The Velocity of Value

[Quick Opening Note: I realize some of my discussions are interdisciplinary and, as I mention in the body of this post, I go on tangents when I feel they are worthwhile in providing some helpful context. However, I try to keep these posts as short and fluid as possible, so please note that I link to as many explanations, definitions, and/or related articles when necessary if certain issues don’t seem obvious.

For instance, I realize many folks are not familiar with the definitions or viewpoints regarding MV=PQ and, hence, I linked it up to some useful explanations.  If you ever have a question, don’t hesitate to contact me and I’d be happy to discuss any related issue in more depth – thx, Jon]

So, apparently, some people aren’t pleased with recent privacy issues (a lack thereof) regarding Bloomberg terminals.  I believe @CNBC‘s @santellirants and @jimcramer commented this morning that these days no one should probably expect anything on a computer to be private, which may be a reasonable assumption (for better or worse), but it still provides an opportunity to discuss an important general issue.

Bear with me for a second as I go on a brief tangent, I’ll get back to the Bloomberg example pretty quickly.  Some folks feel that Federal Reserve programs such as its zero interest rate policy (ZIRP) and quantitative easing (QE) are not problematic. (link is to a fascinating piece by the brilliant @mark_dow)

Because of the famous economic equation MV = PQ, as long as V (velocity) is low, concerns that expansionary monetary policy might lead to inflation are not a concern to some people.

The Fed might prefer for the velocity of money to increase because it would potentially indicate an increase in economic activity.  For instance, one of @twitter and @stocktwits‘ finest, @thearmotrader recently wrote an interesting piece about how monetary policy could be utilized to be transmitted to all Americans, rather than banks, in hopes of stimulating the economy.  I agree with some of what he is saying, as exemplified in my tax proposal which I believe also serves as a fortuitous fiscal stimulus.

As I discussed recently, unfortunately value and money are not converging as much as they should in theory, but it is important to understand (as I mention in that post) that they should be correlated.

Here, there may be a case of putting the cart before the horse, which may be leading to the low velocity problem.  I realize there are more issues stifling velocity than just what I’m positing in this post, but I think the issue I’m raising is an important and understated one.

In order for money to get moving, creating value isn’t a bad start.  Yes, money chases performance but that is, perhaps, a shorter-term phenomenon.  In the longer run, value creation helps ensure there is money available to all for societal prosperity.

So from where could this value creation arise? Ahh…back to the original issue that led me to write this post about the Bloomberg privacy concerns: idea generation.

We live in a more intellectually capital-based society today, rather than past centuries where humans did more manual labor-intensive work than is necessary now.  Many have posited that this possibility is due to technology: here is a great link to a brief discussion from this morning with $OAK’s Howard Marks about many issues including the potential current natural rate of unemployment, how technology affects it, and how monetary policy may not be successful by itself to get us to the Fed’s desired target.

If we want the idea generation necessary for value creation in an intellectual capital-based society then a crucial issue is the freedom of speech between folks.  I don’t think I’m saying anything controversial by positing that people are more likely to share their ideas with others if they have some privacy when desired.

Perhaps I am wrong though.  I’ve heard it posited that no one should ever do anything that one wouldn’t want on the front of the newspapers.

However, “saying” and “doing” are two different things.  It would seem reasonable that people should be able to discuss private issues with close friends and family.  Perhaps some might say that the occasional private conversation with a family member or close friend could help one relieve some of the inherent stress that inevitably arises over the course of one’s life. (Catharsis?)

So, the next time someone expresses concern about the velocity of money being too low to get the economy moving, maybe those folks might want to consider contemplating two issues that seem to have meant more in previous centuries than they do today: freedom of speech and privacy.

I realize that the landscape for national security has also changed drastically over the past centuries, in particular recently as one of the potentially negative side effects of technology and globalization.

I was fortunate to learn from an expert regarding general issues on national security, as well as its intertwining with the media.  On balance, I still believe there is a place for the 1st and 4th amendments (focusing on freedom of speech and privacy) in our society.

Technology is a powerful thing.  But, as a superhero was once told, with great power comes great responsibility

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