Kind: captions
Language: en
remember george washington you know how
he died well-meaning physicians bled him
to death and this was the most important
patient
in the country
maybe in the history of the country
and it's and we bled him to death trying
to help him
so when you're actually inflating the
money supply at seven percent but you're
calling it two percent because you want
to help the economy
you're literally bleeding
the the free market to death
but the sad fact is george washington
went along with it
because he thought that they were going
to do him good
and
the majority of of uh the society most
companies
most most conventional thinkers
you know
the working class
they go along with this because they
think that someone has their best
interest in mind and the people that are
bleeding them to death
believe
they they believe that prescription
because their mental models are just so
defective
the following is a conversation with
michael saylor one of the most prominent
and brilliant bitcoin proponents in the
world
he is the ceo of microstrategy
founder of sailor academy graduate of
mit
and michael is one of the most
fascinating and rigorous thinkers i've
ever gotten a chance to explore ideas
with he can effortlessly zoom out to the
big perspectives of human civilization
in human history and zoom back in to the
technical details of blockchains markets
governments and financial systems
this is the lex friedman podcast to
support it please check out our sponsors
in the description and now dear friends
here's michael
saylor
let's start with a big question of truth
and wisdom
when advanced humans or aliens or ai
systems let's say five to ten centuries
from now look back at earth
on this early 21st century
how much do you think they would say we
understood about
money and economics or even about
engineering science life death meaning
intelligence consciousness all the big
interesting questions
i think they would uh
probably give us a
b minus on engineering on all the
engineering things the hard sciences the
passing grade
like we're doing okay we're working our
way through rockets and jets and
electric cars and uh
electricity transport systems and
nuclear power and space flight
and the like
and you know if you if you look at the
walls
that uh grace the great court at mit
it's full of all the great thinkers and
and they're all pretty admirable you
know if you could be with newton or
gauss or
madame curie or
einstein
you know you would respect them
i would say they'd give us like a
a d minus on economics
like
you know an f plus or a d minus you you
have an optimistic vision first of all
optimistic vision of engineering
because everybody you've listed
not everybody most people you've listed
is just over the past couple of
centuries
and maybe it stretches a little farther
back but mostly
all the cool stuff we've done in
engineering is the past couple centuries
i mean archimedes
you know had his virtues
you know i studied the history of
science at mit and i also studied
aerospace engineering and and so i
clearly have a bias in favor of science
and if i look at the past 10 000 years
and i consider
all of the philosophy and the politics
and their impact on the human condition
i think it's a wash for every politician
that came up with a good idea another
politician came up with a bad idea yeah
right and it's not clear to me that you
know most of the political and
philosophical you know
contributions to the to the human race
and the human conditions have advanced
so much i mean we're still taking
you know taking guidance and admiring
aristotle and plato and seneca and the
like
and on the other hand
you know if you think about uh what has
made the human condition better
fire
water harnessing of wind energy like try
to row across an ocean
right not easy and for people who are
just listening or watching there's a
beautiful sexy ship from
century this is a 19th century handmade
model of a 17th century
sailing ship which is of the type that
the dutch east india's company used to
sail the world and trade so that was
made you know the original was made
sometime in the 1600s and then this
model is made in the 19th
century by individuals both the model
and the ship itself is engineering at
its best and just imagine just like
raucous flying out to space how much
hope this filled people with exploring
the unknown going into the mystery
uh
both the entrepreneurs and the business
people and the engineers and just humans
what's out there what's out there to be
discovered yeah the metaphor of human
beings leaving shore or sailing across
the horizon risking their lives in
pursuit of a better life is an
incredibly powerful one
in
1900 i suppose the average life
expectancy is 50.
during the revolutionary war you know
while our founding fathers were fighting
to establish you know life liberty
pursuit of happiness the constitution
average life expectancy of it's like 32.
some between 32 and 36.
so all the sound in the fury doesn't
make you live past 32 but what does
right antibiotics
conquest of infectious diseases if we
understand the science of
of infectious disease they're you know
sterilizing
a knife
and harnessing antibiotics gets you from
50 to 70 and that happened fast right
that happens from 1900 to 1950 or
something like that
and i i think if you look
look at the human condition
you ever get on one of those rowing
machines where they actually keep track
of your watts output when you're on that
yeah you know it's like 200 is a lot
okay 200
is a lot so a kilowatt hour
is like all the energy that a human a
trained athlete can deliver in
a day
and probably not one percent of the
people in the in the world could deliver
a kilowatt hour in a day and the
commercial value of a kilowatt hour the
retail value is 11 cents today and uh
the wholesale value is two cents
and
so you have to look at the contribution
of politicians and philosophers and
economists to the human condition
and and it's it's like at best to wash
one way or the other and then if you
look at the contribution of john d
rockefeller
when he delivered you a barrel of oil
yeah and then you know the energy and in
oil liquid energy or the contribution of
tesla
you know as we deliver electricity
you know
and what's the impact of the human
condition if i have
electric power
if i have chemical power if i have wind
energy
if i if i can actually set up a
reservoir create a dam spin a turbine
and generate energy from a hydraulic
source
that's extraordinary
right and and so our ability to cross
the ocean
our ability to grow food our ability to
live
it's it's technology that gets the human
race from
you know
a brutal life where life expectancy is
to
a world where life expectancy is 80.
you gave a d minus the economist so are
they two like the politicians awash
in terms of there's good ideas and bad
ideas and and that tiny delta between
good and
and bad is how you squeak past the f
plus onto the d minus territory
i think most economic ideas are bad
ideas like most
you know like um
take us back to mit and you want to
solve uh a fluid dynamics problem like
like design the shape of the whole of
that ship
or you want to design an airfoil a wing
or if you want to design
an engine or a
a nozzle and a rocket ship
you wouldn't do it with simple
arithmetic
you wouldn't do it with a scalar there's
not a single number right is vector it's
vector math you know computational fluid
dynamics is n dimensional
higher level math you know complicated
stuff
so when when an economist says the
inflation rate is two percent that's a
scalar and when an economist says
it's not a problem to print more money
because the velocity of the money is
very low the monetary velocity is low
that's another scalar
okay so
the truth of the matter is
inflation is not a scalar inflation is
an in-dimensional vector
money velocity is not a scalar
um
develo saying what's the velocity of
money oh oh it's slow or it's fast
it ignores the question of
what medium is the money moving through
in the same way that you know
what's the speed of sound
okay well what is sound right
sound you know sound is uh is a
compression wave it's energy uh moving
through a medium but the speed is
different
so for example the speed of sound
through air is different than the speed
of sound through water
and and a sound moves faster through
water it moves faster through a solid
and it moves faster to a stiffer solid
so there isn't one
what is the fundamental problem with the
way economists reduce the world down to
a model is it too simple
or is it just even the first principles
of constructing the model is wrong i
think that uh the fundamental problem is
if you see the world as a scalar you
simply pick
the one number which is
which supports whatever you want to do
and you ignore
the universe of other
consequences from your behavior
in general i don't know if you've heard
of
like eric watson has been talking about
this with gage theory so different
different kinds of approaches
from the physics world from the
mathematical world to
extend past this
scalar view of economics so gauge theory
is one way that comes from physics
do you find that
a way of exploring economics interesting
so outside of cryptocurrency outside of
the actual technologies and so on just
analysis of how economics works do you
find that interesting
yeah i i think that if we're going to
want to really make any scientific
progress in economics we have to apply
much
much more computationally intensive and
richer forms of mathematics
so simulation perhaps or
yeah you know when i was at mit i
studied system dynamics
you know they taught it at the sloan
school it was developed by jay forrester
who
who who
was an extraordinary computer scientist
and
when we've created models
of
economic behavior they were all
multi-dimensional non-linear models so
if you want to describe how
anything works in the real world you
have to start with the concept of
feedback
if i double the price of something
demand will fall and attempts to
to create supply will increase and there
will be a delay
before the capacity increases there'll
be an instant demand
change and there'll be rippling effects
throughout every other segment of the
economy downstream and upstream of such
thing
so it's kind of common sense
but most economics most classical
economics it's always
you know taught with linear models
you know fairly simplistic linear models
and oftentimes even i'm really shocked
today
that the entire
mainstream dialogue of economics has
been captured by
scalar arithmetic
for example
if if you read
you know read any article in new york
times or the wall street journal right
they just refer to there's an inflation
number or the the cpi or
the inflation rate is x
and if you look at all the historic
studies
of the impact of inflation
generally they're all based upon
the idea that inflation equals cpi and
then they try to extrapolate from that
and you just get nowhere with it
so
at the very least we should be
considering inflation and other
economics concept as a non-linear
dynamical system so non-linearity and
also just embracing the full complexity
of just how the variables interact maybe
through simulation maybe some have some
interesting models around that wouldn't
it be refreshing if somebody for once
published a table of the change in price
of every product every service and every
asset in every place
over time
you said table some of that also is the
task of visualization
how to extract from this complex set of
numbers
patterns that
uh somehow indicate something
fundamental about what's happening so
like each summarization of data is still
important perhaps summarization not down
to a single scalar value but looking at
that whole sea of numbers you have to
find
patterns like what is inflation in a
particular sector what is maybe uh
change over time maybe different
geographical regions
you know
things of that nature i think that's
kind of i don't know even what that task
is uh you know that's what you could
look at machine learning you can look at
ai with that perspective which is like
how do you represent
what's happening efficiently
as efficiently as possible that's never
going to be a single number but it might
be a compressed model that captures
something
something beautiful something
fundamental about what's happening
it's an opportunity
for sure
right um
you know
if we take um for example during the
pandemic
the
the response of the political apparatus
was to lower interest rates to zero
and to start to
start buying assets in essence printing
money
and the defense was there's no inflation
yeah
but of course you had one part of the
economy where it was locked down so it
was illegal to buy anything
but you couldn't you know it was either
illegal or it was impractical
so it would be impossible for demand to
manifest so of course there is no
inflation
on the other hand
there was instantaneous immediate
inflation in another part of the economy
for example um
you lowered the interest rates uh to
zero one point we saw the uh the swap
rate on the 30-year note go to 72 basis
points
okay that means that the value of a long
dated bond immediately inflates so the
bond market had hyper inflation within
minutes
of these
financial decisions the asset market had
hyperinflation
we had
what you call a case shape recovery what
we affectionately call a shake k shape
recovery main street shutdown
wall street recovered all within six
weeks
the inflation was in the assets
like in the stocks in the bonds uh
you know if you look today you see that
a
typical house according to case-shiller
index today is up 19.2 percent
year-over-year
so
if you're a first-time home buyer the
inflation rate is 19 percent
uh the formal cpi announced a 7.9
percent
you can pretty much
create any inflation rate you want by
constructing a market basket a weighted
basket of products or services or assets
that yield you the answer
i think that
you know the fundamental failing of
economist is is first of all
they don't really have a term for asset
inflation
right what's an asset what's asset
hyperinflation you mentioned bond market
swap rate and asset is where the all
majority of the hyperinflation happened
what's inflation what's hyperinflation
what's an asset what's an asset market
i'm going to ask so many dumb questions
in the conventional economic world you
would you would treat inflation as uh
the rate of increase in price of a
market basket of consumer products
defined by a government agency
so they have a like traditional things
that a regular consumer would be buying
the government selects like toilet paper
food
toaster
refrigerator electronics all that kind
of stuff and it's like a representative
a basket of goods
that lead to a content existence on this
earth for a regular consumer they define
a synthetic metric right i mean i i'm
going to say you should have a thousand
square foot apartment and you should
have
a used car and you should eat you know
three hamburgers a week
now ten years go by and the apartment
costs more
i could adjust the market basket
by a you know they call them hedonic
adjustments i could decide that it used
to be in 1970 to a thousand square feet
but in the year 2020 you only need 700
square feet because we've many
miniaturized televisions
and we've got more efficient electric
appliances and because things have
collapsed into the iphone you just don't
need as much space
so now i you know it may be that the
apartment costs 50 percent more but
after the hedonic adjustment there is no
inflation because i just downgraded the
expectation of what a normal person
should have so the synthetic nature of
the metric allows for manipulation
by people in power
pretty much
i guess my criticism of economist is
rather than embracing inflation
based upon its fundamental idea which is
the rate at which the price of things go
up
right
they've been captured
by a
mainstream conventional thinking to
immediately equate inflation to
the government issued cpi or
government-issued pce or
government-issued ppi measure which
was never the rate at which things go up
it's simply the rate at which a
synthetic basket of
products and services the government
wishes to track go up
now the problem with that
is is
two big things one thing is the
government gets to create the market
basket and so they keep changing what's
in the basket
over time
so i mean if
if i keep tr if i said three years ago
you should go see ten concerts a year
and the concert tickets now cost two
hundred dollars each now it's two
thousand dollars a year to go see
concerts
now i'm in charge of calculating
inflation so i redefine you know your
entertainment quota for the year to be
eight netflix streaming concerts and now
they don't cost two thousand dollars
they cost nothing and there is no
inflation but you don't get your
concerts right so the problem starts
with
continually changing the definition of
the market basket but in my opinion
that's not the biggest problem
the more
the more egregious problem
is the the fundamental idea that assets
aren't products or services
assets can't be inflated with an asset a
house
a share of apple stock
um a bond
um any a bitcoin is an asset um or uh a
picasso painting so
not a consumable good
not a uh not not an apple that you can
eat
right if i throw away an asset
then uh i'm not on the hook to track the
inflation rate for it so
what happens if i change the policy such
that
let's take the class example a million
dollar bond at a five percent interest
rate gives you fifty thousand dollars a
year in risk-free income
you might retire on fifty thousand
dollars a year in a low-cost
jurisdiction
so the cost of social security or early
retirement is one million dollars when
the interest rate is five percent
uh during the the crisis of march of
2020 the interest rate went on a 10-year
bond went to 50 basis points
okay so now the cost of that bond is 10
million dollars
okay the cost of social security went
from a million dollars to 10 million
dollars
so if you wanted to work your entire
life save money and then retire
risk-free and live happily ever after on
a 50 000 salary living on a beach in
mexico wherever you wanted to go
you had hyperinflation the cost of your
aspiration increased by a factor of 10
over the course of
you know some amount of time in fact
in that case that was like over the
course of about 12 years
right as the inflation rate ground down
the asset traded up
but the you know the conventional view
is oh that's not a problem because it's
good that that assets it's good that the
bond is highly priced because we own the
bond
or um
what's the problem with the inflation
rate in housing being 19
it's an awful problem for a 22 year old
that's starting their first job that's
saving money to buy a house
but it would be characterized as a
benefit to society by a conventional
economist who would say well
housing
asset values are higher because of
interest rate fluctuation and now the
economy's got more wealth
and uh and so that's that's viewed as a
benefit
so the what's being missed here
like the suffering of the average person
or the
uh the struggle the suffering the pain
of the average person
like metrics that captured that within
the economic system is that is it when
you talk about one way to say it is a
conventional
view of inflation as cpi understates the
human misery that's in inflicted upon
the working class
and and on uh mainstream companies
uh
by uh
by the political class and so it's a
massive shift of wealth from the working
class to the property class
it's a massive shift of power from the
free market uh to the centrally governed
or the controlled market
it's a massive shift of power from the
people to the government and and
maybe one one more illustrative point
here alexis
is uh what do you think the inflation
rate's been for the past 100 years
oh you talking about the scalar again if
you if you took a survey of everybody on
the street and you asked them what do
they think inflation was uh what is it
you know
remember when jerome powell said our
target's two percent but we're not there
if you go
around the corner i have uh posted the
deed to this house sold in 1930.
okay and uh
the number on that deed is one hundred
thousand dollars
1930. and if you go on zillow
and you get the z estimate is it higher
than that no 30 million 500 000
yeah
so
that's uh 92 years 1930 or
and
and in 92 years we've had 305
x increase in price of the house
now if you actually back calculate you
can you come to a conclusion that the
inflation rate was approximately six and
a half percent a year
every year
for 92 years
okay and and there's nobody
nobody in government no conventional
economist that would ever admit to an
inflation rate of seven percent a year
in the us dollar over the last century
now
if you if you uh dig deeper i mean one
one guy that's done a great job working
on this is seifidin amus who wrote who
wrote the book the bitcoin standard and
he notes that on average it looks like
the inflation rate and the money supply
is about seven percent a year all the
way up to the year 2020
if you look at the s p index which is a
market basket of scarce desirable stocks
it returned about 10 percent
if you talk to 10 a year for 100 years
the money supply is expanding at 7 100
years
if you actually talk to economists or
you look at the the economy and you ask
the question how fast does the economy
grow
in its entirety year over year
generally about two to three percent
like the sum total impact of all this
technology and human ingenuity
might get you a two and a half three
percent improvement a year as measured
by gdp
is that are you okay with that not sure
i'm not sure i'd go that far yet but i
would just say that
if you had the human race doing stuff
yeah and if you ask the question how
much more efficiently will we do the
stuff next year than this year or how
what's the value of all of our
innovations and inventions and
investments in the past 12 months
you'd be hard-pressed to say we get two
percent better
typical investor thinks they they're 10
better every year
so if you look at what's going on really
when you're holding a million dollars of
stocks and you're getting a 10 gain a
year you really get a seven percent
expansion of the money supply
you're getting a two or three percent
gain under best circumstances
and
another way to say that is
if the money supply stopped expanding at
seven percent a year the s p yield might
be three percent and not ten percent it
probably should be
now that that gets you to start to ask a
bunch of other fundamental questions
like if i borrow a billion dollars and
pay three percent interest and the money
supply expands at seven to ten percent a
year and
i ended up making a ten percent return
on a you know billion dollar investment
paying three percent interest is that
fair
and who who suffered
so that i could do that because
in an environment where you're just
inflating the money supply and you're
holding the assets constant
it stands the reason that the price of
all the assets is going to appreciate
somewhat proportional to the money
supply
and the difference in asset
appreciations is going to be a function
of the scarce desirable quality of the
assets and to what extent can i make
more of them and to what extent are they
are they truly limited in supply
yeah so we'll we'll get to a lot of the
words you said there the scarcity
uh and it's so good connected to how
limited they are and the value of those
assets but you also said so the
expansion of the money supply you just
put another way is printing money and so
is is that always bad the expansion of
the money supply is this just uh to put
some terms on the table so we understand
them
um
you nonchalantly say it's always
the on average expanding every year the
money supply is expanding every year by
seven percent that's a bad thing that's
a universally bad thing
it's awful
well i guess i guess to be precise
uh it's the currency
that i mean
my money uh i would say money is
monetary energy or economic energy
and the economic energy has to find its
way into a medium so if you want to move
it rapidly as a medium of exchange has
to find its way into currency but the
money can also flow into property like a
house or gold
if the money flows into property
it'll probably
hold its value much better if the money
flows into currency right if you had put
a hundred thousand dollars in this house
you would have 305 x return over 92
years but if you had put the money a
hundred thousand dollars in a safe
deposit box and buried it in the
basement
you would have lost 99.7
percent of your wealth over the same
time period
so um so the the expansion of the
currency
creates uh creates a massive
inefficiency in the society what i'll
call an adiabatic lapse
it's
what we're doing is we're bleeding
the civilization to death right the
antibiotic adiabatic what's that word
that's
adiabatic adiabatic
right and aerospace engineering you want
to solve any problem they they start
with the phrase assume an adiabatic
system and what that means is a closed
system okay so i've got it i've got a
container and in that container no air
leaves and no air enters no energy exits
or enters so it's a closed system
so you got the closed system lapse
okay
okay i'm going to use a there's a leak
in the ship i'm going to use a physical
metaphor for you because you're the
jujitsu right like like you got 10 pints
of blood in your body
and so before your next
workout i'm going to take one pint from
you
now you're going to go exercise but
you're one point you've lost 10 percent
of your blood
okay
you're not going to perform as well it
takes about one month for your body to
replace the red blood platelets so what
if i tell you every month you got to
show up and i'm going to bleed you
yeah okay so uh so if i'm draining the
energy i'm drink i'm draining the blood
from your body you can't perform
if you adiabatic lapse is when you go up
in altitude every thousand feet you lose
three degrees
you go 50 000 feet you're 150 degrees
colder than sea level that's why you you
know you look at your
instruments and instead of 80 degrees
your minus 70 degrees
why is the temperature falling
temperatures falling because it's not a
closed system it's an open system as the
air expands the density falls
right the ener
the energy
per
uh
per cubic whatever you know falls and
therefore the temperature falls right
the heat's falling out of the solution
so
when you're inflating let's say you're
inflating the money so the currency
supply by six percent you're sucking six
percent of the energy
out of the fluid that the economy is
using to function so the currency this
kind of ocean of currency that's a nice
way for the economy to function it's the
most kind of uh
it's being inefficient when you expand
the money supply but it's uh
that look it's the liquid i'm trying to
find the right kind of adjective here
it's how you do transactions at a scale
of billions
currency is the asset we use uh to move
monetary energy around and you could use
the dollar or you could use the peso or
you could use the bolivar selling houses
and buying houses is much more
inefficient
or like
you can't
transact between billions of people with
houses yeah properties don't make such
good mediums of exchange they make
better stores of value and they they
have utility value if it's a if it's a
ship or a house or or a plane or a
bushel of corn
right
can i zoom out just for yeah can we zoom
out keep zooming out until we reach the
origin of human civilization but on the
way
ask
you gave economists a d-minus
i'm not even going to ask you what you
give to governments
uh
do you think their failure economist and
government failure is malevolence or
incompetence
i think uh
policymakers are well-intentioned but
generally all all government policy is
inflationary and all government it's
inflammatory and inflationary so what i
mean by that is
you know when you have a policy uh
pursuing
uh
supply chain independence if you have an
energy policy if you have a labor policy
if you have a trade policy if you have a
you know any any kind of foreign policy
a domestic policy
a manufacturing policy every one of
these medical policy
every one of these policies
interferes with the free market and and
generally prevents some rational actor
from doing it in a cheaper more
efficient way
so when you layer them
on top of each other they all have to be
paid for
if you want to shut down the entire
economy for a year you have to pay for
it right if you want to fight a war you
have to pay for it
right if you don't want to use oil or
natural gas you have to pay for it if
you don't want to manufacture
semiconductors in china and you want to
manufacture them in the u.s you got to
pay for it if i rebuild the entire
supply chain in pennsylvania and i hire
a bunch of employees and then i unionize
the employees
then not only am i
i idle the factory in the far east it
goes to 50 capacity so so whatever it
sells it has to raise the price on and
then i drive up the cost of labor for
every other manufacturer in the us
because i competing against them
right i'm changing their conditions so
everything gets less efficient
everything gets more expensive and of
course the government couldn't really
pay for
uh its policies and its wars with taxes
we didn't pay for world war one with tax
we didn't pay for world war ii with tax
we didn't pay for vietnam with tax in
fact you know when you trace this what
you realize is the government never pays
for all of its policies with taxes
to ask to raise the taxes to truly
transparently pay for the things you're
doing with taxes with taxpayer money
because they feel that's one
interpretation or it's just too
transparent like if people if people
understood the the the true cost of war
they wouldn't want to go to war if you
were told that you would lose 95 of your
assets you know and 90 of everything you
will be ever will be taken from you
you might
reprioritize your thought about a given
policy and you might not vote for that
politician but you're still saying
incompetence not malevolence
so fundamentally government creates a
bureaucracy of incompetence is kind of
how you look at it
i think a lack of humility right
like uh like
if if people had more humility then they
would realize
humility about how little they know
how little they understand about the
function of complexity this is the
phrase from queen eastwood's movie
unforgiven where he says a man's got to
know his limitations
[Laughter]
i i think that a lot of people
overestimate
what they can accomplish and experience
experience in life causes you
to uh
to reevaluate that so i mean i've done a
lot of things in my life and and
generally
my mistakes were always my good ideas
that i enthusiastically pursued
to the detriment of my
great ideas that required
150 of my attention
to prosper so i think people pursue too
many good ideas and you know they all
sound good
but there's just a limit to to what you
can accomplish
and everybody underestimates the
challenges
of of implementing an idea
right and uh and they always
overestimate the benefits
of the pursuit of that so i think it's
an overconfidence that causes an over
exuberance and pursuit of policies and
as the ambition of the government
expands so must the currency supply
you know i could say the money survival
let's say the currency supply
um
you can triple the number of pesos in
the economy
but it doesn't triple uh the amount of
manufacturing capacity in the said
economy
and it doesn't triple the amount of
assets in the economy it just triples
the pesos so as you
increase the currency supply
then the price of all those scarce
desirable things will tend to go up
rapidly
and the confidence
of
all of the institutions the corporations
and the individual actors
and trading partners will will collapse
if we take a tangent on a tangent and we
will
return soon to the uh the big human
civilization question
uh
so if government
naturally wants to buy stuff it can't
afford
what's the best form of government
uh anarchism
libertarianism so not even go there's
not even armies there's no
borders that's anarchism the least
the smallest possible
the smallest possible the last the best
government would be the least and the
debate will be over
that when you think about the stuff
do you think about okay government is
the way it is i
as a person that can generate great
ideas how do i operate in this world or
do you also think about the big picture
if we start a new
civilization somewhere on mars do you
think about what's the ultimate form of
government
what's uh at least a promising thing to
try
you know um
i have laser eyes on my profile on
twitter
what does that mean and the significance
of laser eyes is to focus on the thing
that can make a difference yes and um
if i look at the civilization
um i would say
half the problems in the civilization
are due to the fact that our
understanding of economics and money is
defective
half
i don't know it's worth 500 trillion
dollars worth of problems like
money uh money represents all the
economic energy and the civilization and
it kind of equates to all the products
all the services and all the assets that
we have and we're ever gonna have so
that's half
the other half of the problems in the
civilization are medical
and
and military and political
and philosophical
and you know
and uh
and i think that there are a lot of
different solutions
to all those problems and they're all
they are all uh
honorable professions and
and they all merit a lifetime of
consideration for the specialist in all
those areas
i i think that
what i could offer it's constructive is
inflation is completely misunderstood
it's a much bigger problem
than we understand it to be
we need to introduce engineering and
science techniques into economics if we
want to further the human condition
all government policy is inflationary
you know and another pernicious myth
is uh inflation is always
and everywhere a monetary phenomena so
you know a famous quote by milton
friedman i believe it's like it's a
monetary phenomena that is inflation
comes from expanding the currency supply
it's a nice phrase
and it's oftentimes quoted by people
that are anti-inflation
but again it it just signifies a lack of
appreciation of what the issue is
inflation is if i if i had a currency
which was completely
non-inflationary if if i never printed
another dollar
and if i eliminated fractional reserve
banking from the face of the earth
we'd still have inflation and we'd have
inflation as long as we have government
that that is capable of pursuing
any kind of policies that are in the in
themselves inflationary and generally
they all are so in general
inflationary is the big
characteristic of human nature that
governments collection of groups that
have power over others and allocate
other people's resources
will
try to
intentionally or not hide the costs of
those
allocations like in some tricky ways
whatever the options ever available
you know hiding the cost is like is like
the
the tertiary thing like
the the primary goal is the government
will attempt to do good
right and that's the fundament that's
the primary problem they will attempt to
do good and they will and they will do
it and they will do good and imperfectly
and they will create
oftentimes uh as much damage
more damage than the good they do most
government policy will be iatrogenic it
will it will create more harm than good
in the pursuit of it but it is what it
is the secondary
uh the secondary issue is they will
unintentionally pay for it by expanding
the currency supply without realizing
that they're uh
they're actually paying for it in
in a sub-optimal fashion they'll
collapse their own currencies while they
attempt to do good the the tertiary
issue is they will mismeasure
how badly they're collapsing the
currency
so for example if you go to the bureau
of labor statistics you know and look at
the numbers printed by the fed they'll
say oh it looks like the dollar has lost
95 of its purchasing power over 100
years okay they sort of fess up there's
a problem but they make it 95 percent
loss over 100 years what they don't do
is
realize it's a 99.7
loss over 80 years so they will
mismeasure just the horrific extent
of uh the monetary policy in pursuit of
the foreign policy and the domestic
policy which they
they they
overestimate their budget
and their means to accomplish their ends
and they underestimate the cost
and and they're oblivious to the
horrific
damage that they do to the civilization
because
the mental models that they use that are
conventionally taught
are wrong right the mental model that
like it's okay we can print all this
money because the velocity of the money
is low right because money velocity is a
scalar and inflation is the scalar and
we don't see two percent inflation yet
and the money velocity is low and so
it's okay if we print
trillions of dollars well
the money velocity was immediate
right the velocity of money through the
crypto economy
is 10 000 times faster
than the velocity of money through the
consumer economy
right it's like i think nick pointed out
when you spoke to him he said it takes
two months for a credit card transaction
to settle
right so you want to spend a million
dollars in the consumer economy you can
move it six times a year
you you put a million dollars into gold
gold will sit in a vault for a decade
okay so the velocity of money through
gold is 0.1
you put the money in the stock market
and you can trade it once a week the
settlement is t plus 2 maybe you get to
two to one leverage you might get to a
money velocity of a hundred a year
in the stock market
you put your money into the crypto
economy and these people are settling
every four hours
and and you know if you're offshore
they're trading with 20x leverage
so if you if you settle every day
and you trade the 20x leverage you just
went to 7 000.
yeah so the la the velocity of the money
varies i think the politicians they they
don't really understand inflation and
they don't understand economics but but
you can't blame them
because the economists don't understand
economics because the because if they
did
they would be creating
multi-variate computer simulations where
they actually put in
the price
of every piece of housing in every city
in the world the full array of foods and
the full array of products and the full
array of assets
and then
on a monthly basis they would publish
all those results and where and that's a
high bandwidth
requirement
and i i think that people don't really
want to embrace it
and and also there's the most pernicious
thing
there's that phrase
you know
you can't
tell people what to think but you can
tell them what to think about the most
pernicious thing
is is i get you to misunderstand
the phenomena
so that even when it's happening to you
you don't appreciate that it's a bad
thing and you think it's a good thing so
if housing prices are going up 20
percent year over year and i say this is
great for the american public because
most most of them are home owners
then i have i've misrepresented a
phenomena inflation is 20
not 7 percent and then i've
misrepresented it as being a positive
rather than a negative
and people will stare at it and you
could even show them their house on fire
and they would perceive it as being
great because it's warming them up and
they're going to save on their heat
costs it does seem that the cruder the
model whether it's economics whether
it's psychology
the easier it is to weave whatever the
heck narrative you want
and not in a malicious way but just like
it's it's some some kind of like uh
emergent phenomena this narrative thing
that we tell ourselves so you can tell
any kind of story about inflation
inflation is good inflation is bad like
the cruder the model the easier it is to
tell a narrative about it and that's
what the so like if you take an
engineering approach
it's i feel like it becomes more and
more difficult
to run away from sort of a true deep
understanding
of the dynamics of the system
i mean honestly if you went to 100
people on the street you asked them to
define inflation how many would how many
would say
it's a vector tracking the change in
price
of every product service asset in the
world over time
no not me
no
if you if you went to them and you said
you know do you think two percent
inflation a year is good or bad
the majority would probably say well
here it's good you know the majority of
economists would say
two percent inflation a year is good
and of course there's
look at the ship next to us what if i
told you
that
the ship leaked
two percent right
of its volume every something right the
ship is rotting two percent a year that
means the useful life of the ship is 50
years now ironically that's true like a
wooden ship had a 50
year to 100 year life 100b long 50 years
not unlikely so when we built ships out
of wood
they had a useful life of about 50 years
and then they sunk they rotted there's
nothing good about it right you build a
ship out of steel
you know and it's zero as opposed to two
percent degradation
and how much better is zero percent
versus two percent
well
two percent means you have a useful life
of
you know
it's half-life of 35 years
2 2 is a half-life of 35 years that's
basically the half-life of money in gold
if i store your life force in gold under
perfect circumstances you have a useful
life at 35 years
zero percent is a useful life of forever
so zero percent is immortal
two percent is 35 years average life
expectancy
so that the idea that you would think
the life expectancy of the currency and
the civilization should be 35 years
instead of forever is is kind of a silly
notion but the tragic notion is
it was it was you know
seven into seventy or ten years
it's the money has had a half-life of
ten years except for the fact that
in weak societies in in
argentina or the like the half-life of
the money is
three to four years in venezuela one
year
so
the united states dollar
and the united states economic system
was the most successful economic system
in the last hundred years in the world
we won every war we were the world
superpower our currency lost 99.7
percent of its value and that means
horrifically every other currency
lost everything right in essence the the
other ones were 99.9 except for most
that were 100 because they all
completely failed
and uh
you know you've got a you've got a
mainstream economic community you know
that thinks that
inflation is a number and two percent is
desirable
it's it's it's kind of like
you know remember george washington you
know how he died no
well-meaning physicians bled him to
death
okay the last thing in the world you
would want to do to a sick person is
bleed them right in the modern world i
think we understand that that oxygen is
carried by the blood cells and
and
you know
and
if uh
you know there's that phrase right uh a
triage phrase what's the first thing you
do in an injury
stop the bleeding
single first thing right you show up
after any action i look at you stop the
bleeding because you're going to be dead
in a matter of minutes if you bleed out
so
it strikes me as being ironic that
orthodox conventional wisdom was bleed
the patient to death and this was the
most important patient
in the country
maybe in the history of the country
and it's and we bled him to death trying
to help him so when you're actually
inflating the money supply at seven
percent but you're calling it two
percent because you want to help the
economy
you're literally bleeding
the the free market to death but the sad
fact is george washington went along
with it
because he thought that they were going
to do him good
and
the majority of of uh the society most
companies
most most conventional thinkers
you know
the working class they go along with
this because they think that someone has
their best interest in mind and the
people that are bleeding them to death
believe
they they believe that prescription
because their mental models are just so
defective and their understanding of
energy
and engineering and
and uh and the economics that are at
play
is uh is crippled by these mental models
but that's both the bug and the feature
of human civilization that ideas take
hold they unite us we believe in them
uh
and we make a lot of cool stuff happen
by
as an average sort of just the fact of
the matter
a lot of people believe the same thing
they get together and they get some
done because they believe that thing and
then some ideas can be really bad and
really destructive but on average the
ideas seem to be progressing
in in a direction of good let me just
step back
what the hell are we doing here us
humans on this earth
how do you think of humans how special
are humans
how did human civilization
originate on this earth
and what is this human project that
we're all taking on
you mentioned
fire and water and apparently bleeding
you to death is not a good idea i
thought always thought you can get the
demons out in that way but
um that was a recent
invention so what what's this thing
we're doing here
i think what distinguishes uh human
beings from all the other creatures on
the earth is
is
our ability to engineer
we're engineers
right to solve problems or just
build incredible cool things
engineering
harnessing energy and technique to make
the world a better place than you found
it
right from the point that we actually
started to play with fire
right that was a big leap forward
uh harnessing the power of of kinetic
energy and missiles another another step
forward
every city built on water why water well
water's
bringing energy right if you actually
if you actually put a turbine you know
on a river or you uh
or you capture a change in elevation of
water you've literally harnessed
gravitational energy but you know water
is also bringing you food it's also
giving you you know
a cheap form of uh getting rid of your
waste it's also giving you free
transportation you want to move one ton
blocks around you want to move them in
water so
i think i mean the the the human story
is really the story of engineering a
better world
and and uh the rise in the human
condition is determined by those uh
groups of people those civilizations
that were best at harnessing energy
right if you if you look
you know the greek civilization they
built it around around ports and
seaports and and water and created a
trading network
the romans were really good at
harnessing all sorts of
of engineering i mean the aqueducts are
a great example
if you go to any big city
you travel through cities in the med you
find that you know the carrying capacity
of the city or the island is 5 000
people without running water and then if
you can find a way to bring water to it
increases by a factor of 10
and so
human flourishing is really only
possible through that channeling of
energy
right that eventually takes the
the form of
air power right i mean
that ship
i mean look at the intricacy of those
sales
right i mean it's
just the model is intricate now think
about all of the experimentation that
took place to figure out how many sales
to put on that ship and how to rig them
and how to repair them and
how to operate them
there's thousands of lives
spent thinking through all the tiny
little details
all to increase the efficiency of this
the effectiveness the efficiency of this
ship
as it sails through water
and we should also note there's a bunch
of cannons on the side so obviously
another form of en engineering right
energy harnessing with
explosives to achieve what end that's
another discussion exactly
suppose we're trying to get off the
planet right i mean well there's a
selection mechanism going on so natural
selection this whatever however
evolution works it seems that one of the
interesting inventions on earth was the
predator prey dynamic
that you want to be the bigger fish
that violence seems to serve a useful
purpose if you look at earth as a whole
we as humans
now
like to think of violence as really a
bad thing
it seems to be one of the
amazing things about humans is we're
ultimately tend towards cooperation we
want to we like peace
uh if you just look at history we want
things to be nice and calm
and
um
but just wars break out every once in a
while and lead to immense suffering and
destruction and so on and they have a
kind of
uh like resetting the palette
effect it's it's one that's full of just
immeasurable human suffering but it's
like a way to start over
we're called the apex predator on the
planet
and i i googled something the other day
you know what's the most common form of
mammal
life on earth
by by number of organisms count by count
and the answer that came back was human
beings
i was shocked i couldn't believe it
right it says like
apparently if we're just looking at
mammals the answer was human beings are
the most common which was very
interesting to me
uh i almost didn't believe it but i was
trying to you know eight billion or so
human beings
there's no other mammal that's got more
than eight billion
if you walk through downtown edinburgh
and scotland and you look up on this
hill and there's castle up on the hill
you know and you talk to people
and the story is oh yeah well that was
uh that was a british casual before it
was a scottish castle before it was pick
castle before as a roman castle before
it was you know
some other celtic castle before you know
then they found 13 prehistoric castles
buried one under the other under the
other
and you get to you get the conclusion
that a hundred thousand years ago
somebody showed up and grabbed the high
point the apex
of the city
and they built a stronghold there
and they flourished and their family
flourished and their tribe flourished
until someone came along and knocked him
off the hill
and it's been a a nonstop never ending
fight by the
the aggressive most powerful entity
family organization municipality