The Bitcoin Policy Institute ran a webinar a few days ago on Bitcoin and (monetary) economics... with three of the most important econ voices all Bitcoiners interested in economics should spend time reading: Josh Hendrickson (whom I praise here all the time, #854062, #820834, #869803), Will Luther (whom I recently featured, #885819) and Thomas Hogan (who, until recently, was a research fellow at the same institute I publish for).
Well worth a watch:
... if you're too lazy here's the vital recap. I've separated the individual quotes by L = Luther, H = Hogan, J= Josh
First of all, Josh the only one not wearing a suit; he’s just threw on a uni hoodie on in his office, with papers and books in the background. Gives zero fucks. The other two, all profess, dressed up, and with (somewhat) neutral backgrounds.
“don’t be dissuaded just because some economists say silly things.” (L)
L: we can think of hyperbitcoinization as two separate things = transitionary and ultimate phase.
- Once fully there, most people are using btc as money—most major cities, use/exchange for local. Even so: “doesn’t imply that there will be no other monies” (dollar vs 160 other currencies) — it would just be the dominant money.
- Not to commit the all-or-nothing fallacy. Could be a lot of things anyway: dollar-like today, with clear dominance but regionally and in certain transactions other monies are used.
Hogan agrees: “We can have a lot of governments holding reserves without it really much different/uses of bitcoin as money."
J:
defining currency in terms of BTC; then what determines its value is the supply & demand for bitcoin, which is what causes the movements of the aggregate price level. If a dollar equals x BTC, then dollar prices are derivative of that supply and demand for bitcoin, just like under the international classical gold standard (~1850s to 1914).
But if bitcoin is just this separate thing from the dollar, it becomes more like a hedge for your currency (since fiat has no upward limit).
WIll interrupts that "fixing the money, fixes the world" is a little hyperbolic: “Not everything depends exclusively on which money we use.” (L)
The conversation quickly went into examples of how aggregate prices would move and how credit markets would operate on top of Bitcoin: deflation, inflation, banks etc.
H: even in a deflationary scenario, you don’t have a lack of lending — just less, since nominal interest rate will take expected deflation rate into account.
Will added that credit relationships are commercial transactions that people on both sides of the market want to do — so people will find ways to make them happen. (L)
"regardless of the monetary system, the lending for productive enterprises or the consumption smoothing across low income-to-high income states." (L)
CURRENT problem: It’s really hard to make predictions of the future purchasing power of money — “we don’t know what the value of the dollar will be long term into the future.” (J)
- because of this policy uncertainty, loans are riskier investments than they otherwise would have been.
What's worse, debt today might not be serving productive purpose: it's not just a question of the total world/government indebtedness but the composition too (L). So, a world with less debt and smaller credit markets could make us better off.
Josh defends economics
Josh apologizes and then went for a long monologue defending their profession: It's not the case that inflation is good for the economy or that all economists think that:
the optimal rate of inflation, in this literature, is overwhelmingly less than or equal to zero.
If you meet someone who says economists think inflation is good/necessary (#889502) ask them why they ignore the overwhelming majority of that literature?
The gold standard, too, provides this wonderful analogy and historical backdrop. Yes, it functioned differently than a world on bitcoin will (#749912), but there's enough overlap for us to look at it.
Hogan throws in a dig at many Bitcoiners’ ignorance:
the history of the pre-Fed gold standard does provide a great analogy to this, where the government wasn’t in charge of the money… Not a lot of Bitcoiners are aware that we have these great lessons from history.
A lot of what people perceive as costs or disadvantages of previous systems are actually the results of perverse rules, or odd regulations, or government regulations. (J)
During the Classical Gold Standard, we had rapid and globally rising productivity, with the obvious conclusion that the price level fell year after year. Rather than depression, it was a boom time in U.S. history (Deflation associated with growth is entirely dependent on the monetary regime, e.g. here.)
Josh gives his favorite "controversial claim":
real GDP trend over long time periods is pretty constant. Across ALL manner of things — policy, money, population — growth just stayed on this straight path. “Economic growth is really driven by real factors—the right institutions and right rules of the game in place."
Strangeness of fiat dollar:
There is a single country that produces the global reserve currency; and there is a single country that produces the global reserve asset, which is the U.S. Treasury security. That is a very odd state of affairs.” = countries didn’t do this in the past, gold was neutral and extracted from all over the world. (J)
An underappreciated problem of inflation is its nformational problem —the significant cost that economists are bad at communicating:
This is what most people are complaining about when they complain about inflation: it is actually just hard to figure out what you should or shouldn’t be buying… you’re trying to figure out of this price is permanently this price… and this price is way more than you used to pay… and that makes economic calculation really, really difficult. And that’s a substantial cost, that you can eliminate entirely if you didn’t have inflation. (J)
WONDERFUL Webinar, nice to send to skeptical economists for baseline conversation.