When I left off with Part VI, I explained that while the hypothetical world of a uniformly bitcoin-based economy would, in fact, eliminate the transaction costs of international trade, the rather serious cost would be the macroeconomic cost of a country's inability to respond to recessions through currency devaluation, relative to other currencies around the world.
Built into that is one of the central tensions of economics, and social science more broadly, and it is a tension with which bitcoin advocates can never really grapple: individual versus collective incentives. This is going to be the theme for the next few posts in the series. (It will take a few posts to get through this.)
The arguments that bitcoin-bugs usually use for the future inevitability of bitcoin generally go something like this: bitcoin is awesome because of X, therefore bitcoin is the currency of the future.
Whether or not this syllogism works at all depends on whether X is an argument about individual benefits for using bitcoin, or collective benefits.
Is there really a collective benefit to using bitcoin? It would eliminate transaction costs in international trade. That's actually an individual benefit for anyone engaged in international trade if everyone has already switched over (that part is critical), but there is a collective benefit to easing international trade, so there's one. Is there any other collective benefit?
Bitcoin-bugs take it as a matter of faith that a currency not controlled by the government is intrinsically better, even though, well... fuckin' Greece! Beyond that, though, as I have written in a bunch of posts in this series, you kind of want a government-backed currency. Monetary and fiscal policy work.
When the government knows what it is doing.
So, this is where we get into the standard horror stories that gold-bugs, bitcoin-bugs and other pseudo-intellectual, knee-jerk libertarians use to reject the concept of fiat currency. Stuff can go wrong with fiat currency if the government does something extremely stupid.
Let's remember that Greece is off the table since Greece didn't control its own currency. Perhaps, though, you are thinking of Zimbabwe? Maybe Germany, post-WWI and the hyperinflation that played a role in the rise of the Nazis? Print too much money and you devalue currency too much. The result is a disaster. So, don't give the government that option. Prevent the worst-case scenario.
Um... first, let's think about the precursors to those events, but that aside, do y'all have any case from the modern, developed world in which anyone has done that? No? Why not?
'Cuz we've learned that lesson. The Federal Reserve Board in the US has a "dual-mandate," meaning that it is supposed to manage both inflation and the unemployment rate, based on the idea that there is a tradeoff between the two. (Sorry, Milton Friedman...). They do this by raising and lowering interest rates in order to keep inflation in check. What inflation rate are they targeting? The "NAIRU." It comes with a cool-looking jacket. It stands for "non-accelerating inflation rate of unemployment." Basically, an inflation rate of around 2%. The last time we were significantly above that? Early 80's, and everyone freaked the fuck out. The Fed jacked up interest rates, brought on a recession, brought down inflation, and inflation has been fine since. We freak the fuck out at inflation rates of 10%.
We are not going to print excessive amounts of money and bring on Nazi-inspiring hyperinflation. This is not a serious argument. We aren't even going to let inflation get to 10%. 5% and the Fed will jack up those interest rates because of a collective freakout. This is not a serious argument.
Beyond that, the arguments for a non-government-backed currency tend to be that it is "unregulated" and secret. Yes, bitcoin transactions are easy to hide. More on that later, but "unregulated..." What does this mean?
Money isn't regulated or unregulated. Transactions are regulated or unregulated. Part of what this kind of statement means is that the supply of bitcoin isn't regulated, and as I wrote in Part V, that's actually a big problem with bitcoin in macroeconomic terms, but mostly what this kind of statement reveals is that commitment to bitcoin is based, not in any coherent economic theory, but in ideology.
That, more than anything else, is why bitcoin is bullshit. Libertarians are supposed to understand market principles, but a bunch of these people have latched onto the concept of a currency based, not on market principles, but on an ideology that would cause them to sacrifice market efficiency and macroeconomic outcomes for the sake of an ideological statement. Milton Friedman is rolling over in his grave.
My money is better than your money 'cuz it's cooler! Yeah, it's inefficient, but fuck you, it's cooler!
So, collective benefits for a shift to bitcoin? Nope. Not seein' it. Yet, within the arguments that bitcoin-bugs use is generally a tension between individual and collective incentives, and that's where I'm going with Part VIII. The collective action problem. Stay tuned, because bitcoin is still bullshit.
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