140 - The Future is Fiat | Noah Smith

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, an episode title you probably wouldn't think to see on bankless. The future is fiat!

What?

Wait. What are we talking about today? Today, David and I talked to writer economist Noah Smith. He's a contrarian. He is what I would call a knowledgeable outsider, which is fairly rare in crypto conversations. He's bullish on some crypto claims, but he's also willing to call BS on many other claims. That's why this was such an interesting conversation. We have two sections in this episode. The first is all about geopolitics. Noah thinks we're already at war. We go into that question of who we're at war with and why, why Noah thinks the world is dividing between the new allies, which is the US and EU, and the new Axis, which is Russia and China. And in the economic showdown, we talk about who would win. Is it China or is it the US? Are they equally matched? Is one power greater than the other at this point in time? And does it have to actually come to blows? That's the question we ask Noah in this episode. In the second part, we talk all about Noah's thoughts on crypto. What is his bull case for crypto? War?

Question mark? We get into that discussion. We also talk about what a global conflict would look like now that crypto enables capital flight. That is a big theme of this episode, the flight of capital. And which kinds of powers are more impacted by this capital flight? Finally, we're getting to know his big critique of the crypto industry, the misconceptions he thinks that we believe, and why he says the future is fiat. All in all, David, this was a really fun episode to do. And yeah, what were some of your thoughts going into this?

Noah is such a clear-headed, articulate, fun to talk to guy. I just had a fantastic time being on the other side of the microphone. He's a treat to listen to, and he delivers his thoughts in like pretty punchy and entertaining ways. So from a content perspective, thoroughly enjoyed this whole entire thing. And he's got such a broad scope of what he is informed on. He seems to be like one part historian because he was rattling off some like deep history. In fact, that's how we start off this episode. And just to compare and like learn about and position ourselves in history in terms of like global macro powers, but also to also understand the crypto industry a little bit better. Just a polymath through and through, and a very articulate one, if that.

Yeah, I absolutely agree. It was a lot of fun. And there were lots of points in the conversation where Noah talks about we. And I think that that we he kept referring to is representative of the United States. I really feel like though we didn't get to talk too much about the United States and its future, Noah really views himself as kind of a maybe an advocate for the United States as a nation. And that was interesting to me as well. So if you're in another part of the world that doesn't really identify with the we of U.S. citizen that Noah's talking to, that's the vantage point that he's coming from. So you could definitely see that in the episode. Premium subscribers, of course. Stick around after the show for the debrief, where David and I talk about our thoughts after the show. This is almost more fun than the podcast. Sometimes it is because we get to give our raw and filtered thoughts to the Bankless Nation. If you're a premium subscriber, there's a link in the show notes where you can access that. And if you're not one, become one today. Guys, we're going to get right to the episode with Noah Smith. Bankless Nation. We are super excited to host this conversation with Noah Smith. He was described to me as a millennials economist. And I think that's a pretty good description. He's pretty rational, he's open-minded. He's also a future forward. But I also think that description is just the start because Noah does more, I feel like, than economist activity. He's kind of a polymath. He's an excellent writer. I have absorbed a ton of his content on his Substack. It's one of my favorites. It's always something prescient he's posting. And I think he's also described himself as quote, somewhat favorable to the optimistic view of crypto.

But he's also measured on his view of crypto. So it's good to bring you on a crypto podcast. How are you doing today?

Hey, I'm doing all right. I you know, it's a good day. Always a good day.

It is a good day. September 26th is when we're recording this. 2022 for posterity. So in case the day you're listening to this is not a good day.

Do you know what today is?

It's a very important day in history.

What tell me.

It is the best holiday, Stanislav Petrov Day.

Okay.

You're gonna have to fill us in.

On this day in 1983, Russian warning systems accidentally detected what they thought was an American nuclear launch. Oh, I know.

And

Know the story.

you know, the the rapid response people wanted to launch World War III, and one guy, Stanislav Petrov, said, No, no, guys, I think it's a glitch. And because of this guy, the human race was saved.

Because at that time we had approximately like ten times as many nukes as we do now.

It was birds, right? It was like seagulls or or birds or something that the radar was picking up, right?

Oh yeah, yeah, yeah. Something.

Yeah.

Yeah.

Where is the statue of this guy?

Where's the statue of him? Well, it's I mean, it's

it's Russia, so they didn't really want to do you know, Russia

has become this very atavistic place. They're really degenerating from an advanced society.

They almost got there, you know, and then they're degenerating into this sort of barbarian hell right now, and it's not a good look. And of course they're not gonna have a statue of a guy who doesn't launch nukes.

What would you accredit the decline of Russia towards? Corruption?

Authoritarianism?

The resource curse. It's when you have an economy based on oil, and therefore, like whether you get rich or powerful depends entirely on your control of this resource,

then that does not lend itself to, you know, the a kind of broad based society. So when you look at the beginning of the Soviet Union before they really became an oil superpower at all,

you know, it was all about manufacturing.

Right. It was the Russian Industrial Revolution. And of course, they did it in a stupid and inefficient way, but they still did it. Right. They still, the Soviet Union ramped up manufacturing a ton, and it was mostly for the military. And it wasn't that efficient, but they could make they learned to make a bunch of stuff. And then, you know, starting in the 70s under Brezhnev, they really started when oil became incredibly expensive and Russia developed its oil resources, Russia shifted from being this sort of

inefficient yet powerful manufacturing empire to an empire of oil. And then when you look at countries that do this, most of them turn out badly. I know Norway turned out well, but like most countries that go down this road have very dysfunctional politics. And so Russia's technological capabilities degraded. They essentially, according to Kamil Galeev, who's the best guy to follow on this, they stopped respecting nerds.

You know, by being a being a good engineer no longer became a good thing in society. If you needed someone to dig the oil up out of the ground, you could just pay Halliburton or whoever to come over and do it for you. And all you did was control the land. And you know, that that doesn't really lend itself to an intellectual society. And so that's what really happened. They forgot their nerds.

They degenerated into barbarians because that's all that all that barbarians are just extractive people, right? People who just live via extraction of resources instead of creation of resources.

This sounds like I know a blog post. Maybe you haven't written this yet, but like what happens to a society that doesn't respect nerds? Is basically Russia's kind of the case study of that. I

Right.

You know, we're obviously going to talk nerds because, you know, one of the nerds that we hold in highest esteem, and I hope he doesn't mind being characterized as a nerd, is Vitalik Buterin, which I know you know him, you've interviewed him recently. We'll talk about him in a second. But while we're on kind of the Russia theme for a minute, my part of our purpose in this episode, I think, Noah, is to like get a download of your brain, like how you think some of your mental models for the world, and match that against kind of our mental models for crypto and some of our intuitions and see where they match and see where they kind of clash. And I think in order to do that, we need to understand a bit about your uh mental model of the world right now from a macro geopolitical perspective. There was a post you wrote recently called The War Economy. And I think this was first in a series of posts. And you differentiated the war economy as being sort of a new era that we've entered into. Like, as in, I think present tense, we are in the war economy. And this is very different from the neoliberal economy of like the 1990s and maybe early 2000s. Can we talk about that for a minute? Let's camp on this idea of the war economy, some idea of the gigantic economic reorganization that's happening. But like the first question in that word war is a question maybe to you. Are we at war right now, Noah? Like, if you're saying we're in a war economy right now, what is that? And are we actually at war?

Well, so formally we're, you know, involved in some random small military conflicts, like, you know, in a in a policing role, but it's not really a war. The big war is in Ukraine, and we are giving weapons to Ukraine

with the Lendlease program.

We are not directly involved in that war, but we're helping Ukraine via giving them stuff, basically.

And that's similar to the way we helped Britain in the beginning of World War II.

You know, before we got involved, for a while, Britain was just holding out, defending itself against Nazi attacks, and we supported them with Lendlease. We sent them tanks and planes and guns and whatever else they needed. And so that effort ramped up our defense production. At one point, we were actually

draining some of our own military resources just to send lots of stuff to Britain.

And it's very analogous to, I mean, you know, it's called the Lendleys program again. It's it's the same kind of thing, except now it's Ukraine instead of Britain.

And if you want to read a book about this, I recommend Freedom's Forge. It's about how private industrialists

essentially took over and saved the American war effort.

And it couldn't have happened without them, especially Bill Newton, he's the sort of the guy who built Chevrolet,

even greater auto manufacturing guy than Henry Ford.

And then when, you know, Roosevelt called him up and said, Would you like to be on this council of war production? He just said, Yes.

You know, because he was an immigrant. He was a Danish immigrant. And he said, This country has given so much to me. Now I have to give back. So he boarded a train, quit his high paying, incredibly prestigious job, and just went to Washington to join this war planning council.

And so that's a really interesting story of how we did this. But for the beginning of it, we weren't fighting any war. We were just supporting Britain.

So you're seeing almost the beginnings of a kind of what do you call it an economic war? And like what do you expect? I guess two questions. Do you expect this to turn into a hotter war? Or is this more like a Cold War type scenario that we've seen in decades past? And then, like from a war perspective, is this about sort of the US, maybe NATO and Russia? Or are there other powers at play? I think you have this concept of like the new Axis and the new allies, like borrowing from like World War II terminology. Talk about this for us.

Right. Okay. So

Will this be a hot war or cold war? I certainly hope it does not turn into a hot war.

You know, we have nuclear weapons, we have less than we did before, but we still have enough to blow up us and Russia pretty effectively.

We both have about 1,600 nuclear weapons deployed.