If you would be a real seeker after truth, it is necessary that at least
once in your life you doubt, as far as possible, all things.
Rene Descartes
Dave Lewis
Some readers will note the re-use of Descartes' musings above on the power of skepticism as tool for truth divination. I chose to re-run the quote in honor of the return of The Matrix, which posted the second biggest box office opening weekend ever. No, today's offering is not going to regale you with my thoughts on the film per se, which I have yet to see, but rather to touch on my sense of what the film, and its massive audience, represents, a rising awareness of mendacity and consequent decline in the public's suspension of disbelief.
For those who haven't seen the films, the premise is that the world in which we live is a virtual reality computer program designed to make people think everything is fine and dandy while, in truth, people are really batteries for the system. As a student of philosophy, I thoroughly enjoyed the first installment of the series which brought interesting themes into pop culture and was intrigued by its public appeal. To the extent one believes, as I do, that, in certain respects, you are what you think, then the notion of many millions of people thinking about the Matrix story and its skeptical theme suggest interesting times ahead.
Charles Mackay prefaces the 1852 edition of Memoirs of Extraordinary Popular Delusions and the Madness of Crowds with these words;
IN READING THE HISTORY OF NATIONS, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first. We see one nation suddenly seized, from its highest to its lowest members, with a fierce desire of military glory; another as suddenly becoming crazed upon a religious scruple; and neither of them recovering its senses until it has shed rivers of blood and sowed a harvest of groans and tears, to be reaped by its posterity.
and the quite famous quote;
Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
To my mind, that the masses are flocking to see films like The Matrix: Reloaded suggests that they are, to borrow from Mackay, beginning to return to their senses. The days when people accepted that something is "just", "fair" or "true" simply by virtue of having someone in authority, or on TV, declare it so are coming to an end. Can a resolution to the US$ deception be far behind?
I remember attending a 1998 speech by then Presidential Candidate Bush's economic advisor Larry Lindsey in Tokyo and thought that Bush might be the guy to end the strong US$ policy. A few years later and it appears that thought was correct although I tend to think the market is forcing the administration's hand at the moment. Regardless, it is worth noting that while an accelerating decline in the US$ should work to restore market equilibrium, it is the final act in a rather large "appropriation" of the world's savings. Just as Nixon's decision to go off the Gold standard was in effect an announcement to the world that the US, as world's banker, had not safeguarded deposits well, so too is a large rise in the value of Gold today.
The "strong $ policy" of Bob Rubin, which was, in effect, the same as the promise that the US$ was as "good as Gold" in the 60s, now has, I believe, come to an end. As a sign of the rising tide of political sophistication in the arena of economics, note Treasury Secretary Snow's Orwellian comments that a strong $ doesn't mean strong against other currencies, but rather resistant to counterfeiting, which might just serve as the proxy for Nixon's August 1971 termination of international Gold convertibility.
Perhaps, though, I'm not being fair to the Treasury Secretary. He also suggested that a strong currency is one which is a good store of value and good medium of exchange. This brings us to the charts of the day, which suggest that the US$ is neither. The US Bureau of Labor Statistics computes a purchasing power of the US$ series which I have graphed against an coincidentally (1982:84) indexed (and inverted) $ value of Gold. As the chart makes clear, eventually currency debasement kicks off processes that restore equilibrium and punishes those who denominated their savings in US$. The second chart speaks to the US$'s ability to work as fair medium of exchange. As you can see, service inflation, which given the orientation of its domestic economy, is beneficial to the US, has far outpaced energy inflation, which outside of the past few years has been largely non-existent. To the extent that past is prologue, particularly in light of the "fears of deflation" and consequent inflationary monetary policies, a 70s style resolution suggests much higher energy costs ahead.
More to the point, can somebody point out the "deflation" outside of a partial reversal of the strongest inflationary quarter in many years. Including the April data, US inflation is still running at a 4.8% annualized clip in 2003. Given the expected continued decline in the US$, further nationalization in the Japanese banking system, and with the IMF now exhorting the rest of the world to inflate, 4.8% might prove to be the low point of the year. Got Gold?
Dave Lewis
www.chaos-onomics.com
dave.lewis@chaos-onomics.com
May 20, 2003
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