There Is no such thing as a free lunch, but the temptation to distribute one or to get one seems to be too strong (Part II)

All over the West, we saw extreme pain and suffering caused by the mass unemployment that the lockdowns and shutdowns triggered. Across the board, every government’s answer to all this destruction was helicopter money. Do you think throwing cash at this problem was enough and do you find that the various support and relief measures were sufficient to counterbalance all of the deleterious effects of those policies? 

Daniel Model (DM): First of all, we have to acknowledge that we find ourselves in a particular situation in the sense that the creation of money out of nothing does not have an immediate effect on price increases, on a defined basket of goods. The actual technological boost of digitalization has a significant deflationary effect that can be (ab-)used for inflationary money creation. But we still have a huge inflationary surge in the increase of money compared to products and services. This shows up in asset price inflation that’s been apparent in almost every asset category and that makes it difficult for young people to afford their first house. This money illusion is based on high time preference by solving a short term problem with high long term costs, which are not in the presence of mind. 

Of course, there is no such thing as a free lunch, but the temptation to distribute one or to get one seems to be too strong. Social welfare governments always distributed other people‘s money and now it gets even better: it is “no one’s money” that they’re giving away and the dispossession is happening in silence. States live in their own power bubble, not subject to natural or economic laws any more, able to grow ad infinitum – something that is now also strongly promoted and backed by the increasingly popular Modern Monetary Theory. 

It is a lie that central banks are acting independently of governments, as it is a lie that we do not have inflation. Central banks and governments are intoxicated by the money monopoly – as they are by the power monopoly, with all the tragic consequences that brought with it in the 20th century. So they feel empowered and entitled to take away a man’s means of survival, essentially to shut down his very existence andcompensate him with fiat money. In the past, that man would have resisted fiercely anything and anyone that threatened his ability to independently survive, but nowadays most people are sedated by the sweet poison of fiat money. 

Money – originally most often in the form of gold – was a tremendous social innovation, because it boosted the exchange possibilities compared to a barter economy. Money bears the information of all its co-creators, who happened to plant their various motives in it. Rupert Sheldrake called the phenomenon of simultaneous invention in different places the morphic field. The major property of money is that it can carry all the marks of its emergence, its path and its users: that is why it can make people happy or lead them to tragedy. If money comes to you as a result of your reasoning and acting to create or add value, it will have a beneficial effect on you and your environment; if it is stolen, it is negatively loaded, if it comes out of thin air, it will literally create thin air – so it will be hard to breathe and live with it. 

This is also an attempt to explain why the social welfare state is having unsocial effects. If you take away the money from one side and give it to the other, it carries the bad energy of dispossession and coercion, i.e. the threat of punishment if one refuses to pay. This could be healed by the love for the poor and the gratitude for the rich. In reality, however, the hatred towards the rich is more powerful than the love for the poor, which adds to the poisonous character of that money, with detrimental effects for the receivers. The biggest receiver is the state, whose bureaucracy creates made-up and productive jobs and then the ones in need become dependent and lose self esteem – the free lunch remains an illusion, and reality has a high and hidden price. 

Money is a universal carrier of information which, without judging, reveals the sum of the motives of its originator and its user; both sides contribute to that total. The famous saying that is attributed to the roman emperor Vespasian, ‘pecunia non olet’, or “money does not stink”, is not a counter argument to this, but the result of a simple comparison with the public toilets on which he imposed a special tax. Later on, that comparison was abused as a tranquilizer for a guilty conscience.

CG: Apart from the economic devastation that we will likely have to contend with for long time, do you also see social or political damage that was inflicted by the isolation and the pressures of the widespread financial uncertainty?

DM: Societies will continue to lose their cohesion as the polarization increases between the ones who see the state as the saviour for individual failures and the ones who see the more and more dependent adults, who take the convenient but devastating path to infantilization. It is interesting to observe the enforcement and the demand for all kinds of stupid measures and new rules, that keep changing on a whim, without ever delivering any sort of actual improvement. It is a sign of a damaged society when it is refusing to learn and instead chases away responsibility. Furthermore, politics has also lost credibility, because it is overwhelmed with tasks and duties it should never have taken on and in which it has no competence.

CG: Do you think this crisis will cause people to lose their faith in big government and the Welfare State? Or might it actually strengthen it, as they come to rely on relief checks and unemployment payments to put food on the table? 

DM: The effects will remain controversial: There will be those who feel safe and reassured by the permanent delegation of power and responsibility to the state, which they think is not so abstract, as they live under the illusion of self- determination that democracy evokes. But there will also be others, who will clearly see the road to serfdom that lies ahead. They’ll see a future in which more and more individual sovereignty and freedom is given up for the sake of security in collective safety nets, which contradicts the eternally valid goal of any human being to become an adult, free and independent. The collectivist side is still gaining ground, as we are now moving closer to ideas like the unconditional or universal basic income.

CG: Although we saw a lot of restrictions in Switzerland too, those were in general a lot “lighter” that what was imposed in most other Western nations, especially our EU neighbors. There are Europeans that have been in total lockdown for months already and there are businesses that were forced to remain closed for half of last year. Do you think this policy divergence signifies that Switzerland is still the outlier in the continent and a nation that still respects private property and individual liberties above the rest?

DM: It is true that these differences are there, because the relationship between the citizens and the government in Switzerland is still quite positive. In the 20th century, the Swiss government was pragmatic, successful and lucky enough to prevent the nation’s involvement in the two world wars. Still, a considerable contributor to this good relationship was always the naivety of the citizens, as clearly shown in the enlightening novel by Max Frisch, “Biedermann und die Brandstifter”. But the covid crisis has done some damage to it. As a comparison, look at Italy: People there know very well that they cannot rely on the state, so the share of black economy is higher than in Switzerland. This is by no means a negative sign. Quite the opposite: it is the result of a sober and healthy judgement and of individual independent reasoning. The shadow economy will still work long after the state and all its lies and illusions have been unmasked, as was the case with its predecessor, the church, since the early 16th century.

CG: What’s your own outlook for 2021? Do you expect things to gradually get better and our economies and societies to slowly regain a sense of normalcy? Or do you believe we already crossed a point of no return, after which overbearing state interference and government overreach cannot be rolled back?

DM: This point has already been crossed some time ago, when the ones who perceive themselves as direct or indirect beneficiaries or dependents of the big state outnumbered the ones who pay for it and suffer under its growing dominion. The social welfare concept is in fact a very materialistic concept, in desperate need of a moral veil to hide the fact that the state is the main beneficiary and not the ones in need. That is also why its partner, the press, is so hard-hearted and unforgiving vis-à-vis its critics.

However, the vaccines will have a positive effect against the virus and probably an even better effect in reducing fear. So this could indirectly strengthen the immune system by the placebo effect. But power remains addictive, so the now established ‘infrastructure’ to decide which businesses can continue to exist and which cannot will not simply disappear. Additionally, the cooperation with the media that can play on the keyboard of fear and manipulation has once again proven to be a very successful growth strategy for the state, although I do see signs of weakness in the media world.

CG: You have decades of experience in running and growing a successful business, but I also know you have a deep love of learning and reading, anything from monetary history and economics, to philosophy and ethics. If you were to draw from all of this, what would be your advice to a responsible investor or ordinary saver who’s justifiably worried about what lies ahead? How can they plan ahead and safeguard their own and their loved ones’ future?

DM: In our loud and chaotic world full of meaningless noise, outrage and lies it is indeed helpful to develop some basic rules that can work as orientation guidelines. I can offer you my three golden rules :

Rule Nr. 1: Build up capital that you cannot be deprived of. This is basically education which begins quite early in your life. Self-education is the most important and useful kind and it should remain your principal activity until the very end of this earthly existence. Forget the stupid retirement concept, as it merely another snare to becoming a coach potato! Be strict with yourself (and generous to others). Make yourself the object of permanent research and value increase. If you decide to take this path, you will understand the art of a higher form of egoism, that is not working at the expense of others, but is creating benefits for them as well. The company of a person who works on himself is always pleasant. It is wonderful how decent such beings are and how willing to share the fruits of their efforts with others, because nobody loses what he voluntarily shares. 

Rule Nr. 2: Put your focus on investing. It’s a basic principle of economics that investment activities have accelerator effects, which means that the multiplier is bigger than 1, whereas consumption activities create impulses whose growth rate is lower than 1. 

The longing for sustainability is coming from the actual imbalance between investment (low time preference as returns come some time later, if ever) and consumption (high time preference, basically now), that is skewed in favor of consumption. Beyond all the complaints about big governments enslaving small individuals, we still have unbelievable freedom and an incredible variety of investment opportunities, because the individual is more agile than the regulator. Nevertheless, I would not underestimate the political threats as a principal risk factor in investment evaluations. Keep differentiating capital from money, even when you think about ‘economic’ investments; ‘economic’ has the same wide meaning as ‘capital’, e.g. it could be ‘economic’ to give someone a thing that stirs more joy in the receiver than in the giver.

Rule Nr. 3: Develop knowledge of human nature and invest the fruits into social skills. Care about the development and growth of all the human beings that surround you. Take interest in your life partner or spouse. Study him or her with the same vigor and care that you study yourself with the goal to understand them. Do not fall into the trap of quick judgement but defer it for as long as possible. Make your growing presence of mind your ultimate goal.

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