With all the positive talk out there about the new digital currency called bitcoin, I thought I would write a bit about why bitcoin sucks. Keynesian economics is really great in case you haven’t noticed. All the success in Europe and the US is of course due to brilliant work by governments to allow for better-than-free-market economic performance. Obama’s stimulus curbed the recession or depression or whatever it was, and Bernanke’s Quantitative easing via the Federal Reserve helped out even more! These guys got their degrees from really classy universities and, no surprise, they were taught the leading economics of the day, Keynesian economics.
Keynesian economics basically says that you spend money to get an economy going and it has a multiplied effect in the economy as a whole, eventually ending in drastic growth! There are several ways to get this round of spending going. Ways to push the snowball if you will. One way is simple government spending! Like Obama’s stimulus. Once people have more money they will spend it and when they spend it the people who get it will also have to spend it! It will start a snowball.
Another way is through inflation. If the Federal Reserve prints more money inflation will result. That means all the old money they already printed is now worth less and the truth of inflationary spending is proven by the “quantity theory of money.” This creates a cost of holding money. If I don’t but my pizza for $10 today then it will cost $11 tomorrow! I better buy it now! This starts the ball rolling.
The third way is through legal regulation. The government doesn’t really have to cause inflation or spend money themselves as long as they have a way to force other people to spend money on each other. This is a win-win because the government gets to punish people they don’t like and help people they do like at the same time! For example the government can make people get a certification or license. Sometimes the government issues the license themselves. This is more like a tax. Other times they allow a private firm to issue the certification. Those are the times I’m talking about. For example they do that with teaching, insurance, starting certain kinds of businesses and more! In these cases they are making people spend on each other and getting the ball rolling.
Bitcoin sucks because it encourages hoarding money. Not spending money is bad. How can we start the snowball? These people are like people in the great depression that put all their money in a mattress. How stupid is that. Bitcoin is also anonymous. How can the government get any taxes or fines this way? Lastly, bitcoin is decentralized. How can the government help us with inflation now? Clearly Bitcoin is very stupid. The money multiplier will never work like this!
In case you can’t tell I have been talking sarcastically. There is no money multiplier and this is one of many foundational weaknesses in Keynesian economics. The snowball effect does not exist. Unless you are talking about the reverse-snowball effect created in governments with the power to print money and tax. In the reverse snowball effect they steal your money, waste some of it, give less of it back to you and start over. Then they tell you what you’re allowed to do with it, “Or else.” Like a school yard bully; the kind that needs a kick in the teeth.
Bitcoin will be the final nail in the coffin of these primitive and corrupt government and financial systems. Of course they’re going to whine about it. Smart people pay that no attention.
Here’s some icing on the cake, a great video uncovering many flaws in Keynesian thinking in under 5 minutes:
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