It is perhaps a feature of human life that the things you laugh at as a kid are the things you tend to be, do or think as an adult.
As a kid who was always very interested in both politics and economics, my favorite objects of derision were the gold bugs and the UN opponents. As we know more about the UN, from the rampant corruption that vanishes billions and manages to make things even worse in the third world countries and other kakistocracies in which it purports to intervene to child prostitution and exploitation of natives by UN troops or envoys, I find myself thinking the old guys who said “UN out of the US” were perhaps much brighter than I gave them credit for. (To be honest, unlike most of the kids today who are getting this soft-lit version in school and the idea the UN is some kind of super hero – I never thought it was good for much but talk-talk, but I thought as such it was inoffensive, and perhaps a show of good will.)
As for the gold bugs…
Years ago, at a panel at world fantasy, I found myself the only writer with three editors at the table. I don’t know if I mentioned that economics is my hobby? Well, in any case, it clearly wasn’t these editors hobby and they were all older than I. Which shouldn’t matter, as they weren’t old enough to explain this: when currency came up, to a man (well, there were two women and one man, the man is the one who was vocal about it, though) they insisted that US currency represented a certain amount of gold. To guffaws from about a third the audience (yes, a third) the male editor continued to argue that our currency was gold based.
As I disabused him of this notion, his eyes grew wide and panicky and he said, “You mean there’s nothing behind that paper but that the government says so?” His expression of almost comic-book terror said it all. “We’re depending on the word of politicians to make our life-savings worth something?”
When I said yes, you could feel the collective shudder in the room.
There are many reasons this was thought a good idea at one time. I’d like to point out at that time, most of the people also thought that eugenics were a bang up idea and that eventually all of life would be run by a few people at the top, who would be kind of super-engineers of society and make sure we didn’t have any of those little stumbles that we, unenlightened, are prone to.
Yes, there are people who still believe that later one. Mostly they’re politicians. And you don’t want me to go into detail on why they’re wrong, because I refuse to swear this early in the morning and before coffee.
Part of the reason, of course, was the idea that gold is not actually correlated to the value in society. Pratchett does a great job of explaining this in Making Money. Of course, he doesn’t address the weaknesses.
But the point of people who moved us to a fiat currency was that gold as such is not used to make enough of our goods and wealth to correlate to how much wealth there is in a society, and that it would be better to create a currency that represented the actual wealth of a nation.
This is all well and good, except, how does anyone know what wealth a nation has? Look, let’s leave aside doctored news reports, controlled press as was common in the old-USSR or voluntarily(?)-controlled press as we seem to have here. Let’s leave aside funny reports doctored to show less unemployment or more job growth than there is, which get quietly (or not) revised downward when no one is looking. Let’s assume everyone in this equation is honest (yes, even politicians. Shush now, this is a fairytale) and therefore what we’re looking at in reports and activity and movement of work and value in society is what it is. How do we know how much wealth there is? Even if we appoint very smart men to look at it, how do we do it?
Companies have very smart men looking at them too, to determine their value, and betting with their own money which keeps them honest. They’re called investors. And how many times is a company pretty papier mache looking like solid stone? And that’s a company, not something as solid as a nation.
As for gold… not, it has no intrinsic value beyond that which we humans give it. Which means what? Unless we’re dealing with aliens, the creatures in this world needing to transact business are humans, and humans always do seem to value gold, which means a certain amount of gold seems to have a certain price which tends to be higher than other commodities. But I’m not a stickler. I’m okay with the diamond standard, or the rare Earth standard (except if possible the standard should be non-consumable, even when used in applications and its value shouldn’t be dependent on our current level of technology) or some other, odder standard, provided we are all agreed on it and use it.
Yeah, I know. That’s crazy talk. Next I’ll go into guns and canned food. (Both of which, incidentally, are a good idea, right about now.)
You’ll say after all the whole world is on fiat currency (just about) and look how well it’s worked and how well everything runs, and hasn’t the economy grown?
Yeah, yeah, yeah, but…
I’ve spent the last week incandescently angry. Not just about the embassy attacks and the blatant and infantile lie that it was all about a movie (shh, go to sleep children, it was all about a movie. Nothing to worry your pretty heads about it) nor even the craven response of arresting an American citizen because the movie supposedly offended foreigners (as if offense should ever be a reason to curtail our first amendment.)
The other reason for my rage was the so called QE3 – quantitative easing three. For those who don’t recognize the deadly reality behind the cutsy abbreviation – this time … no, wait, I have to do this movie style: QE 3, this time it’s open ended.
Yes, Sarah, but what in heck is quantitative easing?
Quantitative easing means the economic giants in charge of deciding how much our economy is really worth have decided our economic troubles are REALLY just a lack of pretty printed paper. Ie. That there’s more value in the society than our paper is representing. In fact, they’ve decided the money supply is too tight and that’s the problem.
Part of the reason they decided this is optics. Printing more money sends the stock markets up, and that looks good on paper, though I’ll note all the increases in the last few years have barely kept up with inflation.
Inflation? Yep. That means how much more money you need to buy a good or service.
But why would you need more money?
Because ALL the cash in circulation represents ONLY a certain value: the value of the economy. And our economy is not in fact expanding, even as they are running the printing presses at full speed and indefinitely. (They’re also using that new cash to buy foreclosed homes, which you know, is the economic equivalent of eating your own boogers and calling it supper. Never mind.)
Our economy in fact seems to be contracting, not expanding. So what increasing the money supply does is have more dollars chase the same good/service, which by laws of supply and demand which these magnificent geniuses of finance have never heard about, means that prices go up. Which means… all of us that have a little money in the bank because, say, our income is massively irregular? Or those of us who agree on contracts for a fixed amount that might not be paid for years? We – all of us – just got a little poorer. The supergeniuses of finance just reached into our pocket and stole from us. And smiled.
But wait, there’s more. Insofar as an economy and a monetary system is not just a way to ease transactions between people but a contract with the future – you invest, borrow and such from people twenty or more years ahead by having something that will keep its value into the future – we’re breaking our contract in a spectacular way. Whether the economy or civilization itself can survive this remains to be seen.
But wait, there’s more. As mentioned, our fiat economy is dependent on other fiat economies. In addition to running our printing press non-stop, we’ve also burrowed from China, a controlled economy with a controlled press, whose politicians are answerable to no one. Yes, the supergeniuses in charge thought this was a bang-up idea. Don’t you?
Turns out some of China’s economic expansion might have been… slightly exaggerated. And by “slightly” we mean of course massively.
So, where does that leave us, that we founded our ghost economy on China’s ghost steel?
Do I need to tell you?
Maybe we’ll get lucky. Maybe it will all crash down without a massive blood bath. But if it does, it will be no credit to the supergeniuses in charge of our finance.
Now, keep in mind “Fiat” means “let it be made”. These men think they can wave a wand and conjure an accurate representation of the value in our society out of thin air. They think they’re that smart. But they believed in the assurances of a communist country.
Do you feel the confidence, yet? No, neither do I.
And I think the whole world is headed to a headlong crash with reality. And suddenly I don’t feel like laughing at goldbugs.