On currency

On currency

The value of money is a useful fiction.

As with most fictions, the story that we tell about money helps some people more than others. 

Money, in and of itself, is useless.  Gold, cowry shells, slips of paper with pictures of dead presidents.  The story makes us want these things.  We tell ourselves that these items can “hold value.”  Instead of lumbering about with all the goods we want to barter, we can carry a small purse of coins.  As long as everyone believes the same fiction, we can trade our apples for some coins, then later use those coins to pay someone to help us dig a well.

The story that money has value is most helpful for the people who already have money.

If everyone suddenly woke up from the story, and decided that coins were worthless, the people who grow apples would be okay.  In some ways, it’s less practical to pay people with apples – coins don’t bruise or rot – but it can be done.  Similarly, the people who dig wells would be okay. 

But the people who owned coins would be worse off – previously, the things they owned could be traded for other, inherently useful goods.  And people who had made loans would be much worse off – they would have given away money at a time when it could be used to buy things, and when they receive the coins back, they’ll be worthless.  No recompense for past sacrifice – only loss.

So people with current wealth benefit most from the fiction that money has value.

This is, as far as I can tell, the only real virtue of Bitcoins.  This form of currency is not anonymous – indeed, it works through the use of “blockchains,” a permanent ledger that records everyone who has ever owned a particular piece of money.  Bitcoins are a little like dollar bills where you have to sign your name on it in order to spend it.  And they’re excruciatingly bad for the environment – it takes energy to mint a real-world, metal coin, but nothing like the amount of energy that’s constantly wasted in order to verify the ledgers of who owns which Bitcoin.  Ownership is determined by vote, and the system was designed to be intentionally inefficient so that it’s difficult for one person to overwhelm the system and claim ownership of everybody’s coins.  And it’s unstable – it’s difficult for someone to outvote the system and take control, but not impossible.

Those all seem like bad features.  But Bitcoins are now incredibly valuable – in the years since I explained all these flaws to a high school runner who’d begun investing in Bitcoins, his $500 investment has burgeoned to be worth $24,000.

The only “good” feature of Bitcoins is that the system is designed to reward past wealth.  The total money supply approaches an asymptote – new Bitcoins are added to the system more slowly over time.  If the currency is successful, this will impose a deflationary pressure on prices.  Today, a certain amount of heroin might cost 0.1 Bitcoin – in the future, that same amount of heroin might cost 0.01 Bitcoin.

This deflationary pressure would cause the value of current holdings to increase.  By simply buying Bitcoins and hoarding them, you’d gain wealth! 

But this only works for as long as people keep believing the fiction that Bitcoins have value.  And the more people who buy and hold Bitcoins, as opposed to actively using them as currency, the less believable the story will be.  Anyone who “invests” in Bitcoins is wagering that other people will behave in a way that maintains the fiction, even though the person who is making the wager is actively undermining the story.

When we immerse ourselves in stories, we often need to temporarily suspend our disbelieve, but that particular set of mental gymnastics is too twisty for my mind.

Modern money barely exists.  Before, we spun stories about the value of coins – now, the fiction lends value to certain strings of numbers.  In addition to the Federal Reserve, any bank can create money by making a loan and claiming that a certain amount of currency has been added to one account or another.

This has allowed our fictions to become more intricate.  In 2008, the banking crisis threatened to make wealthy people much less wealthy – they had purchased certain financial assets that seemed valuable, and then these assets turned out to be worthless. 

It’s as though there was a certain new Magic card that everyone assumed was great, and a few rich kids bought all the copies of it, but then people finally read the card and realized it was terrible.  Now these rich kids are holding hundreds of copies of a worthless piece of cardboard.

This would be sad for those rich kids.  But, lo and behold, it was fixable!  If everyone can be forced to believe, again, that the item has value, then it will.  The story needs to be chanted more loudly.  If I paid $50 for this card last week, then it’s still worth at least $50!

That’s what “quantitative easing” was – governments around the world agreed to buy worthless items in order to convince everyone that these items had value.  This way, the wealthy people who had initially bought them wouldn’t have to suffer.

In the years since I’ve been teaching in our local county jail, I’ve struggled to comprehend the disparities between the way we treat poor people and wealthy people who made mistakes.

For instance, stock traders stole $60 billion from state governments across Europe – the trick was to have two people both temporarily own the stock around tax time, then they lie to the government and claim that they both had to pay taxes on it.  Only one set of taxes were actually paid, but they lie and claim two rebates.  Money from nothing!

From David Segal’s New York Times article:

A lawyer who worked at the firm Dr. Berger founded in 2010, and who under German law can’t be identified by the news media, described for the Bonn court a memorable meeting at the office.

Sensitive types, Dr. Berger told his underlings that day, should find other jobs.

“Whoever has a problem with the fact that because of our work there are fewer kindergartens being built,” Dr. Berger reportedly said, “here’s the door.”

They stole billions of dollars, and the question at stake isn’t whether they will be punished, but whether they can be forced to return any of the money. 

By way of contrast, many of the guys in jail are there for stealing $10 or so.  A guy did five months for attempting to use my HSA card to buy two sandwiches and a pack of cigarettes.  Another violated probation when he stole a lemonade – “In my defense,” he told me, “I didn’t even mean to steal it, I was just really fucking high at the time.

Two weeks ago, a dentist visited the jail during my class.  I go in from 4:00 p.m. to 5:30 – at about 4:15, a guard came to the door and barked somebody’s name.

“Med call?” somebody asked.

“Shakedown?” asked another.

The guard looked at the sheet of paper in his hand, then said “Dentist.”  And suddenly six guys started clamoring, “You got time for extras?  I gotta get on that list!” 

The man whose name had been called jumped out of his chair and sauntered to the door.

After he’d left, the guys explained the system.  “You can get dental, like real dental, but you have to put your name on the list and they only come like every five, six months.  So there’s no hope unless you’re gonna be here for a while.  And it’s kinda expensive, you pay like fifty for the visit and another ten for each tooth they pull.”

Apparently that’s the only service – pulling teeth.

“They do good work,” said the older man next to me, “I got these bottom two done here.”  And he tilted his head back and opened his mouth.  But I grew up wealthy – it’s hard for me to assess quality by eyeballing the blank gap between somebody’s teeth.

About twenty minutes later, the guy came back.

“Which ones you have them do?” somebody asked him.

“I had ‘em get these bottom three,” he said, although his voice was slurry because they’d loaded his mouth with novacaine.

“You idiot!  You didn’t have them get the top one?”

“No, man, that’s my smile!  Gonna find a way to save that tooth.”

“Man, see, how come I couldn’t be on that list?  I would’ve had ‘em pull a whole bunch of ‘em out.  Wouldn’t give ‘em no that’s my smile bullshit.”

As it happens, I’d gone in for a cleaning at my dentist just the day before.  And I’ve had braces.  Invisalign.  I suddenly felt rather self-conscious about my own perfectly clean, perfectly straight, perfectly intact teeth.

“So who was it, that lady doctor?”

“Naw, was the Black guy.”

“What?  Fuck’s it matter that he’s Black?”

“Nobody said it matters, it’s just, there’s three dentists, there’s the lady doctor, the Black guy, and then that other guy.  There’s just three, is all.”

“Oh.”

Our man was out eighty dollars after the visit.  Could’ve spent ninety, but he was holding out hope for that last one.  And they didn’t let him keep the teeth. 

I’m not sure the tooth fairy ever visits the county jail, anyway.

On automation, William Gaddis, and addiction.

On automation, William Gaddis, and addiction.

I’ve never bought meth or heroin, but apparently it’s easier now than ever.  Prices dropped over the last decade, drugs became easier to find, and more people, from broader swaths of society, began using.  Or so I’ve been told by several long-term users.

This is capitalism working the way it’s supposed to.  People want something, others make money by providing it.

And the reason why demand for drugs has increased over the past decade can also be attributed to capitalism working the way it’s supposed to.  It takes a combination of capital (stuff) and labor (people) to provide any service, but the ratio of these isn’t fixed.  If you want to sell cans of soda, you could hire a human to stand behind a counter and hand sodas to customers, or you could install a vending machine.

Vending_machines_at_hospitalThe vending machine requires labor, too.  Somebody has to fill it when it’s empty.  Someone has to fix it when it breaks.  But the total time that humans spend working per soda is lower.  In theory, the humans working with the vending machine are paid higher wages.  After all, it’s more difficult to repair a machine than to hand somebody a soda.

As our world’s stuff became more productive, fewer people were needed.  Among ancient hunter gatherers, the effort of one person was needed to feed one person.  Everyone had to find food.  Among early farmers, the effort of one person could feed barely more than one person.  To attain a life of leisure, a ruler would have to tax many, many peasants.

By the twentieth century, the effort of one person could feed four.  Now, the effort of one person can feed well over a hundred.

With tractors, reapers, refrigerators, etc., one human can accomplish more.  Which is good – it can provide a higher standard of living for all.  But it also means that not everyone’s effort is needed.

At the extreme, not anyone’s effort is needed.

1024px-Sophia_(robot)_2There’s no type of human work that a robot with sufficiently advanced AI couldn’t do.  Our brains and bodies are the product of haphazard evolution.  We could design something better, like a humanoid creature whose eyes registered more the electromagnetic spectrum and had no blind spots (due to an octopus-like optic nerve).

If one person patented all the necessary technologies to build an army of robots that could feed the world, then we’d have a future where the effort of one could feed many billions.  Robots can write newspaper articles, they can do legal work, they’ll be able to perform surgery and medical diagnosis.  Theoretically, they could design robots.

Among those billions of unnecessary humans, many would likely develop addictions to stupefying drugs.  It’s easier lapse into despair when you’re idle or feel no a sense of purpose.

glasshouseIn Glass House, Brian Alexander writes about a Midwestern town that fell into ruin.  It was once a relatively prosperous place; cheap energy led to a major glass company that provided many jobs.  But then came “a thirty-five-year program of exploitation and value destruction in the service of ‘returns.’ “  Wall street executives purchased the glass company and ran it into the ground to boost short-term gains, which let them re-sell the leached husk at a profit.

Instead of working at the glass company, many young people moved away.  Those who stayed often slid into drug use.

In Alexander’s words:

Even Judge David Trimmer, an adherent of a strict interpretation of the personal-responsibility gospel, had to acknowledge that having no job, or a lousy job, was not going to give a thirty-five-year-old man much purpose in life.  So many times, people wandered through his courtroom like nomads.  “I always tell them, ‘You’re like a leaf blowing from a tree.  Which direction do you go?  It depends on where the wind is going.’  That’s how most of them live their lives.  I ask them, ‘What’s your purpose in life?’  And they say, ‘I don’t know.’  ‘You don’t even love yourself, do you?’  ‘No.’ “

Trimmer and the doctor still believed in a world with an intact social contract.  But the social contract was shattered long ago.  They wanted Lancaster to uphold its end of a bargain that had been made obsolete by over three decades of greed.

Monomoy Capital Partners, Carl Icahn, Cerberus Capital Management, Newell, Wexford, Barington, Clinton [all Wall Street corporations that bought Lancaster’s glass company, sold off equipment or delayed repairs to funnel money toward management salaries, then passed it along to the next set of speculative owners] – none of them bore any personal responsibility. 

A & M and $1,200-per-hour lawyers didn’t bear any personal responsibility.  They didn’t get a lecture or a jail sentence: They got rich.  The politicians – from both parties – who enabled their behavior and that of the payday- and car-title-loan vultures, and the voters of Lancaster who refused to invest in the future of their town as previous generations had done (even as they cheered Ohio State football coach Urban Meyer, who took $6.1 million per year in public money), didn’t bear any personal responsibility.

With the fracturing of the social contract, trust and social cohesion fractured, too.  Even Brad Hutchinson, a man who had millions of reasons to believe in The System [he grew up poor, started a business, became rich], had no faith in politicians or big business. 

I think that most politicians, if not all politicians, are crooked as they day is long,” Hutchinson said.  “They don’t have on their minds what’s best for the people.”  Business leaders had no ethics, either.  “There’s disconnect everywhere.  On every level of society.  Everybody’s out for number one.  Take care of yourself.  Zero respect for anybody else.”

So it wasn’t just the poor or the working class who felt disaffected, and it wasn’t just about money or income inequality.  The whole culture had changed.

America had fetishized cash until it became synonymous with virtue.

Instead of treating people as stakeholders – employees and neighbors worthy of moral concern – the distant owners considered them to be simply sources of revenue.  Many once-successful businesses were restructured this way.  Soon, schools will be too.  In “The Michigan Experiment,” Mark Binelli writes that:

In theory, at least, public-school districts have superintendents tasked with evaluating teachers and facilities.  Carver [a charter school in Highland Park, a sovereign municipality in the center of Detroit], on the other hand, is accountable to more ambiguous entities – like, for example, Oak Ridge Financial, the Minnesota-based financial-services firm that sent a team of former educators to visit the school.  They had come not in service of the children but on behalf of shareholders expecting a thorough vetting of a long-term investment.

carver.JPG

This is all legal, of course.  This is capitalism working as intended.  Those who have wealth, no matter what historical violence might have produced it, have power of those without.

This is explained succinctly by a child in William Gaddis’s novel J R:

I mean why should somebody go steal and break the law to get all they can when there’s always some law where you can be legal and get it all anyway!”

220px-JRnovel.JPGFor many years, Gaddis pondered the ways that automation was destroying our world.  In J R (which is written in a style similar to the recent film Birdman, the focus moving fluidly from character to character without breaks), a middle schooler becomes a Wall Street tycoon.  Because the limited moral compass of a middle schooler is a virtue in this world, he’s wildly successful, with his misspelling of the name Alaska (“Alsaka project”) discussed in full seriousness by adults.

Meanwhile, a failed writer obsesses over player pianos.  This narrative is continued in Agape Agape, with a terminal cancer patient rooting through his notes on player pianos, certain that these pianos explain the devastation of the world.

You can play better by roll than many who play by hand.”

220px-AgapeAgape.jpgThe characters in J R and Agape Agape think it’s clear that someone playing by roll isn’t playing the piano.  And yet, ironically, the player piano shows a way for increasing automation to not destroy the world.

A good robot works efficiently.  But a player piano is intentionally inefficient.  Even though it could produce music on its own, it requires someone to sit in front of it and work the foot pumps.  The design creates a need for human labor.

There’s still room for pessimism here – Gaddis is right to feel aggrieved that the player piano devalues skilled human labor – but a world with someone working the foot pumps seems less bad than one where idle people watch the skies for Jeff Bezos’s delivery drones.

By now, a lot of work can be done cheaply by machines.  But if we want to keep our world livable, it’s worth paying more for things made by human hands.