Wealth: The Toxic Byproduct (2013)

I found this really frustrating. There isn't any evidence whatsoever presented here--the whole treatise is based on a single outrageously over-simplified hypothetical thought experiment, essentially a "Just-So" story. This is the crux of pseudoscience. It's always a gigantic red flag when an argument about complex real-world phenomena and systems is based entirely upon a work of fiction with no real rigorous observation involved--only anecdotal observation based on one's own personal life experiences. This doesn't work. It ends up like dream logic--you imagine something should work this way in a dream, it seems brilliant at the time, but when you wake up and try it in the real world it suddenly doesn't quite make sense anymore or mesh together properly. Ayn Rand is another big example of this pitfall. It's about as meaningful as making an economic theory based on how it works in Harry Potter.

This guy's a psychology and computer linguistics major. That's great, and I'm sure he's got plenty of great ideas, but we computer science people have a bit of an issue with buying our own hype. Society greatly values our skills, many people consider us to be exceptionally bright, so we end up believing ourselves to be general-purpose geniuses much like aging physicists do: http://www.smbc-comics.com/comic/2012-03-21

We are not general-purpose geniuses. A little knowledge is a dangerous thing. Intellectual arrogance has caused many an engineer to meddle in things we don't properly understand and it occasionally causes catastrophes, or more often it merely spreads misinformation because most laymen put great value on our thoughts and view tech people as some kind of oracle.

In the article he lampshades sophistry early on, but that doesn't magically save it from being sophistry. It is absolutely sophistry, a transparent attempt to assuage some kind of guilt and justify a moral quandary through inventive story telling and evidence-free faux truthseeking.

He also calls out late in the article the fact that this thought experiment he's made only covers a single currency and a single commodity, which is an unreasonably simplistic model. The parable doesn't consider bad faith, market manipulation, monopoly, corruption, unsustainable expectations of growth, asymmetrical information, pricing inefficiency, and all sorts of other issues that crop in real life and can't simply be ignored. With a little charisma and eloquence it's pretty easy to make a self-consistent mental model by weaving a fictional story and it feels like truth, but in reality there are unanticipated complications and external interactions that screw things up and totally throw off your conclusions.

For instance, in real life there wouldn't be just one guy speculatively buying Congolese grain through a magic portal. There would be lots of speculators in wealthy nations, fueled by riches extracted from all over--including the Congo. What about when their speculative hoarding is actually the force which creates the shortage? Are we being such benevolent, wealthy overlords if we cause a famine, drive up costs, then sell the same product back to them at exorbitant prices through these rent-seeking practices? And speaking about rent, that's when multiple commodities come into play. What happens when our speculative buying-up of resources causes scarcity and makes them spend all their money on food and miss rent? Rent, by the way, which is also being artificially driven up by speculation and is not in line with natural supply / demand-based pricing. Because it's not just being sold as housing, an intrinsically valuable use; it's also being hoarded in order to speculatively extract wealth. People buying houses not because they need shelter, but because they simply expect somebody else to buy it at a higher price later on. Price does not magically match intrinsic value 1:1 at all times, which is an assumption his parable is dependent on. And money being an abstraction does not mean that extracting enormous dollar amounts from a local economy and hoarding it does not hurt that local economy. The amount of money you charge people for goods and services does not directly translate to how much value you've blessed their lives with. Consider our healthcare system. We pay far, far more than any other country, and that wealth is hoarded en masse by insurance companies--essentially speculative, unnecessary middle-men who only add to the cost of utterly essential services which must be bought at any cost--yet the intrinsic value of our healthcare is far lower. We have a very low life expectancy for a first-world country, let alone a superpower: https://ourworldindata.org/the-link-between-life-expectancy-...

That money sitting in a bank is not proof of our intrinsic value going up. It doesn't always work out that way in reality. So we aren't off the hook yet in our own affairs.

Economics is hard. Ethics is hard. We can't handwave it using fairy tales with magic doors. I'm no economist, so I don't want to claim any expertise either. Take all I have just said with an enormous punch of salt, as if you're boiling pasta. I only go into these diatribes to point out when others undeservedly claim authority on a subject. People need to know to view this with appropriate skepticism. People shouldn't make authoritative think-pieces about subjects like this just because their job exposes them to a good amount of math and logical problem-solving, thus causing us to assume we can apply that to anything without significant subject-specific study and actual gathering of observational evidence. Even expert economists do very poorly at predicting and properly understanding the way this all works. This subject defies translation into a simple analogy, and balks at being explained to somebody as if they are five. People who try to do that are usually fooling you and themselves as well.

Money is a measure of social value.

Your status in the tribe is highly dependent on your utility to the tribe, and that utility is highly-dependent on how well you work with other members of the tribe to achieve common goals. If you are more effective than your neighbor at advancing community goals, then you will have a higher social value than your neighbor.

When we were just tribes of 150-200 humans, our minds were able to store all of this social value tallying. You can intimately know everyone in your tribe. You know their credits and debits to the communal good. We have imaginations though, and can abstract some of this into stories and myths and other sorts of value systems, and so, maybe you don’t know Urgk personally, but he has a lot of cows, and you know how useful those are, so you immediately assign him some qualities in your mind.

This breaks down if you also don’t know how Urgk got these cows. Did he murder their owners and take them for his own? Did he execute some brilliant trades with tanned leather than eventually became a self-perpetuating cow-wealth machine and left the whole tribe better off? Hopefully, in your abstraction machine you’ve also codified some of the qualities of one type of Urgk and qualities of the other type of Urgk. He’s wearing a cross, and he treats his children well, so, even though you still don’t know him intimately, you at least can make some assumptions, and communicate with him directly to fill in the rest.

If you wanted people to respect you in your tribe (a VERY natural and good desire to have), then you might start trying to figure out how to build a cow-wealth feedback system too. You don’t know shit about tanning, but your weird son enjoys playing with sticks and has an idea to make everyone’s domicile a little more resilient to the weather with his weird hobby. People don’t really understand it, until they see it.

Or maybe you just decide to gain wealth by doing something that is not respectable, and yeah, you’ve got the money now, but it’s negated by the negative social value you’ve incurred, so you’re never truly respected and you never get the girl, ala Gatsby.

You’re comment is close to the mark. I’d go even further than you have and just say outright, ‘money is a store of social value’.

>all the way down to people performing essential services who can't afford to feed their families on full-time work.

This is a feature of the system, not a bug. If these folks weren't barely making it, there'd be more free energy for rentiers to extract through various rent-seeking behavior, and since rentiers have significantly more political power, the system would get subtly worse for the everyman in whatever ways have the least-bad optics until they're barely making it again.

Like, this is why the SF Bay Area has the zoning-caused housing crisis: because it can afford to.

I'm not sure I agree with this. The yacht could get very little use, but so could a house that you build for someone. If the argument is that we should only build public goods that will be widely used like parks, I disagree, because the concept of private property is very entrenched in our society, even in socialist countries.

I also disagree that the Warren Buffet statue would have a negative effect on the wealth of the average citizen. Warren Buffet would be taking capital that is locked up inside assets and spending it to build something, directly contributing significant income to the middle class (laborers) in the economy. This would have a positive beneficial effect on the economy in general.

Imagine a wealthy billionaire with all of his assets locked up in gold bars in a swiss vault. Outside of a few hired guards that protect the gold, nobody benefits. If he liquidated that gold and used the proceeds to build statues, quite a lot of people would benefit from the income generated.

But how are you removing a asset from circulation? Like I asserted in my original post when you are not using money, somebody else is -- unless you are actually putting your cash in a vault.

When ever you store money in a bank, it gives the bank the ability to make loans using that very money to other people who then can start other businesses which intern then generate more exchanges of cash with other people.

So again, unless you are actually storing raw cash under your bed -- the fact that you are not spending it is not a ill effect on the economy as a while. I also postulate nobody has a bed big enough to store enough raw cash that the economy would ever notice.

In short I am calling BS on the idea that you can actually remove money from circulation -- other than actually destroying it that is.

Maybe I am still missing the point, but just because you have a bunch of money does not mean you need to make boat building jobs. The bank can easily loan the money out to any of the Congolese people who can show that boat building is a good business. And you who have made a bunch of money off speculation can be part of that by simply hording your money into a bank.