Founders' Review Editorial

Link of the day
CNBC article on temporary space and storage solutions. Here.

Link of the day
Annual stress tests. Here.

Link of the day
Bureau of Transportation Statistics FLOW website of logistics. Here.

Link of the day
All About Circuits forum thread on building a programming language. Here.

Link of the day
Nand2Tetris course website. Here.

Link of the day
The Cooldown guide. Here.

Social variables, much like physical phenomena, adhere to the principles of variance. Borrowing from physics, we can view the sum of variances as constant, similar to the conservation of energy.

This perspective allows us to tackle issues systematically, starting with those exhibiting high variance.

It's crucial to understand the issues we can neither explain nor control.

We've observed that behavioral patterns can be used to group individuals. For instance, we've identified correlations between wealth and frugality, and between high incomes with high spending and those with recurring incomes.

We've demonstrated that the driving forces behind the economy are rational, following Kirchhoff's laws in terms of money and demand. Furthermore, low budgets, high risks, and high rates often correlate with high inflation and irrational, erratic decision-making. Conversely, rational decisions tend to build recurring revenues.

Different life stages - studying, raising children, disability, retirement - reflect these behavioral patterns and are heavily influenced by monetary policies.

We define money as a tool to defer consumption. Any other motivations should be viewed as attempts to manipulate this system. Monetary policy also facilitates the establishment of discipline beyond the monetary system, enabling the creation of companies with around 40 employees and dependents, a scale necessary for certain products.

The traditional economy comprises businesses with highly recurring incomes. These industries often train their workforce in Ivy League and similar institutions. Artificial securities, like certifications and licenses, help secure revenue from education in exchange for job security. These groups tend to perpetuate the existing economic structure.

Growth is fueled by either newly printed money or newly raised debt. This can come from sources like gold or Bitcoin mining, or debt issued by banks at the federal funds rate.

Newly issued debt creates highly competitive businesses with minimal cash flows, resulting in near-zero valuations compared to traditional businesses. However, differentiation and recurring revenues can generate earnings, leading to significant company valuations for the founders.

As a result, traditional economies don't fear debt-driven growth. Some traditional businesses, such as cloud providers, even thrive on newly issued bonds.

However, growth cannot occur without new money, either printed or borrowed from abroad, like oil money. The Basel standards regulate this ratio, ensuring that traditional banks remain liquid and are not hampered by new debt. These standards limit the amount of new money raised and lent.

Network effects essentially involve a good product that a minimum viable circle of people can discuss and find valuable enough to use. This is how new economic circles are formed. Networks often help sell good products cheaply. Companies must invest significantly in product development and branding upfront for networks to be effective.

A viable startup finds ways to break barriers and establish minimum viable circles. They encourage customers to try and use the product, often for free. Substantial investment in these businesses can lead to monopolies, starving out competitors. The extra profits can then be used to repay the initial funding. Such products are often software, where networks multiply themselves like blueprints in factories.

Research can be generated through random trials. However, real-world data is often more valuable for research than randomized controlled trials. The data itself reveals genuine interest in problems that need solving. Artificial problems arising from randomized controlled trials can distort the effects of other research.

Once a pattern is found that can improve an economic circle, momentum can replicate the process to address other issues, similar to how artificial intelligence or evolution works.

The wealth of nations is built from random variables. The strongest economic circles are driven by money flow, with any excess supplemented by government subsidies or philanthropy. Hierarchy, discipline, and limited information sharing are often side effects of reduced money in the system during times of quantitative tightening.

Psychology and non-monetary compensation, like titles, intimidation, and benefits, are used to maintain discipline and support larger company sizes. Growth and welfare are driven by clear accounting and monetary compensation. The consequences of these policies continue to divide societies today.

Some monetary compensation leads to increased supply, lower prices, and enhanced trade in expanding market regions. Non-monetary compensation, such as promises, secrets, and titles, introduces risks that can eventually reduce production and increase inequality. These factors can lead to downturns, recessions, and even wars.

The state protects essential services as rights. These services become universal, and universal services become essential and expected, with citizens exchanging their votes for these guarantees.

Our conclusion is that universal government services coexist with voting rights that ensure them, regardless of monetary compensation. Essentials like food, healthcare, and shelter are secured by the state through regulations, monetary policies, or fiscal taxes and subsidies.

Tariffs become a tool for states to safeguard essential services by protecting higher-risk local industries, making risky foreign supply more expensive for locals.

Any non-universal services create systemic inequality, leading to voter rejection. Ultimately, subsidies benefiting a small group will trigger a change in government.

The majority will vote to maintain the universality of essential services, inherently limiting government spending that benefits only a few.

Voting, therefore, becomes a defining characteristic of statehood.

Economic circles maintain value creation by adhering to Kirchhoff's laws in cash flows and demand.

Free markets mitigate risks through information sharing. They diversify and move money to where it sustains growth. Money spent on non-recurring industries will eventually be starved out and eliminated.

Monetary policy is like a soccer team. The central bank, acting as the goalkeeper, keeps the ball in play on the side that scores more. The other side can be brought into the game through training, providing more balls so the entire team can practice.

We caution that non-monetary games can harm the economy. Racing, inequality, Ponzi schemes, monopolies, oligopolies, and sabotage all increase risks and disrupt existing economies.

These risky games drain money from the system, reducing the debt available for growth. This can lead to currency devaluation, as there are fewer assets, dividends, or products backing foreign money compared to the previous period.

Group politics eliminates edges from the graph of a free market. Reduced supply eventually leads to higher prices. Such apartheid-like economies will eventually suffer from reduced activity and market efficiency.

Our conclusion is that better information sharing, diversified debt issuance, and education are beneficial to free markets and the overall economy.