It's time to break the back of the longest section of Lyn Alden's book Broken Money, full of giant macro vibes and monetary and political intrigue.
We've done this before (part 1, part 2, part 3) and this should have the same vibe -- I'll stir the drink a bit with some high-level comments inspired by these sections of the book, but you should feel free to comment in whatever way your heart moves you. Seriously, jump in! You may have focused on different things. Your curiosity might have been piqued by something mine wasn't.
Caveat: I'm just some guy. These are just some thoughts. If I've said something obviously stupid, push back. (But be nice.)
In a famous paper, Hayek laid out the argument for the decentralized intelligence of the market more clearly and succinctly than anywhere I've seen. Lyn cites this paper, and asks:
“Does a small group of centralized, academic policymakers in a room located in their nation’s capital — akin to a council of elders — have a better grasp on how to allocate their country’s labor and capital than the millions of people do at the individual level?” (p. 228)
This critique made sense in the era in which Hayek was writing. However, given that the availability of information, the speed at which it propagates, and the computational and analytical power that can be used to process it have increased to almost unimaginable degree since the Soviets attempted to centrally plan their economy, is it possible that Hayek's assumptions about decentralized intelligence no longer hold?
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A good example of why Hayek's quote is as apt as ever is the U.S. central bank. Of course Powell famously got "transitory inflation" wrong, but that bad call was just one example of how central banks have no ability to predict the economy, much less intervene in a useful way. The forecasts are never accurate, despite all of the information available to them in our technologically advanced world. Yet the MSM covers these stabs in the dark as if they are papal decrees.
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Solid point. Hard to rebut.
An interesting topic to me is what the "right" level of organization is. The ecosystem is not just a bunch of single-cell organisms transacting with (or against) each other; it aggregates at multiple levels. Multiple-cell organisms abound. Coase's theorem frames it in terms of transaction costs. And I think we've seen that tech increases the allowable complexity / the carrying capacity, even if bullshit jobs emerge.
So whatever the size and scope of government should be, clearly it's different now than 50 years ago, right? But what is it?
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is it possible that Hayek's assumptions about decentralized intelligence no longer hold?
It still holds. It's possible it doesn't hold forever though. I can imagine a centralized decision maker that's smarter than the entirety of the market. You can kind of naively model the decision ability of a system as decision_ability = sum(intelligence of agent(s)) + sum(value of information gathered) - sum(information transaction costs) - sum(information gathering costs).
Parents of small children are an example of this at play. It implies that if individual market participants are extremely dumb or extremely inefficient at information gathering relative to a centralized decision maker, the centralized decision maker will allocate resources better.
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I like your equation. I also think there's something hiding in your "value of information gathered" having to do with orthogonality of information that isn't made enough of. Or perhaps, we could just talk about "information" in the Shannon sense, where these redundancies are formalized.
In any event, you can imagine a sensor-rich world where there's simply more, and more useful, info avail to some centralized mega-brains, enough that allows them to outcompete the more numerous multi-agent model.
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Or perhaps, we could just talk about "information" in the Shannon sense, where these redundancies are formalized.
Ah great insight - we could quantify information novelty/scarcity/surprise. I wonder if we could use Shannon to model how fast our infinite aliens would get bored.
In any event, you can imagine a sensor-rich world where there's simply more, and more useful, info avail to some centralized mega-brains, enough that allows them to outcompete the more numerous multi-agent model.
You just wrote the plot to at least half of the next decade's dystopian scifi movies.
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However, given that the availability of information, the speed at which it propagates, and the computational and analytical power that can be used to process it have increased to almost unimaginable degree since the Soviets attempted to centrally plan their economy, is it possible that Hayek's assumptions about decentralized intelligence no longer hold?
The piece of the puzzle that you're missing is that value is also subjective.
It can only be done at the individual level effectively, since every individual is different. When you attempt to centrally plan, it simply means that you're not capturing those differences at all and therefore you allocate resources sub-optimally when compared to what each individual, with his differences, would have done.
The state can only choose "1 thing for many people". "Many people" can choose "many number of things", all different from each other.
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I'll grant that value is subjective, but it's also the case that, despite the fact that people are precious snowflakes, people have lots of things in common and there's overwhelming agreement on many of them, like a central limit theorem analogue of subjective value.
When dealing with hundreds of millions of people, a lot of these things smooth out.
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Not at all.
Even something like a chair, that everyone might need could not be centrally planned.
Every house is different, each table height might be different, climates across the country might be different which would require different preferred materials, etc.
Absolutely no personal good or service is better when chosen by somebody else than you, the only one who has perfect information about your personal needs.
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The issue is less whether a chair, or your underwear, could better be chosen by some faraway superbrain than by you.
The issue is more whether locating a highway, or coming up with an industrial policy, or making the assessment to not allow straws in NYC, is a decision that can better maximize human flourishing than aggregated individual market choices.
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According to neo-Keynesian theory, the government is meant to be deploying its money-printing powers in counter-cyclical fashion; but as Lyn describes here, incentives are such that it's always more expedient to kick the can down the road.
“So, instead what happens in practice is that governments run moderate fiscal deficits most of the time, and bigger fiscal deficits during recessions and crises. Rather than a mix of fiscal surpluses and fiscal deficits, it’s a mix of fiscal deficits and bigger fiscal deficits.” (p. 223)
To put it another way: governments won't do the short-term hard thing and so we all endure the long-term harder thing. And yet many bitcoiners pride themselves on their low time preferences. If sacrificing for the future is possible, and produces superior results, why are governments -- and many people -- unwilling to do it?
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Short attention spans that are getting shorter? I think of James Carvel- "it's the economy, stupid!" People vote for the guy if they're better off than they were four years ago. It's even more prevalent in our tiktok modern world where politicians begin raising money for their reelection campaign their first day in office. Will bitcoin change this? I don't know, but if most people no longer worried about finding the money to pay the rent and feed the kids, maybe.
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The "having more mental space" argument is very interesting to me. There's some interesting science around this across a number of disciplines. The most readable intro is probably this one but the idea goes deep: if the organism has to devote cycles to survival, there are less cycles to devote to longer-term projects. This shakes out everywhere, including mating strategies.
So I think it's plausible, at least. But I'm trying to guard against telling myself a story that I want to hear.
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Taking your point a bit off topic, I sometimes wonder about this factor when I see those unlikely animal friends or guy with a pet grizzly bear videos. It seems like even apex predators, when they're reliably well-fed, can be quite friendly to animals they would just kill out in nature.
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Yes. When organisms have enough, pro-sociality can get expansive. I think about this all the time. It's an interesting lens to invert: if someone is being a giant douche, what else is probably true, or has been true?
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I try to keep that in mind, too (it's not always easy). We don't know what other people are going through and it's good to grant them some benefit of the doubt, until they prove they don't deserve it.
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I think some of Hoppe's insights about the different incentives faced by democracies and monarchies is relevant here.
In democracies (broadly defined), the ruling class is incentivized to not have things blow up during the current election cycle. It's very myopic.
In monarchies (broadly defined), the rulers have longer term concerns, because they expect to be in power for a long time and because they expect to pass their rule on to their heirs.
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That makes sense to me on the surface, but I can imagine this framing, too:
In a democracy, someone goes into government for a short time, with substantially less power than a monarch has, and then emerges afterward, and has to live in the environment that she created, with her fellow citizens. Her heirs will live in the same conditions, with no special privileges. In a monarchy, the person is cloistered in power for the entirety of her life, and any heirs receive similar privilege and protection.
In other words, I think I could argue for any point along this gradient, which makes me dubious of these kinds of arguments at all, when divorced from more empirical findings. Theory is pretty hollow when it comes to complex systems, in other words.
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That's fair. We have to look to historical comparisons to help decide which analogies and hypotheses actually fit.
I think the analogy of renters vs owners is pretty good in this context. Those in power under democratic systems are like renters, in that their period of control is limited, and the incentive is to extract what value you can while you can. Even if that is the case you point out, where they're looking ahead to after they're out of power, the incentive is to make the world more personally profitable. That's not necessarily the same as making society more prosperous. The reason that's different from the monarch's incentives is that the monarch lives off of the taxes levied on their society, so the can live more extravagantly when there's more available to be taxed.
Also, (and this would take us off topic) I think it's naive to believe democratic rulers rejoin society with no special privileges.
The monarchy stuff, isn't totally relevant here. My point is just that it's easy to see why democratic rulers are short term oriented. If things go bad, they lose their job. It's pretty common to hear things like "They just need to focus on getting reelected. Then they can actually do...", so I don't think I'm super off target.
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I think the analogy of renters vs owners is pretty good in this context.
Oh man, there is a question I'll post later that you're going salivate over I think. I'll move it up in the queue when I get back to the computer.
Also, (and this would take us off topic) I think it's naive to believe democratic rulers rejoin society with no special privileges.
That's for sure true, I was just trying to not bleed the argument everywhere.
My point is just that it's easy to see why democratic rulers are short term oriented. If things go bad, they lose their job. It's pretty common to hear things like "They just need to focus on getting reelected. Then they can actually do...", so I don't think I'm super off target.
I don't think you're off target either.
There's all these famous examples of how this worked in the mid to late Roman Republic, where people would get elected to these different administrative positions for a term (I forget the non-Consular titles, and I forget how long the appointment was -- I think 2 years?) and they'd absolutely bleed the provinces dry for as much tax revenue as they could harvest, to unlock the next step in the Roman political cycle. Political office has always been expensive.
Aside from the obvious takeaway, which was the point you made, it's interesting to me that sound money helped curtail this process not at all. Bitcoiners sometimes talk about eras of debasement leading to the fall of the Empire, but that came later, and was (not surprisingly) multi-factorial.
Figuring out the true, non-hopium-derived power of sound money is a topic I think people should care about a lot more than they seem to.
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it's interesting to me that sound money helped curtail this process not at all.
I was making a similar point on a recent post. There are lots of perverse incentives in society that are based on a wide variety of institutions. What sound money does is fix a small subset of those.
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“Since central banks operate the primary ledger systems that the world uses for domestic and international commerce, then of course they are going to actively manage them, and therefore of course they will make plenty of mistakes. All the incentives are aligned in that direction, and so that’s how it plays out in countries all around the world whether we like it or not. This is an inevitable condition that we find ourselves in, unless or until we develop and adopt a better ledger system.” (p. 227)
We've talked before about tech determinism. This seems another flavor of determinism -- call it 'incentive determinism'. But it makes me uneasy because, in the past, people have talked about how other macro systems have aligned incentives, e.g., people would vote for effective politicians who would compete with each other to lead effectively; the various branches of government would check each other's power; the wise philosophers will rule judiciously; etc.
The existing system rarely seem to work out to most people's satisfaction, for whichever system you might choose to talk about. Is bitcoin the perfect system, or will it, too, reveal pathological aspects that are impossible to predict in advance?
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Incentive determinism is my favorite flavor of determinism because it's like the base flavor of all human action determinism - tech determinism included.
Is bitcoin the perfect system, or will it, too, reveal pathological aspects that are impossible to predict in advance?
Perfection is an asymptote. Perfect money is an exercise to define1, but it would probably be an incorruptible ledger that's also infinitely scalable, perfectly private, and free to transact in. Bitcoin may be incorruptible under most circumstances and closer to the asymptote of perfect money than all prior monies but it is not perfect money.
Do systems with bitcoin's complexity exist without exhibiting at least local pathologies? Best case for bitcoin is that its pathologies don't runaway to the point of undermining its purpose and value. If bitcoin's incentives simply don't lead to it killing itself then it's already better than every fiat ledger that's existed.

Footnotes

  1. It'd probably be a lot of worthwhile, hard fun. This tweet from Bryan Bishop is describing the asymptote.
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It's funny to me that one of the elements of perfection in this space is 'how do we actually give the money to people in the first place?'
So many things I read that are written by smart people who haven't really thought about btc or money in general, talk about all these great monetary systems that could be built, but they just accept as an axiom that we have distributed the coins equally to everyone.
It takes a while to realize that distribution is basically the hardest problem, btc did it about as well as it can be done, and it will never be done again even that well.
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how do we actually give the money to people in the first place?
For this reason I feel like sama's vision for WorldCoin wasn't wholly as evil as it manifested. He's guilty of recklessly executing big ambitions but it seems to be the manslaughter version of evil and not the premeditated kind.
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Jesus Christ, these could go down in history as the most ill-timed comments ever.
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I had the same thought. Ahhhhhhh
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100%. I have thought the same thing exactly, but didn't have the energy to face the critics for not hating SA sufficiently. Thanks for being braver than I was.
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When money doesn't store value properly, other things that have some monetary properties -- especially scarcity -- become monetized. Well-known examples of this include real estate and collectibles. Are there less well-known examples? What do you think will happen to these pseudo-sov if bitcoin becomes broadly adopted? Will they all react the same way?
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Equities. My dad buys Apple stock like it's a SoV.
What do you think will happen to these pseudo-sov
Less powerful monopolies because presumably bitcoin would be the risk-off investment and equity investing would be more risk-on and biased toward higher growth potential equities.
Bonds are another but I hardly understand that market. It's so slow moving and political by comparison.
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There's a saying popular in the btc ecosystem that 'bitcoin fixes this'. It's always rubbed me the wrong way, because history is full of examples of tyranny and misery at massive scale through decades and centuries, on monetary standards of all kinds, under all types of governance. How good or bad the world seems is, to lage degree, a function of where you choose to allocate your attention, as the US Presidential campaign season will shortly demonstrate at nauseum.
Given that context, this paragraph was striking:
“Almost without exception, if you look around the world for regions with persistent double-digit money supply inflation, those regions are not very economically productive. Instead, they tend to be in disarray. In that type of inflationary environment, it is hard for businesses to plan for the long run while remaining profitable, and it’s hard for workers to maintain wages that keep up with the cost of living. All negotiations become harder and more frequent, especially if they involve a lot of people, such as unions and large contracts. Investors want to get their capital out to easier jurisdictions, which increases the cost of capital for local businesses, which makes them even less organized, less profitable, and less competitive. In this context, the public ledger is broken, and by extension everything becomes broken. It risks becoming a vicious cycle, because disorganization leads to inflation, and inflation leads to disorganization.”
The social dynamics that result when something as foundational as money is perverted seem hard to argue with. I've been in places and in situations that look just like this, from corrupt countries where trust has eroded and nothing works, to companies pulling themselves apart in civil war. In all cases, gridlock and dysfunction. Nothing flows.
It makes me think again about the scope of how much bitcoin does and does not fix.
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Maybe we should start saying 'bitcoin changes this' (and implicitly 'this sucks as is and the least we can do is change it in some way') because it's more intellectually accurate.
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I'd certainly prefer that, but I suppose the branding is too strong to be stopped.
I do think that there's a human universal of ignoring the base case. The arguments around nuclear power are a great example: the critics talk about how dangerous it is. They never talk about how dangerous the current thing is -- we have completely internalized those dangers so they don't seem like dangers at all; and yet a shit-ton of people die of things due to coal combustion. Those are actual human deaths, to say nothing of chronic disease and other issues.
But we can't see it -- it's already factored into our expectations. So the new thing is always at a disadvantage, regardless of what the new thing is.
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Lyn talks about the pernicious effects of easy money:
“Weak money encourages people to constantly borrow and invest rather than to save, whether that borrowing and investing make sense or not.” (p. 249)
Venkatesh Rao wrote an article that visits this idea from a more personal direction. Bitcoiners will recognize it as a vivid type of high time-preference living:
Viewed through this lens of ownership, use, and maintenance being mutually alienated, goblin mode is that condition of the human self with respect to itself. You treat yourself as the property of a neglectful absentee landlord, you rent yourself out to users who neglect you as well, and when you break down, you hand yourself over to professional maintainers — the healthcare system — who try to restore you to “like new” state like you’re an insured car.
If easy money / goblin-mode erodes culture and sovereignty as we have discussed, then surely hard money produces a vitalizing effect? Lyn writes:
“Hard money encourages people to save, and to only borrow or invest when it seems like it really makes sense.” (p. 249)
but Venkat suggests that this mode may also not be without consequence:
I suspect there is such a thing as degenerate gnome mode too — a condition of stagnation, slow degrowth, high-inertia traditionalism, lack of innovation, claustrophobic connectedness with people you can’t get away from, things being nurtured to live on long past the point where they ought to be recycled, and so on. Uncritical gnome mode seems like a naturally reactionary condition to me, just as uncritical goblin mode seems like a naturally high-modernist condition.
Is it possible that some of the virtues bitcoiners advocate so forcefully will produce their own equivalent pathologies? What might perverse effects of a hard money standard be? How could it go wrong?
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If modern humans are naturally more goblin-like, then retarding goblin-like behavior with gnome-like money might lead to net-fewer pathologies.
I get the sense that humans are normally more gnome-like but turn goblin-like when populations are dense (or hyperconnected) - much like grasshoppers that swarm.
At the very least, we seem to have been more goblin-like over the last few decades which correlates to pronounced abuse of fiat ledgers. Goldilocks wouldn't choose the goblin or the gnome so hopefully Satoshi hasn't either.
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There's a "cycles of history" argument to be made about this -- that gnome > goblin > gnome transitions are functions of generations and demography. I'm still forming up my take on this branch of work, which I find mostly sloppy and ascientific; but there's something plausible in it even if it's oversold
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We're probably drawn to thinking in cycles because it's the laziest way to predict the future. Cycles have even more lazy powers than plain old historical determinism because the predictions extend to infinity.
there's something plausible in it even if it's oversold
Agreed. There have to exist natural games whose final state is nearly the initial state. Fiat money certainly seems to play out this way.
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And there really are cycles that act on the world with inexorable force. Since the dawn of time the seasons have induced rhythms that cannot be resisted that everyone in a giant geography deals with simultaneously. The consequences propagate like falling dominoes. Higher frequency tidal and waking / sleeping cycles are so real and powerful that we don't even think about them.
But what if you added them all together? Of course that's going to manifest in a bunch of ways, at every level. I don't think it's impossible to get at some of the principal components, even if you can't parse out their emergent consequences. But, as you say, most thinking about it is too lazy to bother.
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But what if you added them all together?
Yes! The 2D version of this is really simple, but when you're predicting things like cultural norms there are so many more dimensions.
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Persistant inflation means that real wages go down each year. Employees can either deal with this, constantly ask for raises, or change jobs. In practice, #1 and #3 are the dominant strategies. Both cause tumult to the person and to society at large.
Bitcoiners often talk about how this problem will be a thing of the past on a bitcoin standard, when wages are subject to deflationary pressure. Given how deeply ingrained human loss aversion is, and consequently how persistently sticky wages are, how might labor relations -- and the nature of work itself -- evolve?
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Before Nixon removed the peg to gold, and inflation was much lower, people stayed in the same job for much longer. Now that was still an inflationary environment and deflation is qualitatively different, but I think that's a good place to start. It's hard to go back to the deflationary period of the gold standard looking for conclusions, because the world was so different.
I do think people will stay with one job longer on a deflationary Bitcoin standard, because the frictions involved in job switching are so costly. That has a bunch of consequences. One is that people will be more productive at their jobs, because they've become more specialized. Another is that bad managers will be less tolerated, because driving people away will be more of a competitive disadvantage. People will also become more selective about what job they take, if there's an expectation that it's a long term position.
There's a social cohesion tie-in to people staying in the same job (or at least the same organization) longer. That's a source of identity for people and one of the social problems today is lack of social identity. It also means longer and deeper relationships with coworkers.
On the sticky wages point, I don't know how big of a problem that really is. It was Keynes' primary reason for favoring an inflationary money, but that carries limited weight with me. The fact that real wages rise gradually, while nominal wages stay fixed, shouldn't be a huge problem if workers are becoming more productive over time. There will be a psychological adjustment in not expecting nominal wage raises regularly.
If sticky wages are an issue, we might see different compensation packages become more common. A mix of fixed wage and profit sharing can partially address the problem, as well as being more incentive compatible.
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I was talking to a friend who now lives in Germany, and he was talking about how strong the German social institutions [still] are, at least from his (British) perspective: Christmas markets, chess clubs, drinking clubs, clubs of all kinds, and everyone a member of at least a couple; and even quite formalized ways of interacting with them: you go once with your work colleagues, once with your non-work friends, once with your family. "The joke is that the Germans need a system to have fun."
(I don't know anything about this, so don't get mad at me, Germans, it was him who said it!)
Assuming this is true, it's an intriguing contrast to what's happened in the States, which is basically the antithesis of all that: no customs, no broad civic pursuits, the demolition of community and non-religious ritual. I hadn't considered that the employment connection could be a factor, and the monetary connection to the employment connection. Food for thought for sure.
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I hadn't thought about it either until you encouraged us to think about this topic. These book clubs are easily worth the price of admission.
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Haha, I should hope so, since the price is zero :)
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Employees can either deal with this, constantly ask for raises, or change jobs. In practice, #1 and #3 are the dominant strategies. Both cause tumult to the person and to society at large.
I have a rental income and, for the same reason, hardly ever raise rent. When a tenant moves out, I raise it for the next one. So my rent is sticky, but also my tenants are sticky, because they know that when they move their rent will catch up with the market reality.
I think if we ever get on a Bitcoin standard, people will just have to accept wages going down (and rents and prices; after all they're all prices, whichever side 'the little man' is on). We may have metrics to help with that, e.g. if the economy grows by 5% (not in BTC of course) in a given year, they will have to accept a 5% wage decrease. How we measure the economic growth is another story and potentially prone to manipulation.
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Yeah, measuring anything is hard, and then Goodhart's law kicks in.
I have a rental income and, for the same reason, hardly ever raise rent. When a tenant moves out, I raise it for the next one.
Could you talk me through it on your side? Are renters hard to get, so when you get a good one you want to be maximally nice? I have a friend who has a lot of rental properties, and his motivation is a combo of what I said + pity. He's been taking a loss for more than a decade on one place, but the renter is nice and has few options; and the place is gaining equity, so he can be philosophical about it.
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I actually think that with the advancements in technology and advent of trends like remote working, attitudes towards work among the Gen Z and Gen Alpha have changed. For one, the stigma towards job switching has all but decreased. People have come to expect that it’s normal of youths to switch jobs every 2-3 years because they want to broaden their horizons and gain myriad experiences. Remuneration may not be so important to them than self-actualisation in the grand scheme of things. Instead, it is taken as part of a holistic criteria that makes someone want to take on a job or not. I also believe that with AI automating most repetitive work, it isn’t quite necessary for individuals to spend an extended period of time at one company to gain deep experience since the focus is on them to problem-solve and collaborate with others. Which is something ironically attained by job switching because you naturally bring fresh perspectives and ideas to the table.
The thing that will be interesting for us to consider, with the increasing adoption of BTC by institutional investors, it’s likely for more companies to pay out their salaries in Bitcoin. (Shoutout to Bitwage: please come to Asia!) Would more and more employees switch from jobs that pay out in fiat to other jobs that pay out in sats because they wish to live the Bitcoin Standard? Your guess is as good as mine.
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youths to switch jobs every 2-3 years
I have friends in tech that switch every 1-2. As they've grown older they've started switching less though. The switching in part was probably them trying to find themselves.
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Is it that they were finding themselves and then, as they get older, there's less undiscovered territory, or is it that they get established and moving is hard?
I wonder how many people would keep the hyper-aggressive moving, for fiat-related reasons, if they weren't getting tethered (no pun intended) by family constraints, etc?
I also wonder how much of this will change as a result of the full-remote changeover. Seems like a giant sociocultural thing that has only just begun to play out. What happens when it intersects w/ the monetary stuff?
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Is it that they were finding themselves and then, as they get older, there's less undiscovered territory, or is it that they get established and moving is hard?
Bothish. They're hard to separate out. There's always new territory but with fixed lifespans we often give ourselves fixed discovery periods. We discover as much as we think we need to settle in the best place - all aforementioned things considered.
I wonder how many people would keep the hyper-aggressive moving, for fiat-related reasons, if they weren't getting tethered (no pun intended) by family constraints, etc?
Probably a lot. We have less family formation so we can already see this happening, eg rise of gig work, traveling for the photoshoot, side hustles on side hustles, etc.
I also wonder how much of this will change as a result of the full-remote changeover.
Employees<>employers are more liquid and fungible than ever before. It triggers a nostalgia in me for time periods I didn't even live in. The monetary stuff should at least allow older folks to leave the goblin workforce sooner and settle into being a proper gnome.
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I wonder how the gig economy is faring with our recent inflation. I'd guess gig work is less rigid in wages than more traditional jobs. If that's true and we imagine all future jobs will be gigs, maybe wage stickiness isn't as much of a problem.
If bitcoin's exchange rate continues to rise, we'll have a natural experiment in SN's open source contribution/gig payments.
Are wages as sticky during deflation as they are during deflation? If employers hold more power over wage setting and are given incentives to change wages, perhaps wages will be less sticky.
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The loss aversion is super primal, so if wages stopped being sticky it would be against the countervailing force of that. But this:
I'd guess gig work is less rigid in wages than more traditional jobs. If that's true and we imagine all future jobs will be gigs, maybe wage stickiness isn't as much of a problem.
That's super interesting! You can imagine there being a force in the direction of shorter and shorter term contracts, to deal with this issue. But [yet another] countervailing force of the transaction costs inherent in having to train a new person on your thing.
Man, Coase keeps coming up today.
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Way behind on my reading this chunk, but I'll pile in some this evening.
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Wifey is performing tonight so my pile will come tomorrow :(
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We've had some discussions on SN about possible exit strategies in the event that the government gets more aggressive and tries to squeeze hader. This paranoia would seem to be warranted:
“During periods of financial repression, governments historically turn to capital controls and lending restrictions to ensure that people hold the currency and the bonds while they are devalued. Interest rates are kept low for the government, but restrictions are placed on the private sector from making use of those low interest rates in unapproved ways.” (p. 289)
Based on how this has worked in the past and in other parts of the world, what should we expect in the coming years as governments try to prevent capital flight? How do the unique affordances of bitcoin change how this is likely to play out?
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Lyn makes a provocative statement about the origin of some of the most forceful political movements that emerged as a result of the GFC of 2008:
“I contend that these Tea Party and Occupy Wall Street movements were two sides of the same coin — a pushback against the country’s flexible ledger and the associated practice of using public debt and money-printing to save the large and well-connected entities at the expense of the everyday person.” (p. 285)
If this is true, I'd expect to find bitcoiners equally represented across the political spectrum, perhaps focusing on different aspects of the underlying monetary issues. Yet this is manifestly not the case. Why?
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Political narratives seem to be altered more often than they are rewritten. It's easy to alter the right's political narrative to include another abuse of government, abuse of the flexible ledger. The left's political narrative has government as a protagonist - it's something like "the government would be great if it weren't for greed affecting government."
If you stare at them long enough though, the narratives aren't so different. The right wants to remove the government's power so it can't be abused and the left wants to remove the rich so it can't abuse the government's power.
Perhaps we could sell bitcoin better to the political left by altering their narrative rather than rewriting it, eg
So long as there's a flexible ledger, the rich will use the government to steal from the middle class and poor, finance their wars, and gain political favor. Replacing the flexible ledger with Bitcoin takes this power away from the rich so that governments can redistribute wealth and provide social services unhindered.
When the left was anti-war, military industrial complex capture was a major plot point. As precedent, there were calls to defund the military so that there was nothing for industry to capture ... but even that fell out of favor recently for some reason.
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I like that framing a lot -- from a dissonance reduction or cognitive consistency perspective, it's easier to integrate the btc story into the right's ideological edifice than it is the left's. I've never read any of the Progressive bitcoin books, but presumably they take this angle, in a manner that would be maximally compatible with that body of belief?
If the fucking bitcoin philosophers would publish their book already there might be more of these mental constructs to draw from.
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Well they should. We're more than halfway through Broken Money and will need another book to club.
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Lyn provides a number of examples of debt jubilees through history, codified in different cultures to short-circuit cycles of indebtedness that habitually arise. It's like things get so out of whack that these civilizations tilt the pinball machine and start over from a debt perspective, and this allows the larger system to endure.
As the global monetary situation gets increasingly indebted and askew, could something comparable to a jubilee be attempted? Is it even possible, under the petrodollar? You can see movements toward it happening incrementally, with proposals to cancel student loan debt, for instance, or for UBI, which is not literally a jubilee, but has jubilee-like properties. It seems a proposal that might find broad appeal in an election cycle. What would a larger-scale version of this look like? What would it mean for btc?
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“Credit is a human construct and begins to look especially arbitrary to people when it was primarily accumulated by past circumstances and ancestors. So, if enough people become angry and feel that things are unfairly stacked against them, they can show the handful of owners of that credit how fragile their claims to such credit really are.” (p. 266)
In 2020 in the US, and a decade earlier under the Arab spring, it became vividly clear to me how thin the skin is over civilization, and how quickly it can rupture. I suppose this is what Marx was trying to foment with the "Workers of the world, unite!" call to arms.
Is it possible that there will be a crisis of legitimacy, either before the widespread of adoption of btc, or after it? What could trigger it? How will this be different from other similar crises bc of btc?
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Government intervention under COVID was especially heavy-handed. The results seem to have exacerbated existing inequalities:
“As the dust settled over the following years, the combination of fiscal stimulus and the recovery of asset prices led to very uneven results. The bottom 50% of the population collectively saw their net worth increase by $1.5 trillion from the beginning of 2020 to the beginning of 2022. The top 1% of the population collectively saw their net worth increase by $11.8 trillion over the same period” (p. 259)
Much has been written on the corrosive effects of inequality at scale. Less has been written about how bitcoin will saturate the world when it originates in such an unequal environment. Is there any way in which the distribution of btc doesn't mimic the distribution of fiat money used in exchange for it? What might the consequences of this be?
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Is there any way in which the distribution of btc doesn't mimic the distribution of fiat money used in exchange for it?
The argument goes, "bitcoin's software defined it's distribution in a way that couldn't be done anymore fairly and still produce the same scarce good."
What might the consequences of this be?
Rejection of bitcoin on the grounds of it being unfair because even if its distribution was "free," it wasn't equal.
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In the US, we saw the limitations in the government's ability to get money into people's hands, quickly and efficiently, with the PPP program during COVID.
“PPP was essentially untargeted because the United States lacked the administrative infrastructure to do otherwise. Harnessing modern administrative systems, other high-income countries were able to better target pandemic business aid to firms in financial distress. Building similar capacity in the U.S. would enable improved targeting when the next pandemic or other large-scale economic emergency inevitably arises” (p. 259)
Such deficiencies seems like obvious arguments in favor of a CBDC. Do you think this kind of argument -- "We need a CBDC so we can get money to you better" -- will carry weight with people, given their experience?
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Do you think this kind of argument -- "We need a CBDC so we can get money to you better" -- will carry weight with people, given their experience?
If I didn't understand how important money is and how corrupt it has become, I'd buy this pitch.
Countries with CBDC pilots seem to sell their CBDCs using a solution-to-a-problem-we-created pattern. Like in Cuba's case, they're hyperinflating so they can't print enough physical cash to service the economy then ... it's a car ... it's a plane ... no it's our CBDC. tada
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If I didn't understand how important money is and how corrupt it has become, I'd buy this pitch.
That has a bleak implication.
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Update 2: @Bitman shared some intel about the IMF's CBDC playbook.
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Thanks dude.
I'm feeling a bit guilty in joining in each month (as I downloaded the currently studied book from):
I thought the book might've been free - so I clicked...
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I don't know Lyn, but as someone who has written stuff before, I know that having people care about what you've produced, and engage with it, is a meaningful thing. So you could consider participating in the book club to be good karma :)
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On p. 253, there's a surprising (to me) figure: the bell curve of debt (and, by implication, credit) as a function monetary hardness. In an easy-money environment nobody wants to lend, because you'll be paid back in inflated dollars; and in a hard-money environment nobody wants to borrow, because the interest rate is so high.
Lyn frames this in a nice way, saying:
“In those hard money environments, credit is still useful for activities with a high expected rate of return, but debt is used more judiciously.”
A less-nice way of saying this is that credit will be hard to come by. If only the surest of sure-things (like expanding a railroad) are worthy of a loan, then normal people will have a hard time getting access to credit. Is this a problem? Is it potentially a factor in degenerate gnome mode?
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I've always wondered about this but I'm not that far in my reading yet. It seems to contradict my earlier guess that monopolies would be harder to form because the chart implies fewer companies could raise capital to begin with, ie if we relabel the y-axis to be total number of debtees, the area above the curve contains potential disrupters without the capital needed to disrupt.
So it's a problem if we're in need of disruptors and can't finance them. But if a market is truly ripe for disruption, can't we trust investors to recognize the opportunity of an abnormally "high expected rate of return"?
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(Did you guys do away with the "select text, hit reply, and it will be quoted" feature? Doesn't work for me anymore.)
So it's a problem if we're in need of disruptors and can't finance them. But if a market is truly ripe for disruption, can't we trust investors to recognize the opportunity of an abnormally "high expected rate of return"?
You could certainly posit that. Maybe what it would do is basically turn down the gain on all investment? Or, to jump domains, it would greatly penalize "explore" which, in one guise, you could label as "being efficient". But I do wonder if, in our generally legitimate critique of the malinvestment that fiat regimes produce, we're ignoring some nice benefits, which is a hard incentive on exploration that otherwise would not occur.
I know the efficient market theory rebuttal. Just don't know if I believe that it is wholly virtuous, in practice, in the same way that having a friend who prods you into taking risks you otherwise would not take is often a really good friend to have. At least, for certain kinds of people, in certain environments.
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I agree, it's hard to believe we lose our high debt and the result is strictly paradise. Nor would I assume it'll be simply equivalent in all the ways that count. After all, I'm relying on this book to teach me these things.
Doesn't work for me anymore.
I think we must've introduced a regression. I put up a gh issue.
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This is an interesting addendum to @siggy47's point, above. If your friend has scienced the shit out of some market stuff, and gets alpha from it, is that not an argument that an entity [presumably] possessing an order of magnitude more data than your friend's company could get even more alpha?
You can nitpick the shit out of this hypothetical, and I have no interest in that, as I'm sure you don't either. But I'm very interested in why some orgs (your friend's company) can do better than the theoretical optimum, and other orgs (the govt) are generally recognized as not being able to?
Some deep theory-of-the-firm stuff here.
(meta: what will happen to this reply when your post disappears?)
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This reminds me of the quant trading craze. Maybe I'm just a luddite invisible hand guy, but I don't think the variables of a market will ever be quantifiable.
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I don't think the variables of a market will ever be quantifiable.
The nature of the invisible hand is that people making better predictions in the market are favored. So even if the market as a whole will never be quantifiable, the market is competing on approximations that aim to quantify parts of it, and the invisible hand will guide the market closer and closer to making it quantifiable - even if it never gets there exactly.
Having said that, this leaves a bunch of room for pseudo-scientific claims of quantifying markets better and I'm on board with fully leaning into skepticism of it.
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Your response reminds me of the whole theory of technical analysis. I was interested in stock trading in a former life. I never trusted TA, but it is intriguing that human herd emotion can be charted and used as a predictive tool. Of course, "models" fail all the time, so these strategies never approach the level of science.
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TA is another beast all together I think. The kind of quantification I'm talking about doesn't make price predictions as much as it tries to say "who/why/how/etc are people most unhappy when using products in this market category."
It's related to TA in that it's trying to help you draw conclusions that are otherwise hard to draw though.
I'm very interested in why some orgs (your friend's company) can do better than the theoretical optimum, and other orgs (the govt) are generally recognized as not being able to?
This is too deep for me to tackle let alone right after I've met it. Everything obvious is probably something you've already considered.
In this specific case at least, their methodology isn't so much 'do something different and better with existing data' as it is 'other people collect data that is easy to collect but meaningful conclusions cannot be drawn from it.' Their meta-alpha is ignoring everything that's normally used to segment people and instead focusing on the intent of subjects and the fruitfulness of their intent, and only then drawing conclusions.
I don't know anything about this field but their methodology sounds like some level of innovation. So the question could be rephrased as why isn't the government good at innovation?
Governments were great at space stuff, but that's when governments were the only place space people could do space stuff.
As a free, exceptionally talented person, why would you go work for a government when the expectation is less pay and less impact? Governments can short employees on one or the other and probably stand a chance at competing for talent, but both? It's like choosing to move to the soviet union near its end.
(meta: what will happen to this reply when your post disappears?)
Replies will be preserved. The text of the comment will just disappear.
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