[Reader Mailbag:] Time-Prices, Taxes, and China

Once again, my readers have stepped up and flooded me with fascinating questions.

Some inquire about China in interesting ways. Many focus on the issue of time-prices. That’s prices as the hours of work you have to do to pay for what you buy. (That’s what you’re spending, even if the Fed tells you different). These price questions also engage the theory of money as time. You can’t measure money with money itself!

Some asked about the time-prices of manufactured goods such as Ford F-150 trucks or iPhones, which seemed to have cost less in previous years.

Others queried the time-prices of the Dow stocks, which have gyrated wildly over time. Still, others raised the issue of the time-price of government (taxes). All drilled down and struck sensitive points. Thank you. [Please note: I pruned and edited the questions so I could fit more in.]

I received so many questions that I’ve decided to split this into a two-part forum and will send the rest in tomorrow’s Daily Prophecy.

Now, let’s dive into some questions…

Apple announced its next-generation iPhones, the iPhone 11 on Tuesday. The price of the well-equipped iPhone 11 is around $1,000-1,100. The iPhone is ten years old. The original iPhone cost around $500. Using your time-price method, can you show the price of an iPhone is actually less today than it was in 2009? -Bill F.

My Response: Sure, I can. The new iPhone offers hundreds of times more capability per dollar or per hour of work to pay for it. It commands fifty times more memory, six times more pixels in its far more versatile cameras, facial recognition capability, scores of additional sensors, hundreds of times more bandwidth, and hundreds of times more apps (Steve Jobs originally disapproved of Apps not designed at Apple). A rough measure of its increased capabilities is the 120 times more transistors in its “Bionic” A-13 CPU made at TSMC in Taiwan with world-leading seven-nanometer geometries. It is an entirely new product.

How can American companies make absolutely sure there is no malware in the semiconductors we receive from China, especially in our advanced smartphones which is where I do all my financial transactions? -Paty F.

My Response: It doesn’t matter where the chips are made, our smartphones are subject to hackers. A remedy proposed by Huawei is to have independent bodies test all chips for malware. But I think this is mostly a waste of time, since a chip company that put malware in its devices would not be able to sell them more than once. The problem is not China; it’s the breakdown of internet security that sow’s paranoia everywhere. The solution to that problem is the blockchain.

Declining time-prices register abundance by showing that workers of the day could buy all they needed with an ever-diminishing number of hours of work. These are the real prices, not the manipulated money prices that governments publish. So if it is ‘ever diminishing’, why was it that according to Donner in 1980 the average worker had to work nearly 100 hours to buy the Dow stocks but by 1999 he had to put in 821 hours. It took average folk 350 hours of labor to buy the Nasdaq in 1999 but only 85 hours by mid-2001. Putting this all together, it does not sound like a complete continuum of the theory you propose if it can bounce around like that. -Wingfield E.

My Response: It’s the scandal of money! 1999 prices were a reflection of major financial disorders, with a 36% four-year deflation of the dollar against gold wrecking thousands of debt-burdened companies from Worldcom to Target. The dot coms were “bubbling” wildly and the Imperial Palace grounds in Tokyo were valued more highly than all the real estate in California. None of this giddy speculation had anything to do with time-prices, which refer to the hours of work needed to buy goods and services.

If China were a rational economic actor it would not have committed infanticide on such a grand scale to support its one-child policy and it would not force pregnancy interfering drugs on Uighur women today. So how economically irrational are they?  -Michael L.

My Response: You are right about the insanity of infanticide, but China’s one-child policy was largely inspired by UN and American “population bomb” theories, which persist today with the sometimes no-child policies of advocates of the Green New Deal. The Chinese accepted the notion that humans are chiefly “mouths” rather than minds. But time prices show that every 1% increase in population yields a more than 1% drop in prices. As the population grows, so does abundance, as more people invent more efficient and effective modes of production. But Chinese economic policies today are in many ways more rational than US economic policies, which are twisted by the climate-change cult.

Here, in Canada, the Fraser Institute estimates that about 45% of GDP is allocated to governments of all levels. Since much of that time-wealth is wasted in political boondoggles, may I presume that the time-price considered is inferred to mean income received after taxes? -Jim M.

My Response: No, a rough macro estimate of time-prices divides global or national GDP by hours of work. Since GDP includes taxes, time prices show that the global creativity of capitalist economies overcomes even the huge waste of political boondoggles.

I enjoy your writing and the “time-price” theory of money and assets has really got me thinking. However, I’m confused because per research by Bill Bonner and Co., it takes nearly twice as long for the average worker in the US to buy an F-150 pickup truck as it did back in 1970. Have food and other commodities gotten cheaper while manufactured goods have gotten more expensive? -Jay A.

My Response: It may be a hopeless cause, but I try to model my Daily Prophecies on Bill Bonner’s pithy, scintillating and stylish posts. But I have to point out that manufactured goods (see the iPhone) have dropped in time-price far faster than food and other commodities since Tupy and Pooley’s 1980 starting date for their time-price tables. I am not an expert on the Ford F-150 pickup truck, but judging by the general advance of vehicular technology, I suspect it is a new product today, with some 600 microchips, wireless connectivity, scores of new features, greater safety and durability, and close to two times the mileage per gallon.

I love your time-price theory as I have argued similarly for years when hearing how the dollar has lost purchasing power. Those pundits forgot that the cost of labor also rose. I am a little puzzled, however, that you think outsourcing labor has no deleterious effect. What good is it to have cheap goods from China it I lost my means of income, i.e. my time-price shoots up. In the US we have low labor participation numbers. GDP: time gives you average price, but as you know you can drown in an average water depth of inches? -Erich K.

My Response: If your assumption were true that manufacturing in China resulted in Americans losing income, I would agree with your conclusion that many Americans suffered from the out-sourcing movement. But since 1980 the US economy has generated 60 million net new full-time jobs while time prices have plummeted some 70%. Meanwhile, US tech companies have risen to dominate the global rankings of market capitalization crucially through manufacturing in China and Taiwan.

What about how long it takes to pay taxes? My understanding is that we have to work longer to pay our tax bills. How does this work with your theory? Taxes can’t be ignored. -Nam M.

You are correct we cannot ignore taxes. It is true that we work longer hours to pay taxes. But we fully account for these hours in time-prices, which are roughly calculated as GDP (including government) over hours of work. With the millennial generation becoming the dominant voting pool and as a group supporting the move to more government handouts, higher taxes and socialism; how should we be changing our investments for this future? -Richard P.

My Response: My experience in China and Israel suggests that the move to socialism is mostly confined to US colleges. I think we should seek opportunities overseas and in the Cryptocosm. I didn’t meet any communists in my speeches at Chinese colleges. And the Cryptocosm of blockchain represents a global movement against government control of money.

My concern about investing in China is that the government is still hard-core communists ― they still influence the economy. Isn’t the investment risk rather high? My second question is the reliability of the Chinese financial reporting. -Mike B.

My Response: Yes, investing is always risky and afflicted with deceptive data and dangers of government intrusion, in China, the US and around the world. A remedy for many of these dangers is the Cryptocosm of the blockchain, which simultaneously addresses the crisis in internet security and the scandal of money manipulation.

US debt is quite alarming to me, but China’s debt seems to be orders of magnitude worse? -John Walters

My Response: The world faces a debt crisis, but China has been bolstered by some of the world’s highest savings rates and its debt is largely invested in new infrastructure. There are many empty skyscrapers in China but there are even more useless subsidized windmills and sun-henges in the US.

Why does George assert that high entropy is desirable? In “Life After Google” George explains entropy to be something different than what Isaac Asimov considered it to be. In one of Asimov’s stories the antagonist proclaimed that “…entropy must increase to a maximum” meaning that the universe is running down, from a state of high energy and complexity — to a low level of complexity and available energy. Gilder and Asimov do not agree, apparently – Howard A.

My Response: Since Isaac Asimov could think and write faster than I could read, I cannot definitively say whether we disagreed on entropy: the second law of thermodynamics. Your Asimov quote refers to physical or energy entropy. My tributes to “high entropy” refer to information entropy or Claude Shannon’s entropy. Although the equations for the two forms of entropy are the same, and both can be interpreted as measures of disorder, the implications differ.

The second law cited by Asimov shows that the arrangement of particles in an entropic soup is less predictable and more disorderly than the arrangement of particles in a machine, such as a refrigerator or an internal combustion engine, which produces a usable potential difference between hot and cold, or usable voltages between electronic anodes and cathodes. But dwarfing this narrow insight into energy entropy is Shannon’s entropy of information, registered as surprise, complexity, and profit. In this form, the entropy equation measures creativity and inventiveness, which drives economic growth and makes high information entropy a good thing.


George Gilder
Editor, Gilder’s Daily Prophecy

You May Also Be Interested In:

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology — and its impact on our lives.

He’s an established investor, writer, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

And he’s certainly no stranger to the financial newsletter...

View More By George Gilder