Josef Tětek is a SatoshiLabs and Trezor Brand Ambassador.
It’s a tulip mania, a Ponzi scheme, a bubble about to burst. You’ve heard it all before. And not just from your nocoiner friends: This narrative has been pushed for years by many famous economists with a Nobel on their shelf. Why do renowned economists fail to see the value in bitcoin? It’s not a failure of understanding; it’s a difference of worldview.
The influence of mainstream economics cannot be underestimated. As John Maynard Keynes said, “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” This fits current economic policy perfectly. So, let’s see how the madmen and scribblers view the current economy — and, therefore, society itself.
So What Is Mainstream Economics, Anyway?
Mainstream economics is mostly a mixture of two dominant schools of economic thought.
Keynesianism in its various forms (i.e., post-Keynesianism, new Keynesianism) is heavily focused on the economic aggregates: GDP, unemployment rate, consumer spending, inflation measured through consumer price index (CPI) and such. Market forces are viewed as chronically inadequate due to various alleged market failures. Society is in constant need of public goods supplied by the government. Public spending is a panacea in the eyes of Keynesian economists and should be done even at the cost of heavy budget deficits, if need be. Interestingly, Keynes himself prescribed public deficits only in the downturns; but the U.S. budget has been in a deficit in 46 out of the past 50 years, even in the times of strong economic growth.
Monetarism also focuses on the economic aggregates, but its prescriptions are, well, monetarist in nature: Instead of fiscal measures, the economy should be aided by the central bank’s actions. Inflating the money supply, manipulating short-term interest rates, stepping in as a lender of last resort, buying up mortgages, bonds or even equities — all these measures steer the economy from the inevitable crash, deflation and unemployment, in the eyes of the monetarist.
Today’s economic pundits, advisors and government officials usually hold these two views of the economy combined. Thus, the economic policy should be liberal with the taxpayers’ money and with their purchasing power as well. It’s important to point out that monetarism started to play a role in mainstream economics in the 1970s, after the U.S. dollar was decoupled from gold and the whole world found itself under a pure fiat money standard, without any link to gold whatsoever. In a sense, monetarism came to Keynesianism’s rescue: With ever-rising debt levels, an argument for ever-lower interest rates needed to be found. Chronic deficits drive the need to inflate the debt away through easy money policy. And easy money policy is, in turn, a strong incentive to go into more debt — for the government and the economy as a whole.
While an economic policy based on mainstream economics seemed to work over the past decades, it is doomed in the long run. Snowballing debt, fueled by easy money policy, simply isn’t sustainable and something has to give: Either the debt will be defaulted upon, or the purchasing power of fiat money will evaporate. As Dylan LeClair succinctly puts it: “There is mathematically no way out of the current economic environment.”
The Fiat Mindset
Instead of money created by the click of a mouse, we have money that must be mined — created through resource-intensive computations. … In other words, cryptocurrency enthusiasts are effectively celebrating the use of cutting-edge technology to set the monetary system back 300 years. Why would you want to do that? What problem does it solve? — Paul Krugman
Now, let’s tackle the initial question: Why do…