Combatting the Fundamental Scarcity: Time-Prices Reign Supreme
What do money as time, and time-prices as metrics, have to do with inequality?
Time after all is distributed more or less equally to everyone. Though Tom Brady may get more than Andrew Luck on the football field, and lifespans differ, but we all have 24 hours in a day.
In the information theory of economics, wealth is knowledge, growth is learning, and money is time. The physical law of the conservation of matter shows that physical resources do not change, only knowledge about them and how to use them, always within the constraints of time and space.
Time is the fundamental scarcity in economics and in the universe. It conditions every economic decision and outcome. The scarcity of money translates the scarcity of time fungible into economic decisions just as the speed of light translates the scarcity of time through the cosmos.
The Hypertrophy of Finance
In Life After Google and The Scandal of Money, I discussed the increasing ascendancy of “flash boys” and quants in investment, and the boom in computerized index funds and Exchange Traded Funds (ETFs). These investments fail to reflect any new knowledge of significance — any discrete new facts or insights that bear on the success or failure of companies.
At the same time, I wrote of the $5.1 trillion a day of currency trading, some 70 times all trade in goods and services, as the epitome of the “scandal of money.” All this trading of currencies fails even to mitigate trade wars and monetary conflicts. To trade actual goods and services across borders still entails constant hedging of transactions.
What the computerization of investment chiefly does is manipulate time. Quants enable investors to front-run legally. By multiplying trades, they convert minutes of computer time into what would represent months of time for ordinary investors. They create an artificially static world where they can trade thousands of times before prices can change.
This hypertrophy of finance has not seemed to fuel increased levels of real economic activity and accomplishment. If anything, it has been associated with an apparent slowdown in world economic growth.
Human investors operate on the same timescale as the enterprises they support. Computational nanoseconds create an artificial derivative world of trading that relieves the realm of trading from the constraints of real investing.
Apparently boundless money from Central Banks separates the creation of money from the development of investment projects. Governing and constraining money creation is no longer the willingness of entrepreneurs to borrow it for real investments. Scores of trillions of dollars-worth of derivatives foster the breakaway of finance from the constraints of time and enterprise.
In recent years the hypertrophy of finance has led to a politically toxic increase in inequality, as measured by “Gini coefficients” (where zero signifies perfect equality and one signifies that all the wealth or income is held by one entity).
Time-Price and Gini Coefficients
When some people are confined to an economy of hourly wages and monthly salaries, while others escape into a realm of microseconds and milliseconds of computer trading, the result may be a hypertrophy of finance and invidious inequality.
Gale Pooley of time-price fame, however, believes that time prices offer a new way to interpret the global data on income distribution. Measuring the change in time-prices for rice against the change in time prices for wheat, he compares poor Asians with relatively rich Westerners. In Pooley’s calculus, the inverse of time prices is abundance: commodities that take less time to earn are effectively more abundant.
According to World Bank data, from 1960 to 2018, time-price abundance for rice increased by a multiple of 7.32 and abundance for wheat increased by a multiple of 8.06. With wheat growing abundant faster than rice, rich Westerners seem to be benefiting from agricultural progress faster than poorer Asians. Inequality seems to be increasing. But Pooley offers a new perspective:
“Let’s consider Raj in India and Ray in Indiana.
In 1960 Raj in India spent 7 hours a day earning the money to buy rice for his meals. By 2018, the time price of rice had fallen 86.2 percent. Now Raj’s grandson only spends 58 minutes working to buy his rice. Rai’s grandson has six hours and two minutes now to do something else.
In 1960 Ray in Indiana only spent one hour a day earning the money to buy wheat for his meals. By 2018 the time price of wheat had fallen 87.6 percent. Now Ray’s grandson spends 7.5 minutes working to buy his wheat. Ray’s grandson has 52 minutes now to do something else.
In 1960 Raj spent 7 times more time than Ray working to buy his food. By 2018 Raj’s grandson was spending 7.73 times more time than Ray’s grandson [to earn his food]. From this perspective it looks like inequality is increasing.
Let’s look at the situation from a different perspective. From 1960 to 2018 Ray’s family gained 52 minutes but Raj’s family gained 362 minutes. The Raj family has gained 6.9 times more time than Ray’s family. Time inequality has been reduced dramatically.
When basic things get more abundant, it’s the poor who benefit the most. This is not captured in Gini coefficients.”
Used everywhere to measure inequality, Gini coefficients are a static measure. They show a distribution at a particular point in time.
Time-prices capture the dynamics of income and wealth creation. In one number, they convey progress both through the rise in incomes and the drop in costs.
Breaking free of human time-scales, though, quants and flash boys turn investment into an artificial game divorced from the real-world economy of knowledge, learning, and time. This form of increasing inequality fails to yield increasing knowledge and learning for the society. It finds no compensation in increasing opportunity for others.
Nonetheless, time-prices show that innovation and learning has continued robustly throughout this period of rising inequality, financial hypertrophy, government abuses, central bank prodigality and other excesses. The excesses are real and will have serious consequences. But the world has recovered often from financial turbulence.
Treated as a bizarrely disordered economic environment, with negative interest rates and unsustainable debts, egregious inequality and “extreme climate,” the current era remains a time of huge opportunities. Drucker’s rule remains valid: Don’t solve problems. Pursue opportunities.
That the rule of these prophecies too.
Editor, Gilder’s Daily Prophecy