Topic: Economic Devastation - page 125. (Read 504811 times)

If the quantity of purchasing medium can be decreased (only possible with fiat, because you cannot decrease the amount of gold in existence), the prices cannot adjust to the demand and supply shocks in the economy, making the long gyrations and business cycles possible, which the bankers can feed and utilize for their own gain.

If the amount of gold stays ~constant and economy enters into prosperity, prices will fall and everybody gains, this encourages more demand for the goods produced. If the economy enters into trouble, prices will rise, encouraging more savings, investments, and production.

In quest for stable prices, the central economy planners of all nations have destroyed the price mechanism, the God-designed way for the economy to allocate the resources. The more they destroy the functions of the natural "invisible hand" (as Smith named it), the easier it is to get away from the horrible misallocation of resources they are propagating themselves. Hardly anyone has seen free market in action for any prolonged time (3 days or more) in any scale (children's camp or more), so thay cannot know what they are losing.

rpietila that brings us to the second of your two posits. The first which kicked off this recent debate I believe to be a genuine insight as I argued upthread.

However, I was curious about the second. You mentioned the fact that the supply of gold has not decreased and that this was important. I was curious as to why.

In the example above you failed to account for the debasement itself which in a free market is recaptured by the economic entities in proportion to their productivity.

Thus the investor making 5% ROI in a 0% debasement enviornment may make 5.25% in a world with debasement. If he does the investor capable of 10% ROI would be expected to make 10.5% (under the simplifying assumption that the debasement itself does not otherwise change the ROI). The exact amount of debasement captured would depend on the productivity distribution and the amount of debasement.

If you rerun the example with the assumption that economic actors capture debasement at a rate proportional to their productivity you see that the relative shares of the pie do not remain the same. As you raise debasement you increase the transfer of purchasing power from the poor to the rich. Yes you also in theory increase overall aggregate growth and to a point may increase overall prosperity due to trickle down economics. However, in the world you are advocating a world where anonymity is used to chain socialism there is no way to return that lost purchasing power to the poor.

Such redistribution in the name of growth can be justified up to the point where the poor do not suffer from the redistribution. That level is a debasement rate equal to the aggregate growth rate. A debasement rate below the growth rate redistributes wealth from rich to poor and stunts growth overall. A debasement rate above the growth rate redistributes wealth from poor to rich and increases growth. It is only with a debasement rate that equals the aggregate growth rate that redistribution zeros out. At this level purchasing power taken from the poor via debasement is returned to them via growth.

One can argue that we are better off if we debase in excess of the aggregate growth and increase the transfer from poor to wealthy beyond equitable levels in the name of growth. However, to justify such a system you would need to tax the wealthy and later transfer a portion of their gains to benefit the poor. Our current economic situation and the multiple problems with unrestrained socialism are powerful arguments against this solution.

In a world where debasement of the currency is competitively distributed and there is no redistributive taxation the arrangement that optimizes outcomes for the largest percentage of the population over time is world where debasement is set equal to the aggregate economic growth.


I agree that where the debasement goes is critical. In my argument above I am assuming that the debasement is via free market competition and equally distributed based on productivity.

I did address the fact that there isn't one debasement rate. I replied that because of the Bubble Theory of Money optimal game strategy will likley (eventually) lead society to standardize on a single asset as a store of value. However, I admit that this conclusion is somewhat speculative.

Are we reaching the limits of utility in this debate? I think we both want to wind it down. Anything further to discuss?

Edit: Debasement could also be directed elsewhere with radically different results. For example it could be distributed equally to all market participants as a sort of guaranteed minimum income. If debasement was set equal to aggregate economic growth such an arrangements would maintain optimal incentives to invest. However, debasement in this situation siphons purchasing power from the wealthy/productive so growth overall would be reduced. This cost would be offset by the benefit of a formalized social safety net via guaranteed minimum income. Challenges to any such system including accurately identifying all participants, objectively measuring growth, and finding a solution to the collectivization problem outlined in the OP. Unfortunately these technical challenges appear insurmountable at this time.   

The debate cannot adequately distinguish "capital". If the situation is such as previously in the Soviet Union, or now in the United States, or in the Middle Ages, that it is not possible to generate real returns on capital, then it is more reasonable to eat it away and continue in an economy with little to no capital, where only human effort can produce returns.

Comparing those who earn 10% ROI to those who earn 5% ROI, then regardless of the growth rate of the economy, in 0%, 5%, and 10% debasement scenarios, the former earns 5% more purchasing power than the later.

Thus the economic growth rate is an independent variable, and thus your claim is vacuous.

Your mathematical error is given any level of production of the economy, the relative shares of the pie remain the same regardless what the debasement rate it.

Rather it is second-order effects that cause redistribution, i.e. the Iron Law of Political Economics and the economics of usury, which I claim are enabled by centralized capture of the debasement.

Also you did even address the fact that there isn't one debasement rate in the economy, because there isn't just one asset class.


The debate is going no where. We are losing valuable time.

 
Ok it is clear to me that I have not effectively communicated my argument so let's go another round and I will do so in a more formalized fashion. Lets examine the issue from the bottom up rather than top down and examine the game theory behind the decision to invest.
Observe the case of an investor who is capable of making investments over his lifetime with a average annual return of x percent annually while operating in an economy that is growing at y percent each year and a monetary unit that is debased at z percent.

Scenario #1: x > y (Return on investment exceeds average economic growth)

In Scenario #1 the investor is capable of achieving average real returns greater then the average growth in the economy. In this scenario the investors decision is easy and he should always invest. The investor is the upper elite in terms of productivity and will always be better off investing regardless of currency debasement.

Scenario #2 0 < x < y (Return on investment is below average economic growth)

As you pointed out productivity is power-law distributed. Therefore it is mathematically impossible for the majority of humanity to fall into scenario #1. Most of humanity are and always will be be in a situation where their investments on average generate a real return that is less then the average growth rate of the economy.

The ideal outcome for humanity is that investors in this situation make these net positive but lower return investments. The growth rate y is not a single value but rather the aggregated sum of the growth vectors over all the individuals in the economy. If investors in scenario #2 do not invest the value of y and prosperity overall is reduced.

The majority of humanity in scenario #2 face a free rider deliema. In the extreme situation of z = 0 (no debasement) they are decisivly better off not investing and letting the overall growth in the economy increase their purchasing power. In this situation instead of making net positive investments the majority of humanity gain most by parasitizing the gains of the upper elite and prosperity overall is reduced.

This delima can be solved by introducing a non zero debasement rate z. As we raise the debasement rate individuals lose the incentive to be free riders. At a debasement rate of z = y all inverstors in scenario #2 like those in scenario #1 have a positive incentive to make net positive investments. Money loses the ability to parasitize on the gains of the productive. Furthermore money at this debasement rate maintains its ability to act as a store of value. Meaning that with a debasement rate of z = y a saver who chooses to defer consumption will still be able to purchase a like basket of goods and services in the future.

Now lets examine the situation where z > y and debasement rate is set in excess of the underlying economic growth. All investors still have optimal incentives to invest. However, what changes is that individuals on the upper portion of the power-law distribution now gain purchasing power in excess of what they actually produce.

To understand why this is the case we need only look at the example of an investor achieving returns of y in a world where z = 2y (a world where an debasement is twice the rate of aggregate growth). Such an investor is achieving a growth rate that matches the average in the economy, however, his rewards do not reflect that.

If such an investor starts with initial capital C then his returns over n years can be calculated as follows

Return = C((1+y)^n * (1-z)^n)

You can plug in different numbers to see what the exact result will be for varying levels of growth and debasement. However, in all cases where the debasement exceeds the average economic growth z > y our investor who contributed an average share to the growth of the overall economy finds that his capital significantly depreciated over time. Where does that purchasing power go?  It is redistributed to the upper elite who while they are the most productive gain purchasing power in excess of what they produce.

Such an approach does in theory maximize growth I do not dispute that. Historically this idea has been referred to as trickle down economics. However, you need to be honest about what debasement in excess of the aggregate economic growth really is. It is certainly not needed to maximize individual incentives to invest. Instead it is simply a redistributive mechanism. It is a form of reverse socialism redistributing from the poor to the wealthy because they in theory can better put capital to productive use.

I agree that in the end the market will decide between competing alternatives. However, in any realistic economy, real or virtual, there is a demand for at least one good which is used as a store of value that and is not intended to be used but simply to transfer purchasing power across time. The Bubble Theory of Money dictates that the optimal strategy is for everyone to standardize on the same asset as a store of value, and for this asset to be one of intrinsically limited quantity.    
 
My thesis is that a market of rational investors will choose the monetary unit that maximizes individual incentives to make productive investments while minimizing redistributive transfer from the poor to the wealthy. That level is a debasement rate that matches the rate of aggregate economic growth. You can make the case that society will be better off with reverse socialism if the wealthy later pay back their ill gotten gains by returning a portion of them back to the poor perhaps via the establishment of a guaranteed minimum income or other welfare type programs. However, any such an arrangement would be very difficult to stabilize in light of the problems outlined in the OP. Furthermore it is emphatically not compatible with anonymity.

How can I respond when you've made no argument?

1. It is exceedingly obvious that different people have different opportunity cost matrix.

2. How can reducing the productivity of society by directing more stagnant claims on capital to the less productive not be a theft paradigm?

More saliently, why are we even arguing something that doesn't exist? There is never only one asset for people to store their wealth. They can choose the asset with the debasement rate they prefer. So how can I steal from the less productive who decide to hold gold or Bitcoin instead of an altcoin with a 5% debasement rate? Maybe you are thinking of reserve currency status (e.g. the dollar) and the effects it has. But that is precisely what we are trying upend with decentralized crypto-currency.

What you are really trying to say is that any collective without choice (e.g. one currency and one asset that everyone is forced to use with no alternatives) is a theft paradigm.

In others words, lack of choice, i.e. lack of free market, is the theft paradigm.

The fact that we can't model the complexity of the free market in action, is precisely Adam Smith's Invisible Hand.

Reality check. The market will chose what it prefers, regardless of your pronouncements.

I really don't understand why you are making a such a big deal out of something that doesn't exist.

I really think you should take the last word. You always give it to me. But please make an argument, else admit you don't have one.

Our differences appear to boil down to two issues:

1) You do not feel the frictional cost of time calculable and I believe it can be estimated and is equal to aggregate economic growth.

2) You do not feel that debasement above the frictional cost of time is a theft paradigm and I do.

I do not have further arguments to add to the ones above so I will leave you with the last word.

 

Yes I am.


The power-law distribution of effort, knowledge, sacrifice, and wealth will always exist. If you are jealous of that, go join with Karl Marx.

That is not theft. It brings greater prosperity to all, by expanding productivity at the highest rate. You are trying to equate a lower-productive mode  (low debasement) to a highly productive mode (higher debasement). If you slow down incentives for production in order to supposedly protect the stored wealth of the less productive, you actually destroy the less productive because they lose the higher productivity gains that were destroyed.

Competition is what makes the free market efficient.

Furthermore and most saliently, there is no single frictional cost of time. It is a multiplicitous vector.

Furthermore there isn't just one asset to store wealth in. There are a smorgasbord of choices of debasement levels to choose from.

Sorry socialists always want to top-down plan things which are not even top-down definable. They grant themselves non-existent, omniscience by decree (i.e. fiat).

fi·at
ˈfēət,ˈfēˌät/
noun
noun: fiat; plural noun: fiats

    a formal authorization or proposition; a decree.

---

Let's analyze why power-law distribution exists.

How many Michael Jordan's exist?


Subject: Pride in ourself

Please watch this VERY SHORT (60 seconds) video from Michael Jordan:

https://www.youtube.com/watch?v=PH8nTfxwByY

Listen carefully to every word of that video. Everything that needs to be said is entirely contained in that video.

If one listens carefully to that video, they can't possibly see their teenage peers as anything but stoopid!

I am the coach, and I want to inspire you to greatness. In my life, I have been down at times, and I have been great at times. Greatness is the best by far, there is no comparison.

How can I convey from far away the tiger feeling, the grit of my teeth, and the determination to win and seek greatness!

I want you to watch the video of Jordan playing 1 against 5! That is superman. How did he do it? It was his desire. He worked out every day, worked out longer and harder than anyone else. Watch this please, it is amazing:

https://www.youtube.com/watch?v=jvAOYwuwcBc
https://www.youtube.com/watch?v=_LOVTGjXahw

Michael Jordan understood that these mental character traits are what made him so much better than all the other players who were also physically talented. Jordan had the mental desire to kill himself to be great. I feel that coming back to me. I was 3 days in the gym, pushing my sore muscles. And I feel that tiger feeling come back to me - Thank GOD!

I want you to watch Jordan play a championship game with an amoeba stomach virus:

https://www.youtube.com/watch?v=OxXoHRwhD24

That is way I feel sometimes when I workout because of my illness. I look exhausted and can't even smile, but I still try to push through it. I am coming 50 years old this June 28. Yet if the other guys my age ask me to play a pickup game, I laugh inside, because I want to play against the 20 year olds (and do!).

Excuses are for losers. We want to aspire to greatness. Learn to love the struggle. It is in fact from the pain of struggle, that we feel greatness. It is not actually the greatness that feels great, but it is knowing that we fought hard and conquered our demons, that is what makes a person feel greatness.

Then you can smile, and know you are great.

Greatness comes from within your own fire and desire to prove to yourself you are great.

Just say NO to drugs. Zero tolerance policy for yourself.

Learn to be great. Learn to struggle and fight for it! It is the best way of life.

Let's stop wallowing in the mud. Hold you head up high and prove to yourself how great you can be.



Subject: Today start a new life

Get in the car, grab the rear view mirror, tear it off and toss it out
the window!

Don't look back. Today begin a new life with all the determination of
fierce bull with a gentle heart.

This is my motto. Struggle for it. Taste it every minute because you want
it so much.

I want my athletics back! Normal people in my condition go down and end up
crippled. But I want it so much to be able to do the moves and things I
used to be able to do.

I want my greatness back. The past is gone. The mirror is thrown out.

You are not addressing my fundamental argument.

I am not debating anything you wrote above. In fact I agree complete with your comments that today's low ROI investments are essentially theft paradigms.

There is a frictional cost of time, however, if you set debasement above this frictional cost you are simply replacing one theft paradigm with another. In the knowlddge age discussed upthread the elite knowledge workers would take the banksters place as undeserved recipients of the wealth of society. Likewise a debasement rate below the frictional cost of time is also a theft paradigm as was demonstrated upthread.

The only non theft paradigm is a debasement rate equal to the frictional cost of time.

My argument is that interval aggregate growth is the frictional cost of time.

Exactly. By targeting low ROI, you actually defeat yourself, because nature has dictated that low ROI is the antithesis of investment. The Bible explains this in the Parable of the Talents.

We entirely and emphatically disagree. We are not even close to agreeing.

First of all, there are no low ROI investments now, never mind the changes the Knowledge Age will introduce. You persist in repeating this same error. The only "investments" which return a low ROI (and they must be guaranteed by FDIC insurance and/or the full faith of the US government with Treasury bonds) are not investments! They are theft programs which have bankrupted Western society and will end up confiscating all the retirements of all those indigents you are concerned about.

As person with socialist tendencies, I am not surprised that you don't intuitively understand that the government can't guarantee something which nature has said is failure.

Simply put, low ROI doesn't exist. It is a figment of the socialist's imagination, which is megadeath and failure. Yet it is also not surprising that socialists never admit that they destroy the indigents they claim to be protecting.

I hope this slamdunk is enough to convince you, because I view you as a rational person.

Surely I will agree with you when you write rational logic.


That is delusion and fantasy. People have to produce at high ROI in order to maintain wealth against the friction of time. That is a fact of nature. They can either accumulate enough excess wealth to outlast the friction or they can plant some children who will be productive and take care of them in their elderly non-productive years.

It is not me who is not being compassionate, but rather you who wants to sentence society to megadeath failure which is the antithesis of compassion.

You know I like you, so please don't take this the wrong way. I am simply trying to wake you up from a stupor.

I am probably not against some minimum level of welfare, but I want it administered at the local government (or church) level, so that the problems of political capture and lack of ability to vote with one's feet are avoided.


My logic is that 5% has been the historical average for the USA since the 1800s when we had a free market of private banking (AnonyMint presented the data in the Peter Schiff thread in 2013).

Other than that, I have stated that I think the discussion is noise, because I don't see any way someone can know the ideal rate. I don't even know if an ideal rate exists. Besides Gresham's Law says bad money drives good money out-of-circulation, thus any person is free to hold gold or Bitcoin if they don't like high debasement. Nobody is pointing a gun at your head telling you which altcoin to hold your savings in.

So let the free market decide.

P.S. There is a very important point for designing an altcoin. Try to never hardcode an arbitrary constant. Try to structure the design so that the market sets all the parameters. I am not sure if that is possible with the debasement rate. I did suggest upthread modulating the debasement rate by the rate of transactions squared divided by the market cap (to obey the Metcalf's Law relationship Peter R charted).

I wanted to take a moment and give a recommendation regarding my favorite scifi/fantasy author John C. Wright. He is very much a libertarian author who writes about the distant future.

The Golden Age is set 10,000 years into the future. The future world presented is interestingly very much in line with the knowledge age discussed upthread.

Awake in the Night Land is probably the most intelligent harmonization of hard science fiction with religion that I have ever read. A profoundly moving story about an unstoppable evil relentlessly driving humanity extinction.

Chronicles of Chaos is just a great series in the fantasy genre.  A very fun and entertaining read though not related to the topic at hand.

Ok let’s say for the moment that you are correct and that there are no low risk/low reward investment opportunities in a future knowledge age. To the degree that this is true it only strengthens my overall argument that a debasement rate greater than the rate of aggregate economic growth is detrimental.

In a world without low risk investment options both low productivity individuals and the elderly are excluded from the investment market. Add in a large debasement and these individuals lose the realistic option to ever defer an immediate claim on real capital. Excess consumption results.

A debasement rate that matches the overall aggregate economic growth is the maximum debasement rate at which purchasing power is maintained relative to the time it was earned. At this rate a saver deferring a purchase will still be able to purchase a like basket of goods and services of comparable quality later. If you debase the currency faster than this you are stealing purchasing power from the elderly and the low productivity workers and transferring it to the high productivity workers in the name of growth. You create a system that does not provide optimal incentives for the majority of humanity in the hopes that the economic gains created by the new elite will offset the damage done. That sounds an awful lot like a more robust version of the system we already have.


Ok in my zeal to copy your prior logic word for word I inadvertently strengthened your statement. You stated that 5%+ debasement was probably correct and admitted uncertainty.

Nevertheless you have presented no logic to support that number that you believe to be probably correct. Whereas, I am presenting logic for why a debasement rate greater then the aggregate economic growth is not optimum.

Thus I maintain that the equilibrium point between the competing inefficiencies is a debasement rate that equals the rate of economic growth.

I am not certain we are moving towards consensus on this issue. Should we agree to disagree?

First it is important to define the principal. Agricultural land can be said to have a stable value. If there is no risk of loss to your land holding, the principal is 100% guaranteed. Anything that it produces, is therefore return.

If land paid back 3% on principal (which it does in some cases), returns invested over 100 year period would lead you to have 19 times more land after as little as 100 years.

The confiscations and other events prevent that from actually happening (to you, the small guy). Absent them, the land values would skyrocket to conform to the reality of limited amount of land that still produces income.

If owning land is too risky, for example 20% yearly chance of losing the principal, the land value plummets. Large capital cannot thus be stored in land, it flocks to gold that can be made to have a very low propensity of confiscation. When this happens, we are descending into abyss because it does not pay to invest in production, only to hoard your gold.

Now it's important to see that gold will almost surely be worth less when you dig it out after the calamity, because the calamity has destroyed the economy, and the amount of gold is intact, hence buys less. Neither it has paid any interest during the time. But it has saved a higher percentage of your purchasing power, with a higher probability, and thus done its job.

The game theory involves what investors think is important. I assure you there are no investors (except bond and savings deposits) who are targeting 1% ROI. That doesn't even cover the variance in the business. No investor would target an ROI with that low of a margin for error. Note that the lack of guarantee on the ROI (unlike bonds and savings deposits), means that the margin of error needs to be much higher. This is yet another mathematical reason that usury (banks and bankster) guaranteed ROI crap is guaranteed failure.

You entirely missed my point. When an investor makes a decision whether to invest now or delay, he is not entertaining any investments with a projected 1% ROI, because that low ROI would not even counteract the risk of variance nor risk of failure for an investment, the latter of which is typically at least 33%. It has nothing to do with the Knowledge Age. This is just the reality of investment.

Sorry you really need to think more holistically on the game theory.


See the bolded and underlined quote. I did not declare anything as optimum.

I00% agreement here this represents the revolutionary potential of cryptocurrency .


Weak argument I see no reason why a knowledge age would lack low risk low reward activities. The only requirement of a knowledge age is that such low ROI activities not be guaranteed or collectivized. Even if that were true (doubtful) you will still have a subgroup of bad investors (individuals who would like higher returns but on average achieve 1% returns over time).


Here you fall prey to your own logic upthread. You arbitrarily pick 5+% debasement out if a hat and declare it optimum, but you have presented no logic to support that arbitrary selection. Whereas, I am presenting logic for why a debasement rate greater then the aggregate economic growth is not optimum, for it encourages excess consumption and investment.

^ haha

I was thinking of money in terms of "permission" to act.

From that perspective the developing countries have a lot of infrastructure to build, thus they need a system where money are easily created out of thin air, because there is so much to do. Once infrastructure is built and major supply chains are established, using the money system which requires further growth is counter-productive, thus migration to a rigidly programmed crypto is currently underway.

But my point is the following.
Once society is able to fulfill its basic survival needs in a sustainable way, and is ready to move to the Knowledge Age, then the incentive structure changes quite drastically. The idea of scarce money might no longer apply, because failure to produce knowledge or fun is no longer punishable, as it's not part of the survival anymore. I mean if someone screws up with the infrastructure or supply chain, then society will suffer from inefficiencies and hunger, but if I've created some IP that isn't of much interest or otherwise funny, then nobody cares. I also do not need the "permission" (aka money) to create knowledge, as long as food and shelter are provided.

That's why I was thinking about some sort of social network capital in a form of "likes" or "dislikes" for knowledge creation and evaluation. The deeper question might then be - do we really need money as we know it in the Knowledge Age if the basic needs (food and shelter) are provided unconditionally? Do we really need the "permission" to create knowledge?

Nation-states. Been there, tried that.

Ah you mean private fiats? The private banks writing fractional reserve receipts for gold in the 1800s. Been there, tried that.

Many of us suggest we move to PoW decentralized crypto-currency, where in theory no one controls the debasement.

My thesis is those who can't catch up with the Knowledge Age are going to join the 666 one world fiat that is coming. That will be a slavery, eugenics system, because by definition (see the "Rise of Knowledge" essay in the OP about the economics) it will be falling further and further behind economically, i.e. it will be inherently bankrupt, thus it must fund itself from the blood of its constituents. I noted years ago that 666 could be the number of man in that it is the approximate mean wavelength of red blood. Not that is causal evidence. Just saying.

https://www.youtube.com/watch?v=Adgx9wt63NY


Haha, joke.