Programmers and Money
I have an obsession with economics. My wife says I need a new hobby.
I look at it like a puzzle. Hidden under all the opinions and theories are facts, the things which REALLY dictate where the economy is headed. I've had an obsession with figuring out this puzzle.
I think I can trace this obsession to my background as a programmer. That's because 99% of economics can be boiled down to a few mathematical functions, which are a lot like code.
Money, you see, is a recursive function, and I believe programmers who are familiar with this concept are uniquely equipped to understand money. The ability to understand recursive functions and a willingness to throw everything you think you know about money into the garbage are all that's required.
Whenever I think about the nature of money I'm reminded of this anecdote:
"And what do the elephants stand on?" says the scientist, thinking to foil her.
She crows back, "Why, on the back of an even larger turtle, of course!"
"And what does the turtle stand on?" he continues, sure he has her now.
"On the back of another turtle!"
"And what does that turtle stand on?" asks the scientist, now growing exasperated.
"It's no use, young man," the old woman replies brightly, "it's turtles all the way down!"
Recursive functions, if you're not a programmer, are routines which call themselves. Turtles standing on other turtles. They're one of the hardest concepts for people to comprehend when you're first learning how to program, but they're also extremely elegant and powerful when used properly.
Recursive functions are the basis for much of physics and nature, such as the fractal patterns which can be found everywhere. They're also the basis for our entire economy.
Money, you see, is a recursive function.
In our system, as weird as it sounds, money is debt, and debt is money. Every cent of it is created by a bank in response to somebody taking on debt. Banks are little money factories, quite literally.
How do you pay off debt? With money. What is money? More debt. How do you pay off that debt? With yet more debt.
Turtles all the way down.
A dollar bill is not a "thing", it is not even simply a medium of exchange. It is a function you hold in your hand, one which requires more money to survive.
A tidy little mathematical function that you can hold in your hand, that's what a dollar bill is.
The function a dollar represents is the compound interest equation, which looks like this:
Math and so forth aside, this means that more than one dollar is required in the future to pay off any given dollar. The original dollar, plus interest.
This is the key to the whole crazy contraption. This is the red pill.
This equation is law. It is why stimulus cannot stem the bleeding, why the Federal Reserve and/or Obama are powerless. If you argue this fact you are arguing with the compound interest equation itself, and you may as well try to prove that the earth is actually flat and rainbow skittles will pour from the sky on January 20th when Obama rides in on a unicorn.
This exponential function drives both growth and contraction, and you'd be wise to figure out which way the function is running before you decide where to put your money.
Since debt requires interest to pay it off, the total amount of money is constantly growing. Not only does the amount of money grow, but it grows at an exponential rate. Or, at least, it's supposed to. When it doesn't, our economy gets bent over and spanked because money tends to DISAPPEAR at an exponential rate.
That's what's happening now.
What's interesting is how much of the business world is left completely to chance by top executives who quite obviously don't understand this basic concept. It's painfully obvious when you understand this and watch interviews about the economic crisis on CNBC.
They are running... absolutely... blind.
If there's one thing you would be well served to take the time to figure out, it's this. All other noise and news aside, this fundamental truth is what drives the economy. The government doesn't drive the economy, the Fed doesn't drive the economy, this funny little recursive function called a dollar does.
Everything else is noise. Keep swinging Occam's Razor.
