Ponzi Structure and Dissipative Structure#
First, let's define the Ponzi structure, which divides the economic system (such as companies, countries, etc.) into Ponzi structure and dissipative structure. The Ponzi structure refers to an economic system that cannot organically attract external capital, while the dissipative structure is the opposite of the Ponzi structure, indicating that the economic system can organically attract capital from the outside. Here, the term "organic" is very important and to some extent equivalent to sustainability.
For example, a traditional Ponzi scheme refers to a situation where people continuously enter the capital pool, using the capital from later entrants to repay the interest on the capital in the pool. There is no external organic business model that can generate cash flow. On the other hand, investing in a company means that the company produces products and there are external customers willing to purchase the products at a profitable price, thereby generating organic cash flow for the company. In this case, dissipation is manifested as external customers (non-shareholders) willing to consume products, which means that funds can continuously flow into the economic system in a sustainable manner.
In the past, people believed that the United States had good national fortune, which can be expressed as the United States finding new perspectives to continue its dissipative structure during a bottleneck period, mainly through technological innovation after World War II. Attracting global talent and fully leveraging bottom-up subjective initiative may be the source of innovation in the United States. However, now the large government spending by the US government has led to an increase in the pool and a continuous increase in debt. It is moving closer to a direction of greater government control, and the output per unit is decreasing (see the graph below).
The significant decline in GDP growth brought about by each $1 of debt, in 1952, the US government's $1 of debt could bring about a $0.8 increase in GDP, but now it only brings about a $0.35 increase in GDP (there are reservations about the data in the graph, as different data with larger differences have been seen elsewhere, but they all reflect a downward trend). Moreover, the interest expenses of the US Treasury are increasing significantly as the FED raises interest rates, reaching $969 billion in 2023 Q2. The contradiction of this problem may become more and more prominent.
The Negative Cycle of Expenditure and Debt#
- In the first 6 months of 2023, the average monthly deficit of the US government was about $218 billion.
- Since the heavily leveraged sector in the early stage is the government, maintaining high interest rates is equivalent to increasing government spending.
- Government tax revenue is not enough to cover expenses, so it can only finance through issuing US Treasury bonds.
- The supply of US Treasury bonds increases, and the recipients include foreign governments, companies, and the FED. If the main recipients are the FED, it falls into a Ponzi structure because the FED's funds come from printing money, not organic external funds.
- Continuous printing of money is overdrawing the credit of the US government, and there is a limit to it. Eventually, foreign governments, companies, and the public will be unwilling to hold more US dollars/US Treasury bonds. The role of the FED as the ultimate buyer will be magnified.
How to Transition from Ponzi Structure to Dissipative Structure?#
- The United States continues to innovate products that have global demand, such as the internet in the past and possibly AI, autonomous driving, etc. in the future.
- In the case of new products with global demand, the taxation rights should still be in the United States, or directly impose taxes on overseas through force.
- The US government should reduce its expenditures. Under the current political governance structure, it may require a painful process to reach a consensus on reducing expenditures and then limit expenditures within the basic framework of taxation rights.
The Ponzi Model of Borrowing New Debt to Repay Old Debt, what are the factors that make it more sustainable?#
The following excerpt is from Snowball - Adimiral-Nemo:
The fundamental play of Keynesianism is to borrow from future generations and spend on today's people. Today's people live a good life, and future generations will have a higher level of economic development and a larger population, making it easier to repay the debt. This is feasible in accounting terms. Keynes has also considered this issue in his economic notes.
After World War II, rapid global population growth also made Keynesianism more feasible. However, there is a key point here. First, the future population must increase, and second, the debt you borrow must be invested in the foundation that can enable the economy, especially the population, to have a higher level of economic development. In other words, the things invested with borrowed money must be able to generate higher returns on assets.
From this, the core difference is discovered: in terms of population, we are decreasing, and the affluent population is flowing out (it doesn't matter if they retain their nationality, as long as they go to other countries to consume and invest). The United States has a good birth rate. There are still many illegal immigrants who climb over the walls and carry drugs or engage in prostitution just to enter the United States. Not to mention the wealthy population from around the world immigrating to the United States. Recently, the United States needs to tighten the EB5 program and relax the EB3 program to attract fewer wealthy people to open factories and more employees to alleviate labor shortages and reduce inflation. Can we still worry about repaying national debt in the future without the addition of high economic development power? Does China have it? Moreover, how many Chinese people are among those who cross the jungles of Central America and walk through the border walls?
In terms of the assets invested, China's debt is invested in infrastructure in areas with a net outflow of population. It is almost impossible to effectively exert externalities and build roads and bridges that few people use. How can we exert externalities on the population? The US debt is almost used for tax cuts. The meaning of tax cuts is to directly invest in every citizen, and the poorest and factory owners receive the most investment. Factory owners understand the king's tax cuts. The poorest can receive a tax refund check every tax season. The king of sleep postpones the repayment of student loans, which is an interest subsidy for young people. So, who has a thicker capital to repay the debt in the future? Is it better to repay the debt with unused roads and bridges or with citizens who have received assistance and can bring more creative population?
The current problem is that some people have not figured out what real assets are! China thinks that investing in infrastructure such as roads and bridges will directly become assets (which is indeed a good investment in densely populated areas with strong externalities). The United States, on the other hand, has invested in the most scarce and potentially growing asset, which is the population itself. People are the most valuable in the world! Protecting the people is the way to govern. The growth of a high-quality population is the best source of future economic development, tax sources, and enhanced debt repayment capabilities. This behavioral difference is actually caused by some fundamental cognitive differences.
Therefore, population may be the core factor for the sustainability of this model.