The Federal Reserve recently reduced its federal funds rate by 50 basis points. Such monetary policy adjustments redistribute wealth across society. Consequently, decisions of this nature ignite significant debate.

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Comprehending this system unveils the underlying dynamics of North Atlantic societies. It also elucidates why numerous dictatorships worldwide are hesitant to transition to this model of democracy.

North Atlantic societies are inherently liberal at the state level. However, a byproduct of liberalism is that it permits conservatism to coexist and flourish. From campus protests to labor strikes, the system demonstrates that it is not a placid Pacific Ocean but rather akin to Iceland's active volcanoes.

Why is this the case? Liberalism emerged from the scientific advancements of the Enlightenment era. It thrives on experimentation and tolerates failure. Moreover, science has yet to provide definitive answers in most fields.

Some aspects of this system are beneficial. Numerous North Atlantic countries remain constitutional monarchies, such as the United Kingdom, Canada, Belgium, the Netherlands, Sweden, and Spain. Many of these nations maintain higher GDPs and living standards than republics like Greece, Italy, Hungary, Poland, France, or even Germany. Yet, subtle differences exist in their approaches to art and workplace hierarchy. Monarchies tend to favor hierarchical structures. When discussing market entry barriers, one often still requires some form of licensure, typically linked to connections, relationships, or educational certificates. The apex of such hierarchies is usually an institution bearing "royal" in its name. While this may seem inconsequential, its impact on societal thinking is significant. One can observe this by considering whether to consult a single esteemed individual or a social group when contemplating the launch of a business.

Secondly, there is the conceptual notion of money. The Ancien RĂ©gime relinquished political power, leading to improvements in human rights, for example. However, they persisted in retaining the authority to mint currency. Liberalism permits money to be earned, inherited, found, and so on-it is an asset akin to a gold coin or gemstone. Two fundamental pillars underpin this weakness in liberal societies. One is the constitutional privilege of the state to produce money; this is even enshrined in the U.S. Constitution. The other is the restriction of lending to those already endowed with creditworthiness, notably through regulations like the Basel Accords.

These two pillars provide a measure of security to traditional economies. They support corporations that have been tested by the vicissitudes of history. One cannot simply print money and conduct business with impoverished neighbors to achieve prosperity. Instead, one must solicit funds from credit institutions. Noncompliance can result in penalties from regulatory bodies like the SEC or even imprisonment. The Ancien RĂ©gime depends on philanthropy and certain state social services to bridge this gap.

These societies were constructed on the preservation of wealth. The emergence of socialist and communist ideologies did not benefit liberalism either. Restricting production to favor employees failed to yield effective solutions until the early 21st century. The concept of engaging with individuals based on their wealth rather than their labor or consumption led to numerous recessions and wars.

Currency valuations track interest rates, which in turn reflect the success rates of projects. If startups fail and dividends go unpaid, recurring revenues fail to accumulate. A deficit in recurring revenues implies reduced recurring income. This signifies fewer assets available for sale against a fixed quantity of currency in the short term, leading to inflation. Foreign investors account for inflation when investing in new enterprises, offering less foreign currency for the local currency. Consequently, the currency's valuation declines. Inflation compels the central bank to follow the lead of foreign investors by raising interest rates.

Errors by banks or investors result in losses that erode their purchasing power. The system becomes inelastic to investment.

When inflation is already low and the central bank reduces interest rates, investors cannot anticipate further significant decreases. This is inelasticity. Why does this occur? Inelasticity arises when the money supply becomes fixed. Overly rigid monetary and fiscal policies lead to wealth transfers within society. Investable assets vanish, and recipients hoard the money since it was not acquired through capital gains or merit. Such a society fractures, resembling South African apartheid, with communities retreating behind walls due to wealth disparities and divergent lifestyles. We observe parallels today in Ukraine, Israel, and the United States.

This process became apparent in this century as data became accessible and liberalism was no longer countered by an all-powerful communist rival. The solution employed in the 2010s for the same issue was quantitative easing and efforts to balance the funds available to various societal communities.

To comprehend a problem, one can analyze it from the individual's perspective. A conservative society is founded on discipline, typically driven by psychological factors rather than the physical and bureaucratic mechanisms of dictatorships. The system resembles a graph where each interconnection must be maintained, akin to mortar binding bricks.

A liberal society is predicated solely on consumption. The liberal monetary model serves as a tool to defer consumption. Investment is constrained by the number of citizens and their lifespans. In this model, interest rates merely provide the option to refrain from spending on suboptimal products today in favor of spending on alternatives in the future.

There is a conflict inherent in this dynamic. Conservatism flourishes through the diversity of manufacturable products. Some products are complex, such as satellites, requiring large teams or companies for their creation. This necessitates hierarchy and division of labor - manifestations of discipline.

Herein lies the weakness of North Atlantic societies - a vulnerability that dictatorships exploit globally to challenge the status quo. Conservatism generates inequality and produces a variety of goods. Non-essential products, including advanced weaponry, do not achieve universality. A conservative society is restricted in the quantity of such products it can produce.

Societies that emphasize individual freedoms differ markedly. Individuals possess the financial means to consume and are willing to work or invest to provide services to others. Increased flexibility enables greater production, rendering many luxury products commonplace. This necessitates a different education system - one where individuals learn more subjects across all sciences but can rely less on the security of a job tied to an elite university credential.

Conservative societies permit some individuals to pursue extended studies. This investment yields additional knowledge that commands a premium - it is akin to a license or permit, such as becoming a neurosurgeon treating rare diseases. If the product becomes essential but requires the same amount of study time, it may offer lower compensation. This could become the career path of a family dentist, sacrificing some salary gains for a smaller but more stable income. Demand ensures lifetime employment with the freedom to relocate to different regions with similar needs.

In liberal societies, only a sufficient general education may eventually be required to build houses or serve as nurses in public schools. The work culture aligns with demand, with public school systems offering better hourly pay but limited to half-day schedules. The remaining funds for essential childcare are allocated to publicly funded charter schools or daycare centers.

Liberal societies continue to permit wealth accumulation as they do today. Some families - whom I refer to as patricians - harbor a tradition-driven desire to build more. They may consume less and accumulate more by offering rare, high-value-added products that command premiums, such as luxury cars, rare wines, or art.

Others take this further by inventing world-class management systems to surpass competitors, as seen with companies like Amazon, Apple, Berkshire Hathaway, or NVIDIA. Wealth accumulation aligns with the interests of liberal societies, demonstrating their ability to withstand sabotage or communist upheavals and protect such institutions. Wealth effectively lowers investment barriers, expanding the investment base beyond the influence of central bank policies.

Liberal societies can safeguard traditional businesses by enabling educational institutions to train employees who will replace retirees.

However, certain patterns that are excessively conservative may raise concerns by hindering individual liberties.

Communities tend to form when the state and legal standards fail to protect individuals, prompting them to seek security elsewhere. These communities thrive on hierarchies that begin with a "first-come, first-served" pattern, akin to a Ponzi scheme favoring the initial participants. This builds informal hierarchies and fosters inequality, sometimes leading communities to impose limitations on themselves.

Informal licensing and titles pose similar threats to individual freedoms. When someone obtains a title from a prestigious institution, it represents a contract between them and the school. Forcing third parties to work for less or relinquish their freedoms based on such external contracts is problematic.

Another pitfall is attempting to assign particular identities to neighborhoods. Some may favor certain communities when purchasing houses or opening new restaurants. Such constraints reduce prices by eliminating liquidity. Mechanisms like a cryptocurrency smart contract that issues a job offer every ten years or the harassment of individuals to force property sales carry significant costs.

Groupthink is perhaps the most significant limitation of conservatism. Individuals make decisions based on discipline. For instance, mandating that only graduates from certain elite universities fill positions at a Big Tech company could lead to job losses. This may attract the attention of unscrupulous actors - like a real estate mafia - that exploit licensing, neighborhood watch mechanisms, and school harassment to force homeowners to sell at a discount. Relocating may lead to community issues and employment difficulties. Foreign hacker groups, financed through ransomware, might falsify criminal records against such individuals. These outcomes stem from seemingly respectable conservative decisions. Ultimately, these individuals may have no choice but to join security forces in conflict zones like Yemen or Ukraine, risking death. The outrage felt by families and former teachers over such stories may fuel support for terrorism. This trajectory unfolds over just three to five years, often without decision-makers realizing the impact of their actions.

Ultimately, liberal societies adhere to one fundamental principle. The right to vote establishes a social contract between the state and the individual - it is an agreement with the citizen, not their community, school, or family. This right implies that the state ensures adequate healthcare, shelter, and food if the economy fails to provide them. Moreover, the state offers education to prevent such situations. Education fosters transparency and a robust press system, enabling individuals to research career paths and avert unemployment. Such a liberal society thrives on sufficient liquidity and low entry barriers for small businesses.

The recent decision to maintain elevated interest rates for an extended period without increasing them excessively is indeed historic. Real-world data demonstrated that relatively high interest rates are effective in reducing inflation. It also illustrated that the central bank can relinquish some of its powers by rendering inflation inelastic to interest rates. Such an economy requires an increase in the money supply to sustain growth. This can be achieved through easier borrowing, foreign sovereign funds, or contributions from wealthy local individuals.

A conservative society is often termed a meritocracy. Yet, merit can sometimes be merely the ability to secure investment banking to fund enterprises like SpaceX or Tesla. Third parties may not accept - and indeed should not accept - this contract as a measure of merit. It is merely an agreement, not a license. When inflation becomes inelastic to interest rates, the money supply must be adjusted.

The banking system in a conservative society is intricate. It can be likened to a soccer game, with the central bank starting the ball as the goalkeeper. The ball stays close to the goal, occasionally reaching the strikers. The probabilities are analogous to the merits of connections, elite university degrees, long-term financing contracts, and licensing - factors that create inequality. The Ancien RĂ©gime granted democratic powers akin to the opposing team occasionally trying to seize the ball. However, they did not relinquish the power of initiating play - or, in fact, determining how many balls are in play.

A liberal society is considerably simpler. Beyond voting rights, credit is granted on an individual basis. Individuals act as their own investment banks, assigning their credit to employers. Employers who can provide quality jobs to individuals will be able to expand further. The capital remains credit-based, so they prosper only if they can secure customers in the market.

As the banking system narrows, the economy strengthens. Multiple companies offer similar products, and international trade further reduces prices. Supply becomes not just adequate but abundant, owing to the flexibility to shift production with sufficient funding. Such societies can opt to build better and stronger defense systems that do more than merely struggle - they can achieve decisive results within weeks, as witnessed during the First Gulf War in Iraq.

When society becomes conservative, orthodox, and complex, the supply of individual products depends on a small number of companies, often geographically confined. Such societies are prone to errors because any change necessitates extensive negotiations. These types of conservative societies can collapse easily, as a significant portion of the population lacks incentive to protect them.

Such societies can rebuild by lowering barriers to entry and adopting liberal principles, much like how the U.S. economy recovered from the Great Depression after Pearl Harbor or rebounded following the Korean and Vietnam Wars.

Most of these are simple speculation. Still, I believe some of them will be implemented in this century.