Money Blindness and Money Clarity

“[Wittgenstein] once greeted me with the question: ‘why do people say that it was natural to think that the sun went round the earth rather than that the earth turned on its axis?’
I replied: ‘I suppose, because it looked as if the sun went around the earth.’
‘Well,’ he asked, ‘what would it have looked like if it had looked as if the earth turned on its axis?’” 

G.E.M. Anscombe
An Introduction to Wittgenstein’s Tractatus (1971)

Last month my mother rejoiced at getting a raise. Instead of the company policy of routinely upping wages by 1-2 percent, this year she received a breathtaking 3.5 percent, for which she was exceedingly happy. In a completely unrelated observation, she complained often and loudly at how grocery prices had become noticeably higher. “Everything got so expensive,” she injected into every other conversation. 

Not only had she overlooked that her wage “increase” was actually a real wage cut of about 7 percent when factoring in consumer prices, she was measuring prices in a currency that itself was imploding against neighboring fiat monies. Specifically, she meant to vacation in Italy and Ireland this year, both eurozone countries where her depreciating SEK buys her 13 percent fewer euros than they did last summer. On top of that, eurozone food prices — those to which she is mostly exposed as a meandering tourist — have in the last two years risen some 20 percent, according to Eurostat. 

Roughly speaking, then, my mother’s ability to generate economic value got reduced by about a third — yet she thinks she’s better off because the paycheck at the end of the month has larger numbers on it. Pointy-hats in Frankfurt and Stockholm cut her economic value by some 30 percent, and somehow still convinced her that she was better off.

The dissonance is easy to spot when it’s laid out like this, but much harder to identify as it happens. In When Money Dies, Adam Fergusson’s classic account of the hyperinflations in the 1920s, ordinary Germans and Austrians, “assume[d] not so much that their money was falling in value as that the goods which it bought were becoming more expensive in absolute terms.”

Even in one of the worst imploding currency debacles of the last century people still thought that the trouble was that goods became more and more expensive — not that there’s something wrong with the money itself. 

This is the mischief that inflation causes regular people: misplacing the blame and misidentifying what’s going on. 

With knowledge, time, and effort, you can mitigate some of those effects by holding investments that rival the growth in the money supply (or hard assets like property or art that are mostly immune to nominal shenanigans) but even then you must diligently ensure that they outperform the loss of purchasing power in case your income doesn’t get fully adjusted to prices. The best result comes from shorting the currency itself, by perversely taking on as much (cheap) debt as you possibly can (or the banks dare give you) — a game that the wealthy and the well-connected are miles better at playing than you or I. 

Macroeconomists and policymakers can speak of anchored expectations all they want, but what ultimately happens is that regular folk find themselves impoverished without really understanding what went wrong or how they could have done things differently. Cue 2008…or 2020…or 2023. 

Even if you think inflation is ordinarily stable and expectations are well anchored around target — such that nobody but cash holders get shafted by the unit’s steady 2 percent erosion — it only takes events like the Great Financial Crisis or the ‘rona money-printing debacle to completely undo those calculations. Perhaps the exceptional once-in-a-generation (or Goldman’s infamous 25-sigma?) events that seem to happen every decade are just a streak of bad luck. Or perhaps your model of the world is broken. 

Price inflation in consumer goods was indeed stable for close to a decade before something blew up the banking system, unleashed monetary printing, turned government policy from irresponsible to unhinged, unleashed double-digit inflation and almost broke the banks. This is not a system anyone can point to as functional and beneficial. 

Michael Saylor, the executive chairman of MicroStrategy and one of the loudest bitcoin proponents out there, gave a talk to this effect at last week’s BTC Prague conference. 

In the fiat world you need to run faster and faster just to stay still. It’s the epitome of a hamster wheel, gradually draining the economic value of your work away from you and toward other ends. Saylor thinks of that as a war over the redistribution of economic energy: “no amount of hard work is going to solve the problem of being on the wrong side of that economic war.” 

Against hard(-ish) assets like the S&P index, real estate, and gold and art, the U.S. dollar is collapsing. And it’s even worse if you aren’t hinged to the dollar. Saylor again: 

“In twenty years, the Argentine peso has lost 99.8 percent of its value against the dollar at the same time that the dollar has lost 75 percent of its value against the S&P index. I’ll let you do the math.
[…]
The government is an order of magnitude more powerful an economic driver than technology, and technology is an order of magnitude more powerful than your work.”

What we’re left with is a choice between “losing money fast or losing money slow.” No matter how good we are, we can’t outwork those kinds of obstacles. 

Perhaps you have doubts about bitcoin’s viability as base money; I know I did. Perhaps you think gold has superior monetary properties. But gold lost to fiat confiscation once, so what makes you think it won’t  again? Besides, returning to gold requires coordination among the very policymakers who are least likely to appreciate its virtues or see what’s wrong with the way things are going. All bitcoin needs to succeed is for us, one at a time, to exit the crumbling fort that is fiat. 

In an article for Bitcoin Magazine’s print edition this month, I explain that whatever your view of bitcoin, it gets comparatively better when the legacy system gets worse:

If we saw the full price tag, saw the full extent of the monetary catastrophe we’re in, we might not be so quick to reject bitcoin’s unstable value or the uninitiated’s confusing user experiences… when the legacy system’s gatekeepers make your current existence harder, Bitcoin’s promise looks better and more tempting.

All is not well in the world of money. Over the last few years, prices and assets didn’t just get more expensive; your economic value got diluted. 

Don’t mistake the Earth’s rotation with what it looks like from the perspective of someone standing on its surface. 

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