Stop Paying Attention to Moldbug

Pardon me while I give Moldbug a good beating here, but I’ve had enough. He is dangerous, because he somehow gets people to take his flatulent amateurish bloviations seriously.

On the thousand-to-one chance that Moldbug reads this: I’m sorry, man, but I believe this is for the Greater Good.

To skip directly to the main example of this post, do a search for the word “finance” (search is CTRL+F in most browsers).

The gentlest thing I can say about Moldbug’s fanboys is that they mistake style for substance. References to obscure historical episodes… florid vocabulary… a deliberately “iconoclastic” way of looking at things… These are not intelligence; they are the superficial symbolism of intelligence. It is as if Moldbug were to write a 10-page “proof” that 3 is not a prime number, complete with… ACTUAL FOOTNOTES!!! And people take him seriously because of this. The presence of ACTUAL FOOTNOTES!!! does not change the fact that what he’s saying is that 3 is not a prime number. Ignore the style, goddammit.

PAY ATTENTION TO THE SUBSTANCE, NOT THE FUCKING STYLE.

As a prolegomenon (Note fancy vocabulary! I’m awesome!) I can think of things that Moldbug gets right, but they’re obvious. One, in his oft-cited writings like http://www.thedarkenlightenment.com/moldbugs-open-letter/ and https://www.unqualified-reservations.org/2016/04/coda/, Moldbug takes thousands of words to assert that democracy doesn’t work in reality the way it does in textbooks. No shit. Everyone already knows this. Better writers could illustrate it in two words, e.g., “corporate welfare” or “unnecessary wars.” Granted, belaboring the obvious has value– the obvious needs all the belaboring it can get these days– but let us not confuse the necessary work of obviousness-belaboring with profound and brilliant insight.

(In this blog I sometimes belabor the obvious, with occasional original (I hope) insights. As far as I know, the obviousness-belaboring has not yet prompted anyone to assess me as an Einstein-level Galaxy Brain.)

Two, as I noted here, Moldbug correctly observes that leftism does not lose steam when it exacts concessions. Trying to deny it steam by partially giving in to it has never worked. But again, he is hardly the only person to have noted this.

Now to fisk two specimens of stupid Moldbug notions; they could be multiplied vastly.

First, Moldy denies that the Nazis and fascists– the real ones, from Europe in the first half of the 20th century– were left-wing; he claims they were “right-wingers” and “reactionary.” This statement is wrong, regarding the Nazis. That Moldbug asserts it is… puzzling, because his various references reveal that he understands these things well enough to know better. He knows the salient facts about the National Socialist German Worker’s Party.

About Italy’s Fascists, Moldbug’s own attempt to establish their non-leftist nature is tragically inept. He cites many facts all proving that they were leftists, but quotes one Nitti, a contemporary of Mussolini, who characterizes Mussolini as “white,” i.e. reactionary in the political color coding of that time and place. Funny. There’s a blast of facts that show Mussolini as, first a Communist, and later, apparently still a Communist but in a non-Communist costume. Then we get one person calling him an anti-Communist. Maybe some of the evidence that led to Nitti’s assessment? None that’s at all persuasive. Moldbug quotes Nitti bewailing that under Mussolini, “All form of liberty has been suppressed; press liberty, association liberty…” Does that sound left or right? And this is presumably Moldbug’s best stab at proving Mussolini was a “reactionary.” If he has more evidence, why hide it? Well, if the best you can do still paints him as a Commie, I think we’re done here.

I realize there are those who think that Moldbug uses an incredibly subtle rhetorical technique of saying things other than, perhaps the opposite of, what he means. There are two problems with this notion. One, there are places in which he plainly says what he means, e.g. when he points out that democracy in practice bears little resemblance to democracy in theory. This puts his readers in the awkward position of having to judge whether any given claim is advanced seriously or impishly.

Two, this technique cannot be used on the people who need it most. Consider the notion that Mussolini was really right-wing, argued so ineptly that it convinces you that he wasn’t right-wing. That technique would never work on the leftists whom Moldbug wants to convince. Never in a million years are they going to read that closely. They “know” that Hitler and Mussolini were right-wing, and when they see an argument to that effect they are going to accept it at face value. They are not going to carefully interrogate it to detect any flaws and then be convinced of the opposite. Sheesh.

I was in several bands when I was younger. One thing I noticed with amusement is that no matter what your band name or your song lyrics, people often interpreted them as being about sex or drugs. If the name of your band was “the Screaming Eagles” people would find a way to interpret that as being about sex or drugs. I think Moldbug’s fanbois do that: They want a clever dissection of the modern political consensus, so they “find” it. Moldbug is a Rorschach test, whatever else he is.

Now for a long-form ass-kicking. Thanks to SimplyConnected for providing me (a couple of years ago) this Moldbug link on finance. If you are still a Moldbug fanboi after reading this, I can’t help you, tovarisch.

(NOTE! Use of Russian for no particular purpose or reason! I must be “clever”! And therefore my political views must be right!)

First, he wants total “commanding heights” socialism:

Step one: Nationalize all market-priced financial assets at the present market price, exchanging them for new dollars. USG buys all publicly-traded American securities, and foreign securities held by Americans. It thus becomes the sole owner and operator of all public[ly traded] companies, and in doing so it also acquires all the banks (for the price of their common stock, which is not much these days). By acquiring all the banks, it acquires all their dodgy mortgages and other “bad” securities. Obviously, after this process, all debts USG owes to itself are cancelled.

Hedge funds, private equity, and other exotic assets held by individuals may require some appraisal…

Stop. Hedge funds and private equity are not “assets.” They are investment organizations that manage assets. Hedge funds are basically mutual funds that wear tight black leather pants and 4-inch spike heels and carry a knife. Private equity firms buy controlling interests in companies’ stock and hope to manage the company better than the current management, often with the intention of selling their stock after it has (they hope) appreciated. HFs and PE hold assets, but they are not assets. Is this a nit-pick? No, because most of the assets they hold – thinking mainly of hedge funds here – are already included in the “market-priced financial assets” that Moldbug mentioned in his previous paragraph. That he doesn’t grasp this should by itself make his fanbois question his guru status.

We continue:

Hedge funds, private equity, and other exotic assets held by individuals may require some appraisal. But these are held by rich people, who are patriotic [snort, I suspect this is an example of Moldy saying the opposite of what he thinks] and don’t mind taking a bit of a haircut [LOL, ditto]. Also requiring appraisal are homes; if you are a homeowner, USG calculates your home equity (perhaps using an automated appraisal, such as Zillow’s), and buys it from you. You are now a renter; USG is your landlord. Your new rent is calculated as a percentage of your home appraisal.

The result of step one is that USG owns all financial assets, major corporations, and real estate.

The government owns the bulk of assets. What could possibly go wrong?! Historically, that has always worked out well! I imagine his fans saying, “That doesn’t matter, because if you keep reading you’ll see that his plan involves the government selling all that stuff back to us.” Yeah, about that…

Moldbug continues by telling us that he wants to basically triple a major measure of the money supply:

In return, each USG citizen has one number: how many dollars they have. Perhaps the most straightforward way to implement this is to give every American a direct account at the Federal Reserve (a privilege now held only by banks). Thus, all your portfolios are automatically sold at the current market price, and your statement is mailed from the Eccles Building. [There is no reason to mention the Eccles Building, tovarisch.] The little number at the bottom, however, is the number you care about. This number has not changed. If your portfolio was worth $250,000, you now have $250,000.

Step two: Triple each of these dollars. If your portfolio was worth $250,000, you now have $750,000.

Oh my, he’s going to (basically) triple electronic bank deposits. Sooner or later that will result in serious inflation.

Then a debt Jubilee:

Thanks to our cleanup, these debts are now held by USG itself (which acquired them from the old financial institutions). There is no reason for USG, which can print dollars, to be squeezing them out of the hides of the poor. Forgive them all. Call it a Jubilee.

I don’t know what its direct effects would be– and neither does Moldbug or anyone else– but there are serious long-run implications of baking expectations of future Jubilees into people’s beliefs.

What’s that you say? You’re a Moldbug fanboy and you can’t see a problem with setting a precedent for debt amnesties? Well, can you see any long-run problems with setting a precedent for immigration amnesties?

Please tell me that just made you go, “Um, wait a minute…”

Moldbug apparently is also afraid that tripling everyone’s money won’t cause enough inflation, so he says,

Step three: Calculate the expected shortfall in future entitlements (Medicare and Social Security), and print new dollars to fill the gap. (About 50 trillion of them, to be exact.) For extra credit, print unripe dollars (bonds) and issue them directly to the actual entitlement recipients, as per the actuarial value of their policies.

On top of all the other money printing, an additional fifty trillion dollars.

He then says,

We are going to break this printing press. But before we break it, we have to use it…

No, you’re not going to break the government’s ownership of the money printing press. If we can’t even force the current government to respect the Constitution, how are we going to force future governments to forswear the printing press? Retarded.

Step four: Auction all the financial assets previously nationalized—corporations, real estate, etc. There is certainly plenty of cash around to buy them with. Destroy the dollars received in the auction.

Why are we selling the assets we just bought? We bought them to close out a broken financial system, in which the relationship between asset prices and dollars was unstable and unhealthy. We are selling them to establish their free-market price in a stable, healthy financial system. We do not know what the right relationship between the number of dollars in the world and the net price of its financial assets should be. So we ask the market, and the market tells us.

Absurd. First of all, the market prices when the money supply is X are going to be very different from the prices after the money supply is like one-half X, or whatever it is after the government “Destroy[s] the dollars received in the auction.”

(Note: There are lots of kinds of “money” in a sophisticated financial system like the US’s, but I think I can make the important points without dwelling on that. Much.)

You see what he thinks he’s doing (and he’s explicit about it in passages I haven’t quoted): He’s trying to take all the asset values that are pyramided on a certain amount of base money and actually turn them into base money. Then sell the assets back to the private sector, destroy the money they paid for those assets, then lock in the remaining amount of base money forever.

He thinks this will “close out a broken financial system, in which the relationship between asset prices and dollars was unstable and unhealthy” and create a “stable, healthy financial system.”

This is unhinged. A simple illustration of why:

Suppose the government has printed 6 dollars (multiply this by $10 trillion if you like) and has decreed that for all time, the supply of dollars shall not be increased. (Let’s ignore the facts that (1) there’s no way for the current government to enforce this constraint on the future government, and (2) this is not how most money works– the vast majority of payments are not made in base money, which is what the government “controls,” but in other kinds of money that are supported by base money.) Now suppose that you honestly believe that the value of your house is three dollars and the value of your stock portfolio is four dollars. Someone says, “But dude, that’s a total of seven dollars, and there are only six dollars in circulation!” You shrug and say, “I’m not planning on selling all my stocks and my house today. I believe that if I did sell my house, I could get three dollars for it, and if I were to sell all my stocks, I could get four dollars for them. I understand that there are only six dollars in the economy, but since I’m not going to try to sell seven dollars worth of stuff, I don’t anticipate a problem.” And indeed, most of the time the economy is in exactly this position, and it does not, in fact, lead to any problems.

Occasionally there’s a sudden decrease in confidence about asset values and we have a market crash (in real estate, stocks, or whatever). What’s the solution?

There is none.

None that I can see, anyway. This, I believe, is just something we have to live with in a market economy. And if there is a solution, it sure as shit isn’t Moldbug’s.

He thinks, for some reason, that the total value of all assets in the economy should never exceed the amount of base money in circulation. He thinks that current asset values can exceed current base money only because everyone expects the US government to print more money in the future. He doesn’t get the private sector’s rational anticipations that most of the time, most of these assets won’t all be liquidated at once. And they’re never ALL liquidated at once. That has never happened and never will. Not to mention irrational exuberance that can send asset values into orbit for no particular reason.

(Analogy: It’s like insisting that the total supply of tacos should be enough to satisfy demand if everyone had a sudden craving for tacos at the same time. That rarely (with tacos actually never) happens, and insisting that Taco Bell maintain a large enough supply of tacos to meet such a theoretical demand is obviously absurd.)

Moldbug doesn’t get that there is no way to force the financial system to impose the aggregate constraint that (value of all assets) is less than or equal to (total amount of base money in circulation). There’s no way to even know that first quantity, the “correct” value of all assets! How are individual bond traders, or stock traders, or real estate speculators, going to price the assets they buy and sell to guarantee that the inequality always holds!? Take stocks. In order to guarantee that the total market value of all stocks plus the total market value of all other assets in the economy is no greater than 2 trillion dollars (a number Moldbug throws around several times), every individual stock portfolio manager would have to know the current asset value of literally every other asset in the economy! Then they could (in theory) refuse to buy or sell stocks for prices that would put (stock values + other assets’ values) greater than $2 trillion. It’s impossible for them to have such knowledge, of course.

And even if they had such knowledge, they’d have no reason to enforce the equality. And how could they? If the total amount of money in circulation is 2 trillion dollars, and if (value of all assets) is greater than (total amount of base money in circulation), who should take the hit? Are you going to deliberately sell your house for less than a buyer is willing to pay for it, just to help satisfy some abstract macroeconomic inequality? Or should some other home seller do so? This blatantly goes against people’s self-interest. Seriously, try to envision this: A buyer offers a house seller $200,000 for the house. The house seller says, “No, I think it’s only worth $150,000 and I won’t accept any more than that.” You see? This plan is not merely impractical; it’s completely unmoored from reality.

And what about honest differences of opinion? Back to that $6 vs. $7 example: What if I think houses are overvalued and stocks are correctly valued, and you think stocks are overvalued and houses are correctly valued? Which one of us gets to force the other to lower the price for which they’re willing to buy or sell an asset?

This is insane.

It’s insanity dreamed up by a hopeless dilettante. Moldbug should stick to something that he’s good at, if there is any such thing (writing software or whatever) and stay far, far away from areas outside his area of expertise. And unless and until he does that, people should stop giving any credence to him.

19 thoughts on “Stop Paying Attention to Moldbug”

  1. This is a very weak critique of Moldbug. It presumes the same absurd, vague definitions of “left wing” and “right wing,” and, even granting the author’s definitions, does nothing at all to substantiate his objection to the categorization beyond a vague reference to Mussolini’s past as a Communist and the word “socialist” in the NSDAP’s name.

    Not to mention the second half of the critique which goes on to dissect what are quite literally the least significant passages in Moldbug’s popular writings. Nobody is endorsing *Plan Moldbug*. I have never once heard any “Moldbug Fanboy” seriously contemplate enacting any part of that plan, nor have I heard them even try and rationalize it. The ideas people value Moldbug for are his well-put description of Progressivism as a sect of secular Christianity, and his metaphor for the consensus-making apparatus of the power structure that he calls the “Cathedral.”

    You are arguing with a ghost.

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  2. “This is a very weak critique of Moldbug. It presumes the same absurd, vague definitions of “left wing” and “right wing,” and, even granting the author’s definitions, does nothing at all to substantiate his objection to the categorization beyond a vague reference to [etc.]”

    I can’t tell if you’re scolding me or Moldbug for accepting the left/right distinction. In any case, the question is Moldbug’s application of the distinction to Mussolini. Was Mussolini slaveringly right-wing? If so, you wouldn’t know it from anything Moldbug says in the piece I quoted.

    “…the second half of the critique which goes on to dissect what are quite literally the least significant passages in Moldbug’s popular writings… I have never once heard any “Moldbug Fanboy” seriously contemplate enacting any part of that plan…”

    Moldbug said the things he said. And they’re idiotic. Whether anyone else is advocating his plan is irrelevant. His ignorance of economics and politics is abysmal.

    “The ideas people value Moldbug for are his well-put description of Progressivism as a sect of secular Christianity…”

    This angle on leftism has been around forever. You might check out e.g. Eric Hoffer’s The True Believer, first published in 1951.

    “and his metaphor for the consensus-making apparatus of the power structure that he calls the ‘Cathedral.’”

    Even a lunatic like Noam Chomsky can come up with a phrase like “manufacturing consent.” So what? “Cathedral” is better because it’s shorter; I’ll grant you that.

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  3. Apologies for my tardiness to the party.

    Look, double-counting of assets is a real issue, and Moldbug spends precious little time on this IIRC. But the solution would be easy in theory: just buy up assets held by individuals and other entities you are not nationalizing (small business, etc), but not a cent from those entities themselves being nationalized. There, easily solved. Once you have bought back everything, you can just cancel all titles, as anything not bought back must be owned by some guy you have bought back at a higher level. Avoids the Japanese kabuki of Corp A owning Corp B, who owns Corp C, who owns Corp A. There, easily solved.

    Now, I don’t know if Moldbug was thinking this and just declined to expand since he thought this obvious, or if he thought double-counting would be easy to solve and not worth thinking about, or even if he had no idea this was an issue as you imply. Regardless, if the problem has an easy solution, not much of a problem.

    For the record, I have my own issues with the plan of his (massive, massive issues), but it could be done, and I don’t think it betrays scant understanding of finance on his part.

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  4. Arkiduka, I don’t understand this:

    “double-counting of assets is a real issue… But the solution would be easy in theory: just buy up assets held by individuals and other entities you are not nationalizing (small business, etc), but not a cent from those entities themselves being nationalized. There, easily solved. Once you have bought back everything, you can just cancel all titles, as anything not bought back must be owned by some guy you have bought back at a higher level.”

    Huh?

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  5. Sorry, was being too brief there.

    Moldy’s plan IIRC is premised on the entire financial ecosystem of a modern economy being reliant on continued monetary production and that any significant change to the monetary regime will crater the entire sector, so best to reset it all before reseting money.

    By this reading of his, you have two parts of the economy: the productive part and the financial sector, which he sometimes uses the shorthand of “financial assets” for. Hedge funds are financial assets in the sense that they are part of the financial ecosystem owned by the productive economy, not in the strict sense of the funds being assets themselves.

    By this reading, this plan would only buy-back the financial sector as owned by the productive part of the economy: individuals and non-financial businesses. If a bank goes to the Ministry of Reconstruction and says “here are 1T of CDOs, can I get the money by tomorrow pls?” you tell them to fuck off: the facility is only available to the productive sector, NOT to the financial sector itself. Indeed, the bank itself will be nationalised when it shares are presented by “eligible” actors. This is very relevant for some huge sectors such as FX or derivatives, massive ammounts of which are owned by financial actors, so phew, otherwise one would have to print literal trillions or spend years closing all derivative positions against one another. anyway, at the end of the process, once you only buy back the financial sector as owned by the productive sector, you cancel all obligations you owe yourself, and are left with no financial sector.

    So, in this sense, Modly didn’t just forget that HFs themselves mostly own financial assets: it doesn’t matter, those assets would not be bought back, the entire HF would.

    You could say, am I going out of my way to read meaning into this that was not there, and he just made a mistake? Maybe, I don’t know, but I think given his rationale for putting this plan forward, we can charitably but reasonably assume he meant the above, “financial assets” being every instrument somehow linked to the financial sector that is owned by the productive sector.

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  6. OK, I get what you’re saying now. You are saying that Moldy – roughly speaking – wants to buy assets held by the real sector (where “real sector” includes households here), but not assets held by the financial sector. E.g. he wants the government to buy the stock of publicly traded banks but not buy the home loans those banks hold as assets on their balance sheets. Indeed, he explicitly says that he wants to just cancel those loans. I think this is an accurate description, to a first-order approximation, of a lot of what he wants to do. Not all of it, though; note he explicitly says he intends that the gov’t buy assets held by private equity firms and hedge funds. Maybe your point is that the PE and HF stuff could be stricken. But the whole enchilada is still insane, though, for more than one reason.

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  7. All right, so im light of Yarvin’s latest I can say that I stand corrected: he does NOT intend to split the world into financials and all else, but is individuals and all else, thus merging together financial and non-financial orgs into the same bucket to be nationalised. Probably thinks there is no way to split companies into non-financials, they all are overvalued.

    A significant divergence from what meaning I had grasped of his plan, but still leaves the main of it untouched: buy assets from people, not companies.

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  8. Hey just got back. Yeah but all those other problems. E.g. he wants to print more than $50 trillion! Look at the increase in inflation we’ve had over the last year, and that was with a lot less than $50 trillion printed since the mortgage crisis of 2008. I can’t imagine the effects of printing more than $50 trillion all at once.

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  9. We still operate, fundamentally, on a barter system.

    For example, you grow apples.

    Two caveats :
    1) You can’t live off apples
    2) The apples will spoil

    Let’s say at the end of your season you’ve managed to produce and pick 2 tonnes of apples.

    Because of 1), you need to trade those apples for something else to eat. Let’s say each 20kg of apples is worth one days worth of food; ie, you can trade with any individual who wants apples for a days worth of (other) food. However, because of 2) you can’t do this on a daily basis, and theres no point making multiple trades on the same day since the food you’re getting in return also spoils.

    You could trade apples for a future days worth of food, effectively a contract with the person you’re trading with (did we just invent money anyway?).
    Money allows you to trade all of the apples you’ve grown for something you can trade daily, that won’t spoil. Additionally, the contract is immediately fulfilled.

    It seems to me that Moldbug is forgetting the point of money; it’s for convenient storage of value. Money allows us to store value for the future. This allows for an incentive structure for people to do things other than try to get enough food/ water/ shelter to live each individual day.

    To address his points directly:
    “One: the net value of all financial assets must be in some way related to the amount of money available to buy them”

    The value of the asset depends very much on the buyers. Example : During the week of the great Apple God Festival, the Apples are worth more. Same apples, different value.

    “It looks a little weird that Urf has 100T in financial assets but only 2T in cash. ”

    You can trade an asset for another asset without money being involved. Cash is just a convenient way to facilitate trade. That’s the way it should be.

    “Two: whatever the force that amplifies 2T in cash to 100T in assets is, it is not a force of nature. The factor of 25 amplification cannot be an immutable, eternal constant, such as π or e. We would be no more or less surprised if the latter number was 30, 60, or 120T.”

    Again, he’s backwards. It IS a force of nature. The assets are the thing of value, the cash is a non-denominational unit of value that helps facilitate trades.

    “Basically, the problem is that (as, presumably, on Urf) our money supply has become inextricably confused with our financial-asset market.”

    And here we see where he shows that he DOES understand the problem. Money has practically speaking become the unit of value, rather than the value itself. As they say, you can’t eat money, can’t live in it, etc. He does get it, he just prescribes an incorrect fix.

    The real, true problem is twofold. We not only debase our currency with the money printer, we also lose value when contracts aren’t fulfilled.

    We started to debase currency through lending. A person wants a loan, the money supply is added to to provide that loan.

    It makes some sense to just print money as a source of future value. You want to start a project, you know the return will be greater than the investment, so you print some money to fund it.

    The problem is that when the loan is repaid, the created money remains in circulation. The other problem is that some loans aren’t repaid. You lose that value, in theory.

    So, Moldbugs prescription doesn’t solve either of these problems.

    There is a third, more subtle problem here, which is the scale of the economies. When you’re lending out more value than a single person can create in a lifetime and it’s never repaid. The really savage debasement of currency occurs when you pareto the spoils of unpaid contracts to a certain few. This is what Moldbug is noticing, I think; a bunch of “assets” that are really stolen value.

    Someone borrows value, makes a bad deal with it, and then never repays the loan. Can you confiscate it from the person who benefitted from the bad deal?

    That’s the fundamental problem as I see it. How to solve that?

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  10. Doom wrote:
    “To address his points directly:
    ‘One: the net value of all financial assets must be in some way related to the amount of money available to buy them’
    The value of the asset depends very much on the buyers. Example : During the week of the great Apple God Festival, the Apples are worth more. Same apples, different value.”

    Yes. Moldbug’s statement, “the net value of all financial assets must be in some way related to the amount of money available to buy them” is really too vague to work with. But as you note here, one problem with it is that asset values or commodity prices change due to fluctuations in supply and demand that have nothing to do with the money supply.

    Moldy:“It looks a little weird that Urf has 100T in financial assets but only 2T in cash. ”
    Doom: “You can trade an asset for another asset without money being involved. Cash is just a convenient way to facilitate trade. That’s the way it should be.”
    Yes indeed. Here Moldy is forgetting the distinction between money’s medium of exchange function and unit of account function.

    Moldy: “Basically, the problem is that (as, presumably, on Urf) our money supply has become inextricably confused with our financial-asset market.”
    Doom: “And here we see where he shows that he DOES understand the problem…”

    I am far from convinced that he does! For reasons that you mention, among others.

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  11. “I am far from convinced that he does! For reasons that you mention, among others.”
    As I said, he explicitly states the problem (Money being confused as value rather than a representation of value).

    He just has no idea how to fix that problem, because he has fallen into the same mental trap.

    No different from people who state red pill things about women but provide totally blye pill solutions. You need to integrate the facts into your analysis and solutions.

    You critique Moldbug in another post in effect pointing out this same effect. Sometimes, he interjects true and demonstrable facts which are net demonstrated to have been considered in his actual argument.

    Although, playing devils advocate here, maybe his proposition considers that other people think the same way? “How do we stop people from believing money is actual value? Make it worthless!!”

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  12. “As I said, he explicitly states the problem (Money being confused as value rather than a representation of value).”

    For the proposal that I discussed I think his issue is much simpler than that: He’s freaked out by the fact that the total dollar market value of all assets greatly exceeds the supply of dollars. And indeed, in principle this could be a problem – I mean, plainly if the total supply of dollars were $10 and the total market value of all assets were $(octillion squared), that would be… a problem. But regardless of whether we’re in such a situation right now, we simply can’t tell people, “Don’t buy or sell assets at prices that are, in some aggregate sense, too high.” That’s just unworkable. Cf. my example in which a buyer offers a seller some price for a house and the seller is (I guess) expected to say, “No, that price is too high because it would violate some abstract macroeconomic financial inequality.” It’s just silly.

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  13. “And what about honest differences of opinion? Back to that $6 vs. $7 example: What if I think houses are overvalued and stocks are correctly valued, and you think stocks are overvalued and houses are correctly valued? Which one of us gets to force the other …”

    That is the question, isn’t it?

    *“Basically, the problem is that (as, presumably, on Urf) our money supply has become inextricably confused with our financial-asset market.”

    And here we see where he shows that he DOES understand the problem. Money has practically speaking become the unit of value, rather than the value itself. As they say, you can’t eat money, can’t live in it, etc. He does get it, he just prescribes an incorrect fix.*

    What seems to be suggest here is eliminating the financial-assets in favor of money, but maybe another possibility is eliminating the money in favor of the financial assets? The FDIC exists because people want banking with the security of the government, maybe the financiers start working directly for the government too? And this way the structure of the economy becomes clear, where private assets are owned by individuals and public assets are owned by the government. Really changes the meaning of “going public.” But I digress, the point is that now the banker is an official government agent, and bankers trade with each other for the purpose of reallocating real assets. You can buy whatever financial instruments you want from the government, but, well, we all know how much government promises are worth.

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  14. “Really changes the meaning of ‘going public.’”
    (Laughs.)

    As to the rest of your passage about the FDIC, I think this is like (my understanding of) Moldbug’s formalism: If the gov’t is going to backstop all banking assets, we might as well make it official. But the government owning everything is not the same thing as backstopping everything. There is a LOT of daylight between those two things.

    In my more bloodthirsty moments, here’s my proposed solution: Any financial institution whose net worth falls into negative territory (however that’s measured) has all its creditors bailed out (that includes depositors in the case of banks). BUT: The CEO, CFO, CRO, etc. all get whacked. I suppose souls of a sentimental turn of mind might just want to put them in prison for life.

    No, I’m not really serious about this. But it’s fun to fantasize sometimes.

    Liked by 1 person

  15. Ah, you’ve got a blog. Your points 1.5 and 1.6 are similar to what the FDIC often does in shutting down failed institutions. More often than not the FDIC oversees the acquisition of the failed institution’s assets and liabilities by another financial institution. Sometimes the FDIC has to kick in some funds as a sweetener to the acquirer, but this is often less costly than bailing out all the depositors would be.

    Like

  16. Oh man, now I’ll have to downgrade that post 🙂

    What annoys me is when some (admittedly a few) are bailed our and put back into business, especially when this is done by stealth by issuing debt at below market rates to banks, which is the daily happening with Central Banks.

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