Chapter 4 – Knowledge and Knowledgeable

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The economy is a freedom that does not access finance.

The “acquired knowledge” is figured on the Fig. 2 by the segment C – C’ (bolded). When in O this segment is not existing; or better said it is reduced to the segment: O – to which, in my opinion, represents the genetics*. The Pythagoras system, applied to each individual, shows that to a longer segment C – C’ corresponds a “higher” intrusion into the absolute future which is in fact a larger ability to creativeness.

In other words as much the “acquired knowledge” is narrowing, as fast is the switch from an absolute past into an absolute future. In other words, a narrow “acquired knowledge” drives to a limited ability to imagine the future and, therefore a limited creativeness and choice capacity.

This is the problem raised by the specialist when facing new technologies: the problem of being trained: while this channels the imagination and liberty skills, it promotes performers. Past conservatives, when narrowing knowledge to specializations, just allow them to achieve their duty for a relative short period of time (from -1 to +1) up to the next adaptation. This is, as well, an economical and financial problem: as wide the knowledge is, as wide the C – C’ segment is, as fast is the access to past and future relative areas. Therefore the ability to forecast a short foreseeable future is tight to already “acquired knowledge”. However, any medium to long future can bring in yet unknown events.

When in O, the area O, A, C, B (fig. 2/11) – a future with past characteristics, which by the way I will be calling it from now on as “FcP” – defines the known but not yet “absorbed” (assimilated) events as, per example, the marketing of new technologies. This shows that we need some time period to get acquainted with the new technology. However due to cost price and other personal reasons, we may not acquire it.

On the other hand, the area O, D, C’, E (fig. 2/12) – a past with future characteristics, which by the way I will be calling it from now on as “PcF” – defines the known survival drives which did not yet took a defined shape and, therefore, are not yet “absorbed”. This is, per example, the drive for curiosity, knowledge and therefore, power. At this point, I would like to underline that acquiring knowledge implies cooperation; while the acquired one implies fetching for power.

Understanding such a dynamics allow us to much better grasp the fight for power we perceive every day as the permanent political campaign goes on. The powers always try to assert that future is under present control!

As each Observer located in O has its own, I may say personal, standing position on the C – C’ segment, to be scientifically objective, we request from them defining their positions towards us. But, still, we do hope that so doing, the Observer will define a position similar to the one we could agree “in front”. This “in front” is the problem as, per doing so, we project ourselves into the Observer and therefore we adjust his position on C – C’ according to our own perspective, desire and hope. To this point it remains interesting to notice that such “in front” becomes the goal of any research. A position which remains idealistic, in search for perfection of something defined beforehand. The so called “free market” responds to such move and, of course, drives to frustration when facing reality.

As a matter of fact, the Observer’s behavior is function of his own position towards the relative areas (PcF and FcP). Per example, high interest rates fight inflation, slowing down money circulation, only in those countries with strong and reliable economy into which we vested our confidence. As far as the other countries are concerned, high interest rates respond to the measurement of the investment risk while, simultaneously, contribute to the inflation itself.

In a similar way, as monetarist Milton Friedman shows, the savings rate doesn’t depend only on our faith into the future of each one of us as individuals but, as well, on our own ability to maintain some life standard. During stable periods, savings’ aims are located into the PcF area. However, if the real inflation rate is higher than the interest rate, a large part of the savings will be absorbed into the FcP area as bad money drives out good one …

Nowadays, I notice that the sub-prime crisis has been reaching full speed already in October 2008. It seems a bit too easy to show how the then real estate bubble, obviously FcP located, has created a mess which drives to a lack of confidence similar to the one of the Great Depression (1929). In my opinion, a correction may take place as the US Dollar has been devalued drastically towards the Emerging countries currencies. It is such an expectation which drives Chinese and Korean financial institutes to purchase large stakes into US and European banks.

I may be wrong, but it is quite possible that, compared to 1929, the crisis may last a shorter time as it seems that we face far faster developments than then due to faster communications.

As far as the Rescue Act (formerly call the bail-out) is concerned, I am afraid that it took place too late: guaranteeing financial institutions to fight the lack of credit do not provide them with renewed confidence in extending loans. However it provided them with new means for speculations allowing them to achieve huge profits. We face a middle class highly penalized by the refusal to create some type of real estate freezing fund which would have been able to provide distressed owners with some future recovery expectation. This “no expectation” is alike having moved the Observer forward (towards C’) enlarging C – O but shrinking O – C’. In other words, we keep reacting trying to compensate the past instead of previewing the incoming future.

This is due to the fact that lawmakers are just able to make laws on behalf of past accumulated experience (-1, C, O, E) and even if they try to foresee the future, the length of time needed to assimilate the past, drives them to be already over-passed when issuing new laws.

When evolving – an awful word as far as conservatism is concerned – the absolute areas, past and future, give light to both relative areas which, themselves, are again defined by the assimilation time needed by each system and sub-system. This is why researching any new market has to be located between O and +1, while the demand is expected and will have to start at +1. As a matter of fact, if the industrialist projects his own past into future, he will not be in a position to grasp the incoming new technologies and, in a near future, he will be unable to satisfy the created demand, while the adaptation demands higher investments (and confidence) into the near future.

To the contrary, if the industrialist tries to locate himself beyond the ability to assimilate, he quits being an industrialist – whose aim is to preview when an investment will drive any yield – to become a forerunner if not a patron. In between both there is only the Research and Development supported through polls related to the most probable market evolution. Steve Jobs of Apple Inc. was mastering (and often, provoking) such marketing behavior.

As the parallelepiped area of the politician-lawmaker (-1, C, O, E) is so important, it remains interesting to deepen its organization: if the starting event is obviously located in the FcP area, far too often the final decision ends into the PcF area due to the lack of knowledge of the dynamics applied to feedback alike cybernetics shows. We may here consider VAT, a tax originally set-up to fight consumption and, therefore, inflation. However, despite several changes, the target is failed as the consumer gets used to it. On top of it, the lawmakers did not consider that dissatisfaction drives to consumption. Dissatisfaction is obviously located into the PcF area.

I hate using “why” instead of “how come”. Indeed, “why” provides an immediate excuse, while “how come” is far more scientific and provokes a deeper thinking.

How come that the lawmaker did not understood that, as with the VAT, by raising the cost price of an item (already marketed) he was just increasing dissatisfaction? How is it possible that from the relative area FcP where some freedom of choice is located, we have been “pushed” into the PcF area where dissatisfaction and therefore frustration are located? As a matter of fact the latter area is where non-assimilated future is located.

At a very first glance (from -1 to O) the consumption level decreases as the new services and cost prices are not yet been assimilated, neither compensated through invoices and payrolls. However, as the consumption decreases, the ability to satisfy our curiosity and our knowledge decreases as well, hurting among others Research and Development and more generally speaking, the speed in acquiring knowledge. These lawmakers imposed delays will affect many sub-systems among them are the raise in jobless list and mainly the gap increase which penalizes the middle-class: highly integrated enterprises could use the VAT as a credit, while the small ones have to pay it in advance.

If the credit shrinks for any reason, either due to a lack of fiduciary money as when the Great Depression and/or due to a lack of confidence as lately (October 2008), the final consequence is giving up the responsibilities.

The fully integrated company, a powerful system per se, is therefore in a position allowing it to purchase smaller companies with competitive R & D. However, due to its own system’s subjectivity, which often tends to set-up the market, supported by its heavy bureaucracy, the large company will limit and keep oriented the R & D which, of course, shrinks the knowledge acquisition ability.

These indirect taxes, so called because they are not paid directly by the consumer to the IRS or to the State Treasury, have an obvious pernicious effect but this is not implying that direct taxes are safer. Most of the time, at the least each large corporation, keep computing and including them into their selling price. As this way of doing implies “dissatisfaction” one of the advertising goals is to extend the satisfaction time period of the consumer.

At this point, I would like to show how the Fed and other central banks use to mess up the markets by fear of inflation. A banker, to be acting safely, should grant loans to the same extent of the received savings, after having set up some reserves. However if he overpasses such figure, he has to revert to the interbanking market which could provide him with some of the requested funds on a short period of time at a higher interest cost. The crisis interfere when, due to a lack of liquidities, he can’t find on the market short term loans and has, therefore, to revert to the Fed in order to get himself far more expensive long term loans.

When the Fed raises rates on a market where liquidities are lacking, the whole system collapses. This is why one may have a granted credit line which cannot be used entirely: the original figure is needed to justify, towards the Fed, the need of funds, but the banker will not allow withdrawals exceeding about 65% of the initial figure.

As we now have, at the least in some way, defined the system we all are in, it is time to define the several choices we are left with. This becomes rather important as our statistics and analysis only include positive and negative figures (assets less liabilities) without taking into consideration the ability to choose nor the ability to act otherwise than the statistician believes.


Next week, I will deal with the “Ability to choose”.

* If within the DNA, chromosome 16, which usually contains 2 genes, has a native discrepancy showing 1 gene the whole body tends to be obese while with 3 genes it tends to be skinny.



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