Follow the Money

November 14, 2021

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People who make good decisions rely on good frameworks. The doctor doesn’t diagnose randomly, symptoms are matched to a rubric. The framework behind these posts is this—follow the money. In a later post, I’ll share the frameworks behind the podcasts.

We are all incarcerated in a money cage. Money exerts power on our lives whether we acknowledge it or not. Openly talking about money can make us feel vulnerable. At the same time, money talk can sometimes be terribly boring. It’s a paradox.

Yet, learning how to follow the money, to see how the cage is engineered, is powerful. It also deepens other perspectives, like psychology and history. I want to teach you how to read the newspaper backward. What do I mean?

Money is relegated to a separate section, Business. But the best way to understand the Front Page is to start with understanding the Business Page. The economy generally drives politics, not the other way around. The roots of Trumpism are flat wages. Inflation (more on this below) may do in Biden.

I stumbled on this approach. After college, I wanted to become a writer and figured living abroad might help. In my roach infested apartment overlooking Moscow’s ring road, I quickly found my education didn’t equip me to understand what I was seeing, like coups, hyper-inflation, corruption and an explosion of entrepreneurialism.

What was going on? In the Soviet Union, very basic things didn’t work, like toilet paper. In the US, commercially viable toilet paper became available in 1857. The Soviet Union, a country with some of the biggest forests in the world, could not reliably produce and distribute it.

The explanation for the toilet paper deficit was not to be had in Tolstoy, Russian language or international relations, though these are all interesting. The easiest explanation was that the Kremlin had the wrong price on toilet paper. It was that simple. The price did not incentivize the right action. With that realization, I decided to force myself to learn how money worked, even if I was bad at math and couldn’t (yet) see how money related to being a writer.

As I learned more about money, however, I noticed certain benefits. When I had a bad consumer experience, for instance, I knew exactly who to go to exert pressure (hint: not customer service). Learning to invest was even more transformative. I could express the picture of the world not only in an essay, but it in a series of investments. If the investments made money, I had the right picture and if they lost, I learned. The feedback for bad decisions was swift and merciless, which accelerated learning.

I am still in the money cage, just like all of you, striving to improve my understanding of the architecture and hoping, through these posts, to share that understanding. The posts come from a mental architectural drawing of how money flows through our bank accounts and the economy. The below is the foundation, with links to relevant posts embedded. Over time, I will further develop this on my website paulpodolsky.com.

Money begins with printing. No one has ever figured out exactly how much money to create.
Printed money shows up in the economy and in financial markets. The economy is spending. Too much money in the economy is inflation.
If you earn money, you are often dependent on a corporation, which is unstable.
If you have excess money, you save. This money can go into stocks and bonds, or real estate.
If you save enough, you can stop working.
Global wealth shifts are ancient and lead to conflict, which is very expensive.
The US is trying to preserve its global position but doing so from a weaker financial position.

More Recently:

Last week, the US government issued a report showing prices are rising quickly relative to history. If you look at the wages of people who get paid by the hour, they are beginning to contract if you measure them after inflation. This is a big deal. This means the truck driver or roofer is seeing the dollars in their paycheck increase and what they can buy in the store decrease, as the chart below from Rose shows. If you wonder what would crush Democrats in mid-term elections, this might be it.

Investing