A time of transition that started in 1971

Yesterday my mum asked me why I thought everything was changing so much, why people were voting so extreme all over the world.

My answer was the reason was something that started in 1971 and only now are we realising the impact of this. This, combined with the invention of the internet.

1. The gold standard: 1971

What happened in 1971? Nixon abandoned the gold standard, meaning you could no longer exchange your dollars for gold at a fixed rate. The impact of this in the long term has been beyond what anybody in that time would have foreseen. I recently read a book (in Dutch) where the man who devised this plan, former Fed chairman Paul Volcker admitted as much. To put this in perspective, this is the FED interest rate.

And now look at the fed rate since 1980, we know such a move usually takes several years for big organizations to fully grasp. It's a downward trend all the way, with incidental hick ups, that ends at zero. Basically making money free. (We're currently in a hick up, the rates will drop to 0 or below even, making money worthless).

The reason this is a problem is because our system, economically and politically, is build with money being scarce, and hence valuable, in mind. With money losing it's value, as it's more a commodity then a valuable product, the economic system needs to change. And for an entire system to change, a transition is needed and transitions are never easy.

Just to give you an idea, in the Eurozone in 1980 we had about 1.000 billion euro's, now we have 10.000 billion, that's 10 times as much money floating around. The reason for this is simple. A bank can create money out of thin air, as they need about 10% buffer. So for every 10.000 euro's on your savings account they can lend out 100.000 euro's. So now they lend 100.000 euro's to you and you buy car (or machine if you're an entrepreneur) from that. Your supplier now has 100.000 euro's in their account, so the bank can now lend out 1.000.000 euro's as they need a 10% buffer. This is a simplified format, but it is the way we got to 10 fold the amount of money in our economy in basically 40 years (before we needed to find gold to increase money and that made money scarce).

So what started in 1971 is the fact money isn't as valuable anymore as it's just not scarce. But the old systems are still build on money being scarce. 2/3 of your pension (if you have a pension like we have in the Netherlands, that you saved for) needs to be capital gains. As money is losing it's value, it's harder to make money with just money, but the old system demanded a certain ROI, so financial engineering, short term gains, private equity that sucked companies dry started being introduced into the world. Many people protested, remember occupy wall street? Most never realised it was their own money that funded much of the 'bad behaviour' in order to pay them promises they demanded to be met, like guaranteed pensions.

Now if money loses it's value, why are the rich getting richer? Well, because the current economic system still gives it high value in many cases. It's the same with gold. It has no value, you cannot eat it, it has very limited value in products, tanks of guns made of steel and rockets made of titanium are much better products, yet we give it value because it's gold. Because it was scarce and the Kings and Queens of old valued it. But there's the difference: gold still is scarce, while money lost that aspect. Only if we start treating it like corn, water or soy beans, not worthless, but a commodity we start valuing it appropriately.

2. The internet

The second thing that happened was of course the invention and adoption of the internet. This is such a revolutionising technology, comparable with the steam engine late 1800's. The steam engine changed the world of work just like the internet has. Have you seen bank tellers lately? When was the last time you visited a travel agent to book a trip? And would you be able to do you job without e-mail? And remember where you are reading this article... The internet is everywhere. And just like the steam engine, that made electricity so cheap everybody could afford a tv, something new came on the scene: mass media. The Berlin olympics in 1936 is seen as the first big media broadcast, by a certain German leader that would manipulate this new medium that the world was figuring out on how to manage into believing in his superiority. Let's never forget he was elected democratically by, among other things, talking about the 'lügen presse', the lying media or fake news. Replace mass media with social media and I think you can name a few leaders that are able to master those better, while the world is still figuring out how to deal with them and have been elected.

The internet has changed the way we work, has increased globalisation enormously, has given opportunity to new forms of media and AI, as without the internet, AI would have never had enough data to train on. Platforms and platform work is here to stay, but the old models of working, paying for social services and having social security isn't build on the old model. Actually, in the Netherlands we still have systems, like our pensions, that are build on the fact you work for the same employer your entire life and if that's not the case at least in the same sector. The system isn't even build on the labor market of the last 3 decades, let alone the labor market where you have multiple jobs, platform work and things like that.

3. Unilateral world

And then there is the global change. For the past 70 years, ever sinds Betton Woods where the IMF and the World Bank were founded, we basically lived in a world where the USA decided who was allowed to do what, Europe was strong and flourishing, but always followed suit, and the rest didn't matter. Especially after the Sovjet Union collapsed. Right now China is the second biggest economy in the world, India is the country with the biggest population and quickly catching up and Africa is the only continent that's still growing in population. And let's not forget what Thomas Piketty showed us: growth comes as much from population growth as it does from productivity.

These peoples have a different view on the world. Power structures are changing and China's Belt and Road initiative is has shifted a lot of influence to the east. Usually changes in world power comes with a massive war, let's hope this time we can contain that and the war is only fought on the capital markets.

Money and technology

The fact money has lost it's value means we're moving from the age of scarcity to the age of talent, as talent is still scarce. This combined with the internet is one of the reasons there is so much turmoil.

And as `i said before: the 1% is becoming richer and the rest poorer. But that's only because while money isn't as valuable anymore, we're still working on an old economic model where it is. It's the people who refute and refuse change that are making this happen. We cannot go back to how it was, but more and more people are voting conservative as they don't know what will happen otherwise. And neither do I, but I know that we will need to change to adjust to the new world.

Just as the luddites were fighting the factories because their talent became much less valuable, we now see a middle class seeing the value of their skills in decline. We're seeing people many have looked down at (painters, electricians, plumbers) having skills more in demand than the cashier, bookkeeper or insurance agent. The value of skills are changing and many that felt safe, now aren't.

The nature of work is changing too. Let's not forget that working on a payrol, with a fixed monthly income, is weird thing in history of mankind. For many centuries only royalty and religious institutions had people on a fixed income working for them, soldiers, servants, priests and so on. Only the organisations with close to unlimited power to increase their income (the rules of the world) would give someone a job for life, while all the others basically were labor for hire as you never knew if you had work the next day. With the speed of change and the way the internet and platforms are changing work, we will have to reconsider our work relationships.

Conclusion

Combine the changing environment (and I'm not even talking about nature, global warming and things like that here) in your own surroundings with the global changed and you have a recipe for the current turmoil.

People see the world has changed and because the structured haven't changed, it's become unfair. The rich get richer as we still treat money as something scarce while it isn't. But those that understand this don't have an interest in changing it and those that have an interest in changing it most often (at least not in masses) don't even understand how the current system works, let alone what to vote for in a new model.

People see the world changing and know it's not the change they want. So they vote for people who say they can bring it back to the past. Often picking on the weakest in society, picking on a minority, blaming a small group.

This all stems from fear. Fear of the change that is inevitable, but fearing what that change will bring.