Let’s Turn to the Copperswaithe Solution
It’s global freezing in the financial markets of the world — $17 trillion of sub-zero cryo-bonds bearing deeply negative real interest rates. Everyone is complaining. It’s worse than listening to pre-pubertal teens whining about global warming.
When a single deafening alarm strikes nearly everyone at once in the media herd, my jangling amygdala kicks in and pushes me to write a book, prophecy, or blog to fling in the face of the coming stampede.
I already wrote The Scandal of Money on money as time, so in an emergency, I prepared to use that.
On my way to the Dallas MoneyShow, I’ve managed to make it to gate C-9 at the Charlotte airport. Hanging around the priority chute, restively awaiting the delayed American flight to Dallas, everyone seems to be kvetching about negative rates.
Here we have Peter Schiff, the eloquent doomsday gold king, along with Craig Baker, and a constellation of other first-class financial talent, who believe negative rates are a portent of end times.
To escape the rising ice, Schiff has moved to Dorado in Puerto Rico, along with John Mauldin, Harry Dent, and a host of other financial sages chasing the lowest tax rates, longest beaches, and palmiest golf courses. Schiff notes that also thronging Dorado are herds of liberals fleeing the tax rates they want to impose on everyone else.
I listened for a while and then retreated to a seat to peruse my Barron’s, where I found that the negative rates alarm had reached the entire Dow Jones opinionate.
Also reportedly joining the chorus of ululation on the now $17 trillion glacier were money mavens Kristalina Georgieva, IMF managing director, and Christine Lagarde, formerly of the World Bank and about to take over at the Eurobank. Kristalina was in Washington for the impending meetings of the World Bank and IMF.
But no one could fathom the mystery of why it is happening.
Understanding the Global Economy
With the plane delayed another hour, I move on to the Financial Times, where I am intrigued to find a column on the subject by Larry Summers. Former boy genius, MIT economics prodigy, World Bank chief economist, Harvard President, US treasury secretary, White House counsel, and nephew of two Nobel laureates, Paul Samuelson and Kenneth Arrow, surely Larry Summers could offer some light on the mystery.
I like Larry. He lost his Harvard presidency because of a moment of so-called “sexism” of the sort that I have espoused for my entire career since Sexual Suicide (1970) and Men and Marriage (1985). In other words, he suggested that there are significant differences between the sexes. He was out.
So, unlike most professorial sorts, he has sometimes suffered for the incontinent expression of things he actually thinks. Last year he warned against political correctness. A couple of years ago, he shocked a conference on healthcare policy by asking the audience whether they would be willing to pay less and receive 1970s medical care. No hands went up.
He concluded that government numbers showing vast “inflation” in healthcare costs conflict with our proven preference for today’s prices and products. He surely had a point.
Now he asserts, “Europe and Japan are engaged in ‘black hole’ monetary policy” and interest rates, and the US, “appears to be one recession from entering the same black hole.”
The problem according to Summers is what he calls “secular stagnation”. This is not an affliction of aging economists who can no longer figure out what is going on. It is a trial of the entire global economy, a failure to innovate and grow, a Harvard professor’s bafflegab for “a chronic lack of demand.”
Demand is a concept self-evident to economists but hard to find in the real world. Here, supply creates demand and demanding things has very little to do with earning the money to buy them.
“In today’s global economy, private investment demand is manifestly unable to absorb private savings even with negative real interest rates.”
If the US falls into the pit, “the whole industrialized world would be providing negligible and often negative returns to risk-free savings and falling short of growth and inflation targets.”
Then, eureka, he presented his theory: “Since 2013,” when he began his secular stagnation pitch, “interest rates have been much lower, fiscal deficits have been much larger, and leverage and asset prices have been much higher than expected. Yet growth and inflation have fallen short of forecasts.”
“That,” triumphantly pronounces the oracular economist, “is exactly what one would expect from secular stagnation: a chronic shortage of demand.” QED.
This analysis is not more ridiculous than anything else solemnly pronounced by most economists these days. But choose your poison. Would you prefer to believe that the entire world economy has begun behaving in an entirely irrational and upside-down manner? Or would you entertain the idea that the numbers are probably wrong.
All you have to do to explain all the phenomena that Summers claims as signaling “secular stagnation” is to use time-prices.
What Time-Prices Tell Us About the Past, Present, and Future
My faithful readers already know that time-prices measure all the values of all the goods and services in the world economy, past, and future, according to the number of hours, minutes, and seconds that people have to work to buy them. For the world economy, time-price multiples are calculated simply by dividing GDP by total hours of work.
Across the globe, Marian Tupy of Saint Andrews College in Scotland and Gale Pooley of Brigham Young in Hawaii have rigorously calculated time-prices for nearly everything important in your life. They have discovered that Summers’ insight on the preferability of medical care in 2019 to medical care in 1970 or 1980, is just a most limited observation of what has been a colossal cascade of progress over the last half-century.
Time-prices make perfect sense of all these otherwise enigmatic ideas of “negative interest rates,” “secular stagnation,” “monetary black holes,” “sub-par rates of growth,” negative yield curves, missed inflation targets, and bubbling asset prices.”
Time-prices tell us that the global economy is in the midst of a fabulous period of technological innovation. Prices are plummeting. What Summers calls the “risk of a catastrophic deflationary spiral” is, in fact, the reality of a coruscating siege of invention and creativity.
Secular stagnation? Where is it? By the measure of wealth as knowledge and growth as learning, the world is in the midst of an unprecedented boom.
Measured by the number of hours and minutes a blue-collar worker has to spend to buy the 50 commodities most vital for human survival, prices have been dropping at a rate of 3.4% per year. That means, in real terms of hours and minutes rather than dollars and cents, a zero-interest-rate translates into an utterly normal 3.4% rate.
Real interest rates, after all, are calculated by subtracting the rate of inflation from the nominal interest rate. If inflation is negative because learning curves around the world are radically reducing costs and prices, then you have to add the deflation rate to nominal interest.
The compound result of this global trend is a price decline of 72% since 1980 while the population has soared 71%. What Summers fears as a “catastrophic deflation” is, in fact, a cataclysmic flood of abundance and wealth.
Time-prices — not the prices in central bank pseudo money — are the real prices. What they mean is that around the world, people who used to spend 10 hours a day just scraping up the food to live now have eight hours freed to do other things.
As the great Jim Grant reports in Barron’s, John James Copperswaithe engineered the rise of Hong Kong into the world’s leading economy by reducing the income tax to 16% and then abolishing the collection of most economic data.
Today, in the data, the world economy seems to be undergoing a nervous breakdown. Deadly trade wars and monetary disorders are breaking out as governments combat a spurious stagnation.
It is an iatrogenic illness, caused by the doctors of economics, combined with raging hypochondria among their patients, the people.
Better just study the time-prices, and relax. Take the Copperswaithe solution.
Editor, Gilder’s Daily Prophecy