How Do You Know When a Paradigm Dies?
With the number of readers of my Daily Prophecy increasing, I return from time to time to summarize and refresh my Information Theory of economics.
The Information Theory says wealth is knowledge. Growth expresses new knowledge — learning — finding out new things through entrepreneurial experiments.
Notice I said finding out new things — not merely making them, mining them, or minting them.
Put simply, wealth resides more in thoughts than in things. In an information age, value can change as fast as minds can change.
Registered in learning curves across the entire economy, ordaining drops in cost of between 20-30% with every doubling of sales, learning comes from entrepreneurial ventures, investments, and inventions.
Like scientific experiments, business ventures must be open to failure and refutation.
Companies must be able to go bankrupt as well as make profits.
Governments cannot force or guarantee growth and profit any more than a scientist can force or guarantee the outcome of a valid scientific experiment.
To pursue such ideas, in Seattle from October 23-25 I will be hosting my COSM conference.
I will be attempting to expand the wealth of knowledge with sages such as Peter Thiel, Ray Kurzweil, Andy Kessler, Steve Forbes, and the legendary Carver Mead of Caltech. Also speaking will be key executives from Amazon, Microsoft, and other Seattle tech and venture capital titans.
Discounted registration is still available until September 6 – here’s the link for more information.
Here’s a taste of what I will discuss.
The Old Paradigm is Dying
Expanding your knowledge is the best way to expand your wealth.
The old paradigm — growth from government power over money — is dying.
How do you know when a paradigm dies?
The establishment prophets say “oops!”
In 2016 – in the midst of massive easing and $13 trillion worth of so-called negative rates – the International Monetary Fund (IMF) adjusted its global projection down by $18 trillion. That was roughly an entire US GDP. The Congressional Budget Office reduced its US estimate by $1.6 trillion, close to 10% at the time.
In effect, these “corrections” were confessions of expert cluelessness. They actually have no idea at all what is going on.
In more recent years, amid ups and downs, the IMF and CBO have continued to move their projections for GDP down. The IMP global forecast for 2019 has dropped from 3.9% growth to 3.3% in the last year. The CBO dropped its guess from 3% to 2.2%.
The current economic paradigm postulates that you can spur growth by government power: lowering interest rates more and creating more money. Inflation (or lowering the value of money) is also supposed to work some magic. The experts now estimate inflation at 1.8% and regard it as inadequate.
Harvard economic eminence Ken Rogoff recently published a book titled The Curse of Cash, which maintained that “by far the most powerful instrument to spur economic growth is negative rates.” That is, making savers pay banks to take their money.
Rogoff thinks cash is a curse because it competes with negative rates. He followed his book in April of this year with a Harvard paper that urged major changes in tax, monetary, and banking policies to facilitate massively negative rates.
But despite some $15 trillion of securities around the globe now bearing apparently negative rates, measured world economic growth stubbornly refuses to revive.
President Trump upholds the old paradigm. He twits the Federal Reserve Bank and its chief Jerome Powell as “an enemy” comparable to Xi Jinping for failing to cut interest rates with sufficient vigor.
I don’t think either is a real enemy. Nor do I uphold the old paradigm…
The Chief Threat to Real Growth
Xi wants to stay in power, and that means continued economic growth and trade – which would help us as well. And the idea that good old Jerry Powell wants to bring down the US economy seems a bit fanciful.
The problem is that neither President Trump nor Chairman Powell has any idea of what is going on in the world or US economy. They both uphold a theory that wealth is power rather than knowledge. And neither have any idea what money is.
As I’ve explained before, money is time. In order to play its role in economic valuations, tradeoffs, and priorities, money must be scarce. Involved in every economic decision and measurement, time is what remains scarce when everything else becomes abundant.
Jerome Powell can print money but he cannot print time. Time is real – not confectionary money.
Money is not a magic wand that governments can wield to summon economic growth. It is a measuring stick, or a clock. The way to measure valuations across time and space is not in currencies and price indices but in time-prices: calculating the real price of anything by the amount of time it takes to earn the money to buy it. Real wages are measured not in dollars and cents that can be manipulated – but in immutable hours and minutes.
In revolutionary new work, economists Marian Tupy and Gale Pooley have used time-prices as a measuring stick to gauge abundance of all the key commodities in the world economy. By this measure, they discover that global abundance has grown 518.92% since 1980 (their starting date).
In the US, they discover that the cost of a Thanksgiving dinner for a typical blue collar worker has dropped since 1986 from 32 minutes to 9.2 minutes. So much for the victimization of the middle class through globalization.
In other words, measured by the time it takes to earn the money to buy it, everything has been getting massively cheaper and more abundant. It is not interest rates that are negative – it is inflation rates.
What has happened is a vast and ever-expanding technological expansion of wealth and knowledge, making the world ever richer as the world economy globalized. The spread of microchip and information tools through every industry has launched ever steeper and more pervasive learning curves of growth and progress.
The chief threat to this marvel of human learning and creativity is the ignorance of bankers and economists and the vandalism of politicians who are breaking the world economy in their obtuse efforts to fix it.
Editor, Gilder’s Daily Prophecy