• Podcast

    Ben Hunt: Prepare To Get Burned

    Society is pretending its actions don't have consequences. It's badly mistaken.
    by Adam Taggart

    Thursday, September 19, 2019, 5:01 PM

History teaches us that there is no free lunch, reminds Dr. Ben Hunt, publisher of EpsilonTheory.com.

And science informs us that even the most simple systems become nearly impossible to predict or control with 100% precision as time and variables change.

But our society today is ignoring these lessons. It’s betting that the increasingly excessive distortions required to keep the status quo continuing will succeed, and come at no cost.

That’s a losing bet, warns Hunt:

Society burns itself on a really hot stove every three or four generations.

I think we’re at that point where the Millennials coming of age who are having to wrestle with what the Baby Boomers have done to the world. They’re going to end up burning themselves on this hot stove. The hot stove of looking to government as the answer for everything that ails you. Of looking towards your political leaders as somehow able to provide never-ending exponential growth in comfort and standard of living.

And ultimately, they’ll burn themselves — there’s no such thing as a free lunch. You’ve got pay for these things in one way or another — in terms of resource extraction, in terms of taxation, in the form of sacrifice of individual liberties.

There’s a price to be paid, though. That’s the hot stove that I’m talking about. That hot stove can manifest itself in war. That’s certainly happened in the past. It could manifest itself in the subordination or forfeit of individual liberties. That’s certainly happened in the past.

There are any number of ways in which that burning on the hot stove could happen.

Take the 0% interest rate policy that made money so readily available and so cheap. I really do think it saved the world in March of 2009. I get it. I think that’s what the central bank was created to do – to be that lender of last resort. But when it takes the position as not the lender of last resort but the lender of first resort? The lender of constant resort? That’s where we are now.

This is the consequence of over-financialization: if I’m running a corporation, I’m trying to do well by myself, by my shareholders, why in the world would I take a risky action like actually building a new factory, of actually investing for growth? Why would I take that sort of risk when I can borrow the money essentially risk-free and use it to do something that is risk-free like buy back my stock? Like give the dividend to my shareholders. All of which things drive up the value of the asset – the financial asset – all of these things which drive up the earnings per share. But none of these things are adding to productivity. I’m not investing in technology or property, plant, and equipment, in order to squeeze more juice out of my sales dollar. I’m just not squeezing at all. I’m able to use that addiction that our society has to free money, to cheap money, to generate wealth for myself and my shareholders in this non-productive way.

Is there a cost to that?” Of course, there is. We’re told that the stimulus is costless. But what it costs us, in truth, is that we’re not taking risks anymore for the future. We’re not investing in the future anymore. And where do we end up with that? We end up with essentially zombie societies and zombie economies, which just makes the ultimate burning on the hot stove that much worse.

Click the play button below to listen to Chris’ interview with Ben Hunt (44m:26s).

Other Ways To Listen: iTunes | Google Play | SoundCloud | Stitcher | YouTube | Download |


Chris Martenson: Welcome, everyone, to this Featured Voices podcast brought to you by PeakProsperity.com. It’s August 20, 2019. I’m your host, Dr. Chris Martenson.

You know what I value most here at the tender age of 56? Having how I think altered. Now, that could mean I learn something new entirely or it could mean seeing things in a whole new way after someone has taken the time to craft a new frame and a new way of connecting the dots. I know immediately when this happens. I get a prickling sensation down the back of my neck, time kind of dilates and slows down a bit, and I get tunnel vision as I bore into the words.

Now, perhaps it’s always been true that after a certain age, humans begin a quest for inner growth, wisdom, maturity. We seek these things. But it’s also true that we live at the most momentous of times. Perhaps, as some think, we’re perched right on the edge of a new age of humanity that sees us conquer and settle nearby planets.

But it seems at least equally possible that due to various limitations of the way we process and form narratives, we humans might also be right on the verge of a very long and punishing dark age. And as you may know, my work involves trying to break down this obviously silly of narratives; one that is easily revealed as fraudulent with just a minimum of an agree, which is the dependence of our economic and financial systems upon something called exponential growth.

Now, why is that silly? Because we live on a finite planet. Economics is a subset of the natural world, not the other way around and it’s impossible to sustain exponential growth within a finite volume.

Well, last I checked, the Earth is a sphere. Those have surface areas. Which means there’s a discrete and finite amount of land, sea, minerals, water, soil, all that stuff. Now, what stands between such a simple, yet powerful, observation in collective human action? Sadly, it’s not data. We all know that already. And it’s not logical reason. Rather, it’s rooted in our ability – or inability, as the case may be – to consciously modify our stories, shift our cultural narratives to align our inner selves with the outer realities.

Which brings us back to why I treasure so highly having my stories changed, having my narratives nudged, in such a way that the world begins to make more sense.

That brings us to today’s guest. Over the past few years, since I began reading his works, I’d have to say that he is, by far, the person who’s most changed, most nudged my views, expanding my thinking, and dropped ideas into my skull that have really deeply rooted themselves.

Ben Hunt is today’s guest. He is cofounder and partner at Second Foundation Partners and an author at EpsilonTheory.com, along with Rusty Gwen and some other guest authors. Ben writes mainly on the economy and investment ideas and it’s there where you can read his work for free. But for those who want to participate and read it all, for those who want to join their pack, they also offer a premium subscription, which I can highly recommend.

Ben is formerly the Chief Risk Officer and Chief Investment Strategist at Salient Partners. He holds a PhD in Philosophy and Political Science and Government from Harvard University. Ben, I’m very excited to have you finally on the program.

Ben Hunt: Wow, it’s great to be here, Chris. Thanks for that introduction. As a 55-year-old, you know, I sure do share your appreciation for things that change your mind, right? It’s really the only thing that matters.

Chris Martenson: It really is. And it’s something that I treasure a lot at this point and it’s something that I feel, also, somewhat takes me out of step with the current culture, in some respects.

Ben Hunt: Yeah, that’s so right. That’s so right, you know. But you know, this notion about changing your mind, one of the things that I’ve really found to be a good lynchpin for thinking about not just the stuff that I write about but I was just thinking about your introduction on this podcast and the things that you think about.

You know, there’s this very fundamental notion about what makes the world – and this, I mean the physical world, as well as the social world – go around. And it’s a theoretical discipline called “Information Theory” that was really developed after World War II in the late 40s, the early 1950s. And it’s really something, I think, that underpins not just reality but certainly, our social realities.

And the core notion of Information Theory – and I know you’re going to appreciate this from your introduction here – the core notion of Information Theory is that, well, what is information? Information is measured by how much the thing changes our mind, right? Which is a pretty crazy to look at it. So, the information is measured not by, “Oh, this is true,” or, “This is false,” right? That’s not what Information Theory means when we say something is informative or lacks information. All it means is does it change your mind? Is it some new signal about the world that’s powerful enough to change your perception about the world?

And you know, once you start looking at the world through that lens, that lens of Information Theory, which, you know, it really is a fascinating subject. You know, people want to go check it out because it really is an underpinning for everything.

But this notion that the way we should think about the world and information is not just yes or no, true or false, but how much does it change our mind? What’s the strength of information to change the way we perceive the world?

Chris Martenson: Well, that is absolutely fascinating and almost as if there’s a weighting we can give to it. And what I’m really enthralled with right now is the idea of what’s the information we need – so, listen, I have this theory. The theory is we’re at this rather momentous time in the species. Species go through – I’m a biologist by training, that’s what my PhD is in, Biological Science. So, I look at kind of things; organisms and energy flows and that stuff, right?

So, I look at where we are as a species and I say, “Okay, we’ve kind of come through our adolescence.” And like an adolescent, we’re in a room, our own bedroom, and it’s kind of dirty at this point. And we have to grow into adulthood, right? It’s time to face up to the idea that, “Oh, I’ve got bills to pay and income and expenses happening [interruption], we marry each other and all of that. And we’re still acting across this globe with large – ecologically, as if we don’t – we haven’t quite made that transition. So, we’re kind of like that 23-year-old still in his room, you know? It’s an awkward period.

And so, I’m wondering. What is the information that we would need to say limits exist and there are boundaries to things and we need to learn how to live within those and how we go about…

Ben Hunt: Yeah, yeah.

Chris Martenson: … imagining that.

Ben Hunt: Yeah. You know, Chris, my field in academia and teaching was mostly history. You know, we call it Political Science, which is this bastard child of Economics and History. And you know, when I was in graduate school, I was much more on the science side of political science and I was forced on econometric formulas and patterns of inference and the like.

The older I get, the more I am focused on the history side of political science. And what I mean by that is looking at the way in which the past – it really does rhyme with the future. And what I mean by that in terms of your question is that I do think that there are periods of time in history where societies have wrestled with exactly this issue, right? With limits to growth, with, I’ll call it political and social promises that can’t be met by the resources of the society, right? That the government basically writes checks that the people can’t cash, right?

And it hasn’t happened on its – I think it certainly has a global scale as we have today by no means, right? And it certainly hasn’t involved this many people, given the population of the world today versus at times in history. But I do think that there’s some instructive historical periods that can speak to exactly that question you’re asking.

Chris Martenson: Well, if we could look at some of those, then, because we do write…

Ben Hunt: Yeah.

Chris Martenson: … quite a bit about Yeats and his “widening gyre.” And you know, that was during World War I. Then, we kind of seemed to maybe be, there again, the parallels to the political zeitgeist of World War I and now, seem unavoidable, if not concerning, at least to me. Is this maybe what you’re talking about?

Ben Hunt: It’s exactly what I’m talking about. And then, what I find – so, I’ll use the word “revelatory,” right? Is when you read the actual words of people who lived and wrote during these times of great upheaval, during these times where the chickens really did come home to roost, right? We’re not quite there yet but I think a lot of people – like you, Chris – are getting an inkling, right? Your spiny sense is starting to tingle for any, you know, comic book fans out there, about where the world is right now.

And frankly, I think the truth – you know, again, _____ [00:10:17] that truth, what I just said that, you know, it shows what it does that changes your mind. What changes society’s mind? What is the information that society has to see? This, I think that – and the entire society has to burn themselves on a really hot stove, right? And I think this happens every three or four generations. But I think we are at that point where this generation – the Millennials coming of age who are having to wrestle with what we Boomers have done to the world, right? They’re going to end up burning themselves on this hot stove. The hot stove of looking to government as the answer for everything that ails you. To looking towards your political leaders as somehow able to provide – use the term “exponential growth” but I’ll even narrow that a bit farther – a never-ending and an exponential growth in a comfort and standard of living, right?

And ultimately, you burn yourself on the hot stove of well, you know, there’s no such thing as a free lunch. And if you’ve not going to pay for it in one way or another, right? And that can be in terms of resource extraction, in terms of taxation. It can be in the form of sacrifice of individual liberties, right? It really can.

There’s a price to be paid, though. That’s the hot stove that I’m talking about. That hot stove can manifest itself in war. That’s certainly happened in the past. It could manifest itself like, say, in the subordination or the giving up or individual liberties. That’s certainly happened in the past.

There are any number of ways in which that burning on the hot stove could happen. But that’s what I think is the information that has to be processed. Unfortunately, I don’t think there’s an easy way or a gentle way to get that message across.

Chris Martenson: You know, I just recently interviewed Binyamin Applebaum of the New York Times and he wrote a book called…

Ben Hunt: Yeah.

Chris Martenson: … The Economists’ Hour. It’s coming out soon. And what he showed was there was hold of Freedman and Volcker and all these characters. When they were making their decisions, the way he recast it historically – beautifully done – just this brings you into the room with them. They were just humans doing the best they could with imperfect information, survivor bias. We look back and go, “Oh, they did well.”

But what he’s really talking about is the rise of the economist. And for somebody who studied economics quite a bit, I read this book called The Origin of Wealth by Eric Beinhocker. And right in the intro, he’s got this piece about how the Santa Fe Institute, 1984, brings all these Nobel laureates in. They bring in the chemists, the physicists, the economists. They all start pow-wowing and throwing their best ideas out on the table. And the physicists are just agasp that the economists are still using Walras’ equations from the 1700s before the Second Law of Thermodynamics was discovered. And they were treating the economy, a complex system, as if it was a closed form.

And he carries that through to current. And economists still have these closed-form equations for what is an arguably open system, which means they’ve got the wrong models. Which means they’re seeking equilibrium where none exists, which says that they are essentially attempting to control the uncontrollable.

And then, he connects it to this other dot, which is amazing. Which is that all complex systems owe their order and complexity to the flow of energy through them whether that system is my body, it’s the Earth or the Sun, it’s an economy.

So, when you put those dots together, it really feels to me like they just – they’re running the wrong models at the highest levels. They’ve really captured the imagination during a wonderfully abundant period of time. But maybe the models aren’t quite right now.

I thought you captured that beautifully in something called “The Three-Body Problem,” which was one of those articles that really just snapped things into focus for me. Can we talk about The Three-Body Problem?

Ben Hunt: Absolutely. And before we do, though, I just want to make two notes, right? The first is that at its core, Information Theory – which I started talking about at the outset here – at its core, that is a theory of entropy. So, when you kind of look at modern thermodynamics and Information Theory, it’s all based on this theory of information – Information Theory.

The second, you know, you’re so right about, that these people, these human beings, they’re doing the best they can. We’ve lionized them and turned them into, you know, deities. But again, this is why I like reading biography, I like reading history. You know, one book I could really recommend to you and to your audience is this book of Lords of Finance by Liaquat Ahamed so, it won the Pulitzer Prize. It’s about the central bankers. It’s about – the subtitle is The Bankers Who Broke the World. And it looks at monetary history; the birth of sinful banking at the tail end of World War I and then, leading up to World War II. And you read the stories of these people, right? Who put on their pants one leg at a time just like you and me. But even then, were lionized and turned into these almost, you know, deity-like figures, which we do all the time, of course, in politics and as well as in economics.

But it really is in reading books like that that can change your perception not just of the past but also, of the current.

So, you know, two things I’d highly recommend; anything that’s on Information Theory and then, this book, Lords of Finance: The Bankers Who Broke the World. Wonderful book to get that perspective that you were describing there.

So, the Three-Body Problem, right? So, the Three-Body Problem is referring to a mathematical problem, right? So, the Three-Body Problem is the idea that let’s say you’re in outer space, alright? And you’ve got three planets that are out there. And let’s say that you also know everything about those three objects, right? Let’s say you know their math, you know their velocity, you know the laws of gravity and how they interact with each other.

And let’s go a little farther. Let’s say you are almost omniscient here in that you really have an ability to measure these three planets that are there in outer space. And there’s nothing else out there.

And so, the question is the core question of the Three-Body Problem is, “Alright, tell me, Mr. Scientist, what is the algorithm? What is the formula for predicting, for telling me where those three planets are going to be at some point in the future?”

Right now, it would seem like okay, there’s got to be a formula that can predict their future position, right? Because we know everything about them. We know the laws of gravity. We know exactly their mass, their speed, their position. We can calculate where they are going to be one second from now. So, there must be some sort of formula, some sort of formula that can tell us where they’re going to be at any time in the future, right? That we just kind of plug in all these variables and there’s got to be a formula that can solve the Three-Body Problem.

And the truth is – and this was, you know, proven in the late 1800s and it’s something that’s really hard to wrap your head around. Actually, there is no formula. There is, technically speaking, no closed-end solution. Meaning that there is no algorithm for determining where those three planets are going to be at some point in the future. We really can calculate it, meaning that, “Okay, I can – I see where they are now. I know all the information about them. So, I can calculate their positions like one second from now. And then, I can do another calculation to say, ‘Well, it’ll be one second after that.’”

But there’s no just formula, no closed-end solution, no algorithm where I can plug in the data and just say, “Okay, calculate where that’s going to be for me, you know, 1,000 seconds from now.” It is not a predictable system.

And this is true for just with three objects, right? And so, imagine a world – our economic world – where we have, you know, a hell of a lot more than three big objects that are exerting their gravity on our economic world. You know, imagine what happens when you get a new object – central banks that start to exert the gravity of purchasing $20 trillion worth of securities. You know [interruption]…

Chris Martenson: It’s like a black hole wandered into our solar system.

Ben Hunt: Exactly, exactly. And it’s not that it’s hard to predict what’s going to happen. The truth, thinking about the Three-Body Problem, is that it is impossible to predict what’s going to happen. That closed-end solution, it does not exist. And it requires, I think, of us – and again, this is really hard for us to grapple with as human beings – it requires of us to have what I like to call a “profound agnosticism,” right? That we have to be able to distance ourselves from the stories we’ve been told about how to predict the future whether that’s our economic future or our political future. It really requires us to, let’s say, to step back to create some distance and evaluate for ourselves where do we think the world should go from here? Because it’s not predictable based on the, you know, what we’ve been told from the past.

Chris Martenson: Well, and what’s fascinating – and beautifully said, by the way. I love this idea. Because it simplifies it down to just three bodies, right? If you can’t calculate three bodies, forget about your closed-form equations, trying to calculate what…

Ben Hunt: Right.

Chris Martenson: … interest rates is going to do to unemployment or, you know, corporate investment. It’s unpredictable. We can observe it. And this has been the maddening part to me is that the central banks went on this rescue spree starting in 2008. It was an emergency. Okay, I’ll grant you that. But six months, nine months, 12 months. But here we are, 11 years into the emergency, with more of the same. And arguably, the outcomes they were seeking are not materializing for some reason.

So, you’d think there would be some empirical sort of testing to say…

Ben Hunt: Humility? [Laugh]

Chris Martenson: Yeah, maybe just a little something like, I don’t know, you know? But you know, I also left an academic environment and I thought I wanted to be a professor. In fact, I love teaching. But I discovered – because I’m a quick learner eventually – I discovered that colleges and universities don’t really care about teaching.

So, I exited that but what I learned was – and really took to heart was – the ego and the inability of the person truly invested in their dogma to shift that belief is startling, powerful. And that’s been sort of my critique is that the central banks have somehow become populated with dogmatists. And it’s been startling to watch how this idea of a three-body problem that humility has not yet seemed to seep into any of their public statements to any appreciable degree.

Ben Hunt: Well, you know, and this is, again, what you see in history, right? This is the – these are the seeds that always seem to sprout. And you know, ultimately, every third or fourth generation, you might say, has got to learn this lesson the hard way.

You know, in a lot of respects, it is similar to the 1930s, right? Where you similarly had emergency government policy – or emergency government action, let’s say – become permanent government policy. And that’s what I really think happened in early 2009 with the emergency central bank action; first our Federal Reserve and then, other central banks.

Again, as you say, emergency action that I really approve of, right? It’s like if you remember the movie, Pulp Fiction, right? The Uma Thurman character, you know, her heart stopped and the John Travolta character gets a syringe of adrenaline and plunges it right into Uma Thurman’s heart to get it beating again. I really think that’s what the Federal Reserve did in March of 2009.

And I think that’s what central banks are supposed to do. They were created to be that last-gasp measure, that provider of liquidity into a global capital market system that has – where the heart has stopped beating. They were that syringe of adrenaline.

But again, the problem has been – we saw this in the 1930s, we well. We see it in so many examples, large and small, of history – is that emergency government action becomes permanent government policy. And you know, I’m not even saying that that’s good or that’s bad, right? I’m just saying it is. It is. And that’s what we’re wrestling with today where that single shot of adrenaline has been replaced by a constant intravenous drip of adrenaline, of stimulus, of constant stimulus, right? As if we were in a world – and economic world, at least – where we can’t survive without the stimulus, without that constant drip of policy support.

I mean, you see it everywhere – everywhere in the world today. You particularly see it in Europe, right? But you also see it over here. And it’s that transformation into a world where we are told that this is costless. That the constant stimulus can be achieved without cost, right? That’s what creates, I think, ultimately, that condition where we burn ourselves on a really hot stove. That’s how these seeds are planted.

Chris Martenson: Yes. And you know, psychology teaches us people either change through insight or pain. And I see…

Ben Hunt: Right, right.

Chris Martenson: … [overtalking] your work is attempting to bring insight out there and say, “Hey, we could do this this way, too,” right? “We could look at this stuff…

Ben Hunt: Yeah.

Chris Martenson: … and change that way. Or we could touch the hot stove.” Both are ways humans do this.

And of all your many thought-provoking pieces, This is Water was one I had to read a couple times because it speaks to this idea of financialization. And a quote from that, which I’m going to read your words here, says, “Financialization is squeezing more earnings from a dollar of sales without squeezing at all but through tax arbitrage or financial balance sheet arbitrage. Financialization is profit growth without labor productivity growth.”

Ben Hunt: Yup.

Chris Martenson: I love that. Because really, you know, you say the central banks are really – I think what you talked about was how they were designed in 1913, which was during an emergency, high-quality collateral. Take it at a discount but get the money back out there to the point now where my sense is from Greenspan through Bernanke through Yellen, through Powell; they are not sort of the owners – you break it, you buy it – they’re the owners of a highly financialized system that is – to me, I’ve got a short sell on mentality. I’m a little skeptical of things. I’m very skeptical with this idea that you can constantly make money with money and that that all ends well. It’s a good story to run by but it seems to be the one that we’re really addicted to at this point in time.

Do you agree with that? And where does that – that seems to have a conclusion that it’s headed towards.

Ben Hunt: Well, you used the right word there. You used the word “addiction.” And see, that’s what happens is that difference between using an addictive substance to save your life, right? And then, using it to support, “Well, it feels good,” right?

So, the zero-interest rate policy, making money so readily available and so cheap, right? Again, I really do think it saved the world in March of 2009. I get it. I think that’s what, again, what the central bank was created to do – to be that lender of last resort. But when it takes the position not the lender of last resort but the lender of first resort, the lender of constant resort, that’s where we are now, right?

And what happened – and this is the point of the note, this is water in what I think has happened with financialization – is that if I’m running a corporation, I’m trying to do well by myself, by my shareholders. You know, why in the world would I take a risky action like actually building a new factory, like actually investing for growth? And this is what I mean about investing for productive activities in the future. Why would I take that sort of risk? And it is a risk, right? When I can borrow the money essentially risk-free and use it to do something that is risk-free like buy back my stock. Like give the dividend to my shareholders. All of which things drive up the value of the asset – the financial asset – all of these things which drive up the earnings per share. But none of these things are adding to the productivity of what I’m doing, right? The what I call the labor productivity. I’m not investing in technology or property, plant, and equipment, in order to get more out of – to squeeze more juice out of my sales dollar. I’m just not squeezing at all. I’m able to use that addiction that our society has to free money, to cheap money, to generate wealth for myself and my shareholders in this nonproductive way.

And you say, “Is there a cost to that?” Of course, there is, right? You know, we’re told that the stimulus is costless. But what it costs us, in truth, is that we’re not taking risks anymore for the future. We’re not investing in the future anymore. And where do we end up with that? We end up with essentially, you know, zombie societies and zombie economies, which just makes the ultimate burning on the hot stove that much worse.

Chris Martenson: Indeed. And you made this point in the long now, you talked about personal courage where we need leaders who act as stewards of the future, not managers of the now. And I watched over my lifetime the central banks – by the way, my grandfather served on the New York Fed Board under Volcker at a time. So, I [interruption]…

Ben Hunt: Oh, that’s great.

Chris Martenson: … come from a long line of bankers. But he – he passed away a while ago – he would be absolutely unable to grok what’s going on today where [interruption]…

Ben Hunt: Yes, yeah.

Chris Martenson: … you know, your central banks went from intervening rarely and under DOT, you know, very carefully, to the point where now, if the S&P's off 2%, I can guarantee you we’re going to get a Fed official out making soothing statements for an hour…

Ben Hunt: Correct.

Chris Martenson: … right? So, they’re managing like moment by moment now. And that’s hard to believe in for me. But maybe [interruption]…

Ben Hunt: Well, and our politicians, as well. Our politicians, as well. I mean, look at – you know, this is true whether you’re Republican or a Democrat, right? Whether you’re talking about the White House or the Senate or whatever. You know, our political leaders are similarly not acting as stewards for the future but are acting as managers for right now. They want the results right now. Right now. Let’s pull the future forward to today because that’s what I’m being judged on. With politicians, I guess I understand it a little bit better because they are being judged on what’s the next vote count, right?

But as you say, it’s really perplexing to me when I look at these institutions like a central bank that were designed to be not managers of the here and now but truly, to be stewards of a future. And we really did used to think that way. Or institutionally, the thought process was there. And that became subverted over the last really 25 years in exactly the way you describe; this hubris of academic overconfidence that, “Oh, we have the models, the theories, that we’re so smart that we don’t have to act as stewards. Or rather, we can act as stewards and as managers of the now.”

And again, this is what history teaches us, that that’s never possible. It’s never possible. You talk about limits to growth. I think that there is a possibility of long sustained growth but not at exponential levels. Because exponential growth in the now requires debt, right? It requires pulling forward of future production, future productivity, future growth. And we’ve pulled it all forward into the now and that, ultimately again, I think is what leads to the burning on a hot stove.

Chris Martenson: Well, absolutely. And you know, one of the charts, if somebody says, “Okay, Chris, I’ll give you one;” economically, I’ll say, “Wow. Well, look at total credit market debt in the United States compounding since 1970 at 8.9% and nominal and real growth are both compounding at less than half that rate.”

So, if the debt is a claim on something, what’s there to claim on? Well, you can’t grow your claims on real economy at twice the rate forever. It’s just a compounding problem.

So, that raises a million questions. And in the time we have left, I need to turn now to this idea. So, let’s imagine we have all these sorts of forces building and yeah, my spiny senses are…

Ben Hunt: Yeah.

Chris Martenson: … tingling right now.

Ben Hunt: Right, right.

Chris Martenson: A lot of people are. We’ve got the Yellow Vests in France; we’ve got Hong Kong erupting. We’ve got that sort of thing that you get at these turning moments.

And I want to talk now about this idea of how things go from private knowledge into common knowledge. And maybe the role of the missionary and all that because to me, that’s the central, most important point of the day is how things suddenly erupt into common knowledge.

Ben Hunt: Well, what you’re getting at, really, is, in a sense, how we – I’ll put it this way. “What can we do about this?” Right? “What can we do about it?”

Now, one half is that you and I and your listeners, we see what’s going on and we say, “Okay…” My answer is I’m going to withdraw, basically. I’m going to try to create, as best I can, some sort of walled garden to protect myself, my family, my pack, as I like to call it, right? And we’re going to protect ourselves. And that’s absolutely what everyone should be doing.

And I think that there are ways that we can try to participate in what’s going on to if not reverse the course, if not prevent burning on a hot stove, right? At least make the burn, right? Yeah. Nonfatal, right? At least try to change the – or shorten the – period of pain that has to come here; to shorten it from, you know, 100 years to 10 years, right? You know, we named our firm, Second Foundation Partners, after the Isaac Asimov trilogy, the Foundation trilogy, where the goal there of the people who set up the Second Foundation, it wasn’t to prevent the galaxy from falling into a Dark Age. It was trying to prevent it from lasting 10,000 years, right?

So, I do think there’s something we can do, right? And what it requires is what you’re asking about; this notion of how do we create common knowledge?

So, let me back up a second. You know, what is common knowledge? Because common knowledge isn’t necessarily public knowledge. Common knowledge is a term of art in game theory and what it describes is an idea, information, that we think everyone else thinks, right? That’s what common knowledge is. It’s not what we think personally about something, right? That’s – we call that our first-level knowledge. It’s not even what we think is the consensus. It’s not even what we think that everyone thinks, right? It’s what everyone thinks that everyone thinks. It’s this third level of trying to understand information and how it flows through a society. It’s the crowd looking at the crowd.

I’ll use some examples of common knowledge. When you watch a sitcom on TV, it has a laugh track, right? That laugh track exists because it creates common knowledge that that scene was funny, right? They do all sorts of studies on this stuff. You and I, when we’re watching a – we’re watching Friends, right? You know, we really will think that that scene is funnier when we hear a fake crowd laughing. We know it’s a fake crowd. It doesn’t matter. We’re hardwired to respond to this stuff, right? We’re biologically evolved to respond to this stuff, right? We – the human social animal – responds to – our crowd of humans responds to what we think the crowd believes. And once you kind of start thinking about media and information this way, that it’s the crowd watching the crowd, it really changes how you think about the world.

So, I’ll give you another example. So, the next time you listen to a speech, a political speech, that Donald Trump gives, just watch for this. The first thing he will say in that political speech is he will talk about the size of the crowd. He will call the crowd’s attention to the crowd itself. That’s totally intentional. About midway through his speech, he’ll pause and he’ll start to say again, “Wow, look at the size of this crowd. There hasn’t been so many people here ever.” Right? “Look at all you folks. This is amazing, the size of this crowd.” Again, intentionally getting the crowd to look at itself. The last thing he’ll say in the speech, “You’ve been an amazing crowd. This has been the most amazing crowd ever in this auditorium or arena or whatever. It’s been the biggest crowd. We had lines going back forever.” Three times in the speech – the beginning and the middle and the end – he will call the attention of the crowd to the crowd itself. This is entirely intentional, right? It’s what successful politicians and central bankers and advertisers and everyone has always known; that the way to create common knowledge – what the crowd believes that the crowd believes – is to get them to look at themselves.

Now, where does this go? Where this goes is that each of us – you, Chris; me, Ben – I think we can make a difference by showing people that we are not alone in having these thoughts. That there is a crowd of us who are uncomfortable with the way that the world is going. Who think that there is a better way for organizing ourselves economically and politically, right? By showing a crowd of people that this crowd of us exists, it really can take on a life of its own.

That’s how we change things, Chris. It’s through podcasts like yours, it’s through writing like mine, and it’s allowing the crowd to see that there is a crowd of people who share these beliefs. That’s what we can do. That’s the participation that works in these situations. It’s not from some top-down, you know, joining a political party or something like that. No. It always comes from the bottom up. It always comes from the movement of a crowd watching the crowd. And that’s what we can do to change things, Chris.

Chris Martenson: Fantastic. And that spawns a thousand questions and observations from me but we’ve run out of time, unfortunately. So, thank you so much for your time today, Ben. Please, before you have to run, tell people again how to follow you and subscribe and become an active participant, please.

Ben Hunt: Well, thanks, Chris. So, the name of the website is EpsilonTheory.com. This comes after in economics and investing, we talk about alpha, we talk about beta. And there’s also this forgotten term called “Epsilon” – Epsilon for “error.” And it’s not error, right? What you find in the Epsilon term in these investment models and the like, that’s where human interaction exists, right? That’s where common knowledge exists. That’s where game theory exists and that’s where we can make a difference.

So, I’ve named the blog Epsilon Theory. We’ve got about 100,000 email subscribers. It’s free. By all means, check it out. Sign up to get our occasional emails, read our stuff. And when you’re ready, come join our pack. Because I really think we are making a difference, just like you are, Chris.

Chris Martenson: Well, fantastic. And it does begin with this idea that we need – I think it’s the most important thing – is to help elevate things to common knowledge. I run a Tweet that I put out pretty constantly, which is the meme, it’s a picture, guy sitting behind the desk with a coffee cup. It says, “US equity markets are a government-operated utility. Change my mind.” And…

Ben Hunt: I love it.

Chris Martenson: … [overtalking] get people to engage with that idea. Because I think a lot of people are holding this private knowledge that things aren’t quite right but they don’t feel safe yet to talk about it. And that’s what’s about to emerge is – you know, we’ll go through Schopenhauer’s 3 Stages, right? Ridiculed, fought, self-evident. That’s where this truth is going to eventually get.

So, you’re early on that truth piece. Thank you so much for doing what you do. Thank you for your time today. And really, from me personally, thank you for writing the pieces that you do because they changed my mind in how I think about things.

Ben Hunt: My pleasure, Chris. Thanks for having me. Love to come back again.

Chris Martenson: Thank you, we’ll do.

Related content
» More


  • Fri, Sep 20, 2019 - 7:00am



    Status: Gold Member

    Joined: Oct 06 2015

    Posts: 727


    Disconnected from reality

    I have recently had some interactions with younger [millennial] urbanites and I was struck very acutely by the impression that their grasp of reality is "tenuous" at best. Nonexistent would be a more accurate term, actually.

    They are obsessed with "image", how others see them. They are depressed over it, anxious over, and angry at how "unfair" everything is. They are cynical about everything. They don't believe in anything, they don't think anything is real.

    Most of them believe that the person who makes the best argument is right....not the person who is actually right. Because there is no "right" or "wrong", only the ability to make well crafted bullshit arguments.

    Its sad because so much of what these kids grew up and live with everyday is fake. The news is fake, social media is fake, everything online is essentially a nonexistent virtual reality. Their parents are divorced so the family unit is fake. The monetary system is fake. Where once bright young people went to college to learn the facts of education they are now learning to pray to plants, learning how our history was bad, learning how to craft a list of grievances and profit from them through public whining.

    Its all false. And no wonder so many of these kids are self destructing and taking innocent people with them. There's nothing real in these young people's experience. This is why I have made a point of having no cellphones in our family. We live in the country, grow our gardens, milk cows, cut hay, and cut wood to heat our home. These are the only things that I can think of as being so real, so base, so tangible, that my son can't help but have his feet planted in them. Unfortunately, he's going to be surrounded by an entire generation that, in my opinion, maybe literally insane.

    Login or Register to post comments

  • Fri, Sep 20, 2019 - 2:00pm



    Status: Bronze Member

    Joined: Jan 12 2009

    Posts: 350


    Good Interview

    1. Great dialog in this interview: "constant stimulus" is not "good" or "bad" but rather it just "IS". Many have lots of angst re FED actions; myself, I treat it like the weather. It just IS. Wear a raincoat!

    2. Also: great point on how "Financialization" is money "squeezing" rather than money "creation". Why risk productive activity when companies can borrow risk free & pay dividends? So we end up with zombie society/economy. But boy one can make a lot of $ on dividend paying stocks in this environ. This situation seemed an obvious endgame by 2009, and it's now had a decade run. How much longer? So I keep my positions...and my hedges...

    3. Also: FED is now lender of "first" resort, of "constant support". I don't see how they exit this game. It's FED Hotel California: they can start the game but never politically leave. So how high can housing and stocks go?

    4. Also: The 3-Body-Problem was a very good discussion. However, it blew right by what the 3BP represents: since VERY LITTLE IS PREDICTABLE in complex systems, all "data driven" claims (we see a lot of this at PP) are merely fiction or hope. In truth, nobody knows what that data means because in any complex system (like the economy driven by the FED) things are wildly unpredictable.  Which doesn't necessarily mean "unstable" over the course of a business cycle (or even a human lifespan). IOW, these things can play out for a very, very long time. Or change tomorrow. But using one's "Spidey-Sense" as the interview explored is not the best tool.

    5. Also: The 3BP represents the fact we can't predict much about the Environment nor Energy. Just like the discovery of oil changed energy forever, the discovery of fusion or something similar could do the same. Also for the environment; anything could happen and it's nearly impossible to predict, either disasters or things just smoothing out. The price of oil is a good example: we can predict the weather better than the price of oil. In truth, we haven't a clue about the economy, energy, or the environment.

    But it was a good interview, and just discovered "The Origin of Wealth" mentioned in the interview is now on Kindle (lost mine) and I saw "Knowledge and the Wealth of Nations" is not Kindle too. The latter is great at explaining how exponential growth of "wealth" can exist on a finite planet as ideas are not strictly material things.

    Login or Register to post comments

  • Fri, Sep 20, 2019 - 4:43pm



    Status: Bronze Member

    Joined: May 03 2014

    Posts: 534


    And how is this measured?

    One of the things we fail to adequately explain in this whole mess is that we have no concept of what is quantifiable. In most or many situations the general populace is driven by nominal thinking and not by applied logic. The biggest offender is a significant reliance on magnitude and nothing more. Whether it be Facebook or any social media, "amounts" give meaning where literal interpretation give way to "piles"' of data. As the old adage goes, "data, data everywhere and not a thought to think". And so it goes with the information age. One may remember the old line; "I cut that 2 x 4 three times and it's still too short". Life is about living  and not about the relative places we choose to spend our waking hours trying to put square pegs into round holes. Whether it be Galileo, Kepler, or Newton observation and application trump comparison in interpreting the world's important relationships. After all, without relationships; what does it all mean? And when I say relationship, I don't mean with your digitally extended hardware and software.



    Login or Register to post comments

  • Sat, Sep 21, 2019 - 3:11am



    Status: Member

    Joined: Oct 26 2018

    Posts: 16


    The unmoored generation


    I’ve had similar impressions of many of my fellow millennials. If I had to put a root cause to it, I would say we are products of the replacement of objective truth by subjective truth in our education, philosophy, and culture.

    They might be “literally insane”, but what is sanity but the fixed reference point your mind can return to after it wanders? Our culture has effectively removed any fixed reference points. As you mentioned, the family, the media, morality, all of it. They are insane because there’s no other choice. They are completely atomized individuals wandering as they please with no fixed reference point to navigate by.

    for some historical and philosophical background on how this came about, I highly recommend The Abolition of Man by C.S. Lewis and How Should We Then Live by Francis Schaeffer.

    Login or Register to post comments

  • Sat, Sep 21, 2019 - 3:48am

    robie robinson

    robie robinson

    Status: Gold Member

    Joined: Aug 25 2009

    Posts: 1174



    What is “objective truth”?

    take it rhetorically as it can’t be defined by a feeble, finite, fallen mind...or

    Login or Register to post comments

  • Sat, Sep 21, 2019 - 6:06am



    Status: Member

    Joined: Oct 26 2018

    Posts: 16


    Good question

    I would roughly define objective truth as external truth that exists regardless of your or my individual opinion about it.

    Physical constants like gravity are a good illustration, but so is the recent Saudi oil refinery attack. Theories and sponsored narratives abound, some more plausible than others, but only one thing actually happened in time and space, even if you or I never find out definitively what that was.

    I’m a Christian, so I would also argue there is a moral component to objective truth as well, and would  agree with the assertion that our minds have a limited, finite perspective, but I don’t want to pull this discussion too far off the topics discussed in the podcast.

    Login or Register to post comments