The current metrics and systems posed by the federal reserve are designed to beguile and disguise the reality of money.
A look at how the people in power may have more in common with a jewel beetle than you'd initially expect and how bitcoin may have the answer.
In this article, we touch on:
● Why the government and the Federal Reserve are incentivized to expand the money supply and lower interest.
● The byproducts of monetary expansion and lower interest rates.
● What a world with a decentralized sound currency such as bitcoin will look like.
● Why our misinformed inflationary beliefs are hampering innovation, destroying our planet's habitats, creating wealth inequality and increasing fragility within our economy.
The Lure Of The Beer Bottle And Economic Growth
The Australian jewel beetle,1 a part of the Coleoptera family,2 has been around for about 300 million years. Therefore, you would assume that if the jewel beetle has survived this long, it must perceive the world as it really is.3
As humans have evolved, we have seen great leaps and bounds in technology. One beneficiary of this advancement in technology has been the glass beer bottle. More precisely, the brown, stubby Australian beer bottle. When discarded in the desert, this beer bottle’s color, size and shape attracts male jewel beetles searching for mating partners. These beetles, through evolution, have been taught that the bigger and browner the female, the better. When they found this beer bottle, they thought they had stumbled upon the perfect brown female beetle, and as a result, a drop-off in population ensued. Why would you go for the much smaller, inferior jewel beetle when a big, brown, stubby beer bottle meets all your needs? The beetle's inability to perceive the world as it really is nearly became the catalyst to its demise until Australian bottle manufacturers caught on and switched bottles.
Throughout history, we have been taught that the world works in a certain way. Our governments are continuously trying to increase productivity and efficiency to enhance economic growth. However, wealth inequality continues to expand, and there appears to be an ever-increasing amount of social tension and unrest. As tempting as it may seem to target growth at all costs, we should take a step back and ask ourselves, do we perceive the world as it really is?
Before we can determine whether we have a firm grasp on reality, we must first look at our current system. To start, let's look at how the government tracks growth. If we delve into government economic policy, we see the federal government seeks to accomplish three policy goals: full employment, economic growth and stable prices.4 At first glance, these seem like healthy goals to set; however, by setting these goals, we see that the government is incentivized to perform certain actions outlined below.
The Federal Reserve tracks employment rates using a metric called the labor force participation rate.5 This metric gives a good measure of the economy's active workforce, assuming we want full employment. For the Federal Reserve to influence employment, it must encourage businesses to borrow money to expand and hire more workers. This is done through monetary expansion and the lowering of interest rates.6
Therefore, by setting the goal of full employment, it is in the Federal Reserve's best interest to lower interest rates and increase the money supply, thus, minimizing unemployment.
The government uses a metric called gross domestic product (GDP) as a proxy for economic growth. However, similar to the labor force participation rate, the most effective way to increase GDP is through monetary expansion and lower interest rates. This is because as interest rates become more favorable and capital is more readily available; people consume, businesses expand and governments spend. This directly affects the four areas of GDP, which are consumption, investment, government and net exports.
However, GDP is not a measure that includes debt. In the short term, the Federal Reserve can inflate GDP through monetary expansion and the lowering of interest rates, but by doing so, it increases the debt burden, which acts as a deflationary headwind. Therefore, just like full employment, by setting the goal of economic growth, it is in the Federal Reserve's best interest to intervene to give the illusion of productive growth.
The Federal Reserve tracks a metric called core personal consumption expenditures (PCE). This metric distills the average price of a basket of consumer goods and services, similar to the consumer price index (CPI). The Federal Reserve uses the core PCE metric instead of CPI because of its lower volatility.7 It then targets a 2% annual growth rate and adjusts policy decisions accordingly.
The issue with tracking prices using the core PCE is that it does not include food, energy or asset prices. These three categories make up the majority of our economy's expenditure. In addition to this lack of accuracy in tracking consumer price inflation, core PCE is changed regularly with plausible-sounding justifications for doing so. Coincidentally, these changes have also coincided with a flattening of volatility. Because of this intervention and lack of accuracy with actual consumption habits, core PCE does not provide true insight into inflation within the economy.
According to Brent X. Donnelly,8 "a Honda Accord cost $12,000 in 1990, and it costs $25,000 now. The Bureau of Labor Statistics says new car prices are close to unchanged over the past 30 years."
Therefore, as core PCE can give the illusion of stable prices, the Federal Reserve can intervene through monetary expansion and lowering rates without the worry of affecting price stability. This allows them to disregard stable prices and focus on full employment and economic growth.
In addition to the stable prices, full employment and economic growth, there are three other important factors we must take into consideration:
1. The Debt Burden: As the currency loses purchasing power and interest rates trend ever lower, it encourages debt consumption. This debt consumption now stands at a whopping 257% of U.S. GDP9 and 356% of global GDP.10 This substantial debt burden incentivizes the Federal Reserve to further expand the money supply and lower interest rates to reduce the deflationary effects of the debt burden. This constant attempt to outrun deflation creates this never-ending feedback loop of lower rates and monetary expansion. In turn, the debt burden continuously expands, and the deflationary effects become ever greater.
2. Triffin Dilemma: As we know, the U.S. dollar (USD) holds the position of the global reserve currency. This is one of the principal ways that the U.S. maintains its global power. However, by holding the global reserve currency status, the U.S. is in a bind. Does it protect its position as the global reserve currency at the expense of its economy, or does it focus on its economy at the expense of potentially losing reserve currency status? This paradox is called the Triffin dilemma.11 As the global reserve currency, most international trade is made in USD. This creates a constant demand for dollars. Therefore, to maintain reserve currency status, you have to ensure global USD liquidity meets demand. To provide global USD liquidity, you have to outsource manufacturing and encourage a consumer culture. By doing so, you create a movement of domestic dollars internationally through foreign goods consumption. Lastly, to encourage a consumer culture, you have to lower rates and debase the currency. Paradoxically, the U.S. is concurrently outsourcing manufacturing to secure global USD liquidity, while also trying to achieve full employment. This further incentivizes the lowering of rates and the debasement of the currency. As the global reserve currency, you cannot maintain reserve currency status, grow your manufacturing base, and preserve sovereignty.12
3. Global Competition: Besides the Triffin dilemma, foreign countries are in a race against each other to debase their currency. This way, their exports become more favorable, thus, increasing the flow of capital to their country. We now see an incentive for a continual lowering of rates and debasement of the currency, not just in the U.S., but globally.
"Show me the incentive, and I will show you the outcome." — Charlie Munger
It is now clear that due to economic policy, the debt burden, the Triffin dilemma and global competition, governments globally are incentivized to continuously lower interest rates and expand their money supply.
If we take a step back for a second and look at how we have been taught the world works, we have been taught that overtime:
● Cost of goods and services increase
● Asset prices (i.e., real estate, stocks, commodities) increase
● Money loses its purchasing power
● The cost of borrowing decreases
If we then think about what has to happen for all of those beliefs to continue to maintain validity, we come to two conclusions:
1. Interest rates must continue to fall to promote consumption and facilitate the debt burden.
2. There must be a continual expansion of the money supply for prices of goods, services and assets to increase in perpetuity.
The two levers that the Federal Reserve uses to maintain its global power, prevent a deflationary debt collapse and meet economic policy are the same two levers required to retain our current belief structure. This makes you question whether we perceive the world as it really is or whether we are seeing an illusion that the government wants us to see. This leads us to wonder what would happen if we were to stop manipulating the money supply and let interest rates normalize?
The hurdle we face is that the Federal Reserve is not incentivized to reduce intervention and allow interest rates to normalize. Therefore, we must take a different approach, such as transitioning toward a decentralized monetary system operating on a sound currency. This way, no single entity, such as the Federal Reserve, can manipulate the currency in alignment with their interests.
What are the distinguishing features that separate a decentralized sound currency from a fiat currency such as the USD?
● Store of Value: Currency is essentially a store of energy, just like a battery. To obtain currency, we must expend energy through work/labor or the trade of goods and services. This currency then acts as a store of our spent energy and resources, allowing us to use this energy at a future date in time. Under this lens, the USD is effectively a leaking battery, losing up to 17.33%13 of its value each year because of monetary expansion destroying its purchasing power. On the other hand, a sound currency acts as a nondepleting store of energy, allowing us to focus on the future instead of worrying about our depleting purchasing power.
● Lacks Manipulation: A decentralized sound currency must be immune to control and manipulation. When a currency, such as the USD, is under the supervision of a central bank, monetary policy is implemented, which aligns and benefits the people in power and people closest to those in power at the expense of the rest. This is known as the Cantillon Effect.14 Instead, we must have a currency where any changes implemented must first reach a consensus among the currency holders. This ensures change that aligns and benefits the population, as opposed to those in power.
Additionally, a decentralized sound currency that is not under the influence of the central banks or people in power removes barriers for who can and cannot use the currency. This reduces the potential for a consolidation of power and reduction in innovation. We will talk about this in more depth below.
There are other beneficial features to a currency: divisibility, durability, portability and recognizability; however, these traits are beneficial to any currency, not just a decentralized sound currency. For this reason, I have only touched on the two principal features which separate a decentralized sound currency from other types of currency.
Regarding which currency offers the best decentralized characteristics, as it stands, our best option is bitcoin. Since its inception, bitcoin has shown incredible resilience in addition to an exponential increase in adoption. This has been down to its decentralized, transparent, predictable and immutable nature, making it a great store of value. However, to truly understand the benefits of a decentralized monetary system, we must first look at the byproducts of the current system. Let's start with the side effects of intervention (i.e., monetary expansion and the lowering of interest rates) and its impact on the economy.
Magnifies the Wealth Gap: Monetary expansion causes a rise in asset prices, while at the same time diminishing the dollar's purchasing power. As we know, the wealthy hold assets while the lower class holds cash, thus creating an ever-expanding wealth gap and a consolidation of power. Additionally, this ever-increasing wealth inequality leads to social tension and unrest.
Dampens Innovation: A centrally controlled monetary system alongside monetary intervention has two consequential byproducts which dampen innovation:
1. Zombie Companies: A zombie company is a company that is unable to support itself financially.15 This signifies that the product or service the business offers either does not have enough demand or that the business has been fiscally irresponsible and unable to service its debt. This business should, therefore, restructure or dissolve. By backstopping the economy and making it cheaper and easier to access capital, you increase the number of zombie companies in the economy. We should allow the natural life cycle to play out rather than propping up unsustainable companies. When a new business has to compete with an ever-increasing number of zombie companies, it becomes ever more challenging for that business to succeed and prosper. Instead of focusing on innovation, the business must use a portion of its resources to compete. As of July 2020, 19%16 of listed companies in the U.S. are zombie companies, and this number is rising.
2. Consolidation of Power: Our current economy operates as a closed system. Central planners (people in power) aggregate and sort innovative technology and, with their influence over legislation and the monetary system, control what kind of innovation is allowed and implemented. Not only is this oversight, aggregation and sorting costly, but it also reduces society's ability to adapt and evolve. However, more importantly, it does not give the general population a voice regarding what technology provides actual value to society. Instead, innovation is only endorsed within the strict boundaries17 of the central planners. This ensures their growth and control are not impacted. In turn, they are aiding in their consolidation of power.18
Increased Fragility and Malinvestment: As people become overly comfortable that the Federal Reserve will intervene during times of stress, we see a rise in excess borrowing and speculative leverage in an attempt to maximize returns. This excess borrowing creates a surplus of capital in the system. In an attempt to find a home, this capital finds its way into higher-risk malinvestments, which leads to amplified fragility in our economy.
"We can ignore reality, but we cannot ignore the consequences of ignoring reality." — Ayn Rand.
It is now clear that the narrative that intervention from the Federal Reserve is good for the economy, good for economic growth and, most of all, good for the average Joe doesn't seem to paint a complete picture. We must, therefore, contrast the way we currently operate to a decentralized monetary system, allowing us to get a better grasp on the reality of our situation.
Decentralized Monetary System
Although there are many questions regarding what a decentralized monetary system operating on a currency such as bitcoin may look like, we will touch on some of the key benefits. Moving forward, when I mention bitcoin, I am referring to its decentralized and immutable characteristics, which make it one of the best stores of value. Additionally, when I mention a bitcoin standard, I am referring to bitcoin being adopted as the currency at the core of the monetary system. There are key benefits to a bitcoin standard:
We have been led to believe that the cost of goods, services and assets (i.e., real estate, stocks, commodities) increases over time. This is unnatural and has occurred due to unfathomable monetary expansion and the lowering of interest rates, causing a continual reduction in the dollar's purchasing power.
Suppose we were to move toward a bitcoin standard. We would remove the ability of central planners to manipulate the currency in their favor. In turn, we would see an increase in bitcoin's purchasing power. This increase would come about in two ways:
1. As bitcoin has a finite supply, demand over time would increase. Increased demand strengthens the currency, which promotes saving, further restricting supply and increasing demand.
2. With the advancement in technology, the cost of goods and services should decline over time. This further increases the purchasing power of bitcoin as it allows you to purchase more for less. We describe this in further detail below.
Higher Interest Rates And Increased Financial Stability
We are very much accustomed to low interest rates and monetary expansion, providing an abundance of capital. This gives us the illusion of liquidity and economic stability, which in reality is merely smoke and mirrors. This intervention prevents us from getting a true sense of the actual cost of borrowing. It hides the fact that our economy is essentially just a giant debt house of cards, needing a constant fix of lower rates and greater monetary expansion to keep up the facade.
To better understand the actual cost of borrowing, two things need to happen:
1. Natural Supply and Demand: Interest rates should be determined naturally by the supply and demand for borrowing. With the Federal Reserve stepping in and manipulating interest rates in an attempt to promote growth and reduce stress on the economy, the actual cost of borrowing is masked. With the loss of accurate supply/demand information, we lose the ability to make meaningful economic decisions. We currently have $18 trillion of negative-yielding debt globally.19 In what world does it make logical sense to lend out money today to be paid back less tomorrow?
2. Transparency: We need to have greater transparency regarding what happens with our money. Many believe that any holdings and assets held by our bank and brokerage accounts sit there until we are ready to use them. Unfortunately, this is not the case. Instead, our banks and brokerages use our assets for their own benefit (i.e., lending, repurchase agreements,20 rehypothecation,21 etc.). This lack of transparency results in artificially low interest rates as there is a perceived abundance of capital in the system. In reality, what we really have is a sprawling system collateralized by a small capital base, and when you have a lack of collateral in addition to an enormous debt burden, any unexpected stress on the economy quickly becomes catastrophic. Increased transparency will lead to an increased understanding of where our capital goes, leading to more conscious lending and increased financial stability.
Bitcoin fixes both issues. First, with bitcoin's fixed supply, you have a strengthening currency that promotes a shift toward saving. This creates increased demand which, in the end, results in a rise in interest rates. Second, bitcoin is the first asset that gives both transparency, and the owner an effective and cheap way to self-custody their own assets. This prevents the rehypothecation/reuse of assets without the owner's knowledge. Ultimately, this reduces the perceived abundance of capital in the system, raising interest rates and increasing financial stability.
Lastly, this belief that higher interest rates are a drag on the economy, while lower rates are a sign of growth, could not be further from the truth. As Richard Werner points out,22 “higher growth leads to higher rates and lower growth leads to lower rates.” Lower rates are a sign that the economy is unable to sustain its current trajectory. Therefore, to continue on this path requires lower rates to fuel its inefficiency and lack of productivity. However, as discussed, by further lowering rates, you exacerbate the issue by compounding debt and encouraging malinvestment. The truth of the matter is that we have been lulled into this false belief that we need lower rates when in actual fact we need to change the way we operate. We must allow rates to naturally rise and creative destruction and innovation (discussed in greater detail later) to make way for a new, sustainable growth trajectory. Here are a few of the many benefits of higher interest rates:
● Increased Accountability and Responsibility: As the cost of capital increases with higher rates, individuals, corporations and the government will be more fiscally conscious when taking on debt. This results in greater accountability and responsibility.
● Greater Return on Savings: Higher rates increase the return on interest accounts, bonds or any interest-bearing asset. This benefits retirees, conservative investors, households, the lower class, and so on.
● Reduced Market Manipulation: With lower interest rates, equity valuations place more emphasis on future potential cash flows. This makes speculative growth investments more favorable. However, as there is no underpinning in reality, these investments face a greater potential for narrative manipulation and market manipulation. On the other hand, higher rates increase the cost of capital, which reduces the weight of future cash flows in equity valuations. In turn, we see a reduction in market manipulation as this makes cash flowing, value-driven businesses more favorable, which have already proven their value to society.
● Reduction in the Price of Assets (i.e., stocks, real estate, businesses): As it becomes more costly to borrow, we see a decline in the abundance of capital in the system. Therefore, demand drops in relation to supply which creates a reduction in prices.
● Reduced Consumption: Lower rates make borrowing more favorable, which encourages consumption. The reverse is also true, whereby higher rates discourage debt consumption and, in turn, reduce personal, corporate and governmental consumption.
Reduction In Malinvestment
As we have seen time and time again, when the economy is under stress, the central bank and government will step in and attempt to prevent further losses and, in some instances, socialize losses and privatize profits,23 leading to a consolidation of power. With the increased knowledge that the Federal Reserve will backstop the economy in times of stress, the economy becomes rife with malinvestment as individuals and corporations no longer fear detrimental financial collapse.
With bitcoin’s fixed supply, central banks and governments will lack the ability to intervene. This lack of intervention, combined with a strengthening currency and increased cost of borrowing, will promote greater fiscal accountability and responsibility. In turn, individuals, corporations and governments will be encouraged to save instead of consume and invest in products, services and innovations that add actual value instead of the next hot lottery ticket. Ultimately, this will lead to a clearing out of malinvestment.
For example, if an individual, corporation or government takes on debt, yet the currency is strengthening against this debt, it becomes apparent that they better be putting this debt to good use. They must have confidence in the productivity and efficiency gains that this debt will hopefully provide. Otherwise, they will be unable to pay down this debt in the future.
A transition toward a bitcoin standard impacts innovation on both a governmental/corporate level in addition to an individual level.
Government and Corporate: As discussed above, our government currently operates as a closed system. In this system, the central planners consistently have to expend resources to defend themselves and their beliefs against innovation, which does not align or benefit the closed system. This hampering of innovation is a major downfall to our current system. Additionally, centrally planned, closed systems do not allow for creative destruction (the dismantling of outdated processes and systems to make way for improved technology). Instead, they consolidate power and reduce innovation to maintain the status quo (as mentioned above).
On the other hand, open systems, such as the decentralized bitcoin standard, have the ability to adapt and expand unimpeded. This allows the system, if necessary, to move in lockstep with the newest and most beneficial technology as there is no oversight, aggregation and sorting of data to determine what innovation aligns with the beliefs of the system. This rewards innovation and allows for value to naturally percolate to the top, benefiting society as a whole.
Individual: Sound currencies, such as bitcoin, act as a solid store of wealth because of their strengthening purchasing power. Because of this, you no longer have to use your productive capacity worrying about how to preserve wealth due to your depleting purchasing power. Instead, you can focus your productive capacity on creating, innovating and adding value to society.
We should not be maintaining old, obsolete systems and practices to benefit a small group of people, corporations or the government. Instead, we should opt for decentralized open systems that benefit society and allow for innovation and growth.
Reduction In The Cost Of Products And Services
Let’s look at improvements in technology from a product perspective. We see that when we promote innovation, we are rewarded with increased efficiency and productivity, leading to higher quality products and greater output at lower prices. These benefits don't just aid manufacturing either; we see the same benefits in raw material extraction, product distribution, e-commerce and end-of-life product recycling.
One exciting industry that has exponentially grown over the last decade has been 3D printing. The rate at which 3D printing technology is advancing may mean that there will be a reduced need for traditional manufacturing in the not-so-distant future.24 As 3D printing becomes cheaper and more accessible, the end user will be able to purchase blueprints and print almost any product at home. This will slowly make the manufacturing and distribution sectors obsolete.
In our current society, due to inflation, we are under the illusion that the cost of goods and services goes up over time. In reality, constant technological advancement should bring about a continual deflationary wave over society, whereby the cost of goods and services becomes ever cheaper and more accessible. By adopting a bitcoin standard, we are allowing reality to play out.
Increased Quality Of Products And Services
As mentioned above, in our current system, we have been under the inflationary assumption that the price of energy, products and services goes up over time. At the same time, our currency's purchasing power diminishes from one day to the next. Because of the destruction of purchasing power and rising prices, we are incentivized to consume. This reduction in purchasing power day to day does not promote saving. People are incentivized to buy the lower quality product today, rather than the higher quality product tomorrow.
Suppose we were to adopt a bitcoin standard. We would see an increase in the quality of products and services as our mindset shifts from consumption to saving. When you have a strengthening currency, for you to want to spend the currency, the product or service has to offer greater short-term value than the long-term value of saving the strengthening currency. This leads to a demand for higher quality products and services, reduces consumption and reduces waste.
Change In How We View Jobs
Because of the economic policy goal of full employment, the government and Federal Reserve regularly intervene and encourage debt consumption by companies in an attempt to create jobs and reduce unemployment. However, if a large portion of jobs are being fueled by debt, and we were to accept the reality of our deflationary environment, debt would very quickly become a significant burden when used unwisely. Therefore, unless the debt was used to hire workers in response to actual demand, many of these jobs would not exist.
With a bitcoin standard, the government and Federal Reserve will be unable to debase the currency to promote debt consumption to stimulate job growth. Therefore, as the currency strengthens, any debt that is not being used productively will quickly become a significant headwind causing a wave of bankruptcies because of vast amounts of unproductive, debt-consumption businesses.
This may sound counterproductive. However, if your business requires never-ending stimulus and debt consumption to survive, maybe it shouldn't be around in the first place. We have just been taught to believe that job growth at any cost is healthy and sustainable when, in reality, it is asinine. A shift toward a decentralized sound currency would reduce the potential of unsustainable job growth as it promotes accountability and productive debt use.
Furthermore, a currency that prevents intervention accepts that we are in a technology revolution that is consuming jobs at an ever-increasing pace. In contrast, at the moment, we operate in a way where we must restrict innovation to prevent job loss so we can meet economic policy goals. If computers one day surpass our intelligence, how is it possible that we will continually create more jobs?25 We are not allowing creative destruction to take place and society to adapt naturally. Therefore, we need to change our belief structure around jobs.
1. More Free Time: We have been taught that we should work nine till five, five days a week to maximize our benefit to society. However, in a deflationary world where the currency is strengthening, and we see increased productivity and efficiency due to technology, the cost of living should naturally decline over time. Therefore, we should see increased benefit with a reduced workload, leading to more free time and allowing us to focus on family, hobbies and introspection.
2. The Transition of Jobs: With the advancement of innovation in AI, robotics, 3D printing, and more, we need to accept that there will be a constant destruction of jobs. Therefore, we should embrace a natural shift toward more artistic, intellectual and abstract endeavors where humans still have the upper hand over computers.
Because of the economic policy leading to the fallacy of job growth at any cost, we end up creating a burden of continual job creation at the expense of innovation and the population's well-being. In reality, we should allow creative destruction and let society naturally find its equilibrium.
Increased Standard Of Living And Wealth Inequality
Since the lower class tends to hold currency, in a transition to an innovation-focused economy with a strengthening currency, they would see a drop in the cost of living. Additionally, we would see an improvement in the quality of goods, services and assets, ultimately resulting in reduced wealth inequality and an enhanced standard of living.
What separates developed countries from developing countries is that developed countries have a formal property system due to property law.26 Essentially, this grants people the ability to obtain and prove ownership of property and assets, allowing them to use these assets productively to borrow against, lend and generate capital to build wealth.
Globally we have 6.5 billion people27 in developing countries, of which 1.7 billion are unbanked.28 Within these economies, most people are unable to obtain true ownership over their assets, preventing them from storing and creating wealth. With bitcoin, we have true, provable ownership. This gives us the ability to effectively store wealth and, more importantly, borrow against and lend in order to build wealth. Not only would a transition to a bitcoin standard be hugely beneficial in regards to inequality and the standard of living, but it would also help boost innovation and give people their freedom.
If we can create a society based on Maslow's hierarchy29 of needs where everyone's basic needs are met, we would have a world where people can focus on learning, discovering and helping, instead of focusing on where their next meal is coming from or how they're going to afford shelter. A bitcoin standard would allow us to work toward this.30
Decreased Environmental Destruction
In our current system, we are incentivized to consume because of economic policy goals, continual price inflation and the destruction of purchasing power. To meet this consumer demand, we are destroying natural resources by trying to extract every ounce of energy we can get our hands on. This is not sustainable. Our current inflationary system does not work with a finite resource planet.
If we are to shift toward a bitcoin standard, we would be incentivized to transition from consumption to saving. This shift toward saving would create demand for better quality and longevity in products. In turn, this would channel energy toward innovation and promote increased sustainability, efficiency and productivity in raw material extraction, manufacturing and recycling. Combined, this would put less pressure on our planet and its natural resources, therefore, reducing the unnecessary destruction of our incredible habitats.
When we contrast this against our current system, we see that, as the people in power control the currency, they have the ability to mask the truth and stunt innovation. This is illuminated by direct funding toward specific sectors that best align with their interests. A perfect example is the oil industry:31
● $20.5 billion — Direct subsidies for fossil fuel production
● $14.5 billion — Consumption subsidies helping consumers pay for energy
● $81 billion — U.S. military spending protecting global oil supplies
Government subsidies favor fossil fuels over renewables seven to one.
What is unique about bitcoin is that due to its lack of manipulation, one can only earn/obtain bitcoin by means of work or the sacrifice of resources. This allows bitcoin to act as a voting mechanism that channels truth and innovation by enabling ideas that provide true value to rise to the top.32 This, therefore, directs energy toward what is best for the economy, instead of what is best for the people in power.
A potential benefactor to this channeling of energy could be the solar industry. What is astounding with solar is that in a single hour,33 more solar energy hits Earth than we consume globally in a year. By directing our capital and ingenuity into solar, we can, over time, capture solar energy more effectively. However, we must first adopt a decentralized currency to transfer power to the individual and away from the people in power. In turn, this would reduce subsidies for unsustainable, destructive industries and channel energy toward sustainable endeavors, such as solar.
A Needed Change In How We View Growth
GDP is not a measure of productivity, efficiency or standard of living. Instead, it is essentially a measure of consumption, with 68.22% of GDP34 coming from consumption. When the Federal Reserve sets the goal of economic growth. What they're really targeting is increased consumption at the expense of our planet's resources. In addition to consumption being an inefficient use of our planet's finite resources, it is unsustainable to grow consumption in perpetuity. Therefore, it is imperative that we redefine growth.
On the other hand, bitcoin channels ingenuity, encourages saving and increases our standard of living. A transition toward a bitcoin standard would promote a shift away from metrics focused on increased consumption (i.e., household consumption, corporate sales, imports and exports, government expenditure) and toward metrics such as increased innovation, higher standard of living, increased sustainability and reduced work hours. In turn, we would be incentivizing real productive and sustainable growth.
"Value is created through human ingenuity, environmental necessity and the compounding productivity driven by our accumulation of collective knowledge." — Aaron Segal, Bitcoin Magazine35
To be clear, the people in power aren't necessarily the issue. They are just a product of the centralized system. They have their own agenda and are striving to meet the goals laid out before them, unaware that reaching their goals comes at the expense of the general population. Instead, the issue is that we operate as a centrally planned economy, with a minority group given control over the legislative branch and the monetary system. Although everyone is entitled to their own beliefs, with a centrally planned system, we have a group of central planners as a proxy for the rest of the population. Consequently, any decisions are based on the central planner's personal beliefs and incentive structures and lack the population's true interests.
By transitioning to a more decentralized system, we ensure that decisions are made based on what is best for the community instead of the minority. Therefore, change is only implemented when a consensus is reached within the community. Additionally, by giving control back to the
majority, we accept that humans are inherently flawed and remove the potential for bad actors.
It is also worth noting that although we have highlighted the positives of a more decentralized system operating on bitcoin, no one system is perfect. Like a centrally planned closed system, a decentralized open system has its flaws as well (i.e., coordination can be difficult, emergency decisions can be challenging, etc.). However, it is important to take a step back and look at who the primary benefactor to each system is. In a centrally planned system, the primary benefactors are the central planners. Whereas in a decentralized system, the primary benefactor is the economy.
In addition, a more decentralized economy allows for true free-market capitalism. This has one huge benefit over crony capitalism, communism and socialism, in that it is far superior when it comes to error correction.36 Evolution at its core is error correction. In crony capitalism, communism and socialism, there will always be a manipulation of supply and demand to meet the needs of the economic school of thought in place. This inadvertently destroys economic price signals, consequently preventing the economy from error-correcting accurately, and in turn, hampering its ability to adapt, evolve and innovate effectively.
“Free market capitalism is a social system in which we see the world through as many eyes as possible (via words and prices) to attain a high resolution picture of reality.” — Robert Breedlove, Masters and Slaves of Money37
The Reality Of The Situation
When we contrast our current economy to that of a decentralized bitcoin standard economy, we realize that the targeting of continual economic growth and full employment is at odds with reality. Intervention via monetary policy gives us the illusion that we live in this inflationary world. However, the reality of the situation is that we live in a deflationary world and that over time, prices should drop as technology advances and the currency strengthens. The byproduct of trying to meet our current misinformed inflationary beliefs is a hampering of innovation, destruction of the planet's habitats, ever-expanding wealth inequality and increasing fragility in our economy.
"Deflation is a measure of success in creating economic value as innovation creates more for less." — Aaron Segal, Bitcoin Magazine38
It is, therefore, essential for us to
1. Reframe how we view this world and adjust to the reality of our deflationary situation.
2. Redefine growth from a sustainable perspective and away from metrics focused on increased consumption (household consumption, corporate sales, imports and exports, asset prices).
3. Decentralize the monetary system. Doing so removes the government's controlling capabilities, ensuring they act as a service provider with the population's interests at heart.
The longer we go down this inflationary path, the more challenging and catastrophic the consequences of the inevitable transition to our deflationary reality will be. Unless we can break down our current belief structures and move toward a decentralized sound currency, we will continue to see environmental destruction, economic fragility, wealth inequality and social unrest.
To conclude, it is clear that we do not perceive the world as it really is. Instead, like the jewel beetle, which believed that bigger and browner is better, the people in power today hold the same belief toward growth and consumption, unaware that it is this belief that could be the demise of our economy and our planet's natural resources. It is, therefore, paramount that we
do not fear change, innovation and creative destruction. Instead, we should embrace it and, more importantly, educate others about the reality of our situation.
"When new thinking is needed, it is very easy for us to remain entrenched." — Jeff Booth, Price of Tomorrow
My wholehearted gratitude goes out to these incredible minds who have contributed to the Bitcoin community:
1 Krulwich, Robert. “The Love That Dared Not Speak Its Name, Of A Beetle For A Beer Bottle.” NPR, June 19, 2013, https://ift.tt/3pXUBv0 for-a-beer-bottle.
2 “Evolution of Insects.” Wikipedia, https://ift.tt/3cMrupb. Accessed May 24,2021.
3 Hoffman, Donald. “Do We See Reality As It Is?” YouTube, June 11, 2015,
4 “The Goals of Economic Policy.” Cliff Notes,
https://ift.tt/3cKj3dV. Accessed May 24, 2021.
5 “Labor Force Participation Rate.” FRED, https://ift.tt/3cMHPu2. Accessed May 24, 2021.
6 Amadeo, Kimberly. “How Is Unemployment Controlled?” The Balance, November 5, 2020,
7 Mislinski, Jill. “CPI and PCE: Two Measures of Inflation and Fed Policy.” Advisor Perspectives, March 1, 2021, https://ift.tt/35qPkCS.
8 Donnelly, Brent X. “I’m Trying To Understand Hedonic Adjustments.” Epsilon Theory, May 10, 2021, https://ift.tt/3twTum1.
9 Frank, Silvan. “US Debt to GDP.” Longtermtrends, 2020, https://ift.tt/3vsSfp4. Accessed April 28, 2021.
10 Rabouin, Dion. "Global Debt Soars to 356% of GDP." Axios, February 18, 2021,
11 Smith, Tim. “How The Triffin Dilemma Affects Currencies.” Investopedia, June 25, 2019,
12 Gladstein, Alex. “The Hidden Costs of the Petrodollar.” Bitcoin Magazine, April 29, 2021,
13 Bunney, Sebastian. “Why More Isn't Better.” Bitcoin Magazine, May 12, 2021,
14 Rouanet, Louis. “How Central Banking Increased Inequality.” Mises Institute, August 15, 2017,
15 Bunney, Sebastian. “Why More Isn't Better.” Bitcoin Magazine, May 12, 2021,
16 Sharma, Ruchir. "The Rescues Ruining Capitalism." The Wall Street Journal, July 24, 2020,
17 ZAPFL, Daniel. “Open Innovation vs. Closed Innovation.” Lead Innovation, October 3, 2018,
18 Pettinger, Tejvan. “Why does capitalism cause monopoly?” Economics Help, August 5, 2016,
19 Mullen, Cormac. “World’s Negative-Yielding Debt Pile Hits $18 Trillion Record.” Bloomberg, December 11, 2020, https://ift.tt/3gDqBjk.
20 Reiff, Nathan. “Repurchase Agreement (Repo).” Investopedia, March 18, 2020,
21 Kagen, Julia. “Rehypothecation.” Investopedia, May 27, 2020,
22 DiMartino Booth, Danielle. “How Banks Work & Dictate the Economy.” YouTube, April 8, 2021, https://www.youtube.com/watch?v=u8j51XZegsk.
23 Kenton, Will. “Privatizing Profits And Socializing Losses.” Investopedia, April 14, 2021,
24 “Will 3D Printing Replace Traditional Manufacturing?” BCN3D, July 20, 2020,
25 Booth, Jeff. The Price of Tomorrow. Stanley Press, 2020.
26 De Soto, Hernando. The Mystery of Capital. Basic Books, 2000.
27 Wang, Brian. “Developed Country Population from 17% to over 50% of World by 2050.” Next Big Future, November 19, 2018, https://ift.tt/2QQfplS.
28 World Bank. “THE UNBANKED.” World Bank, 2017,
29 Mcleod, Saul. “Maslow's Hierarchy of Needs.” Simple Psychology, December 29, 2020,
30 Fridman, Lex. “#181 — Sergey Nazarov: Chainlink, Smart Contracts, and Oracle Networks.” Apple Podcasts, 2021, https://ift.tt/3cI46Ja.
31 Generation180. “The Absurd Truth About Fossil Fuel Subsidies.” Generation180, November 25, 2020, https://ift.tt/3xgyGSe.
32 Bunney, Sebastian. “Why More Isn't Better.” Bitcoin Magazine, May 12, 2021,
33 Harrington, Rebecca. “This Incredible Fact Should Get You Psyched About Solar Power.” Business Insider, September 29, 2015, https://ift.tt/2FIQ21Y.
34 “Consumption as Percent of GDP by Country: The Latest Data.” The Global Economy, 2021, https://ift.tt/2TYm5EL.
35 Segal, Aaron. “Bitcoin Information Theory.” Bitcoin Magazine, May 14, 2021,
36 Breedlove, Robert. “What Is Money?” YouTube, April 28, 2021,
37 Breedlove, Robert. “Masters and Slaves of Money.” Medium, July 5, 2020,
38 Segal, Aaron. “Bitcoin Information Theory.” Bitcoin Magazine, May 14, 2021,
This is a guest post by Sebastian Bunney. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.