On currency, again

On currency, again

At the beginning of our poetry class in jail, I walked around the room to give the printed poems to people.  I noticed that somebody was working on an elaborate Valentine’s Day card.  (The date was February 28th.)

“Oh, cool,” I said, “did you draw that?”

“Naw,” he said.  “I commissioned it and all, though.  Designed it.  Cost me two Honey Buns.  Check it out.”

He waved me in to see the card up close.  The front had a red rose with marijuana leaves sprouting from its stem.  The poem he’d written inside began:

Roses are red,

Violets are blue,

If you were a blunt

I’d smoke you too …  

“Cost me two Honey Buns each time,” he said.  “They shredded my first.  I mailed it out, but they said I addressed it wrong, said I wasn’t, what’s that thing, no money on your books … ?”

“Indigent mail,” somebody told him.

“Yeah, said I wasn’t indigent, so they shredded it.  Now I’ve gotta send another one.”

#

Another time, somebody explained the booms and busts of the economy in jail. 

In the world at large, the business cycle typically lasts about five to seven years – the economy will rhythmically surge and then contract.  This is bad news for the unlucky cohorts who begin their careers during the cyclical recessions – these people typically have lower earnings over their entire lifetimes – but because the cycles are so predictable, central banks are supposed mitigate the downswings.

The Forces of the Business Cycle. From _Some problems in current economics_ by Malcolm Churchill Rorty, AW Shaw Company, 1922.

In jail, the business cycle lasts a week.

“We get commissary on Friday, so every Friday, people have coffee again, we all drink too much.  People pay off their debts … or you get an asshole who racked up a bunch of debt then goes to seg on Thursday, tells the guards he’s hearing voices.”

“But near the end of the week, Wednesday or something, people are running out, so coffee gets more expensive.  You got to pay a bunch of interest if you’re trying to get coffee from somebody.”

“Worst is you get here near the end of a week.  Cause even if somebody puts money on your books, it’ll take a while before they add your name to the list and you can get commissary.  So you’re getting everything on credit, people bleed you dry.”

#

In Money and Government, Robert Skidelisky addresses common misconceptions about the economy.

Many people are aware that the central bank has a mandate to “control inflation.”  This is very important to political donors – low inflation benefits people who already have wealth, at the expense of current workers.

But most people – including professional economists – think that the central bank controls inflation by manipulating the money supply.  This misconception might be a holdover from ancient history.  Long ago, only sovereigns could create money.  Kings and pretenders would mint coins as a way to flaunt their power.  And they’d unleash their full wrath upon interlopers.

The central bank is a little different.

If there’s too much money, which would cause prices to rise, the central bank is supposed to yank money out of the economy by selling bonds.  If there is too little money, the central bank is supposed to print more.

The central bank attempts to control the money supply this way.

At the same time, other banks are lending money.  If you decide to buy a house, you won’t call up the federal reserve – you’ll probably visit a few banks around town and apply for a mortgage.

Because most money doesn’t exist – it’s just a tally of credits and debits maintained on a server somewhere – a bank that gives you a loan is creating money. Modern banks don’t actually check whether they have money before they lend it to you.

Skidelsky includes a quote from Where Does Money Come From? by Ryan-Collins et al.:

The theoretical support for deregulation was based on the unrealistic assumptions of neoclassical economics, in which banks are mere intermediaries.  This does not recognize their pivotal role as creators of the money supply.

Since the 1980s, bank credit creation has expanded at a considerably faster rate than GDP, with an increasing amount of bank credit creation channeled into financial transactions.  This is unsustainable and costly to society.

Inflation has stayed low, because the amount of money available for purchasing real things hasn’t grown much.  Low inflation means that if people took on debt to go to college, that debt is often still hanging over them years later – inflation would make it easier to clear debt, because employers would respond to inflation by raising salaries.  The amount of debt relative to a week’s pay would fall.

Instead, the money supply in only one corner of our economy has ballooned, producing a flurry of destructive activity in the financial sector.

This has been lucrative for people willing to work in finance, though.

Skidelsky explains that:

The economic collapse of 2008-2009 showed that monetary policy directed to the single aim of price stability was not enough either to maintain economic stability or to restore it.  The economy collapsed, though the price level was stable.

Preventing a collapse in the money supply was to be achieved by what was euphemistically called ‘unconventional’ monetary policy: pump enough cash into the economy and the extra spending it produced would soon lift it out of the doldrums.

As it happens, the method that the central bank chose to inject money into the economy was perversely ineffectual.  The central bank gave money to wealthy people.

One strategy was “quantitative easing.”  The central bank paid people above-market-rate for low-quality financial assets. 

This helped the people who owned these particular low-quality financial assets – typically foolish wealthy people.  They should’ve lost a bunch of money.  They’d bought junk! But they didn’t, because the central bank stepped in to save the day.

Our central bank also fulfilled a small set of private companies’ insurance policies.  The corporations who bought absurd insurance from AIG should have lost all their money when AIG, unsurprisingly, was unable to fulfill their policies. 

If you’re in a high school cafeteria and somebody says, “I bet you a million dollars that …”, you shouldn’t expect the kid to pay up for losing the bet.  But our central bank intervened, giving huge amounts of money to destructive corporations like Goldman Sachs, because it wouldn’t be fair for them to win a bet and then not get the money (even though they’d been betting with a kid who obviously didn’t have a million dollars to pay). 

CODEPINK protests the AIG bailout bonuses in Los Angeles, 2009.

And yet, these tactics didn’t stave off financial recession.  Since the central bank only gave money to wealthy people, these recipients of our government’s largess had no incentive to actually spend the money. 

The main effect of the central bank’s reliance on “portfolio rebalancing” to boost output was to boost the portfolios of the wealthy, with minimal effects on output.  One doesn’t need headwinds to explain why.

#

“There’s a lot you can get in jail.  There were a couple years when people had all this spice, but they cracked down on that.  Still, you can get a blowjob for a couple Honey Buns, some guys will give you a stick for a soup … “

“What’s a stick?” I asked.  My initial assumptions were that it was either something sexual or drug-related, both of which turned out to be wrong.  A single soup would be pretty low to pay for drugs – soups are worth less than Honey Buns.

“Hey, ________, show him.”

A guy pulled down the front of his orange jumpsuit.  In gothic letters arcing across his chest, he had the words “WHITE TRASH.”  The skin around the letters was an agitated red.

“People think you need pens and ink for tats,” somebody said, “but most guys just use a staple and some burnt hair grease … “

The most popular black pigment for oil paints and acrylics is made of charred animal bones.  The calcium phosphate from bones is pale – the deep black color comes from carbon.  When you burn organic material, you’ll make buckyballs – small spheres of carbon like hollow soccer balls – as well as tubes of graphite.  And these molecules have high absorption across the visible spectrum.

Image of carbon allotropes by Michael Ströck.

Whenever a photon of visible light hits one of these molecules, the light is absorbed.  This causes an electronic transition.  But then the physical shape of the molecule doesn’t match its electronic structure, so the molecule begins to vibrate. 

By the time the molecule collapses back to its initial electronic structure – which ejects a photon – some of the energy that the molecule absorbed has been used up by vibrations.  So the outgoing photon will have lower energy.  It’ll be “infrared radiation,” which we can’t see.  So, colored light goes in, and then invisible light comes out – to us, it looks black.

Still, I hadn’t considered that you could burn the gunk that gathers on unwashed hair in order to make tattoo ink. Despite the brutal efforts of our government, people find ways to live even while incarcerated.

As in the world at large, many transactions in jail are made with hard currency.  If something costs a Honey Bun and two soups, you might be expected to hand over the food.  Sometimes, currency actually exists.

But people can create money, too. 

“Thanks, I owe you one.”

With those words, we gain the power of medieval kings.

.

Featured image by Andrew Magill on Flickr.

On the Silk Road, Nick Bilton’s ‘American Kingpin,’ and the difference between being clever and being wise.

On the Silk Road, Nick Bilton’s ‘American Kingpin,’ and the difference between being clever and being wise.

There are many forms of intelligence.  A runner on our cross country team was a jittery kid with mediocre grades, but he was one of the most kinesthetically gifted people I’ve met.  He was good at construction, auto repairs, skateboarding, climbing, running, jumping …

Our society holds these skills in low regard.  We shower money and adulation onto klutzy math whizzes, whereas tactile learners are told they have “disabilities” like ADHD and are given potent psychoactive drugs to get them through each day at schools ill-designed for them.

I’m a klutzy math whiz, so maybe I shouldn’t complain.  But, if this kid had been born fifteen- or twenty-thousand years earlier, he could have been a king.  During most of human evolution, his talents would have been more valuable than my own.

I found myself thinking about the distinction between different types of intelligence while reading Nick Bilton’s American Kingpin.  The protagonist – who went by Ross Ulbricht in real life and “the Dread Pirate Roberts” online – was clever but un-wise.  And I don’t mean “un-wise” in the sense of antagonistically luring the wrath of government agents the world over – that’s ambitious, perhaps foolhardy, but it’s reasonable for an intelligent person to take risks while pushing back against oppression.  Attacking the Death Star is never as easy as it looks in movies; it’s still worth doing.

Ross_UlbrichtRoss Ulbricht was un-wise in that he dogmatically clung to his philosophical stances without regard for new evidence.  Ulbricht disliked the War on Drugs without considering that abetting the transfer of certain drugs could be as immoral as attempting to staunch their flow.  Our world is incredibly complicated, full of moral quandaries and shades of gray.  But Ulbricht treated real life like an undergraduate debate.

From Bilton’s American Kingpin:

9781591848141[A man going by the username “Variety Jones”] was a loyal servant and companion.  He had even talked about buying a helicopter company to break [Ulbricht] out of jail if he was ever caught.  “Remember that one day when you’re in the exercise yard, I’ll be the dude in the helicopter coming in low and fast, I promise,” he had written.  “With the amount of $ we’re generating, I could hire a small country to come get you.”

But even with that bond, fundamental disagreements over the direction of the site would crop up, and Variety Jones was trying desperately to steer [Ulbricht] in a new direction on a particular topic.

It wasn’t even up for debate in VJ’s mind that the Dread Pirate Roberts was as libertarian as they came and that he believed the Silk Road should be a place to buy and sell anything.  There were no rules and no regulations, and as a result there was something illegal for sale on the site for literally every letter of the alphabet.  Acid, benzos, coke, DMT, ecstasy, fizzies, GHB … but it was the letter H that had Variety Jones in a very difficult quandary.  He was fine with everything before and after that letter, but heroin – he hated it.

“I don’t even have a problem with coke,” VJ wrote to DPR, but “H, man – in prison I’ve seen guys – I wish that shit would go away.”

Variety Jones was open about the time he had spent in jail.  He told long and funny stories about people he had met behind bars and explained the ins and outs of getting around the system, including how cans of “mackerel” were the currency of choice in the British prison he had been confined to years earlier.

Instead of mackerel, many transactions in U.S. jails seem to be priced in terms of “Honey Buns,” shelf-stable sweet rolls often sold by commissaries for about a dollar each.  In class one day my co-teacher J.M. mentioned that in Richmond, Virginia, two honey buns could buy you a roll of toilet paper or a blowjob.

The guys in our class were incredulous.  “Two honeybuns for a blowjob?  That’s extortion right there.  Here it’s gonna run you one.”

“If that,” somebody added.

SONY DSC

 

But they thought the price of toilet paper sounded fair.  Apparently the guards are allowed to give out extra rolls, “but they’re not gonna give it to you unless you walk up to them with literally shit dripping down your arm.”  J.M. and I once walked by a pregnant woman in the tank pleading with a male guard to bring her an extra roll.

And many of the men in jail in Bloomington – especially the ones whose actions would make you think they loved H – wish there was less heroin around.  It seeps into every corner of their lives.

heroin-622x400

“My kid wanted some cereal, okay?  A bowl of cereal for breakfast.  So I got it for him, poured the cereal, poured the milk.  I went to get him a spoon.  First spoon I picked up, it had this big burn in the bottom.  I threw it in the trash.  And the next spoon too.  I went through … every spoon I took out of that drawer was burned.  I threw them all away.  My kid ate his cereal with a fork.”

He was trying.  But he slipped again and landed back in jail.

From American Kingpin:

Morally, though, Jones told Dread, “I don’t think I could make money off importing H.  If you want to, I’ll offer all the help and advice you need, but I don’t want to profit off of it.”

. . .

Ross had never seen the effects of heroin in person it still didn’t deter him from his belief system.  “I’ve got this separation between personal and business morality,” DPR explained to VJ.  “I would be there for a friend to help him break a drug dependency, and encourage him not to start, but I would never physically bar him from it if he didn’t ask me to.”

And yet, as harmful as addiction is, you could argue that the War on Drugs is worse.  After all, the War on Drugs pushes transactions underground; makes drug concentrations so variable that it’s hard not to overdose; makes harm reduction therapies borderline illegal.

If Ulbricht had been incarcerated simply for creating the Silk Road website, I’d have a lot of sympathy for him.

But, as a devout libertarian, Ulbricht thought it was okay to murder people.  Eventually, the FBI caught a computer programmer who’d been helping with the website.  During the bust, a rogue FBI agent used that programmer’s credentials to steal a bunch of money.

How could [Ulbricht] let someone steal [$350,000] from DPR and get away with a measly beating?  The conundrum lay in the reality that violence was not something Ross was used to, though it was something he believed in when absolutely necessary.

Finally, Variety Jones rang the final death knell.  “So, you’ve had your time to think,” he said.  “You’re sitting in the big chair, and you need to make a decision.”

I would have no problem wasting this guy,” DPR replied.

And so Ulbricht paid another rogue government agent to murder the innocent programmer.  He’d go on to pay for the murders of several more people.  And felt justified all the while – in his opinion, lethal violence was acceptable when used to protect his property rights.

By the same reasoning, anyone would be justified in murdering Ulbricht when his actions caused someone else’s property to lose value.  Because his website increased the availability of guns and addictive drugs, he had crossed that line.

This is the problem with libertarianism and anarchy – without a coalition government to monopolize violence, individuals take violence into their own hands.  Bad governments are terrifying, but unhinged individuals are pretty scary, too.  Ulbricht paid for murder and felt righteous the whole time.

Despite the juvenile, unreflective protagonist, American Kingpin is a charming read.  Ulbricht was clever.  Singlehandedly, surreptitiously, he did the work of a billion-dollar start-up company.

But he was wrecked by his success.  If he was intelligent enough to build the Silk Road, he thought, wasn’t he also qualified to decide who should live or die?