Peter Davis

For the Globe and Mail, Boyd Erman writes that asset correlation has increased to extreme levels in recent decades to the point where it is becoming nearly impossible to diversify in a meaningful way (see http://bit.ly/yJKoGU).

This trend will have a definite impact on the function of financial service providers as they become less and less capable of guaranteeing investment income security through diversification.

Capitalizing on this market will require either that investors become desensitized to variations in their portfolio valuation, or that the financial services industry find new ways to define and mitigate systemic risks.

In the first case, I think that there are considerable gains to be made in improving the value of ownership.  My theory is that investors who are encouraged to form an emotional relationship with their shares will be more willing to tolerate fluctuation in the valuation of the shares.

Buying shares in a company should be seen as a social activity, a contribution to the productive economy.  It is the creation of jobs.  Selling shares–while sometimes necessary–is the opposite, it is a break in the relationship.  One idea for encouraging investors to bond with their stocks and bonds is to promote local investments.

If investors begin to look at investments as a social decision, like marriage, or supporting a sports team, they will surely become more steadfast in sickness and in health.  It might seem like psychological manipulation–but under the surface there is a solid case for the social good, because steadfast investors produce a steadfast economy.

As investors become more connected to the physical reality of bricks and morter they will be better able to resist the urge to move with ebb and flow of financial markets.  If local investment becomes a trend in certain locations then these locations will become islands resilient to systemic risk.  In short, I think that this is the only solution to the future of diversification.

And hey, if there’s no real security to be had, you might as well take the next best thing, a social dividend from investing in your own community!

Even in a gargantuan globalized economy with thousands of traders trading in microseconds, there are still opportunities for profiteering from arbitrage.  The fundamental problem is that the economy is too complex for information asymmetries to ever cease to exist.  Arbitrage occurs when an information asymmetry can be used to buy or sell a product at a price other than its intrinsic value.

Pursuing arbitrage, while potentially profitable, is an anti-social behavior.  Lobbyists might argue that it is merely a zero-sum game with winnings and losses in equal quantities, but for two reasons this is not the case.

The first reason is that the resources expended in transaction costs to the trader and their firm are wasted.  All of the money spent on the trader, the computer, the real estate, the research, and the lawyers is spent on a product that provides no benefit to society.

The second reason is that the act speculating introduces unnecessary risk and volatility into the market.  Unnecessary volatility creates unnecessary insurance costs for risk managers, and in extreme financial crises we have seen volatility as a destroyer of capital.

Whereas in most cases I would label myself a libertarian, I think that these two reasons are sufficient to justify a strong public policy to limit the profitability of short term speculation.  There are a number of pieces of legislation that could be introduced to this effect.

1.)  Introduce legislation to limit financial innovation
The process of innovation introduces complexity into financial markets.  The argument in favor of innovation is that it creates the potential for new found efficiencies.  On the other hand more complexity creates additional opportunities for information and knowledge asymmetry and therefore arbitrage.  My opinion is that the more we as a society are able to simplify financial markets, the easier it will be to guarantee transparency and competitiveness, and to ensure that markets are serving their desired purpose of allocating savings and investments.

2.) Introduce a financial transactions tax to discourage speculation
The idea of a Tobin-Tax has been floating around since the early 70s when Nobel Laureate James Tobin suggested that a small tax currency transactions could significantly reduce market volatility.  The effectiveness of such a tax was demonstrated when Sweden introduced a 0.003% tax on bond sales and the volume of futures trading fell by 98%.

This is problematic politically in the same sense that it would be difficult for any one country to prohibit casino gambling.  It causes an immediate and measurable decrease in the national economy and also reduces the relative ability of the government to raise capital by selling bonds (because bonds that cannot be gambled with are intrinsically less desirable).  Implementing such a policy requires certain political courage as well as grassroots support for circumcising an industry that does not contribute to the social good.

These two policy tools could work together to tether the financial industry to the common interest, but they will not be easy to implement.  Opposed are the interests of the financial services industry which earns commissions based on the volume of transactions.  Equally opposed are the high rolling gambler personalities who value the ability to place bets on the market irrespective of their impact on society.

The beneficiaries of such a public policy would be the lenders and borrowers who have been getting consistently abused by the intermediary financial institutions.  These borrowers and lenders are in reality the companies that create productive jobs, and the employees putting their money into pensions.  In short they are those that ought to be protected from predatory behavior.

In recent days I have struggled to understand the #occupy movement, what it represents, and what it can accomplish.  To some it appears to be a naive reflection of the real revolutions that are occurring in Egypt and across the Middle East.  To others, however, the movement offers hope of meaningful change in the very near future.  Even as the initial protests are winding down, I thought that I would write a blog post to untangle some of the philosophical principals that might or might not be behind the movement.

The first and most immediate problem is that it is unclear whether the movement is materialist or spiritual in nature.  The simpler case is if the movement was purely materialist; in which case it would be comparable to the communist revolutions of the twentieth century.  As a spiritualist movement, however, it is not enough to say simply that the distribution of wealth is unfair.

The circumstances of one protester are not the same as the next, but I  the majority of protesters would probably agree that a part of the problem with modern society is social obsession with wealth and status before all other things.  It is not just that the protester is prevented from becoming the wealthy and corrupt banker;  rather the protester would not want to–even if they could–and he(she) feels justifiable angry at the person who does decide to hoard ill gotten gains to the detriment of the planet and the people.

At the end of the day the two contradictory inclinations remain in tension within the individual and within the broader movement.  Poverty is a material reality for many and at the same time there are individuals in our society willing to experience physical deprivation for a higher cause.

It is also unclear what the protesters hope to accomplish by occupying city parks.  The traditionalist looks for a manifesto–a list of legislative changes that passed into law would satisfy the demands of the protesters.  I feel though that the movement is less about legislative changes (although certain legislative changes are on the agenda) than they are about behavioural changes.  In my experience, trying to change a person’s behaviour is more difficult than trying to pass a law (If you doubt the wisdom–ask your priest!).

Hand in hand with the desire for behavioural changes is the desire of protesters to influence a paradigm shift in how we–living in modern society–conceptualize ourselves in relation to our communities and the rest of the world.

We think that a protest is about asserting power–but I think that the irony represented in the occupy movement is it’s powerlessness.  Although they claim to represent the 99%, in reality the protesters are not even 0.1% percent of the population.  If it came down to a physical fight the protesters would not stand a chance against the 340,000 members of the Canadian 1%!

Some of the protesters believe that a sinister consortium of corrupt capitalists are secretly manipulating political forces to magnify their already near infinite wealth and power.  From my own interactions with politics at the local, provincial and federal levels, I do not believe that corruption is the norm in Canada.  I think that it would be more accurate to say that any capitalist society without a strong moral compass is like a rudderless ship.

The hope that I see in the occupy movement is the challenge that it puts towards the imagining of power centralized in national and international governments.  The power of a hundred individuals occupying a city park is marginal at best–but the challenge is clear: “if you can  think of a better way to fix the system, prove it!”.

From my perspective, the wealthy individual is equally powerless in modern society because their wealth is diffused globally.  Diversifying to protect their wealth has made them minority shareholders in hundreds of companies and mutual funds.  The money-managers are the only decision makers; however they are legally prevented from doing any good with the money that is not truly theirs–and the money manager who breaks the law is rarely in it for altruistic reasons.

If we accept that we are living in a powerless society we can begin to understand how we might start to reclaim power in our lives.  The key is the paradigm shift towards thinking less about the things beyond our power and more about things that are within our area of influence.

The idea of thinking locally is twofold.  Firstly, you should be thinking about things that you actually care about–not the things that you like to imagine that you care about.  Secondly, we should not imagine ourselves like gods that we should be capable of solving the worlds problems; rather we should imagine ourselves as miniature gods capable only of solving our own problems.

Who is included in the “we”/”our”  depends on how you think of local, and could even include the entire world–but for now it is probably better if we limit it to our cities.  It is rather foolish to imagine ourselves capable of approaching worldly problems before understanding the complex problems of political organization in our city.

To conclude, I will leave the reader with three tangible objectives that I will pursue in the coming years, and I hope that others will join in their pursuit.

#1:   That people would stop obsessing about wealth and their material possessions.  Khalil Gibran writes: “everything that you have will be given, so why not give now, and let the season of giving be yours, and not your inheritors”.  There is no security in life, and there important things that you could be doing instead of worrying about your account balances.

#2:  That people would become more involved in politics.  All politics is local.  If people showed respect and support for the good and compassionate politicians of our community they would have more power to negotiate constructively with the representatives from other parties.

#3:  That people develop for themselves an ethical framework with which to conduct their affairs.  I feel that without subscribing to a rigid moral structure, I could not possibly sustain the drive and determination to accomplish what I set out to achieve.  A person with two faces will eventually come undone.  A person cannot serve two masters and love them both.

Reflecting on these three objectives, I think that there is a glimmer of hope in what the #occupy movement–and other less well known social projects–are attempting to accomplish.

It is a beautiful thing that we live in a democracy where individuals have the right to associate freely and to compete for the political legitimacy to express their ideas without fear of violent persecution.  The future of our society depends on our ability to take the fullest advantage of this fundamental freedom.

I think that we are moving towards a society that embraces the notion of grassroots movement as a fundamental characteristic of community oriented problem solving.  The case of childhood obesity is one example of grassroots problem solving in action.  Where multiple governments have repeatedly failed to address this problem, a number of community initiatives have been profoundly successful (see more here).

Actively comparing ourselves to our others leads to a conversation about how we want our community to be perceived by others.  By competing positively with other communities there is huge potential to create positive social change in Kitchener Waterloo.  We need to work together to explore the realm of innovative best practices in community development.

Standing out from the crowd in innovative ways contributes directly to the community in the form of social problems solved.  Equally significant is that solving problems locally increases each person’s connection to the community and fosters a greater capacity for solving problems in the future.  There is also the double dividend of attracting talented people who want to live in a community that is engaged and effective at solving social problems.

What social problems are worthy of a community wide effort to resolve?  I have already mentioned the subject of childhood obesity–there is obviously a lot that we could do together to promote healthy active living.  Other social issues that could be addressed by the community include reducing household debt and investing in energy efficient infrastructure.  At the most basic level, however, the best indicator of engagement in the community is a person’s willingness to vote.

Voter turnout in the past provincial election was a dismal 49%.  Couldn’t we in Kitchener Waterloo get together, own this problem, and solve it so that Kitchener Waterloo has the highest voter turnout in the province or even the country.  There are only 98,000 people in Kitchener Waterloo that we would have to convince to join the project.  Wouldn’t it be awesome to be the community that defies the statistical trend towards apathy?  Wouldn’t it be great to be the community that truly celebrates democracy?

Elections are determined by the majority of voters who only vaguely follow politics.  If people woke up to the idea of voting as something worth fighting for; something worth convincing your neighbor to do, then the entire way that politicians do politics would have to change.  We need to wake to the fact that there are no hard and fast definitions of what politics means in the 21st century.

This is the nature of a campaign with no policy platform.  It is about addressing real social problems with grassroots community action.  There is no quick-fix legislative solution to these problems.  There is only community solidarity in struggling to really resolve a set of issues that are reducing our quality of life.

Over the last few months I have had the opportunity to meet thousands of people. Many of these people have asked me why I have chosen to run as a candidate in the Ontario provincial election. On this note I will try to answer these people by expressing my vision of social change for Kitchener Waterloo.

My campaign begins with the principled belief that people are innately good, but that they need leadership and guidance to know how to do good. Over time a person who is nurtured and encouraged will discover the ability to do greater and greater good for the community at large. This process of personal change is central to my campaign efforts.

My campaign is about improving and empowering people to see themselves as the direct agents of social change. I am changing people—one person at a time. Working towards this objective does not require any new law to be created and certainly no laws should be broken—hence the absence of policy platform even though many of our laws do not reflect any true concept of justice. This idealistic vision of social change becomes manageable when we conceptualize politics as occurring within a geographically located social space.

To be geographically located means that I am appealing specifically to the residents of the Kitchener Waterloo electoral district. There are 98,000 voters in the riding of Kitchener-Waterloo. At 1 minute per person without sleep it would take me 68 days to spread my message to every person in the riding. If I am able to persuade each person—or even a tenth of them—to take up what I am doing, how inspiring would that be for people trying to create change in other cities in Canada and the rest of the world?

People will still ask me to be more specific about what I am trying to change. This question represents a prejudice against real social change. Many people say that change is necessary—but actually they are comfortable with the status quo. The established parties are competing to offer policies that will make you more comfortable in your lives. I am arguing that change is inevitable, and that if we are unable to wake up and reclaim authority over our lives that we will sail comfortably towards the worst kind of misery.

Now imagine a Kitchener Waterloo where people are inclined to know each other; a Kitchener Waterloo where 98,000 people work together to make important investments in the local economy; a Kitchener Waterloo where 98,000 people work patiently with the lowliest residents to enable them to achieve a higher potential. This is the kind of community that would grow and prosper, because this is the kind of community that people would want to be a part of.

I am offering the residents of Kitchener Waterloo a program that will contribute directly to their emotional wellbeing. The most valuable gift I can give in this regard is to connect a person to a place and to give them the corresponding sense of purpose and belonging. If elected these are the things that I would work to foster in our region.

There is more that I would like to say, but I have already exceeded the proverbial minute allotted each politician by an impatient electorate.  The biggest hurdle facing an independent candidate is that not enough people will know about the campaign come Election Day.  So if you agree with the principles of my campaign please take the time to spread the word as widely as you can, and of course don’t forget to vote on October 6th.

This week I had the opportunity to sit down with Sam Nabi to discuss what I am hoping to achieve for Kitchener Waterloo in this election and in life more generally.  I think that the transcript from this conversation is the best possible introduction to my campaign.  I would encourage anyone interested in the upcoming election to read the transcript of our conversation.  The transcript is available on Sam Nabi’s website:  here.