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Pros and Cons of Bitcoin

Someone emailed me to ask about bitcoin, a commodity-backed currency. Instead of being backed by gold, the commodity is the energy needed to calculate the complex, encrypted mathematics that is the "coin." Think of something like a three-dimensional sudoku 1,000 digits on a side--easy to validate, a nightmare and energy hog to calculate. I’ve written about this before on my blog, too.

When it backs “currency,” energy has virtually none of the advantages of a regular commodity--you can't recover and re-use the energy as you could something like gold--and it has all of the disadvantages of commodity-backed currency. That’s not to say it couldn’t be valuable--after all, tulip bulbs were all the rage in Holland at one time. But just because someone wins the lottery doesn’t make buying a ticket good retirement planning.

Because commodities are limited, they have a tendency to encourage deflation, which favors creditors, and that explains the political pressure from the creditors to return to commodity backed money. Because deflation inevitably makes an elite creditor class and an impoverished 99%, political economist Mark Blyth says we can either have commodity backed currency or democracy, not both--never mind that it’s nuts to tie the success of one’s economy to the production of gold mines, or three-dimensional sudoku.

Update: There’s even a movement to monetize encrypted art: The new acronym from the CryptoArt market is NFT (Non-Fungible Tokens). Next: tulip bulbs! 🌷… and Nakedcapitalism.com has a bitcoin smackdown...and several other linked bitcoin articles (here, here [note how this one explicitly calls out how bitcoin lacks a “trusted third party”--i.e. a state. Eliminating the state is the unstated agenda of bitcoin promoters], and here -- says Bill Gates “The cryptocurrency "uses more electricity per transaction than any other method known to mankind”...so it’s bad for the planet.)

I have discussed how sovereign, fiat money creators are fiscally unconstrained--where would people get the dollars to pay taxes if the monopoly provider of dollars (government) didn’t spend them first? Such money creators can spend without waiting for tax revenue.

I also thought readers came to understand that while taxes make money valuable, they do not provision federal programs. Here’s Alan Greenspan correcting Paul Ryan who believes the government is like a household, telling him there’s nothing to prevent the government from creating the money. The constraint is on real resources, not dollars. If the real resources are not fully employed, creating money might employ them.

After discussing this, and suggesting eliminating FICA (Social Security) tax as a possible conclusion, I was surprised someone remarked that unless Social Security recipients paid taxes before they got their benefits, they would not (correctly?) appreciate the program itself. 

The constraint is on real resources, not dollars. If the real resources are not fully employed, creating money might employ them.

Never mind that between Reagan and Bush 41 FICA tax increased eightfold while the top marginal income brackets had their income tax reduced by roughly half. Never mind that Social Security has reduced elder poverty by an estimated 65%. We must be “Fiscally Responsible™”!

That remark contradicts what I’ve been saying, and is a tremendous opportunity for clarification...so...thanks, I guess...😉

As I understand it, the point being made is that it’s important that people pay for what they receive, otherwise they’ll feel undeserving, and be confused or perhaps arrogant. Giving them a gift rather than some kind of trade is just not kosher (but not because we’re running out of money, or resources, for that matter). So...it’s bad juju.

I’d suggest the pursuit of deserving or fairness is one kind of supernormal stimulus--things we seek out of proportion to their usefulness. Perhaps the earliest prescription for deserving or fairness is in the Code of Hammurabi (1755–1750 BCE): “An eye for an eye and a tooth for a tooth.” This predates even its appearance in the Hebrew Bible (the Old Testament). Yet…”An eye for an eye only ends up making the whole world blind.” (says Gandhi) … so it’s best to be sensible, rather than being addicted to deserving or fairness.

The need for deserving / fairness appeared early in human civilization. Early Judeo-Christian debates about whether salvation is deserved (“salvation by works”) or a gift (“salvation by grace”) anticipate this argument. Note: orthodox religions typically endorse salvation by grace (grace = “charis” in Greek, as in “charisma,” and is a gift). Salvation by works is heretical.

What has salvation to do with economics? In ancient Israel, the person who buys you out of debt slavery is called “the redeemer”--that’s one name for the messiah bringing salvation. When not totally spiritualized, salvation amounts to our ability to live without having to look over one’s shoulder for pursuing creditors (rhymes with “predators”). It’s not for nothing the Lord’s Prayer includes “forgive us our debts as we forgive our debtors.”

I’d also suggest that “deserving” is something Jesus himself--or, by example, Job in the Old Testament--said was not the whole story. The parable of the Prodigal Son rewards the undeserving prodigal, not the deserving, good brother. The parable of the workers in the vineyard, who get paid the same amount whether they work all day, or the last few minutes, is another. So, in effect, Jesus’ teaching discourages expecting complete fairness/deserving too.

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What’s the function of such parables? Answer: To interrupt the narrative supporting the supernormal stimulus of deserving or fairness. Can one be too preoccupied with fairness, justice, safety? Obviously.

Some Roman Senators (the Gracchi) attempted to relieve some of the population’s poverty as part of Roman law, which did not include jubilee and bankruptcy, but were assassinated. Meanwhile, the pharisees were trying to write IOUs (notes) in a way that exempted them from Biblically-prescribed jubilees. Jesus was not pleased with them (read Matthew 23 to see).

Finally, for those who still insist that people must pay for their gifts, how shall we pay for the privilege of existence? What did we do to deserve it? Or how should we pay for our health? Or our presence in the U.S. rather than, say, Somali? Our gender identity? Is all this really deserved? And if repayment is required, can we really afford to be ungenerous to Social Security recipients given our many gifts?

From the Intercept: Our country’s productivity gains in recent decades should have translated into a minimum wage today of $24 an hour — and by 2025, it should be almost $30. Hmmm...I wonder why the U.S. has Banana Republic levels of income inequity…?

Update: An interesting reaction to the Biden stimulus. Critical because that stimulus avoids fixing systemic problems. Meanwhile, in the category of systemic failure, like Flint, Michigan, Jackson Mississippi (the capital of the state) reports three weeks without water. No discussions between city and state have occurred, yet.

Another Update (and proof that Heterodox Economics is getting some traction): “Biden’s $1.9-trillion big spend is a big bet on modern economic theory” [Los Angeles Times]. “[N]ow economists — and Biden — are trying something new. They’re working on the premise that it’s neither government deficits nor a failure of thrift that causes economic problems. Rather, it’s government stinginess that leads to unemployment, which in turn deprives people the money they need to cover taxes, which in turn pay for the common good.

As Stephanie Kelton, former chief economist on the Senate Budget Committee, argues in her bestseller “The Deficit Myth,” the country’s real deficits are in healthcare, jobs, infrastructure, education and the climate. But rather than address those things by spending, writes Kelton, the government proceeds in terror of not ‘balancing the budget,;’ falsely believing that an unbalanced budget is the source of inflation.

defunding the police is a start

‘We run around like a six-foot-tall guy who wanders around perpetually hunched over in a house with eight-foot ceilings because someone convinced him that if he tries to stand up tall he’ll suffer a massive head trauma,’ she writes.”

Ms. Kelton is an MMT founder.

Mark Dempsey
It's Simpler Than it Looks