I posted this as chum for all the econ sharks to gobble up. Have at it:
The US dollar is the only lawful money in the United States. While some think Bitcoin can supplant the dollar, they fail to acknowledge that it has significant flaws, which we believe are critical to understanding why Bitcoin should not be lawful money.
The primary problem, however, with gold and other historical types of money is that their supply does not align with economic growth and activity. For instance, a massive gold discovery would instantly depreciate the value of gold versus the goods and services it can be used to purchase. Such an event would create inflation. Conversely, if gold becomes more difficult to find, its supply may not keep up with its demand for money, causing it to appreciate. In that case, it would be deflationary
Hypothetically, if Bitcoin were lawful money, its limited supply would not be sufficient for a growing economy. Thus, the value of Bitcoin would rise, and by default, the prices of goods and services in the aggregate would decline. Some may argue that deflation is a good thing. And yes, while we like cheaper things, ask yourself who would buy them.
If you like a new house that costs $500,000 today, why would you buy it if you think it will be cheaper tomorrow? Similarly, why would businesses expand today if they could do so at a lower price tomorrow? The bottom line, and our not likely popular opinion, is that economic growth needs inflation.
Live picture of @Undisciplined, @denlillaapan, and @Shugard circling this post
https://media1.giphy.com/media/Acrnv6jjZdVOWaWdLk/200.gif
On a more serious note... I just find this claim of "who would buy anything if the price goes down" to be quite lazy, nominal thinking and mostly ahistorical.
The price of consumer electronics has been going down for decades. Did people stop buying consumer electronics? Did the market for consumer electronics shrink? Did people stop investing in those businesses? Henry Ford made the automobile more affordable... did people stop buying automobiles?
Stop thinking about price and start thinking about quantity.
Stop thinking about imaginary money and start thinking about real goods and services.
If we're being serious for a moment, I listened to Jeff Snider on this podcast this morning: https://fountain.fm/episode/EwNGPty6TQ9BMzXg8v30
He agrees with the author regarding limited supply, but for different reasons.
Oh, so I don't think he was actually talking about Bitcoin's money supply... most of what he was talking about was saying that the inflation from 2021-2023 was driven by COVID-related supply shocks (meaning supply of real goods & services, not money supply), rather than money printing.
I mostly agree with what he said, though I would quibble with some things.
So, I would disagree with his take that the Fed can't really control the money supply. I think it can. But otherwise I agree with his overall assessment that the bigger culprit for 2021-2023 inflation was supply shocks from COVID.
I don't think he actually addressed the Bitcoin fixed supply / deflationary concerns.
You're right. He didn't address the fixed supply issue today. He had a debate/discussion with Lyn Alden last year on a podcast or maybe at a conference. From my non-expert position I don't agree with him, but he seems smart and I like the different perspective. I'll try to find a link to the Lyn Alden conversation. Edit: Here it is:
view on youtu.bePretty interesting discussion. I definitely understand the desire for a more elastic money supply. Personally, I'm not even against ideas like tail emissions for Bitcoin, though I might be crucified for saying so.
I think what I'd challenge Jeff Smith on is that just because the total supply is fixed, that doesn't mean there can't be elastic adjustments to the amount in circulation.
@Undisciplined makes this point often in that even though the total available supply is fixed, the supply curve determining how much is being sold and at what price still has an elasticity to it. And that's because different people have different levels of willingness to move their Bitcoin.
I really wish the term "money supply" didn't use "supply" in a different way than it's normally used in econ.
Supply is definitely one of the most overloaded terms in Econ
I think @petertodd agrees.
Will take a listen
YES! You earned these 100 sats zap!
hell yea. (Double-zapped this comment.)
These are old, boring, and outdated objections: TL;DR: the constraints of the stomach. Analogy: Plus, do you therefore not own a computer or a smartphone or a TV, knowing that they have gotten cheaper (at least in real terms) over the last 40 years?
Serious answer: businesses care about the margin between input costs and retail price -- not retail price at time t and retail price at t-1 or t+2. If goods prices fall by 1% a year, and the business can optimize its facilities and production so that average cost is 1.5% lower a year, that's a thriving business in a deflationary world. What's the problem?
It's impressive how dumb these points are. In an inflationary world, why would I wait to buy anything, since I know it will only be more expensive later? Every must just buy everything they can the instant they get paid.
Maybe, you buy a house today instead of tomorrow because you need somewhere to live everyday.
Gold is too inflationary!?!?!?!?! I'll give points for originality on that one. I've never heard someone argue that we can't switch from fiat to gold over inflation concerns.
SYMMETRY OMG
The dollar has multiple roles, so it matters which you're talking about and over what time-frame
Pre-supposes that no one has ever traded for electronics, grains, or cars recently... or really anything during the gold standard period.
So, we can easily dismiss anyone who says goods deflation = bad as retarded, BUT, we have polar opposite retards we can contrast with to read between the lines:
The ultimate retards: The Mises School and BCashers
Mises people will tell you Bitcoin cannot be money because it is not divisible, so even accepting deflation as the good thing it is, Bitcoin can still never replace the cash role of the dollar.
A nice ribeye costing 10 millisats is good, but you can't actually use Bitcoin to transact 10 millisats in value. A great problem to have.
The argument given above is flawed- it is the output of someone trapped in a fiat mindset.
People have come to see housing as a speculative asset, not primarily a place to live. People have come to expect capital gains from housing investment. In my country there are tens of thousands of ghost houses- homes owned by wealthy rich pricks who seldom if ever occupy these dwellings but rather hold them purely as a speculative store of value. This is in my opinion a criminal waste of economic potential- all the materials labour and capital tied up in these beautiful but unused ghost houses. Meanwhile there are growing numbers of homeless living on the streets.
But this is the logical response of wealthy people to fiat money - where debt leveraged asset price speculation is logical- even if it is parasitic and destructive of wider the economy.
In a Bitcoin Standard paradigm this misuse of housing would be much less logical and incentivised. People would instead be incentivised to invest in productive assets that would generate productive returns greater than the growth in overall economic output, or to hold their funds as liquid capital, in the form of Bitcoin, until an investment that could exceed general rate of economic growth presented itself.
People would hold more liquid capital- banks and other debt providers would be much less needed. The allocation of capital to investments would be much more driven by market forces rather than by bankers who create fiat money debt capital out of thin air.
If Bitcoin supplants the dollar, we may see a consumption led economy replaced with a production led economy. Money, like technology, should get better over time.
I would buy the house today (or at least not to far in the future) because I want a place to live for my family. Same with other necessities. While they might be cheaper tomorrow, somethings I just NEED today.
Bitcoin is here to replace bigger things.
oooh, reeeeally?
You started a great discussion by posting this 😂
How do you like that? I read what I saw as a dumb article and just wanted to see it get shredded.
Thanks for posting this article.This will really help me a lot when I try to orange pill anyone because the article says what everyone has come up with, and the comments here prove, Hold my beer, you're wrong.
These statements have MUCH more weight to me when they have a time frame around them.
For example, I would agree that bitcoin will not replace the dollar in the next decade. Very very unlikely. Will it in 25 years? I still think its unlikely. If you go beyond 30 years I think it becomes more and more likely.
For me it is the following
They want Bitcoin as store of value and CBDC as cash