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I think the firehose we have now of unconstrined fiat currency will go down in the history books as an aberration in the history of money. Money and the economy

I think the firehose we have now of unconstrined fiat currency will go down in the history books as an aberration in the history of money. Money and the economy are part of the bedrock of modern society and the human interactions that happen on a macro and micro level. When you get down to it fiat currencies like the USD became uncoupled from reality when it went off being pegged to a physical amount of gold/silver. I always see a lot of hand waving when I bring this up. I am betting that our current system of fiat is smoke and mirrors and we will return to money based on something concrete.

Qasaur 7y ago
Not only in the history of money, but in the history of humanity. Think of all the lost prosperity that has been siphoned off since 1971 and the collective rise in living standards people could have afforded. We are very comfortable as technologists and other high-paying (read: inflationary) professionals, but there is a large class of people who are getting thoroughly shafted by these monetary policies and they are your Uber drivers, the people who work at the coffee store, the factory workers in the midwest, and the homeless. The exponential rise in rents in cities are not a natural consequence of the capitalist marketplace, rather its a consequence of loose monetary policy whereby money has entered real estate markets to gain returns by exploiting ridiculous rents. https://www.epi.org/productivity-pay-gap/ https://www.epi.org/productivity-pay-gap/ Again, no coincidence that productivity and wage increases started to diverge significantly after the gold standard was abandoned. Our modern loose monetary policy and inflation targeting is probably the greatest regressionary redistributional scheme in the history of mankind, and will go down in history as such.
- TheOtherHobbes 7y ago
  It's not even the descent into poverty by the former middle classes - although that in itself is barbaric. The deeper problem is the opportunity cost - the small businesses that were never started, and the inventions, innovations, and other developments that never happened because financialised markets were more interested in speculation, wealth capture, scamming, and gambling than in fringe high-risk speculative R&D. In fact the financialisation and corporatisation of the research that does happen has distorted the research process and made it far less effective. Without it we might have had game-changing advances in fundamental physics, AI, medicine, aerospace, robotics, bioengineering, and even arts and culture that were decades ahead of where we are now.
  - Spooky23 7y ago
    You hit it. My younger cousins were a lot more well off than my side of the family, went to private or high competitive schools from kindergarten on, and are super smart. I used to hang out with them and their friends from time to time, and it struck me how uniform their aspirations all were. Investment Banking, Consulting or medicine. Maybe a few wanted to be lawyers. It struck me then and now as an incredible waste of talent.
- solotronics 7y ago
  Even though we might benefit in the short term if this is kept up there could be a massive uprising by those who have been disenfranchised, ie. the French revolution.
drtillberg 7y ago
The Class of 1982 was special in graduating at the very inception of what has become a nearly 40-year bull market in credit, which is mostly a story of monetary and regulatory policy. When the books are written 100 years from now, they will explain this period as a hyperinflation that our HBS-trained leaders in government and finance managed to trap mostly in financial assets, all the while counter-intuitively justifying their money-creation activities based on a theoretical potential to leak gradually out to the broader economy. Hyperinflation here to maybe generate useful inflation there, but really useful primarily in creating robber-barrons and oligarchs, who perpetuate the system through 'soft bribery' and 'reputation laundering' described in the article. This article and the speeches etc. discussed in it should be a clarion call for folks to accelerate imagining what will come next, which may well go beyond increasingly cosmopolitan admissions and instruction at HBS.
- lisper 7y ago
  > they will explain this period as a hyperinflation No, they won't, because it wasn't.
  - drtillberg 7y ago
    Ok, ok, asset price inflation measured by the S&P 500 has been about 9% annually from $123 in 1982 to $2,920 in 2019. In addition, the availability of debt amplifies increases. For example, the Case-Shiller Home Price Index increased from 100 to 220 between 2000 and 2019 (about 4% annually), but owners often leverage 80% at the start, and they actually have a 13% annual return (less carrying costs)-- lets say double the nominal return. If high finance generated a ROI of 9% x 2 on average since 1982, through asset price gains magnified by leverage ... that would be 64% every 3 years, on average for almost 40 years. That's a remarkable inflationary event, however you choose to define 'hyperinflation.'
    - lisper 7y ago
      https://en.wikipedia.org/wiki/Hyperinflation https://en.wikipedia.org/wiki/Hyperinflation
iambateman 7y ago
The idea that “gold is valuable” is just as hand-wavy, but requires us to relinquish control of the supply to whomever happened to find themselves sitting on top of a gold mine. Perhaps fiat isn’t your ideal, but it’s almost certainly better than pegging to a rare earth metal.
dwd 7y ago
Everything is smoke and mirrors. The price of a thing is completely determined by the perception of value and what people are willing to pay or sell at. The problem with the glut of cheap credit is that it created the means to leverage capital on a scale that essentially embed rent seekers into every facet of life to the detriment of those without. Those already with property were able to become landlords on a massive scale because credit was cheap, pushing up demand and pricing out those seeking their first home. Fund managers were able to borrow massive amounts to buy into every business possible to the detriment of other business stakeholders and often the business itself. The economy as a whole suffered as generating quarterly returns and accumulating wealth trumped business growth and production. Because this occurred on a global level the social compact was broken. I can only see two ways out of this: A tax on wealth (70%+) might be the means to creating a "spend it or lose it" attitude and force the promised "trickle down" promised when the laws were changed to allow this aberration. Or we need a multi-trillion dollar debt forgiveness program to reset the economy back to a place people are not so burdened by debt (from putting a roof over their heads, getting an education or requiring healthcare) that they can't afford anything.
asmithmd1 7y ago
The history of the Spanish Conquistadors successful search for physical gold in the new world has been written and it is a period of inflation in Spain. Instead of focusing on bringing back real wealth from the new world (coffee, chocolate, tomatoes, potatoes), they brought back useless yellow metal that just caused inflation. The idea is to match the money supply to the real wealth in the economy. I don't disagree with your assertion that we are seeing a decoupling of money from real wealth, but the gold standard is no guarantee against inflation - or worse, deflation.
- solotronics 7y ago
  Bitcoin! I am only half joking. Maybe the answer is an electronic currency that inflates at a slower or set rate?

Qasaur 7y ago

Not only in the history of money, but in the history of humanity. Think of all the lost prosperity that has been siphoned off since 1971 and the collective rise in living standards people could have afforded. We are very comfortable as technologists and other high-paying (read: inflationary) professionals, but there is a large class of people who are getting thoroughly shafted by these monetary policies and they are your Uber drivers, the people who work at the coffee store, the factory workers in the midwest, and the homeless. The exponential rise in rents in cities are not a natural consequence of the capitalist marketplace, rather its a consequence of loose monetary policy whereby money has entered real estate markets to gain returns by exploiting ridiculous rents. https://www.epi.org/productivity-pay-gap/ https://www.epi.org/productivity-pay-gap/ Again, no coincidence that productivity and wage increases started to diverge significantly after the gold standard was abandoned. Our modern loose monetary policy and inflation targeting is probably the greatest regressionary redistributional scheme in the history of mankind, and will go down in history as such.

TheOtherHobbes 7y ago
It's not even the descent into poverty by the former middle classes - although that in itself is barbaric. The deeper problem is the opportunity cost - the small businesses that were never started, and the inventions, innovations, and other developments that never happened because financialised markets were more interested in speculation, wealth capture, scamming, and gambling than in fringe high-risk speculative R&D. In fact the financialisation and corporatisation of the research that does happen has distorted the research process and made it far less effective. Without it we might have had game-changing advances in fundamental physics, AI, medicine, aerospace, robotics, bioengineering, and even arts and culture that were decades ahead of where we are now.
- Spooky23 7y ago
  You hit it. My younger cousins were a lot more well off than my side of the family, went to private or high competitive schools from kindergarten on, and are super smart. I used to hang out with them and their friends from time to time, and it struck me how uniform their aspirations all were. Investment Banking, Consulting or medicine. Maybe a few wanted to be lawyers. It struck me then and now as an incredible waste of talent.
solotronics 7y ago
Even though we might benefit in the short term if this is kept up there could be a massive uprising by those who have been disenfranchised, ie. the French revolution.

drtillberg 7y ago

The Class of 1982 was special in graduating at the very inception of what has become a nearly 40-year bull market in credit, which is mostly a story of monetary and regulatory policy. When the books are written 100 years from now, they will explain this period as a hyperinflation that our HBS-trained leaders in government and finance managed to trap mostly in financial assets, all the while counter-intuitively justifying their money-creation activities based on a theoretical potential to leak gradually out to the broader economy. Hyperinflation here to maybe generate useful inflation there, but really useful primarily in creating robber-barrons and oligarchs, who perpetuate the system through 'soft bribery' and 'reputation laundering' described in the article. This article and the speeches etc. discussed in it should be a clarion call for folks to accelerate imagining what will come next, which may well go beyond increasingly cosmopolitan admissions and instruction at HBS.

lisper 7y ago
> they will explain this period as a hyperinflation No, they won't, because it wasn't.
- drtillberg 7y ago
  Ok, ok, asset price inflation measured by the S&P 500 has been about 9% annually from $123 in 1982 to $2,920 in 2019. In addition, the availability of debt amplifies increases. For example, the Case-Shiller Home Price Index increased from 100 to 220 between 2000 and 2019 (about 4% annually), but owners often leverage 80% at the start, and they actually have a 13% annual return (less carrying costs)-- lets say double the nominal return. If high finance generated a ROI of 9% x 2 on average since 1982, through asset price gains magnified by leverage ... that would be 64% every 3 years, on average for almost 40 years. That's a remarkable inflationary event, however you choose to define 'hyperinflation.'
  - lisper 7y ago
    https://en.wikipedia.org/wiki/Hyperinflation https://en.wikipedia.org/wiki/Hyperinflation

iambateman 7y ago

The idea that “gold is valuable” is just as hand-wavy, but requires us to relinquish control of the supply to whomever happened to find themselves sitting on top of a gold mine. Perhaps fiat isn’t your ideal, but it’s almost certainly better than pegging to a rare earth metal.

dwd 7y ago

Everything is smoke and mirrors. The price of a thing is completely determined by the perception of value and what people are willing to pay or sell at. The problem with the glut of cheap credit is that it created the means to leverage capital on a scale that essentially embed rent seekers into every facet of life to the detriment of those without. Those already with property were able to become landlords on a massive scale because credit was cheap, pushing up demand and pricing out those seeking their first home. Fund managers were able to borrow massive amounts to buy into every business possible to the detriment of other business stakeholders and often the business itself. The economy as a whole suffered as generating quarterly returns and accumulating wealth trumped business growth and production. Because this occurred on a global level the social compact was broken. I can only see two ways out of this: A tax on wealth (70%+) might be the means to creating a "spend it or lose it" attitude and force the promised "trickle down" promised when the laws were changed to allow this aberration. Or we need a multi-trillion dollar debt forgiveness program to reset the economy back to a place people are not so burdened by debt (from putting a roof over their heads, getting an education or requiring healthcare) that they can't afford anything.

asmithmd1 7y ago

The history of the Spanish Conquistadors successful search for physical gold in the new world has been written and it is a period of inflation in Spain. Instead of focusing on bringing back real wealth from the new world (coffee, chocolate, tomatoes, potatoes), they brought back useless yellow metal that just caused inflation. The idea is to match the money supply to the real wealth in the economy. I don't disagree with your assertion that we are seeing a decoupling of money from real wealth, but the gold standard is no guarantee against inflation - or worse, deflation.

solotronics 7y ago
Bitcoin! I am only half joking. Maybe the answer is an electronic currency that inflates at a slower or set rate?