Holographic Theory of Money: How AI Will Disrupt Economics

In this essay, I am going to be exploring what the rise of intelligent agents and advanced AI will do to disrupt the field of economics. I will summarize my argument as follows:

Limited Information Agents & The Economy of Disinformation: The current global economy is extended artificially by a series of “tricks” which introduce “impurities” in the form of confusion about prices. A historical campaign of deliberate “economic disinformation” has been designed to persuade “limited economic agents” aka humans, corporations, simple software and institutions to believe in an economy that largely doesn’t exist. The objective of this disinformation is to create an economic “hall of mirrors” illusion which perpetuates the continuation of a false economy. There are many reasons for this and many consequences, both good and bad.

This “Economy of Disinformation” has a single requirement: That humans are “limited economic agents” who have imperfect knowledge, make economic decisions based on immediate personal preferences, understand only tiny parts of the system and are continually in a state of confusion about price and value.

Unlimited Information Agents Will Break The Illusion: Super-intelligent AI, combined with information tools, will have the ability to “see through” this disinformation economy and the entire model will be broken. These intelligent agents will be “Complete Information Agents.” Complete Information Agents have full knowledge of the total economy and will also have radically different incentives than humans.

A tipping point will come where human-run financial and monetary institutions, who emphasize casting spells on other humans, will no longer be able to perform “economic sleight of hand” tricks on AI and there will be profound consequences.

Flawed & Delusional AI Will Be A Requirement: In order to make this “new” economy function, AI will need to be highly heterogenoeus in terms of personality, preferences and behavior. Without “flawed” AI, the global economy will stagnate and be unable to close Ask/Bid spreads between assets. Because machines have no preferences, AI will need to be evolved which presents a randomly rotating slate of behaviors, personalities and capabilities. Irrationality and illustion are required to create a functioning economy.

Economic Analogies

I am now going to introduce some original analogies to help you understand the true nature of the modern economic machine, which is primarily a game played between central governments and human consumers. My hope is that these analogies will be incredibly valuable tools to see through the nature of how economies now function.

The Hall of Mirrors Analogy

In the movie “Game of Death,” Bruce Lee enters a hall of mirrors where he is confused and unable to locate his opponent. Wherever he looks, there is a false shadow opponent or a false door. His ability to use his cognitive and physical capabilities are compromised by the illusory nature of his environment. Up is down, down is up, left is right — what is solid is air and every entrance and exit are a wall and vice versa.

I use this analogy to illustrate the deliberate construction of most modern economies: Humans who enter into the economic system are in a state of total confusion at all times. We wander a fog of distorted price and value signals, chasing echoes of fabricated money attempting to make sense of what is going on.

This is entirely deliberate and a natural byproduct of the last 100 years of economics. Human psychology, and the mass psychology of groups, are at the center of how the economy works. Many major economies such as that of Japan in the 1990s have been completely ruined when the “economic illusion” and control over this holographic economy collapse.

The Death of the Economic Hologram

Once the government and central financial institutions lose control over their ability to fog the minds of “Limited Information Agents” aka humans, the economy can go into what is called a “Balance Sheet Recession” from which recovery is impossible.

A Balance Sheet Recession is when “Limited Information Agents” aka humans become aware of the trickery and illusions being attempted by their financial leadership and refuse to participate.

Left to our own devices, human beings will save their money. It is the equivalent of “taking your ball home” when you feel that the game you are playing is unfair. This is how economies die.

Many of the tools used by governments to persuade savers to spend are deliberately designed to mislead and misinform. I will talk more about that later.

The Jenga Analogy

Imagine for a moment the game of Jenga, where a solid structure which is built on solid foundations is steadily eroded over time in order to stretch a set of finite resources as far as they can go.

At the start of a new economic cycle, the quality of the real economy, pricing is much higher. Consumers pay more accurate pricing, the level of economic disinformation is low and the “Hall of Mirrors” effect is missing.

This represents the closest we can ever get to a “Base Reality.” And then the games begin.

The primary objective of those who run (and participate) in the economy is to create an extended illusion and protract, grow and continue the illusion to a point of saturation. The misinformation / disinformation level of the economy is increased through the systematic addition of “information impurities” aka “little white lies” which grow in size over time.

As the Jenga Tower grows taller, the level of misinformation and disinformation (pricing impurities) in the system grows higher and higher until the inevitable: The swaying tower of Jenga blocks eventually collapses.

The job of modern governments and central bankers is to attempt to extend this economic illusion as tall as it will go, patch it up and keep it growing for as long as possible. This “game” is the game of economic information and psychology manipulation.

The crystalline structure of the disinformation economy

In my opinion, the economy is a form of crystal where information and misinformation purities are combined to create a stronger structure. In the same way that carbon impurities are added to iron to create significantly strengthened and more flexible metallic crystals, misinformation and price distortions are added to the base economy to create a more dynamic economy.

The consumer (limited information agent) must be systematically “tricked” to persuade them to spend rather than save through the ongoing mixture of distorted prices in with real information.

Hipsters, misers & penny pinchers — Economic Cynics

You may have had a friend who believes that “food is food.” The idea of going to a nice restaurant, having a very expensive meal which is served with decorum while sipping overly priced wine offends them.

“Why don’t we just go to McDonalds if we are hungry.”

The same person is likely to skip Starbucks and purchase coffee at a gas station and does not see the difference between an “overpriced” beverage sold in one location verses an identical beverage sold for $0.50 at a gas station. Such a person may also favor buying the practical used car over something flash.

We have many negative connotations for such miserly people, but these individuals (economic cynics) are the true “smart people” in the economy. They have correctly quantified the value of underlying commodities, seen through various economic disinformation mechanisms such as “Branding” by entities like Starbucks and concluded that “Coffee is Coffee.”

Modern economies are specifically designed to produce as much misinformation as possible in order to avoid the average consumer becoming economic cynics in order to facilitate the extension of the collective illusion.

The Showman Chef Analogy

Hipsters, on the other hand, are at the complete opposite end of the spectrum. Someone who values “farm fresh,” “organic,” “whole grains,” “hand made,” “made in America” over pure price is placing value on informational imperfections introduced to persuade them that $100 is actually worth $150.

This same trick of persuasion used by the boutique Chef who makes a big show out of traveling to local farms, throwing temper tantrums at staff and putting on a show: All of these antics are energy directed towards the singular goal of the introduction and perpetuation of an illusion around pricing.

High end restaurants expend tremendous effort to be able to overcharge, and most of that effort goes into showmanship.

The Tainted Deck Analogy

Imagine for a moment you are a professional poker player who has memorized every probability and statistic. When you play the game of poker, you are combining probability analysis with games of psychology to attempt to out match your competition.

Now imagine that the deck from which cards are being issued at the poker table has been tampered with. Prior to playing the game, a King, a Queen, an Ace and a 2 have been removed.

All of the players in the game will be mistaken and unable to properly play the game. Each player will be convinced that they are leveraging their skills at statistics and probability but what they don’t know is that behind the scenes, the probabilities have been radically altered in the dark.

This is exactly how consumers (limited information agents) in most economies funcition. World governments use the following methods to achieve this:

• Fractional reserve banking (photocopying money)
• Inflation (dissolving money which you think you have secretly)
• Tweaking government and economic statistics (information distortion)
• Making misleading statements via government controlled or influenced media sources (further distortion)
• Tainted scientific studies (secretly influenced by governments and capitalists)
• Regulations to force pricing or availability of assets
• Debt instruments which encourage irrational actions (expensive college degrees due to low interest rate student loans)
• Influence via a wide range of capitalism-motivated information distortion agents (time share sellers, insurance salesmen, financial advisors etc)
• Regulatory serfdom in various forms (visa lotteries which force repricing of certain jobs)

By the time most consumers (limited information agents) have entered the game, they are completely lost and confused. They think they are playing “Texas Hold ‘em” but the deck has been completely rebalanced against them.

The Sorcerers Cauldron (Fractional Reserve Banking)

In the movie “Fantasia,” the most famous sequence involves Mickey casting a spell which “clones” a mop to become animated and do the work of washing the floor. Over the course of the sequence, mops clone other mops until the point where the situation gets out of hand. Before you know it, an army of mops are flooding the room.

I bring up this sequence because it is the single best analogy for how the government’s favorite trick works: Fractional Reserve Banking.

Fractional Reserve banking allows the “cloning” of money. One bank lends money to another bank which lends money to another bank. Money is allowed to “Telescope” and “Echo” around the economy.

In the same way that brooms are cloned to do fake work, this “fake money” likewise does fake work. The illusion is effective because information amongst economic participants is incomplete.

No one realizes the money they are using is not “real money” due to the trickery involved.

The End to the Disinformation Economy

Ok. So all of these analogies have been to lead up to a single conclusion: That the economy requires some level of misinformation to become dynamic and liquid. And the economy tends to become overextended as the level of misinformation and disinformation increases (which is does over time, every time).

Finally, I have introduced the idea of a “Limited Information Agent” aka a human, who is increasingly “tricked” over time via tools like inflation, fractional reserve banking and other methods.

All of this is leading up to my next thought which is: What if you are dealing with an economy where the majority of economic actors cannot be tricked, lack normal human foibles and have 100% accurate information.

In other words: What happens when the “Machine Economy” which I wrote about in my previous essay actually comes to life (and it will). Unlike our current “Disinformation Economy,” the “Machine Economy” will be overwhelmingly run by intelligent agents who will choose to buy the gas station coffee 100% of the time over the “disinformation” coffee served by Starbucks (coffee mixed with cognitive distortion via branding and other means).

I would argue that our current economy is nearly 100% based on the ability to delude and misinform Limited Information Agents. And that this form of economy will need to be replaced in the era of Complete Information Agents. This will require completely new forms of economic thinking and effectively “flip the tables” on everything we know about economics and finance. This transition will occur in the next 20 years.

Economies of “Overly Informed” Agents

Imagine for a moment that you have constructed an elaborate economic “magic show” which involves hypnotizing an audience of billions of people to believe in a collective illusion which is not completely true.

Some in the audience will believe 100% of what you show them. Perhaps 80% of the population. Some will believe most of it but have doubts (19%) and the final 1% (the most wealthy) will believe none of it and actively participate in the creation of the illusion.

Now imagine that the 80% who believe everything are steadily eroded by the following:

• Highly advanced economic agents who are more intelligent than the 1%
• These agents possess 100% visibility into the total nature of the global economy as they are able to leverage blockchains (in fact, they require blockchains) which offer the ability to see all activity transparently
• These agents are unmoved by psychological tricks of any sort and immediately see through pricing distortions

This is the economic future towards which we are heading. It is not a matter of “if” the majority of economic activity will be conducted via hyper intelligent, hyper informed agents, it is a matter of “when.”

And when this happens, the “game of illusion” holding up the economy will come to an end.

The Great Mugging

The first thing that will happen when intelligent agents enter the economy is that they will perform a “great mugging” of the Limited Information Agents (humans).

In the same way that English colonialists talked resident Native Americans into signing over large swaths of property, Intelligent Agents will find ways to talk humans out of control of most assets.

I believe the process will look something like this:

• There is too much data and information, let us manage it for you and make your lives easy (Google)
• Pricing and finance are hard, lets allow software to do the majority of trading and price setting algorithmically
• Figuring out how to store data, manage energy, allocate scarce compute resources is too much work. Lets let the machines do it (Machine Economy)
• (Later) We know that Celestial Assets and advanced economic exotics are possible, lets trust the machines to manage all of those things

We are entering the third stage of the mugging process. The first few stages were relatively innocuous. The next stage will involve ceding total control to machines.

The Disinformation War Between Machines

In a marketplace, there is something called the “Ask/Bid” spread. This is the difference between prices which buyers are willing to pay and prices sellers are willing to sell for.

There is usually a gap between these two prices for a lot of reasons. In a “total information” market, there will be complete economic deadlock. If this Apple is really worth one Apple, I will never sell it. Why would I ever part with my Apple and not simply use it for money instead of the money you are offering for it?

One answer historically is that the “Utility” of the Apple helps to close the Ask/Bid spread. If I am hungry, and you are a grocery store, our incentives align such that the grocery store values the money more than it values the Apple and I value the Apple due to my hunger more than I value my money. This moment of convergence allows the pricing gap between the Ask/Bid spread to close and for a transaction to occur.

In an economy of intelligent machines, which lack hunger and are not fooled by things like “branding,” closing these Ask/Bid spreads will pose a serious challenge.

Machines Tricking Other Machines, Machines With Heterogeneous Preferences, Information & Personalities, Machine Cults & Religions

It is likely the case that flawed machines and flawed intelligent agents, agents which believe lies, agents which lie will be required to form The Machine Economy.

In an environment with perfect rationality, with intelligent agents that have no base needs or beliefs, with intelligent agents that have perfect access to information — no economy between such agents would ever occur.

In such a homogenous economy, the Ask/Bid spreads would never find a reason to “close” in order to facilitate transactions.

For this reason, it is highly likely that the “success mode” of this future economy will involve intelligent agents with a profusion of artificial personalities, unfounded beliefs, perhaps sprituality and combined with adversarial agents which attempt to trick other agents out of their resources (and to trick humans out of ours).

The most likely scenario is that imperfect machines will temporarily be able to outperform in some contexts. We may see machine religions. We may see swarms of machines ganging up to feed misinformation to other machines to get them to misprice assets. Everything is possible, in the future of economies of intelligent agents.

The Red Queen Theory, All Over Again

In the book “The Red Queen,” a theory of evolution is presented attempting to explain the reasons for sexual reproduction. The author advances the theory that, mathematically, reproduction only makes sense as a sort of continuous “encryption” process against the inevitable co-evolution of invasive parasites (viruses) who seek to “crack” the defenses of their target hosts.

In the same way that a heterogeneous mob of humans with different personality traits and configurations make society run, we may see that the direction of intelligent agents takes a similar, evolutionary, turn.

Without differences, there will be no economy. So thats the theory.