When Albert Einstein first published his paper on ‘special relativity’ in 1905, the world didn’t like it.
In fact, most people laughed at him.
As reported in JSTOR Daily:
‘In France, Einstein was largely ignored until he visited in 1910. In the U.S., a few understood it, but, in general, relativity was ridiculed as “totally impractical and absurd.”’
But even when the intelligentsia of the day gradually realised the truth of Einstein’s discovery, large swathes of the public remained unconvinced.
A fact that bemused Einstein.
‘This world is a strange madhouse,’ he wrote in a letter to a close friend. ‘Every coachman and every waiter is debating whether relativity is correct.’
A book was even published in 1931 — One Hundred Authors Against Einstein — which was filled with criticisms from armchair philosophers, academic cranks, and other opinionated ignoramuses.
But as Einstein said when the book came out:
‘It would not have required one hundred authors to prove me wrong; one would have been enough.’
And this is the key point…
Nothing is certain, least of all expert opinion
We live in a world where too many people are certain of their opinions.
However, the fact is most people aren’t qualified to give an opinion on most subjects.
And yet, ask your neighbour what they think about COVID, climate change, the Russia-Ukraine conflict, the viability of quantum physics, the economy, bike lanes (!), or any other topic, and they’ll most likely give you a strongly held opinion.
But it gets worse…
Never mind your neighbour, a study in 2003 showed most experts aren’t very good at passing accurate judgements either!
‘Highly knowledgeable people often fail to achieve highly accurate judgments, a phenomenon sometimes called the ‘‘process-performance paradox.”’
So you could ask your neighbour what they think the Aussie dollar would be worth in a month’s time, and their answer would have as good a chance of being right as an FX expert.
But this is why I love investing.
With investing, you can have any opinion you want, but at the end of the day, the truth of the matter will show up in your account balance.
No matter who you are, what firm you work for, or what university you went to (if any).
When you get it wrong, there are no excuses; only some feature of reality you failed to consider.
And yet, the investing industry remains filled with useless opinions, just as most things are in life.
Now, most opinions are harmless if you take them as someone’s best guess and not an iron-clad guarantee.
Indeed, seeing how someone came to a specific conclusion can provide you with good information you can use to weigh up against your own judgements.
But there’s one area of life where opinions have major consequences for economies, markets, and ultimately people.
And that’s public policy…
The two main players in public policy are governments (spending and taxation decisions) and central banks (monetary tools like interest rates and the creation of money).
It’s in these places that opinions shape markets.
But what if these institutions have the wrong opinions?
This is the big problem we face today…
The big question I’m posing today could be summarised like this:
‘What are the consequences if the chasm between what public officials think is reality and what is actual reality has grown too large?’
A fairly esoteric question, you might think, for a free daily email on markets!
But it’s probably one of the most important topics we’ve all got to contend with as investors.
Central bankers thought inflation was transitory.
And now we’ve consequences like this rippling through the world:
Source: Market Watch
On energy policy, German politicians thought Russia was a stable partner.
And now they’ve consequences like this to deal with coming into winter:
Source: Martin Wheatcroft FCA
And as my colleague Ryan Clarkson-Ledward pointed out on Friday, we have officials in the US trying to tell us that two-quarters of negative growth isn’t a recession and that the economy is ‘going strong’.
This chart shows actual real wages growth right now:
Source: Australia Institute
We’re all copping a pay cut in real terms.
That’s the chart for Australia, but the same story is happening around the world. And the poorer you are, or your country is, the worse it is.
So why are we listening to the same people who helped create this mess?
Why have none of them fallen on their swords at the very least?
And why do they still have so much power?
No matter how well-meaning their intentions might be (and a lot of people would argue they aren’t), their theories on how the world works are clearly wrong.
So what can we do about it?
Take back control over money
Money is at the centre of this.
When money has no value, when it can be arbitrarily created or destroyed at will by people with power, their mistakes become our mistakes.
Therefore, the first step to solving our situation (or at least mitigating it for the future) is to take back control over money.
Indeed, the founding fathers of the US were as anti-big bank as they come.
Thomas Jefferson once wrote:
‘I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.’
He also wrote:
‘Stock dealers and banking companies, by the aid of a paper system, are enriching themselves to the ruin of our country, and swaying the government by their possession of the printing presses, which their wealth commands and by any other means, not always honourable to the character of our countrymen.’
It’s a story as old as time.
Give a select few people immense power over money, and eventually, corrupt and/or incompetent people will take charge.
Which is bad for the rest of us.
So how do you combat it?
You have two options.
Buy gold or buy Bitcoin [BTC].
Maybe a bit of both…
Both forms of money take away power from bureaucrats and politicians whose ignorance or incompetence are leading our economy down a dangerous route through their misallocation of ‘fake’ money.
Do they solve all our problems today?
But it’s an important start.
And it sets us up for a brighter future by allowing ‘sound’ money and free markets to direct the economy better than centralised bureaucrats.
As economist Dr Saifedean Ammous wrote in The Bitcoin Standard:
‘The relative stability of sound money, for which it is selected by the market, allows for the operation of a free market through price discovery and individual decision making.
‘Unsound money, whose supply is centrally planned, cannot allow for the emergence of accurate price signals, because it is by its very nature controlled. Through centuries of price controls, central planners have tried to find the elusive best price to achieve the goals they wanted, to no avail.’
As Einstein said, falsifying a theory only takes one valid criticism.
Our current system of money has been disproven many times over. It’s only a matter of time before people realise it must change.
What comes next for money is the big financial question of our time…
Editor, Money Morning