"Money is a store of value, not a yardstick of pleasure."
Great piece, glad to have you back. Wishing the best for you and your family.
Not to be a dick, but didn't you tell us last week we can't simulate the properties of
complex systems? Yet now you pimp v. Mises, whose whole thing is making claims *a priori* from his axioms? For all it's flaws, central banking is an empirical art, where intuitive hustlers (Greenspan, Powell) out perform theoreticians (Bernanke, Yellen).
When Nominal GDP drops below trend, in big, diversified economies, you get a recession.
When NGDP holds around a trend line, for decades, like in Australia, you get economic stability. This is empirically how things have worked for decades, in many countries. Greece and Italy, on the tight-money of the Deutsche Mark, I mean Euro, hadn't seen NGDP growth for a decade prior to the China Virus, and those economies still haven't recovered. Still waiting to clear all that "malinvestment".
Did you know that neither Poland, Israel, nor Australia had recessions in 2008-2009?
Isn't that remarkable? Have a look at their NGDP charts. They all have their own central banks.
Every country on earth uses a fiat currency managed either by a central bank, or pegged to another fiat currency. No one uses commodity money, or even a voluntarily frozen monetary base. You'd think Russia, Iran or some other more or less sovereign country would adopt a gold standard, and reap the theoretical benefits. None of them do, because they've learned the lesson of the 19th century. When you move from a Malthusian, farming economy, to an industrial and commercial economy, with financial markets, less and less barter, more and more posted prices, and more activity mediated through markets, price stickiness becomes 'a thing'. Rather than have all the prices in the economy chase the fluctuating value of commodity money, you have a flexible, fiat monetary system so that the value of money can be adjusted, in a manner expected to stabilize the economy. In a manner expected to produce stable NGDP growth.
Prior to ~1800, home production dominated. You could avoid the money economy for months, years even. After 1800, it becomes harder, and then impossible to avoid the money economy. We shouldn't be surprised that such a change necessitates a modification of the monetary system.
If you don't like 2.5% inflation, don't keep all your wealth in a demand account, and maybe campaign against the capital gains tax. If you want to improve the position of workers (increase the labor share of GDP), regulate immigration, and restore womenfolk to home production. If you don't want stocks going up so much in 2021, campaign for a lower trend rate of NGDP. Prior to the China Virus, we were on a 4% trend line, now, under China Joe Chernenko, we're on a 5% trend line. What's 1% of 20 trillion, compounding every year, indefinitely? It's got to be priced into the income streams of equities.
“Inflation means: everything keeps getting more expensive, because rich people keep stealing money from everyone.”
You’re a damn genius Curtis.
So you're saying buy Enron? Or short it? Looking for actionable advice, dude.
If you haven't been thinking about this for 20 years non-stop, how do you suppose to understand this? But if this art, it is beautiful!
Obligatory Ozark quote: “ Scratch. Wampum. Dough. Sugar. Clams. Loot. Bills. Bones. Bread. Bucks. Money. That which separates the haves from the have-nots. But what is money? It's everything if you don't have it, right? Half of all American adults have more credit card debt than savings. 25% have no savings at all. And only 15% of the population is on track to fund even one year of retirement. Suggesting what? The middle class is evaporating? Or the American Dream is dead? You wouldn't be sitting there listening to me if the latter were true. You see, I think most people just have a fundamentally flawed view of money. Is it simply an agreed-upon unit of exchange for goods and services? $3.70 for a gallon of milk? Thirty bucks to cut your grass? Or, is it an intangible? Security or happiness - peace of mind. Let me propose a third option. Money as a measuring device. You see, the hard reality is how much money we accumulate in life is not a function of who's president or the economy or bubbles bursting or bad breaks or bosses. It's about the American work ethic. The one that made us the greatest country on Earth. It's about bucking the media's opinion as to what constitutes a good parent. Deciding to miss the ball game, the play, the concert, because you've resolved to work and invest in your family's future. And taking responsibility for the consequences of those actions. Patience. Frugality. Sacrifice. When you boil it down, what do those three things have in common? Those are choices. Money is not peace of mind. Money's not happiness. Money is, at its essence, that measure of a man's choices.”
Most crypto people would suggest that the solution is decentralization. Remove the traditional power boundaries to remove the traditional wealth consolidation. I have no problem having less than others so long as its a matter of competency.
As balaji likes to note, we live in an inherited world, time to found something new
I know this is not related to this post but
Dominic Cummings is here in the UK today lambasting the UK gov around Coronavirus failings... And he might as well be reading straight this substack or UR. It's incredible
This is a great post, very lucid.
Eeks! This is too scary. I am going to crawl and hide under a rock.
Modern Monetary Theory substitutes monetary velocity for the store of value function. #sad!
I guess this is why I was an English major, didn't get much of that at all - all I know is BTC going to the moon... ;)
It isn't accurate to say one wouldn't be able to profit from passive investing under the system described. Equity instruments bear risk and holders of equities accordingly demand a risk premium. A better way to put it is that the nominal value of the equity market would not increase absent flows out of money out of other assets (or circulation). The prices of shares in an individual's widely diversified portfolio could still rise from share repurchases. The nominal value of the total equity market (or asset market generally) just wouldn't rise systematically.
I’ve actually invested a lot in understanding monetary economics, which is really hard, and I feel like I’m having a Knoll’s Law moment with respect to Curtis, but I’m just gonna assume this is a weak area for him. I recommend Scott Summer on the subject, or Yudkowsky’s decent summary of Sumner.
I've been bugging people I actually know who are experts in economics to take a gander at Curtis's writings (hard to do, as they are sorta like getting into Jonathan Pageau). I think Bob doesn't take into account the full dastardly nature and impossibility of pricing in the Greenspan put because it wasn't on a particular stock but on whatever stocks important people had. However, I think he finds a few other things which could be refined.
I live in a simple economy with three other people. I am a fisherman, and the other three are a farmer, a lumberjack, and a tool maker. Our entire economy has only $10, but I owe $30, $10 to each of my friends. It’s impossible, right?
Not at all.
On day 1 I catch enough fish to earn $2, then pay down my debt to friend #1. He uses that money to buy lumber or tools or whatever. Rinse and repeat until I have paid down my debt to all three.
How can $18T debt be paid off with $6T? The answer is: over time. How do you eat an elephant? One bite at a time. Yes, there is a huge amount of debt, but much of it is spread over decades, and the same dollars are spent countless times.
By the way, no Austrian Economist thinks that instantaneously changing our economic system would be viable. It is a strawman made of exceedingly flimsy straw.