(2019-05-27) Hunt A Song Of Ice And Fire

Ben Hunt: A Song of Ice and Fire. The only way to learn the non-linear nature of water is through empirical observation, through actually living with water and ice rather than simply theorizing about water and ice. Because once you SEE that very cold water becomes lighter rather than heavier, then you KNOW that there must be something WRONG with your theory of thermodynamics. Same thing with economics. Because money, like water, is non-linear.

Because you think you can explain and predict human behaviors around money based on a macro theory of monetarism (the supply and price of money), and usually that’s true, but sometimes it’s not. Because there is a more fundamental theory of money – an atomic structure (micro) theory of money based on human risk-taking and human social narratives – that subsumes and improves on your macro theory of monetarism.

Does lowering the price of money from 8% to 7.5% create more risk-taking? Does it increase the velocity of money through the real economy as corporate and household risk-takers are willing to borrow and spend and invest MORE at 7.5% than they were at 8%? Yes. So I understand why central bankers believe that lowering the price of money from 1% to 0.5% would act on risk-taking in the same linear fashion.

When the price of money gets really cold low, like close to zero degrees percent low, risk-taking behavior changes. The rational risk-taker in a zero interest rate world does NOT invest in property, plant and equipment. What do rational risk-takers do in a zero interest rate world? They buy back stock. They buy profitless revenue. They engage in financialization.

We have to break the tyranny of ideas that nudge us into service to the entrenched State and the entrenched Oligarchy, without replacing those ideas with a tyranny of our own.

We break the wheel with a better story, with a better theory. Because that’s what a theory is … a story about how the world works.

By the way, this is how science works. By the way, it’s always science that breaks the wheel.

The story of the Masters is that the market is a macro clockwork machine, governed by linear, mechanistic “laws”. I have a better story. I tell you that the market is a BONFIRE.

No human can algorithmically PREDICT how a fire will burn

But a really powerful computer can CALCULATE how a fire will burn. A really powerful computer can perceive the world differently. It can “see” every tiny piece of wood and every tiny volume of oxygen and every tiny erg of energy. It “knows” the rules for how wood and oxygen and heat interact.

This is an atomic theory of markets.

Central bank cultists will never change their beliefs that they are the thin blue line between order and chaos, or that academic economics is the One True Path for enlightenment and the maintenance of that thin blue line.

change will come from a Fed economist reading this note (on her gmail account, of course) and dropping the assumption – because it IS an assumption – that, for all prices of money, there is a monotonic relationship between change in the price of money and change in the velocity of money employed for productive economic purposes.

Change will come from this economist presenting her findings from within the proper academic forms as an extension and progression of what came before, so that the institutional imperative to self-servingly mansplain our place in the world (you’re welcome!) can be maintained.

In a thousand small steps … this is how theory changes. This is how science advances. This is how progress is made. This is how the story that we tell ourselves about who we are evolves into something that subverts institutions from within, not something that attacks institutions from without

One of my favorite authors, Kurt Vonnegut, wrote a lot about theory and non-linear systems and humanity’s place in all that.

We are the human animal. We are non-linear.