Item — HN Reader

“Don’t be buffaloed by experts and elites. Experts often possess more data than judgment. Elites can become so inbred that they produce hemophiliacs who bleed to death as soon as they are nicked by the real world.” -Colin Powell

Note that Powell was a real-world leader of an extremely large organization, which pretty much delivered extremely difficult and complex real-world results (victory in Operation Desert Storm) on time and within budget. (Yes, I know about his role in whitewashing My Lai. And later moral failures. Not. The. Point.)

Also - how much are anti-intellectualism and anti-elitism grounded in repeated experiences by groups of "ordinary people" with intellectuals and elites who are oblivious (at best) to the concerns and problems of ordinary people? If not busy using their intellectual and elite status to justify or excuse treating ordinary people like crap, for their (intellectuals and elites) own benefit? Marie Antoinette probably never said "Let them eat cake" - but that phrase and the surrounding French history sum up very well how things often work out, given human nature, when society contains self-absorbed elites.

1 comments

The problem I have with populist anti-elite rhetoric is not so much that the elites don't have their failures (they do, and in fact any major failure is almost by definition the responsibility of elites, since they run things).

The issue is that it is often used by one group of power-seeking elites vs another, where one group tries to pretend if they win it will be putting the ordinary people in charge somehow. Often it doesn't seem to work out that way in practice.

True. I'm not saying that populist anti-elite rhetoric has a history of ending well. I'm saying that sh*tty elites who inspire and empower such rhetoric are the real problem.

Note that in history, when things really get nasty, it usually ends badly for 'most all current and wanna-be elites. The French Revolution was 10 bloody years of upheaval, and the eventual victor was no intellectual, but a ruthless general who seized power in a coup. Many of recent history's other highly successful revolutionaries (Hitler, Mao, Stalin, ...) have viewed elites at best with extreme suspicion, and at worst as a problem for which the best solution was some sort or other of death camp.

> I'm saying that sh*tty elites who inspire and empower such rhetoric are the real problem.

Some of it could also be due to external circumstances, I think Hoover was supposed to actually be pretty competent and intelligent relative to other politicians of his time, but countries everywhere had trouble dealing with the great depression effectively.

Ray Dalio has an interesting perspective on populism where he goes into detail on a bunch of specific cases [1].

In general, he argues that part of the reason for the emergence of populism this time is the end of a long-term debt cycle, where debt levels increase and interest rates decrease until interest rates hit 0 and can't be easily lowered further, and that the great depression and the financial crisis are examples of this dynamic. And that after this happens, internal tensions often increase (keep in mind on a macro level, dollar debt/savings are two sides of the same coin, so if debt levels stop increasing savings do also, and the economy takes on a more zero-sum dynamic). He covers the economics more on the home page of the same site [2].

[1] https://economicprinciples.org/downloads/bw-populism-the-phe...

[2] https://economicprinciples.org/

The fundamental problem is the assumption that there will always be scarcity.

This creates the capitalist mindset where consumption will always be too high and savings/investment too low. Considering that every economy starts out with scarcity that assumption isn't too far off. So the reinvestment of capital isn't such a terrible idea.

However, what if you have exactly enough capital to meet all consumer demand? If you were to keep reinvesting then the consumer economy would shrink to nothing and the investment economy will be all that is left. At some point there is simply too much capital and because of the reinvestment dynamic it's all in the hands of the people with the lowest time preference.

So now you have a class that controls almost the entire economy and everyone else whose involvement in the economy keeps shrinking. Now you get elite vs commoner class warfare.

If the elite class wants to keep its wealth it must give concessions to the commoner class. There'll be things like welfare, philanthropy or just dressing yourself up as some super hero (Elon Musk pretending to be ironman).

If no such things happen, then the commoner class will take what it needs. That means war or revolution.

How would you end this vicious cycle? It should be pretty obvious. Stop pretending that abundance is scarcity. If there was no excess capital that was created at the expense of consumer demand there would be no need to destroy it.

How does this all relate to interest rates? Wars create the need for growth. Every time capitalism wins the board is reset so that capitalism can win again, just like a monopoly board. If there is not enough capital, interest rates are positive. If there is too much capital interest rates are negative. Thus the ideal interest rate would be 0%. However, that goes against the capitalist mindset. It is so inconceivable that war is preferred. Making weapons is just another growth market.

But a low interest rate requires trust. If we want to stay at 0% we will need trust. For interest rates to become negative you need even more trust, a whole truckload of it. Inflation erodes trust. Political corruption/involvement in the economy erodes trust. Instability erodes trust. Business/debt cycles erode trust. Unemployment erodes trust. Inequality erodes trust. If we want to avoid a war we should do everything we can to maintain trust.

Worst of all. The zero lower bound on cash causes economic distortions because negative interest rates are difficult to represent directly. Effectively there is a cap on trust. Once we hit 0% we have reached the end of how much trust can grow. In fact, people are now looking for currency systems that are more trust efficient i.e. they need less trust. As if a lack of trust is something to live up to. (looking at you Bitcoin).

We have outgrown our current fiat currency system the same way we have outgrown the gold standard. The only way interest rates will become positive is through a war or collapse meaning we stop trusting each other.

> At some point there is simply too much capital and because of the reinvestment dynamic it's all in the hands of the people with the lowest time preference.

> everyone else whose involvement in the economy keeps shrinking

> Wars create the need for growth

This sounds very similar to a book that was recently recommended to me. [1] I've not yet read it, but I understand it makes the case that, historically, an eventually diminishing middle class is the natural state of things and wars and other disasters have been the only things to effectively reverse that trend.

I'm not necessarily so pessimistic just yet. Certainly there are other things than war we could spend money on to get the same desired macroeconomic effects, and I think there is a general understanding among (some portion of) the establishment of the economic issues at hand. And even if enough low-hanging investment fruit has been picked so that companies have trouble finding profitable investments at 0%, if enough demand is produced that will increase the number of profitable investment opportunities (factories etc) and eventually raise interest rates again (and that path probably makes more sense than interest rates that are substantially negative, do you really want "investments" that return less than the resources they cost?).

The infrastructure and families bills seem like steps in the right direction, the proposed families bill is ~1.5% of (current) GDP/yr, which while not close at all to WWII is substantial compared to most recent policies.

But even if we could navigate the post-0% environment it doesn't mean we will. I think there's a reasonable risk that political dysfunction will prevent us from addressing (potentially solvable) economic problems, leading to further dysfunction, in some sort of self-reinforcing process.

[1] https://www.amazon.com/Great-Leveler-Inequality-Twenty-First...