Author: Fred Zhang

The word “creativity” usually brings up images of artists. A less creative artist might paint a still life similar to previous artists, but a more creative artist might paint a still life with more novel features. Seen in this way, creativity is an abstract quality of the art, a slider that you can tune up and down like saturation without broader impacts.

However, there’s another aspect of creativity that is very physical and generative. Human creativity can literally create more stuff — generate things out of thin air. Not in the sense of violating conservation of mass, but in the sense of creating new things that humans value. Creativity literally generates new value.

Examples of Creativity Generating Value

Take a microscale, everyday example. Suppose my wife and I are trying to decide on the best restaurant for a date night. My wife like Italian food and so suggests a casual Italian place. I like haute-cuisine and suggest the high-end sushi place in town. It looks like we’re in a tradeoff situation. But then a friend creatively suggests the new Michelin 3-star Italian restaurant. Now we can both get what we want — my friend’s creative idea literally generated value.

A medium-scale business example might be deciding what marketing to do for your new startup. You can devote $10,000 to content marketing, or $10,000 to influencer marketing. Instead of taking these two choices as given, you can create a new one: try spending $100 in each, and see which one goes further. Then spend the remaining $9,800 on the better one!

Take a macro-scale, historic, and physical example. At the end of the 20th century, agriculture was running out of fertilizer, especially ammonia, which was previously collected from sources like bird feces. Ammonia became known as the gold of nitrates, and entire wars were fought over natural deposits of it. Then Fritz Haber cam along and invented the Haber process — a method of creating previously precious ammonia from abundant nitrogen in the air. This mental creativity resulted in a new physical process, and literal metric tons of more fertilizers and food for people.

In this sense, creativity is alchemy. It allows mere ideas to manifest itself as more stuff, more items of value, and often more physical items.

Blockers to Creativity Generating Value

This alchemy though is sometimes hidden through through a zero-sum or tradeoff mentality. This hiding occurs in two ways.

First, a zero-sum mentality can be a sleight of hand to prevent us from looking at creative solutions to begin with. In the first example of the date night restaurant, one might start thinking about fairness, or who got their choice of restaurants the last time. This framing already forces the mind to accept that we’re working within the confines of the tradeoff.

A zero-sum mentality is often the one taught in schools as well. In school, if you rank higher, your classmate ranks lower. You’re often given math problems like if train A is going at X speed, when will it collide with train B — there’s no sense in thinking of whether train A and B need to collide at all.

Second, a zero-sum mentality lets naysayers deny that creativity created any value at all. In the restaurant example, a naysayer might explain that our third restaurant was always in the solution space to being with. The “proper framing” would have included every restaurant in our city, and it would have been clear the third restaurant was the best, and so the creativity played no important role at all.

In the Haber example the naysayer might explain, well, the Haber process doesn’t violation the conservation of mass. Yes, there is a lot more ammonia in the world now, but the total amount of nitrogen atoms and hydrogen atoms are the same, so what good was the creativity? Is more food good at all? Are more humans good at all? Is a car truly better than iron ore stuck in the ground? The limit case of this can be called “conservation-law nihilism” and in such a philosophy, no humans or processes can ever create “new stuff”, which seems like an uninteresting definition of “new stuff” for this article, so I’ll rule it out. Having done so, it’s clear that people can create new physical stuff, and creativity helps humans create new physical stuff.

Ways to Apply this to Life

This results in a correspondence between creating things in your mind, and creating things in physical reality. If you want more stuff personally, and if you want human society to have more stuff generally, this suggests applied creativity. Personally, I’ve had some success in its application, and a description of the process might be:

For a decision you’re trying to make, list your current options. Then list your major values / goals you’re trying to accomplish. Then brainstorm a ton of more options around your major values. Finally choose the option that maximizes your goals. If you’re anything like me, at least 10% of the time, you’ll find that one of the “crazy ideas” you brainstormed is the clear right solution that creates 3x as much value as the options to had to begin with. This extra value was essentially created from thin air.

For society at large, a similar algorithm can work, but since the stakes are a lot larger, it likely would take more effort, more creativity, more background research, and more friends to help you along the journey. But the final impact of your creation will be that much larger.

A recent theory making the rounds in political-economic circles is Modern Monetary Theory (MMT). The strongest proponents of MMT don’t seem to have a consensus as to the details of the theory. The basic commonality in these theories boil down to the need for governments to spend money, oftentimes by borrowing, to achieve low levels of unemployment. In contrast, the standard wisdom, new-Keynesian, says that lowering interest rates is the best way to stimulate demand.

Naturally, this theory has been a hit among the politicians who would like to increase government spending. Even if MMT fully worked, there is the question of whether MMT permits unlimited spending, and if not, whether certain spending increases welfare above other spends (is a billion dollar highway better for the public than a billion dollar of debt forgiveness?).

The most popular and self-consistent version I’ve seen of Modern Monetary Theory is Abba Lerner’s theory of functional finance. The overarching thesis is that the government needs to directly apply the changes it wants to see in the economy. If there isn’t enough demand, the government itself must spend; if there is too much inflation, the government itself must cut back.

But the most systematic version, the version that I believe the most, is the one view put forward by Paul Krugman in his columns. Krugman explains all the empirical patterns we’re seeing today squarely within the standard new-Keynsian framework. Krugman says that Modern Monetary Theory applies best when interest rates are very low, which is the case across the globe today, but not very common throughout history in general. The technical term for this is the Zero Lower Bound, or ZLB.

To review new-Keynesian macroeconomics, there is a single optimal level of “demand” in the economy that results in stable inflation and lowest stable unemployment. Too low demand results in unemployment; too high demand results in inflation spiraling upwards. Normally, the interest rate is not too low, and the central bank controls “demand” normally. If demand is too low, the central bank lowers interest rates (thereby reducing savings, increasing the nominal value of assets) to stimulate spending, and vice versa.

When interest rates are too low, this normal mechanism doesn’t work anymore. Interest rates cannot be set much below zero, and even as you approach this bound many things in economics starts becoming quite strange (undesirable). In this case of the world, the alternative way for the government to create extra demand is by spending it themselves, and here you have MMT.

At the actual ZLB, which you see in Japan and the Eurozone, this really is the standard policy procedure. The government indeed needs to spend more to push up demand, and there aren’t easy alternatives.

The difference between MMT and new-Keyensian economics occurs when the interest rate is above zero, which it seems to be floating above right now. In such a case, new-Keynsians say the most effective thing to do is to lower interest rates to stimulate demand, and the private sector knows best how to allocate this demand. If you detected a twing of libertarianism in that ideology, you aren’t wrong. MMT supporters, on the other hand, say that the government should spend more. If you detected a twinge of state-directed-economy there, you aren’t wrong either.

Bitcoin is a decentralized asset which has its security is enforced by cryptography. No central government supplies and removes Bitcoins: instead the maximum supply of Bitcoins is encoded in the protocol. No financial institutions are needed transfer Bitcoins, or indeed can censor such transfers. Bitcoin transfers occur over an Internet P2P decentralized network without a central point of censorship.

Knowledge of a short piece of private information is both necessary and sufficient to transfer Bitcoin. Necessary means that without the Private Information, you don’t control the coin. No institution can lose the Bitcoin, no physical force can seize the Bitcoin, without getting the Private Information. Sufficient means that if you have the Private Information and can access the Internet, you control the coin fully. If you want to transfer it to another address and know the Private Information, no one can stop you.

Does anything else in human history feel like Bitcoin? One asset that jumps immediately to mind is gold.

Gold is decentralized: no government can mint unlimited amounts of it or default on it. The laws of physics, practically determined by well by geography and economics, limit gold’s supply. Physical possession of the gold, assuming ability to make free exchanges in the world, is both necessary and sufficient for transferring gold.

That Bitcoin mimicks gold is a strong primary argument for the continued value of Bitcoins. Moreover, Bitcoin is better than gold in nearly all dimensions. A receiver of gold needs to test its purity: Bitcoin can be perfectly verified for free and transferred for cheap.

While both gold and Bitcoin can be stolen, Bitcoin arguably has a much lower risk profile. To keep gold extremely secure, you need a secure room, located in a secure building, in relatively stable city, in a relatively stable country, ideally with an armed guard somewhere in the equation. The security chain above follows an “AND” structure: if you have a stable country but the room is compromised, the gold is endangered. The above chain is also expensive to maintain even at an ambient level. To keep Bitcoin secure, all you need is a cold wallet and multisig with a group of trusted friends.