Economics 2.0 Unbounded Upside: Pay-Forward Debit Karma Society

Unbounded upside is a concept applicable to future economics and the economy 2.0, but also the whole future more generally.

So far, in much our human endeavor, we have been oriented around a baseline and the goal of maintaining, achieving, or re-achieving that baseline, completely ignoring all of the possible outcomes on the positive side of the base line.

In finance and credit, loans are made, and the best anyone can hope for is to regain baseline, to have all of the monies repaid, or to achieve an as perfect as possible credit score.

We do not even have terminology for the conceptual opposite of credit, but what would a society based on debit, positive credit, or paid-forward karma look like? 

One vision is considering that in our societies, the financial surplus and resources already exist, and could be apportioned away from bureaucratic programs to instead pay-forward every person a sustainable living allowance each month or year. This would shift the focus to unbounded upside as everyone wonders what can they do not what they have to do for survival.

Regaining baseline is also the paradigm in other areas such as medicine and psychology: cure is returning a pathology to baseline, not going beyond baseline to improved wellness, enhancement, or future prevention. The advent of new fields such as Positive Psychology in the 2000s helps to expose the pervasive baseline mentality and potential expansions therefrom.

As it has been easier and more obvious to focus on reductionist practices in science, so too has been easy and a clear view to focus on the territory below baseline because it is a bounded defined area, whereas above baseline is open and unbounded, in other words, pure opportunity in the most Deleuzian and Bergsonian sense.

Prosper reaches $100 million in loan volume

Peer-to-peer lending company Prosper reached a benchmark $100 million in loan volume this week. With the US stock market declines, credit crunch, raising gas prices and ailing economy, borrowers are turning to novel forms of credit such as fledgling peer-to-peer capital platforms offered by Prosper (US), Lending Club (US) and Zopa (UK).

$100 million in loan volume is an important benchmark, however the overall growth rate of new Prosper loans is slowing as the chart below indicates. Prosper's loan volume grew from essentially zero at the beginning of 2006 to $100 million in November 2007 but the S-curve inflected earlier this year at the $50 million loan volume mark.

Source: Prosper performance data. Note: the default view which specifies 0 delinquencies and 0-2 credit checks in the last 6 months should be removed to view the total loan portfolio.

The reason that Prosper loan growth is slowing is the same subprime credit challenge facing large financial institutions and the US economy as a whole. Initially, high interest rates attracted individuals willing to lend to subprime borrowers to the Prosper platform, but many of them have experienced high default rates and withdrawn their capital or curtailed their lending strategies.

Below is Prosper's ROI by credit tier, comparing the annual return for the year ending September 30, 2007 with the year ending August 31, 2007. Negative returns can be expected for credit tiers D, E and HR (high risk), while even the C tier has now slipped to a zero ROI. Prosper continues to be exclusively appropriate for investing in high credit quality, tiers AA, A and B, where the 6-9% ROI is still attractive relative to other investments, however perhaps becoming more risky.

Source: Prosper performance data.