Book: “The Deficit Myth” – Stephanie Kelton (Read)

Improve the world economy, all the while ditching arbitrary constraints.

Rating: 4 out of 5.

Stephanie Kelton aims to demystify the government budget deficit propaganda that is reigning fear all over the world and redirect the readers’ attention to more important metrics such as inflation and unemployment rate. Through Modern Monetary Theory (MMT), the author also proposes an interesting solution to navigate the inevitable ups-and-downs of business cycles – guaranteed employment programs by the government.

Takeaways

Don’t Think of a Household

  • Currency “issuers” are fundamentally differently from a currency “user”. The issuer, with infinite printing capabilities (it does not have to tax or borrow before it spends), is limited only by fundamental metrics of a country such as employment rate and inflation.
  • The purpose of the tax is not to raise money, but to control inflation, discourage undesirable behaviors, and incentivize people to work hard and earn the currency with which they pay taxes in. A virtuous cycle of productivity. The US government does not “make” any money when it taxes its citizens, it only subtracted money out of the system.
  • The is more income and wealth inequality today in the US than any other time in US history. This income discrepancy will create troubles because capitalism runs on sales (GDP), and the wealthy save more than they spend.
  • The government still operates through the PAYGO model, where one must formulate tax revenue to subsidize the cost of a program before the program can be passed. An unnecessary delay and hassle that potentially hinders public well-being by delaying and cancelling well-structured programs.

Think of Inflation

  • “The government deficit isn’t supposed to balance. Our economy is.” Too small of a deficit can lead to unemployment, too high can lead to inflation. The way government defines natural unemployment and healthy inflation rate are all arbitrary, and more of an after-the-fact observation.
  • Modern Monetary Theory suggests that a government backed job guarantee program geared towards a care economy is a solution to the unemployment problem during business cycles. It also acts as an automatic stabilizer, with government spending more in recessions and spending less in booming times. As for inflation, the government hasn’t been evaluating impacts when they pass trillion-dollar bills, and the US economy is generally fine because there is enough slack in the economy to absorb the money.

The National Debt (That Isn’t)

  • Debt-to-GDP is irrelevant. It’s all about inflation (governed by slack and productivity). The so-called debt is an instrument that the US utilizes to its advantage. A trade deficit with China means Chinese ship goods to the US, and US pays more USD to China (can be converted to treasuries), which is just a number that the US can pay down whenever they want with 1 keystroke.
  • The Greek default is a result of converting to Euro. It is no longer a currency issuer, but a currency user.
  • Currency issuers have the power to control interest rates, so financial markets have no way of pushing these currency issuers into crisis. By printing money to replace debt instruments, investors now hold the same value of their bond in cash, which means the net wealth is unaffected. It could push prices lower (deflation) because while net wealth is unaffected, income is, with future income becoming 0 because you now hold cash.
  • Fighting deficit led to depression in many cases in the past. The US has experienced six significant economic depression, each preceded by a sustained period of budget balancing.

Their Red Ink Is Our Black Ink

  • People believe that government deficit results in lower savings because the loanable fund theory suggests that there is a fixed pool of money available for borrowing, and if the government borrows money for its deficit, other borrowers will face higher borrowing cost with less cash availability. MMT rejects this because fiscal spending ultimately leads to more money in the non-government bucket, it could potentially lead to lower savings of the poor though if the money flows to the rich. Without intervention, the additional reserve by the government drives the interest rate lower.

“Winning” at Trade

  • Foreign debt can be dangerous, as observed in Venezuela and Russia when natural gas fracking in the US drove oil prices down significantly, and when Argentina soybean prices collapsed. These countries have a lot of US denominated debt, so their ability to pay back is critical, but countries like US, UK or Australia don’t face the same risks.
  • A rising interest rate means a higher borrowing cost for developing countries that need US denominated debt. It also makes US assets more desirable, leading to currency devaluing for developing countries (and ultimately hyperinflation), a double gut punch. The interest rate hike by Paul Volcker in 1979 ultimately led to crashes in developing countries. A lessened dependency on US dollar could be important (could be alluding to crypto).

You’re Entitled

  • Entitlement programs are necessary and doesn’t need to be self-sustaining because US is a currency issuer. The rich want it gone because they would like to see the money go to better use, which just leads to greater imbalance.

The Deficit That Matter

  • The real deficits today are good job deficit, savings deficit, health care deficit (infant mortality rate in the US is more than twice the average for all developed countries), education deficit, infrastructure deficit (graded D+), climate deficit, and equality deficit (in 1950, S&P 500 CEO made 20x as much as the average worker, it is 361x in 2017).

Building an Economy for the People

  • Argentina’s Jefes de Hogar plan is like the proposed MMT government guaranteed job program. The program employed 13% of the total labor force, and 75% were women. 50% of participants leave the program to join the private sector within 3 years. Extreme poverty fell by 25% within 6 months.
Summary

The deficit propaganda focuses on the wrong metrics to gauge the economy’s health, instead look at inflation rate and unemployment rate. The balance sheet is arbitrary to a sovereign country (currency issuing), and there are much more serious deficits like the infrastructure, healthcare, and climate deficits. It is time to stop worrying about losing the trade game to other countries (because you’re not really losing) but balancing the economy fundamentally bottoms up (starting with employment).

Personal

Through the lens of MMT (am particularly interested in the Japan markets, Rakuten and Z Holdings) applied to investing, the continued low interest rate and deflation phenomenon in Japan could be interesting to think through.

Taiwan is equally problematic compared to the US in terms of CEO-to-employee pay ratio, and much worse on housing prices-to-salary ratio. The proposal of a guaranteed job could be an intriguing solution, but perhaps best done through private sector & public sector partnerships, maybe C.Hut (my own startup attempt) could be an interesting solution.

Book: “This Changes Everything” – Naomi Klein (Skim)

A book about undeniable apocalyptic environmental health, and the remedies

Rating: 4 out of 5.

Naomi Klein uses anecdotes to help the reader better understand her messages. The book dives deep into political issues at hand, and socioeconomic factors at play, that are exacerbating the apocalyptic situation. Naomi ultimately talks about the remedies, and her bravery and passion for human preservation engages the audience on a higher level.

10 takeaways

Summary

Unlike a lot of apocalyptic movies like the “Silent Sea”, Naomi believes environmental apocalypse may not be widespread corpses, but just an absence in life due to lower birth rates.

Book: “When” – Daniel Pink (Read)

A book about timing effects, explained through science and correlation

Rating: 4.5 out of 5.

The author uses anecdotes to help the reader better understand his messages. The book also helps readers understand themselves and people around them, while allowing the readers to be aware of what they can change.

15 takeaways

  1. Afternoon, specifically between 2-6pm, people enter the emotional trough of the day. People might want to avoid important decisions during this time. This applies to most of us (around 65%), while around 35% other people wake up either super early or super late, therefore the emotional trough may be pushed back or brought forward.
  2. Tips to help with decision-making during 2-6pm (unavoidable). 1) deep breaths, 2) run checklist, 3) temporary disengagement. In fact, test scores are lowest in the afternoon (equivalent to spending less time in school and having low-income parents) but is boosted significantly after a short break. Judges also are more lenient after a short break. Breaks are very important. Social breaks are even better.
  3. Exercise the early, you’ll enjoy the full effects for the whole day.
  4. Naps of 20 minutes or less usually don’t produce sleep inertia. However, longer naps also give longer cognitive functioning.
  5. Kids tend to sleep later and wake up later as they hit puberty. Colleges should be designed to have its first class at around 11am (according to Frontiers in Human Neuroscience).
  6. People don’t take “when” as seriously as “what”, even though it’s just as important.
  7. Using “fresh start effect” to your advantage. Use it often to jump start projects or ideas, it is like “thinking slow” in Daniel Kahneman’s book (Thinking, fast and slow). Frame things and dates to give them meaning, allowing a new beginning in an organization, like naming a certain date the birthday of a company.
  8. Avoiding bad starts with “pre-mortem”, identify all possible threats before starting.
  9. Going first or last? Go first to set an impression, especially if you’re not the default choice (runner-up). When the pool is large, go last.
  10. Recognizing midpoints of everything. Mid-life crisis, middle of day, middle of test, middle of projects, and many more middles. The slump usually occurs during the middle. So set frequent targets, get over the slump quicker.
  11. Buffet technique: Write down the top 25 goals, circle the top 5 and discard the rest. Aim to achieve the top 5 before even considering anything else.
  12. Encoding is powerful, it’s how you remember the essence of matters. It is often communicated and implied by endings (therefore just as important), the last sentence of a book or the last thing to occur for an event. Use it to your advantage by journaling daily achievements, remind yourself of what you have/haven’t accomplished for the day.
  13. Entrainment, a term that means synching of internal clocks with external cues (sleep when dark outside). It is key to group efforts, where a leader is needed for ultimate synching. A culture and sense of belonging (unique to the group) will help with the synch.
  14. Strong-future (English & French) vs. weak-future languages (Mandarin & German). Future feels more closely connected to the current self in a weak-future language, allowing people to think about consequences down the line. It really isn’t about “living in the present” but rather “integrate the present in the bigger picture”.
  15. “I used to believe that timing was everything. Now I believe that everything is timing” – Daniel H. Pink

Summary

Be cognizant of the “when” of an event, whether it’s tests, games, or competitions. Realize that everyone has the same 24 hours, so the more effective it is being used, the better results will become. Use every and any time as a positive sign (practice “glass half full” mentality), know your best times and prioritize, organize, plan, and execute accordingly. Know what you truly need, whether that’s things, friends, tasks, or goals, you get better at weeding out the unnecessary over time but be conscious of your decisions.

Personally, I’m trying to juggle between too many things, while having a hard time focusing on what to prioritize. I now know that I will prioritize my day by working on 1) startup idea, 2) blog, and 3) work during my free time.