The Religion of Ignorance

I have never heard Ray Kurzweil speak nor read any of his books, but he is certainly a major figure in the world of technology, the world in which I live and work. So he is a very familiar character. In his brilliant passion he reminds me of Edward Teller, whom I did get to hear talk a couple of times. Do I remember right, that Edward Teller was the model for Stanley Kubrick’s Dr. Strangelove? Anyway that shoe would have fit well enough.

I have to admit that I find this sort of brilliant passion more on the pathological side of normal than on the wise side. But these crazy visions somehow have become enormously powerful. Who knows, maybe the hydrogen bomb really did make the world more peaceful. Who knows, maybe computers will become more intelligent than we are, maybe computers will become conscious, maybe we will become able to transfer our consciousness into a computer.

What is quite interesting about these speculations is that their terms are quite slippery. Terms, of course, are always slippery: how many whiskers does it take to make a beard, etc. Sometimes the slipperiness doesn’t make a significant difference – but sometimes it does!

What would it mean for a computer to become conscious, to have a mind? What is mind? Need such a question have an answer? How can a meaningful question fail to have an answer? Or, what constitutes an answer, what function does an answer serve?

Alongside the question, what is mind, consider another question, what is the American Dream? An answer to this question is a political platform, a position that claims power. There is a kind of terrifyingly stupid brutality in refusal to grant others the space to hold different dreams. And, whether we call it consciousness or mind or soul, to carve out an answer and enforce adherence to one answer, that idolatry is the totalitarian killing of the soul. Soul is the ever deepening exploration and appreciation of the boundlessness of experience, of life. But, sadly, the totalitarian killing of the soul is what we must confront every day.

Computer technology certainly gets more powerful and more sophisticated at a stunning pace. What are the implications of that progress? To say that technology is one thing and what people do with it is another, that doesn’t quite make sense. Technology is something that people do. In our massively scaled society, the connections between the different facets of a technology become hidden and disguised and so appear separate. Gun manufacturers don’t kill; gun company stockholders don’t kill; gun sales people don’t kill; gun advocates don’t kill: it is gun users who kill.

Limitation of liability is fundamental to the corporate institution, so it’s not quite right to discount conspiracy theory in this pattern. There is certainly value in trying to understand how we got here. But the value is primarily in helping us understand whither we are headed, and more importantly, what opportunities are available for steering toward the happier among whatever paths are open before us.

This notion of transferring our mind into a computer: what does that idea do? Why might that idea be attractive? Of course we are each mortal, and so any sort of survival of mind beyond the body, that is attractive. Clearly we are toying with religion here, with worship of the computer. A computer is a kind of stunning crack in reality, an actual presence of perfection in our otherwise imperfect world. Religion is not altogether a bad thing: the devil is in the details! How might the religion of the computer work out?

Computers are the ultimate in clarity, the opposite of mystery. Computers are mechanical models of dualistic grasping. A final answer is the end of investigation, of looking, of awareness. To worship computers is to worship ignorance. The 1980s brought us the freedom to think that greed is good. The worship of ignorance is not likely to move us in a better direction.

How might this play out in practice? The worship of greed imploded in the marketplace. The worship of ignorance, unawareness, death, this worship seems likely to implode on the battlefield.

Computer technology already plays a huge role on the battlefield. The fighting gets more and more abstract, at least to those who specify the targets. The battlefield itself becomes abstract. The internet becomes a field of potential targets, friends and foes. I saw a video recently… one video gamer called in a SWAT raid on another video gamer. The SWAT team, with all their guns and armor, were the robots in this farce. A name and address popped out of a computer, and they performed their function as they had been trained, in total ignorance of the broader situation.

We already live in a world that is deeply structured by algorithms… for another example, look at the sort of statistical politics practiced by Karl Rove. Our government is run by statistical analysis of polling data! Our legislators have become robots!

The notion that computers might take over the world, that is quite absurd. Each individual sentient being is in inseparable possession of unbounded power. But that power can be buried and denied in countless ways. The worship of ignorance through the glorification of mechanical dualism, that is one way we can hide from our own power. How deeply can we entangle ourselves in this confusion? That is the nature of our unbounded power: it enables unbounded confusion.

Don’t worry about computers! If we can each acknowledge our own power and responsibility, and cultivate the awareness, curiosity, and wisdom, to turn over the rocks of easy answers to discover the vibrant puzzling life hidden beneath… we might even become capable of making good use of that amazing microelectronic technology!

Portfolio Management

All too often life is a struggle just to get through the day, to dodge bullets or find food or gather fuel for the warmth to survive. But then, too, it can happen often that we find some options and opportunities for acting with an eye toward the future. What can we do now to make a brighter future?

For an action in the present to bear fruit in the future requires some sort of persistent change in the situation to carry that connection. The resources that we bring to a situation can be viewed as a portfolio. Our actions add and remove assets and liabilities from our portfolio, changing the position from which we will encounter future situations. How can we improve our future position?

Exchangeable Goods

The marketplace is home to many situations that help to brighten our day, providing food or clothing, etc. A marketplace is a place of exchange. Money provides a common medium for exchange; exchange can take place both to and from money. We might bring in a pile of books which we exchange for money at the book dealer, then take our money to the fruit seller to return home with a bag full of peaches. For happy outcomes in a marketplace situation, we need to bring something with exchange value. So, one core component of a portfolio will be a store of exchangeable goods.

Of course, exchangeable goods come in a very wide variety. Financial institutions continue to extend this variety at a bewildering pace. The exchange value of a good depends on market conditions which are always changing. Many financial instruments generate interest or dividends alongside their resale value.

The great virtue of exchangeable goods is their flexibility. It’s hard to know exactly what I might need in the future, but whatever exchangeable goods I might have, as long as they have sufficient total value, can readily be exchanged in the future for whatever it turns out I come to need. That very flexibility has a disadvantage too, as the exchange value of goods fluctuates unpredictably.

An exchangeable good has substance beyond its mere exchange value. Gold coins leave scarred earth and poisoned water in their wake. A deposit account at a bank is not merely a number in a file: the deposit account enables the bank to lend money, facilitating further economic activity whose ripples will radiate along untraceable paths. Stock purchases support the activity of corporations.

Accounting can be a useful tool but, like any tool, it has real limits. . There is a sense in which each of us must tend our own garden, but ultimately the actual situation we face is not limited by the boundaries of my garden versus your garden. Accounting can help broaden our view of a situation by keeping track of the many details. The challenge is to avoid getting lost in the details and thereby narrowing our view of the situation and becoming blind to crucial elements and connections.

Useful Goods

There are many goods that we can store for the future, not to take to exchange at the marketplace, but instead to use ourselves somehow. We can store food to eat in the future. We can store clothing to wear in the future. We can store fuel to burn in the future to stay warm. We can store tools to use in the future, for chopping wood or sewing clothes or growing food.

Useful goods have a stability of value that exchange value cannot provide. The nutritional content of a can of beans is not subject to monetary inflation. On the other hand, the can might rust and lose its integrity so the beans spoil. That’s a large part of what makes gold so useful as money: it doesn’t corrode.

Skills

Skills can be divided into two types: those whose value is principally in exchange, and those that are directly useful. If I know how to grow my own food, that is a skill that I can use directly to create happier experiences in the future. Knowing how to operate some large piece of industrial equipment is a skill that I might be able to use in exchange for money with which I can then buy food etc.

Skills can provide a sort of security that no store of goods can match. A farmer or engineer or artist might become a refugee and forced to leave behind all their gold coins and all their cans of beans. But their skills can be very valuable in their new location and enable them again to survive and thrive. The value of those skills does depend on the situation though. An expert coffee farmer’s knowledge won’t go so far in Canada, for example.

Health

Physical health gives a person the capability of responding to situations effectively. A healthy person can apply the skills they have, can adapt them, and can learn new skills. A healthy person needs fewer resources to engage with situations comfortably and happily. This creates a self-amplifying feedback loop: a healthier person becomes more able to produce a surplus that can be dedicated to further good health; a less healthy person cannot so easily produce a surplus and may even find themselves trapped in a deficit situation when can then have a further negative impact on their health.

Community

Friends and family, people who will help you when you can’t help yourself, are valuable beyond any price. It is our place in our community that gives our lives meaning. Community is the vehicle for giving as much as for receiving. Community is the stage on which our lives unfold. Community is the context in which our identity is situated.

In our modern world there is an institutional dimension to identity and community. For example, our credit record is an aspect of our identity. One can move to a new town on the other side of the country and use bank references etc. as a starting point.

An older sort of community connection is based on religion or ethnicity. A style of dress, knowledge of particular songs or myths, everyday ritual habits such as a prayer before meals, these can provide entry into community.

Spirit

The world is a notoriously unreliable place. Whatever beautiful castles one manages to construct, at some point they are sure to tumble down. And yet, somehow, underlying the turbulent waves of experience, there is some kind of truth, some essence, something really beyond our capacity to grasp or beyond any possible grasping. If we can let go of the constant chase after the ephemeral and deepen our experience to live in a way more consonant with that underlying ungraspable reality, there can be an unshakable undertone of happiness that can continue despite the inevitable unending stream of alternating successes and failures. This consonance can grow with cultivation and become the most profound wealth.

A Better Widget

Suppose we have a widget factory. We want a really good widget factory. We want to make better widgets. How can we make better widgets? What does it even mean for a widget to be a better widget?

One standard answer to this question is that a better widget is a widget that conforms more closely to the specification for widgets. The specification defines an ideal widget. If we can make our actual widget to be a very close reflection of that ideal, then we have a better widget.

The usual first step in this improvement process is to quantify the various facets of widget specification so we can measure how close the actual widget is to the ideal. If we adjust the operation of our widget factory, we can then compare the new widgets with the old widgets. If the new widgets give measurements that show less deviation from the ideal, then we have produced better widgets. And of course there are statistics involved. The actual widgets we produce are not all quite the same: some are very close to ideal, some are further off. The whole process of improvement can get quite complex, but it can be driven by statistical measurement and managed quite effectively.

Another sort of better widget is a redesigned widget. We can change the specification. What does it mean for one specification to be better than another?

One way to think about this is to notice that widgets serve some purpose, have some use. Very commonly, widget A is used in the process of manufacturing widget B. Our process for manufacturing widget B is a better process if the resulting actual widget B conforms more closely to its specification. So a better widget A is one that produces a better widget B.

In judging the specification for widget A, we would like to know how well an perfect widget A would function. Some actual widget A might produce a poor quality widget B, but just because widget A itself is of poor quality, i.e. does not conform well to its own specification. The fault is not in the specification.

So we have two notions of quality or of improvement: design and manufacturing. An improved manufacturing process will produce actual widgets that conform more closely to their specification. An improved design will specify widgets that can improve the manufacturing processes in which they are used.

This framework brings up many further questions. The network of widgets, where widget A is used to make widget B, is quite vast. Are there widgets that are actually useless, whose value cannot be measured by their effectiveness in some application? What happens when there are loops in the network, so that the notions of better and worse become (indirectly) self-referential and therefore potentially unstable, ambiguous, etc.?

Another problem occurs because a widget might have multiple uses. A new specification might be better for one use but worse for some other use. Perhaps we really need two different types of widget… but then we lose the savings from economies of scale.

At the limit, in a custom construction situation, the processes of design and manufacturing processes are not clearly distinguished. Widget B is designed and manufactured for just a single use. We may be able to measure the quality of widget B through its effectiveness in its application. But we cannot clearly distinguish the quality of the specification of widget B from the quality of the manufacturing process that produced widget B. So, for example, if we used widget A to produce widget B, measuring the quality of widget A becomes problematic.

Computing with Graphs

There are a variety of different models of computation. Already in the 1930s there were several models, for example those of Alonzo Church and Alan Turing. The Church-Turing hypothesis proposes that these models don’t differ in the class of computational problem they can solve, at least if the model is rich enough. The set of problems that a Turing machine can solve is the maximal set that any computing device can tackle. The point of alternate models is not to expand that set of computable problems.

It can still be useful to work with other models. A key aspect of any computational model is the way it holds data. A Turing machine uses a tape, a one dimensional array of symbols that can grow in either direction without bound. This ability to store an unbounded amount of data is essential for any computational model to be equivalent to a Turing machine. How to access large amounts of data is a practical challenge for real computers as well as an interesting theoretical issue. A Turing tape gets the job done in very simple way but not in a very practical way. The Random Access Memory that is ubiquitous in modern computers is very practical, but theoretically not very elegant. This inelegance manifests at the practical level in the difficulty of picking the right size for memory address words. Large address words make it easy to access large amounts of data, but are expensive to use. Small address words are efficient but don’t provide the address space needed for complex computations.

My proposal here is to use graphs, of a particular class, to represent the state of a computation. Just like a Turing machine writes new symbols over old symbols on its tape in order to record the result of a computational step, the graph machine will modify a small part of the graph at each computational step.

We have around 70 years of practical experience with computing machines at this point, almost all with Random Access Memory for storing data. How to represent information in a practical way with this graph model, that is a problem that will take years to refine. The starting point is just to explore what works. Bit by bit we can discover the methods that work best.

Could such a radically different computation model ever develop enough through practical experience that it could make any dent in the ubiquity of the Random Access Memory model? My proposal here is for two uses of this graph model. First, it is an interesting model to explore theoretically. The main value I see here is the potential for a more accurate model of memory access times.

Second, it could provide a powerful processor architecture. New compilers for existing high level languages could insulate users from the change in architecture. Processors with this new architecture could certainly be built with existing Random Access Memory components. The greatest impact would be at the level of cache design and virtual memory mapping. This graph architecture is a bit like a hyper-virtual memory. Addresses are never exposed at the processor architecture level! This gives memory mapping huge flexibility. Since the topology of the data is exposed at the architectural level, caching strategies can be vastly more powerful.

This graph architecture is a radical departure from the conventional Random Access Memory, but it could actually be quite practical!

Let us now dive into the details!

The state of computation will be kept as a connected graph, a set of nodes connected by two types of edges: directed and undirected. Each node appears exactly three times in the edges: once as the source of a directed edge, once as the destination of a directed edge, and once at one end of an undirected edge. The entire graph will always be connected, i.e. given any two nodes there will be some way to walk along the edges to get from one node to the other.

Here is an example of a graph that could represent the state of a computation:

This is just like a string of symbols on a Turing tape. To understand what that string of symbols means, or what a graph like this might mean, that requires detailed understanding of the particular computation that is in process. Right now we are just looking at the ways that a computation could read and write snippets of information.

A graph machine would have a set of registers. Probably two registers is the theoretical minimum but a practical number might be the usual 16 or so that are common in today’s processing units. Each register points to some node or other of the graph. Processor instructions would provide operations like:

• Move register n forward
• Move register n backward
• Hop register n across
• Check whether registers n and m point to the same node
• Make register n point to whatever node register m is pointing to

By running registers along the edges in various ways and then checking whether they got to the same place, it is easy to determine the shape of any region of the graph.

The general way that computation proceeds is that, depending on whatever aspects of the shape of the graph are important to the computation at hand, one or another graph rewrite operation can be performed.

The first operation is to swap the directed edges between two nodes that are connected by an undirected edge:

This operation can be applied to the example graph above, to yield:

It can then be applied a second time:

The complete graph can be partitioned by the pattern of directed edges. The directed edges will form one or more cycles in the graph. When directed edges are swapped, these cycles can be split or joined. Note that the swap operation can move in either direction along the sequence of graphs in this example.

The second operation is to swap undirected edges between two nodes that are connected by a directed edge:

This can be applied as a next step in our sequence:

And again:

The third and fourth operations expand or contract the graph:

Expansion operations can be applied anywhere on any graph. But contraction operations can only be applied where the proper four node shape exists in a graph, which some graphs may not have at all.

In our example, the contraction operation can be applied:

Now we can alternate, an undirected swap:

a contraction:

an undirected swap:

a contraction:

one more undirected swap:

and one more contraction:

finally arriving at a minimal graph. Note that we could start with this minimal graph and reverse the operations to move in a sequence back to the graph we started with.

We followed a general strategy here to reduce the original graph to the minimal graph.

1. Swap directed edges to join the directed cycles into one big cycle
2. Gradually reduce the size of the graph, by repeatedly
   1. Swapping undirected edges to form a contractable four node subgraph
   2. Contracting that subgraph

This strategy thus sketches a proof that these four operations,

• Swap directed edges
• Swap undirected edges
• Contract
• Expand

provide the capability to move in a sequence from any one graph to any other graph. We can start from any arbitrary graph and reduce it to this minimal shape. We can reverse those operations to construct a sequence from the minimal shape to that arbitrary graph. So a sequence of operations exists to move from any graph to any other graph. Of course in a practical computation one would not commonly move through the minimal graph, which corresponds to a blank Turing tape.

From a theoretical perspective it is useful to explore the power of this pure graphical architecture. From a practical perspective, probably a hybrid architecture will prove more efficient. One could augment the model by adding to each node a word of data, e.g. 64 bits that could be interpreted as a floating point number etc. Floating point numbers could certainly be encoded as shapes of subgraphs, so this augmentation is not theoretically necessary. But this sort of graph-based computation could well prove itself valuable beyond the theoretical context.

Energy Needs

How easy is it to supply our typical energy needs? The electric power utilities do that routinely these days. Should we be surprised by that?

There are two pieces to this puzzle. The first: is our typical energy usage a good approximation to our actual needs? The energy we typically use is just what is needed to support our present lifestyle. Many societies, with lifestyles quite different than ours, have survived over many generations on much smaller rates of energy consumption. Do we need to maintain our present lifestyle?

The second puzzle piece: how much energy do we typically use? In the United States, a typical household consumes about 10 kilowatthours each day. Since there are 3600 seconds in an hour, that is 36,000 kilowattseconds, or 36 million joules. How much is that?

To get a feel for it, suppose we wanted to store that energy in a household pumped hydroelectric facility. Suppose we built a reservoir 10 meters high, on top of the roof of the house. How big would the reservoir need to be?

The energy in the reservoir is mgh, where m is the mass of the water, g is the acceleration of gravity, and h is the height of the reservoir. g is about 10 meter/sec^2 and we have h as 10 meter. So 100m = 36,000,000 or m = 360,000 kg. A liter of water weighs a kilogram, so that would be 360,000 liters of water, or about 90,000 gallons.

A typical backyard swimming pool contains about 15,000 gallons of water. I.e. our household hydroelectric reservoir needs to hold about six swimming pools of water in order to supply a day's worth of electricity.

Maybe better not to put that on top of the roof!

Against Class Warfare

John Oliver’s recent talk on wealth inequality got me thinking a bit more on the topic. What is the relationship between good government and class warfare? Is government properly an instrument of class warfare? Sometimes government gets corrupted that way, but its proper role is quite the opposite.

Some sort of formal government structure becomes necessary for any society larger than perhaps a hundred families. Very small societies can get away with informal structures. Everyone will know the details of every conflict. The character of everyone else is known and one can understand how to navigate the ambiguities of any transaction. But at a larger scale of society, one regularly interacts with people whom one does not know very well if at all. Some basic framework of assumptions is needed so one can negotiate a transaction without a thorough preliminary investigation being required. It is the job of government to regulate the interactions between individuals so the benefits of larger scale society can be enjoyed.

The fabric of society is woven with relationships of trust. With trust, individuals can interact while giving each other the space for individual decisions. Without trust, one is forced to the extremes of isolation or domination. Warfare is the symptom of the breakdown of trust. Warfare is the symptom of ineffective government. Whether or not global government could ever be a real or desirable possibility, it has never been an actuality, and so war between nations has always been with us. Warfare within nations, civil war or class war, is not so constant. Reasonably effective government is not impossible.

When dealing with people whom you don’t know, the difficulty that you have no basis to trust them as individuals can be resolved to the extent that you can trust that the government will work to maintain the interaction within the frameworks it has established. You have effective recourse if the other party fails to live up to their end of the bargain.

Trust in government can falter for many reasons. The government can simply be too weak or remote to be effective. But a government that fails to be impartial is also not trustworthy, at least for those who get the short end of the stick. If individuals in some group within society cannot rely on the government to resolve their disputes with others outside that group, then the conditions are ripe for some kind of civil war.

Is rich versus poor really a class distinction? Certainly we do regularly estimate each other’s wealth status and view them from that perspective. But I suspect that class divisions are not quite the same as wealth divisions, though of course they are highly correlated. The distinction that really matters for class warfare is that of political power. If there are groups that can steer the government so that the frameworks it establishes are biased in their own favor, that bias undermines the trustworthiness of government and creates the conditions for class warfare.

The fundamental problem of politics is that imbalances in power tend to amplify themselves. Good government may be possible, but it is not stable. It requires constant work to identify and correct bias. The best way to correct bias is to remove the mechanisms that create the bias. A much less satisfactory method is to introduce additional mechanisms with the opposite bias, in hopes of producing a total result that is unbiased.

Taxation is a nice example where these questions of bias are at play. To what extent is wealth inequality a result of bias in government? To what extent do the rich create governmental structures that reinforce their own wealth?

In the vision of the proper role of government that I am sketching here, the government’s role is not to create the world we want. It is our responsibility as members of society to create that world. The government’s proper role is indirect. It is to create a framework for the interaction of members of society, to enable them more effectively to create that world together. Of course some people will want one kind of world and others will want a different sort of world. The proper role of government is not to resolve those differences, but simply to create a common framework where issues of diversity and conformity can be negotiated between individuals.

From this perspective, it would be entirely inappropriate to put higher taxes on wealthy individuals for the purpose of reducing wealth inequality. But look at how government functions preferentially to enhance the wealth of the wealthy! For example, a huge fraction of the federal budget is devoted to international relations. These relations are managed to nurture and protect business relationships such as foreign investments, trade, etc. Certainly we all benefit from the trade in coffee, bananas, etc., but such international business benefits the wealthy preferentially to a very great degree. Given that government benefits the wealthy much more than the poor, it makes perfect sense that the wealthy should provide a similarly greater degree of financial support for those government operations. Or, for another example, when foolish bankers and foolish home buyers entered into foolish lending relationships, it does seem quite unfair to bail out the lenders and hand the resulting tax bill to the borrowers.

Perhaps there is some natural logic to the rich getting richer. What is of fundamental importance is that the government not be biased toward enhancing the power of any such powerful group, or even be perceived as having such a bias. Such bias is the fuel that feeds class warfare. We are reaching a point where there are concentrations of wealth and power that can and do dominate the government and steer the development of laws and regulations to amplify their own advantages. To recognize this bias and to work to correct it is not to engage in class warfare, but to fight against it.

Banking Reform

Thomas Piketty’s book Capital in the Twenty-First Century has been getting a lot of attention lately. I can easily to add it to the stack of books that I want to read. Actually reading it: maybe someday! Somehow a serious book like that takes me a month. There are just more books to read than months to read them in!

From the various reviews and discussion I have seen, the basic points of the book seem to be: when the rate of return on investments is larger than the rate of growth of the economy, wealth disparity grows, eventually to problematic levels; an effective method to address this problem is by taxing wealth.

I think the diagnosis is reasonably accurate. While there are also other mechanisms by which wealth and power amplify themselves, this financial one is surely very important. But I am not enthusiastic about his proposed therapy. It treats the symptoms without getting to the cause of the malfunction. On top of that, such tax revenue too easily becomes another concentration of wealth and a target for further corruption.

The cause of the problem is that returns are not tied to growth. This is due to the way financing is structured. The way to fix the problem is then obvious: restructure financing! Of course this is not so easy. First, one needs to design some alternative structure. Then there needs to be some sort of transition to take us from today’s structures to tomorrow's. And finally all this needs to be presented in a way that the various parties involved can agree to enact the plan. These are all daunting challenges. Into the fray!

Don’t start punishing the rich; instead, stop punishing the poor! This is my proposal in a nutshell. Perhaps this medicine will bitter for the wealthy, but not as bitter as the alternatives that might otherwise be forced on them! To some degree the pain can be lessened by a gradual introduction of new structures. New structures can be introduced alongside the existing old structures. Whatever kinks appear can be worked out over time. New financial contracts can start shifting over to the new structure. Most contracts that use the old structures can just expire in their normal time frame. Some long term contracts may need to be translated into new structures, but by then the new structures should be well established and well understood so the cost should not be prohibitive.

The best way to build new structures is to adapt existing structures. We already have many different financial structures: means by which one person can use resources owned by another and share the benefits yielded by that usage. Fred can borrow $100 from Joe, enjoy the use of that money, and then pay Joe back $110 a year later, rewarding Joe with a share of that enjoyment. Alice can grow vegetables in Mary’s plot, and at harvest time share the bounty with Mary. Bill can fund an expansion of Sam’s workshop, taking part ownership in the business, and with that a share in the profits and in the decision-making process.

Two classical financial structures are stocks and bonds. They are both ways that someone with some money to spare can make that money available for someone else to use, in exchange for a share of the benefits gained by that use. The return on a stock investment is often quite uncertain. It can come in the form of dividends or by the capital gains accrued when the stock is later sold at a higher price. Either way, there is quite a bit of administrative overhead involved, in establishing dividends or a market for stock trading. A bond is much simpler. It is basically a loan but without a bank playing an intermediary role. A bond contract generally specifies a definite repayment plan, like a loan. Bonds can be traded too. They differ from stocks in several ways: they have a fixed time span, the dividend rate is fixed, and they don’t include decision-making power.

A typical bank loan is very much like a bond. My proposal is that bank loans should look more like stocks. The dividend rate should not be fixed, but coupled to the actual performance of the borrower. What is needed is some standardized structure in banking laws and regulations to cut the administrative overhead to a bare minimum, so this can be managed effectively in the banker-borrower relationship.

Similarly, the relationship between the bank and the depositor needs some adjustment. The notion of risk-free returns is an illusion that is too expensive to maintain. A bank’s business should look like a collection of mutual bond funds. Depositors become instead purchasers of shares in these funds.

The core principle I am proposing here is that loans be tied to increased income. In other words, loans for consumption would not have a place in the laws and regulations for banking. If you need a car to get to work, then it makes good sense for a bank to lend that money. If you want a bigger car because it is fun to drive, you’ll have to save your money up first!

Loan repayment should be tied to income. Just like corporations with publicly traded stock must publish financial statements, so must bank borrowers. Since most people file income tax returns already, perhaps the easiest way to minimize administrative costs is to integrate income tax accounting with bank loan accounting. These systems are already closely coupled, so it shouldn’t be too impractical.

In general, a person will have several outstanding loans. So the core question is: given a particular level of income, how should dividend payments be computed? The idea is that each loan includes in its terms a formula for computing dividends, taking into account both income and pre-existing loans, taxes, etc. For example, a loan’s payment could be determined by a formula like: given the borrower’s total gross income, subtract all taxes due and payments from all earlier loans; subtract also a standard inflation-corrected minimum cost of living for the borrower and dependents; from what remains, the dividend due is 20%. The terms should also include some time limit.

Of course the dividend rate depends most fundamentally on the amount borrowed, obligations from earlier loans, and expected income. There are lots of tricky corners. A car loan might be negotiated on the basis of an existing house loan. Perhaps the borrower needs to move because of a job relocation. Paying off the existing house loan and negotiating a new house loan could change the order of loans and create havoc in the simple structure I have outlined. Perhaps the existing house loan can simply be shifted to a new house. Tying the surety of repayment to verifiable income, rather than the threat of foreclosure, should clear the way for this process. In any case, it is not fair to lenders if later loans can reduce the return that had been negotiated but also not fair to borrowers if repayment of earlier loans unduly increases dividend payments to later loans. To develop standardized structures that can navigate these passages is not trivial but surely possible, especially with an incremental approach.

Financial regulations are obviously vast and complex. My main point is that it is their structure that decouples returns from growth and that serves to amplify the wealth of the wealthy and the poverty of the poor. Rather than tacking on new structures to counteract this amplifying process, quite practical structures are possible that simply avoid this bias. Rather than stealing from the rich, stop stealing from the poor! The ruin of people’s lives due to snowballing debt is just as destructive to the healthy functioning of society as burdensome taxation that suffocates success. We can build financial structures that tie the success of lenders to the success of borrowers, so that free market capitalism promotes productive investment and discourages exploitation and abuse.