The Breakdown - Why Monetary Debasement Is Here to Stay, Feat. Dr. Vikram Mansharamani

Episode Date: June 20, 2020

Today on the Brief: FTX lists two Compound tokens Reddit partners with Ethereum Foundation on Layer 2 scaling Black-In Freedom Festival reimagines Juneteenth Our main topic:  Dr. Vikram Mansharamani is a lecturer at Harvard and author of “Boombustology: Spotting Financial Bubbles Before They Burst” as well as the just released “Think for Yourself: Restoring Common Sense in an Age of Experts and Artificial Intelligence.”  In this wide-ranging conversation, he and NLW discuss: Why our relationship with experts and expertise is leading us astray How COVID-19 shows the downside of both over-reliance on, and complete rejection of, experts  How the economic crisis surrounding COVID-19 is bursting bubbles and moving us from a period defined by deflation to one defined by inflation Why “monetary debasement is here to stay” Why the U.S.-China relationship is the key backdrop for understanding the next 10 years of global economic reality  Why inequality threatens the fabric of our economy and our society, and what might be done about it Find our guest online: Twitter: @mansharamani Website: Vikram Mansharamani | “THINK FOR YOURSELF”

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and Beyond. This episode is sponsored by BitStamp and Cipher Trace. The Breakdown is produced and distributed by CoinDesk. And now, here's your host, NLW. Welcome back to The Breakdown. It is Friday, June 19th, and today my guest is Dr. Vikram Man Sharmani, the author of the new book, Think for Yourself. It's a really extending and wide-ranging conversation, and I'm super excited to share it with you. But first, the brief. First up on the brief today, FDX is listing

Compounds token. So what happened? Compound is obviously making news everywhere. I covered it briefly on the brief yesterday. It is sort of the new Defi hotness, and it is dragging a number of concepts to the forefront in Defi, including yield farming, and all these other really interesting centralized financial engineering concepts effectively. What happened is that FTX is going to list both comp and CUSDT. CUSDT is compound's interest token and comp is compound's governance token. The price of comp has rocketed up. It was over $200 per comp when I was recording this. And the total market cap in comp is now over what maker is. So obviously a leading defy light. Why is this interesting? I mean, for me, the real nut of it is that there is clearly bull market energy around defy, and even if that

doesn't reflect a new influx of users or buyers to actually kind of drive those big gains, it certainly suggests a real excitement that if you are watching the crypto industry is worth noting. Before I leave this, I want to quickly go over who I think should care about defy, and right now I think there are really two main categories. The first is honestly just people who are people who are have the time to dig in deep on some really novel concepts that straddle both financial engineering as well as technical engineering. If you are willing to take some time and learn and you are interested in decentralized systems, permissionless systems, leaderless systems, there's a lot to be seen and a lot of innovation and interesting things happening completely before you make any judgments

about long-term value or viability or anything like that, there is a ton to learn. The second category is that if you are a financial engineering junkie, and I don't just mean in the context of crypto, but just in general, this is an absolute playground right now, where things are being tried that will in the future seem incredibly normal and also in the future seem insane and illegal and who knows what. But again, if you are into that financial engineering space and can get your headspace around it, it's a playground, absolutely. For everyone else, I think Defi has a ton of promise, but you're welcome to kind of sit on the sidelines and let it keep maturing. Part of what I have felt for a long time about defy is that it has had the benefit of incubating outside of too much

market attention. You don't have huge inflows of dollars that are creating undue pressure on the system and that are risking people who don't know what they're doing losing too much money because there simply isn't that much money sloshing around. When you see big yields coming in and everyone talking about yield farming and people talking about comparisons to the ICO boom, obviously that maybe starts to change that dynamic, but I still think we're at a level right now where the complexity is actually and the barriers to entry are really good for the space. And I don't mean that dismissively at all. I just think it's the right context to be doing this type of deep financial experimentation without a huge amount of retail dollars coming in as well.

Next up on the brief, Reddit is looking for Ethereum scaling solutions. What happened? About a month ago, Reddit began experimenting with community points tokens on two subreddits. The first was Fortnite, and the second was the cryptocurrency subreddit. Interestingly, they were actually more popular on Fortnite than the cryptocurrency Reddit, but either way, Reddit is now anticipating some future demand for these things, maybe across more subredits, and has partnered with the Ethereum Foundation to find a layer to scaling tech solution. Why does this matter? Well, there's a couple reasons. The first is that This idea of tokenized community rewards or points is something that during the ICO days

was kind of dismissed and poo-pood on, like it was a less valid use case. But in a lot of ways, I think that this idea of something that is fun and adding value to communities, but that doesn't necessarily equate to the same type of monetary premium that we imagined from these layer one solutions has a role in the future. They don't have the same stakes as a base layer token that's trying to be a global money, but that's okay. That doesn't mean they can't add value to communities and be an interesting part of the ecosystem of technologies for community in the future. Even more importantly, though, is the context in which this experiment is happening. Reddit has 430 million users. It is one of the

most beloved central websites to the world at large. It spans across every interest, every demographic. So I think that if there is going to be something here in this idea of community tokens that incentivize different types of behaviors within communities, it's hard to imagine a better place to discover that than Reddit. Last up on the brief, it is Juneteenth, and I want to tell you guys about something called Blackin Festival. First of all, Juneteenth. It is the oldest nationally celebrated holiday commemorating the end of slavery. It is not an official U.S. holiday, but it is widely recognized unofficially. June 19, 1865 was the day that Union soldiers landed in sort of the furthest flung part of the country, which was Galveston, Texas, with news that war had ended and that the slaves were free. This was, of course, two and a half years after the Emancipation Proclamation, but it reflected the first time that in every part of the country this emancipation proclamation could actually be enforced. The notice that they gave said this involves an absolute equality of rights and rights of property between former masters and slaves.

Obviously, this year, Juneteenth is extremely charged. You had controversy with President Trump around a scheduled rally, which was later rescheduled, and you also have, obviously, these huge protests that we've been seeing, and there are more demonstrations scheduled for today. But I noticed a couple weeks ago that a friend of mine and former collaborator, James Andrews, is a co-producer of something called the Blacken Festival. And here's the way they describe it. Historically, Juneteenth has celebrated the end of slavery. We believe it's time to celebrate the birth of a new movement, a movement to redefine freedom for black people in this country. Recent events have been a catalyst for conversation and actions beyond any in recent memory. We believe that true change in progress is possible and the time is now. So this is a three-day online virtual event and conference.

It's completely free, so you can go check it out. Day one, which is today, is all about sports and entertainment. So there are sessions like fighting the NCAA for athlete pay. Tomorrow is the business culture and life day. There's a session called Power of Culture and Code. And then Sunday is the Faith Family and Wellness Day, talking about sort of the more social aspects to this revolution. I think it's really cool to see this sort of momentum channeled into lots of different things.

I support absolutely everyone out demonstrating and protesting, but I also love seeing that same energy capture. bottled and turned into something else, you know, frankly, often by the same people who are demonstrating in different contexts. So really cool to see positive energy and to see this important day of recognition turning into something that is as much looking towards the future as the past and what it recognizes. Quickly, to tell you just a little bit more about Juneteenth, here is James Andrews. Juneteenth is about freedom. Comes at a really interesting time. And so we decide to pull together something called blacken festival.com to look at black success, black achievement, black beauty.

But most importantly, look at freedom. And it's freedom from oppressive systems. And it's freedom to not be imprisoned by some of the systems and some of the pervasive mindsets. And so this is about empowering entrepreneurs. This is about empowering artists. This is about empowering leaders. And so we've collected, you know, everybody from Shaq, who's talking about his deals with Papa Johns to Susan Taylor to Q Gaskins who built the Alan Iverson brand at Reebok and how he was able to do that as a black man in corporate America. And so you can go to blackend festival.com.

You can, you know, check us out. We're streaming on all the platforms. And, you know, thanks for your support. And with that, let's turn to the main part of our show, my interview with Dr. Vikram Mancharamani. Dr. Vikram Mancharmani is a global trend watcher. He is, on the one hand, about as credentialed as you can get. We're talking bachelor's from Yale, Ph.D., and two masters from MIT. He has taught at Yale and is currently a lecturer at Harvard. But what caught my attention about Vikram is the way that he actually breaks out of the mold of many subject matter experts to synthesize a huge number of disciplines in a way that helps people make better sense of what is, admittedly, a very confusing world. He was previously the author of Boombustology, spotting financial bubbles before they burst,

and his new book is Think for Yourself, Restoring Common Sense in an Age of Experts and Artificial Intelligence. Think for Yourself actually sold out on Amazon within days of release, and I think that by the end of this conversation, you will understand why. By the way, I believe it may be back, and if not, it is still available on Barnes & Noble, but the point remains that there is a reason that this is going fast. This conversation is extremely wide-ranging, but one of the key underlying themes is the secular shift we're living through from the driving forces in the economy, such as technology and aging demographics, being deflationary, to a turn to something that is potentially much more inflationary. This, as regular listeners will know, has massive implications for the world. As with all interviews of this length, we've edited only very slightly, and so I hope you appreciate this conversation. All right, we are back with Vikram.

Vikram, thank you so much for spending some time with us today. Well, thanks for having me. So there's a huge amount that I want to talk to you about. I think that the way that you approach synthesizing a lot of trends is going to be really, really interesting to my readers. But I want to set a context with the new book that you just put out first. It's just out this week. And I think that the mental model that you're presenting of experts might be relevant

for a lot of our discussions today. So could you tell us just a little bit about the new book? Sure. So the new book is really about navigating uncertainty and how we do so in this world where we are drowning in data. We have more information than we can digest. And there's an explosion of choice. And so those three things, information, data, and choice have resulted in this low-grade anxiety

that we all suffer, that we're missing out, this fear of missing out on the best choice And so what do we do? We turn to experts and technologies to help us filter and choose. In that process, we give up a little bit of control. And so what I'm suggesting is that we need to reclaim that control. And that is really how can we manage experts and the technologies that are influencing our thinking? And my answer, cutting to the punchline right away, is we need to think for ourselves by keeping experts on tap, but not on top. And what I mean is we shouldn't be like the ping pong ball bouncing between two extremes, the one extreme being complete dismissal of experts and the other extreme being blind deference to experts. And I think there's a middle ground. And I capture it with the spirit of keep experts on tap, not on top. So I think this is a, it's fascinating to me to read this now because obviously, presumably, This is a book that's been published and has been worked on for numerous years and drafted and all this sort of things.

And I think it's particularly notable, though, right now because we've just been living through a crisis. I mean, we are living through a crisis where both extremes of our relationship with experts are creating problems in some ways, right? The extreme dismissal of expertise, but also the extreme overreliance on expertise. I mean, is that how you've read or have you noticed that during the COVID-19? crisis? Absolutely. And I would suggest that our beloved commander and chief falls victim, I think, to some extent to this logic of thinking, which is it's either or. And I don't think it has to be either or. I think it can be, I can listen to experts without deferring to them. I can actually take the inputs. I can use them effectively as tiles. And I form my mosaic. Now, the way you started

our conversation was saying, I wanted to set context. I think that's a fabulous way to describe this, because ultimately, experts are inputs without context. And if we can actually provide the context to know when and where we should listen to who, then we'll do better at navigating uncertainty and making better decisions in the face of overwhelming choice and data. Do you think that what is the root of the challenge with experts and expertise that we're seeing today? And I guess to kind of broaden the question, how much is it related to a larger question of changing trust in or relationships with institutions, which had previously been the pillars of society? Yeah. So I think the sort of institutional logic that you've started hinting.

at here. It's a more recent phenomenon. But what I would say is if we go back to what I think the root causes are of this expert dependency syndrome or expert dismissal delusion or whatever you want to call it, I think that really goes back to this volume of information, volume of data and volume of choice. And it's our desire and we've been trained it in lots of ways, whether it's the economic logic or other logics that say you can and should maximize. You should optimize. There is a perfect choice. And the paradox of choice suggests, for instance, that that may not be the case. So even though there are a gazillion movies available to me and my wife on demand every night, when we sit down on our couch to watch a movie, we believe because of those gazillion movies being

available on demand instantaneously, that there is a perfect movie for our current mood, our setting, whatever it is, and the chances of finding that perfect movie are infinitesimally small. And as a result, we're going to be left with some fear of missing out on the best thing, et cetera. And so we turn to algorithms. What will Netflix recommend based on what I previously watched? Or we turn to experts, which are, you know, movie critics or what have you, to help us decipher and filter through some of that noise. And that's not just in the trivial decision making, such as watching a movie, but it could also be like when you go see a doctor and you get sent to a specialist. And the specialist recommends a course of action. Many of us feel completely powerless

to ask questions or even question the very recommendations being given to us. So I think it comes from this optimization logic that leads us into the arms of experts and technology. That's really interesting. So, you know, you kind of talked about the algorithm, right? The, you know, the feed algorithm, the, the recommendation engine. How much is, is that a, I guess the question is, is that a different version of expertise just mediated technologically? Or is it itself a different phenomenon as it relates to this analysis? No, you've just hit the nail on the head. In fact, what I've imagined, and the reason the book frames it in the form of experts, technologies, and rules is I think of it as expertise. Expertise, i.e. knowledge that is superior to yours in a specific domain for filtering the noise to get to the signal. If you define it and think of it that way, well, then expertise in the form of a human is an expert. expertise in the form of an algorithm or sort of an embedded expertise could be technology or an expertise in a bureaucratic environment to control and manage process and sort of extend

the expertise from up high down low might be installed in the form of rules or protocols. And so really that's what we're getting at is expertise and there's just three different manifestations of them. Interesting. Super, super interesting. So I want to actually now go to a previous book of yours, because again, we're context setting for a lot of things that I'm going to ask you about around the world. And like I said, it is kind of remarkable. You've written this book that has extreme relevance, I think, right now in this question of experts in the context of our response to COVID-19. But then your last book is, you know, I mean, it's been relevant forever because it's about booms and busts and economic cycles. But it feels particularly relevant right now as we live inside this

crazy market where we have a totally new type of mania in some ways that obviously everyone is trying to make sense of in the Robin Hood Rally, the day-by-day trader phenomenon. But I'd love maybe to go back and talk about boom bostology and what the thesis of that book was as well. My first book, Boombostology, was really a written version of a course I'd been teaching at Yale. And it was really a liberal arts meets finance dynamic. And unfortunately, finance is not really, prone to liberal arts thinking, except where it is uncertain, ambiguous, and probability. And what I mean by that is a phenomenon like financial bubbles. And so I taught a course on this, and I was asked to write it up as a book. And so what I've come up with is a five-lens framework

for thinking about where you stand in a financial level. And those five lenses are microeconomics, macroeconomics, politics, psychology, and then our herd behavior lens. And my logic, was to sort of see how each of these was relevant and then triangulate to gauge where you stood in a bubble. So let's just run through. The first lens is microeconomics and prices. So when higher prices drive demand rather than supply, we have a self-fulfilling bubble dynamic underway. Doesn't mean we're in a bubble. This means that we have a bubbly dynamic. So by the way, in today's society, I'd say check. We're seeing higher pricing. We've got a little bit of homo going on there. So people are chasing. So lens two. Macroeconomics, the cost of money, volume of debt. And so

debt is exploding. That's number one. And number two, the lens sort of suggests that when money's mispriced, it's misused. And so when the price is too cheap, people take too much risk. And you see that in the form of investing with borrowed money in the face of overcapacity or what have you. And in any case, today's low price of money and volume of debt suggests that we may have another check market work here. Lens 3, let's go to psychology. So psychology indicates, are we seeing overconfidence on the part of any portion of the investment community? Are we seeing a new, new thing phenomenon? This time, it's different belief. And here, I think we've got some of that, but not a lot. So in the work from home phenomenon and the technology stocks, the fact that the

NASDAQ 100 is up, something like 40-something percent from the lows a couple months ago, that's stunning to me, particularly given where we are in the economy and the economic cycle. And it's driven by a belief that tech is taking over. This was a cycle we went through 20 years ago where tech was going to take over. And in fact, tech may take over, but it doesn't justify ridiculously high valuations, et cetera. And so, you know, I know there's something real there, which is making it slightly different, but it shouldn't change everything. And so maybe we give it a half a checkmark. Then we go to politics. And politics is really about, you know, moral hazard and when regulations change the risk-reward tradeoffs that people perceive. And here, you know,

The Fed put, as it was formerly known, is alive and well. The fact that the Fed is purchasing bonds of corporations as well as ETFs is providing a really strong bid in areas where you might have seen distress. Further, we're seeing a bunch of what you might deem moral hazard in the form of treating by the federal government problems of insolvency as problems of illiquidity. And when you give money to someone that's effectively based, bankrupt, rather than facing a pinch in the form of a liquidity crunch, then you are exacerbating that problem, making them more underwater rather than helping them with the sort of liquidation

process. And so I think the misanalysis of treating insolvent companies as illiquid situations is making the problem worse. And so I would say Lens 4 with political manipulation, the answer is yes. And then lastly, as you've hinted, Lens 5 with the herd behavior, whether it's the Robin Hood class or the mass participation of investor day traders, amateur investor day traders who are better than Warren Buffett or what have you, I think you got a new phenomenon underway there where it really does feel like a late-inning phenomenon in the sense that most of the investors who are going to be infected and in this bubble are in right now, which implies you might be getting towards the later stages of it.

So I would say four and a half check marks in my eyes. Yeah. So it's really interesting. I think what's been fascinating to me about the mania side of this, right? Call it bullet five is that I think it overlaps with context four, which is to say that you have, I mean, there's a figure that embodies this in this particular mania in a way that is, you know, not unique, but certainly is notable in Dave Portnoy, right? The founder of Barstool Sports. And it was fascinating because when he first started his Davey Day Trader thing, it was, you know, what he was going to do to kill time during quarantine, right?

And you saw as the first kind of Fed plans came down, right, him losing his mind because he was like, wait a second, you're literally going to spend trillions of dollars to save these companies. Is money real? And so it was interesting because the first phase of his media experiment with day trading was not just him learning about day trading. It was also him coming into contact with this idea of a Fed put and moral hazard, but on a grand scale in such a way that he almost, it birthed his cynicism, it birthed his nihilism, where he was like, they're going to do whatever. And so you actually had people along for the journey where he was converted to a, you know, kind of memeish version of like the Prada J. Powell thing, you know?

And it's so interesting to see how the justification for the mania, in some ways is about that political context almost. Yeah, well, I mean, I wouldn't justify it. I think maybe explanation. Explain, explain, is that, yeah, a better way to put it. Of sort of mania. But I think it's a lot more than just the fan, right? I mean, it is the fact that the quarantine shut down sports,

there's a vibrant community of people who like to bet on sports. Well, well, I like to bet. What am I going to bet on? I like that thrill of seeing the resolution of an uncertain. outcome. And so, okay, well, stock markets seem like fun. And by the way, the Fed just gave me, or the government just gave me $600 extra dollars. So let me roll the dice. It was found money. Right. So there's all these behavioral interpretations of what's transpiring that you can easily, you know, apply to the current situation.

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to manage compliance risks, you should start now. Learn more at cyphertrace.com. Let's talk about in the context of bubbles when they happen, what happens after, because all those ports I think are direct. Maybe I'll try to connect the expertise question back. One of the questions that I've asked a number of different guests on this show is, to what extent they feel like the Fed and Jay Powell have agency in this situation versus are almost trapped in a, you know, you break it, you bought it kind of scenario, where this is just what's expected, what they have to do and just don't have the political will to do anything different. And if that's the case, then the question becomes really, you know, a gamble on how long. they can prop up markets. But how do you see this one playing out? And do you see it following maybe a

different pattern than some other bubbles that you've researched? Yeah, look, I do sense you're right in the sense that the Fed feels trapped between a rock and a hard place, meaning I do believe a large number of the economic policymakers feel like they're choosing between two bad outcomes. and they're leaning towards the less bad of the two outcomes. And the first outcome is let the system liquidate, right? I mean, going back to the Austrian School of Economics and sort of general free market, less intervention logic, is, okay, well, things go bad.

There's a cycle, clear it out. Unemployment will go to 40, 45%. People will get, you know, we'll have a long period of retrenchment, but we will emerge healthier and ready for a 50-year economic expansion after that. It's a necessary evil. It's painful. Let's take our medicine. And in the long run, we'll be better off rather than create a bigger problem. So that's sort of the longer run. Get out of my way, libertarian almost in logic.

Let the system clear. The alternative is also bad, which is, okay, let's create the moral hazard, but let's limit the job losses. Let's support the economy. If asset prices go up as a result and the rich get richer, but the poor don't participate and labor get squeezed, that's not good, but it's better than the 40-something percent unemployment that might transpire. And we don't want to break the economic capacity of our nation. So let's just do it this way. And I don't think anyone believes these are great choices that are being made, but they think they may be less bad than the others. So that's your quick answer. And then the question about do I think it'll play out differently this time? The one thing that I had been worried about, and I continue to monitor,

but I don't think is a real concern in the short run, is our budget deficit is skyrocketing as a country. And I've traveled a lot in emerging markets where emerging markets, if I saw a double-digit budget deficit for a country, I was like on eggshells. I was like, this is a country that's going to fail. Well, here we are in the United States well into double-digit budget deficit. And our currency is strengthening. Now, the strengthening of the currency is interesting because it's a relative measure, but it's not strengthening relative to some non-printable currencies. like gold or Bitcoin or whatever. And so what I would say here is the worry that I have is a longer term worry, the results of which could be really horrible, and that stem from this crisis. And so

what I mean by that is, is it possible that we could find ourselves with pressure on the U.S. dollar where other countries might decide now is the time to develop another global reserve currency to compete with the dollar. I think there's huge incentives for other countries to do so. It's a long-term process. It'll take time. But if and when that transpires, then the logic that I've seen play out in numerous other geographies and other crises has the potential of playing out here. And here's the recipe. The recipe is let's begin with large budget deficit spending. Let's add some quantitative of easing and money printing. Let's have the currency get devalued. And the result, as has been the case in virtually every time you get those ingredients together, is hyperinflation. We saw it in Weimar,

Germany, we saw it in Zimbabwe, we saw it in Venezuela, et cetera. And so that is the latent worry that this crisis may be setting the conditions for that. I don't think it's anytime soon, but that is the worry. So this is super interesting because I think it gets into a debate that is particularly acute or at least highly discussed, let's say, in the kind of Bitcoin world, around whether we should be more concerned about deflationary or inflationary forces. And one of the things that you do, you know, we talked about your books, but you are constantly producing content about a huge variety of issues. And you had a really interesting podcast, I think a few weeks ago now, where you basically had kind of given a sense of before,

for COVID-19, four transitions, right, four large-scale forces that you thought were going to shape the context of the economy, all of which were somewhat deflationary. I think you mentioned we can maybe get into whichever one stand out is most important, but extra Chinese economic capacity, technology writ large, energy and development of particularly shale and alternative energies and then demographics as they relate to demand. And now it is interesting because kind of on the other side, you're starting to see the creep of some counter-narratives. So could you take us, I guess, to where you were and how the world looked in terms of kind of these large forces to maybe where we're now at least having to entertain the conversation about this

large scale kind of secular shift to a more inflationary environment? Sure. No, it's a great question. So prior to the COVID pandemic, really grabbing hold of at least America, I would argue there were four big tectonic trends, all of which were pointing towards deflation rather than inflation. The first was the revelation, if you will, of overcapacity writ large in China. And so they had a credit-fueled investment bubble that burst. And as a result, the overcapacity was being exposed. The debt, if it started going bad, and there were early warning signs that they were going bad, or some of the debt was going bad, that you could see a reduction in demand and an increase in supply and more deflationary pressure. So that's number one. Number two was

what was happening in energy, where we saw massive improvements in alternative energy capabilities, but also we were seeing an explosion in hydrocarbon reserves being made accessible because of shale and fracking technologies. So we saw a massive increase in supply. Three was technology, which was enabling more supply for the same or fewer inputs. So that's again, all else equal, supply is deflation. And then fourth was demographics, the world's largest economies aging. And as they age, people move to fixed incomes. And as they move to fixed incomes, they have a reduction in demand. That reduction in demand is de facto deflationary. And so those were the four big things that I was paying attention to. Now, the thing that happened with COVID was obviously we had a massive

plunge in demand, which is absolutely deflationary. We also had a contract. We also had a contract. in supply in some cases, which would have been, in fact, inflationary. And that is still working its way out. And I think today I would probably suggest deflation is more likely than inflation, except an asset market, where we can change our tune a little bit, where we've seen a lot of inflation. Let me talk about a bigger dynamic that I think does lay into or lay the groundwork for discussing this secular shift from deflation to inflation that I see early signs of. And that is this

U.S.-China rivalry. You know, we've had what some people would have just described as a trade war. Well, it's a little bit more in the trade war in my eyes. It's a trade war. It's an economic war. It's a currency war. It's a space race. It's a arms race. It's a geopolitical rivalry is what it is. And so what I saw happening was supply chains that were running through China, the wherever, global manufacturing facilities, after the trade war started, they're like, wait, hold on a sec. This part that was $7 is now going to be $83 because of tariffs. Wait, what? That's ruined my business model. But people struggled through that.

And they said, well, we've got to start thinking about our supply chain to change it. Then the COVID pandemic hit, and suddenly it was like, wait, I can't get the part. that's even worse than paying too much for the part. I need the part or I have to shut down my facilities. And we saw Fiat and other companies shut down because of the disruptions to the availability. All of this is suggesting to me that supply chain shifts are globally significant.

They're moving away from low cost just in time inventory management and supply chains focused on efficiency. And they're moving that logic towards just in case resilient supply chain logic. And that means bringing supply chains home or creating redundancy. Now, the reason I bring that up in the context of inflation and deflation is that is a massive inflationary shock.

We're going to have to rebuild effectively an entire supply chain. And that comes with huge CAP-X, which is absolutely just new demand. And likely, the supply chain will come at higher cost. and at higher cost is going to get pushed through into inflationary dynamics as well. Now, there's some offsets because technology is racing forward, et cetera, but I do think we can imagine a world where inflationary pressures start creeping in because of these supply chain shifts. If the financial markets continue as they are, then the inequality gap becomes more of a political issue, and you can see more redistribution.

Redistribution is effectively taxing those who have to give to those. who need. That has the potential to be inflationary because it's creating more friction in the system. And so you have a couple of dynamics that are underway that are changing the big tectonic pressures from deflation towards inflation, albeit with no certainty because it's a race, right? I mean, technology can race faster forward than the disruption from shifting supply chains or even from this redistribution-driven inflation. So, you know, it's worth watching. watching, and I think that we're potentially at an inflection point, I don't know for sure, but I have my antenna up to watch for inflation.

I want to spend some time on this, the U.S. China relationship, because I think it's a really salient point. And I know that there's kind of a larger context for you of a potential shift in the world order to kind of a bipolar economic world where people are effectively in a position where they really, it's going to be very hard to be in the middle and kind of friendly and both sides. How has the way that these two countries responded to each other in the context of COVID-19 either affirmed or changed what you had thought about this relationship before the crisis? So I'm not sure I would say very much about the COVID impact on U.S. China relations because there's a lot of grandstanding going on given the U.S. election dynamic that's underway.

And so, you know, I'm hesitant, I guess, to really put too much weight on that. But I think if you take a big step back and look at the grand ambitions that China has, which is to reclaim its status as a global superpower, then that comes into conflict with our status as a superpower. And, you know, there's a lot of dynamics that come from that rivalry. And as I said earlier, you know, it's not just a trade war, it's a currency war. It's a space race. It's an arms race. It's a influence race. It's a, you know, et cetera, et cetera. And I think it's a really big dynamic that is really hard to suggest is not going to be present as a major issue for the next five, 10, 15 years.

You know, my hope is that America and China can learn to live peacefully together. But there's definitely points of friction and possible flashpoints that could turn. from something like tensions into rivalry, into potential conflict. So I worry about that. One aspect of this that you kind of mentioned earlier is the role of the dollar is the world's reserve currency. And I wonder how you see that particular kind of sphere of influence as a modality for competition, I guess. We have these very strong competing thoughts about the dollar.

I mean, there are people who are convinced that the dollar is going to lose value because of the kind of changing nature of the U.S. in the world, but also just this kind of rampant money printing. And then on the other hand, you have sort of like the dollar milkshake theory proponents, right, that are just convinced that relative to everything else out there, it is just going to suck all the liquidity from the world. Where do you fall in this? Or is that even the right kind of, you know, dialectic to have? Yeah. So let's start with the reserve currency status. Look, that gives the United States exorbitant privilege. That was just amazing, right?

I mean, being the sole global reserve currency that's respected, I mean, the euro could have been, but it sort of, I don't think will be. And so, you know, there's a reason why anyone in the world with large sums of money parks their money in the United States. I mean, dictators around the world that hate Americans would park their money here. Why? Because we got rule of law, depth of markets, et cetera. I don't see an alternative. I really don't. I don't see an alternative to that right now, not in a way that could be used in the long one. So I see the logic that says there's no alternative and therefore money will come back here. This is the safest of the safest if you think the world's going to get worse, then this is the place to go. I buy that. I do also buy the argument that money printing should devalue things. could create inflation. Those two things are not inconsistent, which is the interesting thing, right? We could see the dollar buy less in terms of goods, but be worth more than other currencies

because the currency markets are relative. And it's when you try to get to looking at the dollar's inherent value, which is a sort of fuzzy concept at best, but we have some metrics that are not relative, right? So, or, you know, they're priced in a particular currency, but you know, the dollar relative to gold, you know, gold prices tell you something. And I think they tell, because a lot of people think of gold as a currency, as a non-printable currency. And likewise, you know, there's other alternatives there. So I could imagine, if you will, the price of gold going up while dollar index or the dollar relative to other currencies rises. And so I think both could be right.

This is something obviously that kind of is particularly of interest to this community. This idea of non-printable monies is basically at the core of the Bitcoin value proposition. And certainly we've seen from a narrative uptake perspective, let's say, a lot of resonance in the last few months, right, when you had the Bitcoin halving, right? The halving of the supply issuance coincide with the beginning of all these programs. And then, you know, folks like Paul Tudor Jones jump in. fully. I mean, you know, you spend a lot of time across a lot of different types of people, right? Not just one type of economic orthodoxy. Have you noticed more of a conversation around Bitcoin and

digital currencies in general over the last few months? Yes. I mean, there's no question. I've seen an uptick in conversations about it. You know, one of the themes that I think is probably worth banking on. And I could really feel quite comfortable suggesting that monetary debasement, is here to stay and is likely to accelerate. And that is because of the political processes. It is just a lot easier to hand out money and debt and then inflate your way out of it, rather or try to grow your way out of it. But you don't take entitlements back.

I mean, politicians can't do that. There's no degree of sobriety among those with capital that's not theirs to hand out. I think that that is a fundamental problem. perhaps in some of these more representative democratic capitalist societies is there's this ratchet effect of entitlements and spending. And there's no constraints to that if you can print. And so you almost worry that that is that lack of control leads to more and more printing and therefore more debasement to basement to basement, either through printing or inflating.

But in all cases, it seems to me, on a long run view, it's hard. to say about the short run, but in a long run view, currencies that cannot be printed should benefit. Going kind of building off of that theme, I mean, part of what I think the implications of what you're saying are is something that we're seeing where all of a sudden traditional political positions and polls get really murky when the Overton window shifts so dramatically on kind of money printing and just kind of government distribution of resources, right? I mean, you had within a window of just a few weeks earlier this year, you know, Andrew Yang drop out after spending a year and a half talking about UBI to UBI-esque policies becoming the norm and kind of demanded from both sides.

Do you think that what's the political space in America to maneuver out of this? Or is it totally inevitable that we're heading into an MMT world? Yeah. So I'm going to answer your question differently. And I think I think this will shed some light on it. Let me begin with the proposition that Karl Marx was right. So Carl Marx was right. What do I mean by that?

I mean, if you stop and think about the communist critique of capitalism, it was the workers of the world get pinched, right? They get squeezed. A return on capital goes up. Return on labor goes down. The result being a call for revolution. Workers of the world unite. Overthrow those who have put in these bonds, et cetera.

In fact, I think it was in the critique of the Gotha program that Marx and Engels wrote literally from each according to their abilities and to each according to their needs. I mean, if that is not the essence of redistribution, which is underway in the United States, look, I live in Massachusetts. My senator here has proposed a wealth tax, you know, and suggested that you take from those who have to give to those who need. I mean, I almost think this is the path we're on, which is we're going towards more and more and more socialist entities. And as a free market capitalist, this really bothers me to say what I'm about to say. I think it's necessary. I think you have to get some degree of larger safety net in place, some socialism light. And I want it as light as possible to be in place to prevent capitalism from. self-destructive. To keep the capitalist game alive, we need to provide greater safety nets for

those who get left behind by the creative destruction, the technological innovation, and the quest for efficiency and output. Now, I hope we don't need to get to the point of universal basic income where we're just handing out money because there's so many people displaced. I'd rather see it as retraining and reintegration to different functions and higher level roles and different companies and what have you, but that's the path I see right now. So it's really interesting because I think inherent in the point that you're making is an important distinction or maybe nuance to this conversation, which is to do with there is on the one side this long-term force of technology automation.

And I know you've actually spoken about this in the context of India, which I find particularly fascinating, where your belief is that they just may not be able to, they may have missed the window on developing a middle class for manufacturing like other places have been able to do because of the force of automation. So there's that side of being left behind. But then there's another side of being left behind, which has to do with asset price inflation at the expense of everything else. And the wealth effect of the Fed theoretically being designed to at some point get to the bottom rungs of society from a financial standpoint and then never getting there. And in fact, pricing them out and leaving them further and further behind. And I worry that the conversations

that we're having now about things like UBI in this post-COVID era are more about just kind of covering up the sins of, you know, houses and assets rising to the moon where everyone else stagnates versus, I think the point that you're making, which is much more important and certainly was at the heart of the Yang campaign, which is this long-term shift in how. economies are actually, how they actually function. Yeah. So look, I obviously agree with what you're saying here. Let's talk about the India piece first because I think that's a big idea that hasn't gotten

enough attention, which is from a country-level development strategy perspective, historically what you found were large populations of young people, i.e. cheap labor in abundant quantities, proved to be a useful ingredient for mixing with capital in the form of factories to produce a large middle class via industrialization. I don't think that's true anymore. I think China was the last country to develop a large middle class through an industrialization-based strategy. In India's case, it's really hard for the unskilled, illiterate Indian farm worker to compete against a robot that is able to do the basic tasks manual generally in a factory than that person could as well, if not better. And by the way, the robot doesn't complain.

The robot makes a mistake once as the engineer corrects. It doesn't make the same mistake twice, works around the clock, et cetera. And so I think India may get manufacturing, but I doubt India will get a large middle class. And when I say a large middle class, I mean hundreds and hundreds of millions people. They have a middle class. Of course they do. But they may not emerge to be the next, quote unquote, China as a growth story. And so that's something that the implications of what I just said, this logic around demographic dividends that people talk about, I think it's just upside down. We need to talk about a demographic noose or a millstone. You have a large young population. That's really horrible. That's hard to do with if you're an emerging country.

Because now you've got to find jobs for all of them. Whereas a country like Japan, if you think through this logic, where there's fewer and fewer people needing jobs, that means you can introduce robots without social unrest. I mean, that's actually might be that our thinking around demographics is exactly opposite of what technology suggesting we should think. That is super fascinating. I mean, I've actually even heard that premise. But, I mean, it's interesting, right? You look around the world and Africa and the Middle East, the percentage of the population that is,

is under 30 is huge relative to everywhere else, right? And that is historically been looked at as, or recent historically, at least, as something that's potential vibrancy, right? And the point that you're making is that that actually could be problematic in the context of, again, where economies are headed. That's right. Fascinating. Let me ask you the inverse of that.

Feel free to take this any direction you want, too. But let's talk about the demographics specifically in the U.S. Because I think one thing that people are worried about here, certainly I am with parents who are just retired, is the way the bubble bursting has particularly deleterious impact if you are over 65 on fixed income. And your life has been designed around a presumption of the market going up 7% per year forever, right? Yeah. Well, there's two things. Number one, you know, generally people living on fixed incomes prefer higher interest rate. right? They prefer higher real rates and that's not good. Not necessarily higher real rates,

higher real returns to them. And so that's a problem, right? Because it means a lot of people are underfunded relative to their expectations. You know, if they saved X amount, assuming they would be able to live off of a certain yield and maybe a little bit of principal draw, while that ratio of interest to principal draw is going to be disproportionately principal draw, which is going to create anxiety and be disappointing, I think, for a lot of retirees that plan that way. That's one thing for sure. The expectation of continued returns at the same level, I think, is a problem. But I would like to believe that those later in their careers in retirement are not as equity heavy.

Now, that might be an assumption or presumption on my end that is not actually true. You know, conventional logic around life cycles and investing through them is that as you get older, you move away from equities more and more and towards, you know, more fixed income and less risky stuff. So if that were the case, then the problem is more in terms of the yield issue and the return on interest, the interest return on your capital that you can generate to live off of. But yes, look, I think your point is valid, which is probably more valid when you look through to the pension funds or even Social Security, et cetera. The pension funds that are embedding that assumption that you just said, which is a 7% rate of return over the long haul forever, that's scary. That is really scary because the number of underfunded pensions and the volume of it is probably off the chart. And that has the potential to really ignite social unrest.

Just think about someone who works for a government entity enterprise for 40 years, retires, didn't save anything because they got paid less, but part of their compensation was this promise for this lifelong pension. They retire and suddenly their, you know,

their checks stop coming. Excuse me. Yeah, I don't know what you do. I mean, I think those people take to the streets. Yeah. I don't think there's another solution. Yeah, it's wild. How does, I know something, another issue that you've spoken kind of extensively about is the

passive investing phenomenon and how passive investing could very quickly become another anchor on the economy. Could you explain that a little bit? Sure. So, well, I mean, passive investing has become a religion among large asset allocator, right? Because you don't underperform the market, you just get the market and you do it at low cost. So what's not to love? the basic assumption in the passive investing logic is that prices are correct. So don't pay for someone

to determine whether a price is correct or not. Don't pay for research or active investing fees. So what you should do instead is just be a price taker. Take the prices, minimize expenses, gain your exposure to your good bill. What happens, though, is as the volume of passive investing relative to active investing rises and active plays a smaller and smaller role, the de facto role of passive investing shifts from one of price taking into one of price making. And by that, I mean flows suddenly matter as much, if not more than fundamentals. And that is really a problem. It makes cycles go in this day, right now, virtuous. But it also means that if people don't pay attention to fundamentals when things are good but there are inflows or bad but there are inflows,

prices rise. What happens when there are outflows regardless of fundamental? That could be a real down draft. And one possibility for turning those flows from inbound to outbound could be the massive number of retirees, taking money out of the markets, moving towards more and more fixed incomes, and that could in fact turn this virtuous cycle driven by this passive logic into a vicious one. That's deserving of its whole loan conversation. The funny thing is the last chapter of boom bustology was about the passive investing bubbles, at least last year's version.

Yeah, right. Let me a few more kind of wrap-up questions, I guess. I've been picking your brain for a while now. But one is geopolitically speaking. I think one thing that's, you know, I find really important is to keep in mind the geopolitical context of our markets conversations. I think it's something that isn't necessarily native to financial media. Outside of the U.S. and China, which you've kind of articulated a little bit, are there other geopolitical issues, tensions, particular relationships that you are most keeping an eye on? Yeah, absolutely.

I am very nervous about the Middle East. Specifically, if we go through a list of the world's largest defense budgets, my suspicion is we'd get most of them correct. My guess is most of your listeners would understand most of them. Everyone knows the world's largest defense budget is the United States. Most people would guess the world's second largest defense budget in China. The third largest defense budget, again, most people would guess would be Russia. That's wrong.

It's not. The world's third largest defense budget is Saudi Arabia. They spend more on their military than, at least the latest available data that I had access to, which is probably 2018 going into 19. They spend more on their military than Russia. Now, that is a stunning fact if you stop and think about it, because you have to ask the question, why? What are they worried about? what's their fear? And I think one possibility is their young, new de facto leader, Muhammad bin Salman, has effectively an ambition to rewrite the Middle East and to fix it, quote unquote, in his image. And that might entail addressing what is believed by the Saudi Arabian regime to be the major issue, which is Iran. Now, that's the only thing I can think of. And why would you have a defense budget?

is that's so large. So, you know, that's something to think about. It's something to pause on, and it's a geopolitical hotspot because it also entails lots of other entities. The Russians are engaged in the Middle East. The Chinese are engaged in the Middle East. We are engaged in the Middle East.

And so it's a little bit of a tangled mess, and it could create more complications. So I watch that. I watch that. I'm a little bit concerned about China, Indian. relations. You know, recently this week we had not just conflict, but you had soldiers dying. I think 20 Indian soldiers were killed in a clash with the Chinese.

That doesn't make me feel good to have two nuclear powers fighting and having soldiers die. North Korea blew up, literally blew up the building in which they were handling some of their South Korean, you know, relationships and communications in the DMZ. That happened this week. That doesn't make me feel good. That's also concerning. So I think there's some hot spots that you've got to pay attention to and watch. Yeah, I share many of these concerns.

I thought that I was going to spend my life doing Middle Eastern issues and lived in Cairo on and off for a long time. And it's so complicated now, too, because there's a, it's very clear that there is shifting power in that, in that region that is unresolved and that there are a lot of people. starting to position. I think Turkey has to be examined too in terms of their ambitions in the region. And so you have this kind of power triangle, which you still have to include Iran, and even though they're obviously significantly weakened by, you know, kind of economic sanctions. But it is a dicey game, you know, with obviously huge implications for a lot of people, not just in that region. So I guess another kind of similar type of wrap-up question, outside of the bejillion issues that we've already talked about. What are other kind of, or are there other big economic megatrends that

are particularly kind of close to the top of your mind? Look, inequality. I mean, we've danced on it in different ways. But I think this is really potentially quite destructive to have the U.S. markets race ahead while the economy is in the doldrums, right? I mean, Jeremy Grantham, a friend and, you know, someone who I really respect, recently described it as the markets in its top decile from a historical evaluation perspective and the economy is in its bottom desal from a historical outlook perspective. And that disconnect is really disturbing. That's one way to describe it.

The other way is Wall Street versus Main Street. And that is another way to describe inequality. And inequality, I think, has some really problems. problematic implications to it, it may manifest itself in the form of a changing political dynamic. And that could be something that could have longer-term impact on, you know, the country, our country, the outlook, our policies, our innovation engines, our creativity, our sense of nationalism, et cetera. And I think all of that is at risk. I am obviously, we're worried about inequality, but I think one of the major issues I continue to worry about is the U.S.-China

relations, which we've talked about. So, you know, those are some of the things I spend my time worrying about. I was going to ask, you know, in this context, how does one arm themselves vis-a-vis the markets, right, if they're trying to understand what's going on. But I think maybe a better or more interesting way to ask it is let's put it in the lens of the new book and expertise and the the recommendations that you're making about how to engage with experts. How does one looking out across all of this complication with numerous sources of information, a huge range of choices and possible outcomes, how do you put together your personal suite of information or just kind of

discovery to make conclusions about everything from where you invest to what you think politically to what you're going to do next with your career? Yeah. But the first thing I would say is That's one of my favorite words because I think it captures the essence of using multiple perspectives to get different views of a dynamic that's underway. And key to that is an assumption I have that I think is relatively valid, which is every single perspective is biased, limited, and is incomplete. And if that's the case, we need to use multiple perspectives to almost figure out like feeling something in the dark, we need to get our arms around it, so to say, to understand what we're grappling with. And so when navigating uncertainty, that's one thing to do.

The other thing to do is to think through scenarios. This may play out this way. This may play out that way. I think in the book I describe it as think in terms of futures, plural, not one future. many of us are prone to think of one particular path and we always envision success. What I suggest is think of multiple paths. And while you are thinking of those multiple paths, I would also like you to envision failure. So do something called a post-mortem analysis. We want to have you do a pre-mortem analysis. And a premortem analysis is where you step forward into the future.

Imagine that you've failed based on that decision you took and look back to the present, to say, what transpired that led to this failure? And when you do that, the very act of thinking it through for multiple scenarios will result, I think, and there's some research evidence to suggest this is the case, with a lessened likelihood, a lower probability of having failure from those reasons, or because of those reasons. So, you know, I think, number one, multiple perspectives and triangulation. Number two, think in terms of multiple features. And number three, imagine failure rather than success. And I think that's a recipe to help navigate through this uncertainty. We've talked a lot, obviously, about things that are cause for concern and worry. What's something

that gives you optimism or hope in kind of a complicated time? You know, I am not one to bet against humanity. I mean, I think the human being is really innovative. I think that we've been fabulously creative, and I think that's going to continue. I think this opportunity that comes from the disruption of COVID and some of the social unrest is an opportunity for us to rethink and to relearn how be self-reliant or to be reliant, you know, be able to think for ourselves. I mean, it's sort of funny that I have this as my book title, but I do think some of these big trends really indicate that we're sort of losing control, and it's in times of crises that we rethink it to reclaim control. And I think this is one of those times where it's highly possible, for instance,

that the domestic inequality and the domestic racial tensions could result in a greater focus on more inclusion internal to our country and greater economic prosperity for more people. And that home-based strength, strength at home in the United States could make us more powerful globally. In fact, it may be that the U.S.-China rivalry can be won by having a strong home front because, you know, we get to compete in different ways and technological innovation, a more stable society, etc. So, you know, I'm optimistic that that is a path that is possible and, in fact, increasingly looking likely. Vikram, it's been excellent to have you here. I really appreciate the time today.

Where can people find you if they want to learn more, read more, hear more, and include you in the experts that they're triangulating? Thanks. Well, first of all, I take issue with being called an expert. I'm not an expert. I'm a user of experts, and I tap into multiple experts. But no, thank you for asking. My website's probably one of the best places, which is www. www.manchramani.com, which is my last name.

I am on LinkedIn, and then on Twitter, it's at my last name, which is. is Manchramani. So at Manchramani, LinkedIn, or my website. Those are the best ways. I do have my own podcast. It's called the Think for Yourself podcast. And I've started a webinar series as well. Information on both of those is also available on my website. Yeah, I highly recommend for our listeners to go check out the podcast. I listen to everyone you've done, I think, in anticipation of this interview and really enjoyed it. So thanks again for being here. Really appreciate it. And we'll definitely have to have you back to follow up on so many of these ideas. Perfect. Well, thank you very much. I really enjoyed it.

There is so much in that conversation that I could try to unpack, but let's return for just a second to that line, which really stands out to me. Monetary debasement is here to stay. That's a powerful concept and worth separating from the things that come bundled with it. So what do I mean by the things that come bundled with it? Usually when we talk about monetary debasement, we're assuming inflation. But as this conversation demonstrates, inflation happens in really. really complex ways and the forces of inflation and deflation are kind of constantly competing, right? What's more, the remedies for inflation or presumptions that one asset class or another can address it can be debated. In fact, when you think about what solutions the market will put forward or what ways to hedge against inflation the market will put forward, that's going to be a narrative battleground over the next five, ten years for sure. And as I've mentioned, I see so much more

of the macro environment turning to Bitcoin as one of those contenders. But that clean simplicity of the idea that structurally speaking, monetary debasement is here to stay, represents such a powerful shift in the mainstream macro discussion that I really thought it was worth calling out. On that note, I hope you enjoyed this interview, and I hope that you were heading into a great weekend. Until tomorrow, guys, be safe and take care of each other. Peace.