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Friday, June 26, 2009

“That’s Crazy Talk!”: The Very Special Subfield of Schizonomics

Schizonomics is neither an original term that I can take credit for coining nor, on the other hand, a term that has any particular established meaning. A Google search on the word today produced a little over 200 hits, with usages spanning a variety of contexts and meanings.

As I use it, it’s a term that popped into my mind as being especially descriptive of a particular category of lay economic theories — one could perhaps describe them as “folk theories — that lie outside the accepted mainstream of basic beliefs about how the world’s systems of money, banking, finance, and business work, and that involve some form of conspiratorial, paranoid, or otherwise fringy thinking.

Schizonomics, in other words, could be used to describe theories such as the one that holds that the U.S. Federal Reserve system is controlled by and acts in the interests of a secretive group of unimaginably rich private financiers, or that the economies of the world’s nations are driven by some mysterious international cabal who have sinister agendas and perhaps even bow down before the powers and principalities of darkness.

The biggest sticking-point about such theories is that they are virtually impossible to prove or disprove by any conventional, empirically acceptable means that would be based on authoritative evidence or logical principles. Conclusively debunking such theories essentially imposes on the observer the burden of “proving a negative.” In other words, if you ask me to prove that winged purple elephants with pink polka dots do not exist, I would never be able to do so. And I am no more able to prove that the Federal Reserve and other bodies of the global financial and economic system are not controlled by evil, conspiratorial cabals.

Scientists and philosophers are fond of labeling such propositions as “null questions.” This on the one hand is useful for framing what is productive for discussion versus what is not. However, I believe that labeling some propositions as null is sometimes also used for purposes of convenience, face saving, or political gain, as a means of evading questions that may pose challenges and threats to basic scientific or epistemological assumptions that may have in fact not been proven beyond all doubt yet are fundamental to a given field of inquiry.

What brought me recently to the subject of schizonomics was an odd conversation that I had the other day with a fellow in a store. The conversation started innocently enough, centering on different types of smart-phones and handheld devices. But somehow the subject crept in the direction of business and politics.

To make a long story short, it ended with the gentleman asserting that a little known fact is that there are individuals in this world who are worth not only multiple billions, but multiple trillions and quadrillions, and that it is those in that group who are steering current economic events and controlling major institutions like the Fed. He said that Bill Gates is a peasant compared to this mysterious group of the super wealthy.

An important qualifier here is that I cannot recall, for certain, that he was referring to billions and quadrillions of U.S. dollars. There are certainly trillionaires and quadrillionaries in certain hyperinflated foreign countries, but some of those same countries have minimum wage levels in the billons while the average worker doesn’t earn enough in a month to buy a loaf of bread.

But in the context of the discussion, it seems likely that he was referring to wealth in U.S. dollars. And the proposition that there are individual secret trillionaires and quadrillionaires with fortunes in U.S. dollars is one of those questions we might label as null due to its virtual impossibility of proof or disproof.

The gentleman also talked about interest rates on the U.S. national debt, claiming, for example, that the Reagan administration paid 24 percent interest on federal budget deficits. This may in fact have, at least at some point, been true, given the extraordinarily high interest rates in the U.S. during the late 1970s and early 1980s. But interest rates returned to much lower levels, and rates on bonds issued by governments can fluctuate substantially. This is normal and is no secret.

He then went on to talk about truths he’d discovered recently about how individual investors can generate wealth at surprising rates by taking advantage of “the magic of compound interest” and lending to governments. This leads to the likely conclusion that he was involved in or trying to sell a government bond arbitrage scheme, with some cultish, paranoid background elements thrown in for marketing purposes.

Is it possible to get rich quick through such means as bond arbitrage schemes? Maybe. For any given system, there is almost always a way to game it. That’s exactly what happened with subprime mortgages and credit default swaps and, for that matter, with Internet stocks.

But the problem is that when too many people, with or without a schizonomical element, start gaming a system, the system eventually collapses. Someone ends up being the last to enter the pyramid scheme and loses their shirt.

So was this dude in the store a Very Special schizoeconomist, or just a sharp operator with a clever way to sell some slick investment scheme? Or did he perhaps even have some kind of legitimate and profitable investment strategy to promote?

My answer is that I don’t think I even want to go there. To me, those questions are in the same category as asking me to prove that the Fed isn’t run by a conspiratorial cabal. Sphere: Related Content

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