197. Principles of Economics: Interview with Jimmy Song
Nov 28, 2023
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Blockchain developer and Bitcoin educator Jimmy Song discusses scarcity, human action, the importance of energy in economics, and how unemployment is a fiat phenomenon.
Unemployment is a result of fiat currency, inflation, and the business cycle causing concentration of economic activity in specific sectors, leading to layoffs and unemployment.
Value is subjective and varies from person to person, individual needs and preferences should be considered over market prices for determining the value of a good.
Government interventions like minimum wage laws exacerbate unemployment, making it difficult for people with lower productivity levels to find employment and gain valuable experience.
Deep dives
Unemployment and the 20th Century
Unemployment as an economic term did not exist before the 20th century and became a major issue with the introduction of fiat currency. Inflation and the business cycle created by fiat money lead to artificial booms and subsequent crashes, resulting in a concentration of economic activity in specific sectors. This concentration causes a large number of businesses to go under or lay off workers, leading to unemployment. Additionally, rising prices due to inflation prompt workers to demand higher wages, which businesses often cannot afford. The combination of the business cycle, inflation, and minimum wage laws further exacerbates unemployment.
The Concept of Value and Individual Preferences
Value is a subjective phenomenon that cannot be measured in standardized units. It is a conscious experience in our minds and varies from person to person. While some people may rely on market prices to determine the value of a good, it is important to understand that personal valuations can differ. Individuals should consider their own needs and preferences when determining the value of a good, rather than relying solely on market prices or societal norms.
The Role of Money and Future Discounting
One factor that influences how people perceive value is the nature of money itself. A reliable and stable form of money that holds its value over time allows individuals to plan for the future and prioritize long-term goals. However, with fiat currency and inflation eroding the value of money, individuals may be more inclined to prioritize immediate consumption rather than saving for the future. The lack of a reliable monetary system can lead to a high time preference, where individuals prioritize present needs and immediate gratification over long-term planning.
Unemployment and the Role of Minimum Wage
Unemployment is often exacerbated by government interventions such as minimum wage laws. When wages are artificially raised by minimum wage regulations, employers may struggle to afford the increased labor costs. This can lead to job cuts or a reluctance to hire new workers, resulting in higher unemployment rates. These interventions, coupled with inflation and the business cycle, create a challenging environment for both workers and businesses, contributing to the issue of unemployment.
The impact of minimum wage on employability
Minimum wage can make it difficult for people with lower productivity levels to find employment, leading to long-term unemployment and decreased employability. The necessity of gaining work experience to increase productivity is hindered by the minimum wage, as entry-level jobs often do not offer high pay. This can affect various professions such as doctors, engineers, and lawyers, as the initial stages of their careers may involve low wages or even unpaid work. The minimum wage prevents individuals from gaining valuable experience and ultimately limits their potential for higher-paying positions.
The significance of saving and capital in economics
Capital is not simply a privilege possessed by a select few, but a result of sacrificing current consumption for future productivity and investment. The cost of capital is often overlooked, as it requires individuals to forego immediate gratification and invest their resources in productive assets instead. This concept challenges the notion that some individuals are inherently endowed with capital, revealing that anyone can accumulate capital through saving and investment. Understanding the importance and value of capital can empower individuals to make informed economic decisions and contribute to productivity growth and industrialization. Saving and capital formation should be recognized as critical factors for economic development and progress.
We discussed the idea of scarcity, the only real restriction to production being human time, the reason why human action is so important and the ridiculousness of simplifying human beings so they are assumed to act the same. We also talked about the reason why energy is such an important part of economic life and how unemployment is really a fiat phenomenon.
Enjoyed this episode? Join Saifedean's online learning platform to take part in weekly podcast seminars, access Saifedean’s four online economics courses, and read his writing, including his new book, Principles of Economics! Find out more on saifedean.com!
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