Talk:Stable coin governance

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Craig Calcaterra (talk) 04:26, 27 March 2023 (CDT)

Resources

• Understanding monetary policy
  • federal funds rate

https://www.investopedia.com/terms/f/federalfundsrate.asp

Craig Calcaterra (talk) 11:36, 3 April 2023 (CDT)

Interest rates & Inflation & Spoilage

Interest rates and inflation are crucial concepts for governing a stable coin. The peg of a stable coin has to be decided in terms of a CPI and a target for inflation.

I think of them as friction in the economy—corruption, what is lost due to spoilage.

So the interest rates should go down in stable times when the world is correctly producing for the demand. Interest rates should be low when the economy is efficient.

However, interest rates are not just a matter of how well industry gets our products to us. It is also a matter of how well governance is working. So if we are wasting our productive capacity on war, then the absolute meaning of money should be somewhat diminished as spoilage is greater.

Spoilage includes all the non-productive aspects of the economy, including overhead such as policing, legislation, & judicial activity; news media reporting, entertainment, & education. Baldly saying, “education is spoilage” tends to be provocative and offensive in the wrong atmosphere. But from an abstract point of view, here is what I mean: When someone dies, their education is spoiled. Their life’s work in educating themselves is lost. Then society needs to re-educate a new person—a child—to replace the dead person. This is wasted effort compared with the case if people were immortal, which is one of the advantages of AI over humans. I put education in the economic category of spoilage with respect to the gross domestic product.

The gauge for measuring spoilage is necessary to set. Spoilage is relative to some measure of equilibrium production. In general, energy is the best measure of spoilage. How much energy is wasted? To answer this we must decide what "wasted" means, since we live under the law of conservation of energy. Also we are given free energy every day when the sun shines. Ultimately, 100% of the energy we use is solar: our bodies and tools are heated by the sun each day, plants we grow for food and fuel are derived from sun energy. The wood, coal, gas and oil we burn were previously plants which derived their energy from the sun. Wind and hydro-electric energy derive their power from the motion of wind and water, which depend on the heat of the sun. Even nuclear energy was derived from previously dead stars. [Vaclav Smil Energy and Civilization: A History (The MIT Press) May 12, 2017]
Spoilage is difficult to gauge, since we use this potential energy to exist. We have an arbitrary standard of energy usage, a temporary equilibrium which grows and shrinks as humanity develops and consumes resources and discovers new sources.

Interest rates are closely correlated with inflation. From a course perspective, I believe inflation is the same thing as the interest rate, though inflation is more fundamental. Neither the true value of inflation nor the true interest rate are observable, neither is spoilage. They all converge in the right equilibrium.
Craig Calcaterra (talk) 11:53, 3 April 2023 (CDT)