A Thriving Economy
Next thing we can probably agree we want is a thriving economy.
Let’s start by taking a look at how markets work.
Something that’s come up a lot lately is the idea that some evil opportunist businessmen are “price gouging” and “overcharging” and exploiting poor consumers. They just decide to raise prices for no good reason, and that’s why groceries or hurricane supplies are so expensive!
Let’s take a moment and understand how markets and prices work, because it’s important, and most people don’t get it.
Even though I studied economics as a minor in college, it wasn’t until I read Thomas Sowell’s book Basic Economics that I fully got this. It may sound like a drab thing to get through, and it is quite a tome, but it actually reads beautifully and I recommend everyone read it. If I had it all my way, it would be required reading for every citizen, either as part of their school curriculum or as part of a green card or naturalization process. If it were up to me, any person must read this book and pass a test before they’re allowed to vote.
Here’s what you need to understand.
There are things, there are people making things, and there are people who want things.
The people making things usually buy other things, make something else out of them, and then sell those new things they just made.
When you have scarce resources such as beachfront property, New York City apartments, or milk, how do you decide who gets how much of which thing?
Probably a lot of people want the beachfront property in Malibu or that New York City apartment by Central Park, but there’s only so many to go around. Who gets them?
Raw materials like milk could go to producing cheese or butter or café lattes or cream or just be consumed as plain milk. But how much should be allocated to each kind of use? And maybe it varies by season or geography or temperature or other factors.
That is the big problem, and how you solve that determines the quality of life of everyone involved.
In the Soviet and other plan economies, you appoint some sort of committee to decide. They look at all of the things that are needed, and all the raw materials that go into them, and then they plan which goes where.
This is very inefficient, since they have to know everything that’s happening in the entire economy in real time, in order to make the best decision. This is obviously impossible.
Inefficiency is people getting more of something than they need or want, while others are getting less. It’s a hard problem to direct all of these things to the right places at the right time, and it’s certainly not something that a committee can do properly, no matter how talented and well meaning and numerous it is.
Moreover, when it comes to the beachfront property in Malibu or the fancy New York City apartment right on Central Park, who gets them in a plan economy? Typically someone who knows someone. It becomes a game of politics.
So if that doesn’t work, what’s the alternative?
The alternative is to use one of the most ingenious devices ever conceived of. An invention so brilliant that it solves this problem almost perfectly, and so simply it’s hard to believe. An innovation that you’ve certainly heard of, been aware of for most of your adult and teenage life, and yet may never have fully appreciated.
What is this magical invention of which I speak?
It is … a price!
Price
A price?
Yes, a price.
Say more …
Certainly. I will.
The price is how we get to say how much something is worth to us.
As people become willing to pay more for cheese, more of the milk will be allocated towards making cheese, because the cheese makers see more demand, which makes their prices go up, which makes them willing and able to pay more for the milk.
If demand for cheese craters, then cheese makers will have to lower their prices, or shift their production to other goods that people are willing to pay more for, which can be made with the same equipment and labor and maybe even the same raw materials.
If demand for cheese and people’s willingness to pay for it continues to stay high, then more people will start making cheese, which will increase supply and thus lower prices once again.
The Free Market Economy
The thing to understand about a free market economy is that nothing is static. It’s constantly changing. Consumers change behavior in response to taste and environment and price. Manufacturers enter and leave the market, and change the mix of goods that they produce, or the way in which they produce them all the time.
By the way, I don’t like the term “capitalism”. That term was popularized by Karl Marx as a way to denigrate the free market system.
In reality, the free market system is a human centered system. It’s designed around individual agency, the power for individuals to make decisions for themselves.
The alternative is to have other people, namely the government, make decisions for them.
I believe people are best equipped to make decisions for themselves, even when they make the “wrong” decision. Because that way, at least they have the chance to learn to make better decisions over time.
A free market system works so well precisely because each individual actor makes their own decisions based on what they think is best for them given their circumstances. We don’t need any central planning. It’s entirely decentralized.
And it works because of the price. Think of the price as information. It’s either a buyer saying what they’re willing to pay for something or a seller saying what they’re willing to sell something for. Buyer and seller get to negotiate and settle on a price for the transaction. Or not.
Price Fixing
This all breaks down the moment you start messing with the prices.
I know. It’s so tempting.
Rents in New York are too damn high! We need rent control! Landlords are greedy bastards. Damn them!
What happens when you artificially lower prices through rent control?
Two very predictable things happen. But only every time.
One, people consume more than they otherwise would. People own bigger apartments than they need. Couples keep both their apartments instead of letting one go. Maybe they keep a second home in the city that they rarely use and don’t rent out. Because at the lower rent, they can afford to. If the rent was at a fair market value, they’d rather save the money.
Two, the people who provide housing will build less and maintain it less well because the additional investment won’t pay off.
So you get a double whammy: Consumption goes up. Inventory goes down.
The market becomes less flexible, more rigid, and prices still stay relatively high, because there’s not as much inventory as there would be otherwise.
It never works well.
Price Gouging
Another example is the price gouging example we opened with. When there’s a natural disaster or some other special circumstance, prices on essentials like gas or generators go up dramatically.
I saw stories about people selling generators at 2-3x the regular price following a storm. Are these people evil price gougers, just regular old opportunists, or are they providing a valuable service?
Well, it’s a free country, so people are free to choose to buy them or not. Oftentimes, the fact that they can charge that much more is what incentivizes people to drive through dangerous territory to a neighboring town to buy those generators, and then schlep them back to where they’re needed. If they couldn't charge a premium, they just wouldn’t take the risk.
They risk not just personal injury, but also that the generators get damaged during transport. I bet if that were to happen, the people that were interested in buying the generators probably wouldn’t be lining up to compensate them for their loss. People love to hate on entrepreneurs when they make a profit, but they don’t have an equal amount of concern for the losses and risks incurred by those same entrepreneurs.
When there’s a shortage of gas, it’s actually best for everyone if prices are allowed to rise according to demand. Why? Because then more of the available gas will remain at the gas station for people who really need it to buy. If the price was lower, that same amount of gas would now be sitting in the gas tanks in people’s parked cars, where it does no good.
There’s enough for everyone, but only if people don’t take more than they need. Freely fluctuating prices are what ensures this.
Root Causes
Price is not an indication of the level of greed or generosity of the entrepreneur. It’s a critical piece of information that allows millions of individual actors to achieve the optimal outcome for the whole by each person making the best decision for themselves, given the circumstances.
Artificially lowering the price of something doesn't magically make more of it available, just as artificially handing out more college degrees doesn’t make people more qualified.
But just as we saw with medicine, we’re obsessed with symptoms instead of root causes.
If you think the prices are too high, identify the root causes.
Ask yourself:
Are there barriers to entry for new producers?
Are there too many regulations, driving up the cost of production?
Are there incentives for consumers to buy more than they need, or hold onto things they’ve already bought? Maybe there’s uncertainty about the future of the market, or an expectation that price is going to rise further.
Are there unnecessary restrictions on acquiring raw materials at good prices?
Are we doing things that make it harder for producers to upgrade their technology to make it cheaper to produce?
If you want to solve a problem, you have to identify what the real issue is and address that. But only every time.
Why Don’t Politicians Get This?
This begs the question: if price controls never work, and the reason why is so easy to understand that even a 7-year old gets it, why do politicians keep doing it?
I think the answer has multiple parts to it.
First off, most of them really are not the brightest bulb in the box. They don’t think things through very much. If it sounds good and it feels good, it probably is good.
Thinking about second and third order consequences takes a level of mental sophistication that most people frankly aren’t capable of. And not because they inherently don’t have the capacity. Simply because they’ve never been taught or trained to do so.
If you think you’re dumb, you’re going to act dumb, which makes you effectively dumb. Not inherently, but in practice. The mind is very powerful, as proven by every single double blind clinical study. This is why I love helping people recognize that they’re way smarter than they think they are.
Second, most of their voters are also not that bright. Same thing. Ooh, it sounds good, it feels good, it must be good. And that’s as far as it goes.
Third, I think some politicians are quite calculated. They understand that the more the government regulates, the more power they have. The more laws are on the books, the more bargaining chips they have with their donors. The more confusing and complicated the rules are, the more they can hide favors and loopholes.
Being calculated and being dumb aren’t mutually exclusive—you can be both.
Fourth, I think most of them could care less about the wellbeing of the people subject to their leadership. For them, it’s just another career, a way to make money and feel a sense of power.
Why did the bank robber rob the bank? Because that’s where the money is. Why do politicians become politicians? Same reason. They control the biggest budgets, and it’s very easy to skim a good chunk off the top.
It’s unfortunate that this is where we’re at. And this is why raising a generation of men to be leaders with integrity is my life’s mission. It’s the only way this changes.
Back to the beachfront property in Malibu. Who gets it? In the Soviet system, it’s somebody who knows somebody. In a free market economy, it’s whoever is willing and able to pay the most. Which probably prices it out of reach for the vast majority of people.
Fairness
But isn’t that unfair?
Shouldn’t everyone have access to this beautiful beachfront property?
In an ideal world, perhaps so. But in the real world, there’s eight billion people, and a much smaller number of beachfront properties in Malibu. According to ChatGPT, there’s a couple hundred. So we have to allocate them somehow.
In a free market economy, the way that you earn money is by providing value to other people that they’re willing to pay for. The amount of value you provide times the number of people you provide it to is how much money you earn. And now you get to decide how you want to spend that money. Some people really like beachfront property in Malibu. Others couldn’t care less. Those who are willing and able to pay what’s being asked will get it. Simple. Clean. And fair.
The only way you would think that’s unfair is if you believe that access to making money is not equal, and that you have a better idea.
Of course some people are better positioned to make money than others. It could be that they're smarter. Or have skills that are in higher demand. Or they’re born in a country with a better education or legal system. Or they’re born to parents who treat them better. Or that their interest happens to be in a higher earning area. Their passion is for business and finance over studying gender relations in 17th century Ghana, or something.
Of course there’s going to be differences. Every person is different. Every person’s purpose and mission in life is different. Everyone’s journey is different. The idea that we should all be the same is absurd.
If you really really want to make a ton of money, and you dedicate the next 20 years of your life to studying everything you possibly can about making money, and you use all of your charm and street smarts to endear yourself with the best mentors there are, chances are you’ll do quite well.
Complaining about how some people have it better leads nowhere. Focusing on what you want and what steps you can take today to get there, that will always get you somewhere.
Like Zig Ziglar said, you can get anything you want in life if you just help enough other people get what they want.
Get busy figuring out what other people want, and how you can help them get that.
That’s the path to that beachfront property. If that’s what you want.
When Markets Break Down
Markets can be corrupted. There’s no question about it. It’s happened a lot.
Since our governments are so large, have so many rules, and control such a massive part of the economy, and politicians and government actors are so easily corrupted, it’s easy for corporations and others with money to buy influence.
We saw the OxyContin example before. When the agency that’s intended to regulate the industry is controlled by the very industry they’re there to regulate, it’s called regulatory capture. It’s everywhere. Regulators are cheap.
When there’s this much money in the industry, we need really strict laws and punishments for people who do anything out of line. The problem is that it can be hard to prove.
Which is why the only real solution is integrity. You’re either a prostitute or you’re not. Most people in these jobs are. By design.
Externalities
Another failure of markets are externalities. This is a fancy term for things companies do that others have to pay to fix. Pollution is the classic example.
We absolutely need to account for externalities. And it isn’t exactly rocket science.
As we discover these externalities, whether it’s water, air, EMF, waste from used products, disease caused by using or being around their products, we have to define and measure them, assign a cost to them, and charge the company what it costs to fix it.
That way it’ll be accounted for in the price of their offers, and that takes care of that. Simple.
It’s only when the regulators that are supposed to regulate this get captured by the industry that this doesn’t happen. Then they can get the government to close their eyes to, for example, the fact that chronic disease has exploded in the US, and we don’t know why. Clearly something changed, and whether it’s vaccines or EMF or air pollution or water pollution or something else, it’s a big f’ing deal. But because regulators are captured by industry, and because that industry profits immensely from people’s chronic illness, it’s allowed to continue.
Again, integrity is what’s called for.
There are other ways markets can fail, and they can all be addressed simply. But not if the government is corrupt.
Inflation
You may have heard that inflation is a hidden tax. It is.
The way it works is that as the government prints more money, that doesn’t magically make more of the stuff that we use money to buy. So the price of everything simply has to go up.
You have a thousand widgets that people want, and a thousand dollars in circulation. The widgets are a dollar each, and things work out.
Now add an extra thousand dollars to the circulation. In the beginning, the person who has that extra money (the government) has it good. They can buy many more widgets with all their new dollars.
But eventually, as the new dollars make their way through the economy, those widgets are now two dollars each. The people who saved their dollars are screwed. Their dollars now buy only half what they used to.
This is exactly how printing money causes inflation, and it’s why there’s been massive inflation as Biden added about $7.5 trillion to the economy.
I’m not sure if you’re feeling all that money in your wallet, but I suspect not. That money went somewhere, just not to you or I. We’re the ones paying for it, though, at the grocery store and gas pump. That’s how the system works.
Like I said, whoever gets to spend the money first stands to gain from printing it, because at the point that they spend it, prices haven’t yet gone up. But as the money moves through the economy, prices must go up, because supply and demand remain the same, but there’s more money in circulation. It’s inevitable.
Since the government prints the money, they stand to gain the most.
People who own assets also gain, because the real value of assets remains constant while the purchasing power of the dollar goes down, so you need more dollars to buy the same house or stock. That’s why you see the markets go up when the government prints money.
The rest of us lose. Our savings and income buys less stuff. It’s effectively theft.
Small business suffers too, because we have to pay our people more, which requires us to charge more from customers, something we don’t like to do, can be hard to do, and will probably make us lose customers. Eventually, we have to pass on the costs to the customers, but in the meantime, we’re likely to eat it. At least that’s what a lot of us are doing.
The Fed
Let’s talk about the federal reserve bank. It’s quite the story!
In The Creature from Jekyll Island, G. Edward Griffin documents the disturbing history of not just the Fed, but central banks throughout the world.
Did you know that the Fed is not a government institution? It’s a private bank, owned by 2500 member banks. It was created by Congress, has congressional oversight, and a mandate to promote maximum employment, stable prices, and moderate long-term interest. But it’s a private institution.
Ron Paul has long sought to end the Fed. I’m with him. I think it’s one of the main ways that the blob steals our money, and it’s a major cause of wars. In the book, G. Edward traces the Civil War, the Communist revolution in Russia, WW1, and WW2 all back to central banks and the Fed as a way to make countries take on more debt. When a country is at war, it needs more money than it has. That money is borrowed. That means it has to be paid back, with interest. The bank profits off the interest. Banks want war.
Every single US dollar in circulation is borrowed from the Fed, with interest. Every single one. The Fed collects interest on all that money.
I haven’t done enough research to fully wrap my head around this, but if it smells like a duck and it walks like a duck, it’s probably a duck. My gut is with Ron Paul. End the Fed.
What Happened in 1971?
As I was writing this book, I talked to my neighbor on the couch at my local coffee shop. I’m here every morning when they open at 6.30am to secure the corner spot. I’m 2.5 hours in right now.
We exchanged information, and he sent me the site https://wtfhappenedin1971.com/.
Go check it out. It’s fascinating. Here’s the first graph you see on the site:
So what did happen in 1971?
Nixon ended the gold standard.
The gold standard was the rule that you could convert dollars into gold at a fixed rate of $35 per ounce.
What happened immediately after?
Crazy inflation.
Interesting, huh?
Gold is a rare commodity. By tying the price of dollars to gold in this way, you couldn’t print more dollars than you had gold to back it up. If people lost faith in the dollar, they could convert it to gold and store it that way. If they really wanted to, they could use gold to trade.
After 1971, the dollar became what’s called “fiat currency.” That means it’s not tied to anything. It’s just whatever value we assign it. It’s a collective hallucination. As long as people believe in the value, it has value. The second they stop, it’s done for.
As I understand it, it’s why the US needs all the military bases and make sure oil is traded in dollars, to make sure the dollar continues to have value to people. It’s backed not by gold, but by military might.
Gold, by contrast, has real value. Besides being used to make jewelry and luxury items, it’s also used in dentistry, medicine, electronics, aerospace, energy, and nanotechnology. It’s a real thing people want for its own sake.
Fiat currency has no real world use.
That’s the big difference.
So getting off the gold standard was a major key to making sure the blob could manipulate financial markets to suck as much money as possible out of the system.
Since you cannot convert the dollars to gold, and every business in the US is enforced by law to accept US dollars as currency, and you can only use US dollars to pay for taxes, you gotta have it if you want to live here. And in most places around the world you need oil.
This is also why crypto is gaining in popularity and why it’s so dangerous to American financial dominance.
Bitcoin is also fiat in the sense that there’s no real-world value to a Bitcoin. But in contrast to the dollar, it’s designed to prevent inflation. There’s a fixed number of Bitcoins that can ever be created. That means the buying power of Bitcoin is guaranteed to go up over time. Assuming people continue to buy into the hallucination that it has any value at all, like they do with the dollar today.
Reserve Currency Status
or now, the US has the power to effectively levy a tax on the rest of the world by printing money, thanks to its reserve currency status. At least that’s my understanding.
When the US prints more money, the US government and the blob gets the benefit, and the entire rest of the world who has to trade in dollars pays the price.
It’s a brilliant system. For them. For as long as it lasts.
For the rest of us, it sucks.
Were the reserve currency status to be lost, however, the US and its citizens would be SOL.
Of course, by that time all the people who made bank while it lasted will live in their gated communities on an island somewhere, or maybe in Qatar next to Hamas’ leadership.
The US debt is now so massive it’ll be almost impossible to ever pay it back. At least the way things are currently going.
The US will have to default on its loans, and the economy will collapse. The roughly half of the population currently depending on the government for their income through salaries, contract jobs, welfare payments, and subsidies, would be done for. Toast. Good luck. The rest of us would also be in deep trouble, of course, as the economy collapsed.
And a US collapse would take the rest of the world down with it.
Of course, no-one wants that. China is not going to call in its chips, knowing it would collapse the US economy, while China itself is completely dependent on the US economy. So that helps keep the grift going. For now.
But at some point, things have to break. Maybe the BRICS countries find out they’d do better without the US messing with them and pull the plug. This is all just wild speculation. I have no clue. I’m not sure anyone does.
Operating Systems
I do think it’s possible to reverse course, pay back the debt, and get back to a world of integrity, both on an individual and national level. But it’s going to require a massive cleanup on aisle one!
We would have to cut back dramatically on government expenses. I’d say by at least 90%. That will leave a bunch of people out of a job, so we need to accommodate for that. But that’s better and cheaper than keeping the current system going.
We’d have to remove regulation and red tape and get innovative as all hell. I think if we stopped the corruption machine, unleashed the creative power of the people, and restored a culture of integrity, we’d be there in no time. A new golden age would be a reality. That’s the vision this book lays out.
Compare North Korea to South Korea. Same people, two very different operating systems.
In North Korea, there’s little light, food, innovation, or freedom.
In South Korea, there’s prosperity and freedom.
Same people. Different operating systems.
Or compare NASA and Boeing on the one hand, with SpaceX on the other. Same talent pool, some sources of capital, same physics. One is way more successful than the others. Different operating systems.
Our operating system in the West right now is not quite as bad as North Korea. But it’s nowhere near what it could be.
Human operating systems really matter.
That’s why I’ve made it my business to construct and open source operating systems for everything based on the best knowledge currently available to humanity. Business. Health. Mindset. Companies. Societies. This book is me laying out some of those pieces.
Slow and Expensive
Some years ago I took my kids to see the Empire State building, and what I learned blew my mind.
The building was built in just 410 days from when they started digging the foundation on March 17, 1930. till it was fully plumbed and wired and open to the public on May 1, 1931.
410 days! That’s less than 14 months!
The Freedom Tower, by contrast, the tower that replaced the World Trade Center buildings destroyed on 9/11, took eight and a half years to build. From April 2006 till November 2014.
That’s 3,112 days. Over seven and a half times as long.
The cost to build the Empire State Building was $41M. In today’s dollars it’s $6-700M.
The Freedom Tower cost $3.9 billion. That’s 5.5x the cost.
So 76 years later, with all the innovation in materials, techniques, cranes, and machinery we have now that they didn’t have then, it still takes 7.5x longer and costs 5.5x more than it did then.
That’s utterly insane.
What the fuck is wrong with us?
We should be getting better, not worse.
Something is truly messed up with our operating system, and I think it’s intentional.
The purpose of a system is what it does.
The bigger the government, the more regulation, the more the blob can suck money and energy out of the system. We’re all paying the price, but because it’s mostly out of sight, we don’t even think about it.
I can see the Empire State Building from my living room windows, and it’s a daily reminder of the insanity. And just like with the placebo effect, it’s hiding in plain sight, and most people are completely oblivious to it. Or they notice, and they shrug their shoulders, thinking there’s nothing they can do.
But they’re wrong. We can do something. And it takes less of us, and fewer of us, than we think.
This isn’t just about the building. This is about a broader trend. When everything is this much slower and more expensive, we’re all worse off. Because collectively, we’re all paying the price with our life force energy.
Patrick Collison, co-founder of Stripe, the payment tech giant, wrote a brilliant blog post titled Fast, where he details a whole list of these examples.
The drain on all of us is insane. It’s hard to wrap our heads around.
But like Jeff Bezos said, your margin is my opportunity.
Translation: all of this corruption and ineptitude is our opportunity to create the world we want to live in, a new golden age.
LFG!
