| 00:00:07 |
00:00:13 |
Okay. I have a new working paper
with the policy exchange in London. |
| 00:00:13 |
00:00:17 |
But this is a new presentation of
an idea I’ve been working on for 20 years. |
| 00:00:18 |
00:00:22 |
We need a system of economic units
of measurement |
| 00:00:22 |
00:00:26 |
that make it possible for people
to take account of real quantities, |
| 00:00:26 |
00:00:28 |
in particular, inflation. |
| 00:00:29 |
00:00:33 |
First, inflation has been a
terrible problem. |
| 00:00:33 |
00:00:38 |
This is a one thousand
deutsche mark, right... |
| 00:00:38 |
00:00:43 |
issued in 1923 but on top of it,
you know, it says one billion marks. |
| 00:00:43 |
00:00:46 |
This is during the German hyper
inflation. |
| 00:00:46 |
00:00:49 |
We have seen major instabilities
in the past. |
| 00:00:50 |
00:00:53 |
This is a Zimbabwean currency, |
| 00:00:53 |
00:00:59 |
recently. his kind of instability
is associated with political instability |
| 00:00:59 |
00:01:00 |
and instability in our life. |
| 00:01:01 |
00:01:04 |
I think the German hyper inflation
led to World War II |
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00:01:07 |
and so these are serious problems. |
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00:01:13 |
Mismeasurement... we tend to write
contracts in terms of currency, |
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00:01:18 |
but the currency loses and changes
in value so it throws a huge randomness. |
| 00:01:18 |
00:01:20 |
This shows the change in value |
| 00:01:20 |
00:01:23 |
between a one percent
and a three percent inflation. |
| 00:01:23 |
00:01:26 |
These are considered moderate.
All right, this is not hyper inflation. |
| 00:01:27 |
00:01:31 |
But for someone who has 30 years
in retirement it’s a major change. |
| 00:01:32 |
00:01:37 |
My hero, Eduardo... Montalvo, who
is president of Chile, |
| 00:01:37 |
00:01:41 |
when they issued their index unit
of account |
| 00:01:41 |
00:01:44 |
called the unadadi fermento in 1967. |
| 00:01:45 |
00:01:47 |
They thought it was
an emergency measure |
| 00:01:47 |
00:01:49 |
to deal with out of control inflation. |
| 00:01:49 |
00:01:51 |
But I think it’s a model for the world. |
| 00:01:51 |
00:01:56 |
This is 20,000 Chile --
yeah a peso note. |
| 00:01:56 |
00:02:00 |
It’s approximately one
unadadi fermento or UF. |
| 00:02:01 |
00:02:03 |
The exchange rate is...
this is an idea. |
| 00:02:03 |
00:02:08 |
There are no UF notes but people
use UFs in Chile like money. |
| 00:02:09 |
00:02:12 |
I can offer the venue... I can
list my house for sale in terms of UFs |
| 00:02:13 |
00:02:15 |
and then when payment is made, you
pay in peso. |
| 00:02:15 |
00:02:16 |
And you can go to... |
| 00:02:17 |
00:02:21 |
Courier, the newspaper and
you can find out the exchange rate. |
| 00:02:21 |
00:02:26 |
Today it’s 20,919 Pesos or it
works out to about 42 dollars. |
| 00:02:27 |
00:02:33 |
If you define your house for sale
in terms of UFs, it’s fixed in real terms. |
| 00:02:33 |
00:02:35 |
None of this inflation thing
come... |
| 00:02:35 |
00:02:39 |
so this is some candles being
offered for sale right now in Santiago |
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00:02:45 |
for prices of 990 to 227 UFs.
They don’t even mention peso. |
| 00:02:45 |
00:02:49 |
This is what they’ve got. They
have adopted a separate unit of account. |
| 00:02:50 |
00:02:52 |
Now, I’d like to call them
something different. |
| 00:02:52 |
00:02:54 |
In English I call them baskets |
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00:02:59 |
because the consumer price index
is a measure of inflation |
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00:03:01 |
of the price of a basket of
commodities. |
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00:03:03 |
So that’s what we’re really
wanting to... |
| 00:03:03 |
00:03:05 |
instead of defining contracts in
terms of dollars, |
| 00:03:06 |
00:03:09 |
let’s say I’ll pay you so many
baskets |
| 00:03:09 |
00:03:13 |
and when it comes time, you would
then pay in the currency. |
| 00:03:13 |
00:03:15 |
This is a picture of
Simon Newcomb, |
| 00:03:16 |
00:03:20 |
who’s really the progenitor
of this idea in 1879. |
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00:03:26 |
He was a scientist who worked on
systems of measurement for a scientists. |
| 00:03:26 |
00:03:29 |
We now have good scientific
measurement |
| 00:03:29 |
00:03:32 |
but we don’t yet have good
economic measurement. |
| 00:03:32 |
00:03:39 |
This is about behavioral economics.
These are psychologists, Danny... |
| 00:03:39 |
00:03:43 |
and Amos... my...
others of my heroes, |
| 00:03:43 |
00:03:46 |
who showed the importance of human
psychology. |
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00:03:49 |
When you take into account these
things, |
| 00:03:49 |
00:03:53 |
you realize that you can’t expect people
to do complex mathematical calculations. |
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00:03:59 |
This is Irving Fisher, a Yale professor
from first part of the 20th century, |
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00:04:03 |
who said similar idea we should
have a compensated dollar. |
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00:04:06 |
The gold content of the dollar... |
| 00:04:06 |
00:04:07 |
this is during the days
of the gold standard... |
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00:04:10 |
should be changed to maintain its
purchasing power. |
| 00:04:10 |
00:04:13 |
But we no longer live in the gold
standard days. |
| 00:04:13 |
00:04:15 |
We have these devices here, |
| 00:04:16 |
00:04:18 |
for example, that allow you
to use your credit card. |
| 00:04:19 |
00:04:22 |
These can be reprogrammed so that
people can price |
| 00:04:22 |
00:04:24 |
in terms of some new unit in
baskets |
| 00:04:24 |
00:04:27 |
and then you would just put it on
your credit card |
| 00:04:27 |
00:04:31 |
and then the currency value would
be recalculated by a computer. |
| 00:04:31 |
00:04:34 |
This is a symbol for a
scientific... this is a lab scale. |
| 00:04:35 |
00:04:38 |
What we need, I think, is a... not
just baskets, |
| 00:04:39 |
00:04:41 |
but we need a variety of units of
measurement. |
| 00:04:41 |
00:04:44 |
I think we should have a variety
of consumer price indexes. |
| 00:04:44 |
00:04:48 |
We should have wage indexes. We
should have health care indexes, |
| 00:04:48 |
00:04:52 |
education cost indexes that are
all represented by units of measurement. |
| 00:04:52 |
00:04:55 |
And this is to relate to
the current crisis. |
| 00:04:55 |
00:04:59 |
The current crisis is generating uncertainly |
| 00:04:59 |
00:05:00 |
with regard to the price though |
| 00:05:01 |
00:05:03 |
because you can see
the... how uncertain... |
| 00:05:03 |
00:05:05 |
this is the U.S. consumer price index. |
| 00:05:05 |
00:05:07 |
You can see it’s been
very unstable through time |
| 00:05:08 |
00:05:11 |
and it’s jumped around a lot
lately so we especially need... |
| 00:05:11 |
00:05:15 |
this would be the opportunity,
now, at a time of financial crisis, |
| 00:05:15 |
00:05:18 |
to get on with perfecting our
economic system |
| 00:05:18 |
00:05:22 |
by adopting a system of economic
units of measurement. |
| 00:05:23 |
00:05:25 |
Thank you very much, Robert. |
