Podcast notes – Edward Chancellor (The Price of Time) on Investor’s Podcast: “Could say today we’re in early stages of a debt jubilee”

Guest: Edward Chancellor – Author of The Price of Time

Even the Bible mentions interest rates and the debt jubilee
Debt jubilee = official forgiveness of debt by the ruler
Common when new ruler took power
Why debt jubilee? Because interest rates compound, led to debt bondage / labor slavery

Modern debt jubilee occurs through inflation (financial repression, where inflation > interest rates)
Could say today we’re in early stages of a debt jubilee

Iceland 2008 financial crisis – borrowed reckless during global credit boom
Much of debt was wasted on poor investments
After 2008 crisis, government put banks into receivership and defaulted on foreign debt
Default is another form of debt jubilee

Seneca the Younger
Advocates stoicism, but also tutor to Nero, earned a great fortune, gave lavish parties – many contradictions
“Time is man’s most precious possession”
Interest = price of time

This notion was revived in Renaissance Italy
How people began to justify interest rates

Time value linked to human’s natural impatience – we prefer having things sooner rather than later
eg, a factory – the earlier and faster you produce things, the more valuable
Should be incentive to use time wisely
Demurrage – medieval ships were charged if they took too long to unload their goods

Efficient economies are driven by a charge on time
If we didn’t have that charge, people would be slower, less efficient

Interest rates are linked to time preference
When young, internal interest rate is higher, more keen to borrow, more impatient, and vice-versa when older

John Law
“Is this guy for real?”
Son of Edinburgh goldsmith (back then, goldsmiths were a form of proto bank)
Law inherits some money
Becomes a dandy / fop in London
Loses fortune gambling
Duels with another dandy, Law kills him
Law arrested, escaped jail, flees to continental Europe
Toured Europe for 20 years
Ends up in Paris
Improved at gambling, very good at probabilities
Develops interest in economics
Proposes a land bank – lend money against land
Argues money (gold or silver) was just a yardstick of value
First “monetarist” economist – can replace gold or silver with paper currency
This will bring rates down, can print more money
This will bring economic prosperity
Starts a private bank in France
Takes over a French trading company, acquires French mint, tobacco monopoly, owned Louisiana Purchase land rights – extensive holding company
Turns private bank into a central bank (the Bank Royale)
He goes broke because he issues paper currency and withdraws gold and silver from circulation
Results in massive increase in money supply
Rates drop from 8% to 2%
His final act – takes over entire French national debt – converts all bondholders credit into his company’s shares (the Mississippi company) – like a QE operation
There’s an extraordinary speculative boom – enormous fortunes are made – the word “millionaire” enters the lexicon
John Law becomes the richest person ever
Considered a great statesman
Then it all falls to pieces – general inflation rises, people sell his company’s shares
Company goes bankrupt, he has to flee, leaving behind his family
Wound up in Venice 8-9 years later, went back to gambling
“A brilliant eventful life”
Too ambitious, moved too quickly, but didn’t have eye for details
His motivation was to bring down interest rates – thus provided framework for modern central banking – was 250 years ahead of his time
Modern lawmakers don’t seem to notice that Law’s experiment ended in resounding failure

Louis 14 – sun king
Huge debt due to wars with Britain, Holland
French debt = 100% of GDP

Modern fiat system is inherently inflationary

“2% tipping point”
Walter Bagehot – Economist editor
Noted that speculative manias coincided with periods of low rates
Current research indicates 3% seems to be threshold

Interest = price of anxiety or price of risk

Policymakers think you can lower rates as lever, but you’re playing with price of risk, and you won’t know where the risk is building
Also encourages misallocation of capital

Concept of “Natural rate of interest”
One definition: “Return on capital of an economy without money”
Observe asset price inflation, credit booms – as indicators whether policy rate is too high or low

Hadley – interest rates encourage natural selection
The higher the hurdle rate, the fewer that survive
Schumpeter – creative destruction – natural process of economic sclerosis, need this destruction to maintain a healthy growing economy

Low rates create low productivity, creates negative feedback loop

Academic economists have too abstract a view of economy, without looking at observed reality

An Assyrian clay tablet dating to around 2800 B.C. bears the inscription: “Our Earth is degenerate in these later days; there are signs that the world is speedily coming to an end; bribery and corruption are common; children no longer obey their parents; every man wants to write a book and the end of the world is evidently approaching.”
// almost certainly an apocryphal quote, but included in book anyway

Final realizations —
Realized how central interest rate was to all of human life, puts price on time, and especially to the capitalist system
If you don’t apply a discount rate to income / cash flow, you can’t price something accurately
“We’ve lost sight of this most important economic variable”
Jim Grant: interest is the universal price
Because we’ve lost sight of it, we’ve gone down a pretty bad route as a result

A little allegory about deflation and inflation: Satoshi Cove and Fiat Reef

Pardon my silly meanderings, but if I can’t write stupid stuff on this blog then what really is it for

Here are two short stories, reasoning about deflation and inflation from simplistic first principles.

Satoshi Cove: a little allegory about deflation

There is a small unspoilt island called Satoshi Cove. For generations, the villagers who live there have led simple and happy lives. They survive by growing corn and raising chickens.

The island’s currency is a rare wild pearl, which glows a soft pink. The best swimmers on the island dive for these pearls during the stormy winter months.

Because the search is risky, and the pearls grow slowly, the supply of pearls only grows by a few percent each year. So the currency supply is quite stable. In addition to pearls, the villagers have invented simple forms of credit and barter.

One day, one of the islanders – a noted eccentric – learns how to turn chicken poop into a rich fertilizer by adding salt and other natural compounds. At first of the other farmers don’t believe him, but the ones who do are able to use the fertilizer to improve their corn crop. By using this new fertilizer, the average corn farmer’s harvest increases by 25%, and because chicken feed is also composed of corn byproducts, the average chicken farmer’s output also increases by 5%.

Thus this entrepreneur has invented something – a new fertilizer – which leads to meaningful growth in the island’s production of corn and chicken. This is productivity-driven growth.

Most of the island benefits from this entrepreneur’s invention:

The inventor becomes wealthy by selling the fertilizer he creates.

The islanders can produce and sell more corn and more chickens.

The prices of corn and chicken fall, which enables the average villager to buy more.

But not everyone benefits. A few islanders are hurt by this change.

In particular, lenders who have made loans to be repaid in real goods like corn and chicken are hurt. Corn and chicken are now more plentiful, and thus less valuable. If a lender is to receive 10 chickens in re-payment, those 10 chickens would now be worth less.

It’s important to note that not all lenders are hurt. Lenders who have made loans to be repaid in pearls, conversely, have benefitted, because those pearls can now buy more corn and chicken.

In a similar way, borrowers who have received loans to be repaid in pearls are also hurt. The prices of corn and chicken have fallen, but the borrower is still required to pay back a fixed number of pearls.

And just like the inverse of the lenders’ situation, not all borrowers are hurt — those who have borrowed loans to be repaid in corn and chickens have benefitted.

This is a small example of productivity-driven growth leading to deflation, in a very simple economy. We have removed many elements of a modern “real” economy – for example, the island doesn’t trade with neighbors, and there is only one form of currency (pearls) – but hopefully it’s illustrative.

You can very clearly see that deflation here, which is caused by a valuable new invention, improves the quality of living for most islanders.

The price of food falls, which allows people to afford more. The innovator becomes wealthy. It enables farmers to produce more. And most importantly, it inspires people to create and invent more.

Imagine if this pattern were repeated over generations. The prices of food would continue to fall. Perhaps they would find new types of crops to grow. Or new farm animals to raise. The island’s productivity and output would increase, and along with it, so would quality of life.

So why is deflation a bad thing?

Fiat Reef: A little allegory about inflation

Now let’s talk about a similar island called Fiat Reef. In just about every way, it is a copy of Satoshi Cove.

The only difference?

Instead of an inventive entrepreneur who creates a new fertilizer, a creative and brave diver realizes that he can artificially grow the rare pearls by adding tiny grains of sand into the oysters. By doing this, he can double his own pearl output during each winter harvest. For simplicity’s sake, let’s assume he is just one of ten divers. So each season, the amount of new pearls discovered grows by 10%.

This is a form of financial innovation that leads to an increase in the island’s currency supply. This is a very simple and pure example of money inflation.

Now who benefits from this inflationary change to the island’s economy?

First and foremost, the inventive diver benefits. He’s literally created money. He harvests it first, and he can spend it to buy more corn and chicken.

As the money supply on the island grows, others benefit too. His favorite seller of corn and chicken benefits, because their customer is now much richer. And as those sellers make more money, they may raise the wages of their employees.

But importantly – not everyone benefits. Those who benefit most are those who are first to receive the money; the ones closest to the diver.

Moreover, many people are hurt by this change. In the same way that deflation hurt certain borrowers and lenders, inflation also hurts certain borrowers and lenders.

As the new currency trickles into the economy, the prices of corn and chicken begin to rise. And while some islanders are earning more, most of them aren’t. Thus they are able to afford less food.

In addition, because the money supply is growing faster than its usual pace, the purchasing power of pearls decreases. You can buy less with the same number of pearls. So everyone who has saved pearls will begin to feel poorer.

Now, the inventive diver was only able to increase the island’s pearl supply by 10% each season. But where this inflation really becomes problematic is when the other divers learn to copy his technique. Soon, the supply of pearls is growing 20%, 40%, and even more during each harvest cycle.

For a time, the divers themselves feel rich as kings, and spread the wealth to their family and friends and favorite farms. But then prices begin to rise faster and faster. If there is double the money, but no change in the amount of corn or chickens, then necessarily the price of corn and chicken will increase.

Eventually, what everyone wants to do is become a diver, and hunt for pearls.

On Fiat Reef, everyone is now incentivized to make more money, instead of making new things. Everyone wants to be a diver, or to be close to the divers so they get first dibs. Few islanders want to invent new fertilizers, or produce more corn and chicken.

In short, far more people are hurt by this change, which is an inflation of the money supply. Prices rise for all goods on the island. A few people win big. But the outcome is more complicated, and the long-term effects are more damaging.

Reality is more complicated than this simple example, and there are winners and losers on both Satoshi Cove and Fiat Reef.

But ask yourself which island you’d rather live on. Would you rather live on Satoshi Cove, where the goal is to invent and make great things, an island where output is increasing and prices are falling?

Or would rather live on Fiat Reef, where the goal is to become a diver and make more money, where prices are constantly increasing so it’s a race to see who gets the most money and buys the most things first?

Yes this is massively over simplified and exaggerated. The islands are closed economies with no trade and only one currency (pearls). Both deflation and inflation can hurt people.

But why is there such a gulf in public perception between the two? Why are we led to believe that deflation is so dangerous, and could potentially lead to economic collapse? Conversely, why are we told that some amount of inflation is not only good, but even necessary for our very economy to function? How did things get this way?

Recent good reads – web3, Elon, Stranger Things, fake Russian history, and CS Lewis

https://tcg.mirror.xyz/CCtokn_XR9yqGhL3OIKM4u8IxaVO0V0fmRxH-G5yWs8

We hear a lot of conversation around “hooks” for crypto-native messaging, like permissionless social graphs, verification, and token-gating, but these are features of web3 messaging, not the core use of it. None of these features have made on-chain messaging competitive with Telegram or Signal, because convenience (almost) always wins over quality. The reason these messaging protocols will be more convenient is they will unlock a whole new recipient of the message: the protocol itself. We haven’t gotten there yet because currently, messaging is regarded as an end, but web3-native messaging is a means, not an end. It’s a byproduct of completing actions.

Interacting with the protocol is a fascinating idea, although I suppose that’s what we do when we search google, or call an uber…and now there’s “interacting with an algorithm” too when we use ChatGPT or Stable Diffusion…

https://www.technologyreview.com/2022/12/12/1064751/the-viral-ai-avatar-app-lensa-undressed-me-without-my-consent/

“Women are associated with sexual content, whereas men are associated with professional, career-related content in any important domain such as medicine, science, business, and so on,” Caliskan says.

I dunno, I kinda liked my new six pack

https://www.bloomberg.com/news/features/2022-12-14/elon-musk-twitter-ownership-full-of-firings-ad-cuts-chaos

His journey from hero of the save-the-planet wing of the Democratic Party to right-wing flag-bearer has been years in the making. It was seemingly provoked by a series of real or perceived attacks from his left flank—from unions such as the United Auto Workers, which hopes to organize Tesla workers; Covid-wary lawmakers in California who shut down Tesla’s factories during the early days of the pandemic; and labor-friendly leaders like President Joe Biden, who declines to mention Tesla in speeches about electric cars and talked about extending EV credits for only unionized automakers. When Musk feels ambushed, he lashes out.

Shakespearean psychodrama? Does the msm have a hard on for Mr. Musk or what

https://www.nationalgeographic.com/science/article/most-amazing-discoveries-2022

For the first time, biologists have observed a native species, a bobcat, raiding a python nest and eating its eggs. Later, when the bobcat returned to find the snake guarding its nest, the cat took a swipe at the reptile. “When you get interactions like this and see the native wildlife fighting back, it’s like a ray of sunshine for us,” says Ian Bartoszek, an ecologist with the Conservancy of Southwest Florida. “In 10 years of tracking snakes, I can count on one hand the number of observations” of native animals standing up to the reptiles.

Demonstrating per usual that the “real” world is an incredible place full of potential wonder and we haven’t yet understood 1% of 1% of it

https://theupheaval.substack.com/p/a-prophecy-of-evil-tolkien-lewis

The process which, if not checked, will abolish Man goes on apace among Communists and Democrats no less than among Fascists. The methods may (at first) differ in brutality. But many a mild-eyed scientists in pince-nez, many a popular dramatist, many an amateur philosopher in our midst, means in the long run just the same as the Nazi rulers of Germany. Traditional values are to be ‘debunked’ and mankind to be cut into some fresh shape at will (which must, by hypothesis, be an arbitrary will) of some few lucky people…

I had to read this twice to understand its gist, which is something like, when we stopped worshipping something greater than ourselves (be it values or a deity), that left a power vacuum, and a small set of “experts” stepped in to tell us what to worship instead. And in writing that preceding sentence, I realize I still don’t really get it, and probably need to read it again

https://www.sixthtone.com/news/1010653/she-spent-a-decade-writing-fake-russian-history.-wikipedia-just-noticed.-

Yifan went down the rabbit hole on the Kashin mine and the Tver-Moscow War, learning about battles, the personalities of aristocrats and engineers, and more history surrounding the forgotten mine. There were hundreds of related articles describing this obscure period of Slavic history in the dull, sometimes suggestive, tone of the online encyclopedia. It was only when he tried to go deeper that something started to seem off. […] Eventually, he realized that there was no such thing as the great silver mine of Kashin (which is an entirely real town in Tver Oblast, Russia). Yifan had uncovered one of the largest hoaxes in Wikipedia’s history.

Yes I am chaotic neutral, and yes I mostly find this entertaining and have more than a modicum of admiration for this high-school educated lady to weave such a George RR Martin-esque alternative history. What we humans are able to create when we truly enjoy the creating…

https://www.netflix.com/tudum/articles/stranger-things-season-4-captions

Jeff T.: People really focused on “eldritch thrumming.” Eldritch is that sort of arcane, unknowable, vaguely threatening, otherworldly presence. I am going to reveal the depths of how nerdy I am — I apologize in advance — but it’s also the signature spell for a warlock in Dungeons & Dragons. It’s called eldritch blast. The lore of a warlock in Dungeons & Dragons is that they make the deal with an otherworldly power, whether it’s a demon or a powerful fairy lord. So I was like, “Oh, this is the perfect term for that sense of otherworldly power intruding into our world.”

Current favorite podcasts: ScriptNotes, Iced Coffee Hour, My First Million, Bitcoin Layer, and more

Below are some podcasts that I’m really enjoying at the moment…

Here’s a page with my older podcast recommendations

And here’s a running list of podcast notes I’ve taken. The most recent is an Ezra Klein interview of Leah Garces about factory farming and meat production

The Bitcoin Layer – a new-ish addition, I’m a regular reader of Nik’s newsletter, and the podcast offers a low-frills analysis of macro and specifically the US bond market, interest rates, and the Fed; he also tends to invite guests who are slightly less featured than the usual podcast-guest-circuit (eg, the Rogan-Friedman-Huberman axis, or the Ferriss-Rose-Vaynerchuk axis)

Scriptnotes – a long-time sub; swings back and forth between industry insider gossip and screenwriting 101; invites great guests (eg, recent episode with The Daniels)

Iced Coffee Hour – surprised by how much I enjoyed their chat with Tai Lopez, helped to humanize the guy behind his omnipresent Lambo and books; the show provides (me with) valuable insight into how a certain kind of Gen Z influencer / ambitious individual thinks

TWIML – been dipping more than a toe into the waters of AI and ML recently, and this podcast has frequent topical interviews that are the right mix of accessible and technical for me

My First Million – a guilty pleasure, but having been a steady subscriber since it’s early days, I now find that it relies a bit too much on Shaan and Sam’s personal stories (so after listening to eg, 10 episodes, it’ll start to feel like a family reunion where gregarious grandpa tells you about that one time he did X)

Bankless – comfort food for Ethereum fans, with occasional entrees of delicious deep dives, gotta appreciate Ryan + David’s chemistry

What Bitcoin Did – comfort food for Bitcoin fans; more philosophical as of late; always enjoy his Lyn Alden interviews; for me, it scratches a similar itch to Preston’s weekly Bitcoin interviews

Lex Fridman – in a class by itself; he’s the only interviewer who can bring world class guests (like this one w/ game designer Todd Howard) to spend 3 hours chatting about anything and everything; enhanced by Lex’s mix of patience and skeptical kindness