Dear Hiveans	Liebe Hiver	Queridos Hiveanos
Today I'd like to share my favourite excerpts from the book "The Price of Tomorrow" (goodreads) by Jeff Booth, who is a technology entrepreneur and best-selling author. (source)	Heute meine Lieblingsauszüge aus dem Buch "The Price of Tomorrow" (goodreads) von Jeff Booth, einem Technologieunternehmer und Bestsellerautor. (Quelle)	Hoy mis extractos favoritos del libro "El precio del mañana" (goodreads) de Jeff Booth, emprendedor tecnológico y autor de best-sellers. (fuente)

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It wasn’t housing itself that caused the 2008 bubble. If it hadn’t been housing, it would have been somewhere else that easy credit was flowing to. The continuing rise of debt that cannot be paid back was at the heart of the housing crises and will be at the heart of the next crisis. A bubble pops when people wake up and realize that the debt can never be paid off. At that point, credit is removed — and because easy credit was the main thing causing the run-up, assets collapse. It is what led to the bubble in technology stocks in early 2000s. It is what led to the crisis in Greece and to the crisis in Venezuela today.

This same balance is seen around the world. When the European Union adopted a common currency, the euro gave increased purchasing power to Greece, Italy, Spain, Portugal, and others that previously had lower valued currencies. People in Greece, for example, were able to buy more from Germany, which is the third-largest exporter in the world. German banks were happy to fund loans to Greece, and both countries grew their GDP quickly—one because of exports, and the other because of consumer spending. German banks were giving Greece German money to buy from Germany, with the expectation that Germany would later get even more money back—which Greece would have to come up with somehow. When it was realized that Greece might not be able to pay back the money, Greece was forced into a crisis. Had Greece walked away from the loans, it wasn’t only Greece that would suffer. The German banks underwriting the loans would have to write them off, causing Germany’s economy to slow.

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When debt is growing much faster than a country’s economy, at what point does the music stop? It is often difficult to see, because asset price inflation can make individuals, companies, and even countries feel much better off than they are. In the run-up to 2008, the economy seemed very strong as individuals in the United States used the newfound gain in their home’s asset value to take loans for cars, boats, and vacations. But when the asset (in this case, the home) falls in value, the debt still needs to be paid. We fool ourselves into believing that assets, such as stocks or housing, always go up over the long term because they always have. We should ask whether those same assets would have gone up over the last 20 years if there hadn’t been $185 trillion of new capital injected into economies over that time. When that stops, which it eventually will, things will change very quickly. If it takes ever-increasing credit growth to achieve economic growth, how are our economies any different from a Ponzi scheme? A Ponzi scheme creates an illusion of profits because it pays early investors with investments from later investors. Even though the scheme is a fraud, it can look like a good business in that early investors talk about how great their returns are. Because it requires more and more capital to pay out investors, it continues until new investors at the bottom of the pyramid slow down enough to stop paying out earlier investors, which brings the entire system down. At what point does debt slow enough to bring the entire system down? When does the future stop paying off the past?

Cheap money

What can we do about this? Let’s look at the 2008 crisis to help understand what can happen.
In an interconnected economy driven by credit and ever more debt, there are no easy choices. Once housing prices had collapsed, governments could 1) bail out the banks and the risk takers, and create moral hazard in doing so, or 2) risk a worldwide depression as trust in the financial system broke down and markets stopped. They chose door number one: bail out the banks and risk takers and create moral hazard in doing so. We have no way of truly knowing how wide and lasting the damage would have been had the governments and central banks of the world not stepped in with massive support to save the economic system. We can play armchair quarterback now, but policy makers at the time were dealing with real-time changes and without all of the facts in an interconnected global economy that could have ground to a halt causing much more damage than we can imagine.

Let’s imagine for a moment a world where the central bankers decided to let the banks fail, something that many say should have been the right course— capitalism actually calls for such a cleansing. At the end of 2008, there are no bailouts. No quantitative easing. It’s not a difficult thought experiment. Asset prices collapse. Loans on those assets become non-performing. Most of the banking system collapses. Only the best loans can be repaid. Many people are wiped out as the collapse destroys all who took unnecessary risks. Some of those are you and me and pensioners, people who misunderstood the risk we were taking with some of the exotic investments that we were told were safe. As well, many more are wiped out because of the lack of liquidity in the system, meaning that some investments deemed safe also fail. This result might produce a depression so severe it would make the Great Depression look like a walk in the park. But in that environment, hard dollars would explode in value and those who had savings and cash would pick up extremely low-priced assets and mispriced deals and make their fortunes. Imagine how different your life could look. Real estate would not be priced anywhere near where it is today. Stocks would likely still be near historic lows. Our politicians would look different—in fact, some of them wouldn’t be our politicians, because they would have been wiped out with their debt and the asset price collapse.
Monetary easing and artificially low interest rates have been a grand experiment played out on the world stage without full consideration of the downstream effects. For the wealthy and those with assets that have been artificially boosted, that experiment has played out well. If we’re being honest with ourselves, much of the wealth and privilege that we enjoy is not from our ingenuity or hard work, but because the governments of the world decided to print money. Our assets, including real estate and stocks, were the beneficiaries, having run up in value far beyond what they would have been without the printing.

Interesting counterfactual. Asset prices would be down, and millennials could buy houses and build wealth, but only if the depression would be transitory, and they would find jobs or build successful businesses.	Interessant. Die Preise für Vermögenswerte würden sinken, und Millennials könnten Häuser kaufen und Vermögen aufbauen, aber nur, wenn die Depression nur vorübergehend wäre und sie Arbeitsplätze finden oder erfolgreiche Unternehmen aufbauen könnten.	Interesante Los precios de los activos bajarían, y los millennials podrían comprar casas y crear riqueza, pero sólo si la depresión fuera transitoria, y encontraran trabajo o crearan empresas de éxito.

I grew up in a world where I believed anything was possible, and that hard work and ingenuity were rewarded. I still believe that. I also believe in capitalism, where risk is rewarded and punished, and where the free market is the ultimate referee of your value. That is why it pains me so much to see it breaking down. A market where government reaches in to decide who wins or loses is nothing more than crony capitalism, where wealth is not created by the value you create and the risks you take to get there but by a political system that rewards its insiders.
[...] One of the pillars of capitalism is a free-market system—it’s the centrepiece of how all modern economies evolve—a near-constant flow of innovative entrepreneurs breaking monopolies and then themselves creating new ones. The paradoxical term “creative destruction” was coined for this by Austrian American economist Joseph Schumpeter (1883–1950). In Schumpeter’s vision of capitalism, innovation by entrepreneurs was the disruptive force that sustained economic growth, even though it destroyed the value of established companies. Furthermore, the value that was destroyed in established companies was that which they enjoyed from some level of monopoly power derived from a previous technological, regulatory, organizational, or economic paradigm.

Strong network effects are at the core of every platform business today. … Designing a platform to take advantage of strong network effects creates lock-in and winner-take-all markets. The Internet itself has one of the strongest network effects, and consequently so do many of the top companies built on it. Ironically, network effects, which were supposed to make the Internet the great force equalizer as it redistributed power away from monopolies, have ended up concentrating even more power in the hands of very few. Beyond network effects, every consumer platform gains its power in a similar way. Most people falsely believe that the majority of power is gained through consumers of the platform. That is only partly correct and is largely a consequence of what the platform’s core focus is really on. The value they offer consumers is extraordinary, which drives consumers at an increasing rate, but the secret common to all of them is that they derive the value they give consumers by their focus on aggregating supply. Not just some of the supply, either, but all of it.Aggregating all supply and allowing that supply to compete for audiences is how all platforms gain their power. That supply can take many different forms, but the pattern is remarkably consistent. On Facebook, the supply is you. On LinkedIn, the supply is the business you. On Amazon and Alibaba, the supply is the products and suppliers. On YouTube, it is the videos. On Airbnb, it is the rental homes. On iTunes or Spotify, it is the songs and musicians. In an app store, it is the apps. In any one of these examples, imagine the service without the sheer number of “suppliers” competing for attention. Because the platform owners don’t own the supply, they aggregate it, the supply can scale almost indefinitely without the negative impacts of holding that supply.

• Very interesting!

In the past, monopolies were often broken up because of their negative effects on consumers in the form of increased pricing or constraining markets. The monopolies today are constructed differently and do the exact opposite for consumers. The consumers win in the form of better pricing and service—which is deflationary—and, therefore, the monopolies are hard to stop. As I learned the hard way, you are either the platform or the arbitrage on the platform. In the long term, there is no in-between.

Sigmoid Function Curve of Technology

Even without continued exponential growth driven by Moore’s law, we have already entered an accelerated cycle of learning and improvement, one that builds on the previous waves of innovation. Computing today has already connected much of the world and, as a result, made communication seamless. And much of the data and knowledge we are building on has been digitized. With fast, continuous communication, digitized data can be accessed at little or no cost. And unlike analogue information—from oral traditions to photocopies —digitized data does not lose fidelity as it is reproduced or moved. Once digitized, stored and backed up to the cloud, and subsequently backed up across data centres, information is there forever. All of that digitization is also creating some impressive data capture, and the data collection from connected computers, people, cameras, and sensors has only just started. Connecting those devices to learn from data is arguably a far easier job than that of building the original network. The rate of growth in today’s deep learning in artificial intelligence is largely driven by data collection and large data sets. In fact, every platform company today is really a data company with AI at its core.

Today, through a simple cellphone and set of interfaces, many people have more power at their fingertips than leaders of countries had only thirty years ago. Technology has changed our lives so much that we take it for granted—we get frustrated when our wifi won’t transfer in two seconds what would have taken twenty minutes in the year 2000. […] Information that would have taken a skilled researcher with special access hours, days, or weeks to find in the 1990s can now be Googled in seconds.

• Yes, use that!

If it feels like it’s hard keeping up with the rate of progress today, just wait for what’s to come. Technological advances have been hugely beneficial, enhancing our ability to live our lives better. As we are seeing, though, most of our jobs today come from the same inefficiencies and waste that technology replaces over the longer term. And all of it is undermining the very basis of our economies: growth and inflation.

All of these wonderful technologies (self-driving cars, virtual reality, 3D printing) make many things easier and cheaper. They increase efficiency and decrease costs, which means they are deflationary. They also remove the need for people to do many things—in other words, they get rid of jobs. If there is no net job creation globally (more global jobs created than destroyed), the inflationary system that we have relied on for commerce throughout history cannot continue.
[...] The effects of deflation from technology cannot be outrun by piling on ever more debt in a hopeless effort to keep economies thriving and drive more jobs. In an ironic twist, this forces our societies to compete for a limited amount of high-paying jobs to stay on the hamster wheel of rising prices. At the same time, technology companies act quickly to implement more technology that removes jobs quicker, since they cannot compete with platforms otherwise. Unless global jobs and our economies expand at a rate that exceeds debt creation (which even at backwards-looking rates of progress seems impossible), the age of inflation is already over. We just don’t know it yet.

It took $185 trillion of debt to produce about $46 trillion of GDP growth over the last 20 years. The growth rate would likely have been negative without all of that stimulus. How much so is impossible to tell. Asset prices would be far lower as well. (For all the Keynesians reading this, please refrain from jumping to any conclusion yet.) So what comes next? The majority of the deflation is still in front of us—driven by technology advancing at an exponential rate. If we are doubling our rate of progress on technology every 18 months or so, and that technology is deflationary, then it is also logical to expect if it “only” took $185 trillion of debt over the last 20 years to fight the deflation and drive growth, then it might take that number again, but this time over the next 36 or so months. And 18 months after that, a further $370 trillion.

Easy credit resulted in a significant rise in prices across asset classes—home prices, oil prices, stock prices, to name a few—creating real wealth for the holders of assets and spurring even more growth, with countless jobs being added to growth sectors of the economy that have been aided by easy credit and low rates. Venture capital and technology companies themselves have benefitted greatly from this cheap source of capital in raising giant venture rounds, meaning that some of the technology progress and feedback loops themselves were quite likely accelerated beyond what would have otherwise been possible. But that boom has now led to another boom, a phase shift where all the rules change.

THE FUTURE OF ENERGY

Energy costs often determine economic viability. As a result, energy is naturally a very large part of our economies, coming in at about 9% of GDP globally. At 9% of GDP, it makes up a lot of jobs around the world. In the US alone, 3.6 million direct jobs are in the traditional energy industries, including production, transmission, and storage, with another approximately two million jobs in energy efficiency.

By getting our energy directly from the sun instead of a circuitous route of digging things up that originally got their energy from the sun and transforming and re-transforming them, we remove an entire supply chain of inefficiency and cost. By converting energy from the sun directly, we can get an almost-free lunch... without the corresponding damage to our ecosystem. In less than two hours, more energy from the sun hits the Earth than the yearly worldwide consumption of energy. It’s just a question of putting it to use.

• Just… ? I strongly disagree here. The future is nuclear.

The printing press recorded and stored information and, with it, delivered the ability to correct errors to a much wider audience. This gave rise to the Age of Enlightenment—also known as the Age of Reason. Starting in the late 17th century and extending through the 18th century, it was a time of transition, where philosophical and intellectual ideas—science and logic — started to undermine ideas of the Church, monarchy, and the reality of the times. French writer Voltaire observed that “it is dangerous to be right in matters where established men are wrong,” but Voltaire and his peers persisted, and the newfound availability and durability of knowledge allowed new ways of being right to spread and prevail. Since those new ideas broke some of the foundations that established religion relied upon—like the Earth being at the centre of the universe—other long-held doctrines also came into question, further weakening the enormous power the Church had over everyday life and paving the way for more science-based reasoning and greater contribution from society, which propelled innovation at an even faster rate.
[…] Because of the combined ability to both make a permanent record of our knowledge and have our ideas continually questioned and built upon, humanity’s ability to understand our world has seemed to change overnight on the evolutionary scale. Remember, our brains have been almost the same for around 300,000 years, but we’ve had the printing press for just under 600 years. Just like the exponential effect of pennies doubling or grains of rice on a chessboard, extending our brains to books and refining and extending ideas that came before us allowed our knowledge to increase exponentially. At first, it was seemingly slow and small, a metaphorical trickle of information. Now there is a flood of information and knowledge that is hard to comprehend and keep up with. Far more information is being created and shared every second than any one of us could learn and communicate in a lifetime. The more information there is, the more correction it needs—but the same exponential growth of technology that allows this explosion of information also allows exponentially improved error correction: a sonic boom of information and knowledge, with our computers getting further and further ahead of us.

But whether we embrace it or not, the genie will not be put back in the bottle. These things are true: 1) error correction is at the heart of all of our “intelligence”; 2) information is growing at an exponential pace; 3) that information is being transferred to computers that can gain knowledge and correct errors faster than human brains can; and 4) Every one of our jobs is a function of our intelligence.
If every job is a function of our intelligence, as computers beat us at intelligence, how could any job be safe? These facts lead to very predictable social disruption because our entire economies are designed around jobs and far fewer will be needed to run our societies. This will lead to an inevitable rise of division and polarization if we continue to mask the fundamental issue. Can we — with our machines—learn how to solve it in time? Can we step forward and accept a new era of abundance?

I disagree again. Will computers really beat us at intelligence? And what about creativity? W heard the same story 100 years ago. I think Julian Simon is right here:	Ich bin wieder anderer Meinung. Werden Computer uns wirklich an Intelligenz übertreffen? Und was ist mit Kreativität? Das haben wir auch schon vor 100 Jahren gehört. Ich denke, Julian Simon hat hier recht:	Vuelvo a discrepar. ¿Nos ganarán realmente los ordenadores en inteligencia? ¿Y en creatividad? Oímos la misma historia hace 100 años. Creo que Julian Simon tiene razón aquí:

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Two ways forward

Remember that, according to Ray Dalio, there are only 4 levers governments can pull to escape debt crises. The current debt burden is so large that any long-term solution must deal with it, so we will categorize the proposed solutions by how they attempt to use one of the four ways to escape the debt burden:

1. Austerity—spending less
2. Debt defaults/restructuring
3. The central bank printing money or other guarantees
4. Transfers of money from those who have more than they need to those who have less (much higher taxes for the rich)
   There has been very little mention of the first two levers. As we covered in chapter 1, because of deflation, austerity would create a vicious feedback cycle and a collapse in asset prices, combined with lower employment that would result in debt defaults or restructuring. Because of that, austerity (lever 1) and debt defaults and restructuring (lever 2) are inextricably linked. Whether we start with restructuring or austerity is immaterial; debt will need to be restructured. It is also the most painful for society to bear in the short term, so that might be why there is virtually no dialogue on either of these solutions. Paradoxically, the debt in the world is already so high that it’s not just austerity that would set off an unwind of asset prices and vicious feedback cycle. Slowing growth alone could set off this chain reaction, since the debt becomes unserviceable without fast-enough growth. Perhaps that is why almost all current proposals today land in two overarching camps on opposing sides of the political spectrum: on one side, those that use lever 3, and on the other side, those that use lever 4. The solutions in them are largely similar in their outcomes but have many different forms.

A day will come, probably sooner than later, when we realize that the only thing driving our economies is the explosion of debt. If governments need to run huge deficits with extremely low interest rates for fear of growth failing, even in economies that are running at near full employment, imagine how the debt and deficits explode in a recession or depression when the economy falters. Once bond holders determine that governments have little ability to repay or service the debt, the risk premium (or interest rates) on the debt will rise. Sure, governments can monetize and make their currencies worthless, but as other central banks monetize as well, the strategy itself becomes irrelevant.
As we have seen throughout this book, this strategy has only one endgame:

1. higher inequality, 2) people losing hope in the system due to not being able to make ends meet, 3) more polarization, 4) a rise of leaders that use the polarization to create “us versus them” narratives to consolidate power, and 5) commonplace revolution and wars. This solution, in the end, is a dissolution.

The simple solution

There is a principle in philosophy called Occam’s razor: a simpler solution is more likely to be correct than a complex one. It makes intuitive sense. Complexity makes us prone to error. As the number of assumptions in coming up with a hypothesis increases, the chances increase that one or more of those assumptions are wrong. To that end, I am going to propose what might be considered the simplest solution of all. So simple, in fact, that it will be hard to imagine.
What if the natural order of things was permitted? What if, instead of trying to stop deflation at all costs, we embrace it? As technology spreads, deflation happens at the rate it should. Deflation becomes something celebrated because it means that we are getting more for less. We allow ourselves to accept abundance. Along that continuum, as technology removes jobs and fewer overall jobs are needed, prices will keep falling, allowing those who lose jobs a way to share in the benefit of technology abundance without massive transfers of wealth. If technology-driven price declines continue to the point of something becoming free, we let that happen, too. People will no longer have to be on an endless treadmill to pay for things that are constantly rising in price. As hard as that might be for us to accept, because it is such a radical change to the way things are today, it seems to me that it is the only real choice we have.

While I am sure that governments will not voluntarily give up control of their currencies, if there is not a coordinated international effort on a Bretton Woods type of framework that establishes rules around currency exchange rates, it will happen regardless—just in a different way. Remember, a currency only holds value because of the deemed trust we have in it. Beyond that, it is just a piece of paper with faces and numbers on it. That trust is just an agreed upon exchange of value and that government will keep its promises. That trust is compromised if governments do not keep their promises—even if they pretend to by changing the value of the paper the promise is written on. The more that trust is eroded, the more likely that an alternative currency becomes a more trusted mechanism. That alternative—whether Bitcoin or something different — could emerge quickly.
The digital and distributed nature of Bitcoin allows it to benefit from a network effect with each additional user enhancing its value. As more users trust the system, more trust accretes to the system. Although it is hard to imagine it surpassing any of the main currencies, that reality could easily change tomorrow as more currencies come under pressure; the by-product of that pressure increases the value of Bitcoin or Bitcoin type of network. In other words, what starts as a way for citizens in Venezuela and other regions of the world to escape crushing currency devaluation could jump from country to country and easily build to a point where it becomes the de facto standard of trust.

This book offered some interesting insights regarding the tech world and some general ideas. Overall I find Jeff's conclusions a bit simplistic.	Dieses Buch bot einige interessante Einblicke in die Technologiewelt und interessante allgemeine Ideen. Insgesamt finde ich Jeffs Schlussfolgerungen aber ein wenig zu simpel.	Este libro ofrece algunas perspectivas interesantes sobre el mundo de la tecnología y algunas ideas generales. En general, las conclusiones de Jeff me parecen un poco simplistas.

Have a great day,
zuerich

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