March 6, 2016

SCHULMAN | Everday Life is More Exotic Than the South Pacific

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Ever hear of Bronislaw Malinowski? He’s kind of a big deal in anthropology. And his story is fascinating. Malinowski was a Ph.D. candidate at the London School of Economics. He was studying exchange patterns in New Guinea when World War I broke out. Being a Polish citizen, he couldn’t go back to England. So, he did the rational thing. He spent seven years in the Trobriand Islands, a tiny island chain off the coast of New Guinea, taking notes about the native people.

The Trobriand islanders were baffling to him. They crossed the ocean — an incredibly dangerous job when using neolithic era technology — to trade seemingly worthless trinkets. Malinowski eventually connected the trinkets with political power and social standing. This explanation satisfied a lot of people, but for me, it only opens more questions. Of course, that’s not to say I think our trade practices are more rational; I can’t help but wonder what the Trobriand Islanders would think of the green papers we trade with each other.

You don’t need to go as far as the Trobriand Islands to find a baffling exchange system. People spend their lives analyzing our economy making incremental progress. Our economy is strange. People do unexpected things. If you don’t believe me, look at the Chairman of the Federal Reserve Board of Governors testimony to congress a few weeks ago. Congress was very interested in whether or not the Federal Reserve was considering negative interest rates.

The Trobriand Islands’ ritual exchanges are bizarre, but negative interest rates are as wonky as it gets. Why pay someone to take your money? What’s more, congress’s line of questioning isn’t that unreasonable. Twenty-five percent of world economic activity takes place in countries with negative interest. A few years ago, central banks in Denmark and Switzerland brought interest rates below zero. When people didn’t withdraw, the European Central bank (France, Germany, Italy and friends) and the Bank of Japan followed suit.

To some, negative interest does not seem strange. Interest rates in the United States are basically zero so in some sense, we already pay to hold money. Money loses its value over time due to a phenomenon called inflation. Taking inflation into account, you actually lose money by leaving it in the bank. However, there’s nothing you can do about inflation. Money loses value regardless of where you keep it.

On the other hand, no one is forcing you to keep money in the bank. Yet, people haven’t withdrawn, even when they can hold money as cash for free. The consensus is that holding money as cash is more costly than interest. Keeping money under your mattress is just uncomfortable and having a bank account is nice. However, if interest becomes more costly than holding cash under a mattress, you would expect people to withdraw their money.

As a result, a lot of people want to know how long we can keep this up. There’s a reason negative interest was the the kind of talk reserved for armchairs. Our entire financial system assumes interest should be positive. Stripping away the Wall Street jargon (and the egos of the people who speak it), banks essentially make money using money, charging interest on loans, which is simultaneously baffling and fascinating in a recursive way. If banks get charged for loaning money, you have to wonder how they can remain viable.

So don’t get me wrong, Malinowski was cool guy who saw some pretty amazing things — but, I doubt any of it compares to everyday life. Sometimes we hide our craziness behind fancy jargon, and other times we just take it for granted because it’s so commonplace. But from an outsider’s perspective, everyday life is more extraordinary than the far reaches of the South Pacific. That’s my schtick and I’m sticking to it. Stay tuned alternating Mondays this semester!

Eric Schulman is a junior in the College of Arts and Sciences. He may be reached at [email protected]. Schulman’s Schtick appears alternate Mondays this semester.