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No. 44 – Valentine’s Deflation

by | Feb 14, 2021 | Letters

“We ate well and cheaply and drank well and cheaply and slept well and warm together and loved each other.”

~Ernest Hemingway

Dear Friend,

A friend and I found a new bakery this morning. There we enjoyed croissants, lattes, and the hospitality of the Afrikaans owner. As customers came and went, we compared it to a café we’d previously enjoyed a couple years ago. The simplicity of our morning hid a deeper truth: relationships are deflationary.

I hear your murmurs… “Fiscal policy and relationship info from a bachelor? He’s lost the plot this time, for sure.” Well, let’s see.

At the moment in the United States, the Federal Reserve is printing trillions of new dollars. “Once the government hands out the next $1.9 trillion, they will have increased the US dollar supply by 40% in a twelve-month period.” There is a word for this… inflation. We’re familiar with inflation. In our world of credit and debt, it’s an integral part of economic growth.[i] But what is it exactly?

Inflation is the decline of purchasing power of a currency over time. What does that mean? Basically, under inflation, your dollar, dinar or dram (the currency of Armenia) is worth less next month than it is today. Since the currency is worth less, you have to use more of it to buy the same thing. The cost of goods climbs higher. For example, when I arrived in Zambia in the nineties, a warm Orange Fanta was 300 Kwacha. A decade later, it cost 1200 Kwacha. That’s inflation.

Cool story, bro. What about deflation?

Deflation is the opposite. It is “a decline in prices for goods and services, typically associated with a contraction in the supply of money… During deflation, the purchasing power of currency rises over time.” We’re not quite as familiar with the concept, but we enjoy its benefits in technology. This is because of decreasing memory costs (stemming from increased memory supply courtesy of Moore’s Law, but I digress). “In 1980, the average cost of one gigabyte of data was $437,500; by 2010, the average cost was three cents.” This means that my smart phone can store thousands of pictures, songs, texts, emails, etc. and has several million times the computing power of the entire 1972 Apollo 11 guidance computer. A dollar today buys far more memory and processing power than it did years ago. That’s deflation.

[If the larger implications of deflationary technology costs interest you, I recommend chapters two through four in The Price of Tomorrow– a book kindly sent to me by a Kwacha Road reader. Thanks, M!]

So, after all that mumbo-jumbo, the definitions are actually pretty simple. Under inflation, you receive less per economic action (like a purchase) over time. Under deflation, you receive more per economic action (like a purchase) over time.

Let’s return to the bakery.

There was hardly anything significant about this morning. The building was a couple decades old, the wood floor scuffed by foot traffic. We sat at a circular, artificial marble table while the white walls around us howled their artistically safe décor. The croissants were fresh and the coffee mild, delicious and warm. But disposable napkins and paper cups subtly implied we were passing consumers in an impermanent space. This wasn’t Vienna, Paris or Seville. There was little reason to remember this morning.

And yet there was.

Kenny Rogers and Dolly Parton explained why when they sang, “Who’s gonna finish the stories I start / The way you always do? / When somebody knocks at the door / Someone new walks in / I will smile and shake their hands / But you can’t make old friends.”

“You can’t make old friends” is another way of saying relationships gain value over time. Contrary to elementary schoolyard pronouncements, you can’t become immediate best friends. The twin currencies of relationship – trust and intimacy- have to build up (they do so at different rates based on context, people, and a myriad of other variables). That all seems self-evident to me. Kenny and Dolly were right: you can’t make old friends.

So, this morning, the setting didn’t matter much. We enjoyed the croissants, coffee and mundanity of the morning because of our friendship. It was the deflationary nature of relationships, therefore, that gave significance to our bakery visit.

But why? To answer that, let’s expand on the idea that relationships gain value. How is that so?

The first reason is found underneath our neocortex and on top of our “reptilian” brain. It’s called the limbic brain, a feature we share with other mammals. We can’t function without it: “What one sees, hears, feels, and smells is fed into the limbic brain, and so is data about body temperature, blood pressure, heart rate, digestive processes, and scores of other somatic parameters. The limbic brain stands at the convergence of these two information streams; it coordinates them and fine-tunes physiology to prime the body for the outside world” (from The General Theory of Love) . Our limbic brain is the link between our interior state and the presentation of the exterior world.

Notice I said, presentation of the external world.

The limbic brain evaluates others and then reacts, primarily through emotion, to what it’s been taught of the world. For example, if it has learned through repetitions that a police officer is trustworthy, it responds with friendliness and no anxiety. If, on the other hand, it has been taught that nurses with needles cause excruciating pain, then it will respond with fear. The limbic brain gives an action its appropriate level of emotional significance. We can observe this important function in a couple ways.

We can observe this function when its damaged. An example of this is the awkwardness and disconnection of someone suffering from Asperger’s syndrome. For such unfortunates, (though they may be incredibly intelligent) the limbic brain doesn’t convey the emotional “essence” of life. Think of it like a cultural disconnection in which the underlying meanings, implications, and emotionality escapes one.[ii]

Alternatively, we can observe the beauty of the limbic function. “While sifting through the sensory present, the brain triggers prior knowledge patterns, whose suddenly reanimated vigor ricochets throughout the network. Old information comes alive, and a person then knows what he used to know. Because people are neural beings, the past is potentially vibrant within them.” This can result in “[l]imbic resonance- a symphony of mutual exchange and internal adaptation whereby two mammals become attuned to each other’s inner states.” This is frequently present between a mother and her pre-verbal infant. It is present in the glance at one’s significant other across the room that says, “I’m ready to go.” It is present in soccer players that pass a ball into open space, knowing exactly how their teammate will run on to it. When you see it, it’s hard to look away. It’s beautiful.

So, to put it succinctly, the trust of and connection to a friend that builds up in one’s limbic brain is the first way that relationships gain value.

Secondly, this neural function echoes through our cognition up to the neocortex. As explained in The Medici Effect, psychologists have found that from a simple word or idea, “our minds form a chain of associations based on things we’ve experienced in the past.” This creates what Johanssson calls “associative barriers” which he views as inhibitions to creativity. (For example, you might think of “cup” or “spoon” if given the word “table,” but you likely wouldn’t think of “quick-connect hydraulic line.”) But those chains of associations don’t just form barriers. They also give greater depth to simple, normal events. Therefore, it was not merely that my friend and I were visiting a bakery… it is that we were doing so after having done so many times in many different places. This morning we reminisced over the long chain of associated experiences at other cafes and bakeries.

So, to also put the second point succinctly, the ever-lengthening chain of associations is another way relationships gain value.

But having just observed that relationships are deflationary and why they’re that way, what’s next? What difference does it make? Who cares?

Well, this has gone long so I want to wrap it up, but the message in this letter is pretty simple. Relationships are valuable, and they gain value over time. That seems like a fitting reminder for Valentine’s Day. Plus, that reminder comes with a fresher on inflation, deflation, and  a bit of neurobiology intertwined with the story of a boring trip to a bakery… all from an eminently unqualified bachelor. What’s not to love?

Sincerely, Martyn


[i] As a result, a key question one should always ask in regard to liquidity (ie. the cash one has in the bank, as opposed to assets like stocks, bonds, property, etc.) is whether one’s savings yield rate keeps up with the rate of inflation. The current trailing 12 month inflation average is 1.4%, so you’d need an annual percentage yield higher than 1.4% to stay above inflation.

[ii] This is not to devalue the beauty and humanity of those suffering from Asperger’s Syndrome. It is merely a recognition of the disorder and its effects. The reference to “emotional essence” can be found on p. 56 in The General Theory of Love. Scientific evidence for the lack of amygdala function in AS patients can be found here and other studies:

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