Scaling Intelligence

Intelligence is the ability to acquire and apply knowledge and skills.

Most living forms display some level of intelligence. They do this once they have the ability to remember and to use their memories to change behaviour.

Humans have evolved to display high levels of intelligence.  This happened because our brains increased in size. In particular our prefrontal cortex got larger.  The prefrontal cortex is where we coordinate memories obtained from our reptilian brains. It links memories and allows us to acquire more knowledge and skills.

However, it is unlikely there will be any increase in the size of our brains.  This is because we now scale our knowledge by communicating with others.  We acquire almost all our knowledge and skills from others and from using tools. The rate at which our brains increased in size probably slowed when we learned to speak and to pass intelligence through our stories. The invention of the Internet has increased our ability to communicate through our tools.  Extensions of intelligence is accelerating through our interaction with intelligent tools. This means there is no evolutionary driver to increase the size of our brains. Our brains with 2% of our weight consume 20% of our energy.

Promise theory says that systems that have non binding promises between autonomous entities scale.  Distributed intelligence that learns to acquire knowledge through cooperation is efficient. It will scale. An intelligent system where we have binding obligations between entities will reach a limit of intelligence.

We are building Internet systems that scale intelligence. The best known is Google Search.  Google search takes the knowledge of our individual searches and combines them.  Google searches are intelligent and are becoming more so.

We can do the same with all our applications.  The way to do this is for us to build an electronic “prefrontal cortex” for our electronic memories. The electronic prefrontal cortex consists of remembered links between data in different databases.  The different databases are our electronic reptilian memories.  Our applications access our reptilian memories through our electronic prefrontal cortex. The Welcomer model is one way to build an electronic prefrontal cortex with promises – not obligations.

We can build a prefrontal cortex for any object that exists on the Internet of Things.  The Welcomer model allows these prefrontal cortices to communicate.  We as individuals can access memories of objects that we own or are given the right to access.  What this means is that intelligence of the total system will increase.

Those worried about some electronic brain taking control of humans can rest easy.  The greater intelligence comes from the promises autonomous agents make with others.  We as a group are intelligent enough not to let the group intelligence destroy us.  If that happened then the group intelligence would disappear. That would not be an intelligent outcome.

One of the things that can happen is that humans will be better able to act together to meet existential threats.  At the moment we have threats of global warming, global pollution, inadequate water etc.  We also have social disorder with a lack of trust in governments.  Working together using our group intelligence, and the intelligence of our tools, has a good chance of overcoming these problems.  Importantly it won’t be some centralised intelligence telling us what is best for it and for us.

Letter to Canberra Times on Reducing the Cost of Loans

The respected economist Michael Hudson has written a disturbing book. Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

Hudson says allocating funds through money markets results in unnecessary costs.  The cost is interest payments over the course of a loan.  At 6% it doubles the cost of a Canberra home and at 4% it triples the cost of the Cotter Dam.

The costs come from the way we create bank debt.  When we create bank debt the bank creates some new money.  When the debt is repaid the bank destroys the money.  The cost turns out to be the cost of interest.

We do not have to take on bank debt. Instead we can borrow from savers and repay with taxes.  If we give a return to savers by giving a discount on the taxes we remove the cost of interest but still give a return. This happens because we do not create extra money and destroy it.  It will halve the cost of public housing and reduce the cost of the Cotter Dam to one third of our current repayments.

Cost benefit calculations change using this new form of loan.  It is much better to build for the future with long lasting assets.  For example it is better to duplicate roads when building them than duplicate later.  We should rethink how we finance public infrastructure and redo our cost benefit calculations.

We will find we can get at least twice as much infrastructure for the same amount of money. We can remove all public debt and replace with discounts on rates and taxes.  We will no longer be dependant on credit rating agencies, the vagaries of the money market, or Commonwealth handouts.

Let us hope that one or more of the political parties will make an election promise to investigate the claims in this letter.

Parasitic Loans and Equity

Michael Hudson in Killing the Host describes how Bankers turn equity into parasitic finance. They do this by forcing companies to pay excessive dividends. The payment of dividends beyond a return of the value provided by the equity capital is parasitic.  It is parasitic because it takes from the host without giving anything in return to the host. For the host to continue operating they are offered parasitic loans.

Another form of antisocial behaviour occurs with private equity buyouts. This form of predatory finance is common when parasitic behaviour has weakened a host. Here predators backed with loans buy a controlling share of equity.  They repay the loans by selling off assets in the weakened host and close or absorb the shell of the company. Parasitic finance justifies this common behaviour as survival of the fittest. This is not what the employee and other equity victims call it.

Other victims of parasitic behaviour are enterprises with unsustainable loans. This is common with farmers who have no control over prices of their future output. A farmer who takes out a significant parasitic loan will almost always have to sell their farm. The reason is that the loan must be repaid in money rather than farm output.  This applies to any business where there is little control over the future price of output.

It is no accident that Warren Buffet’s Hathaway Investments has been successful. It is no accident that Amazon is now the world’s largest retailer. It is no accident that Google and Apple have expanded. A large part of their success is that they have kept away from parasitic loans.  All these organisations have not paid excessive dividends. Equity holders have not used their positions to extract excessive money. All these companies pay little or few dividends. Equity holders get a return by selling their shares.

A way of reducing parasitic behaviour is for companies to only accept envestment loans.  Envestment loans from customers of the output is even better.  The reason is that the loan holder has a common aim with equity holders. Both benefit if the company succeeds in selling product for a profit.

Companies can control the returns to equity holders by paying in output rather than in money dividends.  This does not bleed the company of cash and can be controlled by limiting the returns to equity holders to the cash available for distribution.

Controlling the returns via output applies particularly to monopoly services.  Once an external entity gets control of a monopoly service the community it serves will suffer extractive rents.  Once a community takes out external debt it will suffer extractive rents. This is the basis for much economic imperialism. This form of imperialism is conducted by companies as well as countries. John Perkins describes it well in Confessions of an Economic Hit Man.

The groups using these practises put their money in places outside the control of their victims. Revelations such as the Panama Papers show the extent of the problem.

Water Rewards and Energy Rewards and other forms of envesting protect communities. The reason is that assets are not transferred as money outside the control of the communities. Returns to equity holders are in output from the assets. This means it becomes difficult for rentiers to extract value from community assets. Money as an asset is easily moved.  Infrastructure is hard to move.

Funding Renewable Energy with Energy Rewards

Energy Rewards

Energy Rewards reduces the cost of finance for renewable energy.  It encourages people to reduce energy consumption. It is fair to all participants and costs little to deploy.

Any seller of electricity offers all their customers the right to buy Energy Rewards.  The less a customer consumes the greater the number of Rights.  Rights are transferrable. When people buy Energy Rewards they use them to pay for their electricity.  When a person uses their rewards they receive a discount. The longer the owner of a Reward holds them before redemption. the greater the discount.  The value of unused Rewards increases with inflation. We suggest a discount of 10% per annum.

Rewards are transferrable.

Rewards fund the construction of Renewable Energy assets.  These could be solar panels, solar farms, wind farms, pumped storage, batteries etc.  The renewable energy supplied from these sources is a fixed price of 8 cents per kwh.

Example with Wind Power

For each $1 invested Wind Power generates 1.5kwh per year. At 8 cents per kwh the generator returns the capital cost in 8.33 years.  If the funds come from 10% discounted Rewards it will about 12 years to repay the funds.  As Wind Generators should last at least 30 years the last 18 years income is almost all profit.

Pumped Storage or Batteries

Assume a pumped storage system or battery has a loss factor of 25%. That means the effective price of electricity from the storage is 6 cents per kwh.  This means it will take 11.11 years to repay the funds.  At 10% discount this means it will take 16.66 years to repay.  Providing the storage system lasts longer than 17 years they will be profitable.

Water Rewards – Envesting in Infrastructure

Infrastructure is a common good for the community who use the Infrastructure.  To enhance cooperation in its use it is best if the community fund the infrastructure. In funding it the community will get a benefit (Reward) from the funding.  Envesting with Water Rewards provides one way to do this.

During the most recent drought in Canberra we proposed a pilot scheme of Water Rewards. It was never implemented as the funds available for experiments were only available for rural water. The drought broke and other attempts to revive the idea were not successful. These attempts were rejected because interest rates on long term loans were low. It was said that “interest rates are low and we can get as much money as we need to build Water Assets”.  However since those submissions Water Rewards has been extended so that there is no need for the community to pay any interest at all.

Interest is removed because there are no loans.  Instead the Water Authority sells Water Rewards which are prepayments for Water.  When the Water Rewards are used the buyer of Water gets a discount depending on the length of time they have held the Water Rewards. This turns Water Rewards into an investment where the return is known and fixed.  It is suggested that a fixed discount of 10% per annum be used.  It is recommended that the value of unused Water Rewards be adjusted for inflation.

Water Rewards are now an attractive long term investment for the Community.  Because they are attractive they will be in high demand.  The Water Authority can give the benefit to the whole community by issuing the right to buy Water Rewards to everyone in the Community. For simplicity let the same value be available to all who register. The rights to Water Rewards are transferrable and can be sold.

Extra rights can be issued to those whose consumption is below some per head amount.  This is to Reward those who put less demand on the water supply.

The funds obtained from the sale of Water Rewards is low cost as it does not include interest.  The savings to the community is the cost of interest on a loan of the same value for the time until the Assets need replacing. The whole Community gets the benefits of the Water Rewards investment.  This is why a high rate of 10% discount is used.

Because the whole community has a financial stake in the Water Assets they will help look after them.  They could also direct the money from their Rewards to a particular project.  They could ask for infrastructure to support an urban farm. Or, they could ask for a local wetlands.

The amount of money needed for water infrastructure may be less than the cash flow available from the sale of Water.   The community could issue more Water Rewards rights than needed.  Initial holders of Rights could direct funds from the sale of their Rights to other community infrastructure.

Rights could get money to replace existing loans. This gives the Community an immediate saving of interest payments.

A further advantage is to help Price control authorities set prices.  Communities typically have a Pricing Control Authority to oversee the pricing of monopoly services.  Rewards gives the Community a voice in helping determine the price and the allocation of funds.  The Community may even asks for a price increase as they can see how the Rewards are spent.

A Community can use the same idea for all its infrastructure.  Examples are broadband services, renewable electricity supplies, public transport, hospitals, tax collection, law enforcement and schools. It will mean that a community can get twice as much infrastructure for the same amount of money than it does today. This happens because there is no long term debt with regular interest payments.



Money Extracted by a Parasitic Financial System

When we take out a loan with a bank the bank creates new money. The bank lends it to us and we repay with money. The amount we repay is the amount of interest paid over the time of the loan.  The bank, when it receives the money, destroys it.

Envesting does not repay with money. Hence the amount of money saved with Envesting is the amount of interest created by the loan.

If the Bank does not destroy the repaid money the extra money created is interest on interest.

For a house loan of $100,000 at 6% over 25 years this is $95,566 in total interest. Of this $20,566 is interest on interest.

This is the cost we pay for a financial system where we create money and destroy it. This is money extracted from the productive economy and moved to the finance sector. It is the price we pay for the finance system to preserve the value of money.

Using finance where money is NOT destroyed when it is repaid will cost about 2% of the value transferred.

Stop Feeding the Financial Parasite

Michael Hudson in his book Killing the Host: How Financial parasites and Debt Bondage Destroy the Global Economy states:

A financialised economy becomes a mortuary when the host economy becomes a meal for the financial free luncher that takes interest, fees and other charges without contributing to production.

The mathematics of compound interest leads economies inevitably into a debt crash, because the financial system expands faster than the underlying economy, overburdening it with debt so that crises grow increasingly severe. Economies are torn apart by breaks in the chain of payments.

The good news is that we can demonetise economies overnight. We do this by cutting the lifeblood to the parasite.  We get rid of compounding debt.

The financial parasite feeds off us through the issuing of money as compound interest debt.  We replace this form of debt with non compounding loans. We repay the loan with goods and services produced with that debt.  We issue the loans to our communities and repay the savers in our communities. We fix the price of the loan at the time we take out the new loan at a value that gives a fair return to savers.

Doing this will at least double the value we get from a given amount of money.  We replace all our current debt by issuing non compounding loans to ourselves. This immediately frees up all our Capital tied up in debt.  We are no longer burdened with debt repayments and we can buy back any assets we may have sold.