On Realness, or Why Paper Money is (Imaginatively) Bad

Paul Krugman is at it again over the inflation cult. Frankly, his complaint has changed so little that it starts to bore me these days. The essence of the complain is about a group of people either incapable of or unwilling to understand economics, along with the fact that low interest rate does not always translates into hyper-inflation. Mr. Krugman provides 2 explanations for this unwillingness (stupidity explains for itself). Usually, the explanation is about self-interest: when inflation harms your asset, it is your greatest enemy and always lurking around the corner. This time, it's about the close-mindedness of the conservative people.

I totally agree with Mr. Krugman regarding the existence of such inflation-mongers, but I frankly cannot agree with him on the explanations. You see, I happen to know a few people who are quite nuts over this issue. Most of you must know at least a few of them: the libertarians, especially Ron Paul supporters. In fact, these people don't just want tighter monetary policies. They want gold-standard! However, contrary to Mr. Krugman's hypothesis, they belong to a radically different demography than the obvious ones. Most of them are young, well-educated, socially open-minded. Every investment book advises them to put all of their 401K in stocks; if they follow this advice, damaging growth in favor of low inflation hinders their interest. Being young and well-educated, they are among the least racially and traditionally discriminating group living (in fact, they identify socially with liberals). This begs for a different explanation for why they dislike loose monetary policies and paper money.

Here is my hypothesis: conservative in generally distrust abstract ideas. In fact, this hypothesis explains more than just monetary preference. It also explains much of their political attitude and choices in general. However, for now, let's focus on the money.

An ounce of gold consists of (by definition) an ounce of gold, and it holds value by the virtue of the desirability of its material. This way, there is an intrinsic value to gold and silver, and this value gives a physical, a real meaning to the exchange value that we assign to that commodity. When you hold an ounce of gold, you physically touch and weight the value to pay for some other goods or services.

In contrast, a paper note of money possesses no such intrinsic value. When you hold an one-dollar note, all you hold is a piece of (usually crumbled) paper with some ink laid on top. If you take this piece of paper to, says, 300 years ago, its worth dropped to only a few cents (which, by the way, at least have some physical stuff to it). A dollar note is only worth a dollar because the US government says so. All of its value comes from the collective imagination of people.

The gap between the physical (aka intrinsic) value and the stated, exchange value causes distress in inflation mongers and gold-standard wishers. For them, the abstract, almost imaginative nature of this gap must be resolved eventually, like a debt that must be paid of. At resolving time, the exchange, imaginative value will collapse back down to the physical, intrinsic value.

Now, another analogy to debt should be mentioned here. When you delay paying your debts, the debts grow greater. Similarly, when the resolving of the value gap is delayed, the delay will magnify the scale of the eventual collapse. Think about a credit card bill. When you don't pay it in full (or just pay the minimum amount), the bank will still lend you money. However, eventually, the bill will grow to untenable amount and destroy your finance. Similarly, just because the gap does not collapse today (in form of, says, hyper-inflation), or tomorrow, or two years from now, or 5 years from now, the gap does not disappear or go away. It will only quietly accumulate more and more destructive power until Judgement Day comes.

When you look at money this way, the lack of inflation means nothing. No, the inflation rate has not blow up, just like your bank has not confiscated your house. But no, that does not mean your bill has disappear. It just means the bill just increased. Thus, as a concerned person, an inflation monger (or gold-standard supporter) must continue to warn others of the coming of Judgement Day, when the imaginary value collapses, and our society with it.

Now, have fun presenting evidences to such people.

On Social Trust in Democracy, or Why Republicans are Poisonous

When I first arrived in the US, one thing clearly stood out to me about American society (or, at the very least, Minnesotan society): how everyone trust everyone else. I actually experimented from time to time, just to feel the awesomeness of this trust: walking on the street, I would randomly say "Hi, how do you do? Is it not a beautiful day?" to people. I afraid that such behavior would earn little more than some guarded "are you trying to scam me off something" in Vietnam, but on American streets (from San Francisco to Minneapolis to Chicago to middle-of-nowhere Nevada), people would not miss a beat. Warm conversation would ensue between two strangers as if they have been friends since forever. Another instance of such trust: once, I was in San Francisco to apply for Visa, and happened to sit next to a lady. We chatted for about 5 minutes, then the lady needed to visit the restroom. She asked me, a guy she hardly knew for 5 minutes, to look after her bags while she was away. And that was San Francisco, where, I swear, I cannot go a mile without some jerk cutting me off.

There are evidences that such social trust is fundamental to an developed economy. In The Alchemists, Neil Irwin opined that British empire was built on British financial system, which in turn arose from the social trust among British people. Lacking the bloody revolutions prevalent in France, and the deep segregation between tiny states in Germany and Italy, that trust flourished, convinced the common people to entrust their savings into hands of others, who employed millions and millions of the small saving to build the greatest empire ever graced this planet. Today, in all advanced society, we (through our banks and investment funds) regularly hand over money to strangers to fund their strange ideas and business models. Such act speaks volume of how much we trust each other.

Nothing proves this trust more than a democracy. Democracy means "people's rule," which means that all citizens of a state get together to make political decisions together. Just imagine this: in the US, our democracy means that 300 million people, from all religions, all races, all cultures, all heritages ever existed on Earth (and I mean this literally), get together to decide on how to govern ourselves. Or think about Indian democracy: one billion people (more than the whole world population as late as 2 centuries ago), whose differences would shame the tiny squambles between Germans and Greeks, from all of the warring religions in the world, and some of whom are actively warring against each other, would periodically get together and form a government and to make decisions. If that fails to blow your mind, I don't know what would succeed.

Now, imagine for a minute to share decisions with, says, a dog. OK, dogs are quite stupid, so let's try something more intelligence. Try to share decisions with monkeys. They are closer to humans than dogs, no? Obviously, such thought exercise is only to prove a point. One can't share decisions with a monkey: it can't speak, it can't reason logically, and yes, it does throw shit. We only seriously listen to, debate with, and decide together with those whom we can trust to be fair, honorable, rational, and won't try to scam us.

Thus, democracy requires social trust. It requires all citizens to trust the system to make their voices matter, to count their opinions fairly, to empower their wisdom and actions. Most importantly, democracy requires citizens to trust one another, to consider each other worthy of listening to, of debating with, and of deciding important matters together. Without this trust, democracy can't exist. Just ask the Arab Spring uprisings. Yes, democracy temporarily formed, but the lack of trust quickly showed it the door. After all, the Muslims suspected liberals of destroying their values, while liberals suspected Muslims of religious lunacy; Shi'a wanted Sunnis gone, and Sunnis responded with passion. How can debates and mutual decisions, let alone governments and complex society, arise from such distrust?

Back to the US: we need to protect our trust! For our elections and democratic processes to function, we need to trust each other. This explains why we can't "protect" free speech by retaliating hate speech: free speech builds on trust, and all forms of debasement, including debasing hatred, will destroy that foundation. Unfortunately, the movement of conservatism, embodied by the Republican party, seems to do anything and everything to destroy that precious trust.

Now, I don't mind disagreements: it facilitates diversity, introduces perspective, and voices second opinions. What I mind is the name calling, the debasement of different groups, the conspiracy theories, and the active rejection of cooperation. After all, if Muslims worship Satan, homosexuals anger God, atheists have no morals, blacks rob, poor people steal, then there would be no point debating with them. Such people are barely above animals, so why share decision, why debate, why listen to them? Similarly, if the UN plans to invade my land, if the government oppresses my rights, then I should do everything to stop them, rather than contributing and understanding. Finally, when one's agenda is solely to grab power ("to make Obama one-term president"), then  there is no point debating, since changing minds is impossible. Thus, conservatism, especially its spearhead (i.e. the Tea Parties), is sowing seeds of  the destruction and disintegration of the whole democracy processes, and maybe even the economy and society.

The weird thing is this: normal Republicans are absolutely nice and polite people most of the time. All conservative people I know are perfectly rational and friendly and anything but racist. Until the politics comes. A friend of mine, who is extremely friendly and understanding, would sneer at President Obama's reference to his belief as "don't speak of God when you don't believe Him." Why? Why would you assume that he did not believe? Or, when some gun regulation debate raged, they would buy up and stash up all ammunition possible. They just assume that "the government is going to take away my guns," when the debate was about how to make gun ownership safe and meaningful. It blows my mind every time when this happens. Why can't those conservative, for a change, try to trust their distant fellow citizens a little bit? Why can't they trust the system, the government, the country a tiny bit? Why do they have to insist on distrust?

Like many concerned citizens, I believe there are much to be done with our government. However, different from many, I don't think big change is required. We don't need to change the Constitution, we don't need new election method, we certainly don't need finger pointing. All we need is a bit of trust.