Bitcoin, vegetarianism, and world peace

On Wednesday, Jack Dorsey suggested that bitcoin might be connected or lead to bringing about world peace:

We have all these monopolies off balance and the individual doesn’t have power and the amount of cost and distraction that comes from our monetary system today is real and it takes away attention from the bigger problems.

All these distractions that we have to deal with on a daily basis take away from those bigger goals that effect every single person on this planet and increasingly so. You fix that foundational level and everything above it improves in such a dramatic way. It’s going to be long-term but my hope is definitely peace.

Jack Dorsey during the B word conference

The following is a thought experiment about how bitcoin might bring about world peace.

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Printing money exacerbates inequality

Most people don’t realize the extent to which money printing impacts our lives. It’s happening a lot lately, so it’s worthwhile to investigate the impacts. Here are 5 ways that money printing specifically contributes to something that is often cited as a problem: wealth inequality.

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Sticky Notions

It’s a really pretty hotel, in a pretty spot by the river.

As we check in, the woman behind the glass, who is wearing a mask despite the fact that we are all vaccinated and have discussed as much, is making excuses.

“I don’t think you have this in New York, but in California there’s a labor shortage. It’s really hard to find people to work. We’re really just stretching to get by.”

She continues to explain that we might not be able to have dinner at the restaurant, because the kitchen is so understaffed that it’s a miracle they are able to feed anyone.

It turns out she’s wrong about New York. We had recently been at a NYC restaurant where just one young woman was servicing all the tables, and all their delicious and substantial dishes still cost a mere $8.00. It is clearly the same on both coasts.

Prices aren’t going up but services are getting worse, because nobody wants to work at current prices.

Markets fix this. There’s a reason that it’s a labor market. They could staff the kitchen in this place — it’s simply a matter of raising wages. Perhaps management feels that the kitchen job is only worth $15 or $20 an hour, but the market clearing price is actually more like $35 or $40 an hour. And perhaps management feels that they couldn’t make a profit. Yet, their hotel rooms are completely booked up, as are their dinner slots, indicating that a price raise on the customer end may be much more feasible than they realize.

But markets only fix this once people allow their mentality to shift. I’m struck by how sticky notions are of how much a thing costs, or should cost. Maybe this is part of why the dollar game has been able to go on for as long as it has.

An equity-based monetary system

If and when bitcoin becomes the reserve currency of the world (which I think it will), we will have an equity-based monetary system instead of a debt-based monetary system, and this will be a very good thing.

Bitcoin is basically deflationary. There are only ever at most 21 million bitcoins in existence. Some people lose their bitcoins, and those bitcoins usually wind up lost forever. So the total supply of bitcoin is some amount less than 21 million, and it decreases slowly over time.

As there is economic progress, the value of each bitcoin (in terms of what it can buy) tends to go up. This is because while there are more goods, there are fewer bitcoins, so the ratio of goods in existence to bitcoin in existence goes up. Each bitcoin can buy more goods. This is a deflationary monetary system, and it’s a good thing, in spite of what some bad economists may say. The bad economists don’t like deflation because it discourages spending — if your money is going to be worth more in the future than it is today, then why would you spend it now instead of saving it for tomorrow? Of course, their whole view is predicated on the false idea that consumer spending drives the economy, but that’s a separate issue that will have to be dealt with at another time. For now, let’s examine the actual consequences of a deflationary monetary system:

  1. If you have bitcoin (capital), you are, relatively speaking, incentivized to save it rather than spend it.
  2. It’s relatively hard to pay back bitcoin-denominated loans, and it’s relatively risky to make such loans.
  3. The market rate of interest will vary widely by creditworthiness, but for most people, loans will be hard or impossible to get.
  4. Investment will tend to be in the form of equity rather than debt.
  5. This equity-based system will be more stable than the current debt-based system.
  6. Production, productivity, and the proportion of economic gains that goes to labor will be relatively high, leading to generalized economic prosperity, high social mobility, and relatively high wages.

This is a lot to cover, so hang onto your hat.

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Fractional reserve banking is obsolete

Once upon a time, money was physical. Maybe it was gold, maybe it was silver, or maybe it was paper notes. Regardless, it was physical. And that meant that there was value in keeping your money somewhere safe. Say, down at the vault.

The vault owner could charge you for keeping your physical money safe. Eventually, however, he learned to lend your money out and earn some interest. And you eventually learned to ask for a share of that interest.

There’s an issue here, which is that if he lends too much out, you might come asking for your money and he might not have it. Thus the notion of reserves — an amount of your money that the bank keeps on hand in case you come asking to withdraw. The reserve is fractional because he only keeps a fraction of your deposit amount on hand.

Keeping a fraction of deposits on hand kind of works, most of the time, but if depositors get spooked, say, and they all want their money at the same time, the system still breaks down. That’s why we have FDIC insurance in the US: the government steps in if there’s a run on a bank.

And they all lived happily ever after.

Stepping out of history now, we find ourselves in 2020 with a system that was designed around physical money that needed to be kept safe in a vault; and yet our money is anything but.

Money is a number in a computer now, with your name attached to it. It sounds so simple, but we keep up pretenses like it’s something else that needs to be safeguarded in a vault.

And we continue to perpetuate the unstable system of fractional reserve banking, when there’s no need. People could keep their money in the bank, and decide if and when they want to loan it out (say, as a CD) or invest it. There would be no need for FDIC insurance, and the financial system would be that much more stable.

Owning my own content

14 years ago, I started a blog (this one, in fact). At that time, it was kind of normal to blog about things. Life, opinions, whatever.

Nowadays, almost nobody does that anymore because social media. I left social media a few years ago, primarily because it’s a big waste of time. But also it started to occur to me that anything I say there can be used against me, and that if it’s unpopular enough or offends the wrong person, it’s even likely to be removed.

Outside of social media, there are hosted blogs, such as medium, but these suffer from the same issues — at the end of the day, your content can be censored because it displeases the platform’s moderators.

So now that I’m saying things again, it’s back to 14 years ago. That means my posts will not have access to social media network effect explosion potential. People will have to actually want to come here and read things. It also means I had to go through the work of getting this blog set up self-hosted, and I have to spend time and money to maintain that.

Yet, it also means that I get to say what I want. The content belongs to me. And readers know that I’m not censored.

In 2020, this is the right trade.

Things to say

It appears that I have things to say again.

It’s a conceit to think that my perspective is uniquely interesting. Yet, nobody is quite saying the things I think need saying, and publishing here gives me a reason to work things out in writing.

Welcome back, me.