The second half is tremendous. Many with the classic "pull yourself up by your bootstraps" mentality haven't imagined being born in the south side of Chicago.....or Djibouti, Africa.
I returned and saw under the sun that— The race is not to the swift, Nor the battle to the strong, Nor bread to the wise, Nor riches to men of understanding, Nor favor to men of skill; But time and chance happen to them all.
Mike - great piece and thank you for making Luck a subject to talk about. I believe this is so under appreciated. I was born poor and grew up in a poor home, but I still had so much luck on my side. Born in America, born into a poor situation but nearby families that had achieved more success so that I might be able to go to school with their children and see the other side and hope to learn a bit about their parents choices in life that helped them get there. I was lucky to be born to parents that cared and wished they could have done better and encouraged me to not follow their path, but to try to do better.
When in MBA at Michigan I noticed that many of my professors that were from India mentioned Luck on regular basis as a factor in success for entrepreneurs and companies alike. Something they must talk about in their culture more?
Extrapolating decreased oil intensity from the last decade is iffy. This was achieved with renewables that are metal intensive (i.e. not renewable) along with idiotic demonization of both fossil fuels and nuclear.
And now we shall have a metals' super spike that will make renewables even more stupid than before (their ratio of energy invested to energy produced is too low to matter).
Since we didn't build nuclear we will have to burn everything that can't be eaten, which will get you the oil spike.
Regarding Ole, I would choose luck over corruption/redistribution/confiscation. For me evil is the opposite of voluntarism. When it comes to investments, I couldn't find anything that he added on top of Kelly and Thorp. As the maven says "position sizing is more important than entry price".
2) If you cannot find an insight in Peters vs Kelly & Thorpe then you're not thinking deeply enough. What do you do if your bankroll doesn't allow efficient Kelly sizing?
1) The "Inflation Reduction Act" gives me great confidence that prices of Lithium, Cobalt, Nickel, REEs etc will spike.
2) I don't even try to be efficient since these formulas require the knowledge of probabilities and I'm not willing to use ensemble probabilities. I size small, pair long with short against tail events and use an automated trading system that doesn't let me be "wrong for long"...
I would like to sell sauerkraut at my local farmer’s market, but I’m not willing to risk 6 grand in permits for prepared food. I wouldn’t mind selling beer either, but I don’t have quarter mil to risk nor would I risk it if I did. Making beer isn’t expensive, paying the “tax collector” is obscenely so. As someone about one rung above the lowest socioeconomic stratum, unfettered capitalism sounds pretty good if it means near zero capital costs to risk a side hustle that could become something more.
Ayn Rand’s peculiar and reactionary definition of selfishness and Peter’s similar treatment of luck notwithstanding.
I think you’re one of the most interesting finance people I watch/listen to/read, and maybe I’m too poor or foolish to understand how redistribution is going to improve my lot, but I don’t want it. What I want is a chance.
Of course a Cathedral agent such as Jacob Soll would publish a book on why people like him should be handed more power to manage/regulate society. It’s a blatant power grab typical of The Cathedral (Academia + Media) — aka the Enemy of the People.
Albert-László Barabási remains the enfant terrible: Inequality is necessary for stable and scalable networks. Equality causes network instability and collapse. All stable and infinitely scalable networks are necessarily Pareto distributions — what he calls scale-free networks. Exponential inequality is a feature not a bug. The higher the Gini coefficient, the more stable and scalable the network.
1. your discussion of oil focuses on demand, whereas the bull case seems to rely primarily on poor supply fundamentals in the near future due to under-investment?
2. Yes, luck plays a huge role in outcomes, but there is also truth in 'the harder I work the luckier I get'.
In my case, 99.9% luck…. But I’ve seen the difference made by discipline and hard work to come to respect it.
Anyhow - we can always argue that the capacity for self discipline and hard work are also a result of luck in nature and/or nurture, and the whole discussion becomes moot.
A comment on oil. I spent 42 years in the Oil& Gas business from exploration through development and production. I have seen about 3 cycles in price during that time and recall well the perspectives in the media and around me as prices were rising and vice versa. Oil has always risen and collapsed along with supply scarcity or abundance, sometimes clearly along the lines of "perception" of both.
I have no strong counter to your points 1 and 2 and personally believe point 3 on increased usage versus GDP will remain correlated, but perhaps not overwhelmingly so. I think the biggest impact on price going forward will be supply. I firmly believe supply is going to start to buckle. Note that I am primarily referring to oil here rather than gas. But the demand for LNG going forward is eventually going to impact available gas supply as well. The "Public" believe that oil nd gas can be turned on almost as fast as it can be turned off. As an oilfield engineer I of know this is not at all the case and indeed in the West turning on supply it going to become a more prolonged process. Shale oil has led to many to believe oil is abundant in the USA and quick to increase production. They are badly mistaken as Shale Oil reserves are limited and production rapidly declines. By 2030, 2035 at the latest Shale oil production will be way below even todays reduced production levels.
The real issue is the OPEC supply, its rapidly declining reserves and its vulnerability both politically and militarily to curtailment. Our planet runs on hydrocarbons. It has been the lifeblood of progress and modern civilization. Its derivative products are legion. I expect more volatility in price going forward and indeed we could see sub $50 oil again. However I firmly believe as history has shown, oil will surprise us all again and $200 / bbl oil (about where in got to in 2011 $s) will be forthcoming one more time.
Read my first post. The point I made is that demand is a blind spot for barrel counters. Supply may well collapse, but then don’t give me simplistic demand models.
Deciding what game to play is important when it comes to accumulating wealth.
If Mike Green or Warren Buffet dedicated their lives to becoming the #1 McDonalds drivethru worker, then they probably wouldn’t have the same level of wealth that they currently do.
There must be merit to choosing the most lucrative game to apply your skillset to right?
While I agree that merit is not the sole, or even leading, reason for wealth accumulation, it still plays a significant role. Warren Buffet, Cuban, Zuckerberg, Bezos, every single one of them was lucky, but hard work and sound strategic thinking were key factors in their success. Did many/all of them win the proverbial lottery when they were born? Certainly, but there's tons of people born into similar circumstances who have not built the enormous wealth machines those men did.
Are billionaires good for society? I would argue that they are not very good at all, but I also do not trust government officials to appropriately develop systems to redistribute the wealth they have generated. Redistribution is difficult to execute without creating other negative knock-on effects.
The question is not whether they worked hard or had talent. Question is whether we treat those attributes as the REASON for their success (it was not) or we celebrate the effort while restricting consolidation of wealth. Do we view taxes as a privilege born of success or as a penalty for success?
I think papering over the degree to which the current system is severely skewed away from incetivizing and encouraging behavior which leverage the positives of market-based economies is a problem. I revert to David Hume rather than Rand. The perpetual motion machine to centrally plan and price fix interest rates has had dire consequences and disincentivized savings over credit creation, kleptocratic malinvestment, and graft, etc.
In a non-ergodic system, we are pulling a Costanza vs what incentives are "the good" in market-based economies. Counter-cyclical 'stimulus' is a conduit for graft and delays natural renomralization of the business cycle - bigger boom bust cycles make things much worse long-term. Non-ergodic complex systems do not lend themselves to a Wizard of Oz policy design, IMO.
The centralization of redistribution powers in a Federal government is also a poor design for a non-ergodic system, compounding the business cycle and corruption issues.
Am not opposed to the concepts of redistribution and a robust social safety net, but the modernization of the 18th Century system design should embrace the miraculous structural design of a federalist republic with decentralized government and money....and no I am not a "Bitcoiner." The US was initially setup up pretty well to address the non-ergodicity...we just keep moving further and further away.
Am confident you know your US and related banking system history - gold/silver via BUS with states largely left to grow/build the banking system is to what I was referring. Personally prefer a system design with many iterations of corrupt governments-banks competing with one another rather than a massive centralized corrupt one.
That's a reasonable model when states are land rich and largely capable of self-funding through sales and taxes on land. Post Civil War, with the introduction of limited liability corporations, wealth shifted to alternative vehicles challenging to tax at the state level (and now at the national level as tech cos have demonstrated). Sovereignty is the power to enforce tax collections.
Since that aspect is largely a philosophical conversation, there is a simple way to address what you reference, even if highly unlikely. At this point would settle for either reinstating Glass Steagal or removing LLC for just federal banks.
My attempted broader point was not about money or banking, but aligning incentives and system design to enhance the positive aspects of market based economies while prioritizing long-term resilience with what we know so far about complex systems.
I find it difficult reconciling some of your comments with US economic history. Arguably the most significant “centralization” occurred under Lincoln during the Civil War mobilization. It was during that period our federal government established an early form of our modern monetary system by way of (temporarily) abandoning the gold standard and issuing “greenbacks” to fund the war effort. We also passed the national banking act (establishing the OCC), the Morrill act (establishing the dept of agriculture), and the homestead act. We also established an early form of the IRS and introduced new tax provisions, thus supporting the value of the new greenbacks. The confederacy by contrast refused to mobilize its resources, and was unable to tax its citizens, leading to an eventual military defeat and hyperinflation of its currency.
The only other central mobilizations of similar scale were the New Deal and WWII effort, which setup the US for decades of subsequent growth.
It’s worth noting there are fewer civilian employees working for the federal government today (in absolute terms, not just % of population) under president Biden than there were under Reagan. Our federal government has shrunk in the very literal sense of the word compared to past periods of broad based economic growth and wealth creation.
Hard to see how government spending isn’t ostensibly countercyclical - the deficit usually rises during recessions thanks to increased unemployment spending and decreased tax collection.
I’d encourage you to reframe such spending programs as “predistribution” instead of “redistribution.” The federal govt spends first and taxes later - it cannot collect taxes in a currency that doesn’t yet exist. The “decentralized” banking era (aka wildcat banking) from 1837 to 1865 was a disaster and led to constant boom/bust cycles. Can you imagine what it would be like to try to pay for something only to learn that your banknote is no longer valid tender because it’s issuer went bust? Would be unconscionable in today’s world.
We are very much aligned in our view of US economic history (unusual). I like the framing of "predistribution." Warren Mosler makes similar observations. I'm trying to avoid pure-MMT framing as it has received a "bad" name in the recent inflationary episode, but as I always try to point out, "MMT is DESCRIPTIVE of the current system, it is not PRESCRIPTIVE on how to use the resulting power"
Thanks! Btw I spent a week at the Levy institute this summer for an MMT seminar, discovered indirectly through reading Leon Levy’s memoir you had recommended on a podcast interview (thank you). I struggle understanding why MMT the description isn’t more broadly accepted as a useful framework of analysis for capitalists. Mosler was a HF guy. Warren Buffet basically endorsed it in principle at this past year’s AGM. And one of my favorite stats from 2020/2021: following the stimulus programs, we had record new business starts in 2020 only to be broken in 2021 (TBD for 2022). The stimulus programs could have been better, but hard to argue they weren’t pro-business and capitalism.
I was referring to the limited role of the BUS relative to the states largely left to build and grow the broader banking system. Agree the Civil War launched the process of more centralized control, with 1906 obviously accelerating.
From a complex systems perspective, more frequent renormalization can make systems less fragile. Yes, there were more frequent and turbulent cycles, though many had to do with the agrarian-centric system. I'd argue our long-term economic prosperity would be improved with more frequent business cycles.
Great comment. We have evolved from market discovery to command economy, and I'm using the word 'evolved' lightly here. What incentives can there be other than the pavlovian red light/green light response to the Fed's machinations? This is why I remind myself that this is really not a 'stock market' as much as it is a commodity, trading like crude. I know this is a societal discussion but the Fed reflects our lack of trust in a system gone wrong.
When an interview with Ole Peters as you did with Warren Mosler?
That video clicked the MMT framework in my mind and I can't thank you enough for that.
I'm a convert!
I hope we will see more of your post around markets and politics.
One of the things that I would love to hear your thoughts about, is your view around the "fed policy tightening error".
Maybe this could be a suggestion for a future post here ;)
I get that this is more a supply side (and war time) inflation rather than a demand side inflation.
I get that good investment would be a better policy in order to decrease the future potential inflation.
I get that increasing the short term interest rate injects volatility and increase the inflationary component in the short term.
I do not get this: if the Fed hadn't raised rates, wouldn't we have seen a higher repricing of inflation expectations, and consequently a further deterioration of assets in 2022?
Interesting article. An interesting point for you to consider: oil consumption growth has lagged not only GDP growth, but vehicle growth as well. Car registrations have doubled since 2000, and are in fact accelerating.
Fuel efficiency is one reason for this divergence, however, the main driver for oil lagging autos is actually outside of transportation: natgas has been replacing oil in industrial use, heating (heating oil) and electricity generation over the past few decades.
Looking forward, for your demand thesis to be correct, you probably should ask yourself:
1. How much more oil-to-gas switching and hence oil demand destruction is left there to be done in heating/industrial/electricity? The current use is pretty small as a percentage of oil consumption.
2. What is a realistic rate of fuel efficiency improvement for the world's [growing] auto fleet going forward, given basic physics constraints?
3. Will the car registration trend have to drastically break for you to be correct? How would that happen? EIA thinks that ICE vehicle fleet will continue growing until 2038, do you think they are wrong?
Great piece Mike, thank you for sharing! If you haven’t already, I recommend reading Katarina Pistor’s “Code of Capital.” It helped me better understand how capital itself is a creature of law, and the law by definition requires a state to create and enforce it. After reading, it’s become hard to not see how arbitrary public policy choices create fortunes (and distress) for people through no fault of their own. Said differently, the “invisible hand” is a myth, and there is a very visible hand called the government which presses its thumb on the scale to favor certain groups of people over others. Recognizing that people are successful thanks to government handouts (e.g. property rights and enforcing contracts) is essential for constructive public policy discourse.
I think everyone has a certain amount of “luck”, the difference between lucky and unlucky is whether someone has done the hard work of preparing themselves to take advantage of the opportunities that come their way. Some may be more lucky by being at the right place at the right time with the right skill sets,ie Bill Gates, but I suspect he’d have been successful regardless due to his intelligent, drive and work ethic.
The second half is tremendous. Many with the classic "pull yourself up by your bootstraps" mentality haven't imagined being born in the south side of Chicago.....or Djibouti, Africa.
The Bible does elucidate a similar point,
Ecclesiastes 9:11 NKJV
I returned and saw under the sun that— The race is not to the swift, Nor the battle to the strong, Nor bread to the wise, Nor riches to men of understanding, Nor favor to men of skill; But time and chance happen to them all.
Mike - great piece and thank you for making Luck a subject to talk about. I believe this is so under appreciated. I was born poor and grew up in a poor home, but I still had so much luck on my side. Born in America, born into a poor situation but nearby families that had achieved more success so that I might be able to go to school with their children and see the other side and hope to learn a bit about their parents choices in life that helped them get there. I was lucky to be born to parents that cared and wished they could have done better and encouraged me to not follow their path, but to try to do better.
When in MBA at Michigan I noticed that many of my professors that were from India mentioned Luck on regular basis as a factor in success for entrepreneurs and companies alike. Something they must talk about in their culture more?
Anyway - good discussion to touch on!
Cheers.
Extrapolating decreased oil intensity from the last decade is iffy. This was achieved with renewables that are metal intensive (i.e. not renewable) along with idiotic demonization of both fossil fuels and nuclear.
And now we shall have a metals' super spike that will make renewables even more stupid than before (their ratio of energy invested to energy produced is too low to matter).
Since we didn't build nuclear we will have to burn everything that can't be eaten, which will get you the oil spike.
Regarding Ole, I would choose luck over corruption/redistribution/confiscation. For me evil is the opposite of voluntarism. When it comes to investments, I couldn't find anything that he added on top of Kelly and Thorp. As the maven says "position sizing is more important than entry price".
Two quick observations:
1) "And now we shall have a metals' super spike" -- overconfidence is a killer. If copper prices rise we'll figure it out. Might enjoy this from June this year https://www.researchgate.net/publication/295922161_Wire_harness_recycling_Toyota_has_developed_a_new_technology_for_recycling_the_copper_contained_automotive_harnesses
2) If you cannot find an insight in Peters vs Kelly & Thorpe then you're not thinking deeply enough. What do you do if your bankroll doesn't allow efficient Kelly sizing?
Thanks Mike.
1) The "Inflation Reduction Act" gives me great confidence that prices of Lithium, Cobalt, Nickel, REEs etc will spike.
2) I don't even try to be efficient since these formulas require the knowledge of probabilities and I'm not willing to use ensemble probabilities. I size small, pair long with short against tail events and use an automated trading system that doesn't let me be "wrong for long"...
What am I missing?
I would like to sell sauerkraut at my local farmer’s market, but I’m not willing to risk 6 grand in permits for prepared food. I wouldn’t mind selling beer either, but I don’t have quarter mil to risk nor would I risk it if I did. Making beer isn’t expensive, paying the “tax collector” is obscenely so. As someone about one rung above the lowest socioeconomic stratum, unfettered capitalism sounds pretty good if it means near zero capital costs to risk a side hustle that could become something more.
Ayn Rand’s peculiar and reactionary definition of selfishness and Peter’s similar treatment of luck notwithstanding.
I think you’re one of the most interesting finance people I watch/listen to/read, and maybe I’m too poor or foolish to understand how redistribution is going to improve my lot, but I don’t want it. What I want is a chance.
Of course a Cathedral agent such as Jacob Soll would publish a book on why people like him should be handed more power to manage/regulate society. It’s a blatant power grab typical of The Cathedral (Academia + Media) — aka the Enemy of the People.
Albert-László Barabási remains the enfant terrible: Inequality is necessary for stable and scalable networks. Equality causes network instability and collapse. All stable and infinitely scalable networks are necessarily Pareto distributions — what he calls scale-free networks. Exponential inequality is a feature not a bug. The higher the Gini coefficient, the more stable and scalable the network.
You mean Barabási whose work has largely been discredited? Almost exactly my point. The map is a model, not the actual territory https://www.nature.com/articles/s41467-019-08746-5
1. your discussion of oil focuses on demand, whereas the bull case seems to rely primarily on poor supply fundamentals in the near future due to under-investment?
2. Yes, luck plays a huge role in outcomes, but there is also truth in 'the harder I work the luckier I get'.
1) I have been very clear I can’t offer anything meaningful to a discussion of supply. My first post discussed demand as the barrel counter blind spot
2) there is a small kernel of truth here, but the relative allocation might surprise you. Certainly surprised me.
In my case, 99.9% luck…. But I’ve seen the difference made by discipline and hard work to come to respect it.
Anyhow - we can always argue that the capacity for self discipline and hard work are also a result of luck in nature and/or nurture, and the whole discussion becomes moot.
A comment on oil. I spent 42 years in the Oil& Gas business from exploration through development and production. I have seen about 3 cycles in price during that time and recall well the perspectives in the media and around me as prices were rising and vice versa. Oil has always risen and collapsed along with supply scarcity or abundance, sometimes clearly along the lines of "perception" of both.
I have no strong counter to your points 1 and 2 and personally believe point 3 on increased usage versus GDP will remain correlated, but perhaps not overwhelmingly so. I think the biggest impact on price going forward will be supply. I firmly believe supply is going to start to buckle. Note that I am primarily referring to oil here rather than gas. But the demand for LNG going forward is eventually going to impact available gas supply as well. The "Public" believe that oil nd gas can be turned on almost as fast as it can be turned off. As an oilfield engineer I of know this is not at all the case and indeed in the West turning on supply it going to become a more prolonged process. Shale oil has led to many to believe oil is abundant in the USA and quick to increase production. They are badly mistaken as Shale Oil reserves are limited and production rapidly declines. By 2030, 2035 at the latest Shale oil production will be way below even todays reduced production levels.
The real issue is the OPEC supply, its rapidly declining reserves and its vulnerability both politically and militarily to curtailment. Our planet runs on hydrocarbons. It has been the lifeblood of progress and modern civilization. Its derivative products are legion. I expect more volatility in price going forward and indeed we could see sub $50 oil again. However I firmly believe as history has shown, oil will surprise us all again and $200 / bbl oil (about where in got to in 2011 $s) will be forthcoming one more time.
Read my first post. The point I made is that demand is a blind spot for barrel counters. Supply may well collapse, but then don’t give me simplistic demand models.
Deciding what game to play is important when it comes to accumulating wealth.
If Mike Green or Warren Buffet dedicated their lives to becoming the #1 McDonalds drivethru worker, then they probably wouldn’t have the same level of wealth that they currently do.
There must be merit to choosing the most lucrative game to apply your skillset to right?
Thanks for the thought provocation!!
Of course. Now try choosing that game without parents to guide you.
Or being lucky enough to have parents that can guide you!
While I agree that merit is not the sole, or even leading, reason for wealth accumulation, it still plays a significant role. Warren Buffet, Cuban, Zuckerberg, Bezos, every single one of them was lucky, but hard work and sound strategic thinking were key factors in their success. Did many/all of them win the proverbial lottery when they were born? Certainly, but there's tons of people born into similar circumstances who have not built the enormous wealth machines those men did.
Are billionaires good for society? I would argue that they are not very good at all, but I also do not trust government officials to appropriately develop systems to redistribute the wealth they have generated. Redistribution is difficult to execute without creating other negative knock-on effects.
The question is not whether they worked hard or had talent. Question is whether we treat those attributes as the REASON for their success (it was not) or we celebrate the effort while restricting consolidation of wealth. Do we view taxes as a privilege born of success or as a penalty for success?
I think papering over the degree to which the current system is severely skewed away from incetivizing and encouraging behavior which leverage the positives of market-based economies is a problem. I revert to David Hume rather than Rand. The perpetual motion machine to centrally plan and price fix interest rates has had dire consequences and disincentivized savings over credit creation, kleptocratic malinvestment, and graft, etc.
In a non-ergodic system, we are pulling a Costanza vs what incentives are "the good" in market-based economies. Counter-cyclical 'stimulus' is a conduit for graft and delays natural renomralization of the business cycle - bigger boom bust cycles make things much worse long-term. Non-ergodic complex systems do not lend themselves to a Wizard of Oz policy design, IMO.
The centralization of redistribution powers in a Federal government is also a poor design for a non-ergodic system, compounding the business cycle and corruption issues.
Am not opposed to the concepts of redistribution and a robust social safety net, but the modernization of the 18th Century system design should embrace the miraculous structural design of a federalist republic with decentralized government and money....and no I am not a "Bitcoiner." The US was initially setup up pretty well to address the non-ergodicity...we just keep moving further and further away.
How was the US setup with “decentralized money”?
Am confident you know your US and related banking system history - gold/silver via BUS with states largely left to grow/build the banking system is to what I was referring. Personally prefer a system design with many iterations of corrupt governments-banks competing with one another rather than a massive centralized corrupt one.
That's a reasonable model when states are land rich and largely capable of self-funding through sales and taxes on land. Post Civil War, with the introduction of limited liability corporations, wealth shifted to alternative vehicles challenging to tax at the state level (and now at the national level as tech cos have demonstrated). Sovereignty is the power to enforce tax collections.
Since that aspect is largely a philosophical conversation, there is a simple way to address what you reference, even if highly unlikely. At this point would settle for either reinstating Glass Steagal or removing LLC for just federal banks.
My attempted broader point was not about money or banking, but aligning incentives and system design to enhance the positive aspects of market based economies while prioritizing long-term resilience with what we know so far about complex systems.
I find it difficult reconciling some of your comments with US economic history. Arguably the most significant “centralization” occurred under Lincoln during the Civil War mobilization. It was during that period our federal government established an early form of our modern monetary system by way of (temporarily) abandoning the gold standard and issuing “greenbacks” to fund the war effort. We also passed the national banking act (establishing the OCC), the Morrill act (establishing the dept of agriculture), and the homestead act. We also established an early form of the IRS and introduced new tax provisions, thus supporting the value of the new greenbacks. The confederacy by contrast refused to mobilize its resources, and was unable to tax its citizens, leading to an eventual military defeat and hyperinflation of its currency.
The only other central mobilizations of similar scale were the New Deal and WWII effort, which setup the US for decades of subsequent growth.
It’s worth noting there are fewer civilian employees working for the federal government today (in absolute terms, not just % of population) under president Biden than there were under Reagan. Our federal government has shrunk in the very literal sense of the word compared to past periods of broad based economic growth and wealth creation.
Hard to see how government spending isn’t ostensibly countercyclical - the deficit usually rises during recessions thanks to increased unemployment spending and decreased tax collection.
I’d encourage you to reframe such spending programs as “predistribution” instead of “redistribution.” The federal govt spends first and taxes later - it cannot collect taxes in a currency that doesn’t yet exist. The “decentralized” banking era (aka wildcat banking) from 1837 to 1865 was a disaster and led to constant boom/bust cycles. Can you imagine what it would be like to try to pay for something only to learn that your banknote is no longer valid tender because it’s issuer went bust? Would be unconscionable in today’s world.
Btw great name.
We are very much aligned in our view of US economic history (unusual). I like the framing of "predistribution." Warren Mosler makes similar observations. I'm trying to avoid pure-MMT framing as it has received a "bad" name in the recent inflationary episode, but as I always try to point out, "MMT is DESCRIPTIVE of the current system, it is not PRESCRIPTIVE on how to use the resulting power"
Thanks! Btw I spent a week at the Levy institute this summer for an MMT seminar, discovered indirectly through reading Leon Levy’s memoir you had recommended on a podcast interview (thank you). I struggle understanding why MMT the description isn’t more broadly accepted as a useful framework of analysis for capitalists. Mosler was a HF guy. Warren Buffet basically endorsed it in principle at this past year’s AGM. And one of my favorite stats from 2020/2021: following the stimulus programs, we had record new business starts in 2020 only to be broken in 2021 (TBD for 2022). The stimulus programs could have been better, but hard to argue they weren’t pro-business and capitalism.
The details of "Why" for new business formations unfortunately matters a lot. Much of that was "stimulus arbitrage", unfortunately.
I was referring to the limited role of the BUS relative to the states largely left to build and grow the broader banking system. Agree the Civil War launched the process of more centralized control, with 1906 obviously accelerating.
From a complex systems perspective, more frequent renormalization can make systems less fragile. Yes, there were more frequent and turbulent cycles, though many had to do with the agrarian-centric system. I'd argue our long-term economic prosperity would be improved with more frequent business cycles.
And thank you!
Great comment. We have evolved from market discovery to command economy, and I'm using the word 'evolved' lightly here. What incentives can there be other than the pavlovian red light/green light response to the Fed's machinations? This is why I remind myself that this is really not a 'stock market' as much as it is a commodity, trading like crude. I know this is a societal discussion but the Fed reflects our lack of trust in a system gone wrong.
When an interview with Ole Peters as you did with Warren Mosler?
That video clicked the MMT framework in my mind and I can't thank you enough for that.
I'm a convert!
I hope we will see more of your post around markets and politics.
One of the things that I would love to hear your thoughts about, is your view around the "fed policy tightening error".
Maybe this could be a suggestion for a future post here ;)
I get that this is more a supply side (and war time) inflation rather than a demand side inflation.
I get that good investment would be a better policy in order to decrease the future potential inflation.
I get that increasing the short term interest rate injects volatility and increase the inflationary component in the short term.
I do not get this: if the Fed hadn't raised rates, wouldn't we have seen a higher repricing of inflation expectations, and consequently a further deterioration of assets in 2022?
THanks again Mike.
Interesting article. An interesting point for you to consider: oil consumption growth has lagged not only GDP growth, but vehicle growth as well. Car registrations have doubled since 2000, and are in fact accelerating.
https://transportgeography.org/contents/chapter5/road-transportation/automobile-production-fleet-world/
Fuel efficiency is one reason for this divergence, however, the main driver for oil lagging autos is actually outside of transportation: natgas has been replacing oil in industrial use, heating (heating oil) and electricity generation over the past few decades.
Looking forward, for your demand thesis to be correct, you probably should ask yourself:
1. How much more oil-to-gas switching and hence oil demand destruction is left there to be done in heating/industrial/electricity? The current use is pretty small as a percentage of oil consumption.
2. What is a realistic rate of fuel efficiency improvement for the world's [growing] auto fleet going forward, given basic physics constraints?
3. Will the car registration trend have to drastically break for you to be correct? How would that happen? EIA thinks that ICE vehicle fleet will continue growing until 2038, do you think they are wrong?
https://www.eia.gov/todayinenergy/detail.php?id=50096
What answers to these three questions would lead to NEGATIVE growth in oil demand in the next 15 years, in your opinion?
Thanks.
Brilliant piece. Only the community should lobby Rome.
Great piece Mike, thank you for sharing! If you haven’t already, I recommend reading Katarina Pistor’s “Code of Capital.” It helped me better understand how capital itself is a creature of law, and the law by definition requires a state to create and enforce it. After reading, it’s become hard to not see how arbitrary public policy choices create fortunes (and distress) for people through no fault of their own. Said differently, the “invisible hand” is a myth, and there is a very visible hand called the government which presses its thumb on the scale to favor certain groups of people over others. Recognizing that people are successful thanks to government handouts (e.g. property rights and enforcing contracts) is essential for constructive public policy discourse.
Agree. It’s a GREAT book.
I think everyone has a certain amount of “luck”, the difference between lucky and unlucky is whether someone has done the hard work of preparing themselves to take advantage of the opportunities that come their way. Some may be more lucky by being at the right place at the right time with the right skill sets,ie Bill Gates, but I suspect he’d have been successful regardless due to his intelligent, drive and work ethic.
Why do suspect that? Ted Kaszinsky had similar attributes.