ReSolve Riffs with Jordan MacLeod - November 2024
[00:00:00] Jordan MacLeod: They sort of look at the world. You're looking at cultural values, you're looking at systems, you're looking at individuals, and sort of how that all, how those three things interconnect. And so when you're looking to evolve a system, you're looking at all three simultaneously. So you're looking at how are the values trending, you know, what's the future, where are values moving towards, and you're looking at the monetary system, and how do you, how can things change?
[00:00:35] Adam Butler: Welcome everybody back to ReSolve Riffs, today with another very interesting guest, Jordan MacLeod. We met over X slash Twitter. I guess we became Twitter buddies, you know, a year or two ago, but many of you will know him as the author of New Currency, How Money Changes the World as We Know It. And you published this book in 2009, so it was just after the global financial crisis and almost exactly the same time that the famous Satoshi unveiled his white paper, and launched, I guess, Bitcoin, and so I guess you guys were both re-thinking the fiscal and monetary system architecture around the same time.
But I guess before we get into any of that, maybe give us a little bit about your intellectual background. You know, what led you to this point where you were publishing books on how to digitize or revolutionize the global monetary system in 2009?
[00:01:59] Jordan MacLeod: With this think tank, that were identifying global trends and the future, all the convergence of problems that were going to happen around this time, frankly, in 20 years from now, with the demographic problem, the deficit, debt, growing debt problem, terrorism, global security.
All of these issues were pretty well identified at the time, and it really became clear to me that that's the path that I wanted to follow. And, you know, I really began to think that money was the leverage point for how to revision the economic system and how we could start to begin to shift some of these trends that were moving in the wrong way.
And Doomberg, in a couple, a couple of weeks ago did a great job, I think, identifying a lot of those trends, with respect to China and the rest of the world, and things seem to be drifting away from the West, without any sort of sense of control or understanding of… so I worked in banking for a while in the U.K. and did some research on money and the evolution of money at the University of Economics in Prague, the Czech Republic. And then actually went into sculpture, and became a really big fan of Joseph Beuys. You know, when I went into sculpture and studying art, I actually, I just really feel like I wanted to create and build stuff, make stuff.
But I actually learned that one of the central artists of the 20th century really thought that money was the center for social sculpture, and he really thought that money, like, the way art was moving, it was really from sort of the whole, you could say, like the Monets and the impressionists have sort of mastered a whole, a sense of wholeness that are, other artists haven't. And that led to fragmentation and cubist, cubism.
And he really believed, thought that the holistic sense was going to come in. Art was going to basically take over the reality because it just, being on canvas wasn't enough, it wasn't satisfying. And so through him, I really began to reconcile the two, the art and the finance. And that's, I actually did a lot of the writing of the book at the Art Institute of Chicago while I was doing a senior sculpture studio. And so yeah, it was kind of a melding of those two worlds. And then the financial crisis hit, as you mentioned, and I predicted that decentralized currencies would happen before I had heard about Bitcoin. Just simply, you know, we knew that that was the way it was trending.
And it's just, the general trend of human evolution is moving towards more distributed power centers, and you know, I think money is really central to how that story is told. So it really can anchor new values into the world.
[00:04:53] Adam Butler: Okay, so let's maybe start in 2006/2007. I'm assuming that many of the ideas in the book were coalescing around that time, and I hope I'm not overstepping and suggesting that maybe the events of 2008 created enough of a sort of emotional impetus or crucible? Perhaps, maybe it was just, it was a perfect case study for some of the ideas that were already coming together for you.
But how did 2008 motivate or accelerate your, the urgency you were feeling to document some of your frameworks and how to think about money and how money was going to have to evolve in the wake of 2008.
[00:05:40] Jordan MacLeod: A great question, and I mean, you were obviously there. I think 2008, there was a real sense of, it was a really scary feeling, in the sense that we, nobody really knew what was going to happen, whether things were going to hold together, and it just, it really was a huge impetus to, I was writing 24/7 just trying to get everything, just try to leave it on the field. You know, you have no idea where things are going to go You feel like okay, like this is my opportunity to leave it on the field, and you know, who knows where the world's going to head, and you know, I think a lot of people at that time would be surprised at how things have evolved since. That really, things haven't changed very much, and like, this kind of illusion has reappeared, everything's okay. And, but you're, I'm not sure I'm answering your question, but that is exactly, it was the belief that we are evolving and there's this opportunity right now to evolve. And so it's like, how can I convey it in my own words, how to do that? And it's, you know, I think there's only so many ways that you can do, things can improve.
And so you're literally looking for those leverage points in the system that can actually bring about a qualitative change in the dynamics. And so that's what I tried to explain and to identify and, you know, money being really central to that story, for sure.
[00:07:05] Adam Butler: So, were you expecting 2008 to lead to some navel gazing and genuine material rethinking of the monetary system, the banking sector, the fiscal promises, the social contract, and then were you surprised how effectively, Quantitative Easing allowed governments to sort of kick the can as long as they were able to, and avoid having to face some of these harder challenges, and implement some of these major changes?
[00:07:46] Jordan MacLeod: Yes, I mean, I absolutely underestimated the ability, and I think Jim Rickards really got it right when he really thought this financial crisis was just pushing it up to the next level of the system, and it really became a fiscal crisis. global debt crisis. And I think he's been proven right, or he's about to be proven right. But yeah, I was absolutely surprised. I think even, I think that would even reflect in how I was investing and thinking. I underestimated the absolute boom that, you know, in asset prices, both in real estate and financial assets. Definitely took me a little while to realize that, okay, this is never, they're never going to allow that to happen.
Deflation is not happening. So yeah, I think once you see that they're committed to that at all costs, then it changes your entire investment world view, but for sure, like I would say, 2010, 2011 didn't see it coming to that extent, and I was still optimistic as well about the potential for some kind of a global rebalancing in terms of a new economic framework, a monetary framework.
The Chinese had proposed one in 2010 and they were very serious about it, and I actually had more hope for Obama to address these issues head-on, rather than kind of allow things to drift the way they have. And, you know, we've seen the rise of China, sort of sleepwalking into whatever's coming next, without really any sense of empowerment to what's happening.
[00:09:26] Adam Butler: So, in 2009, what were you seeing, had the potential to take shape, that you were, I guess, maybe advocating for, or at least providing some descriptive framework of in the book New Currency?
[00:09:47] Jordan MacLeod: Well, I mean, it's sort of a, one of the things that I like to use is like, Integral Theory, which is with, developed by Ken Wilber, and Don Beck is another proponent of that. And, you know, they sort of look at the world. You're looking at cultural values, you're looking at systems, you're looking at individuals, and sort of how that all, how those three things interconnect. And so when you're looking to evolve a system, you're looking at all three simultaneously.
So you're looking at how are the values trending, you know, what's the future, where are values moving towards, and you're looking at the monetary system, and how do you have, how can things change?
And, so we went through it with the Great Depression. In a sense, everything that we've built is to avoid a Great Depression. And, you know, one of the solutions was developed by Irving Fisher at Yale, one of the leading economists of the early 20th century at Yale. And, he basically implemented Silvio Gesell's demerits. And so he really believed that, what effectively is a negative interest rate, but not quite, right? It's something where it allows a countercyclical, internalizing a countercyclical measure to money. So you're internalizing the cost of the money system. You get the money to flow without having to use all these exogenous inputs like Keynesian spending to make it work.
And so we've, eventually we've really just built this sort of, I like to call it, like, a fusion reactor that's still plugged into the wall. You know, we have all these economists who talk up the numbers, full employment, GDP, we have all this growth. And then, you know, you realize that the $2 trillion in debt is really just the equivalent of this exogenous input that's keeping it all going. And if you plug that, then everything collapses. So, we're trying to create a self-organized, self-organizing economy that can self-regenerate, and you're not just sort of continuously fragile to that kind of a dependence.
[00:11:58] Adam Butler: So, Fisher envisioned sort of a self-regulating system, did he, where a material slowdown in economic growth would drive borrowing costs of governments to be negative? Maybe explain what you mean by demurrage because, you know, we obviously did see negative interest rates, for example, in a substantial portion of global sovereign debt markets, right? So how is what you're describing different from that?
[00:12:34] Jordan MacLeod: So what, I mean, basically you have to go back to the Great Depression. You have 40 percent unemployment. He predicted that if you employed demurrage, it would basically reverse the depression in a matter of weeks.
[00:12:48] Adam Butler: So maybe define demurrage for…
[00:12:50] Jordan MacLeod: I'm going to tell you a story about, in Austria, there was a town of Vogel, that adopted this policy, and basically, they were basically, the town was effectively insolvent. I think they had 500 shillings in their bank, and didn't have the means to pay for city wages. And so they even essentially put a demurrage fee on top of the money.
So it's a holding tax, and it's called a stamp script, where it expired at a certain date. And so people had an incentive to use the money, to spend it before it expired. And so what that does is it creates a natural velocity to money, which is of course, a function of the money supply as well. And so it's sort of an internal regenerative system that allows the money to circulate, without any kind of need for years of, it could be years of economic healing, or it could be, you know, a massive debt to sort of, spending, like, to regenerate.
So it effectively, within a matter of weeks, the town was fully employed. There were, people were paying their taxes early and so it became the miracle of Orville. So there's this historical case study of how this actually worked. And, you know, he was fascinated by that, and made attempts to implement this at Treasury and also in decentralized, sort of, in towns as case studies as well. And people often think that he was only interested in this sort of regional local development, where a town might adopt this kind of a system, but he was, very much thought it could be implemented at Treasury or at the Federal Reserve, where you have this sort of a tax on money, or an expiry date on money, that allows things to circulate.
So you don't need the central spending. So people think of it as an extra tax on top of other taxes, but in reality, you're saving a ton of money on the fiscal side because you don't need to spend all the money to push the strength to keep the economy moving.
[00:14:59] Adam Butler: And it isn’t arbitrary dimension because of, you know, my sense is, and maybe, you can correct me if I'm wrong, but my understanding is that the central banks of the world under the sort of neoclassical framework that we've been operating under for the last couple of decades, they use a small amount of inflation to try to incentivize, the velocity of money, right?
People to spend now because it will be more expensive in the future, for example, right? So that is a tool of monetary policy or economic policy that we use to continue to sort of try to stimulate demand. Inflation then is effectively a tax on consumption. I guess, demurrage would be more of one way to think of it as a tax on wealth, right, because you're sort of incentivizing people to not hoard wealth, but rather to put it to use, either through consumption or investment.
[00:16:08] Jordan MacLeod: Yeah, so there's a belief right now that we can't afford price, to like a price stable currency. We can't afford to anchor to CPI, or to have 0 percent inflation, and a part of that is connected to, it's sort of this belief that there's nothing you can do to counterbalance deflation and deflationary spirals. That's something that Justin is it …? At Michigan, you know, he was a, he's a Democrat, but he was very opposed to Judy Schell being nominated at the Federal Reserve, because she's such a proponent of price stability.
So if you think about, if you have a price stable currency, so you have zero inflation, then you can internalize some of the cost of the money system onto money and charge a fee on top of that. And so that's essentially like an inflation, but you can have price stability throughout time if you do it this way. And so, that allows trade balances, global trade to function much, much more smoothly, and it’s not arbitrary, because there actually are real costs to people holding money. The U.S. spends close to a trillion dollars on maintaining the rule-based international order. And so if you start to think about all of the wealth that's protected, that really doesn't pay anything for the security that it enjoys, there's actually a really big mismatch right, now in terms of who's really carrying the load for the fiscal. So I think that's something we can explore next.
But yeah, like, inflation is almost like a back, it's a backdoor tax, obviously. And if you bring it to the front door with a demurrage tax, essentially, then it allows for price stability. I put it that way. So if you don't want price stability, you get inflation, and you get big government, and you have this constant cycle of increasing debt, until what, where's the end game for where we're heading right now?
[00:18:12] Adam Butler: So, connect the dots for me on why the, why a policy of targeting a small but positive inflation rate, what's the causal chain that then almost certainly leads to big government, big deficits, and then running up against fiscal boundaries?
[00:18:37] Jordan MacLeod: Right. So I think, first you start at the fiscal side and you look at the way that the amount of spending you have, you know, the U.S. government has an extraordinary obligation to keep growth going. And so you have the natural product, you have the natural real economy that can grow. But you also have the growth that comes from interest rates. And you know, when you have, when you're printing money and you have inflation, you have interest, then there's a natural cycle where the economy actually has to expand, regardless of the supply and demand equation on the real economy. You know, there's a systemic compulsion for the…
[00:19:11] Adam Butler: Just because the amount of debt outstanding is increasing, even if the interest rate stays constant, the amount of interest that's being…
[00:19:19] Jordan MacLeod: … still compounding.
[00:19:20] Adam Butler: Right. the other, right.
[00:19:22] Jordan MacLeod: So that over time, creates extraordinary stress on the economy. It creates this compulsion to grow that's divorced from the real economy. And you know, you get into the point where the, you have to expand GDP. You have to, it could lead to more aggressive foreign policy, where you have to secure contracts in other countries, or you, basically to expand the GDP. So like, that whole dynamic is a function of this monetary system, and so if you look at revising that, and it also is functional to the roots of western civilization, and you know, you have the Greeks like Plato and Aristotle, you have Jesus, Muhammad, Moses, were all adamant against interest rates.
And so, you know, we've developed a mentality that a free market should have positive interest rates, and that's just a normal thing. And it's certainly been a lot better than banning interest and usury. We've just obviously seen an explosion of economic growth, but if there's a way, I think, that we can explore a way right now that we can actually solve that problem, by also solving this kind of compulsion for growth problem.
And I think the limitation of my thinking, and what I've been talking about so far and, you know, how it's evolved to where I am now is, seeing you're trying to, in this system, you're trying to create money that is a really good medium of exchange. So it's price stable, and less good as a store of value. You don't want it to be a better store of value than other assets that have a cost of storage. For example, it creates pricing dis-equilibriums and I would say, arbitrary power, arbitrary benefits to that system. And so what I would say, if you take it further and realize that at the global level the U.S. government is really paying for the entire rule-based order, the economic order, and every aspect of wealth really falls under that. Every aspect of economic activity.
If we lose that, that rule-based order, everything collapses. You know, something else may replace it, but you, we have to understand that our house, our property, our gold, all of the, our ability to trade freely, all of these things are a function of the military, and a trillion dollars a year, plus all the other Western governments, a couple trillion a year easily. So if you start to connect, I think it's just really important to connect. And this goes back to Adam Smith, who believed that people should pay tax in proportion to what they actually enjoy from the government, and to what they actually can.
So it's really, if we make it a function of wealth on the aggregate, and a function of economic spending, it's possible to create a tax paradigm with only two taxes. So, you're taxing the total aggregate of wealth, and the total aggregate of personal consumption. It only takes like a two and a half percent wealth tax and a 15 percent personal consumption tax to balance the U.S. budget. So that's a rough estimation, but it's really, we're talking about taxing unrealized capital gains. We're talking about, 50, 60 percent income tax, like all of these things. They're arbitrary taxes on, that only a working class are paying for, and obviously, yeah, people, investors who are successful are paying, but people who have, you could have a hundred trillion, you know, a hundred million in the bank and assets, and not pay a thing. And so I think that's something where if we look at that paradigm, two taxes, extremely simple, you wouldn't even need an IRS or, you know, a CRA.
You would basically be able to automate the entire tax system at the point of sale, and asset managers, or however, some kind of piece of software. For tokenized assets, that whole direction. So you can balance the budget, you can balance the budget, and if you can balance the budget, you can have a price stable currency. And then if you can do those two things, you're increasing relative demand for government bonds, corporate bonds as well.
In my view, debt obligations wouldn't be considered wealth. It would be considered a liability. And so you wouldn't pay, you, if you lent a hundred million dollars to somebody, you wouldn't pay the tax on that, on that loan. Once you lent the money, the person who received the loan would start paying the tax. And so the wealth…
[00:24:06] Adam Butler: It would become part of the wealth of the individual that is receiving the loan and…
[00:24:10] Jordan MacLeod: That's correct.
[00:24:12] Adam Butler: …
[00:24:12] Jordan MacLeod: That's correct. So that's a way for you to maintain price stability over time. You know, as an investor, you could lend that money. It could be a government bond. But the idea is that you're, you want government bonds to be the cornerstone of the economy.
[00:24:28] Adam Butler: Okay, so hold on because we're getting, I think we've gotten way ahead of ourselves because I think let's start with the current tax regime. Taxes, effectively just taxes income, right? How did we arrive on income as the primary taxation mechanism?
[00:24:47] Jordan MacLeod: I mean, I don't know how we got there. I know, you can point to 1913, and income tax becoming a thing, and you have the welfare state that's sort of co-emerged with that. I can, in my view it looks to me like an intentional obfuscation of the obvious. In retrospect, perhaps that's true. I'm not sure. I don't know how we got there. But it, in the way, the way that I look at it now, it's extremely arbitrary.
[00:25:17] Adam Butler: Like a streetlight problem to me, right? Like, it's certainly, in the past when the tax legislation was initially conceived, it would've been much harder maybe to conceive of how to tax. Think about the Georgism concept of taxing the appreciated value of the land, notwithstanding the improvements on the land.
Like, there's a number of other different tax regimes that have been proposed. It seems to me that income tax was really just, well, we can make employers responsible for collecting taxes. The vast majority of income is employment income. And therefore, you know, this is a, for expediency, this is a way that we can reasonably collect taxes, and all of the other ways are much, much harder, maybe not even just politically, but just like from an execution standpoint.
[00:26:21] Jordan MacLeod: Yeah, absolutely. Absolutely. Good point. And even in, I'd say even in the 70s, you had economists asking the question, why, if the entire government system is designed to protect wealth and economic activity, why aren't people paying more? But they still thought capital gains was good and enough, good enough in that respect, right? But I think we're at the point now where we just need to get back to first principles, and say look, we need to tax on the aggregate.
People should be paying for the services they're enjoying. And it becomes, once it becomes obvious that it's pretty low tax rates that can make this work sustainably, then we can start to re-architecture the whole thing. And one of the things that I think creates resistance to a wealth tax is, it obviously lowers, it dampens interest rates, it increases incentives to lend money. And so the whole, and when you have a cost on holding, then that affects the banking system as well, and deposits, so it'd be the opposite of today where banks are getting paid to put their money in the Federal Reserve.
It would be the opposite, unless there's some sort of a lending system where, if they deposit, and it's a zero rate situation for them. Yeah, so I think like, that's how my thinking is, has shifted, is that it's become more macro, and instead of trying to fix money and try to make it the same as other goods that have a cost of storage, or have a decaying component to it, there's sort of a, some kind of a compulsion to bring it to market, whereas in money, there's a benefit from holding it back. You get paid interest.
[00:28:00] Adam Butler: Right.
[00:28:00] Jordan MacLeod: That's, you know…
[00:28:01] Adam Butler: Sort of a perverse incentive regime under a labor taxation framework, right? We're disincentivizing more work at the margin. We're also incentivizing the hoarding of high powered money at the banks. And also, it's not in alignment with the value that citizens receive from the government, right? So we've got this, let's call it the rules based order, right? So someone needs to enforce that rules based order. There's a cost to that. How is that cost funded? Currently it's funded using labor income, right? But, and if we change it, then the new regime, whatever that looks like, will also need to be funded, right? And we'll have to figure out how to fund that.
[00:29:00] Jordan MacLeod: Right.
[00:29:00] Adam Butler: Labor income and the current monetary and fiscal framework is not, it's full of perverse incentives, disincentives, et cetera. And rather, what you're proposing is a monetary and fiscal system that is directly aligned with the interests of the citizens that it serves. So maybe just outline that in as explicit a way as possible.
[00:29:25] Jordan MacLeod: The way that I would say it is, let's just frame it in today's terms. You know, Trump just got elected. Elon Musk and Vivek are going in, and with the DOGE, and they're, the Department of Governmental Efficiency, and so, it was really a renewal.
This is a, there's a moment where there's a mandate for things to change and for government to clean up, and I think that we're at a point where we're either going to drift off and China will gain in relative power, and we're going to lose our purpose, or we can really go in and start to really, as you say, make things directly accountable, like, you basically pay for what you use. And if we have that sort of a direct connection to everything, we're basically creating a fusion economy where it's just regenerative, and can keep going, and has an extraordinary stability to it.
So, to be explicit on that, I think, you have those two taxes that are automated into the system. And what that would happen is, the wealth tax would essentially drive down, would increase the incentive to lend money and to move money, move wealth from sitting there, appreciating through inflation and through other mechanisms, and to essentially incentivize or penalize hoarding, and to incentivize the real economy.
So you want to basically shift it from freeloading, to really creating. And if, the more that the wealth tax can be explicitly designed to create a zero interest economy, so you can actually solve the problem that Aristotle laid out thousands of years ago, where you can actually, you could really have the wealth tax be the price for what could be a variable pricing, to generate a zero interest economy.
So you're solving the growth problem of the economy where you have to compound growth every year, and you have exclusive focus on the real economy. So you're really lowering the speculative aspects. And I think that that could be extraordinary for the time we're in with, you know, you love to talk about AI and how things are moving. You, things are at an extraordinary point where I don't think government spending is going higher. Like, if we can structure and solve, restructure and solve the unfunded liability problem, which I think is doable with certain mechanisms, there's people, smart people looking at that, but if we can solve that problem, it should be more effective, more efficient government.
And if we can solve the revenue side problem of making it extremely simple to collect taxes and to have it in the aggregate, so everybody's, we're not penalizing anybody for being wealthy. You know, this isn't Piketty charging 10 percent wealth taxes. This is everybody paying a low percent of what, of their wealth.
Then, you have a highly productive economy, highly stable, and you're increasing demand for government bonds, and for corporate bonds, which is extremely important. And you're creating a self-organizing economy that has internal mechanisms that are kind of cyclical. So you're reducing the dependence on fiscal Keynesian policy. So, less stimulus in downtime, because you have this wealth tax that keeps, that can keep the economy going on its own.
So I think it's, it's an elegant solution, in my opinion. And I think, it sort of is an exit strategy from what Doomberg laid out, because I think you can start to frame this as like, we're heading into the singularity, we're heading into this extraordinary time of AGI and extraordinary growth and productivity. And if we can stabilize this aspect, we can really reframe government to serve its core functions in terms of defense, law and order, infrastructure, you know, basically ensuring the free commerce, ensuring people can pursue happiness and also are protected from others being imposed upon.
So, you know, inherent to globalism, and inherent to capitalism, and to democracy, is they're anti-colonial. And, you know, all of the Founding Fathers, despite the negative aspects of slavery and everything they're emerging out of, they're, Adam Smith, they're all anti-colonialist.
And so this idea that we need to get rid of capitalism to sort of decolonize, or this idea that we can solve the problems with socialism, is absurd. You know, we need to have a more functioning, basically free market economy. That's basically more like Adam Smith. Nothing I'm saying is different than what he called for in 1776.
[00:34:12] Adam Butler: So, you mentioned that if we keep going down the current path, that the West, it's possible or perhaps even likely that the West will begin to go into decline relative to China, or perhaps will be less well equipped to balance the rise of China. What is China getting right in terms of fiscal and monetary policy that you think might allow it to strengthen, relative to the West, if we continue on this path?
[00:34:47] Rodrigo Gordillo: Sorry to interrupt, but I did want to take a quick second to remind listeners that while we do absolutely love providing our audience with world class guests and weekly investment insights, we wanted to remind you that we actually do our best work outside of this podcast, and we try to do this by providing cutting edge, globally diversified, and systematic investment strategies that are designed to be broadly non-correlated to traditional equity and bond portfolios.
So we actually manage private and public funds, as well as bespoke separately managed accounts for investors that seek the potential to smooth out portfolio returns in the long run. So if you do want to see that theory that we've been talking about put into practice, please do go ahead and check us out at www.investresolve.com. Now back to the podcast.
[00:35:29] Jordan MacLeod: Well, I mean, they're really, it's becoming a multipolar, it's going from a unipolar superpower to a multipolar world, and it really, and what I mean by that is not in the classical sense of the U.S. is losing power to everybody else. It's becoming more of like a bipolar, I should say system, where China is becoming the, obviously the industrial base for the world, and they're doing that by suppressing domestic wages and welfare, and making things cheaper than anywhere else. And so it's the anti-America, which is really based on speculation and financial-ism and Wall Street.
And so you have these two unreal aspects that are completely at odds with each other. But China would love for this to go … see people who think that China is about to invade Taiwan, I think are misguided, because they're benefiting from the system where they're really developing an extraordinary industrial base. And that's obviously the source of geopolitical power, which the U.S. enjoyed in World War II. So, I think that the relative benefits to the manufacturing base they're creating is more suitable for a real productive economy that we're talking about, that the potential to create, than the speculative economy that we're running on fumes with, that's fueled by debt.
So it's upon us, it's really incumbent on the West to wake up. China has their issues, and they're probably entering a period similar to the Japanese deflation, where they're unwinding this giant bubble, which will take years. But I really think that we need to solve it ourselves. It's we, the West has the rule based order and we have the ability to change the rules if we see fit, and I think it's time to really, really evaluate that.
[00:37:32] Adam Butler: Okay, so walk me through the mechanism by which we migrate from, as you described it, and as I've described it on many occasions, a financialized economy that is largely driven by speculative assets, speculative bubbles, to more of a real economy, right? An economy that rewards hard work, increases in productivity, the actual generation of capital in its classical sense. How do we get from A to B?
[00:38:11] Jordan MacLeod: I think you go in and you solve the tax code first of all. I mean, I think it's essentially that simple. You know, you can digitize assets, and you simplify the tax code to two taxes. And then you basically, I think that ultimately you want to target 0 percent interest. I think that's how you optimize for the productive economy, and there's a reason to do that. And the reason why is because right now you have the monetary system. If you don't, it's hard for me to explain, because, but if you basically, if you don't have, if you have floating interest and you have the, you have sort of the U.S. as the, as a global reserve currency, then there's a ton of discretionary policy that's involved in that, right?
Like, but nobody else wants that role. the G20, BRICS, they're not talking about, they don't want to have this arbitrary system that the U.S. has right now. So, we're trying to create a system that's price stable. And so, if you want price stability, you have to have a mechanism that allows to prevent price stability, deflation that, you know, … and others talked about. So that's internalizing the wealth tax. So you internalize the wealth tax. That includes not just money, but also financial assets, land, property and commodities, and so that starts to move, that reduces government spending.
Everything can become digitized, perfect for AI, and AI can start coming in and increasing productivity, lowering the cost of running government services, and you, so you have some deflation in that respect, but you also have a more real economy emerging where this, you have an explosion of creativity, where everybody has access to AI help solve real problems in the world. You know, and I think that the other aspect that we didn't, we sort of moved on from, but it's really critical that we have, the more digitized the economy is, the more that we can have real time pricing, data feeds, basically automated policy.
And Milton Friedman talked a ton about basically having rule sets for monetary policy. He advocated for a fixed money supply. And Bitcoin, in a way, adopted that. Obviously, it's nothing close to price stable, to really function as money. But, you know, that was the idea that he wanted, he envisioned.
And so, if you have a zero interest economy, that's price stable, then it really mitigates a lot of the discretionary policy that's even possible. You know, the wealth tax essentially can become a countercyclical measure that can increase when you need to move the economy forward during a recession, and can decrease in boom time. So, it can be sort of, it can automatically offset, and the VAT can just be programmed to constantly balance the budget. So you could have two variable rates on these two taxes.
But I think that that allows us to start having conversations globally, where essentially you have a platform like this for every country. I mean, it's not arbitrary. It's really difficult to create global monetary system regimes when everybody has these arbitrary rule sets, arbitrary taxes, arbitrary spending, China subsidizing the industrial base, they're depressing wages. You know, we're doing the opposite. So, if you want to level playing fields, this is the sort of thing, on the aggregate, that can really be non-arbitrary and achieve it in a pretty elegant, simple way.
Like it's a simple piece of software. It's a protocol, you know? So that's really, I think, I'm working on developing that now. And this is a great opportunity to really, to flesh out these ideas. But yeah, I think it's more of an intention and understanding, that it is the technical difficulty is not, there's really no piece of this that's extraordinarily hard to do.
[00:42:20] Adam Butler: Yeah, no, I mean, it makes intuitive sense, that those with greater wealth benefit to a greater extent from the government's intervention in protecting that wealth, and that we all benefit from the government's intervention in regulating private property rights, personal safety rights, the rule of law, et cetera, and to that extent, we all as citizens, we pay tax on consumption through the, so I assume the VAT, is that a consumption tax or is that directly taxing production? How would that work exactly?
[00:43:06] Jordan MacLeod: Well, in this model, it's simply a 15 percent value added tax on personal consumption. So, you know, it's just basically just doing the math on aggregate personal PCE, personal consumption in the U.S. And, you know, essentially, the 2.5 percent wealth tax, excluding debt obligations, plus a 15 percent value added tax on personal consumption, balances the 2023 budget.
[00:43:33] Adam Butler: I…
[00:43:33] Jordan MacLeod: So, you know, slightly, slightly varies in 20, you know, those numbers go up every year. Spending accelerates, but you know, it's essentially doable, and, the minute that we understand that it's doable, then everything changes. You know, we can really shift our focus into price stability, and the wealth tax is already the solution to price stability, in the sense of it being anti-deflationary.
[00:43:56] Adam Butler: Right. So the idea is that the wealth tax will decline during recessions, because I guess asset markets will deflate, and then the wealth, and therefore as the wealth tax declines. Less money is coming out of the private sector and being recycled back into the public sector, and the VAT, you're not actually talking about changing the rate of the wealth tax during recessions, or the rate of the VAT during recessions, and then increasing them during boom times, are you? They're just, they stay constant, or is there some kind of dynamical system that will dictate how those rates are set?
[00:44:46] Jordan MacLeod: Well, I would say two things. I mean, first of all, the fiscal piece is essential. And I think, the second piece is more speculative. So I don't want to tie them together. I think it's important to understand the fiscal can be solved very simply, and so, with those two taxes, those could be fixed rates. You know, they could be variable, based on spending. So there's, it's a constant balanced budget scenario. That would be extraordinary for bonds and for faith in the U.S. government, for any government.
But then this other piece of solving the usury problem, that the grace of the Western world have identified, and that, if you want to solve that, then yes, it would be variable. It would effectively be the pricing on, you would basically have a zero interest economy, and then the wealth tax would basically be the price you're willing to accept the loan, at zero interest. So it would be constantly fluctuating, based on people's willingness to borrow …
[00:45:51] Adam Butler: Right. It would be like a discount rate, on like, discount bonds and say, yeah, I gotcha.
[00:45:56] Jordan MacLeod: Yeah, yeah. So yeah, so I mean, it could be either and I don't want to lose - the second is more speculative, and I understand not everybody's going to understand the value in a zero interest economy. I think it's going to be essential for a really viable global framework. But, just knowing that we can solve the physical problem first is really important. And then the second thing I would say is, despite all this talk at BRICS on a new currency, and a basket, and gold and all of these things, they don't want to absorb the cost the U.S. is spending right now, you know?
Like, that's an extraordinary function. They're enjoying the benefits of the current system because the U.S. is there. Basically, everyone's free riding on the U.S., you know, the entire global elite, BRICS countries, we're all sort of enjoying the benefits of what they're paying for. So, I think that it's time to get real about all that, and I have a feeling that the new U S. government's keen to do that.
[00:46:58] Adam Butler: Wow. Let's flip to AI, robotics, automation. Where do you stand on whether AI, automation, robotics is going to profoundly change the nature of labor markets, you know, rapidly put many people out of work, before people can be retrained to do something else that might be useful. And then, how does your way of thinking about funding the government's liabilities play into that scenario, if you feel that that's, if that's possible?
[00:47:47] Jordan MacLeod: Yeah, so, I mean, I agree with the question. I think the way that you're framing that is absolutely correct. And the, you know, my approach to it is that we don't know how things are going to be disruptive. And I think we might not even be able to conceive of how disruptive it's going to be. At some point, there's going to be some inflection point where it becomes, you know, PhD level, and everything at once, or even beyond PhD level, at everything at once. and when you combine that with the operational side of automation and robotics, it's remarkable. It's ridiculous really.
And I think the exciting piece of that is obviously the productivity boom, the creativity, the problem solving, are going to be off the charts. Wealth creation will be off the charts in ways that we can't even imagine. You know, we're starting to see AI bots trading, making companies, is it, I don't know if you saw, what is it, AI 16Z? So, it's like the Andreessen, it's sort of an AI bot. Yeah. So it's basically an AI that's kind of like pretending to be Mark Andreessen, I mean, and going out and making stuff, investing. So it's like, I think it's just off the charts. And so the disruption is for sure, you know, using the ability to use AI to solve problems is going to amplify our abilities, at least by an order of magnitude, maybe two. I think we can't even imagine.
So things in the next 10 years, I expect everything to run extremely smoothly and things to work. I think the disruption in that timeframe is very uncertain and, but highly probable, and I've always believed in a UBI, for two reasons. One, it allows us to solve sort of the unfunded liabilities, you know, I think that social security and uncommitted aspects of the welfare state that really disincentivize work, that have a really negative incentive. I think UBI is relatively better, in the sense that it's the least worst option for, you know, maybe everybody can earn a UBI that's across the board where, so it's not arbitrary. We can all sort of have sort of the basic needs paid for, not something that is luxurious, but basically enough to have shelter and food, just, for survival, and then being able to build on that without any disincentives.
[00:50:19] Adam Butler: Well, why wouldn't it be some fraction of the economic output, you know, so if the economy is growing extremely quickly because of total factor productivity, then, to what extent should the citizens benefit from that growth, I guess, is the question?
[00:50:37] Jordan MacLeod: No, I think you just provided the answer, and I think that's exactly right. And we probably should have done that for the world, the free trade agreements, for basically China entering the WTO, we really should have had that in place in the nineties, I would say, because obviously, there's such a misalignment between the winners and losers, and the losers got nothing. You know, maybe, if they're lucky, they had welfare and no reason to work, which is, has its own problem, set of problems. So, yeah, I mean, that's exactly right.
And the beauty of what you just said is that that really provides a global framework, right, for a level playing field on global trade. You know, if everybody has the same, roughly the equivalent GDP, I'm sorry UBI, based on GDP or global output, on productivity, then you have the same relative floor. So like, you solve that problem where China is suppressing wages and welfare, versus, relative to Germany, for example, so that the cost of production's exponentially lower. You can at least start to have a framework that's automated, just based on a percentage. You, the data feed goes in, it self-adjusts, people get more money, you know, and it's,…
[00:51:54] Adam Butler: If the capital classes are, if the capital owners are benefiting from offshoring and hollowing out the manufacturing base, high paid wages are being siphoned off to China where you're getting the same work done at a fraction of the cost, that's now accruing to the capital account. Then that then gets redistributed because the entire economy is benefiting from that. And therefore those who are losing their jobs to this offshoring are not, it's not totally punitive. They are sharing in the global synergistic outcomes of globalization.
[00:52:43] Jordan MacLeod: Yeah, you're absolutely right. But I think the main thing is that price stability, the ability for every country to anchor prices is what really provides a global framework, a new monetary system, but also for balanced trade. So, that provides a framework for relatively fair competition on trade. And then that's just one aspect of that where even fiscal spending, you know, you can just basically clear out all of these welfare programs across the board, have a UBI, and so you have like, across the board, you have sort of a solution to that problem that's relative equivalent, per the strength of the economy. So, yeah, it doesn't solve the trade imbalance problem, but it does solve an aspect of how to align nations in sort of a new productivity centric economy.
[00:53:35] Adam Butler: Right. I mean, one of the issues that obviously we will face with this is that, as you alluded to earlier, you've got the opportunity for jurisdictional arbitrage, right? You've got the citizens of one country who don't like the tax regime being enforced by that country and therefore they move to someplace that's more tax neutral, or favorable to capital, or however you want to position it. I guess the point you're trying to make is we need to globalize the tax framework in order to allow for the equilibration of trade policy, and make globalization work for everyone.
[00:54:22] Jordan MacLeod: Totally. And that's a really astute observation, but I would say, the U.S. is already looking at. There's already policy makers out there that want to tax, sort of, foreign investment into the U.S. The way the mechanisms work now is, obviously the money returns back to the, U.S. dollars recycled back into the U.S. into financial assets, at the end of the day. And so you want to tack, people were talking about taxing that money coming in. So there's already that incentive. So, imposing a wealth tax in the U.S., you could start it there and you can make it work fairly easily, simply because that money does have to be recycled. into the U.S. already.
And I think, you know, the U.S. has to lead on it, and I, there's no question in my mind, when you talk about a global framework, if it's not led by the U.S., it's going to be a net negative for the world. So, I want to see America solve its problem, upgrade the West, counterbalance the East. And so that's really where we want to see America lead this, and, I would say whatever's in their interest, I would like to see that be the natural evolution of it, versus like, having it happen to, have it be because of, whether it's a debt crisis or whatever it is, I'd much rather see them be on the offensive.
[00:55:48] Adam Butler: Yeah, digital digitization, you know, I think you, you've written a lot about digitization, decentralization. Give us a little bit more detail about that. I mean, are you advocating more for sort of a central bank digital currency, a globally orchestrated government controlled type currency. Are you more of a Bitcoin maxi? What seems like the right, most balanced solution here from a digitization, decentralization standpoint?
[00:56:32] Jordan MacLeod: So I think it's government bonds that has to be the cornerstone, and I think that you want to maximize the strength of demand for bonds, and not arbitrarily, or through stupid rules, but just by simply having a strong, sound economy, with basically the ability to balance the budget, efficient government, and then you're going to have strong demand for bonds. And so that's, to me, the basis for any new monetary regime.
If you have, basically, the ability to main price stability and strong demand for government bonds, you really don't even need a fiat money monetary system. You know, you could have a decentralized currency board. You could have a currency board, with like, this clear rules that you know money is used as a medium of exchange and nothing more, but I don't, like, I'm not sure what I'm saying is, it's a monetary, it's just simply a monetary board, something like the Cayman Islands has a monetary board, based on U.S. dollars. Argentina's adopting U.S. dollars. It's the same idea, it's an indirect monetary board where you basically, the underlying asset would be bonds, and anchored to a price, whether it's CPI or some kind of basket of commodities or whatever, I think sort of, you can have an aggregate real time inflation index when you digitize everything, that I'd like to see, but the idea is that you have, that becomes that, that real time inflation index is essentially the pricing mechanism for money, and the government bond to be the collateral, and you have a decentralized currency board where the asset is redeemable.
So you have a U.S. dollar created with the bond, and it's redeemable. So like, there's really no fiat system where it's M2, and you have to perpetually treat this demand. It can be really a stable system that allows, that would be as I optimizing for allowing any kind of competition. So any kind of decentralized currency, Bitcoin, any of that can compete with, there's no fragility in a currency board. As long as you have fiscal solidity, and basically all these mechanisms that I'm talking about, there's really no reason why we can't have extremely simple, the Federal Reserve could essentially become an automated system and yeah, there would be, there'd be such stability, you wouldn't need to suppress Bitcoin, or the demand for any other competing option.
[00:59:21] Adam Butler: Right, so the currency board, the global currency board would, I guess, the idea is that a government would sell a bond to the currency board, the currency board would then create a unit of currency to buy the bond, and then the currency board would sell the bond into the market. I just, I'm trying to figure out the mechanism.
[00:59:46] Jordan MacLeod: Pretty yeah, pretty much. So, the difference is that with money, you're paying the wealth tax, and with bonds you're not. So the only real use case for money is for, as a medium of exchange in real time, so even that's arguably not even necessary, you know?
So holding, it really comes down to, if there's so much demand for government bonds that you need to hold money, you want to hold money because you don't have any alternative. But, you know, that's essentially the mechanism where you have redeemability. So the minute you don't want to hold the dollar, it’s converted back into a bond, and that can be exchanged for anything else. Like, you have a, you're basically creating a perfect digitized ecosystem where anything can be traded for anything, in real time. We're not talking about a slow system. We're talking about automatic convertibility.
[01:00:42] Adam Butler: No, that's, I think, the missing, or one of the missing pieces for me was, so the bond, holding a bond, the bond doesn't count towards the wealth that's taxed.
[01:00:54] Jordan MacLeod: Correct, that's a liability.
[01:00:56] Adam Butler: But if you hold cash, well, okay. So, but if you're, if you were the one that bought the liability, does that show up on your balance sheet as an asset, and therefore you're taxed on it?
[01:01:14] Jordan MacLeod: It's going to show up as an, you know, under standard accounting principles, it's going to show up as an asset, but you're not going to be taxed on it as a liability. You're basically sending the money from, to the U.S. government, so they'll be taxed. They'll essentially…
[01:01:27] Adam Butler: Okay, what…
[01:01:30] Jordan MacLeod: The dollar, basically the dollars program to absorb the tax, whereas loans are not.
[01:01:36] Adam Butler: And what about the wealth held in like, real estate, or equity markets, or what have you, is that all part of total wealth, and included in that two and a half percent wealth tax?
[01:01:51] Jordan MacLeod: It is.
[01:01:52] Adam Butler: Okay. So really, only government bonds are excluded.
[01:01:56] Jordan MacLeod: Corporate bonds would be excluded as well.
[01:01:58] Adam Butler: Okay. Corporate bonds and…
[01:01:59] Jordan MacLeod: Yeah, you're, the general shift will be towards more emphasis on productivity. It'll be more secure for corporations than it is today, because they're so dependent on fiscal spending. There's so much insecurity at the government, at the corporate level, to grow, and to, the speculative side of things, but also the dependents, you have so many ESG cases where you have to be ESG compliant. Like for example, in the European Union, where, if you want to get bailed out, if you want to get bonds purchased, or supported, or you, there's different mechanisms where corporations are on life support because they're, and they do survive because they're ESG compliant.
So, there's an entire ecosystem that's totally unsustainable right now. And I think that this will provide a more robust architecture for business debt, but also for the kind of, sort of the continuance and the certainty of demand to be there, because when you have, you know, you're going to have less boom and bust cycles when you have this total shift towards the real economy. You're not going to see this massive spikes in digital, and in the value of assets, that we're seeing now, I would hope. Yeah, I would hope that it's much more based on use than it is on speculation.
[01:03:19] Adam Butler: From your lips to God's ears, I guess. So, what would be the first signs that you would be looking for, that decision makers were beginning to move in some of these directions.
[01:03:34] Jordan MacLeod: Okay Streamlining the taxation I think. If you begin to get serious about balancing the budget, that's when you know you're starting to get serious about the monetary, because the Federal Reserve is simply responding to the conditions of Treasury, fiscal spending, lawmakers, global economic conditions. There's, the independence that they have is the independence of their model. It's not really the independence of doing whatever they want. You know, they have a model. They basically input all these other decisions that are made elsewhere into their model, and have almost a, you, it's almost an automatic, you people think of it as arbitrary. Like, I'll wake up today and it's going to be an interest rate rise or not.
And to some degree that's true, in terms of timing. But the overall framework is extremely non-arbitrary and, thank God for that, that we wouldn't be this far, if it wasn't a lot of smart people working on that. So, that would be my, it's not the Federal Reserve, I think, that's part of this, like, they're more downstream in my opinion. I think it's more everything else. When we see Treasury and the policymakers actually getting serious about fiscal reform, unfunded liabilities, and supporting digital assets, we'll know that there's sort of the shift away from the big spending Keynesian model, which, you know, the Paul Krugman's and the, some of these guys, that you think everything's going great. So, we have to unplug the economy at some point. We just can't keep spending.
So like, you know, we have to figure that out. And I think we have a pretty decent chance with Elon going in. I'm hoping he sees this to some degree and, you know, we'll go from there.
[01:05:25] Adam Butler: Great. What are you working on at the moment? What's your current project?
[01:05:31] Jordan MacLeod: Well, I'm working on basically how to, what we're talking about, how to create a protocol that's basically a Friedman, Milton Friedman type set of rule sets. Like, this is what happens under certain conditions, and how to create something that is pretty much automatic and neutral, and it would be acceptable across, different countries could find that acceptable. So I'm starting to think on that in terms of an open source protocol that could run on Ethereum. And then, just working on a private instance of artificial intelligence so that users can own their own data, and sort of a user-centric version of that. And working on another book, but you know, that's sort of a secondary at this point. I would think it's great to have this conversation and it's really, really enjoyed it.
[01:06:26] Adam Butler: Yeah, me too. Are there any influential decision makers that have been paying attention to, some of these proposals, or are you seeing any publications that matter, publishing on some of these ideas?
[01:06:44] Jordan MacLeod: Well, I mean, look at Basant. I'm not sure it's official if he's been selected yet, or if he's still, if it's still, is it official that he's…
[01:06:51] Adam Butler: I don't know, but I certainly know it's been discussed. Yeah.
[01:06:54] Jordan MacLeod: He's been floated, and you know, he, I mean in the, in June I think it was, he was interviewed, and said that he really thought it was time for a new monetary regime, and he wanted to be a part of that. So he was sort of moving in that direction months ago, if Trump had, was to win. And I think, when you start to think about if people are getting serious and talking about a new regime, a new monetary system, there's only so many ways that you can make that work. Otherwise it's just some, it's just the next U.S.. Does China really want to do this again? We're a speculative economy, but they financialize the world instead. You know, I don't think that really is what they want to do.
So I think there's, I already think that the conditions are there for a shift towards the real economy, and towards a more stable economy to handle the singularity, to handle the explosion of AI that we're about to face. So, yeah, I mean, I think the signs are there. I think monetary, you know, monetary experts have been looking at some of these problems, and they're looking to innovate on the blockchain. And so I, that tells me digital assets, that tells me they're innovating again.
I think unless you're big, big Keynesian, you know, MMT, and think that inflating your way out of this is the answer, then I think you're looking at innovation, and to me, I'm seeing a lot of people doing that.
[01:08:27] Adam Butler: Yeah. I mean, I also have been digging into Scott Besson's policy descriptions, I guess, his publications and his appearances. And yeah, he does, he seems to have an interesting approach. He definitely strikes me as, if I had a sort of, you classify him as in a school, he would be sort of Reaganomics. Certainly a very strong proponent of supply side policies. I don't know that I would characterize what he's describing as reform. I think of an, there's a lot of tariffs, and lowering taxes for corporations, lowering taxes for the wealthy, cutting spending, so we'll see. I think I'm much more of the view that we need a complete reconceptualization.
It's like, what we're realizing is that the incentives are now almost all perverse. And so you've got to keep adding degrees of freedom to the model to kind of plug the holes and keep the things spinning, but in reality, what you need is to rethink the entire model to align it with, to align incentives with what we want from the economy, and from government, and establish a completely new social contract with the private sector.
[01:10:06] Jordan MacLeod: Totally agree. And, you know, the other thing, like, look at Judy Schell's nomination to the Fed. I mean, she is, she just wrote a book about price stable money. So, that's a huge sign, the fact that that was Trump's pick last time around, that she's been considered again this time, that tells me that he's interested in that direction. He wouldn't be saying, he wouldn't be thinking that unless he and others were thinking that way. I think it's pretty clear to me that they, China pretty much said it in 2010, to end the speculative bubble of the financial system, price stable money, you know, they called for a new Bretton Woods, a new Bancorp system. You basically, they saw the Keynesian Bancorp system as a missed opportunity to have a sort of a clearing to balance trade.
So I think it's already in motion in some ways. And it's more for me right now, you know, how do we get ahead of it? How do we lead it rather than be reacting to it, and so I think, yeah, I think that that's the essence of what this discussion hopefully is.
[01:11:14] Adam Butler: Yeah. Well, where can people find you? Where can they find your work and where can they find you online?
[01:11:22] Jordan MacLeod: New Currency on Amazon, bookstores, and also Newcurrency is my handle at on X as well. You can find me there.
[01:11:32] Adam Butler: Great. All right. Well, listen, thank you very much for coming on and sharing these, I think, relatively novel points of view on a way out of this quagmire that we, I think, are all coming to the fast realization that we are all facing, or that we've all become entrenched in. And I look forward to seeing some of the ideas that you've been promulgating come to light and be…
[01:11:59] Jordan MacLeod: Adam. Definitely appreciate it. Great conversation. Thank you.
[01:12:04] Adam Butler: Thank you.
[01:12:05] Rodrigo Gordillo: I did want to take a quick second to remind our listeners that the team works really hard on these podcasts. We spend a lot of hours trying to get the right guests and we do a lot of prep work to make sure that we're asking the right questions. So if you do have a second, just do hit that Subscribe button, hit that Like button, and Share with friends if you find what we're doing useful.