Anxious You’re Short A Self-Reliance Put?

I was running a few car errands yesterday thinking and my mind wandered onto a particular anxiety — why inflation is so psychologically upsetting.

[If you’re a well-adjusted person you don’t have such thoughts pop in your head while you’re pulling into Ace Hardware so count yourself among the lucky. But part of opening this email is you get some of my brainworms. Turns out nothing is free, including free newsletters.]

Inflation is obviously distressing because nobody wants to run faster to stay in the same place which is what you must do if your costs outpace your income. But inflation, especially sit-on-our-ass symbol manipulators like myself (and probably many of you reading a Substack on your work computer), awakens a fear that otherwise just harmlessly beeps in my subliminal background processes — the recognition that my pleasant, modern life is built on abstraction.

And there’s one abstraction in particular that I want to rub the invisible ink decoder on to expose — the economic principle of specialization. Modernity has so fully internalized this principle that we take for granted that the crops will grow and trees will be dragged from the forests for milling. This assumption allows us to focus on whatever our own crafts are knowing that we can convert the products of those efforts into money which we can exchange for food.

Inflation is a giant monkeywrench in the exchange rate between our craft and all the others we rely on to make it through breakfast without major surprises. The invisible solutions become revealed for what they are — assumptions.

I’m not sounding any alarms — specialization and its logical cousin comparative advantage are formidable foundations for flourishing and prosperity. I’m only pointing out how inflation causes you to notice the assumptions and that feels like someone asking me “do you know what’s in that?” as I bite into a hot dog.

In Pathless Path, Paul Millerd writes:

In the 1970s, academic turned farmer Wendell Berry wrote about how economic success includes the hidden cost of depriving people “of any independent access to the staples of life: clothing, shelter, food, even water.” What was once the riches of self‑reliance have become things with a price.

Tim Wu made this point in a widely read essay titled “The Tyranny of Convenience,” where he argues that convenience, “with its promise of smooth, effortless efficiency…threatens to erase the sort of struggles and challenges that help give meaning to life.” Wu argues that many see convenience as a form of liberation. People aim for “financial independence” only to realize when they achieve it that they’re only independent in the narrow sense of being able to pay for everything.

I have anxiety about my distance from self-reliance. I’m not handy, I have a black thumb, and I tolerate prepping food (I can’t call what I do “cooking”). I have a profound sense that if we were born in another era or place my life would be somewhere between “less pleasant” and “brutal”.

I often think about this interview response by hedge fund manager and one of the greatest Magic The Gathering players of all time, Jon Finkel:

I think I’m a bright guy, but I’m also aware of how much of my success has been luck. I was born a white man to upper middle class parents in the wealthiest country the world has ever known. I had a very specific set of skills that are easily translatable into money in our current society, but would have been far less useful for most of human history. The game I got obsessed with happened to grow and expand into the enormous thing magic has become, and it just so happens that I was actually good at it. So basically, I don’t think I have an edge in everything at all. I think I had a couple specific intellectual skills and it just so happens that they’re most obvious in the games that all the smart people I know also play, so it makes me look more talented than I really am.

We are short a far out-of-the-money put struck at self-reliance that’s denominated in fiat currency. The premium of that put start showing up on the End of Day Risk Report when inflation rates accelerate.

With all this said, I also hold tremendous sympathy for those who might be self-reliant but haven’t proportionally benefitted from financialization (the symbol manipulation industries of tech and finance are the lions closest to that carcass). They might be long the teeny-delta return-to-primitive put, but they are also short a straddle near the meat of the distribution. Moderate upticks in inflation that outpace income, create a similar anxiety — it erodes the stored value of their prior work known as savings. But they might have the extra disadvantage of being under-educated in the abstractions of money and investing. Symbol manipulators will have more confidence in their ability to mitigate inflation by investing in value-producing ventures.

[Note that “value-producing” is irrespective of currency — if you care for children, no matter what happens to the world, there’s going to be an exhange rate for what the work is worth relative to something else of tangible value. Nannies make 40 bananas an hour regardless of what the inflation rate of USD says].

A few nights ago I was chatting with my mom.

My mom is a smart lady. She taught me how mortgages worked when I was in elementary school. I was fortunate to be born to someone who taught me about money, savings, interest and loans.

But she doesn’t understand investing.

She didn’t understand dividends until Sunday. She didn’t understand the source of return for a business or the idea that a business owner is a “capital allocator” and how they must choose what to do with their profits from a menu that includes:

  • giving money back to investors which can be done through:
    • dividends
    • buybacks
  • re-investment back into the business
  • mergers and acquisitions

What they choose to do is a revealing action. It signals what they may think of the company’s health or foreseeable prospects.

So even if I have the standard anxiety about inflation plus some personal insecurity issues that it stirs about self-reliance, they are low-grade neuroticism around extremely remote events like hyperinflation.

I feel for the average American who I’d bet is even less informed than my mom.

[I shared this thought with the local social club I’m in and there was plenty of interest in basic personal finance talks, so I’m collaborating with a few members to do some firesides at the club.]

Look, I understand the arguments for moving from defined benefit (ie pensions) to defined contribution (ie 401k) plans but “democratizing investment choice” without the proper scaffolding feels like an invitation to have the wolves educate the sheep.

I’m capable and enjoy helping people think better about this stuff so I’ll keep on. But just a reminder, that if you feel comfortable with investing basics (and most of this readership does!) don’t take it for granted that your neighbors do too. A nice way to give back locally or just in your family might be to organize a session where no question is too basic. Create a no-judgement zone. You, right now, are sitting there with the skills to alleviate some of your friends and family’s anxiety.

In return, I’m sure they’d love to help you navigate an Ace Hardware.

Leave a Reply