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The Pleb Economist #7: Talking Bitcoin with academic economists1

Introduction

I was at an economics research conference this week, and I had my first opportunity to engage in sustained discussion about Bitcoin with other academic economists outside my department. The topic just never came up previously, as it's not something that I normally bring up.
Unsurprisingly, both economists that I talked to were vehemently anti-bitcoin, at least at first. For them, there was a certain aesthetic reaction against Bitcoin due to its association with NGU crypto-bros and now the Trump administration. This is unfortunate, because after I calmly explained to them why I support Bitcoin because of its features and properties despite the negative associations, they seemed to warm up to it, at least a little.
Below, I document the flow of conversation, roughly organized by specific arguments that Bitcoiners make, their responses, and my responses to their responses.

Bitcoin's fixed supply

When they asked me what's good about Bitcoin, and the first thing I said was "verifiably fixed supply"---that was a mistake. Economists have it drilled into them well and good that the gold standard is a barbarous relic, and that not being able to adjust the money supply makes recessions worse.
I replied that although this may be true, there are also dangers to having an inflatable money supply. For example, I asked them whether they'd rather have Zimbabwean dollars or Bitcoin, and they conceded me that point.
They countered that another problem with fixed supply is that it causes nominal deflation. I asked why nominal deflation is necessarily a bad thing, and here they gave an interesting answer. The standard thing you hear is: "Who would buy anything if they expect prices to go down later?" But these guys are smarter than that. Instead, they argued that in an inflationary environment, you can pay unproductive workers less in real terms simply by not raising their wages. But in a deflationary world you'd have to literally cut their wages every year, which will cause social unrest. This point about nominal wage rigidities is interesting, and I conceded that I didn't have a good answer to that. But I did insist that just because we can't predict every eventuality, it doesn't mean Bitcoin isn't an interesting technology worth investing in. They seemed to agree with that.

Bitcoin as a medium of exchange

This conversation revolved around two points: Bitcoin's volatility and what Bitcoin can do that the traditional financial system can't.
Of course, the topic of volatility came up. "Bitcoin can't be a medium of exchange because it's too volatile." This was fairly easy to respond to. I simply said, "Yes, it's volatile right now, but that's not an inherent property of Bitcoin, it's due to how people trade it." I told them that Bitcoin trades like a tech stock now, but that it really shouldn't because it has none of the properties of a tech stock---the only reason it trades like a tech stock is because most investors still don't understand Bitcoin. They seemed receptive to this argument and agreed with me when I said that Bitcoin's properties make it more like digital gold, only more portable.
On the subject of portability, two of my favorite things to show off about Bitcoin are the following:
  • You can send millions of dollars on the blockchain for less than a dollar in fees and it settles in 10 minutes.
  • You can hop on a plane with nothing but the clothes on your back and still access your Bitcoin from anywhere with an internet connection.
My colleagues were surprisingly unimpressed by this (other people usually are). "I can already do that with Visa" and "Settlement times are already down to T+1", were the response. In the end, I was forced to admit that even though Bitcoin is a more convenient MoE than gold, it isn't yet as convenient as fiat in developed countries. For some reason, I forgot to bring up micropayments and how it enables unique services like SN.

Bitcoin's decentralization

Since I couldn't argue that Bitcoin is more convenient than fiat, I pivoted to arguing that it's more robust against censorship and bank failures. While they agreed that this could be useful for certain people, they didn't seem particularly concerned about censorship resistance for themselves.
Moreover, one of them argued that history proves that centralization of a currency is superior to decentralization. He argued that we had a period of decentralized banking in the US and that it was a chaotic time. I wanted to say something along the lines of, "That's not really comparable because we aren't talking about decentralization of multiple trust-me-bro currencies, we're talking about decentralization of the ledger book and of transaction verification," but it didn't quite come out that way. In the end, we both agreed that neither of us knew enough details about the free banking period to make any strong claims.

Conclusions and regrets

I think it was a productive conversation overall, and I think I taught them a few things about Bitcoin they didn't know before, as well as got them to see some more positive aspects of Bitcoin. Probably the most important thing was showing them that not all Bitcoiners are NGU crypto bros or Trump fanatics. However, they fairly questioned how many Bitcoiners are like me, and whether my views are a fringe minority in the Bitcoin space. They didn't mention it, but I thought about Bitcoin 2025 and wondered the same thing.
I also have a few regrets. I wish I had started the discussion with my normal opening line, "Bitcoin is a ledger book of monetary transactions that no one controls, anyone can write to, and yet somehow everyone trusts." I think that would have led to a more systematic presentation of the facts, because in the end I don't think I communicated clearly what Bitcoin actually is, which I'm pretty sure they still don't understand. Unless you can understand what the blockchain is and how proof of work fits into it, I don't think all the other features of Bitcoin are going to crystallize for you.
Lessons learned, I suppose. I hope I'll be better prepared to discuss Bitcoin with my colleagues in the future.

Previous Pleb Economists

  • Pleb Economist #6: Analysis of Trump's Reciprocal Tariff Calculations #937463
  • Pleb Economist #5: Shitcoins are part of Bitcoin's Gartner Hype Cycle #909279
  • Pleb Economist #4: I orange pilled my class today #899199
  • Pleb Economist #3: On the political economy of blocksize #875560
  • Pleb Economist #2: Politics is Provably Hard #849906
  • Pleb Economist #1: The Art of Economic Communication #839278

Footnotes

  1. The Pleb Economist is a weekly (not quite) weekly whenever I feel like it column where I share my thoughts as a mainstream economist who is slightly jaded by mainstream economics. I also have a somewhat libertarian and rebellious bent, as well as a deep conviction in the utility of Bitcoin.
198 sats \ 1 reply \ @jimmysong 6h
But in a deflationary world you'd have to literally cut their wages every year, which will cause social unrest.
The main reason this would cause unrest is if people are using loans to fund their activities. This was a major reason why bimetallism gained traction in the late 19th century, because farmers needed to pay loans back but their goods that they were selling to the market kept getting cheaper due to deflation, making it harder and harder for them to pay the loans back. Solution here is that they need to be zero-interest loans (Saifedean has an interesting theory on why this would be the case in a hard money economy eventually) or fewer loans and much more savings. I personally think the latter is much more realistic given that in a deflationary economy, savings is deeply incentivized.
The solution to not cutting wages, though, is to increase productivity of each worker. This requires near-constant innovation, which most companies in a functioning economy do. Of course, this might mean not as many jobs, but then, those people are freed up to do other more productive activities. The main flaw here is assuming jobs are for life.
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Regarding productive jobs, when will the conventional work week be under 40 hours? 4 day work week?
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130 sats \ 1 reply \ @elvismercury 7h
Did your understanding about btc, or its place in the world, change as a result of this?
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No, not at all. My main thesis has been all along that Bitcoin is an interesting monetary technology and that it offers many advantages over fiat and the traditional banking system, and that it's smart to own some, especially if you're concerned about censorship or runaway monetary inflation.
Funnily enough, a separate conversation arose in which we were discussing the runaway US debt, and someone said, "But what are the alternatives to the US treasury?" And after a brief silence, I said, "Buy bitcoin?" And everyone laughed and were like "Maybe, maybe."
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Awesome report, and these convos are always interesting as a check on our beliefs.
The standard thing you hear is: "Who would buy anything if they expect prices to go down later?" But these guys are smarter than that. Instead, they argued that in an inflationary environment, you can pay unproductive workers less in real terms simply by not raising their wages..." (Nominal rigidities)
True, and so weird for economists to argue. This is a psychological point, or a calm-the-masses point, not an economic one. Rigidities are not a feature of the world, but a remnant of 20th century business practices. No reason to believe they'd be particularly binding in a bitcoin world.
On volatility, I'll dig up what I quoted when reviewing Larry White's book: it's really not a sensible, economically literate observation — measuring a money's properties by its de-/premonetized behavior. If these guys think about it for two seconds, they'll agree.

Beautiful one-liner. I'll steal it
Bitcoin is a ledger book of monetary transactions that no one controls, anyone can write to, and yet somehow everyone trusts." I
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True, and so weird for economists to argue. This is a psychological point, or a calm-the-masses point, not an economic one.
I know, right? I definitely wasn't expecting that argument. But I am glad that they didn't give me the "people won't spend money" spiel.
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This point about nominal wage rigidities is interesting
I don't think this has been sufficiently grappled with. It's not something I worry about, but it is something that still needs to be worked out. I would have responded with something about how the principle-agent literature is pretty robust and bitcoin doesn't present any problems that haven't been considered already.
I can already do that with Visa
Really? You can transfer a million dollars with only one dollar of fees in ten minutes through VISA? I do not believe that to be true.
It's tough to have these conversations with people who have such varied expertise and concerns. The responses they need probably require some actual technical work and research, which is tough to do in a conversation. Still, it's always good to find the edges of our own understanding.
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Really? You can transfer a million dollars with only one dollar of fees in ten minutes through VISA? I do not believe that to be true.
I guess academic economists don't care about that because they don't have a million dollars to transfer :D
It's tough to have these conversations with people who have such varied expertise and concerns. The responses they need probably require some actual technical work and research, which is tough to do in a conversation. Still, it's always good to find the edges of our own understanding.
Yeah. I wasn't able to satisfactorily answer all their questions, but they weren't able to deny some of the advantages of Bitcoin that I brought up either.
All in all, I think they were pleasantly surprised by their interaction with a genuine bitcoiner. One of them, who used to work at the SEC, said it would've been useful for them to hear someone like me defend it. I asked him "Were there no Bitcoin defenders at the SEC?", and he said there were none in his group.
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80 sats \ 1 reply \ @ek 15h
But in a deflationary world you'd have to literally cut their wages every year, which will cause social unrest.
I think they implicitly assumed that the workers would still have the mindset of an inflationary world in a deflationary world. This isn’t necessarily true to the degree it would cause social unrest.
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Yeah, there's definitely a present-day bias in their thinking
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Macro economists spend their lives learning wrong things about the economy, that's why most of them are unable to accept bitcoin. It contradicts what they know, and they'd have to admit that they spent their lives doing wrong things.
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The ones I were talking to were not macroeconomists though. We were all microeconomists.
I think they just got it drilled into their heads in macro classes that the gold standard was bad, without thinking too much more about it.
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Yeah, all economists at least get an introduction to macro. Most believe the fiat nonsense they are taught. Which is not so shocking, they are young and lack experience and knowledge that would contradict it.
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