FAIR_Money (Principles of Fiduciary Asset Investment Restraint)

A concept in development with the
r3-0.org Sustainable Finance Blueprint

The FAIR rules act as an overflow valve, to redirect excess accumulation of unearned income, used by investors to extract more, back to the pond instead, relieving pressure as if investors collectively showing self-restraint rules safe investment practice for the earth.

Similar to a UBI that provides a Universal Basic Income to every person, FAIR_Money sets a UBD, Universal Basic Distribution, a standard rate at which investors need to distribute their wealth.

Fig 1. Finance works by taking profits from the commons to use for taking more, escalating the financial drain on freely circulating funds. In times like these, the FAIR rules ask investors to spend a share accumulated profits on qualifying long term societal needs, an intervention at scale a bit like a world “Marshal Plan”, doing great good while sustaining the profitability and relieving the growing drain of finance on the producing economy. The rate of asset spending might start low and increase as needed to bring about balance.

[See also the Medium article on FAIR, “Call it a great act of Love“]

Date                 2020 – 5/25/, 6/30, 7/26

Title                 Principles of Fiduciary Asset Investment Restraint (FAIR), simple rules to restrain the compounding of unearned income to reverse the present worldwide continued overproduction of demands on nature and society, our great tragedy of the commons. Ownership comes with natural responsibilities.

Topic                Compound investment (adding profits to investments) is required to get any enterprise going, but as seen throughout nature is only what starts things, not what makes them sustainabnle. If overextended what it does is globally multiplies the power of the owners of the world over all others, creating the great array of world crises of neglect disrupting global society and nature we see today.

Asking investors to take responsibility for bringing growth to a climax peacefully, tempering their greed for the common good, appears quite necessary for long term peace and prosperity, even if it still seems quite impossible socially. It seems to conflict with the absolute rights of blind ownership. Now lots of owners are beginning to see the grand catastrophy their habits are causing, and that society’s rules should reflect how people would like to live without looming threats in every direction.

Pitch                Flatten the curve of growing environmental and cultural exploitation, to reach a thriving peaceful economic climax.

Image             

50050

Fig 2 The universal pattern of emerging systems that sustain their climax

Draft Simple Excel Model: FAIRtestModel.xlsx

Statement The world financial system has but one value, to use the earth and human societies to use for maximizing the growing concentration if financial wealth, without any primary concern for the resulting depletion of natural capitals or disruption of human societies. To secure the wealth of nature and humanity we must then have fair Fiduciary Asset Investment Restraints to prevent the rapid decline of whole system value.    

FAIR is an appealing, comprehensive, and eminently fair way to rebalance the compounding of profits with the long term needs of the rest of the earth and humanity. As part of everyone’s shared duty to serve common interests. That would include correcting the inevitable imbalance between steady earnings from work and exponentially growing earnings for investors who add investment profits to grow their investments. FAIR calls for gradually reducing, not eliminating that imbalance, toward new balance, to not stifle individual financial creativity but to limit its otherwise punishing demands on nature and society. Spending a fixed annual share of accumulated profits from investments in times of need, like today, guided by indicators of harmful societal and environmental economic externalities, would guide investors to value the gift of rich environments and societies.

A portion of business or individual investment assets accumulated from profits (the part that grows exponentially) would be annually spent on qualified impact investments for relieving the excess burdens of compound investment. It’s actually a strategy first discussed by JM Keynes in Chapter 16 iii & iv of his General Theory. I’ve interpreted it as an “overflow valve” to relieve unhealthy burdens on the anthropic earth system to make the macro-economic effect understandable, dialing back extractive investment to relieve the whole economy’s pressure on all our cultural and planetary bounds.

The level of relief from increasing demands on the system would be adjusted with on experience, for argument sake starting at 10% of accumulated profits a year. That would be adjusted to gradually stabilize the economy’s impacts on earth and society at a comfortable level, both for long term profit and to treat a living world with respect. In the end, finance would stabilize and generate steady profit for priority needs, as an ecology and creative cash-cow business. In Hardin’s Tragedy of the Commons, the equivalent would be for the rich farmer to see the error and use the excess cattle to relieve community suffering, such as using the surplus for periodic feasts to save the community and the commons, becoming a welcomed hero rather than the devil himself.

Need       Even ignoring the COVID pandemic, the world faces a considerable growing plague of plagues from centuries of growth putting excessive demands on societies and the environment. A sobering list of The Top 100 World Crises Growing with Growth illustrates the problem. While mainstream finance is starting to recognize the need to not just maximize profits at any cost, so far that has largely been only to factoring the risks to ever-growing profits, not harm to our future. Since maximizing the compounding of profits seems to be the real problem, a new way to do it doesn’t really solve the core problem. It also ignores the very numerous other global crises threatening our future, exposing the grand “tragedy of the commons” of global overinvestment for which we are responsible.

Is that partly a matter of the kind of investment we built civilization with? Of course. A tree can’t change its own trunk, roots, and branches though, only potentially reinforce some and shed others to halt destabilizing overgrowth. So we should expect a version of Fiduciary Duty for investors and businesses to make decisions to the best of their ability in both the near and distant common interests. That is a way for responsible investing to become universal without expecting investors and businesses making their decisions to understand all the up and downstream impacts on others or the system’s pressures on its whole range of planetary boundaries. In a way both forgiving and frustrating, the research (Henshaw 2011 Systems Energy Assessment) strongly suggests that causation for whole system impacts is so widely distributed it’s generally necessary to consider them as equally distributed per share of the economy, like today’s nominal world CO2 Emissions of 0.26 kg (0.6 lb) per $ GDP PPP, the global average.

The main determinant of success for FAIR spending of accumulated profits is not just the relief of systemic pressures on the global commons it would bring. What matters matter as much is whether the money is well spent, and delivers “good works” of long term value. The expectation is that people with accumulated profits to distribute would have an “eye for value” and see what the world needs to be successful, having demonstrated a comparable “eye for value” to make themselves successful. Spending to serve the common interest the same kind of creative investment problem only looked at in a new way. FAIR spending is an investment decision for using the profits of the system as a whole, that will be returned with profits of other kinds you couldn’t buy, the same way a family benefits from educating its children. That is profits well spent. In the same way, FAIR spending to teach both children and adults about the patterns of growth in nature and in their lives might be returned manyfold. It’s a question of “feeding” the world something nourishing, not “controlling” it.

Because the FAIR spending of assets is something of a new investment field it would need guidance and support from economic research and modeling along with social networking of practice communities, as a guide to creating lasting value. Initially, it would be a voluntary adherence to a community principle, and then later formalized to be more widely applied. With new proposals for expansive strategies the devil is generally in the details so serious economic modeling and rulemaking study to explore options, the scientific study of the coupling of growth and its planetary impacts, and reliable sponsorship and teamwork to start building the social movement are all critical. The hope is that the principles are practical and clear enough that they could spread naturally and become socially expected. Given that even the idea that growth is responsible for our problems continually racing out ahead of solutions there would need to be a global IPCC-like scientific network focused on systemic research, perhaps called the IFIC (International Fiduciary Investment Council), to guide national organizations on rating impact investments for the commons. Someone will need to attempt to “qualify” the likely impacts of different kinds of for-profit and non-profit grants and investments.  That coupled with each investor’s eye for value is what would be relied on to steer the economy through its many present crises, including COVID, to a thriving and lasting climax.

That said, the first conference presentation of the FAIR principles is expected to be Sept 9 2020, so there is much to learn about how it will be best received. If it is well received, a globally circulated statement of principles for endorsement and a network of people experimentally learning how to follow it might follow. Real work would begin with either a spontaneous or sponsored team forming.

Challenge: This proposed “human duty” (to go along with our “human rights”) for investors to devote a share of their unearned assets to serving the common interest seems simple enough to define and discuss in principle. What’s harder to define is how much time we have to avoid the next wave of crises as unimaginable to us now as the present ones were before. We should “Build Back Better,” and with an eye to economic, planetary, and environmental justice. Restoring the economy to maximize its long term growth is the most dangerous course of all, inviting a crippling systemic response like the delayed responses to COVID-19 caused many nations. For restarting the growth economy already severely weakened you might expect the kind of failure at the limit shown by the light blue upper curve (Fig 3). That choice amounts to no response in the end and leads to system failure. We seem already well beyond the sustainable limit and only have a last-chance response to turn toward the sustainable limit, the purple curve.

Once the world realizes that businesses and investors do really have a natural duty to steer the world economy in the common interest we’ll find more ways to do it. The physics of responding to natural limits (Fig 3) shows that early responses to natural growth limits don’t significantly delay the approach to the limit. It is mainly delayed responses you need to worry about. FAIR principles are likely to be the only option for making that transition without major disruption.

Fig 3, The high risk of delay in responding to exponential threats. From Models Learning Change (Henshaw 2010)

Origin of the FAIR Concept: A series of tweets 05/24/20 … and historically, from the work of JM Keynes, 1935 General Theory, Chapter on Sundry Observations on the Nature of Capital” Chapter – 16 III & IV, describing why the natural financial climax of the economy requires financial savings to climax to prevent the very worst effects of capitalism, implying that the wealthy need to learn to spend rather than save their profits to make the system as a whole sustainably profitable.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.