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Overstand the Corporate Plan




- Bitcoin, Identity and High Finance












AGENDA 21 AND THE NEW WORLD ECONOMY: where happiness matters



Bitcoin and the Global Transition











AGENDA 21ism


































Social Capital

Social Metrics

Social Currency

Social Stock Exchange

Virtual Currencies

Going mobile

Blue Economy

Green Economy

Social Economy

Joseph Stiglitz

Jeremy Rifkin

New Economics Foundation

Natural Capital

Beyond GDP

Global Well-Being




Random selection

Pricing nature and concepts

Social Return on Investment (SROI)



 December 2013 - Bitcoin articles and research links added
30.5.13 - more links added! Please also be aware that these links are only the ones that are not already incorporated into the articles I have written, so you would need to check out those articles for even better links to important documents, etc.

Please remember to save any links you find useful, in case my website goes down!



NEW ARTICLE 21.12.12 - AGENDA 21 AND THE NEW WORLD ECONOMY: where happiness matters -  please see link on left
note - please go to 'Agenda 21' for full summary of connections amongst the new economic thinkers, and links to Occupy, and check out the tabs on the left of this page. Many apologies for the state of the website, it will improve...


Going beyond GDP and ‘accounting for externalities’ means finding another way to define value ie measuring natual and human/social capital.

This is defined as:

Natural capital -  all of nature ie biomass, where value is to be gained in some way. This value can be physical, eg crops, land, minerals, or it can be untouchable or intangible eg the value of tourism.

Human capital – individual worth ie the sum total of all that’s deemed to make a contribution to society, such as knowledge and labour, as well as individual characteristics, such as age, body mass, health, and overall well-being, eg ‘happiness’ level.

Social capital – the sum of human capital in any given location eg a country. This can be assessed using individual surveys (health and well-being aka suitability and conformity) and analyses of your social graph. They all add up to social capital, which are part of a country’s full worth.

There are already lots of ways to measure all these things. All we’ve got to do is agree to it.

But if we did that, what would happen with the numbers? Remember that money is now just numbers – numbers which signify value. And that’s what numbers which measure natural/human capital are too.

There are numbers to measure ‘the value of tourism’ and numbers to measure ‘happiness and well-being’, and now the suggestion is that we use these numbers to describe how well a country is doing. If we do this, the numbers will get a lot more powerful. Already, investors are using the SROI (social return on investment) to find out if what they have invested in is succeeding. There are lots of ways to measure social capital too – Twitalyser etc – and this is very valuable to businesses. We are living in a knowledge/information economy, where the full value of a business in some cases comes down to ownership of knowledge. The more things that get measured, the more they can be used as currency, because they just are currency: they hold value.

And virtual currencies are really taking off – including ways to earn points for doing social good. The more social good you do, the better your reputation will be; the more valuable (to a corporation/government) you will be deemed to be. Global brands are leading the way with rewards for linking in with them (it gives them free promotion after all); this is taking the form of virtual credits, which can be spent online. There are also lots of games on the internet offering these credits, the most famous, and so far the most influential, is Facebook credits.

In fact, Stalnaker, the founder of Hub Culture, an online social network which uses Ven (a virtual currency), believes that Facebook will one day be “the biggest bank in the world”.

Many are predicting social currencies to rival and potentially replace real currencies, which would cause people and planet to become commodified. Instead of the current situation where the triple bottom line is ‘people, planet, profit’, we could end up with a situation where people + planet = profit.

So those who are calling for action to go ‘beyond GDP’ at Rio+20 this year, endorsed by Occupy, need to know where this could be headed.


The new economy looks set to be based on resources – that means natural and human capital, as well as how people combine to make social capital, which creates an entirely new value, which can be traded for profit, just like individuals and nature.

People are ‘renewables’ just like crops grown for biotechnology and food. Therefore we would be part of the circular economy. An endless cycle of profitability. People and nature would directly signify value, ie money. We would be quantifiable and tradeable. An endlessly expanding market, unlike gas and oil. That means an endless system with endless profit margins.

People and organizations calling for this new system include:

  • Andrew Haldane
  • George Soros
  • Amory Lovins will profit from it
  • INET
  • nef
  • IMF
  • OECD
  • Prince Charles
  • WWF
  • EU
  • UN

 The new economy, or resource-based economy, is viewed as a welcome solution to many idealists who see it as an empowering way to take back control and be valued for who they are: the perfect expression of peer-to-peer interaction.


When something is measured, it gets given a number; this means a value has been ascribed to it – the ‘thing’ has value. The resource-economy idealists seem to be missing the fact that assigning value to something means it can be traded, and in fact, people (or their ‘value’) are already being traded (eg Empire Avenue). This rating, or value, becomes the new currency, the new money system. Money is simply a signifier of value. In our current economy, this has changed a lot because there is now only a small percentage of actual physical cash in existence of the total amount of money in the economy. Money has been mostly virtual for quite some time.

There are also a number of other virtual currencies in circulation (see ‘Virtual Currencies’), which are interacting with the ‘real’ economy. People are using dollars and euros to pay for virtual credits AND actual currencies, such as Bitcoin and Ven, and this is having a bigger impact on the global economy, since they are both bypassing and impacting the financial system. There are now investigations under way into money laundering and other forms of crime related to virtual currencies.

It’s important to understand what is happening here: the more these virtual currencies are being used, the more they are starting to displace the ‘real’ economy. In fact, the more they affect the ‘real’ economy, the more ‘real’ the virtual currencies become. The fact that there are no coins or notes for them is irrelevant, since the world is now almost fully networked: statistics tell us that the majority of the poor have a mobile phone. Mobile digital payments are also being implemented, for both real and virtual transactions.

Not only that but assessing the value of people has been part of realising social value, or ‘impact’ of social business, for over a decade. (see ‘Social Metrics’)

“Together this ecosystem of virtual currencies will intersect and interact with the traditional world of money and banks.

Over time, however, it is apparent that there can only be one system for financial value and that all these 'currency languages' are speaking about the same thing: Singular value. Singular value is a way of describing the absolute value of anything in this highly comparative system. Whether priced in euro, US dollar, Avio or Ven, goods and services find a parity in digital economies regardless of the label used.

Once value can be compared the use of different currencies becomes slightly redundant for those who are shopping in that economy. But the choice of currency does matter, because the currencies we choose to use will imply different sets of underlying values that can be enormously important and potentially transformative for society.”

Andrew Haldane, from the Bank of England, is arguing for a “global syntax” for finance, like the “singular value” described by Stalnaker, this will be a common ‘language’ used globally to integrate and streamline the economic system worldwide. If Haldane’s proposals were to be implemented, this could be a time when the impact of all the virtual currencies (including credits, eg from Facebook) were factored in so that all parts of the financial system are accounted for, and are all speaking the same language. This would be a turning point, allowing the virtual currencies to gain more leverage in the system, and potentially displacing national currencies. Stalnaker believes that there will be a variety of currency/credit systems operating together, creating “a richer tapestry of value sets”: when these have reached critical mass, the lead will, it is implied, naturally arise for “an exchange system that can calculate relative shifting value between entities on a P2P level”.

None of these currencies have anything to back them up except trust, but resources are the ultimate value. Several of the individuals and organisations which are advocating measuring human and natural capital are also proponents of complexity modelling. This term is used to describe the study of social- and eco-systems, of which economics is one. They criticize the current economic system, which does not take account of the influence that people have in affecting economic outcomes. They point to the problems with assessing risk, citing the recent losses of J P Morgan, whose ‘value at risk’ model rests on equilibrium theory. Modelling complexity involves predicting the effects of reflexivity; this is a concept championed by George Soros, who set up INET, who are furthering the cause for new economics based on the reflexivity theory.

The concept also relates to the ‘circular economy’ and descriptions of the economic system as an ‘ecosystem’ or a social system. This also links in to the cradle to cradle method, which hinges on the concept of circularity in nature, and has also been discussed at Davos. The method sanctions the use of renewables, and renewable energy credits, which of course also feeds in to this ‘endless cycle’ idea. Cradle to cradle is endorsed by Ellen Macarthur, who attended the recent OECD forum alongside an Occupy LSX activist and figures from INET.

Many advocates of virtual currencies and of ‘valuing resources’ believe that people will be empowered because they system will run as a peer to peer network, cutting out the need for governance and control. This is the kind of system currently embodied by Bitcoin, which guarantees anonymity. Stalnaker asserts that the variety of virtual currencies will be controlled by “intelligent, integrated exchange systems”, which would be able to identify and resolve a problem by isolating and reversing the transaction.

Complexity modelling helps identify both high –value social capital because it gathers strength at key nodes in the network, and it could also potentially identify significant parts of the financial system, if Haldane’s proposals for a global financial syntax are put in place. Evidence presented at the World Economic Forum recently suggested that:

“control of a large distributed network of actors is possible because certain ‘nodes’, or points of operation, become stronger than the others.”

This idea is being examined by INET, in particular in their research partnership with Oxford University.

We seem to be headed for a world with a global financial architecture which trades on renewables, ie people and nature.


“As yet, we are some distance from having a consistent global method for financial product identification. The prize beyond that, a big one, would be to integrate LEIs and PIs using a commonly-agreed global syntax – an HTML for finance. This would allow us to move from words to sentences. It would provide an agreed linguistic base for a common financial language. Provided this language is flexible enough, like…HTML, it ought to be capable of describing any instrument whatever their underlying complexity. So if a common language for finance were to arise with these features, what benefits might be expected?”

Those benefits would include improving risk management in firms and across firms, mapping the network of international finance and lowering barriers to entry.

Banks become “surplus links in the chain”

That last point is particularly interesting, with Mr Haldane suggesting that the construction of this common financial language – in which all information about an instrument is known and available – would lead to the disintermediation of the established banks:

“With open access to borrower information, held centrally and virtually, there is no reason why end-savers and end-investors cannot connect directly. The banking middle men may in time become the surplus links in the chain. Where music and publishing have led, finance could follow. An information web, linked by a common language, makes that disintermediated model of finance a more realistic possibility.”

The Doom Loop

 Andrew Haldane writes about equity and the banking system

 An alternative, more radical approach would be to tackle the problem of bank governance and control. Since the crisis, a number of proposals have been made – increasing board expertise and the power of risk committees, for example. These are steps in the right direction. But one look at the star‑studded cast of non-executive directors on the boards of failed financial institutions is to realise that to wish for better is to wish upon a star.

What else might be done? As at the start of the 20th century, the prevailing ownership and control models in banking were the public limited company and the mutually owned co-operative. Under the first, ownership and control are vested in a small minority of stakeholders, with rights assigned according to weight of portfolio: it is an equity dictatorship model. Under the second, ownership and control are vested in a much wider set of stakeholders, with rights unrelated to weight of portfolio – a stakeholder democracy model. Both have their problems. For the public company, it is risk and profit-seeking by the minority. For the mutual, it is a lack of financial incentive to curb risk, as those with the majority voting rights typically have the smallest financial stakes. But it isn’t difficult to conceive of governance models that combine the best bits of both.

To give one example, voting rights could be extended across a wide group of stakeholders, but weighted by stake. Governance and control would then be distributed across the whole balance sheet, curbing the profit-seeking incentives of the equity minority, while weighting voting rights by size of portfolio to avoid the inertia of mutuality. Bank governance would then be a wealth-weighted democracy, a hybrid of the mutual and joint-stock models. This would seem like a radical departure. But in many respects it would be a return to the incentive-aligned structure of 19th-century banking. Over the past century, the imbalance between those who have garnered the profit from banking and those who have taken on the risk has increased. It isn’t only banks that have gone bankrupt during this crisis. Households, companies and even countries have borne the brunt. Putting equity, social and financial, back into banking is essential if the financial system is to be durably repaired.



The End Game in Disruption (

Movenbank, Simple, PayPal, Square, Dwolla, BitCoin and others are working at disrupting not the networks or infrastructure, but the friction in the system. As a group we're attacking the shortcomings in the system from a consumer experience perspective. Despite incremental improvements in technology interfacing through internet banking and the like, parallel changes in KYC, risk, regulation and other broad industry moves have had a net negative effect on banking for the consumer.

In years gone by, the local branch experience was superior to the impersonal, by the numbers, decentralized processing experience we have today in the retail FI space; this is down to the fact that risk mitigation and profits became the driver in recent decades - not customers (blame regulators if you like). While we can say we measure customer satisfaction and so forth, on a net basis, customer experience is far less personalized than it was in the past.

Technology is circumventing the friction, the fuss, the workload, the processes and the rules that frustrate the consumer experience. Thus a new layer of value is being created on top of the existing infrastructure. Consumers are flocking to these new value creators not because of the underlying infrastructure that banks and networks provide, but because of the value and experience itself.

Thus, in the end when it all washes out - there's value and there's infrastructure.


INET (4 What can economists know~?)

Posted on May 6, 2012 by Mystic

The problem arises in ignoring the `reflexive` nature of human interaction. That is – What A does affects B…..and then what B does re-affects A……and society, being chocked full of these reflexive interactions, cannot be predicatively modeled.

The point of all this, is that it has been economists that have been advising policy makers. The people have their reality altered by the actions of these policy makers. So, what we have had is these mad economic models directly affecting your life. This is why INET has pushed this session……….So as to stop this madness~!


to create wealth you have to take risks – towers Watson argue that “risk should be redefined in terms of impairment to mission” and that “risk models fail to deal adequately with complexity and in particular with endogenous risk – that investors own decisions and actions themselves alter the risk landscape.”

 BoE eyes closer supervision for bank risks (Jun 8, 2012)

LONDON, June 8 (Reuters) - Regulators could take a more hands-on approach to supervising the risks individual banks face to avoid relying on flawed in-house computer models that failed to predict losses at JPMorgan, a top Bank of England official said on Friday.

The models are used by banks to set limits on how much risk traders should take on and for calculating how big a bank's regulatory capital buffer should be.

One of the best known models, Value-at-Risk or VaR, was developed by JPMorgan itself in the 1990s for predicting the likely maximum loss from a portfolio position within a certain "confidence level" - meaning to a reasonable degree of accuracy.

Last month JPMorgan announced losses totalling $2 billion on a portfolio of corporate credit exposures traded at a unit in London. The bank's VaR model only initially pointed to a loss of $67 million.

… "Tails should not be unexpected, for they are the rule. It also means putting in place robust fail-safes to stop chaos emerging, the sand pile collapsing, the forest fire spreading. Until then, normal service is unlikely to resume."


Risk models must be torn up, Haldane says

Financial risk models that underpin market behaviour, economic theory and bank regulation dangerously underestimate the threat to taxpayers and must be completely redrawn to prevent a repeat of the financial crisis, a leading policymaker has warned.

 The Bank of England's Andrew Haldane has called for economists to re-think what they mean by "normal" by Philip Aldrick, Economics Editor (8 Jun 2012)

….. In a wide-ranging piece of research that sourced evidence not just from economics but from physics, biology and even behaviour on Twitter, Mr Haldane argued that the orthodox models used to measure risk overstate “normality” and underestimate the costs and probability of “catastrophe”.

To make the financial system safer, they need to be torn up, he said in the paper, co-authored with Bank economist Benjamin Nelson.

“The economics profession has for much of the 20th century been bewitched by normality. Real business cycle theory in economics and efficient markets theory in finance bear the tell-tale signs of this intellectual infatuation,” he said. “Over the past five years, the real world has behaved in ways which make a monkey of these theories.”

Changing the dangerous consensus “will require a fairly fundamental re-think of the foundations of modern-day economics, finance and econometrics”, Mr Haldane added.

…. Changing the accepted wisdom on how to calculate risk is more important now than ever before, he added. “As the world becomes increasingly integrated – financially, economically, socially – interactions among the moving parts may make for potentially fatter tails. Catastrophe risk may be on the rise."


ARCS 2012: dealing with systemic risk and security in complex networks, by Dr Robert Ghanea-Hercock, Chief Researcher, BT Security Research Practice (April 13, 2012)

This year’s workshop on Adaptive and Resilient Complex Systems (ARCS) will take place on 19 June 2012 at the Royal ARCS 2012 - It’s an annual workshop that goes beyond cyber security to look at the analysis and study of adaptive and resilient behaviour in all network forms — economic, commercial, financial, defence and social systems.

It’ll bring together senior industrial researchers, policy makers and leading academics in these domains to examine how we can engineer or manage very large complex systems to improve resilience, control risk and secure their operation.

It’s an opportunity for like-minded thinkers to connect and gain a deeper understanding of the complex nature of networked business or social systems.

…This year’s theme is systemic risk and security in complex networks.


How Social Science Must Change to Include Complexity

…. Organizational theorists have long claimed that if you can measure it, you can manage it. Managing the complexity of systems may be just as important as working to maintain their efficiency.

In addition, once we know the complexity of a system, we have some idea about how predictable it is and how likely it will produce large unexpected events. We can even consider complexity as a policy consideration in and of itself. We might even ask whether a new policy will make a system more complex, and if so, whether or not the cost of the complexity is worth the potential costs.

As mentioned, physical and computational measures of complexity exist in abundance. These can provide a starting point for creating social complexity metrics, but they need refinement for the simple reason that electrons don’t think. Thus, it’s relatively easy to understand how their behaviors aggregate. People, on the other hand, do think. We base our behaviors on mental models, belief systems, and passion. We can also copy others whom we perceive as being successful.

This last observation, that we often mimic others, implies a positive feedback and a close link between social and evolutionary systems. Positive feedbacks along with interdependencies are a major driver of large events. Hence, social and evolutionary systems may be more prone to fluctuations than physical systems.

…… To harness complexity, to borrow a term from Robert Axelrod and Michael Cohen, we must take a generative perspective and see social outcomes as produced by purposive actors responding to incentives, information, cultural norms, and psychological predispositions. We need interdisciplinary teams to unpack how those many forces interact.

A large part of that process of taking a generative perspective will be rethinking variation and diversity, the third necessary change. Social and behavioral scientists must think more like ecologists who see variation as central and less like statisticians, who perceive variation from average effects as noise or individual differences that average out.

In complex systems, variation (differences within types) and diversity (differences in the number and distribution across types) drive innovation and contribute to system level robustness.

 ….increased engagement with complexity research can enable social scientists to better explain and predict what occurs in our increasing complex world and anticipate large events. On the normative side, a deeper engagement with complexity can help us to identify and pull levers within systems to effect change, to design rules, laws, and incentive structures that limit the prevalence of large deleterious events, and to leverage the potential for emergence to improve outcomes.


SFI at Davos: How a complex systems approach can help improve economic, social, & cyber systems (Jan. 27, 2012)

At a session of the World Economic Forum in Davos, Switzerland, SFI scientists described ways the latest research in complex systems might enhance the resilience and control of economic, social, and cyber systems.

During the January 25 session, "Managing complexity with the Santa Fe Institute," panelists, through example, showed how control of a complex system need not mean the control of all its individual elements but only of a select number of key nodes.


Wednesday, 2 March 2011

Soros' Economic Reflexivity

Feedback in Cause and Effect

Social Psychology 101 stresses the interconnectedness of cause and effect in human mediated systems. It’s not just that cause begets effect but effect then begets cause which begets effect which … yeah, well, you get the idea.

The investor George Soros has taken this idea and used it to become mindbogglingly rich. He sees behavioral economics as only one part of a better description of our financial system: it explains how causes create effects but not how they feedback on each other. To explain that we need to look at what he calls economic reflexivity.

Volcanic Behavior

“Reflexivity is the favourite candidate for the property which makes the human sciences unique. Reflexivity is the property of the objects of a scientific inquiry also being the subjects who carry out the inquiry”.

Thus spake Owen Flanagan, but the problem might be summed up thus: people think for themselves and this gets them into lots of trouble because they often don’t do it very well. Potentially we end up with self-fulfilling prophesies, which we considered in Is Self-Interest Self-Fulfilling? Here's Flanagan, again:

“When scientists predicted that Mount Saint Helens would erupt they did not worry that the prediction would affect the volcano’s behaviour by causing it to erupt when it would not have because it preferred to do what geologists said it would do; or by causing it to stop an incipient eruption because it preferred to be disobedient. However, when we predict, based on our observations of some community of people studied as objects, that the rate of inflation will rise because of people’s negative attitudes towards saving money, we generate information which these very people can use in their role as economically self-interested subjects.”

So in this model it is the expectation of future inflation that generates inflation, as people demand wage rises to counter this: the so-called expectations theory of inflation. Anticipation of price rises leads people to spend more, save less and demand inflation-busting pay rises. Breaking the circle of expectation is the key to bringing inflation under control.

Thomas and Merton

Reflexivity as an idea in the social sciences dates back to the 1920’s and the so-called Thomas theorem, but is more closely associated with Robert Merton who came up with the associated concept of a self-fulfilling prophesy. Merton’s ideas as applied to the social sciences were picked up by the philosopher of science, Karl Popper, under whom Soros studied at London.


This is how George Soros explains the idea in
The General Theory of Reflexivity:

“I can state the core idea in two relatively simple propositions. One is that in situations that have thinking participants, the participants' view of the world is always partial and distorted. That is the principle of fallibility. The other is that these distorted views can influence the situation to which they relate because false views lead to inappropriate actions. That is the principle of reflexivity. For instance, treating drug addicts as criminals creates criminal behavior. It misconstrues the problem and interferes with the proper treatment of addicts. As another example, declaring that government is bad tends to make for bad government.”

Basically there can be no certainty in anything because we’re fallible and our fallibility translates into actions which impact the very situations we’re trying to analyse. In this feedback Soros discerns a problem in behavioral finance:

“Instead of playing a purely passive role in reflecting an underlying reality, financial markets also have an active role: they can affect the so-called fundamentals they are supposed to reflect. That is the point that behavioral economics is missing. It focuses only on one half of a reflexive process: the mispricing of financial assets; it does not concern itself with the impact of the mispricing on the so-called fundamentals.”

The Flaw in the Behavioral Approach

What Soros is pointing out, albeit in different terms, is the same problem other commentators have raised with behavioral economics: it plays by the same rules as the traditional version, with a bit of psychology thrown in to pacify the unruly masses. If you add reflexivity to the equation you have a different sort of problem, because it implies that the standard models can’t apply and all that behavioural finance is explaining are the limits to human cognition, not their affects on economic behaviour.

Equilibrium is only possible in a world without reflexivity: in a world with it then prices can be driven to insane levels simply because of people behaving like people. If enough investors believe that a price change is indicative of something important and follow the trend then the trend can take on a life of its own and equilibrium be damned.

Reflexivity in Action

The fact is we don’t just observe markets, we don’t just participate in the markets: we are the markets. Taking account of that is beyond our current abilities, although it’s one of the principles that’s led Soros to his current state of being wealthy beyond the dreams of average avarice. Such a state means that he can indulge himself by pursuing his ideas and to this end he’s set up The Institute for New Economic Thinking, which:

“Recognizes problems and inadequacies within our current economic system and the modes of thought used to comprehend recent and past catastrophic developments in the world economy. The Institute embraces the professional responsibility to think beyond these inadequate methods and models and will support the emergence of new paradigms in the understanding of economic processes.”

 Well, we’ll see.


How big data present social policy opportunities and pitfalls, by Jorge Louçã (February 1, 2012) from SFI NEWS: “ Can human behavior be understood, predicted, and controlled? The advent of “big data” — enormous datasets now being harvested from records from websites (including social media sites), mobile phones, GPSs and banking transactions are giving physicists, social scientists, and complex systems experts powerful new tools to understand and predict human behavior.

At a January 26 session of the World Economic Forum in Davos, Switzerland, titled “Human network dynamics,” SFI External Professor Scott Page was among panelists who explored how big data will have profound impacts on politics, marketing, infrastructure design, and many other spheres.

 … Scientists can only predict what they can measure. Big data now provides tools to predict human mobility and travel patterns. For example, recent studies using mobile phone data allow prediction of where a given human being will be on a certain day, at a certain time, with over 90 percent accuracy.

While the responsible use of big data has significant social policy implications, it also presents risks of abuse. 

About NESS
NESS stands for Non-Equilibrium Social Science. The aim of the group is to ensure that the social sciences are put on a proper footing for the 21st century. A key focus of the group is economics, where the equilibrium approach (though dominant) struggles to capture the economic realities we observe in the world today. But we are interested in all the social sciences.

Modern computer techniques have made possible both the integration of larger information sets and the exploration of disequilibrium behaviour. However, we are still in the infancy of making the best use of simulation and multidisciplinary analysis. Too often vested interests get in the way of real advance. We aim to establish a network of leading scholars and practitioners from all social science disciplines to apply and focus these advances to make real progress in understanding complex social and economic systems.

The NESS network was created at a meeting in August 2010…

(The Advisory Science Board includes:

Joseph Stiglitz and Eric Beinhocker, who is Director of the Institute for New Economic Thinking (INET), (and also of INET@Oxford) and is linked to the London School of Economics. He was also Senior Advisor to McKinsey & Company, who have researched social metrics.)


Andrew G Haldane: Towards a common financial language1

Speech by Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, at

the Securities Industry and Financial Markets Association (SIFMA) “Building a Global Legal

Entity Identifier Framework” Symposium, New York, 14 March 2012.

Haldane points out the benefits of having a ‘common language’ for financial transactions, on a global scale. He says that there are far too many financial languages, and that standardization needs to take place as it has in the world of business. He describes the uniform product code and global location numbers (GLN), and GS1 which is the organization that manages the standards, and has over 40 million products in its global registry. Haldane wants to see the same technique used in finance: the IMF and the Financial Stability Board have collected data on global banking interconnections, and this data needs to be aggregated, using a system of describers and standards. The US and the EU have already begun to legislate towards this.

The issue was discussed at the G20 summit in 2009, and it was proposed to bring in a Legal Entity Identifier (LEI) and a Product Identifier (PI).

The LEI, says Haldane, functions like a noun in this financial language by naming the counterparty in each transaction. It is like the GLN because it defines the node in the network ie it gives the coordinates. It would be a Global Trade Identification number.

The PI is like an adjective, because it describes the elements involved in each financial transaction. They work like GTINs (Global Trade Identification Numbers).

There would be a need for a global governing body to maintain and develop this system, which effectively constitutes a global map of a dynamic system, allowing models to be run which would more effectively predict risk, much like meteorologists predict the weather. Another analogy often employed in new economics is ‘ecosytem’.

 New centre to tackle major economic challenges

12 Apr 2012

A new interdisciplinary research centre to explore and challenge conventional economic thinking has been created by the Oxford Martin School in collaboration with the Institute for New Economic Thinking (INET).

The creation of this exciting new centre comes in the wake of the 2008 financial crisis and the on-going euro crisis, after which leading economists, policymakers and business leaders have called for a fundamental re-think in economics.

The Institute for New Economic Thinking at the Oxford Martin School builds on an existing INET research programme at Oxford, which was focussed on economic modelling. The new expanded centre will have a five-year budget of over US$25 million with core funding from INET, a New York based non-profit foundation started by Mr George Soros, matching support from Oxford, and research grants from a number of other institutions.

The centre will have over 40 leading academics involved and will aim to stimulate innovation and debate in economics, support visionary interdisciplinary research and contribute to the education of the next generation of economists as well as business and government leaders.

Speaking at the announcement of the formation of INET@Oxford at the INET Annual Conference in Berlin (on 12 April), Mr Soros explained his reasons for funding research at INET@Oxford: “Fresh thinking in economics is urgently needed to mitigate many global challenges, not least systemic financial crises, the creation of sustainable jobs and employment, and the wide-ranging challenges of development.”

INET@Oxford will seek to leverage thinking across academic disciplines in its approach to economics. In addition to economists, the centre will work with physicists, biologists, psychologists, anthropologists and others across the physical and social sciences. An important part of the centre’s mission will be to facilitate application of its research to critical economic policy problems and to actively engage with leaders from government and business.


Tails of the unexpected Paper by Andrew G Haldane, Executive Director, Financial Stability and member of the Financial Policy Committee and Benjamin Nelson, Economist, Financial Stability

Given at “The Credit Crisis Five Years On: Unpacking the Crisis”, conference held at the University of Edinburgh Business School

8 June 2012 

Walter Stahel at the World Resource Forum in Davos (19-20 September 2011)

Many governments subsidise such renewable resources as biomass, solar and wind energy. Yet human labour – work – is another renewable resource which, when intelligently used, has traditionally been taxed in most countries, but when wasted, is supported by social welfare.

A need for appropriate sustainable taxation

In a sustainable economy, taxes on renewable resources including work - human labour - are wrong and should be abandoned. The resulting loss of state revenue could be compensated by taxing the consumption of non-renewable resources in the form of materials and energies. Such a shift in taxation would promote low-carbon as well as low-resource solutions.

Changing the tax focus will by itself promote a more sustainable circular economy…


Managing Complexity with the Santa Fe Institute

Wednesday 25 January

This session was conducted under the Chatham House Rule.

How can the latest research in complex systems enhance resilience and performance?

Idea 1: Complexity science to understand economic systems
Idea 2: The control of social systems by leveraging complexity
Idea 3: Biological models for software security
Idea 4: Diversity to create better groups and societies

Key Points

  • Complexity economics sees the economy as a system within which the elements react and re-react with each other in complex and unpredictable ways.
  • The control of a complex system need not mean the control of all its individual elements but of a select number of control nodes.
  • Complexity theory is giving new insights into how to protect computer systems from malicious agents, using ideas from immunology, epidemiology and ecology.
  • Achieving super-additive systems requires tapping into diversity.


Idea 1: Complexity science to understand economic systems

Equilibrium economics presents the economy as a balanced machine, a closed system within which the elements of the economy find balance. The complexity model understands the economy as a system within which the elements, including banks, corporations, governments, react and re-react with each other in complex and unpredictable ways.

While equilibrium economics relies on a negative feedback loop, complexity allows positive feedback. Small events can ricochet through the system, having considerable impact.

The euro crisis illustrates how these two economic theories can paint distinct pictures of a single economic event – with different responses to economic challenges.

Equilibrium economics proposes that the euro crisis may be solved by manipulating fiscal responsibility and austerity to bring the economy back into balance. The complexity model suggests there are other issues at play– such as the impact of German productivity – and that there are a variety of fixes and interventions that may provide long-term solutions.

Complexity economics gives an arguably more realistic view of how economies work. It suggests that there are a variety of influences and interventions that can help us be alert to what might happen next.

Idea 2: The control of social systems by leveraging complexity

The nature of the complexity that surrounds society is seen in the billions connected to the Internet, or the connectivity that is our shared genetic network. But does so much complexity mean there can be no control?

The control of a complex system need not mean the control of all its individual elements. The complex wiring of a car is controlled by three control points: the steering wheel, gas pedal and brake. Each one activates thousands of other components the driver is not aware of.

Understanding control points helps in the understanding of controlling systems as complex as the epidemiology of cancer or communications networks in large organizations.

In an organization, knowing who the control nodes or influencers are may be the key to communicating effectively, creating change and influencing culture. Complexity research helps model and reveal control nodes.

Idea 3: Biological models for software security

Complexity theory is giving new insights into how to protect computer systems from malicious agents, using ideas from immunology, epidemiology and ecology. In nature, there is an ever-raging arms race between attackers and defenders, with the constant evolution of weapons and defence.

The development of cyberinfrastructure can learn from nature. It is a monoculture, built to face and manage a series of similar risks. It does a poor job detecting and defending against novel forms of attack.

One way that cyberinfrastructure can replicate nature in its digital immune system is to ensure that all copies of software are unique, while underlying functionality remains the same. Unique differences protect from replicated attacks.

Another challenge for cybersecurity is creating agile regulatory policies that allow cyberdefence to stand up against ever-evolving and unpredictable predators.

Idea 4: Diversity to create better groups and societies

The study of complexity offers insights into how to create better performance at a macro level.

It is well understood that performance can be improved by adding numbers to increase output, or by specializing. But simply adding more of the same skills will ultimately achieve more of the same output. The study of complexity suggests that to truly improve performance in our complex world, diversity is super-additive.

Diversity speaks to how people think, their models, causal networks and the tools they acquire during life. In mathematical terms: The wisdom of the crowd = the intelligence of the individuals + the diversity of the crowd

Diversity is also a powerful tool for problem-solving. Diverse thinkers bring different types of solutions to any problem. A group of mixed performers will show greater performance than a group of higher individual achievers who are similar to each other.

 To achieve super-additive systems, diversity must be tapped.




United Nations Secretary-General’s High-Level Panel on Global Sustainability (2012). Resilient people, resilient planet: A future worth choosing, Overview. New York: United Nations.

…. international, national and local governance across the world must fully embrace the requirements of a sustainable development future, as must civil society and the private sector. At the same time, local communities must be encouraged to participate actively and consistently in conceptualizing, planning and executing sustainability policies. Central to this is including young people in society, in politics and in the economy.

.... Quantum change is possible when willing actors join hands in forward-looking coalitions and take the lead in contributing to sustainable development.

……  The Panel’s report makes a range of concrete recommendations to take forward our vision for a sustainable planet, a just society and a growing economy:

a. It is critical that we embrace a new nexus between food, water and energy …. embrace a second green revolution — an “ever-green revolution” — that doubles yields but builds on sustain­ability principles;

b. It is time for bold global efforts, including launching a major global scientific initiative…. Priority should be given to challenges now facing the marine environment and the “blue economy”;

c. Most goods and services sold today fail to bear the full environmental and social cost of production and consumption. Based on the science, we need to reach consensus, over time, on methodologies to price them properly. Costing environmental externalities could open new opportunities for green growth and green jobs;

d. Addressing social exclusion and widening social inequity, too, requires measuring them, costing them and taking responsibility for them….

e. Equity needs to be at the forefront. …

f. … Half of humankind’s collective intelligence and capacity is a resource we must nurture and develop, for the sake of multiple generations to come. The next increment of global growth could well come from the full economic empowerment of women; g. Many argue that if it cannot be measured, it cannot be managed. The international community should measure development beyond gross domestic product (GDP) and develop a new sustainable development index or set of indicators;

h. Financing sustainable development requires vast new sources of capital from both private and public sources. It requires both mobilizing more public funds and using global and national capital to leverage global private capital through the development of incentives. Official development assistance will also remain critical for the sustainable development needs of low-income countries;

i. Governments at all levels must move from a silo mentality to integrated thinking and policymaking. They must bring sustainable development to the forefront of their agendas and budgets and look at innovative models of international cooperation. Cities and local communities have a major role to play in advancing a real sustainable development agenda on the ground; International institutions have a critical role. International governance for sustainable development must be strengthened by using existing institutions more dynamically and by considering the creation of a global sustainable development council and the adoption of sustainable development goals (see the rest here:)

 We need to rediscover relationships of respect and reciprocity with each other and the Earth. The time for action is now. The logic of our situation suggests that some form of global polity may emerge in the coming decades—good or bad, beauti­ful or ugly. ….

“A new economy will need a broader view of economics, which goes beyond the calculating, self-interested, individual to take account of community, compassion, and cosmos.”

……what unites us, building solidarity and equality, justice and compassion, quality of human life and ecological flourishing. We have a choice between a blessing and a curse: either we live in harmony with each other and the planet, or we destroy each other and—perhaps—life on the planet. Let us choose life.


For the sake of giving our children and the children of their children an opportunity to realize their mission and to answer the eternal questions of mankind, which we are yet unable to solve, we all need to adopt quite different way of life. The first step is to revise our attitude to fundamental social categories of Money and State.

Human and Resource Economic System is a normative socio-economic model that implies more egalitarian and just society, stable resource use and improvement of environment – instead of its degradation. It is based on principles of absolutely stable currency, backed by energy and water, balanced transactions between economic agents and environment, open-governance and cooperative ethics.

 The First International Social Transformation Conference ( July 10-12, 2012. Croatia)

The main focus of the conference will be the relationship between the dynamics of financial and energy flows and the feasibility of an energy-backed international currency. However, all kinds of alternative currency models will be debated with equal interest and attention.

The organizers commit to use their networks of influence and media support to ensure that the proceedings of the conference reach the highest political authorities, primarily – the European Commission and a number of national financial ministries.

Nikola Tesla

Many people may ask a very reasonable question: "What does the engineer Nikola Tesla have in common with a scientific conference on economic issues?" This question has several answers. First of all, it has to do with name of the conference, “Social Transformation Conference.” The figure of Nikola Tesla is very symbolic because his contribution to the development and transformation of the society is enormous, although not always recognized.

(so what about free energy?!!)


I am reminded of my favourite quote from Sir JosiahStamp, formerly a director of the Bank of England, and reputedlythe second-richest man in England in the 1930s:

“Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.”


The Collective Entrepreneur: Social  Enterprise and the Smart State, by Professor Kevin Morgan and Adam Price (March 2011)
(Kevin Morgan is Professor of Governance and Development at the School of City and Regional Planning at Cardiff University. Adam Price is the former Plaid Cymru MP for Carmarthen East and Dinefwr and is currently a Fulbright Scholar at the John F. Kennedy School of Government at Harvard.)

 One of the reasons why social enterprise values are travelling so far is because the twin crises, the Credit Crunch and the recession, exposed the shortcomings of conventional business models, especially amongst the banks and credit rating agencies which did so much to initiate the problems in the first place. These crises raised questions about the distribution of risk and return in capitalist society that remain to be answered.

One of the most compelling answers to the banking crisis came from Andrew Haldane, the financial stability director of the Bank of England, who argues that financial regulators need to think of banking in ecological terms, where banks are treated as dynamic parts of a banking ecosystem. The key conclusion to emerge from this analysis was the following: to reduce the risk of future crises, regulators ought to give much greater prominence to “systemic diversity” across the banking system as a whole because “homogeneity bred fragility” (Haldane and May, 2011). ………. Promoting alternative business models in the banking sector is now deemed to be essential if we want to fashion a more resilient, more sustainable system, and one way to do this is through the creation of banking mutuals, which promotes “systemic diversity” as well as consumer choice.


POLICY INNOVATIONS – For a fairer globalization (Carnegie Council)

An Intergovernmental Panel on Systemic Economic Risk
Kevin Gallagher

The UN is the most legitimate and among the most qualified global bodies to weigh in on the global economic system and it would be ridiculous for it to sit on the sidelines. The UN has economists and experts in numerous global agencies such as UNCTAD, DESA, UNDP, and beyond, as well as regional efforts such as ECLAC, ESCAP, and others. If the UN does not weigh in, the only other options are the G-20 and the IMF. The G-20 as an institution does not include more than 170 countries in the world, and the IMF has a very poor track record on analyzing, preventing, and mitigating financial crisis. The UN is looked to for balance.

We very much need a meta-analysis of the global state of understanding on the causes of financial crises and measures to mitigate them, with the goal of making suggestions for reforming global economic governance—as recommended by the Stiglitz Commission.


4th OECD World Forum on Statistics, Knowledge and Policy

Measuring Well-Being for Development and Policy-Making, 16-19 October 2012, New Delhi, India

Speakers include Stigltiz, Richard Layard (London School of Economics, UK) , Jeffrey Sachs (Director of the Earth Institute, Columbia University, Special Advisor to UN Secretary-General Ban Ki-moon, USA); Otaviano Canuto (World Bank Vice President Poverty Reduction and Economic Management (PREM) Network); Paul Cheung (Director, United Nations Statistics Division); Charles Seaford (New Economics Foundation, UK); Shaida Badiee tbc (World Bank);  Anthony Gooch (OECD); Chandran Nair (Global Institute for Tomorrow, Hong-Kong);

Jean-Paul Fitoussi (Institut d'études politiques de Paris, France); Klaus Schmidt-Hebbel (Central Bank of Chile, Chile); Robert Manchin (Gallup World Poll, Europe)


Credit ratings system

There has been a lot in the news about credit rating systems and the way they link to sovereign economies  - there has been a huge loss of trust,


Keeping the Bias out of the Rating System

How does B Lab ensure that no bias creeps into its ratings system? Kassoy notes that the rating systems that got a bad rap in the latest financial crisis were credit rating agencies. “Most of what Moody’s and S&P do is rate credit risk and what they failed to do was take into account systemic risks. They also had conflicts of interest because they get paid entirely by the issuing company.” B Lab is structured differently, first of all as a non-profit. Furthermore, it does not provide credit risk ratings but rather is measuring positive impact over time. It also operates with a separate and independent standards council that writes the standards, formulates the company surveys, and creates the weightings and the audit standards. Unlike a traditional ratings service, the B Impact Rating System is totally transparent, including both questions and weightings. B Lab hires MBA students who conduct the audits, write the audit reports and report directly to the standards advisory council. “So the people who are out trying to get companies to apply for B Corp certification have no influence over the rating system,” says Kassoy. B Lab earns revenues through certification licensing fees. Fees are based on company revenues, beginning at $500 a year for companies with under $2 million in sales to $25,000 for companies over $100 million in annual sales.


Responsible capitalism: in step with society

 (26 March 2012 )

To sum up, responsible capitalism creates wealth for society, for the long term. Shareholder capitalism has a role – but subordinate to the bigger picture. Responsible capitalism distinguishes clearly between genuinely productive efficiency on the one hand, and the bogus efficiency that is supposed to flow from removing frictions in economic transactions. And the acid test of responsible capitalism is tax, the ultimate nexus between economic agents and society.

We need a revolution in our understanding of what capitalism needs to be about.

The economist JK Galbraith remarked that all revolutions are the kicking in of a rotten door. The economic crisis has revealed just how rotten the door is. But since 2007 the political classes have merely been painting it. The time has come to start kicking it.

Monetizing Intangible Capital FOM&T 2011 pt


Zeitgeist: Moving beyond money (Uploaded by RTAmerica on 27 Mar 2011)

In his latest film, Zeitgeist: Moving Forward, director Peter Joseph presents a case for a transition out of the current socioeconomic monetary paradigm which runs modern global society to a new sustainable resource based economy. Everyone suffers under the system that exists and suffering is inevitable, not because of politics or policy, but because of monetary existence. The system is flawed. Money is the problem. The focus should be resources, such as food, health and other aspects.

In this video interview, Joseph says that “social interest must become social interest if we are all to survive as a species”. He believes we are all one big family, and should have a new values system based on mutual respect. There are Zeitgeist chapters in more than 200 countries, which Joseph says are about bridging all differences (we are all the same?).


 David Halpern from the Institute for Government defended the proposal to measure ‘social qualities’.


in a recent speech, Haldane criticised the Value on Risk (VaR) method introduced by J P Morgan. This was also criticised by John Fullerton (Capital Institute) who also believes in social metrics.

Tails of the unexpected

Paper by Andrew G Haldane, Executive Director, Financial Stability and member of the Financial Policy Committee and Benjamin Nelson, Economist, Financial Stability

Given at “The Credit Crisis Five Years On: Unpacking the Crisis”, conference held at the University of Edinburgh Business School (8 June 2012).

The sand pile has reached its self-organised critical state………

In finance,

Benoit Mandelbrot (1963) found that equity prices exhibit behaviour consistent with self-organised criticality.

The build-up to the financial crisis provided another example of self-organised criticality.

….  Social networks, be it school classrooms, churches, pubs or the world wide web, have been extensively studied (Jackson (2010)). As a network, they exhibit some common topological features. For example, most have a large number of poorly-connected agents and a relatively small number of highly-connected agents. Why so? One explanation is so-called preferential attachment. Imagine a network of nodes initially connected in a random way. Now assume a new node is added which links to existing nodes with the highest degree of connectedness. There is preferential attachment.

Intuitively, it is easy to see why this might be. Popularity is contagious and self-fulfilling. The resulting network will be characterised by a high degree of connectivity for a few central nodes. It will be power law-distributed (Barabasi and Albert (1999)).

 Nowhere are the dynamics of network formation clearer than in the world wide web. People are much more likely to connect to a blogger or Tweeter with a large number of followers than a small number. Why? Because popularity can be a signal of quality – the Stephen Fry phenomenon. Or because, even if quality is low, popularity can be self-fulfilling – the Kim Kardashian phenomenon.

 The same basic dynamic operates across most, if not all, social and socio-economic networks. Preferential attachment explains the distribution of web-links, academic citations and Facebook friends (Barabasi and Albert (1999)). It explains the distribution of city sizes (Zipf’s Law). It also explains the outcomes from strategic games, for both adults (nuclear proliferation) and children (paper/scissors/stone). All are well-known to be power law distributed.

These types of preferential attachment have a history in economics too. Keynes viewed the process of forming expectations as more beauty pageant than super-computer (Keynes (1936)). Agents form their guess not on an objective evaluation of quality (Stephen Fry) but according to whom they think others might like (Kim Kardashian). Stephen Fry has just over 4 million Twitter followers. Kim Kardashian has 15 million.

This sheep-like logic makes for multiple equilibria, as expectations herd themselves into different pens. Some of these equilibria may be bad ones. The classic example in finance is the Diamond and Dybvig (1983) bank run. If depositors believe others will run, so will they. Financial unpopularity then becomes infectious. People queuing outside Northern Rock in 2007 were behaving identically to people following Kim Kardashian on Twitter in 2012. Both made for a highly sub-optimal equilibrium.

 Co-ordination games such as these appear to operate in a wide variety of settings. The links can be physical, evolutionary, financial, social or expectational (Haldane (2012b)). Each gives rise to highly non-linear system dynamics, due to butterfly effects and phase transitions as expectations shift. The financial crisis has been riddled with examples of these sorts of behaviour, from Lehman Brothers’ failure to the euro-zone crisis. In each case, expectational chains of panic and fear delivered bad equilibria.


… Where interactions are present, non-normalities are never far behind.

…. to the extent that financial and economic integration is strengthening these bonds, we might anticipate systems becoming more chaotic, more non-linear and fatter-tailed in the period ahead.

…  In response to the crisis, there has been a groundswell of recent interest in modelling economic and financial systems as complex, adaptive networks. For many years, work on agent-based modelling and complex systems has been a niche part of the economics and finance profession. The crisis has given these models a new lease of life in helping explain the discontinuities evident over recent years (for example, Kirman(2011), Haldane and May (2011)).





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