I’ve never formally investigated/learned economics, mostly because I’m philosophically opposed to the axiom set. Nonetheless, I’ve observed the Cantillon Effect. Having a name for it will certainly make it easier to discuss. Thanks for educating us!
I learned about this general concept reading about the Nationalist Chinese during the Japanese occupation of China. As a government-in-exile with little access to real goods, they indulged in the printing press. The result was a system where those closest to government would have their salary earmarked to the very latest inflation values and everyone else sunk deeper into poverty.
I guess the question for today though is what happens when the money spigot gets turned off after more than a decade of full blast. Last time they reined things in a bit it didn't go so well. So many of those close to the Empire Node that look like genius trading firm masters of the of the universe are in actuality just beneficiaries of this Cantillon Effect. They can't survive without it.
We haven't even considered the effects of money creation through credit here which I imagine amplifies this effect immensely. I also believe it will amplify the destructive effect of turning off the money spigot.
Great example. When I get the chance, I'm going to update my article with your example as the earmarking in particular demonstrates the recognition of the effect.
Since you like that example, I dug through my old paper I wrote on that period and found the reference I cited regarding inflation in Chongqing.
Hsi-sheng Chi, Nationalist China at War: Military Defeats and Political Collapse: 1937-45, (Ann Arbor: University of Michigan Press, 1982), 165.
Just a brief summary from my paper:
"Despite heavy taxation, the government's financial situation worsened. The Chongqing government turned to banks to finance their operations who in turn printed paper notes. The result was a massive increase in the supply of money from 2 billion notes in 1937 to 1,031 billion notes in 1945. Inflation undermined support for the government amongst the exiled elites, who relied on their pre-war savings, now being destroyed by inflation."
I no longer have easy access to a university library to dig up any more details.
Brilliant post!!! Thank you for writing it. I would like to point out how well the Cantillon Effect ties in with the idea of intra-elite competition. For me, as I was trying to figure out the mindset of friends and acquaintances who could be labeled "elites", I've been confused by the illogic of following an ideology (in this case, post-modern derived "woke" ideology) that seems likely to lead to harm for themselves or their families. As a woman with two daughters, I think the clearest example of the potential for harm comes in the form of transgender ideology. As soon as I heard someone describe the term "intra-elite competition", a lightbulb went off in my head. At a subconscious level, I think that elites who are one or two degrees of separation from the "Empire Node", recognize that something is off and have (again subconsciously) gone into an aggressive position where they're trampling over each other to try and escape harm from the predators.
New information for me, but VERY well communicated, and intuitively correct. Beneath the YouTube video, I posted a somewhat snarky comment recommending 'The Glass-Seagall Act' as an innovative solution. But then, continuing on with your post, I spied new edges of an emergent mandelbrot set, and a MUCH better description of how the plandemic has further separated the haves from the have-nots. Much better than a Gini coefficient, which as far as I know, is a grossly simple, static statistic. Not dynamic.
"It is often easiest to hold two (or just one) variable constant at a time when thinking through the Equation of Exchange..."
One example of simplifying for the numerically challenged and it's wonderful thank you;, by illustrating the concepts and stepping through it slowly the complex confusion becomes clear.
You are a gifted teacher and that's incredibly valuable to all the struggling students of modern madness. With appreciation for adding Cantillion Effect to my monetary education here's my favorite earlier explanation of how fractional reserve system screws us. :~)
The American Dream - Understanding Money and the Banking System
I was familiar with the concept that the Fed is a profoundly unfair money spigot thanks to Nick Szabo’s twitter and blog (https://unenumerated.blogspot.com/) over the years, but still appreciate this piece.
I love the myriad internal links in your posts. Seeing prior pieces within current context sometimes leads me to “oof, of course!” moments akin to realizing I missed the man in the gorilla suit on the 1st viewing. And I find lines that resonate even in the absence of oof/aha moments: “Part of the problem with the pandemic is that it trains people into poor problem and question formation. Or maybe that was already the norm, so it was easier than usual to organize the process.”
Also, that rt segment was fascinating. Along with the internal links, your posts often lead me down oddly amazing rabbit holes.
This puts a lot of really important ideas into perspective.
One of the things I haven't seen people bring up much these days is the quote "First by inflation, then by *deflation*.. the banks will deprive the people of all property..." Many people now understand how inflation robs other participants, but they still don't see how cycles of money creation and destruction rig the game because the "empire node(s)" keep increasing their share cycle after cycle.
It's why Joe Rogan wasn't wrong to call Canada communist. Just because we have vestiges of a market economy doesn't mean we're not a hop-skip away from a total command economy.
So, should I imagine the concept of the Empire Node as the central bank authority massive node, or is it really a distributed node, like the central bank and all of the other banks as "creators" of the money supply as explained in the video? Does the Empire "print" the money and distribute it to the lesser nodes, does it just authorize it's lesser nodes to "create" or both operate as they will?
Frighteningly, is there a Moloch and his demons, or a Jabba the Hut Moloch, or both?
If I understood that properly, I might know where to look for the chinks in the armor, so to speak.
I decided to leave the Empire Node up to the imagination because the central banking system and bureaucratic politics in the government and industry are opaque in the level of relationships. It is unclear how many people have a seat at the table, with power to demand a slice of the pie.
Thanks Mathew for this most excellent essay. May it become required reading for all.
It is not surprising that Cantillon has suffered “cancellation” given his precision insight into the great fiat scam. John Butler’s The Golden Revolution has a nice chapter with plenty of extra colour on his life.
This is the origin of the situation in which we find ourselves today, in which the black magick of compound interest has created an absurd predicament in which the total amount of debt on the books is far greater than the total amount of "currency" on Earth, yet there is no mechanism by which the impossible, unpayable debts can be forgiven.
In ancient Mesopotamia, kings would simply jubilee such debt and start over. The bankers know this of course and they know it is a problem. I suspect this is one of the reasons they are so desperate to set up a world government RIGHT NOW. Only a world government would have the power to jubilee debt in any significant way.
It's an interesting theory that the bankers would *want* a debt jubilee. That actually puts a less nefarious face on the notion of a "Great Reset" and explains why some portion of the cognitive elite might support it (they can't all be psychopaths, right?).
I'll ponder that.
Of course, the attempt to set up a world government has so much potential to create world war, not to mention the ultimate circumstance of centralized tyranny.
The Triffin dilemma was always going to be a bitch to solve. I think that's why upon pondering it, John Nash had a schizophrenic freakout, gathered up his dollars to trade for franks, and took a place to Switzerland. Later he spent most of the rest of his life theorizing about Ideal Money. Schizophrenia aside, he was brilliant and understood what was important.
Appreciate the lesson, thank you very much. Being a Gen X gal, I had visions of post revolution and the sequel Empire Strikes Back, how many episodes before we know who really is at the top of the Empire Node? Key up the Stars Wars theme song! https://youtu.be/_D0ZQPqeJkk.
If it would take a thousand pages, that's not a summary view.
You don't actually have a summary view, you have a big bunch of observations and opinions, and a feeling that ties them all together. That's why skintnick is perceptive in calling it "faith".
Reading this post, like so many others from BTC true believers, I am struck by how religious the tone is.
I'm not sure I can partake in your salvation, but I would love to see your concise explanation for the shape of the BTC/USD price. Whose hidden hand is that?
A bit touchy, are we? But I'm glad you're reading my comments. Thanks for responding.
So let me ask you: why do you solicit comments in the first place? Is it just for the ego boost of having strangers tell you how wise and benevolent you are... or can you handle constructive criticism? Are you threatening to end my subscription merely because I'm challenging your assumptions? Criticising your most dearly held beliefs? What does that say about you?
"You don't actually have a summary view, you have a big bunch of observations and opinions, and a feeling that ties them all together. That's why skintnick is perceptive in calling it "faith"."
That's not "constructive criticism". I explained that the task would take far more time than I have, and in response, you pressure me by telling me that since I haven't taken that time, my conclusions can only possibly be based on faith.
"Criticising your most dearly held beliefs? What does that say about you?"
I have no idea where "dearly held" comes from, and you don't know what my beliefs/guesses are about Bitcoin because I haven't shared them.
You've always been pleasant before now, but this is entirely weird and mildly offensive while having nothing to do with reality. So, final warning.
"Are you threatening to end my subscription merely because I'm challenging your assumptions?"
No, but I'm not going to allow commentary from somebody who pushes an ad homimen aimed at me who repeats it without warrant, and not based on anything I've said or done. If somebody stood outside your home and goaded you with signs saying anything you might think that you haven't been willing to explain to them is based on faith, you might consider it harassing and irritating.
Thanks for clarifying how you took offense. But, come on, I'm not standing outside your home or any of that. I'm just commenting on your newsletter, and it looks like I just auto-paid another $5 for the privilege. If you really feel the need to muzzle me,that's OK, I can find another worthy use for the five bucks.
But if you can't explain something at a high level clearly, quickly, and concisely, you don't really understand it. Nothing personal, and nothing to be ashamed of: that's just how it is. You've admitted that you don't have a ready and brief explanation for your bullish-on-bitcoin position, and that's fine by me. I would call that attitude "faith", but I don't mean that in a derogatory way, and I didn't mean to trigger you with the term.
Understand, I'm not asking for a thousand page essay, I'm asking for the blurb on the back cover. A tweet, if you will. Here's a template:
"Bitcoin has now lost about 50% of its peak USD value, and its USD price is trending downward at about the same rate as its late--2020 upward climb. This is due to ____(part A)____. But this volatility and current trajectory are fine, and everything will turn out OK for BTC HODLers, because ____(part B)___."
Note that any part B that doesn't make reference to part A won't be very convincing.
Take it as intended, merely a suggestion for a brief and very interesting essay. Cheers!
I started reading this newsletter because of your Covid analysis. I stayed because I enjoy your perspective and range of topics. More than once, I've been the commenter chiding others who complained that you weren't "on topic" for their favorite topic.
I'm glad you're writing about Bitcoin. I think it's an interesting subject, and I can tell it's dear to you. I don't share your faith, but I am not opposed to it. I think everybody has some kind of faith, while they may not recognize it as such. It's part of the human experience. It keeps us sane.
I remain puzzled by your reticence to answer clearly what I think is the most basic and ovious question that someone not already bought-in to the Bitcoin worldview would have at present.
The Cantillon Effect is the subject of constant argument among quantitative economists - and in particular, among those who do numerical modelling (particularly 'structural form' modelling).
Everyone points fingers at economic modellers - and one of the primary 'talking points' is that the assumption of "money neutrality" is hyper-unrealistic. (Money-neutral models embed the assumption that if the supply of money is doubled, it will have no effect on the key drivers of the long-run output of the real economy - viz., productivity and population growth - so all money effects are transitional).
This is - obviously - the exact opposite of the Cantillon Effect. Everyone in the discipline knows that the distribution of newly-produced money has first-order effects - i.e., that if you give all the money to one person, that person is the richest person in the country until he starts to spend it.
The question is whether or not the effects of this unequal distribution, is enough to materially affect long-run productivity growth and demography.
There are all sorts of other related operational nuances - for example, ideally a model should have some identifiable 'steady state' (which is an 'attractor' towards which a dynamic model converges if the system experiences no 'shocks').
The standard 'steady state' includes money neutrality - along with exogenous technological change and population growth (again - very unrealistic, given that investment and reproductive decisions are largely influenced by agents' expectations about FUTURE economic outcomes).
The point is, if you accept that money is non-neutral IN THE LONG RUN, you implicitly assume that it's possible to change the trajectory of the paths of technological change and demography in such a way that the most-productive (and therefore the most-profitable) way of doing things will somehow be left undiscovered. If you're modelling a small, open economy, that is equivalent to assuming is that this failure will happen globally.
I'm no fan of central banks, bureaucrats, or the political class; it's my firm conclusion that government spending should not be included in measures of aggregate output - that any aggregate measure that includes it, is a poor measure of economic performance over any length of run longer than a year... because every dollar spent on 'G', has to be paid for out of current or future 'T' (taxes) - i.e., Ricardian Equivalence. Even the vaunted petrodollar can't escape that.
But again: to what extent does the misallocation of resources to 'G', lead to a change in the long-run rate of technological change? (Spoiler alert: it can change it DOWNWARDS but not UPWARDS).
The Leftwaffe would have us believe that the 'correct' enlightened people, if given the reins, would use government spending in the 'right' way to get the economy on an expansion path to a bright shiny future. They would do this by forcing economies to adopt novel technology (e.g., windmills and solar panels *at scale*) - as if an army of bureaucrats will consistently make correct decisions, without corruption. You know, like just happened with the Pfizer Magic Jizz.
Part of the reason I abandoned my PhD (which was 'all about' uncertainty quantification in a large-scale dynamic economic model) is that it became really clear that there are so many degrees of freedom that all models could be made to tell any story that was desired, without moving the model's "givens" outside of a defensible statistical 'envelope'.
Worse still, was that "historical validation" tests for models always fail.
A historical validation is where you 'give' the model's behavioural equations a known bit of history - the same history as was used to estimate the parameters - but you DRIVE THE RESIDUALS TO ZERO (which is their expectation).
It's like 'forecasting the past' where you were bang-on with your guesses about the model's exogenous variables - and all models do a terrible job, because if you drive the residuals to zero in a dynamic model, all hell breaks loose (and very frequently, the model will not even solve numerically, especially if there are significant non-linearities).
Anyhow... even in 'hand waving essay-writer' mode (i.e., not being tied down by operationalising one's premises), it is by no means clear that it matters IN THE LONG RUN, who gets new money first.
What matters more - by orders of magnitude - is the misallocation of REAL resources by an agent that is not subject to a binding intertemporal budget constraint (or where the budget constraint 'bites' at lengths of run that are irrelevant to the agent).
The thing that must be borne in mind is that 'intervention' in some market (e.g., solar panels) has general-equilibrium effects in ALL goods and factor markets: correcting some 'externality' comes at a price - a very diffuse set of distortions across the economy. Those effects ramify quickly.
I should point out that the 'think tank' where I was a grad student and Junior Minion, spent the 90s building a set of models for the Chinese government - models that the Chinese government took quite seriously, dedicating some genuine high-level talent to properly understanding them... including understanding their embedded uncertainty.
Although things have gone tremendously well for China in the intervening 25-odd years, much of this is due to China having had a very low capital-labour ratio at the start - and being in the middle of the 'meat' portion of the Deng Xiaoping reforms, which freed up productive potential.
That said: the Chinese government understood the key 'take-away' from the modelling paradigm: *THE ONLY THINGS THAT MATTER IN THE LONG RUN ARE PRODUCTIVITY AND DEMOGRAPHY*, and the way to get the 'juice' in the short- to medium-term is by getting infrastructure in place, and getting the fuck out of the road.
Everything they've done since, has had a primary goal of increasing China's capital intensity; they've lifted more people out of poverty in 20 years, than the entire population of the planet in 1800. This 'jibes' with the notion that ECONOMIC pluralism is more important than POLITICAL pluralism. I might disagree (being a voluntaryist and all) but they've got the runs on the board.
I'm still not certain I understand the Cantillon effect, but I do know I have said to anyone who will listen, since the Great Recession, bubble economics is the rich getting richer inflating the bubble, then went it pops they print as much money as they need to buy up the wreckage of the bubble for pennies on the dollar.
I said from the beginning of the plandemic, this will dwarf the great recession transfer of wealth up the social pyramid. Most people's eyes gloss over when I say it.
Now it becomes evident, they are not satisfied with bubble economics. They want it ALL, and to eliminate anyone who stands in their way.
I’ve never formally investigated/learned economics, mostly because I’m philosophically opposed to the axiom set. Nonetheless, I’ve observed the Cantillon Effect. Having a name for it will certainly make it easier to discuss. Thanks for educating us!
No need to swallow an axiom set or ideology while studying economics. The people who want you to are not to be trusted.
I learned about this general concept reading about the Nationalist Chinese during the Japanese occupation of China. As a government-in-exile with little access to real goods, they indulged in the printing press. The result was a system where those closest to government would have their salary earmarked to the very latest inflation values and everyone else sunk deeper into poverty.
I guess the question for today though is what happens when the money spigot gets turned off after more than a decade of full blast. Last time they reined things in a bit it didn't go so well. So many of those close to the Empire Node that look like genius trading firm masters of the of the universe are in actuality just beneficiaries of this Cantillon Effect. They can't survive without it.
We haven't even considered the effects of money creation through credit here which I imagine amplifies this effect immensely. I also believe it will amplify the destructive effect of turning off the money spigot.
Great example. When I get the chance, I'm going to update my article with your example as the earmarking in particular demonstrates the recognition of the effect.
Since you like that example, I dug through my old paper I wrote on that period and found the reference I cited regarding inflation in Chongqing.
Hsi-sheng Chi, Nationalist China at War: Military Defeats and Political Collapse: 1937-45, (Ann Arbor: University of Michigan Press, 1982), 165.
Just a brief summary from my paper:
"Despite heavy taxation, the government's financial situation worsened. The Chongqing government turned to banks to finance their operations who in turn printed paper notes. The result was a massive increase in the supply of money from 2 billion notes in 1937 to 1,031 billion notes in 1945. Inflation undermined support for the government amongst the exiled elites, who relied on their pre-war savings, now being destroyed by inflation."
I no longer have easy access to a university library to dig up any more details.
Brilliant post!!! Thank you for writing it. I would like to point out how well the Cantillon Effect ties in with the idea of intra-elite competition. For me, as I was trying to figure out the mindset of friends and acquaintances who could be labeled "elites", I've been confused by the illogic of following an ideology (in this case, post-modern derived "woke" ideology) that seems likely to lead to harm for themselves or their families. As a woman with two daughters, I think the clearest example of the potential for harm comes in the form of transgender ideology. As soon as I heard someone describe the term "intra-elite competition", a lightbulb went off in my head. At a subconscious level, I think that elites who are one or two degrees of separation from the "Empire Node", recognize that something is off and have (again subconsciously) gone into an aggressive position where they're trampling over each other to try and escape harm from the predators.
New information for me, but VERY well communicated, and intuitively correct. Beneath the YouTube video, I posted a somewhat snarky comment recommending 'The Glass-Seagall Act' as an innovative solution. But then, continuing on with your post, I spied new edges of an emergent mandelbrot set, and a MUCH better description of how the plandemic has further separated the haves from the have-nots. Much better than a Gini coefficient, which as far as I know, is a grossly simple, static statistic. Not dynamic.
Note that Prof Werner refers to the ‘City of London’, not London the city.
https://en.wikipedia.org/wiki/City_of_London
Thank you for the clarification.
This is quite the rabbit hole.
"It is often easiest to hold two (or just one) variable constant at a time when thinking through the Equation of Exchange..."
One example of simplifying for the numerically challenged and it's wonderful thank you;, by illustrating the concepts and stepping through it slowly the complex confusion becomes clear.
You are a gifted teacher and that's incredibly valuable to all the struggling students of modern madness. With appreciation for adding Cantillion Effect to my monetary education here's my favorite earlier explanation of how fractional reserve system screws us. :~)
The American Dream - Understanding Money and the Banking System
https://www.youtube.com/watch?v=k6zpfE7WjHI
Thank you for your writing Mathew.
I was familiar with the concept that the Fed is a profoundly unfair money spigot thanks to Nick Szabo’s twitter and blog (https://unenumerated.blogspot.com/) over the years, but still appreciate this piece.
I love the myriad internal links in your posts. Seeing prior pieces within current context sometimes leads me to “oof, of course!” moments akin to realizing I missed the man in the gorilla suit on the 1st viewing. And I find lines that resonate even in the absence of oof/aha moments: “Part of the problem with the pandemic is that it trains people into poor problem and question formation. Or maybe that was already the norm, so it was easier than usual to organize the process.”
Also, that rt segment was fascinating. Along with the internal links, your posts often lead me down oddly amazing rabbit holes.
Thanks for what you do.
Nick Szabo is great. I suspect he influenced Satoshi, and some people think he is Satoshi.
Agree - I miss his writing and commentary.
This puts a lot of really important ideas into perspective.
One of the things I haven't seen people bring up much these days is the quote "First by inflation, then by *deflation*.. the banks will deprive the people of all property..." Many people now understand how inflation robs other participants, but they still don't see how cycles of money creation and destruction rig the game because the "empire node(s)" keep increasing their share cycle after cycle.
It's why Joe Rogan wasn't wrong to call Canada communist. Just because we have vestiges of a market economy doesn't mean we're not a hop-skip away from a total command economy.
Excellent, thank you!
So, should I imagine the concept of the Empire Node as the central bank authority massive node, or is it really a distributed node, like the central bank and all of the other banks as "creators" of the money supply as explained in the video? Does the Empire "print" the money and distribute it to the lesser nodes, does it just authorize it's lesser nodes to "create" or both operate as they will?
Frighteningly, is there a Moloch and his demons, or a Jabba the Hut Moloch, or both?
If I understood that properly, I might know where to look for the chinks in the armor, so to speak.
I decided to leave the Empire Node up to the imagination because the central banking system and bureaucratic politics in the government and industry are opaque in the level of relationships. It is unclear how many people have a seat at the table, with power to demand a slice of the pie.
Thanks Mathew for this most excellent essay. May it become required reading for all.
It is not surprising that Cantillon has suffered “cancellation” given his precision insight into the great fiat scam. John Butler’s The Golden Revolution has a nice chapter with plenty of extra colour on his life.
This is the origin of the situation in which we find ourselves today, in which the black magick of compound interest has created an absurd predicament in which the total amount of debt on the books is far greater than the total amount of "currency" on Earth, yet there is no mechanism by which the impossible, unpayable debts can be forgiven.
In ancient Mesopotamia, kings would simply jubilee such debt and start over. The bankers know this of course and they know it is a problem. I suspect this is one of the reasons they are so desperate to set up a world government RIGHT NOW. Only a world government would have the power to jubilee debt in any significant way.
It's an interesting theory that the bankers would *want* a debt jubilee. That actually puts a less nefarious face on the notion of a "Great Reset" and explains why some portion of the cognitive elite might support it (they can't all be psychopaths, right?).
I'll ponder that.
Of course, the attempt to set up a world government has so much potential to create world war, not to mention the ultimate circumstance of centralized tyranny.
The Triffin dilemma was always going to be a bitch to solve. I think that's why upon pondering it, John Nash had a schizophrenic freakout, gathered up his dollars to trade for franks, and took a place to Switzerland. Later he spent most of the rest of his life theorizing about Ideal Money. Schizophrenia aside, he was brilliant and understood what was important.
Cheers.
Great article. That's why they will underplay Bitcoin and only individual action to adopt it could unslave the world.
That's the hope. There is much yet to be determined, and much to be developed.
Appreciate the lesson, thank you very much. Being a Gen X gal, I had visions of post revolution and the sequel Empire Strikes Back, how many episodes before we know who really is at the top of the Empire Node? Key up the Stars Wars theme song! https://youtu.be/_D0ZQPqeJkk.
BTC is the Force! Lets GO! #MayTheForceBeWithYou.
I'm surprised you have so much faith in Bitcoin.
Which of your posts would best describe why that is the case?
Thanks for communicating the Cantillon phenomenon so clearly.
I have no one post that explains my summary views on Bitcoin. That would take a few thousand pages.
If it would take a thousand pages, that's not a summary view.
You don't actually have a summary view, you have a big bunch of observations and opinions, and a feeling that ties them all together. That's why skintnick is perceptive in calling it "faith".
Reading this post, like so many others from BTC true believers, I am struck by how religious the tone is.
I'm not sure I can partake in your salvation, but I would love to see your concise explanation for the shape of the BTC/USD price. Whose hidden hand is that?
You're veering into ad hominem rather quickly. Consider that a warning.
A bit touchy, are we? But I'm glad you're reading my comments. Thanks for responding.
So let me ask you: why do you solicit comments in the first place? Is it just for the ego boost of having strangers tell you how wise and benevolent you are... or can you handle constructive criticism? Are you threatening to end my subscription merely because I'm challenging your assumptions? Criticising your most dearly held beliefs? What does that say about you?
No need to respond. Just think it over.
"or can you handle constructive criticism?"
"You don't actually have a summary view, you have a big bunch of observations and opinions, and a feeling that ties them all together. That's why skintnick is perceptive in calling it "faith"."
That's not "constructive criticism". I explained that the task would take far more time than I have, and in response, you pressure me by telling me that since I haven't taken that time, my conclusions can only possibly be based on faith.
"Criticising your most dearly held beliefs? What does that say about you?"
I have no idea where "dearly held" comes from, and you don't know what my beliefs/guesses are about Bitcoin because I haven't shared them.
You've always been pleasant before now, but this is entirely weird and mildly offensive while having nothing to do with reality. So, final warning.
"Are you threatening to end my subscription merely because I'm challenging your assumptions?"
No, but I'm not going to allow commentary from somebody who pushes an ad homimen aimed at me who repeats it without warrant, and not based on anything I've said or done. If somebody stood outside your home and goaded you with signs saying anything you might think that you haven't been willing to explain to them is based on faith, you might consider it harassing and irritating.
Thanks for clarifying how you took offense. But, come on, I'm not standing outside your home or any of that. I'm just commenting on your newsletter, and it looks like I just auto-paid another $5 for the privilege. If you really feel the need to muzzle me,that's OK, I can find another worthy use for the five bucks.
But if you can't explain something at a high level clearly, quickly, and concisely, you don't really understand it. Nothing personal, and nothing to be ashamed of: that's just how it is. You've admitted that you don't have a ready and brief explanation for your bullish-on-bitcoin position, and that's fine by me. I would call that attitude "faith", but I don't mean that in a derogatory way, and I didn't mean to trigger you with the term.
Understand, I'm not asking for a thousand page essay, I'm asking for the blurb on the back cover. A tweet, if you will. Here's a template:
"Bitcoin has now lost about 50% of its peak USD value, and its USD price is trending downward at about the same rate as its late--2020 upward climb. This is due to ____(part A)____. But this volatility and current trajectory are fine, and everything will turn out OK for BTC HODLers, because ____(part B)___."
Note that any part B that doesn't make reference to part A won't be very convincing.
Take it as intended, merely a suggestion for a brief and very interesting essay. Cheers!
I started reading this newsletter because of your Covid analysis. I stayed because I enjoy your perspective and range of topics. More than once, I've been the commenter chiding others who complained that you weren't "on topic" for their favorite topic.
I'm glad you're writing about Bitcoin. I think it's an interesting subject, and I can tell it's dear to you. I don't share your faith, but I am not opposed to it. I think everybody has some kind of faith, while they may not recognize it as such. It's part of the human experience. It keeps us sane.
I remain puzzled by your reticence to answer clearly what I think is the most basic and ovious question that someone not already bought-in to the Bitcoin worldview would have at present.
The Cantillon Effect is the subject of constant argument among quantitative economists - and in particular, among those who do numerical modelling (particularly 'structural form' modelling).
Everyone points fingers at economic modellers - and one of the primary 'talking points' is that the assumption of "money neutrality" is hyper-unrealistic. (Money-neutral models embed the assumption that if the supply of money is doubled, it will have no effect on the key drivers of the long-run output of the real economy - viz., productivity and population growth - so all money effects are transitional).
This is - obviously - the exact opposite of the Cantillon Effect. Everyone in the discipline knows that the distribution of newly-produced money has first-order effects - i.e., that if you give all the money to one person, that person is the richest person in the country until he starts to spend it.
The question is whether or not the effects of this unequal distribution, is enough to materially affect long-run productivity growth and demography.
There are all sorts of other related operational nuances - for example, ideally a model should have some identifiable 'steady state' (which is an 'attractor' towards which a dynamic model converges if the system experiences no 'shocks').
The standard 'steady state' includes money neutrality - along with exogenous technological change and population growth (again - very unrealistic, given that investment and reproductive decisions are largely influenced by agents' expectations about FUTURE economic outcomes).
The point is, if you accept that money is non-neutral IN THE LONG RUN, you implicitly assume that it's possible to change the trajectory of the paths of technological change and demography in such a way that the most-productive (and therefore the most-profitable) way of doing things will somehow be left undiscovered. If you're modelling a small, open economy, that is equivalent to assuming is that this failure will happen globally.
I'm no fan of central banks, bureaucrats, or the political class; it's my firm conclusion that government spending should not be included in measures of aggregate output - that any aggregate measure that includes it, is a poor measure of economic performance over any length of run longer than a year... because every dollar spent on 'G', has to be paid for out of current or future 'T' (taxes) - i.e., Ricardian Equivalence. Even the vaunted petrodollar can't escape that.
But again: to what extent does the misallocation of resources to 'G', lead to a change in the long-run rate of technological change? (Spoiler alert: it can change it DOWNWARDS but not UPWARDS).
The Leftwaffe would have us believe that the 'correct' enlightened people, if given the reins, would use government spending in the 'right' way to get the economy on an expansion path to a bright shiny future. They would do this by forcing economies to adopt novel technology (e.g., windmills and solar panels *at scale*) - as if an army of bureaucrats will consistently make correct decisions, without corruption. You know, like just happened with the Pfizer Magic Jizz.
Part of the reason I abandoned my PhD (which was 'all about' uncertainty quantification in a large-scale dynamic economic model) is that it became really clear that there are so many degrees of freedom that all models could be made to tell any story that was desired, without moving the model's "givens" outside of a defensible statistical 'envelope'.
Worse still, was that "historical validation" tests for models always fail.
A historical validation is where you 'give' the model's behavioural equations a known bit of history - the same history as was used to estimate the parameters - but you DRIVE THE RESIDUALS TO ZERO (which is their expectation).
It's like 'forecasting the past' where you were bang-on with your guesses about the model's exogenous variables - and all models do a terrible job, because if you drive the residuals to zero in a dynamic model, all hell breaks loose (and very frequently, the model will not even solve numerically, especially if there are significant non-linearities).
Anyhow... even in 'hand waving essay-writer' mode (i.e., not being tied down by operationalising one's premises), it is by no means clear that it matters IN THE LONG RUN, who gets new money first.
What matters more - by orders of magnitude - is the misallocation of REAL resources by an agent that is not subject to a binding intertemporal budget constraint (or where the budget constraint 'bites' at lengths of run that are irrelevant to the agent).
The thing that must be borne in mind is that 'intervention' in some market (e.g., solar panels) has general-equilibrium effects in ALL goods and factor markets: correcting some 'externality' comes at a price - a very diffuse set of distortions across the economy. Those effects ramify quickly.
I should point out that the 'think tank' where I was a grad student and Junior Minion, spent the 90s building a set of models for the Chinese government - models that the Chinese government took quite seriously, dedicating some genuine high-level talent to properly understanding them... including understanding their embedded uncertainty.
Although things have gone tremendously well for China in the intervening 25-odd years, much of this is due to China having had a very low capital-labour ratio at the start - and being in the middle of the 'meat' portion of the Deng Xiaoping reforms, which freed up productive potential.
That said: the Chinese government understood the key 'take-away' from the modelling paradigm: *THE ONLY THINGS THAT MATTER IN THE LONG RUN ARE PRODUCTIVITY AND DEMOGRAPHY*, and the way to get the 'juice' in the short- to medium-term is by getting infrastructure in place, and getting the fuck out of the road.
Everything they've done since, has had a primary goal of increasing China's capital intensity; they've lifted more people out of poverty in 20 years, than the entire population of the planet in 1800. This 'jibes' with the notion that ECONOMIC pluralism is more important than POLITICAL pluralism. I might disagree (being a voluntaryist and all) but they've got the runs on the board.
I'm still not certain I understand the Cantillon effect, but I do know I have said to anyone who will listen, since the Great Recession, bubble economics is the rich getting richer inflating the bubble, then went it pops they print as much money as they need to buy up the wreckage of the bubble for pennies on the dollar.
I said from the beginning of the plandemic, this will dwarf the great recession transfer of wealth up the social pyramid. Most people's eyes gloss over when I say it.
Now it becomes evident, they are not satisfied with bubble economics. They want it ALL, and to eliminate anyone who stands in their way.