Profit Bank’. The rest of the Monopoly Oil sale revenue (equal the % ER profit turned in by Blue firms in to the ER Profit Bank) went in to the Monarch’s Granary (Yes, the ‘Royal Resource Sink’ Bank!) until such time TPr exceed T*.

As further required by the Chair, the GEF Sultan, bound to his ‘Garden of Eden’ charter, turned in any excess from his Pay-off (POG-POB) over his counterpart’s, to an Environmental Remediation Fun, ERF. And in those periods, when the IEA Sultan’s pay-off exceeded the GEF Sultan’s, he turned the excess over to the Equal Opportunity Compensation Fund, EOC – a dole for firms at the bottom of the Blue Ladder meant to ensure their survival while yet new and small. The Green, recipients of residual oil barrels post the Blue auction, did not mind the EOC diversion.

After a re-computation of ER balances, and a re-jig of firms on the Blue and Green Ladder, respectively by cumulative profits and ERCs, the IEA Sultan, just as soon turned his attention to the next round, gauged the input and output prices, as well as the position of banked emission rights before deciding how much Oil to bid from the GEF Sultan. Not to be outdone, the GEF Sultan took stock of how much the past period GMT and emissions impacted upon TProj(‘Impact Function’), how that deduction impacted upon his Objective Function, and made anticipatory, compensatory adjustments to the amount (and implicitly, the price) of Oil he offered to the IEA Sultan next period. In that matter too, the GEF Sultan followed the advice of the Chair who guided him with a ‘Response Curve’ to quantify his decisions. The ‘Response Curve’ indicated how the GEF Sultan ought to alter the quantity of Oil offered to the IEA Sultan from period to period for various projections deviations from T*.

And as the bell rang for the next round, the Blue firms and the Green firms – the boxers – began to pull punches all over again. The Blue firms maximized profits while the Green firms were intent on generating income to purchase ERs and turn them in to ERCs, the measure by which Monopoly Oil revenues were distributed among them (and in fact, their ticket to ‘Nirvana’). Together, the Greens and the Blues, bid up or down the price of Oil, ERs and RF in a manner that signaled to the Sultans appropriate remedial policy measures to jointly maximize their take and yet conform to the Monarch’s objectives.

Signals and Incentives

The Monarch’s advisors examined the many stocks, flows and ratios in this ‘proxy boxing match’, but in particular, a) the number of banked ERs, and b) the ratio of the price of ER to the price of the marginal oil barrel. A positive change in the magnitude of banked ERs indicated an expectation of increasing economic activity, resource scarcity, and/or environmental sensitivity in future periods. Similarly, an increase in the ratio of the price of ER to the price of Oil suggested a lower pay-off for Oil exploration. The same were considered as macro-economic ‘signaling instruments’ to influence economic, environmental and resource policies.

Nirvana

At the Tea, a closing ceremony sponsored by the Monarch following a round, the two Sultans took stock of their ilk. The IEA Sheikh re-arranged Blue firms on the basis of cumulative accounting profit criterion; firms that had churned the largest cumulative profit holding the top rungs of the ladder. Rankings on the Green Ladder were decided by cumulative ERCs. Firms were then permitted to cross the road albeit on a case by case basis. Lured by the prospect of sharing the Oil auction rents, many firms sought to cross over the ‘Laxman Rekha’, and jump on to the Green Ladder. In other periods, some Green firms decided they had a better chance of climbing the ladder by churning out profits on the Blue side. Unmindful of the treachery, the two Sultans permitted firms to change sides, albeit on a case by case basis (the Blue Sultan wouldn’t as much give audience to the RF supplying firms). Moving firms could carry their ‘banked assets’ across the road but would need to conform to the rules and criterion on that side of the road.
As an incentive to compete and excel, the Monarch, in consultation with the Sultans, chose following each round a Blue firm and a Green firm at the head of the two ladders, for ‘Nirvana’, an exalted state signifying ‘principled success’. The Monarch bought out the Chosen Green of the round, while the corresponding Blue firm was rewarded with a ‘share buyback’ from the ‘Blue ER Profit Bank’ (In both cases, the shareholders had a little something to cherish). The Owners/promoters of the ‘Nirvana-Blue’ firm joined the Blue Sultan as ‘Slave Drivers’ (albeit ‘Administrators’) and took charge of managing the ‘Blue Line’, in particular the administration of the Oil auctions, the distribution of ‘EO Compensation’ monies to Blue tailgaters, as well as decision-making involving the various economic parameters necessary for the IEA Sultan to optimize aggregate profits. Owners/Promoters of the Green firm achieving Nirvana were privileged to serve as Environmental Judges on behalf the Monarch and entrusted with the administration of the Environmental Remediation Fund. To limit collusion, and self-audit the system, the Sultans occasionally winked at an exchange of administrators.

Death, ‘Punarjanma’, and the Birth of the Closed Cycle

To permit business failure concomitant with the graduation of ‘Nirvana firms’, and leverage it for the better of the Earth for a future economic cycle, the Monarch bought out one ‘failing’ firm each round from between the Greens and the Blues and re-structured it in to an entirely new Closed Cycle entity at the bottom of the ladder – alternating between Green and Blue ladders each round. The new entity was permitted to expand and move up the ladder only if it could conform to the guidelines of a closed-cycle economy.

Epilogue? Or a What If?

As it turned out, nations of the world were confronted with a horned-dilemma between choosing global economic depression and engendering irreversible global environmental damage. On the one hand, the Emissions Trading System, ETS, of the Developed world was distorted by the monetary greed of currency funds, hedging strategies of commodity funds, and geopolitical strong-arming of sovereign funds; on the other, developing nations, held back by per-capita policy-based subsidized economies, shied away from participating in the ETS, and turning it largely ineffective at controlling global GHG emissions. The proxy Moulin Slugfest between the Sultans’ Loyals was not an inappropriate strategy, perhaps even a middle road to an economic and environmental resolution between die-hard opponents and enemies.

This ‘Technology-Resource – Efficiency-Equity’ tussle between the Developing World and the Developed World continued while firms in ‘Moses Pariah’ nations played a Zero-Sum within their economies (as opposed to a ZS among firms across nations in the ETS) until they turned a lot more efficient, even a shade greener, and moved up in to the ‘Club of the Empowered’ (the G20). Both groups found the challenge of duopolic sparring rounds, the allurement of resource rents, and the dream of ‘Nirvana’ while achieving T*, ‘the grand utopia’, an economic-environmental alternative worth considering.

And as Moses herded his sheep across the River Jordan, the incentives to cross the Blue-Green divide diminished eventually, until it didn’t matter whether a firm or nation chose one or the other side of the road to the Garden of Eden!

ps: As for the Green and Blue Administrators, they had just enough coins, pennies and dimes left over to order an elaborately designed carpet for the boxing rink (and, matter of fact, did not mind a few loose ends!).