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As they said in movie Die Hard "Welcome to the party pal!"

It is fascinating how it has always been assumed that technology would cause massive unemployment - it does, but only briefly - because at the same time it creates new needs for more people. The rich require many more "servants" than the poor, and as we become richer, we each must be served by more people.

"There is no profession more oblivious to how technology changes their field than Macroeconomists, and this stunning shift is a delight to see."

How very true. I get the sense that macroeconomists work so very hard to generate their theories, that they fall positively in love with them, and cannot bear to part with them as technology upends the whole thing.


Another related question is what does the FED plan to hold *real* interest rates at? Real interest rates (interest rates on safe investments minus inflation) have been either zero or negative for the last decade.

In layman’s terms, are at its core, capital and investing are delayed gratification with a reward. The investor postpones enjoying the fruits of his/her labor and the capital that is set aside enables someone else to invent, innovate, commercialize an idea, improve an existing process etc. all those things that generally constitute progress. As a reward the investor gets increased enjoyment of the fruits of his/her labor (ie. gets an investment return) at a later date.

In that respect investment returns (ie. the compensation for delayed gratification) used to have two components:

A) compensation for the delay itself (why postpone enjoyment in a finite life if there’s no increased reward?) and

B) compensation for risk that the endeavor the investor invested in might fail, either partially or totally

Safe investments typically had only component A of the reward. These were the safe investments (eg. government bonds), virtually zero risk, which still had some lesser but real return.

In essence, central banks almost worldwide seem to have found a method to do completely away with component A of the reward. So only component B of the return remains, that is only the reward for the risk part remains. However, as I mentioned in last month’s post, the final chapter on those who took that risk (and I’m one) has not been written yet. A severe correction (and one is quite possible given the tremendous monetary distortion) would then also eliminate or seriously compromise component B also. So with investment reward component A expunged by central bank monopoly fiat and component B a lot more risky and likely a lot less rewarding than people thought, future investors may just systemically conclude that “it just ain’t worth investing”. At that point we are in for a radical and painful reorganization of the monetary system, perhaps a worldwide refusal to fund any more credit, a crisis that may make the last Great Recession look like a walk in the park.

But why have central banks expunged component A from the delayed gratification (investing) reward?

Because basically they have no choice. With voters throughout the developed world having figured out that the ballot box can act as a (redistribution) cash machine the electorate has voted itself an unsustainable amount of redistributed goodies from the common tax trough. This (un)reality must now be financed and the easiest target for redistribution are savers. These investors are essentially people who expected compensation for delaying their reward and are now going to get nothing (well, they still do for now if they took risk, but as I said the last chapter on those who took risk has not been written yet).

See, savers are just sitting ducks. They have not really enjoyed the fruits of their labor (you die with all your money in savings you are essentially a sucker who worked and never got anything in return for it) and they only hold societal promissory notes; whether cash, bonds, stocks or other securities. In that respect these sitting ducks are the easiest to redistribute from (at least in the short term): “You were planning (and were indirectly promised) a reward for delayed gratification but our democracy changed its mind. Why? “Because Yes! We Can!” As a side note this is essentially transition to a pitchfork democracy, but that is yet another societal more general transformation with catastrophic longer term consequences. It leads to societies with high levels of coercive collectivism, European welfare type states, with inevitably lower incentives to produce (the effort reward curve is flattened as the most competent are severely taxed to support the mediocre) inevitably low growth rates, much lower than world average, and thus inevitable arithmetically deterministic decline.

So the issue is: What will the FED keep real interest rates at? Will they continue to be negative or zero? In other words will the delayed gratification portion of investment returns continue to be suppressed while those who take the risk wager continue to be exposed to an unusual danger of a severe correction and potentially reorganization of the entire financial system, or even end up like investors ended up in the Weimar Republic?


"But why have central banks expunged component A from the delayed gratification (investing) reward?"

I don't think you explanation is exactly right.

Bonds can be looked at in another way - as a place to hold wealth.

Across the west, especially in Canada, office buildings have been constructed that are vacant. Why? Chinese investors are looking for a place to park wealth away from their government. That is why they buy U.S. securities - they basically trust them more than their won government or banking system.

Loosing a small bit of that wealth is a small price to pay for security.

Because of this the interest that needs to pay on certain financial interments has decreased considerably - the Chinese will snap them up even at negative real interest rates.



In the past you could have both the security reward as well as the reward for delayed gratification. And so could Chinese investors and others seeking security from dubious regimes. So the equation has changed to a lesser reward (reward for risk only, none for delayed gratification) and indeed people are increasingly rejecting that deal, going for yield (and risk!) instead. Hence the inflation of securities into a risk wager whose final chapter has not quite been written yet. The actions of central banks have essentially suppressed the entire reward/risk curve. Bond markets remain much bigger than securities markets hence reallocation of even small proportions from the bond to the stock market (seeking to re-establish the expunged delayed gratification component of returns) create much bigger stock inflation. That is how we got to stock CAPE ratios of 30... and ... as I said we have likely not seen the last chapter of that wager yet.

BTW, the CAPE ratios are another reason for diversifying out of the US. CAPE ratios of 30 would require unfettered capitalism at best. And that is clearly not the direction we are headed. There is a diffuse tendency in the American electorate towards Europeanization, and indeed attraction to universal income is just one aspect of this pivot towards more redistribution. Of, course you might wonder... I'm worried about erosion of American capitalism and I'm thus going to invest in China, Russia or other such regimes that are even further away from free market capitalism? The issue is that places like Russia trade at CAPE ratios of 6-8. In other words their basket case political systems have already been priced into their markets. Similar for China. Now, good luck sustaining a US CAPE ratio of 30 with an Elizabeth Warren in office.


Congrats KG on another intellectual victory. HB - In your comments, I think you illustrate why there is not as much enthusiasm for this new world as we think there should be. People don't want to have to be serial entrepreneurs in all aspects of their lives, in some areas they want a straight forward reward for delayed gratification or working, not have to constantly be assessing risk and trying to get ahead of the next change for work or saving/investment. Even though we all benefit from the continued experiments and learning, we don't enjoy being in the experiments.


Some of this, I see, is a lack of alternatives. "Good luck sustaining a CAPE at 30 with Elizabeth Warren in office" - but what other choices are on the table? Europe? Asia? The entire economy of South America is just $9 trillion.

There is vastly more money chasing returns than ever before. People are willing to risk more to get it.

At least the U.S. is growing, at a healthy clip. If we grow 3.5% in 2019 that would be $746 billion in growth. Our growth alone would make us the 20th largest economy in the world. Think of the U.S. as adding an entire Swiss/Turkey/or Saudi Arabia economy each year.

In 1998 we had 4.8% growth....on a $9 trillion economy = $432 billion. Even in 2018 dollars that is $664 billion. So at our fastest growth rate in the last 30 years, our economy is still growing faster today.

Australia and the U.S. both grew at 2.8% last year. That was $542 billion for the U.S....and $37 billion for Australia. Where would you rather put your money?

We are starting form such a huge number that if the U.S. grows at a decent clip, say 3%, it becomes dominant very quickly.


Wow, I was afraid that only another (great) recession would forever the FED to rethink their approach. If course, we are not safe from a recession now. It is just less imminent. And the questionable foreign years policy of Mr. Trump while shocking the world financial system is making it stronger or more resilient as everybody has to adapt to a less predictable legal landscape. That in a way reduces the risk appetites. But the question is how large is the trail of a next recession in 2019 or 2020?



In a multipolar wold who's to say? China is slowing, Europe is flatlined, but the US is doing well.

If the U.S. and china come to a substantial and mutually beneficial agreement, the economy will surge. If the U.S. and Iran go to war maybe the opposite. Too many balls in the air right at the moment.

Kartik Gada


Another related question is what does the FED plan to hold *real* interest rates at?

The Fed Funds rate should be 0%, but the effective rate (the Wu-Xia shadow rate) has to be -2% now, which is achieved NOT by docking bank accounts but by a certain level of QE.

See Chapter 4 of the ATOM for more.


People don't want to have to be serial entrepreneurs in all aspects of their lives, in some areas they want a straight forward reward for delayed gratification or working, not have to constantly be assessing risk and trying to get ahead of the next change for work or saving/investment.

Very true. This is why ATOM-DUES is a cushioning effect there. Sure, there may be a 10%-20% leisure class, but the return on work is vastly higher than today as well (due to 0% income tax), which means that more people will want to work. Also note that the spending of the leisure class generates valuable data (which, ideally, should be owned by the individual, as may eventually happen by law).


At least the U.S. is growing, at a healthy clip. If we grow 3.5% in 2019 that would be $746 billion in growth. Our growth alone would make us the 20th largest economy in the world. Think of the U.S. as adding an entire Swiss/Turkey/or Saudi Arabia economy each year.

Recall this table.


I really look forward to when 2020 actuals are out (by mid-2021), so that the entire 2000-20 period can be assessed (10 years is too little of a snapshot to see the curvature of the trendline, much like one can't see the curvature of the Earth until X height).


Drew, I think you bring up an interesting point. One way I interpret your comment is to consider whether perhaps the much higher reward for taking risk (primarily taking risk with technological innovation) is crowding out the delayed gratification portion of investment reward.

I think that a necessary condition for that to happen would be for the risk reward to actually hang around and not be wiped out by some crisis. My concern here is that the last chapter on those who have taken that risk (and I'm one of them) might have not been written yet. In other words the risk portion of the reward stays means we don't have a big bubble burst in the technology investing world. By burst I don't mean a simple recession. That is normal. Normal market variations and even deeper corrections are one thing but distortions that get ahead of themselves and end up in negative or dismal returns for five ten years or more (think three decades in Japan) are a different story.

A large proportion of people will withdraw from ordinary investing if flat returns for thirty years (essentially an entire investing lifetime) in safe assets become commonplace. That will be a very big change. And the riskier investments may prove too volatile and perhaps even low return in the end.

So, I want to clarify that by market correction and bubbles bursting I don't mean corrections where you wait one five ten years and recover, but Weimar Republic type of distortions and corrections where you go down never to recover again and the entire investment systemically disappears forever. Or Japan type corrections that seem near permanent. I also bring this up because I have seen that it is a little harder for Americans to entertain these forever loss possibilities since these scenarios have never happened in modern US history. But such events are commonplace in the history of the rest of the world. And as exponential growth accelerates things that have never happened before become ever more likely. Not to mention that as the US converges ideologically (and politically) with the rest of the world (primarily with Europe -- an unfortunate but seems like inevitable outcome) so will events that have happened in the rest of the world also spread to Americans.

Going back to the more general context of technological innovation, personally, I don't think that the risk taking portion of investment reward is crowding out the delayed gratification reward portion of investing. For what is worth, I think that the normal scenario would be for the delayed gratification portion of investment reward to remain while the risk taking part grows exponentially, like the underlying technology, like the ATOM driven world economy, save normal ups and downs of the market including longer term but not permanent corrections. I think that what we have is a distortion instigated by government monopoly fiat over the money supply. Central bank monopoly actions have expunged the delayed gratification portion of investment returns. This has artificially pushed some investors towards extreme risk taking, while other investors are hanging on to no risk no return investments (at least for now) while waiting for things to normalize. But their patience (and hope) may run out and abandon investing altogether. That may cause the bubble to burst. Especially if the ability of societies to eventually repay sovereign and other presumably safe debt also comes into question at the same time. Printing money to kick that can down the road (either to swell central bank balance sheets or distribute it as unearned universal income) only winds up the distortion even further.

And just to prevent some misunderstandings on what I said, I'll be the first to say that there's no "right to keeping things the same". Though there may be a right to not have the central banks distort economic conditions based on monopoly fiat power. The world is changing, will be changing ever faster, people need to adapt to it, and be making arrangements for when they will no longer be able to adapt (e.g. old age -- though old age will eventually be stopped by technology but I do not know how far off that is -- before the singularity in my view).

Most importantly... people need to read the analysis on this website and follow its implications, except :) for the part about mandatory printing of unearned helicopter money by government fiat monopoly.

But many many people will not. They will misspend their helicopter allowance and when they get older and unable to adapt they will vote to quadruple their universal income. So that they can have a small fraction of the lifestyle that ATOM contributors will have. There will be great demand for such policy and so a multitude of politicians with magnetic personalities will emerge to make the public desire reality. That is why "eternal vigilance" is what some wiser voices from the past warned about. Because you are always just one decision away from going down a path that leads to a Russian 1917 revolution of hope. Or a 2019 European hope of surviving a 4% annual growth world (and accelerating) through 1% annual transcontinental growth and...and... this is the kicker... doing so by augmenting already bloated national European welfare states of collectivism with an additional layer of pan-European collective super-state bureaucracy which will impose even more regulations, trim even more the wages of ATOM producers to support the mediocre, and impose even more taxes for ...the climate. Because the state of the climate, and the state of the post singularity humanity(!) in 100 years has been modeled, and has been predicted that the world of AD 2100 will be about the same as today, except warmer... and thus your post singularity grandkids will be uncomfortably hot...

See how narrow minded people who think they are progressively looking at the future can be?

While the ATOM will continue its ever faster inexorable evolution ... I see US ideological convergence to inherently slow growth European mentality as the biggest immediate threat facing Americans. I would advise those who will listen to diversify. Most Americans will have too much inertia to be able to pack up and seek new lives in other worlds when the need arises. And when as an American you have been used to being in the top rungs of world prosperity for most of recent times, adaptation to European dismal growth and fast re-absorption into world average prosperity levels will be a painful time. My personal individual advice is to take corrective action now and start geo-arbitraging because your neighbors plan otherwise...they are ideologically converging to today's slowest growth continent across the Atlantic... a continent they once rebelled against, but seem to have changed their minds ever since. Well.. the world is full of bad historical decisions, just don't get caught up in them. Today's enormous (and rising!) mobility of products capital and people gives you the opportunity to do so. If your neighbors want to suicide, keep a more rational head and don't drink the fruit punch. Stay mobile!

Geoman, Kartik,

Indeed the growth exponent always wins -- always-- as Kartik's chart illustrates. A faster (faster by growth rate) economy will always overtake a slower growth economy -- regardless of the starting point. Do not get fooled by absolute numbers. A growth rate below average world growth means your standard of living is converging into the world average. Or, to be more exact, the world average is catching up to your standard of living. That is just as true for a big economy like the US as much as it is true for a tiny economy like the Isle of Man. Finding comfort in the fact that a large economy like the US under mediocre growth is still growing more in absolute numbers than a smaller economy under faster growth is an arithmetic fallacy -- and is perhaps one of the main reasons Americans are so complacent about becoming Europe. Nothing is more perilous than that. The improvement to a citizen's standard of living depends on his/her country's growth rate not on absolute growth. You are much better off in a fast growing Singapore than a slow growing France. Actually, Singapore had the standard of living of Cuba in the 1950s.


HB, if we currently have a surplus of capital and deflation, there won't be much of a reward for straightforward saving in combination with delayed gratification. Makes it harder to plan to live off savings for retirement, unless you can trust the government support/ATOM DUES and save to pay for what you want above and beyond that, and get used to spending down your savings rather than living on interest. Or take risks - or more likely, try to control the risks by working with a financial company or adviser to structure those risks through an annuity or something more secure in an era of increasing lifespans. There's a new career path - financial adviser for people who expect to live long in a rapidly changing and deflationary environment.



"The Fed Funds rate should be 0%..."

I don't understand why all borrowing should be pegged to a 0% rate by government fiat. That actually reminds me of Islamic law. More generally, why are seven people our economic masters? That seems to me one of those unassailable axioms that technological change will soon dismantle. Shouldn't there be a market for interest rates?

I know the traditional answer: Left to their own devices markets tend to drive themselves into a deadlock (a recession). So Keynes saves the day by explaining the phenomenon, and so perpetual intervention of seven wise men is needed to keep markets from diving the economy into a deadlock.

I find this theory perhaps simplistic and naive in our day, though I can certainly see why a theory that makes politicians our economic masters is so attractive to, well, politicians.

Even if Keyes' explanation was correct in explaining the recession if his own time (including perhaps recessions before his time), the very fact that he did explain it by a theory seems to make intervention per that theory redundant. In other words, once revealed, markets internalize the theory and thus intervention is no longer needed once a theory explains it. In many ways, in modern times markets know what the Fed will do in response to the economic data and take preventive counter-actions that in many ways neutralize the Fed's actions themselves. Then the FED knows how markets will react to their decisions so markets and the Fed try to outguess each other in an escalating game that largely distracts from the true fundamental forces driving and shaping the economy and humanity. For what it's worth, I believe that these forces are overwhelmingly technological. For example, just to make a link to the seemingly ever popular misandry bubble, no, women did not finally break through into a new societal position because of "progress" in "social" thinking. It is technological evolution that changed the optimal equilibrium dynamics between genders.

Kartik Gada


I don't understand why all borrowing should be pegged to a 0% rate by government fiat.

Rather, it is necessary that the yield curve remain positive, since longer-term rates are *not* controlled by government. The FF rate is just the overnight interbank rate.

If the 10-yr yield is 2% (as it is now), then raising the FF rate to 2.5% and keeping in there is catastrophically bad, and is indeed a violation of the Federal Reserve's own previous principles.

After that, QE is the way to engineer negative FF rates (the Wu-Xia shadow rate) so as to keep the total yield curve positive.

Germany and Japan already have 10-yr yields of close to 0%. The US will eventually get to that too.



Yes, once upon a time, until 2008, people regarded long term interest rates as not being controlled by central banks. But this perception has changed now that the central banks worldwide have kept interest rates artificially suppressed for more than a decade.

Prior to 2008 market participants thought that the Fed would simply manipulate interest rates in the short term per Keynesian theory. Keynesian theory advocates short term interest rate manipulations to avoid recession under the assumption that absent short-term manipulation by government fiat markets would somehow auto-deadlock themselves into a recession. I explained in a previous post why I think this assumption was wrong once Keyes revealed his theory because once a successful theory is out people tend to internalize it and behave differently which makes the intervention redundant. But regardless of whether Keyes was right in going beyond explanation to becoming a proponent of intervention, even Keyes himself never intended the intervention to be long term. He advocated lower interest rates and deficit spending in recessions and higher interest rates and surpluses during good times.

Instead, what we have now is essentially perpetual stimulus. After 2008 we have had ten years of continuously suppressed rates by the Fed and other major central banks -- so of course markets now believe that the Fed will likely suppress interest rates for another decade and beyond. Unless markets see the deflationary pressure of the ATOM, but I thought that the general consensus on this site was that the public at large is unaware of the ATOM. It also assumes that the market predicts that the Fed (and universal printed income proponents!) will allow the deflationary pressure of the ATOM to do its work rather than massively countering it by money printing controlled by the political process.

So, in summary, recent behavior of the Fed in the past decade has justifiably led people to believe that we are in a new perpetual stimulus era where interest rates will be suppressed for another decade and beyond.

As far as the yield curve not being inverted, again, I find it a little odd that that the ATOM seems to upend almost every previous economic assumption except this one.

Kartik Gada


but I thought that the general consensus on this site was that the public at large is unaware of the ATOM.


But note that the free-floating longer-term rate (10-yr) is now just at 2%, if a normal yield curve is to be assumed, the Fed-controlled overnight rate (the shortest end of the yield curve) has to be 0% or negative.

We are in the era of perpetual stimulus. The thing is, exponentially rising QE should be normalized. It is no longer a 'stimulus', but rather just a monetization of this deflation.


I'm very weary of perpetual stimulus. Seems to me it implements an ever winding distortion without outlet. A distortion made possible by the monopoly powers of central banking -- a futile attempt to dam a river of fundamentals with no outlet through command and control monetary policy. Most likely it will not end well. You cannot expunge gravity through legislative action. So I'm seeking high ground before the first sandbag of the accumulated massive stimulus eventually gives way.

In my view, perpetual stimulus is now one of the last band aids of distortion that attempts to patch up the pathological electoral dynamics of advanced democracies.

I hear Geoman and Drew saying that there seems to be a lot of money chasing a few investments and I agree. But, I wonder, isn't that a result of central banking policies themselves ?

I don't know if I'm reading the data correctly but seems like the world's savings rate has only slightly increased from about 23% in 1980 to 25% in recent years. That does not seem enough to justify a fundamental glut of money seeking investments.

For years we have heard about the dismal savings rate of Americans yet there is an oversupply of money. In my view this is not a natural result of a free market economy but a liquidity distortion imposed by centralized banking monopolies. It seems like a distortion that has become almost inevitable in order to band aid the consequences of voters in developed democracies ever increasingly voting themselves unearned goodies.

Voters seem to have figured out that the ballot box can act as an ATM for unearned benefits and unearned spending. Electorates throughout the developed world are thus flattening their societal effort-reward curves through redistribution and driving their countries into lower and lower (below world average) growth rates-- an arithmetically deterministic path to decreased world prosperity rankings.

Perhaps even more ominously, the weakening slow growth democracies of western world voter-lemmings (cannot keep up with average world growth = weakening) will soon inevitably find themselves with the Putins and the Xi Jinpings at their gates. If China continues to grow faster than the US it will overtake America as most powerful nation in the world and there's just nothing we can do about it (other than ditch leftist policies, resharpen effort-reward curves and return to high growth, but that is not going to happen -- the trendline is in the opposite direction).

Regardless of how the current US spat with China turns out, most people would have ridiculed us three decades ago if we predicted that we would have to face China as an equal power adversary. And US military supremacy will not last long either unless accompanied by economic supremacy, which new age socialist minded US voters and their flatter effort-reward curves are now seriously undermining.

Redistribution has been the cause of much lost growth in advanced democracies and now the chickens of decline have come home to roost. Unfortunately the more competitive pressure Americans feel the more redistribution help they will ask -- and vote for -- thereby deepening the vicious cycle.

The cycle has already closed in the welfare states of Europe. They are permanently locked in low growth with ever growing growth deficits and divergence from average world growth. Europe is being marginalized on the world stage at an unprecedented pace for any civilization on a historical time scale. On current trajectory average per capita world prosperity catches up to European levels in twenty five years; actually sooner if ATOM acceleration effects are taken into consideration. With the same electoral dynamics the US seems doomed to the same fate -- stimulus or not.

Prompted by voters using the ballot box as a redistribution machine, developed democracies have been collecting and consuming ever larger proportions of GDP. This flattens the effort-reward curve which then the centralized banking monopoly system has been attempting to re-sharpen through artificial monetary stimulus in a futile last ditch effort to shore up growth. But it amounts to little more than authoritarian gimmicks going against fundamentals. The resulting distortion is likely to unwind in an ugly way. Why do central banks do it? Because they have to do something -- voters place them in their offices to do something-- and that is the only thing they can do, temporary monetary gimmicks that wind up distortions and set up one crisis after the other.

Central banks are powerless against the fundamentals of the electoral juggernaut demanding the flattening personal effort-reward curves and driving their own democracies into subpar growth -- and thus decline. Central banks can only respond with temporary band aid gimmicks which, to them, hopefully delay the day of reckoning until someone else is in office. Actually it is a bit more complicated than that. Central bankers and politicians think they can control the world because they grow up in the hallways of government. Besides, we voters ourselves would never elect politicians who do not truly believe in their ideas and it is just virtually impossible for a politician to fake his entire life, no matter how intelligent he is. He will be overtaken by a true believer whose competence is not burdened by the hypocrisy overhead.

That is why my personal approach and advice remains to stay mobile. So that when redistribution through monetary and other means converts your country into a slow growth European style welfare state, and renders your society uncompetitive, you can bail out before the pitchforks come out or the Jinpings start gradually conquering you. However these trends can be very unstable and suddenly avalanche, so it is not wise to wait until the last minute. Hence my personal interest in the discussion. I'm wondering whether I should be even more proactive.

I think that the few of us who are aware of the ATOM, thanks in large part to Kartik's great synthesis work, have an advantage not only in explaining future longer term trajectories but also in choosing probabilistically more successful pathways in current every day life.

In many ways it feels like the summer of 2007 all over again. The distortion has simply changed clothes and we don't recognize it. I hope I'm wrong.

Kartik Gada

It seems that the Federal Reserve has not just cut the FF rate, but has set the stage to halt Quantitative Tightening.

The latter is more important, since that means world net QE rises by $50B/month, on account of the US going from -$50B/month to $0.

Note how the 10-yr yield has plunged so that we again have an inverted yield curve, mandating a further rate cut. All is in accordance with foreseen ATOM principles.


First up - let me just say this blog has the best comments on the internet. Kartik - your posts are terrific, but the comments are amazing. Even when I disagree, I find the points cogent and interesting, and well explained.

HB - you speculate that the cause of too much money chasing too few opportunities is a result of central banks. But the banks are just responding to the economy. They are being forced to lower interest rates because there is no where for the money to go with no inflation.

Let me throw a different spin. Real U.S. GDP per capita in the U.S. has increased from $43,000 to $57,000 in the last 20 years. We are vastly richer than we were, just in my recent life time. I would say that there is a consumptive limit per person - we can only consume so many hours of TV a week, or internet, or movies, so we can only consume so many cars per person, so many gallons of gasoline, so many bushels of corn. Yes, some people like Jay Leno can have a hundred cars. but most of us just need a couple at most. And for most items we are at the practical limit. me for example, I could use a bigger house, but I don't need or really want a bigger house. I have four cars to my name - do I really need another? One of the cars is older but runs perfectly fine. Do I really need to trade it in?

As we get richer, more people reach a consumptive limit on more items. How much more bread do the rich eat than me? How many more pairs of pants do they buy? My guess is, for the most part, not much. We consume the same.

As we get richer we don't see a rise in the savings rate, what we see is a rise in the quality of the goods consumed, not the quantity. BUT, and this is important, the ATOM is not just increasing the quantity of things, but the quality. A better cell phone uses no more materials than cheaper phone, and I hate to say it, probably doesn't cost a lot more to make. But we pay more because it does more. That performance premium is constantly eroding.

Anyway, more money is chasing investments, but investments are getting harder to find. Is apple computer a good investment? A good investment would be a company with huge growth potential. how will apple grow? Who wants a cell phone who doesn't have one? How much competition is there? seems like, going forward, there is not much more they can do. we have just about all the computational power we need as individuals. we have reached a consumptive limit, at least till AI comes along.

Gambling offers a good analogy. Sometimes when poker players bet they have a complete hand (a sure winner and sound investment), and sometimes they do not. If they are betting on a draw of a card, it is called a “come bet,” or “betting on the come.”

In investing we have people investing on what the company is doing today, and we have people betting on what the company might do in the future. Those are come bets - bets on what cards will come up in the future.

P/E ratios have been sliding and that indicates more people are betting on the come for companies, especially technology companies.

But betting on the come means not betting on the cards you have here and now...because those cards offer no hope of success. we have a situation where the sure investments have all been used up. So we bet on the come - which reduces P/E ratios. That works for a while, but what happens when you run out of future bets to make?

The only thing left is to take a lower return on your investment (driving interest rates and bond prices down), or take a higher risk (driving real estate and stocks up). In gambling you might decide to throw your money at the long shot.

Could a guy like Elon Musk even exist 50 years ago? he is not just betting on the come, but on the long shot. And look how many other rich guys are following in his footsteps - they can see really no other investment of their money better than literal moonshots.

Isn't that what we are seeing? And won't we see more? And even the longest of long shots can pay off - your odds of winning the lottery might be small, but not if you buy every possible ticket.

Musk wants to bore tunnels. Long shot this will work, but what's a couple million to him? Heck, if he tires, he can probably get some other billionaire to take up the cause.

Look at politics, where guys like the Koch brothers, or Tom Steyer diddle around with trying to remake the world. Why not? long shot investments sometimes pay off.

So ATOM deflation is having an unusual impact on finances. Not just stuff getting cheaper (although that is part of the problem) but we are getting richer (with more to invest), AND we are reaching a functional limit on some (perhaps even many) of the goods and services we can reasonably consume.

The next frontier is space, because only the universe is big enough to contain all the wealth being generated, and certainly space will remain a luxury item for some time. But expansion into space will eventually destroy all materiel wealth on earth - what happens when someone brings home a 1,000 ton chunk of gold they mined in some asteroid? For one - every gold mine on earth goes bankrupt and shuts down. Again we will be immensely richer, and left with even less we can spend the money on, or invest the money in. And how much more money will start chasing the next long shot space triumph?

How much is Mars worth? The Moon? There may be no more real estate on the island of Manhattan, but there is plenty on the Sea of Tranquility.

Space will literally suck the wealth off the earth because it has no where else to go, and nothing else to invest in.

"We will go to the moon and do these other things, not because they are easy, but because we have nothing better to spend our money on."

Sorry - that rambled a lot more than I intended.

Kartik Gada


First up - let me just say this blog has the best comments on the internet. Kartik - your posts are terrific, but the comments are amazing. Even when I disagree, I find the points cogent and interesting, and well explained.

Thanks! This is the highest praise I, and all of the regular commenters, can receive. If only we could get more commenters so that it is not just 4-5 of us (over time, that will happen). At the moment, we truly are ahead of our time.


My position has long been that we do space colonization (not counting asteroid defense or harvesting) not because there is an economic reason for it, but because it would be cool. Interesting thought that not only is there the increasing capacity to support space colonization as a luxury good, but the deflation of investment opportunities does lead to more long shots in space - low rate of return on owning a condo in Singapore? How about the rate of return on buying a condo on an O'Neil station?


I'll echo Geoman's comment about the value of this website. That's why I take the time to comment. In many ways I want to hear ideas I have not heard or may disagree with. I want to know what else is out there, helps me make better decisions both short and long term. But I also find that most websites and comments have too much garbage information which makes reading through a very low value activity. Kartik's website places the right weight in the one cataclysmic element that will affect everyone's life, especially the young: exponential growth. Even if it does not quite culminate into a singularity, four percent world growth with clear acceleration trend will be by far the one thing that most dramatically transforms the life of virtually every human.

Geoman - I hear you about the consumptive limit effect. But I don't think it is that strong and it only covers a few items. Food perhaps yes, there's more of a consumptive limit, and indeed we spend ever smaller proportions of our income on food. That is the historical trendline though it does not seem to hold true when it comes to catered food, restaurants etc. Housing is s mixed bag. In many locales we are actually pigeonholing ourselves into an ever more restricted housing supply, spending larger not smaller proportions of our income on dwellings, because a whole two percent of the earth's surface is urbanized and if we somehow went up to three or four percent it would apparently be an enormous environmental catastrophe, we actually had that discussion in a past post.

But in many ways the more stuff we invent the more there is to want. Let me work off a different model. I see human knowledge development and capability as a tree. The leaves of the tree are the frontiers of knowledge and technology from where new potential branches grow. This tree has grown dramatically since recent times, since even recently actually, consistent with compound exponential growth. The more the tree grows the more leaves it has. In other words the more human knowledge and capability grows the more things (opportunities) there are to work on, and indeed the more things to want. This is different than the saturation of innovation paths view you presented in your comment.

For example, I experience that at my work. I have ideas about at least a handful of projects that could be started with two to three employee teams developing stuff that nobody in the world is currently doing. This is not because I'm so smart but because the vast number of even mediocre competence people are already busy with other things. They have no time to look at the tree leaves that are on my little branch. But my projects would only be profitable if I can find people to do them for less than one hundred fifty thousand dollars per year per new employee. And such people I cannot find, they are already busy doing things that are more promising than my projects, they are already busy working in more promising leaves of this now enormous tree of human knowledge, though I have outsourced a few of these projects over the years with some success. And this is just me. There are hundreds of people like me at my company with their own handful of projects competing for limited investment. So I rarely get one of my projects approved for funding.

The saturation of desire always seems imminent. I actually call that the "hippie fallacy". It is because we cannot immagine what else might be invented that we might want. But even the already existing luxuries of today become the bare bones of a decent life in the future. Who needed the latest candy bar phone a decade or so ago? But today if you don't have a powerful computer in your palm you are severely handicapped. And you are even more handicapped if you have everything that a nineteen sixties hippie may have wanted, including the top VW van of the era. Just to give some ideas, when you will be able to slow down or even reverse your aging down at the molecular level, then you will pay, you will be willing to pay a lot. Similarly if you will be able to increase your intelligence via electronic or advanced biological means, or perhaps hybrid means of whatever else comes along that we cannot even imagine. But most things I will want in a few decades I most likely cannot even begin to imagine.

Now, down to more pedestrian but related things, most pension funds are making assumptions and relying on a 7.5% annual return on their investments in order to provide pensions to their entitled members. How is that going to work in a world of forever zero percent interest rates? These funds are obligated to put a large portion of their assets in safe, not moonshot, investments. Looks like some big realities are set up for a clash.

In another somewhat related development, Germany, one of the last few countries with a balanced budged is now just thinking about more government borrowing to address ... climate change. To voters borrowing from the common trough it may seem like free money but it will further flatten effort-reward curves one way or another. This is in a country with a growth rate that is already less than half the world average. Yet another indication of delusional voters in developed democracies who view the political choices of the ballot box as a cash machine without regard to what that does to the effort/reward curve, professional motivation, growth rate, and thus ultimately prosperity. Central banks cannot fix that. They can only band aid things with more liquidity thus delaying the day of reckoning and making the upcoming crisis even more implosive. Yes indeed there's going to be a lot of "liquidity" to pay for when the dam breaks. There's going to be plenty of liquid to drown a lot of people. Most of these people would have essentially asked for it.



"Note how the 10-yr yield has plunged so that we again have an inverted yield curve, mandating a further rate cut."

I don't quite interpret it that way. I see, as in my previous comment, markets interpreting the fed move as further indication that zero interest rates and financial repression is a long term fed strategy. A strategy that at best the central banks cannot get out of. That is why the yield curve is now even more inverted than it was before last week's rate cut. I wonder if the fed expected that by cutting interest rates the yield curve would actually become even more inverted. But markets interpreted it as loose monetary policy being here to stay. Not just for a year or two but out to ten years and beyond.

If I were convinced that zero interest rates are the new permanent policy why would I expect interest rates of 2% or 3% in 10, 20 of 30 years? I'm going to buy the current good deal on long term bonds, and so will others, until the 30 year bold yield is also zero. I can then resell that bond at a hefty gain in the secondary market when the rest of the population wakes up to the fact that zero interest rates are forever. Under that assumption the entire yield curve is flat, forever, at 0%, since all reward for delayed gratification has been expunged and only risk remains rewarded.

But we won't get there. I think that there is a very high probability that all this easy money distortion and its associated repression of the yield/risk ratios will precipitate much uglier things relatively soon. I'm almost certain it will happen. But I also see high probability it will happen relatively soon. If I have time in the next few days I will attempt a prediction on which sandbag will give way first. Though what exactly gives way first is secondary. The easy money repression is the elephant in the room and it will at some point unwind. I think that point if getting close so I'm moving to higher ground.

We have now painted ourselves into the corner of zero or near zero interest rates and just cannot get out of it. The fact that the world rumbles when interest rates try to go above 2% (i.e. zero real interest rate after inflation!) is to me an indication that the day of reckoning for the easy money distortion panacea of the last 10 years is now rather close.

German bonds in negative territory all the way out to 30 years! Ten year bonds issued by Portugal and Spain are in almost in negative yield territory? Greek ten year bonds yielding below inflation? That all seems quite asinine. It looks more and more like another march of the lemmings.

A related question to those if you who think that near zero interest rates are the new normal equilibrium of technological deflation: Why are interest rates even more negative in Europe? Do they have higher technological deflation pressures, or are they further along the process whereby voters have flattened the effort-reward curve which central banks are now desperately trying to resharpen through zero interest rate and QE monetary gimmicks?

I understand the argument about technological deflation. But the magnitude is much smaller. I think that those who attribute most of the zero interest rate environment to technological deflation are making an exaggeration mistake similar to the tech bubble of 2001. You remember back then the Internet was going to transform the world. And by golly it did happen! But it took fifteen years. The internet company valuations of 1999 behaved as if it would happen in five years. Things corrected.

Markets are behaving as if the singularity is just around the corner. Yes it may be closer than most people think but not quite around the corner. We are still in the four percent world growth phase of the exponential.

We are not about to colonize Mars. Much more seemingly pedestrian things are likely to happen here on earth first which may totally transform our lives. Like perhaps discovering that the telomeres are all there is to aging and find a straightforward way to slow it, stop it, of even reverse it. Then we'll all have time to colonize Mars and live past the singularity. True disruptors are what they are. Virtually nobody sees them coming, of even what direction from.

Kartik Gada


See the Wu-Xia shadow rate. The FF rate of -2% as seen in 2013 will return. In a few years time, it has to be -4%. This is how perma-QE will be normalized.


Chapter 4 of the ATOM Publication has additional content :


I think that those who attribute most of the zero interest rate environment to technological deflation are making an exaggeration mistake similar to the tech bubble of 2001.

I don't think so. Technological deflation is already 1.5-2% of World GDP (and rapidly deflating technologies are about 3% of World GDP). These percentages keep rising, mandating more QE. It just has to be funneled in a way that is more easily consumed by technology.

Markets are behaving as if the singularity is just around the corner. Yes it may be closer than most people think but not quite around the corner. We are still in the four percent world growth phase of the exponential.

Actually, they aren't. The PE ratio of the S&P500 is not unusually high. There may well be a recession, but the market is not above the long-term trendline by more than 20% at the moment. The slowness of Federal Reserve reaction towards easing is the bigger risk.


Kartik, always pleasant to (re)read your work. It is very well written. Even the value of its prose, while a small proportion of its total usefulness, is significant. I have actually proposed your site to many intelligent people (or so I thought...) as an insight into the single most transformative force they and their children will face in their lifetimes. But I see no extra commenters so I'm not sure what happened to it. Some live overseas and have different mindsets, though some are international citizens, what I call economic mercenaries, so they should have even more mature global perspectives...

In any case, your points ease a bit my mind on leaving a significant amount of investments in US stocks -- amount essentially and unfortunately trapped there due to capital gain taxation (which inevitably makes markets less efficient...). But perhaps even better, the presumably forever now higher and rising PE ratios (seems like a corollary of your theory) will hopefully expand internationally, where current lower PE ratios seem to imply a lot more room for stock valuation growth.

We will see. Will be fascinating to see how things turn out -- unless the distortion I'm worried about is so big that things get really bad when it unwinds --which I feel it's quite likely. But in any case events will not quite resolve the intellectual debate. Everyone will spin their own narrative, just like in the last crisis, and the one before that... we need different societies to adopt different narratives and experiment. BTW, that is why I'm so opposed to such harmonizing and homogenizing projects as the European Union. And to do that in what is already the slowest growth continent in the world seems suicidal.

If one considers the 2000 crisis which was in my view patched up with more debt and led to an amplified 2008 crisis which is now patched up with massive debts... the next crisis looks really big, quite likely intractable. "Whatever it takes..." say central banks. But when "what it takes" is a reversal of gravity then I doubt that central banks, governments and politicians will be able to do much about it. They too will get squashed. While handling our money our vitality and our prosperity as a public resource...

As we and the electorates of other developed democracies keep voting ourselves ever more goodies from the common trough, governments will have to borrow even more while our politicians seeking re-election will be incentivized into behaving as eight year olds, or teenagers with a no limit credit card seeking approval and election amongst their peers. Then once in office economic reality pundits will have to force central banks to lower interest rates even further to facilitate further government borrowing, plus essentially purchase and put government debt on their balance sheets , which is essentially an accounting gimmick where one government agency buys the debt of another seemingly making it disappear. Whether governments are in cahoots with their central banks and how much is debatable. But regardless the end result is the same. Governments driven by voters who see the ballot box as a cash machine ultimately leave central banks no other option but to use financial repression to sustain government borrowing, that is, ultimately, voter borrowing.

PE ratios. I prefer CAPE ratios and those seem to be about 80% above historical norms right now. A little reluctant to buy into the assumption of permanently and more or less irreversibly higher PE ratios. Not only that but PE ratios would either have to keep rising exponentially or earnings would have to keep rising exponentially-- I know consistent with ATOM -- but I have the feeling that my projected vague trajectory to the singularity is a little slower than what the average person on this website has in mind. Maybe I'm just getting old....
Otherwise permanently high but stable PE ratios mean dismal returns in themselves. A stable PE of 200 means more or less 0.5% long term return. That is a dismal return for the risk involved. Investors will back out if they become convinced such low long term returns are permanent...they will put their money eg. Bay Area housing and rent it out at exorbitant prices to the children of millennial environmentalists who created the housing shortage and inflation in the first place. Economic Karma I guess...as they say, ten suckers are born every minute...

Say you are a young person starting out your career. Would you invest? If so what would you buy? Stocks at CAPE ratios of 30 or negative yield bonds? And as all this implies a high probability of a serious long lasting correction (like Japan in the late eighties which has still not recovered) would you then still invest in the same high CAPE negative yield bonds environment (think again Japan) after you have been burned? We might be on the twilight of investing.


I would add just one last thing.

The singularity isn't a single event. We will not be sailing along, everything fine, then BAM, the singularity.

There will be a significant lead up to the singularity. Signs and portents will be the failing and changing, rapidly, of accepted knowledge in several fields. Entire industries appearing and disappearing at unprecedented timelines. Surges and crashes. Disruption.

This will happen in finance as well - everything you thought you knew about how the financial system works will be upended. Sure bets will become less sure, longshots will pay off. As I've said before, it will be hard to plan, because your smart plan today will become outdated so quickly.

Isn't that what we are starting to see?

I tell people who doubt Elon Musk that they are right to doubt him. He's a smart ambitious guy who is trying to do several things at once that would (in normal times) be the longest of longshots. he shouldn't be succeeding, at least to the degree he is.

By any measure, trying to launch a new car company is next to impossible. one that utilizes new technology, even harder. how about one without filling stations, where there is no existing infrastructure support?

Launching a successful new aerospace company is hard. how about one that tail lands rockets, which has never been done?

Neuronet. Autopilot. Solar shingles. Powerwalls. Boring Company. Longshot longshot longshot. Musk is a smart guy, but no one should succeed this much on such difficult tasks.

The answer is that conditions are changing so rapidly that long accepted knowledge of what will and won't work is no longer true. Car companies have looked at electric cars many times, and thought they couldn't possibly be made to work. 1950s movies showed tail landing rockets, but they could never be made to work in the real world. But things have changed, and conventional wisdom is no longer true.

Kartik Gada


The singularity isn't a single event. We will not be sailing along, everything fine, then BAM, the singularity.

This is a great setup for the next article. Here is a hint - look at which article is almost up to its 10-year anniversary.


As I've said before, it will be hard to plan, because your smart plan today will become outdated so quickly.

Yes. That is why stress levels will be extremely high, and an ATOM-DUES sort of mechanism is necessary as a cushioning effect.

Longshot longshot longshot. Musk is a smart guy, but no one should succeed this much on such difficult tasks.

Part of this is due to the fact that the gradient of accelerating technology is steep enough that the venture capital infrastructure is at sufficient ease to make NPV assumptions based on that, even if they don't formally realize it.

Kartik Gada


Many thanks.

I would agree that CAPE is traditionally the best metric, and may still have 70% relevance, but note that the broader megatrend favors an upward bias on PE ratios. Plus, 'cycles' could be very different and recessions too brief to matter if the central banks of the world adopted ATOM principles.

which is essentially an accounting gimmick where one government agency buys the debt of another seemingly making it disappear.

This is certainly the mechanism now. The ATOM program is a way out, as it works within the existing system of interest rates, inflation, debt, etc. The idea is to retire sovereign bonds as a market altogether.

Say you are a young person starting out your career. Would you invest?

S&P500 is still the best bet. Among the many ATOM-type ideas that we could put as the 3rd or 4th best on the list is to merely give each US citizen, at age 18, a Roth IRA-type account with $20,000 invested in the S&P500, funded with Federal Reserve printing. They can never withdraw early (even with penalty) nor can they change the allocation. They can only withdraw it, tax free (as is the case with Roth IRAs), at age 70.

Almost 4M turn 18 each year, so that is an annual $80B injection into the S&P500 (which is nothing, out of its $25T market cap). Each year, the new class gets a higher amount. Those lucky enough to turn 18 in a recession get a somewhat better price, which also provides a backstop of injected capital during the correction.

This is a path towards the retirement of Social Security, which is extremely low-yield.


Dear lord yes - I have been saying this is how you retire social security for years.

And if you die before claiming, the money just goes back to the government. They get the write up so the whole thing might end up cost them nothing.

Everyone else gets 401Ks - no private pension plans, everything is a defined contribution. Therefore no pension debt for any company, state, municipality, utility, ever. I would make private pensions illegal - no government union, or corporation can promise a defined retirement benefit.

Great example is Galveston Texas. Works vastly better, at lower cost, and much less risk.


For a person who is now 20 years old these plans set up an investment scheme that will be cashed in... ...post singularity; or close.

On one hand I hear criticism of current schemes and how obsolete they are, or how obsolete they will become, or how difficult it is to predict a future exponentially evolving environment -- all of which I agree with. But on the other hand I see the proposed fix being rigid command and control top down mandatory plans like forcing everyone to stay invested in the SP500 even post singularity. That makes little sense to me. Will the SP still exist even half way towards the singularity?

Kartik Gada


Will the SP still exist even half way towards the singularity?

The index probably will, even if the churn is faster than their current updating policies allow. If there is a need to shift to a different index along the way, that can be easily managed.

No matter what happens, it is way better than Social Security.

You are yet again not examining net improvement over the current status quo. The current SS scheme is a tremendous opportunity cost of return, with many other flaws.

Political realities mandate the insertion of a solution through an existing suboptimal structure, leading to the growth of the solution eventually making the previous structure fade away.


"The current SS scheme is a tremendous opportunity cost of return, with many other flaws."

Just to clarify that, in case anyone reading doesn't understand that strange terminology, there is something called opportunity cost.

Say I have only $1,000 to invest. I could invest in one thing and get a 3% yield, or another thing and get a 7% yield. Taking the lower yield means I have an opportunity cost of 4%. When I am comparing risk between the two, I must take that lost opportunity to make more money into account.

SS is currently invested in government bonds with absurdly low yields. Simply changing the investment strategy, with virtually no risk, would immensely increase the returns. That is why the Galveston Plan works so much better - all they really did was change the investment strategy to higher yields with virtually no risk.

The Galveston plan is simple - The contributions are pooled, like bank deposits, and top-rated financial institutions bid on the money. Those institutions guarantee an interest rate that won’t go below a base level, and could go higher if the market does well. Over the last decade, the accounts have earned around 5%. SS makes just 3% on government bonds. That 2% opportunity cost doesn't sound like much, but we are talking about 2% on trillions of dollars over many decades. The resulting differential is tremendous.

It would cost virtually nothing to implement the Galveston Plan for all SS beneficiaries. Just that one small reform would save billions every year. W Bush tried to get this going, but it went nowhere.

Kartik Gada


SS makes just 3% on government bonds.

It is much less now. The 10-yr yield is just 1.5%, and under ATOM principles, will fall further and get close to 0% over time.

The Galveston plan would be better.

ATOM-DUES would be the best.


Hey guys, long time no visit.

I keep seeing all this materialism/futurism/scientism, but the problems with humanity are ... human! Not economic. Who cares if robots can do things if you don't have humans working (on jobs and virtues), if you have spoiled women who don't want to be mothers (until they are 35 and fat), if you don't have real commmunities, but just amalgams of people who are living in a "country" that is feeding off of its past glories, but you hate its very founders!

I don't see a way out, and as I always complained about the futurism, it's like arguing against evolutionists without evidence, they keep saying "just give it enough time" even though the paradigm is a HUMAN one. I'm not even sure that anyone can define what you really mean when you say all this "singularity" mumbo jumbo.

So nice to be back!


"Those institutions guarantee an interest rate that won’t go below a base level."

That guarantee is weaker (or at least perceived so) than the US government guarantee. How much weaker? Well probably that extra 2% in premium weaker.

If the guarantee were as strong as the (perceived) government guarantee then why would anyone buy government bonds? Most likely everyone would flock to these "safe" institutions until -- their yield dropped to 2% equal to the government bonds, or close.

Galveston was essentially pushed into higher risk (just like everybody else) by the lowering of fed interest rates -- Likely inflating a bond bubble of unprecedented proportions. Not just a subprime mortgage bubble but potentially a total world bond market bubble. Anyone want to think what happens if that bubble bursts ? The best case scenario is that it deflates slowly through a decade of subpar growth due to misallocation of inflated capital into many low return junk projects. Projects that would have never been funded (and staffed!) in a more normal monetary policy environment.

That is the issue with one size fits all interest and monetary policy totalitarianism set by seven people. Everyone expends considerable vitality arguing what that monetary policy should be rather than expend their energy on the technology and entrepreneurship that really drives the ATOM.


Is technological deflation bad? Must we fight it?

As I have stated in the past I'm not a fan of universal income. I have stated my main objections to it in older posts so I'll just summarize:

A) Universal income is redistribution: It is a scheme by which people get to consume without having produced and therefore it amounts to redistribution, and redistribution flattens effort reward curves, thus slowing growth, which growth is by far the most important parameter of prosperity.

B) The level of universal income will quickly spin out of control: It will become impossible to keep a lid on universal income. Just like it seems impossible to keep a lid on our national debt. I recognize that universal income may be less damaging than current redistribution schemes, however I doubt that it will be possible to keep a lid on it once the amount of redistributed income becomes a simple choice on frequent elections.

C) Universal income will be in addition to existing redistribution schemes. It will not replace them: I find it unrealistic, to the point of being delusional, that somehow politicians and the voting public will be convinced to replace all redistribution schemes with universal income. We will end up with universal income as an additional redistribution scheme on top of everything else. Even if through some magical scenario universal income initially replaces current redistribution schemes, these redistribution schemes would quickly return once a proportion of the population misuses their universal income and find themselves in the ditch once again. We will thus end up with even more redistribution and so an even flatter effort-reward curve, an even more suppressed growth rate -- a catastrophic result in a world where the rate of compounding growth rules everything.

So since I see universal income as such a dangerous path to a low growth vicious cycle I'm wondering what is the motivation for it. The way understand it, the primary purpose of universal income is to reverse technological deflation into the two percent inflation monetary orthodoxy.


So I'm wondering: Is deflation --specifically technological deflation -- such a bad thing? Seems like one of these pre-ATOM axioms taken at face value with little skepticism.

Deflation has been typically considered bad because it was typically caused by a fall in demand. But deflation that is due to exponential technological growth is a different thing.

Again, I don't see why ATOM seems to change every other economic assumption yet it seems to religiously cling on to this old world monetary axiom whereby all deflation is somehow bad, something to be fought at all cost. Especially when the underlying reason for deflation with ATOM is quite different than most deflation seen before.

There are some instances that indicate that technological deflation may not be bad. For example, Switzerland has now had deflation for quite a few years. Yet its economy seems to be doing fine. Now "fine" is relative because, as I have said many times before, if your country is not at least matching average world growth then you are on a decreasing world prosperity ranking trajectory, i.e. you are in decline -- just simple arithmetic. But this subpar growth seems to be a pervasive issue in almost all developed democracies, not just Switzerland.

Also, when a paradigm changes, as in moving into an environment of persistent deflation, it takes a while for people to internalize the change and start behaving differently, creating perhaps different healthy equilibriums. For example, even under technological deflation, most people will still buy the new computer, even if they will be able to buy a much better one in a few years, because staying with their current hopelessly outdated computer for another five years is quite hard; deflation or not. So, yes, for rapidly evolving products (the very ones that actually cause technological deflation) deflating prices will not significantly decrease demand. In other words, technological deflation at is not the type of deflation that will cause people to be afraid to invest. This a different type of deflation. This is a deflation that makes people optimistic about the future and rightfully so. It is not a deflation that feeds back into yet more pessimism. On the other hand, forcing artificial inflation may spur more junk (low yield) investments and thus more economic inefficiency -- more pessimism indeed.

The typical deflation of the past was due to decreased demand, which in turn may have had other causes, and was thus bad. But things will be different now with technological deflation. In the decreased demand that caused most deflations of the past people lost confidence and hunkered down for the expected upcoming bad times, and they were typically right in predicting so. With technological deflation, once people internalize its origins, there is no need to panic and hunker down into savings. In other words, deflation has been typically interpreted as bad because deflation was the bearer of other bad news not because deflation was bad in itself.

Even the US itself seems to have experienced periods of high growth and deflation. Ok that was in the late 1800s but that would have been exactly the time when deflation would have been regarded as bad.

There is no need to believe that people will misinterpret technological deflation the way they interpreted past deflations -- save the inherent tendency of pundits and intellectuals to treat others as foolish sheep who need more guidance, more government, more centralized top down schemes, which of course the "wise" intellectuals will provide. But I regard most of these economic advisers as charlatans, a dozen a dime group thinkers.

Even if people do misinterpret deflation for the bad thing it was in the past, after a few mistakes and corrections they will change their minds. This is often how adaptation works. Even if adaptation to technology initially involves some temporary missteps, and thus cost, it is still much much better than permanent additional redistribution through universal income, permanent QE, modern monetary theory and other very damaging redistribution gimmicks.

Seems like one can take socialist monetary policy, rename it Modern monetary theory, and voila you have "the new way forward" and anyone not willing to serve it is automatically labeled a "backward conservative" to be contrasted with "modern progressivism". How many times has humanity labeled such backward changes as "progressive"? So many failed times that the dustbin of history is full of such missteps which we don't even remember.

Now if people fear higher taxes to pay for all the accumulating government debt then they may indeed hunker down and indeed demand will go down. In that case, new debt, even if placed on the Fed's balance sheet through what is essentially accounting gimmicks, will only exacerbate the problem. I feel that this is where we are now because that is actually my personal behavior. I see more taxes ahead to pay for all the goodies that voters have voted themselves, I see the even more massive ones they are poised to sooner or later vote for (Medicare for all, education for all , housing for all, transportation for all, everything for all, everything taken from all and given universally and unconditionally to all -- lets see who's going to want to work to overcome the competitive pressures from the Jingpings of this world). I also see other additional redistribution through universal income or other indirect schemes, I see high risk of massive debt default, I see pitchforks coming after those holding the little money that will be left -- and so I do hunker down, and also invest in foreign places where these central bank distortions are weaker or at least the overall leverage ratios are smaller.

In summary, accepting technological deflation may not be such a bad thing, and attempting to counter it through massive redistribution, whether through interest rate repression, accounting gimmicks whereby debt ends up on the central banks' balance sheet, or universal unearned income, may be a cure which is much-much worse than the problem-- and an irreversible trap. A cure that will lock us into permanent low growth. It may very well be why developed democracies are now already below ATOM trendline growth. Evidence shows that the more redistributive the democracy the slower the growth seems (of course, the effort/reward curve is flatter!) -- as in Europe which seems stuck in permanent stagnation. A transition to that system is irreversible. Lack of growth creates pervasive societal malaise and the more voters hurt the more immediate redistribution though the polls they ask for (see Argentina). It is a vicious cycle that is virtually impossible to break. It is very very difficult to get entire populations to accept delayed gratification without a moral framework (for example religion which is declining worldwide in advanced democracies). Most electorates, especially those under stress, will reflexively take the fixed factor of redistribution and forego the exponent of compounding growth-- a catastrophic choice.

Politicians, economists etc. cannot be trusted to convey -- much less implement -- this message. Their professions have strong immediate and intrinsic interest in preaching the bible of political intervention and immediate fixed results vs long term exponential growth, thus setting advanced democracies on a -- democratically chosen! -- decline path. Eventually these democracies become even more inefficient than many authoritarian systems (modern mobility and ATOM velocity has forced even authoritarian systems to actively compete at attracting and retaining capital and human talent) and with declining worldwide prosperity rankings these weakened democracies inevitably find themselves with the Putins and Jinpings at their gates. But even with the Genghis Khans now at their gates the main preoccupation of these advanced democracies seems to be how much more to redistribute!

- thus, Stay mobile!

Kartik Gada


The problem with your thesis continues to be :

i) You are not accounting for the much worse redistribution that already exists - the current tax system. The ATOM-DUES program mandates a 0% income tax on humans (and the DUES is effectively a negative tax rate).

You oppose 'redistribution' but are arguing against a system that is 0% income tax, in favor of the grossly redistributive system that already exists.

I have not seen you explain anywhere why a system of 0% income tax is somehow a more pernicious redistribution than the system that already exists in the US and Europe.

ii) The current debt-based world cannot survive in deflation. Had the debt-based system never existed, allowing deflation to accelerate may work in theory. But since this is the reality, a pragmatic form of transition has to be worked out. Under your recommendation, it seems that the bottom 30% of people starving to death (or, more likely, using firearms to take things by force from those accumulating the most) is a preferable situation than a society of 0% income tax and Central Bank easing distributed to people.

Deflation is not bad. Rather, it is a fantastic opportunity to fund a safety net without having to tax the productive output of people.

You are effectively saying that either there should be no safety net at all, or that it should be funded through the current extremely anti-growth income tax system.

Remember that any transition out of the old system has to be orderly and gradual.


We are stuck in the same arguments. In its more general reality redistribution exists when:

** People who do not contribute enjoy the fruits of the labor of those who do contribute nonetheless **

Tax policy, monetary policy, universal incomes, and other political and economic implements are simply the mechanisms through which this is achieved. To get back to my original words, when someone consumes unearned goods then somewhere there's redistribution. The monetary, fiscal or political mechanism through which this happens is a detail. You could eliminate money completely out of the equation and still have distribution. The electorate could eliminate my taxes and force me to do community work four days a week. You could argue that my tax rate is zero. Did slaves pay taxes? Their tax rate was arguably zero.

Yes, if kept within certain parameters, universal income that replaces taxation could result in less redistribution. However, this is not how it's going to happen because :

Your proposal also leaves totally unaddressed my points B and C, namely how do you prevent voters from voting themselves ever increasing universal income (above and beyond deflation formulas) -- just like voters keep voting themselves ever more national debt under the current system. In our current system voter benefit from debt is actually delayed, indirect and less visible (and so is the even greater damage but voters largely discount that) and still voters have pushed themselves into a trajectory whereby in spite of already high and very progressive tax rates (reaching over fifty percent in states like California) we reach a 40-45 trillion national debt by the end of the 2020s (50 trillion accounting for a recession somewhere in between). Can you immagine what would happen when a vote today can automatically immediately and directly double your universal income in two months? You vote and the check is already in the mail. You won't need arms to take from the producers, you have the perfectly legal ballot box path of no resistance. And how in earth are you going to replace all existing redistribution schemes and prevent them from ever coming back?

Indeed, because we did already go down the pernicious path of massive debt (and already have low trendline growth to show for it) we must now continue on an even more destructive path to uncontrolled universal income that will be imposed on top of existing redistribution schemes. Recent feeble attempts by the fed to retract a bit on these monetary redistribution policies had to be retracted quickly -- and that was with a Republican president. So we just cannot wean ourselves. Consequently, as economic and electoral dynamics indicate, we may have already passed the point of no return eg. we may have already become a democracy that is less competitive than authoritarian regimes like China (Europe definitively has already passed the point of no return). Hence my suggestion to stay mobile since we seem poised to double down on these redistribution policies that will make us even less competitive when we are already losing the competition.

My general feeling is that we will not implement universal income, but we will try something just as pernicious, like MMT, or stay on the current debt path until we converge completely with Japan in another ten years. The caveat is that Japan did it alone so it could not engage in excesses. Now with most advanced democracies painting themselves in the same corner, the system may rupture sooner. So, in spite of the overall brilliant longer term outlook for humanity, advanced democracies are on a race to become the next Weimar Republic of the early twenty first century. Conditions and manifestations will be different but the result will be the same, eventually voters will vote in totalitarianism. It doesn't matter whether the flags chosen will be red or black (though my guess is that the next totalitarianism will be green).

Hence stay mobile, because when it happens the narrative will not be that we have no money because we voted this way (we voted away the American principles of steep effort reward curves that made us wealthy in the first place) but rather that we have no money because the Rothschilds took it all. Under the strain I would not be surprised if the United States broke up, which might actually be a good thing that increases political, legislative and economic diversity, although I think that will first happen to Europe which is further down this path. See how green totalitarianism (which has predicted not only the climate but the human condition in a hundred years-- post singularity! -- and has come to a prediction that humans will suffer in a warmer planet in the next century ) is already ahead in Europe, ... ...but also curiously at Google(!), the current epitome of exponential growth and an utterly unpredictable human future... go figure, one wonders how smart all
these people working at Google really are...

I don't see the famine that you describe. Percentage of income needed for food has been on the familiar exponential deflation decline. Eventually an ever smaller percentage of even the lowest salaries will be enough to purchase food as food production becomes completely automated. Heck, further down the future even the three percent of GDP that constitutes voluntary philanthropy will be enough to buy food for non contributors. Will wealth disparities increase ? Of course! But that is inevitable part and parcel of the increasing leverage of technology and civilization.

People concentrate on the increasing income disparity but nobody is talking about the productivity disparity which is much bigger and ever increasing. In an old world where you are plowing fields with a pick and a hoe a muscular brute may be three times more productive than a weakling, but that's as high as the productivity disparities could go. Today we already have a situation where eg. an excavating equipment entrepreneur that invents and commercializes novel excavation equipment is millions of times more productive than the biggest brute with a shovel. The entrepreneur churns out tens of thousands of pieces of excavating machinery each one of which is thousands of times more powerful and tireless than the biggest human brute. Of course we cannot attribute the entire innovation to the one entrepreneur. However, even after contribution allocations are made the entrepreneur is still several orders of magnitude more productive than the manual laborer -- much more than their much vilified compensation ratios actually.

The productivity ratios will then further grow orders of magnitude higher with AI -- and on an exponentially growing trendline. Curiously even a three percent voluntary philanthropy on behalf of an AI enabled excavation equipment entrepreneur will be enough to buy free food for tens of thousands of brutes with shovels.

In summary I'm not arguing in favor of the current system of redistribution. I'd rather roll it back to the point where we can regain the world's most competitive effort/reward curve, something we owe the American entrepreneurial culture and prosperity to. But, realistically I don't see that happening. I see things getting worse and one way they could get worse is when universal income is actually added to existing redistribution schemes or replaces only small portions of them. Hence I've embarked on a strategy to diversify out of the US and become ever more mobile. Those who stay put and wait to be saved by universal income or Elizabeth Warren will not fare well. Neither will those who wait too long to bail out. This monetarily wound up situation will diffuse one way of another. The exit chutes will jam if the situation decompresses in a stampede.

So, now is the time to increase and retain mobility.

Kartik Gada


Your proposal also leaves totally unaddressed my points B and C, namely how do you prevent voters from voting themselves ever increasing universal income (above and beyond deflation formulas) --

In the publication, it is stated that countries that do this will quickly be surpassed by those with more responsible governance. So the policing is through international market forces of ATOM consumption of QE.

It is still better than what we have now, as there will not be any more deficit spending (which masks the current costs of spending). Hence, the restraints on gluttonous profligacy are still more than now (even if not zero).


"In the political sphere, this new, yet permanent and rising tide of ‘free money’ will test the principles of even the most frugal of fiscal hawks, because the money is not ‘free’, but a dividend that continues through the adequate care and feeding of the (worldwide) ATOM. An unrestrained political class may squander this bounty in various shortsighted grabs. Examples include quadrupling military purchases of expensive new weaponry, doubling the number of staffers and aides attending to each high-level official, or making a vote-buying campaign pledge to pay women a larger annual stipend than men. Collective self-control by both the citizenry and leaders in these matters will determine which nation stays competitive relative to others, in the ATOM age."

Plus, yet again, the ATOM-DUES program requires a simultaneous transition to a 0% income tax. This is the complete opposite of a flatter effort-reward curve. Every single objection you bring up seems to steer clear of recognizing this all-important component of the program.

Now, if a country does not do that piece and tries to do a DUES while maintaining income tax, it won't work (there will be inflation) and another country will capture the early pool of money more completely. But that is not a flaw of the idea - it is the fault of the country that didn't implement the 0% income tax half of the solution.

The country that gets to 0% income tax sooner accrues the lion's share of benefits. Those with politicians that refuse to move in this direction will see all benefits accrue elsewhere until they get with the program.


The interplay between tax rates, universal income, and the meritocracy of the effort-reward curve is a bit more complex than income taxes alone.

Universal income still impacts the effort-reward curve even under a 0% tax rate. If you give me $60k per year for living by a small town golf course (or a beach in Portugal) doing nothing then you may have a hard time stirring my enthusiasm to work full time for another $40k. Especially if you have to recruit me into some expensive crowded city knowing that my guaranteed income will rise 20% per year anyway while cost living will only rise 2%. Why pursue a career, why go through the trouble of acquiring a higher education, why save any money for now or later, when you have such a great exponentially growing guarantee financed by the deflation of Google employees working in cubicles while living and paying mortgages on 3 million dollar shacks built on the mud?

In other words, the effort-reward curve becomes 0% work = $60k, 100% work=$100k. That's pretty flat. Worse, that is a flatness that is added to the already intrinsically decreasing marginal utility of money. The first $20k gets you out of basic necessity deprivation. The last $20k (for which you will now work a whole 20hrs per week) get you a few extra niceties. Not worth it for most.

BTW, leftists see this decreasing utility of money as an additional reason to tax the rich. I see it as proof of how difficult it is to keep the most competent (and thus socially valuable) people employed once they have become moderately rich. For each visible billionaire there are probably hundreds of unknowns who took their handful of millions and throttled down or even retired somewhere in Portugal or Mendocino. Why? Because they simply had enough due to the naturally decreasing marginal utility of money. Progressive taxation then greatly hastened their point of indolence or their ambition exhaustion point. That is some of the most valuable human energy that is totally lost. Taxing it more will cause even more to be lost, and that is why Europe has so little entrepreneurship, ...and and so little growth, ...and an economic destiny of being caught up by the middle income countries of this world in just another twenty to twenty five years.

Universal income will create a binary society: The absolutely do nothings (ominously a voting majority) and those currently making over $100k (150k post 0% income tax), a stipend high enough to dilute the disincentivising effect of unearned income. Entrepreneurship is fine but entrepreneurs still need employees (for the time being and probably for another few decades). Where will these employees come from? Good luck bringing me back from the indolence of a four universal income household.

I think your publication Kartik greatly overestimates the enthusiasm that will be left to create new businesses or work for entrepreneurs post universal income implementation -- even after the admittedly easier business creation environment that zero income tax will create. I think our disagreement is quantitative. Disagreement in the balance of incentives and disincentives that guaranteed, and guaranteed exponentially rising, income will create.

Understood that redistribution may be milder and less damaging if voters don't drive the universal income off the rails. However the feedback mechanism for excesses is not that direct (just as it is not direct with current accumulation of massive debt). More importantly, voters and opportunistic (or just delusional) politicians are notorious for spinning the wrong narratives for their misery, or lack of expected growth in our case. Do Argentines, or Europeans for that matter, have the correct narratives for their lack of growth? If you ask them they will probably tell you that the reason they are suffering is that capitalists have taken all the money, leaving little for their social programs which need all the more strengthening (ok that is meant as a joke, something that must perhaps be explained in this era of Bernie Sanderses and Elizabeth Warrens). The solution of the European electoral majorities is to double down on redistribution to ease the low growth suffering. Unending vicious cycle.

I would not want to be residing in the first country that implements universal income with most of my assets in that same jurisdiction. I'd rather see this implemented in some other advanced democracy. I'd rather see that democracy replace its current redistribution schemes with universal income, I'd rather wait ten years to verify that the voters of this advanced democracy do not drive the program off the rails, that they do not bring back other forms of redistribution on top of universal income, and then if that advanced democracy still shows a 5% growth trendline then I'll sign up. I think that around 5% growth rate is the annual rate that an advanced meritocratic democracy with low levels of redistribution can actually achieve today -- more as the familiar exponential progresses.

However, if universal income appears in this country's horizon, please give me a heads up. I'll have to hurry and bring over my patents and my wife's parents from overseas, so that we can become a six stipend household :) (what? You are going to take away their ObamaCare? That's so cruel. You do that I'm voting for Elizabeth Warren!) and, you know, these immigration papers do take some time to process. Then we can easily move into that seven bedroom house in Mendocino and relax, leaving behind plenty of (apparently motivated) suckers to propel the Silicon Valley ATOM from their cubicles, while they even force themselves to pay extra real estate taxes so that they can purchase more land to put out of circulation as "open space", so that their shack houses in the mud cost four million instead of two in another ten years. Our kids growing up in our Mendocino playhouse? Ever rising stipend to pay for ever deflating technology ahead? "Go out and play son, no need to do homework. Everything is taken care of. Not only close to the singularity but already now. Before you become an adult you will be able to buy most of what you need on universal income alone. Let the greedy ants do the work".

Sorry for the sarcasm at the end but I'm afraid that most of it is actually true.

Kartik Gada


If you give me $60k per year for living by a small town golf course (or a beach in Portugal) doing nothing then you may have a hard time stirring my enthusiasm to work full time for another $40k.

Well, not only is ATOM-DUES a long way from being that high, I don't think that is correct. Almost no self-made billionaire ever retires. People keep going even if they have enough that basic needs are no longer dependent on a day job.

I think your publication Kartik greatly overestimates the enthusiasm that will be left to create new businesses or work for entrepreneurs post universal income implementation --

We shall see. Almost no one with ~$10M net worth in the US, whether young or old, stops doing what they were doing. Plus, you may be underestimating the damage a 50% tax rate does to incentives vs. a 0% tax rate. I think the effect is immense, especially when even a tax reduction from 39.6% to 35% causes a substantial economic boost.

Tons of late-19th century books (fiction and non-fiction) assumed that everyone would go down to working 10 hours a week once the cost of food fell to less than 30 mins of wages (Bellamy, Veblen, etc.). That didn't happen, as this prediction failed to take new products and services into account, as well as the all-important factor of status. People want status.


One hundred thousand dollars per year is hardly a billionaire and, as I said, billionaires will still need lower level employees for at least another few decades -- though I could be wrong on that, perhaps I underestimate the pace of change.

I'm surrounded by people who hung their shorts after ~$5-20M of net worth. That is the issue, these financially independent people who have already checked out are invisible because they are below the threshold of fame and wealth.

If compensation has so little effect on entrepreneurship why does Europe have so little of it? If enthusiasm and non pecuniary compensation were the main motivators then socialism and communism would work. These systems provide "status" too. Only in the US do people want status?

As a matter of fact, belief that America will maintain its entrepreneurial culture even under European politico-economic incentives is the cardinal error of American leftists. Americans will become Europeans with subpar aspirations and ambitions under European like legislation and European like effort-reward curves. Some adaptation will be immediate, the rest having to do with education, careers and longer term life planning will converge after a few years. The change will be irreversible. The fact that Americans do not see this is even more reason for me to take action now at the personal level, while everyone else is oblivious to the trajectory and implications. American entrepreneurship, what we perceive as the unique American spirit, is directly linked to the steeper effort-reward curve that America has maintained throughout its history. Once the effort-reward curve flattens to European levels the American entrepreneurship spirit, American dynamism (and American prosperity) will be gone, just as Europe is now the fastest declining continent in the world. These cultural attributes we are so accustomed to viewing as "American" are not irreversibly embedded in culture. They are the result of the steeper American effort-reward curve. Under European effort-reward curves Americans will turn European.

I am though actually curious to see what would happen if universal income is ever implemented. For what is worth here is how I think it will go:

Universal income will be implemented as an additional redistribution scheme and while some forms of existing redistribution will be paired down in exchange, the replacement will be limited. America will also likely get a VAT tax to catch the middle class and poor since the rich are already been taxed into the declining slope of the Laffer curve in high tax states like California and New York (the trend setters!) . The VAT tax may be voted overnight in a hurry (like TARP in 2008) following a sudden deep crisis. Many US politicians have probably made plans already on "how not to waste the next crisis" -- and not miss an opportunity to have the state control a larger percentage of GDP. We are after all "behind" Europe on that front.

Overall redistribution will thus increase making the American effort-reward curve similar to that of European states. The US will join Europe on a 1-2% annual growth trendline while the rest of the world somehow somewhere will continue to grow along a 4-5% trendline (that is the general ATOM trendline which largely transcends local statistical variations). US stock CAPE ratios will converge to European levels of 15-20 while profit margins will decline. That will require a 50% US stock market correction from which Americans will never recover, just as Japan never recovered three decades after its crash. Average world per capita income will catch up with Europe by 2045 and with the US by 2055-- bringing Europe and America back into the middle income country group (using mid twenty first century standards). These longer term predictions are harder of course. There's significant chance we will not get there because decline brings discord. Thus it is very likely that the European Union will break apart as it declines freeing each country to pursue its own destiny. As independent states again, some European countries might shrink their governments and become Switzerlands while others will go down the vicious cycle of statism and become Argentinas. The same fate is quite likely for American states with some delay. In the more immediate term though American Japanification seems quite likely. Debt will reach over 200% of GDP in another short decade, together with European like anemic growth rates, and a Japanese style near permanent stock market correction.

Kartik Gada


I'm surrounded by people who hung their shorts after ~$5-20M of net worth.

I am surrounded by people who did the opposite. They never quit, and have keep need to keep their status high and 'stay in the game'.
Clearly, we need official data.

We can certainly see that among public figures, virtually no famous Corporate Execs, entertainers, etc. quit at that wealth level. There may be some pre-selection there, but still.

Universal income will be implemented as an additional redistribution scheme and while some forms of existing redistribution will be paired down in exchange, the replacement will be limited. America will also likely get a VAT tax to catch the middle class and poor since the rich are already been taxed into the declining slope of the Laffer curve in high tax states like California and New York

This would be bad, as discussed. Real UBI (ATOM-DUES) would only work if paired with a path to 0% income tax.

Note that there is immense technological pressure to move to 0% income tax on humans, since automation is not taxed, and a human that is being replaced by automation is largely at a disadvantage due to the human being taxed while the automation replacing him/her is not.

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