Sunday Dump
AI and UBI, What Happened After The Five Times in History Both Stocks and Bonds Declined
AI and UBI
Lots has been made recently of ChatGPT 4 and other AIs replacing white collar knowledge workers. One of my favorite takes on the current zeitgeist was in pointing out the irony of programmers telling plumbers to just learn how to code for the last decade, and now the plumbers get to tell the programmers to just learn how to use a wrench. Teehee.
I think two things are true here.
First, new jobs have always come out of new technologies, and I don’t think it will be any different with AI. 150 years ago, 95% of the jobs in America were “farmer.” Now it’s less than 1%.
Second, as was pointed out on the latest All-In podcast, what’s different this time is the skill being replaced is human judgement, and that might be cause to think that the societal ramifications of this new technology will be different than anything we’ve experienced in the past.
Your guess as to where we end up in 5-10 years time here is as good as mine. I’m sure the introduction of AI into our daily lives will come with all sorts unpredictable, emergent properties. Maybe AI takes over and this is all moot. I don’t see much need to prepare for that potential eventual outcome. But what I think is definitely true is that we ought to pursue better outcomes wherever possible and not worry about the human job loss. If the computer flies the plane better than a pilot, take the pilot out of the loop. If the AI reads the x-ray better than a radiologist, take the radiologist out of the loop. It would be silly not to.
This gets to what I think is a larger point: in an economy and a society, what’s ultimately important is not that people have jobs, it’s that more is produced than consumed, and that people are fulfilled and happy.
Historically, people having jobs has been a means to both of these ends, but I don’t think it need be so.
In particular, a world where AI or other technologies enable us, in the aggregate, to produce more than we consume even if the input of human labor is significantly reduced I think is a world in which some form of UBI makes sense. For example, you could imagine a world where machines are doing all the producing and humans are doing all the consuming.
Granted, we are far, far, FAR away from this world, as evidenced by the debt in our economy, and getting to this point would represent a productivity miracle that would allow our economy to outgrow the debt burden we currently have. Taking on debt is the very act of borrowing from future production for current consumption. It is what enables an individual, or a business, or a country, to consume more than it has produced.
So, until we’re producing more than we consume at the economy-wide level, I don’t think we need to spend too much mental energy worrying about the impact of AI on white collar jobs. There will be winners and losers, for sure, but welcome to the game of life. We have societal safety nets in place to deal with that, and I’m optimistic we can continue to evolve them for new realities.
The Water In Which We Swim
The way things are when you grow up simply becomes the water in which you swim. A fish doesn’t know it’s swimming in water, it simply hasn’t ever known anything else.
So it is with our world today and fiat money, which I think might be why many people can’t imagine anything but. They think a Bitcoin Standard is stupid and will never work, for example, because in a debt-based economy you need infinite expansion of the money supply.
Fiat money is the water in which we swim, but a quick study of history reveals that it actually represents a thus-far short-lived experiment and certainly is not the way it’s always been. In fact, we’ve only been on a true fiat system since 1971 when Nixon took the USD off the Gold Standard, even though I think you could argue the periodic currency devaluations vs. gold in previous eras were essentially fiat eras.
I want to make the point here that I don’t think fiat is an intrinsically bad system. If we, the people controlling the system, had the discipline to spend less than we tax (i.e. consume less than we produce) and adhere to a rules based expansion of the money supply and interest rate policy, then fiat money might work out pretty well! I’m not even saying the expansion of the money supply has to be zero or hard capped at any point. All it would need to be would be rules based and thus predictable.
The problem with systems run by humans isn’t always the systems, it’s often the humans.
In the case of fiat money, and in particular fiat money in a democratic regime with 4-year election cycles, the incentive to spend more than you tax in order to curry favor with voters and win re-election is simply too great. To spend more than you tax you need to take on debt. Take on too much debt and you need to increase the money supply to pay back the debts. Increase the money supply and you need to hike interest rates in the name of price stability. Crash the economy and you need to lower interest rates in the name of full employment. Sound familiar?
But here’s the thing: Bitcoin fixes this.
Bitcoin is rules based and predictable. Tick tock, next block.
Bitcoin cannot be corrupted by politicians seeking re-election.
Bitcoin forces us to produce more than we consume in the aggregate, and what’s more, it even incentivizes it!
Bitcoin doesn’t allow for stealth bailouts, only explicit ones.
Bitcoin was created to be the rules based monetary system we seek as a society.
So, as we sit here with banks going under as a result of unpredictable monetary policy, and we debate whether unsuspecting depositors should be on the hook or not, let’s remember that Bitcoin was created so you could be your own bank. With Bitcoin, you don’t need to trust a bank with your deposits. You don’t need to trust anyone but yourself.
Remember what Satoshi inscribed on the Bitcoin Genesis Block:
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."
History Repeats
I mentioned the possibility of a “one fell swoop” currency devaluation last week as a potential solution the U.S. government’s debt problem, and that this route had indeed been taken twice before.
This type of action is effectively the U.S. defaulting on it’s debts, although they would never call a spade a spade and label it as such. The two times in U.S. history this has occured was in 1934 with the passage of the Gold Reserve Act, when President Franklin Roosevelt devalued the USD by revauling gold from $20.67/oz to $35/oz, defaulting on the U.S.’s promise to accept USD for gold at the rate of $20.67/oz. Of course, the year before was the famous Executive Order 6102, when the U.S. banned the private ownership of gold and forced the public to turn all their gold in to the Treasury at the rate of $20.67/oz, punishable by fine and/or imprisonment, right before revaluing the gold up to $35/oz. Nice move from our government at the time, eh?
The $35/oz conversion rate held until the other time the U.S. defaulted on its debts, which was in 1971 when President Nixon ended the dollar’s convertibility to gold all together.
I was learning more about these episodes this week and learned something pretty fascinating: only five times in history have U.S. stocks and bonds both declined in the same year (source).
Care to guess?
Two of the five occurences preceded the 1934 and 1971 official currency devaluations by 2-3 years.
A third occurence, 2018, preceded an unofficial currency devaluation in 2020 with the Fed expanding its balance sheet from $4 trillion to $9 trillion, although I’ll admit there is the small confounding variable of a global pandemic in there.
A fourth occurence was in the middle of WWII.
And a fifth, and by far the most devastating occurence from an economy-wide asset depreciation standpoint with stocks and bonds both losing ~18%, was in 2022 (there is more outstanding market cap in bonds than in stocks).
Care to guess the 1, 3, and 5 year returns for stocks, bonds, and gold over these previous occurences?
*note, gold price was fixed at $35/oz from 1934-1971, hence the flat performance after 1941
Turns out money printing is good for financial assets!
If you’ve been following along, you already know I expect massive money printing in the coming years to cover the U.S.’s fiscal deficits. Math dictates it will be so.
History doesn’t rhyme, it repeats.