Bitcoin and Keynesianism

[BlackHatCoiner]

Keynesian economists argue that macroeconomic outcomes such as recessions or crises that arise due to fluctuations in demand can be mitigated by coordination of the state, if it controls the money supply. For example, if there's a pandemic and we're experiencing high levels of unemployment, the state can just create more money, regardless of the production rate, to blunt it. In the same way, they can intervene and, deliberately or not, abuse it.

Bitcoin's monetary policy reminds of the Austrian school that focuses on individualism that's, as they say, what causes all economic phenomena. It's the exact opposite of Keynesianism, because it's money whose supply and policy can't be altered by anyone effectively.

Is that probably the reason most economists attack it? And, if something happened, and it became the world's main currency, do you believe we'd have to face outcomes similar to the Great Depression of 1929? Please justify your opinion.

[ Relevant to: Is democracy an utopia nowadays? ]

[be.open]

Keynesian economists argue that macroeconomic outcomes such as recessions or crises that arise due to fluctuations in demand can be mitigated by coordination of the state, if it controls the money supply. For example, if there's a pandemic and we're experiencing high levels of unemployment, the state can just create more money, regardless of the production rate, to blunt it. In the same way, they can intervene and, deliberately or not, abuse it.

Bitcoin's monetary policy reminds of the Austrian school that focuses on individualism that's, as they say, what causes all economic phenomena. It's the exact opposite of Keynesianism, because it's money whose supply and policy can't be altered by anyone effectively.

Is that probably the reason most economists attack it? And, if something happened, and it became the world's main currency, do you believe we'd have to face outcomes similar to the Great Depression of 1929? Please justify your opinion.

[ Relevant to: Is democracy an utopia nowadays? ]

Keynesianism was born in the throes of the Great Depression and died in the oil crisis of 1973. It cannot be considered a universal panacea, because universal panaceas never die. Is bitcoin a universal panacea? I doubt it, but bitcoin is still alive - and this is its strong advantage over Keynesianism.

[Ucy]

Keynesian economists argue that macroeconomic outcomes such as recessions or crises that arise due to fluctuations in demand can be mitigated by coordination of the state, if it controls the money supply. For example, if there's a pandemic and we're experiencing high levels of unemployment, the state can just create more money, regardless of the production rate, to blunt it. In the same way, they can intervene and, deliberately or not, abuse it.

Bitcoin's monetary policy reminds of the Austrian school that focuses on individualism that's, as they say, what causes all economic phenomena. It's the exact opposite of Keynesianism, because it's money whose supply and policy can't be altered by anyone effectively.

Is that probably the reason most economists attack it? And, if something happened, and it became the world's main currency, do you believe we'd have to face outcomes similar to the Great Depression of 1929? Please justify your opinion.

[ Relevant to: Is democracy an utopia nowadays? ]

Token or Colored Coin fixes this, while the main currency Bitcoin should remain untouched unless it's absolutely necessary to alter it which is probably one in a thousand chance,and could be done via Network Consensus that involves all citizens.
Anyone, including government should be able to create its own token for the unemployed, less privilege etc so we don't unfairly mess up the value of the main currency for those who don't deserve it just to please the unfortunate ones.  I believe Satoshi would never be against a coordinated use of Bitcoin Network to improve the economy of it's users as long as it doesn't violate Bitcoin principles of deflation which is one of the reason Bitcoin was created in the first place. Afterall, if Gold which Bitcoin is modeled after can't be "printed out of thin air" by government that uses it as currency why not Bitcoin. It's assume that hard money is created to reward hardwork or as reward for solution to problems, but if you create money for those who don't solve problems it could be considered "creating money out of thin air or out of nothing" ... which is typical of Fiat currencies, and that could cause inflation

By the way, I would make sure that the unemployed or less privilege who receive tokens still eventually justify the amount they received by contributing to society in one way or another. This will help maintain the token value.

[Z-tight]

Is that probably the reason most economists attack it? And, if something happened, and it became the world's main currency, do you believe we'd have to face outcomes similar to the Great Depression of 1929? Please justify your opinion.

Economists and governments attack it for many reasons, they probably do not believe in it and they might have a problem with its individual control, but i do not feel it is because of its fixed supply.
If we should hypothetically say there comes a time bitcoin becomes the main currency, i do not feel there will be another situation similar to the Great Depression of 1929. Bitcoin is resistant to inflation and its winter season is caused by weak hands dumping it when they panic, if Bitcoin is the world's main currency, then probably people would not have to valuate it with another currency nor dump it, this might make it stable and with its fixed supply it could produce economic appreciation rather than depression.

[stompix]

Bitcoin's monetary policy reminds of the Austrian school that focuses on individualism that's, as they say, what causes all economic phenomena. It's the exact opposite of Keynesianism, because it's money whose supply and policy can't be altered by anyone effectively.

Keynesianism means the involvement of the state authority in balancing the economy, second, it relies on deficit spending as a counter to market realities, theoretically everything about it goes against what Bitcoin has been portrayed as lately. But, with that said, Bitcoin was originally created as a way to send value without a third party being involved and without having to rely on a 3rd party to manage your funds and have them locked up without your consent, neither of these would actually interfere with a government financing their economy with debt.

Anyhow, true Keynesianism and not the new revised theory was much about unemployment, fixing capitalism, throw in the period in which it was envisioned and from those resemblances with an always failing system you can guess why it will end just like that

And, if something happened, and it became the world's main currency, do you believe we'd have to face outcomes similar to the Great Depression of 1929?

We could face outcomes like these even with the current system, out of control inflation leads to demand destruction, severe demand destruction leads to the same scenario, if people are unwilling to spend during a prolonged period even with money injected into the economy the same will happen again and again. I don't see how Bitcoin could become the world's main currency before we would have to face reality and understand that continuous growth is unsustainable and we would be faced with a normal decline in consumption and production as a result of the population decline by that time, so, a problem that we will never have to deal with it.

[tadamichi]

Keynesian economists argue that macroeconomic outcomes such as recessions or crises that arise due to fluctuations in demand can be mitigated by coordination of the state, if it controls the money supply. For example, if there's a pandemic and we're experiencing high levels of unemployment, the state can just create more money, regardless of the production rate, to blunt it. In the same way, they can intervene and, deliberately or not, abuse it.

Yup, but theres a weakness in Keynesianism, because it cant really explain stagflation(economic stagnation combined with inflation) with this logic. We’re actually seeing it now, the assumption higher inflation, lower unemployment is simply not true. Were seeing the first signs of increasing rates of unemployment and inflation at the same time. Keynes is basically debunked when you have rising rates of unemployment and inflation at the same time. This already happened in the 70s once.

Lets also note that statistics about inflation and unemployment can be inaccurate, there are incentives for governments to make them seem lower than they really are trough several tricks. Which is kinda a weakness when all assumptions should be based on mathematical models.

Is that probably the reason most economists attack it?

I think one reason is, because economics is highly dogmatic. Its different to other fields of science, because there is no clear truth. Different philosophies lead to different outcomes. And in the end its more about understanding and shaping human behaviour. Universities currently just teach one dogma, so thats why most agree on it, but not solely.

Austrian economics and Keynesianism are like a clash of two contrary philosophies. Austrian school basically tries to reason and sees shortcomings in statistics, they try to explain things based on what they think they’re seeing in reality without the fancy math. Keynesianism tries to explain everything trough statistics and math. So its really about which philosophy people put more faith in.

And, if something happened, and it became the world's main currency, do you believe we'd have to face outcomes similar to the Great Depression of 1929? Please justify your opinion.

I think we shouldn’t generally rule out any kinds of depressions possibly happening in any kind of economical philosophy. Having a better form of money wont simply prevent any causes that can lead to a depression. That being said. Two factors of the great depression were banking failures and shortcomings in the gold standard, something that could be prevented under a Bitcoin standard.

Having a fairer form of money wont automatically lead to bad economic outcomes, but could actually help. Bitcoin will simply reduce the room for human error in monetary policy and strengthen free trade, which i think are factors that are depression reducing. Constant human intervention is the biggest cause for crises, so i expect we would see less under a Bitcoin standard. I dont see how a more stable form of money that is less influenced by humans would lead to worse outcomes. Taking the train is safer for an unreliable individual(policy makers, if economics is imperfect there can never be perfect policy) and the people around him, than driving a car. Fiat is actually showing us how much human policy and economic needs are misaligned. Bitcoins reduces the human factor, so we should expect more stability.

// Edit: Sadly i cant reply to your other thread as im not a full member yet. Something short to the latter point. Control over the money doesnt always solve recession and crisis, in fact problems can be postponed into the future with it. This is exactly how the crisis in 2008 was handled and it wasnt actually solved. There was some bailouts, but no solution. It was just postponed till now and made it worse, and we have to fix it now way into the future. You could also even argue that Bitcoin is the actually democratically controlled money.

[BlackHatCoiner]

Bitcoin was originally created as a way to send value without a third party being involved and without having to rely on a 3rd party to manage your funds and have them locked up without your consent, neither of these would actually interfere with a government financing their economy with debt.

Not sure I understand you here. Did you mean that bitcoin hadn't been portrayed as money that go against governed debt-based financing? Sure, but who cares? That's what it is. It's not apolitical. It's part of the Austrian school of economics, and if the whole world used it as a main currency, it'd have the analogous consequences, all of which come from human-resistant monetary policy.

Anyhow, true Keynesianism and not the new revised theory

What's the new revised theory?

was much about unemployment, fixing capitalism, throw in the period in which it was envisioned and from those resemblances with an always failing system you can guess why it will end just like that

How did it end, and like what? Are you talking about the Great Depression or Keynesian societies in general?

I don't see how Bitcoin could become the world's main currency before we would have to face reality and understand that continuous growth is unsustainable and we would be faced with a normal decline in consumption and production as a result of the population decline by that time, so, a problem that we will never have to deal with it.

I'll be honest and admit that I have a hard time comprehending your point. Continuous growth/ is not sustainable, granted. How should society act during the bad times, such as in recessions? Is it desirable, in that case, to not have control over your currency's supply?

there are incentives for governments to make them seem lower than they really are trough several tricks.

Absolutely, couldn't agree more with this. Transparency is a tangible benefit regardless of the economic school. The current, broken system benefits those in power, because they're the ones who own it. Bankers decide for all, and only those have control over the policy.

Two factors of the great depression were banking failures and shortcomings in the gold standard, something that could be prevented under a Bitcoin standard.

Interesting. Could you provide some citation? I thought the inability of the state to create money was what mainly caused it.

Sadly i cant reply to your other thread as im not a full member yet.

Moved it to Serious Discussions. You can reply now.

You could also even argue that Bitcoin is the actually democratically controlled money.

I'll have to disagree: https://bitcointalk.org/index.php?topic=5397865.msg60144244#msg60144244

[stompix]

Yup, but theres a weakness in Keynesianism, because it cant really explain stagflation(economic stagnation combined with inflation) with this logic. We’re actually seeing it now, the assumption higher inflation, lower unemployment is simply not true. Were seeing the first signs of increasing rates of unemployment and inflation at the same time. Keynes is basically debunked when you have rising rates of unemployment and inflation at the same time. This already happened in the 70s once.

Lets also note that statistics about inflation and unemployment can be inaccurate, there are incentives for governments to make them seem lower than they really are trough several tricks. Which is kinda a weakness when all assumptions should be based on mathematical models.

Actually, this is incorrect, and the obvious example is Europe right now, with inflation peaking at levels not seen in decades while the employment rates are also clinging to new records. Note that I focus on employment levels, which means how many people are actually working, not on the misleading reported unemployment.
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Employment_-_annual_statistics

Quite interestingly, for example, the Netherlands has gone beyond 80% employment in the 18-64 range the number of available jobs has also increased to another record of 133 jobs for every unemployed person receiving benefits.

Not sure I understand you here. Did you mean that bitcoin hadn't been portrayed as money that go against governed debt-based financing?

You can portray everything as you want to depend on what you want from that thing, but that doesn't mean it was actually designed for this or it will work like that, speaking of the Austrian school, the gold standard didn't stop the government from debt-based finance nor it did anything about the bust cycles in the US previous to the great depression, starting with 1785, and that's quite fast in a history of a country.
Bitcoin wouldn't have changed any of those cycles either.

What's the new revised theory?

That from providing economic growth through government spending more and more economists are trying to get the new idea of new money to be used in the fight against inflation and employment levels, slowly and slowly moving toward a welfare model. Neoclassical Keynesianist went as far as going directly toward the labor market and demanding that governments should follow predifined formulas and balance everything based on that, of course, most of their formulas had to be rewritten nearly every decade, the Phillips curve models are an example of this.

How did it end, and like what? Are you talking about the Great Depression or Keynesian societies in general?

Socialism, that's basically what every Keynesian advocate ends discussing it starts nice and end badly...

Implication of very active interventionist state: besides the Keynesian macro-economic policy and traditional regulatory and antitrust activities in troublesome areas of industrial organization, it also implies active state participation in areas of market failures, social costs and benefits

I'll be honest and admit that I have a hard time comprehending your point. Continuous growth/ is not sustainable, granted. How should society act during the bad times, such as in recessions? Is it desirable, in that case, to not have control over your currency's supply?

A natural recession that would be caused by the shrinking of the global population will not be as bad as you imagine, right now a recession means the same amount of people with the same amount of needs but fewer products and services and more expensive if the population shrinks you will also have a lot less demand balancing the decrease in productivity.

Thus Bitcoin will probably (if ever) become a world currency by the time the growth model is done and people have already adjusted to a downward spiral, at this point I don't see why deflation would be anymore a cause of concern since it will already be happening naturally.

[Hydrogen]

The classic clash between Keynes and Hayek appears to be in a decline.

MMT (modern monetary theory), socialism and libertarianism appear to be the main economic ideologies of today.

Bitcoin and its supporters are usually classed under a libertarian heading. Which some of them might be offended by considering some of the questionable views libertarians have. I know I feel offended when someone assumes I'm libertarian for supporting bitcoin and crypto. There isn't anything libertarians and I share in common.

Economists are funded and employed by their own special interest group, which lies outside of crypto's funding cycle. There aren't crypto initiatives which throw money at economists globally. Which could be one motive behind most of them refusing to support it. Over time that could change. Economists could lean more towards crypto as more of them are hired and funded by crypto based firms. But that would take time.

[tadamichi]

Two factors of the great depression were banking failures and shortcomings in the gold standard, something that could be prevented under a Bitcoin standard.

Interesting. Could you provide some citation? I thought the inability of the state to create money was what mainly caused it.

Sure, so:

Four factors played roles of varying importance. (1) The stock market crash of 1929 shattered confidence in the American economy, resulting in sharp reductions in spending and investment. (2) Banking panics in the early 1930s caused many banks to fail, decreasing the pool of money available for loans. (3) The gold standard required foreign central banks to raise interest rates to counteract trade imbalances with the United States, depressing spending and investment in those countries. (4) The Smoot-Hawley Tariff Act (1930) imposed steep tariffs on many industrial and agricultural goods, inviting retaliatory measures that ultimately reduced output and caused global trade to contract.

And here more to the banking failures:

Between 1929 and 1932, the money supply and bank lending in the United States declined by more than 30 percent. In Contagion of Fear (NBER Working Paper 26859), Kris James Mitchener and Gary Richardson attribute much of this decline to the changing behavior of bank depositors. In 1930, after the collapse of Caldwell and Company, the largest bank-holding company in the South, runs on banks became widespread. The calling card of a panic, according to contemporaries, was the suspension of numerous banks in close proximity in a short period, such as within ten miles and 30 days. These panics deprived banks of deposits, which forced them to adjust their balance sheets and reduce lending to businesses and households. These declines in deposits and increases in reserves account for almost all of the decline in the money supply during the Great Depression.

Now sure one could argue that expansion of the money supply could help here, but then the other question is if its really not just postponing problems into the future, similar to 2008.

It could be argued that a Bitcoin standard could prevent banking failures in the first place, as it is fully backed. But then it also depends on how many people hold their own keys etc.

Sadly i cant reply to your other thread as im not a full member yet.

Moved it to Serious Discussions. You can reply now.

Thanks, ill move my replies to there.

Yup, but theres a weakness in Keynesianism, because it cant really explain stagflation(economic stagnation combined with inflation) with this logic. We’re actually seeing it now, the assumption higher inflation, lower unemployment is simply not true. Were seeing the first signs of increasing rates of unemployment and inflation at the same time. Keynes is basically debunked when you have rising rates of unemployment and inflation at the same time. This already happened in the 70s once.

Lets also note that statistics about inflation and unemployment can be inaccurate, there are incentives for governments to make them seem lower than they really are trough several tricks. Which is kinda a weakness when all assumptions should be based on mathematical models.

Actually, this is incorrect, and the obvious example is Europe right now, with inflation peaking at levels not seen in decades while the employment rates are also clinging to new records. Note that I focus on employment levels, which means how many people are actually working, not on the misleading reported unemployment.
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Employment_-_annual_statistics

Quite interestingly, for example, the Netherlands has gone beyond 80% employment in the 18-64 range the number of available jobs has also increased to another record of 133 jobs for every unemployed person receiving benefits.

Stagflation occured in the 70s tho and this disproved the assumption. And i suspect that we could be seeing it again not so far in the future, as theres first signs that point to it, that arent reflected in the statistics yet. But were not fully there yet and it doesnt have to occur. Thats why i just said first signs. I shouldve stated it more clearly, employment is still up but i think were in a dangerous position where it could start to flip, depending on how things will play out in the future.

[BlackHatCoiner]

the gold standard didn't stop the government from debt-based finance nor it did anything about the bust cycles in the US previous to the great depression, starting with 1785, and that's quite fast in a history of a country.

Debt-based finance began in 1929, because it was proposed as a solution to the depth of the depression. I don't know if it helped or not, that's what I'm trying to understand. Did this new state-governed money help the USA? Would a Bitcoin standard, which would abate the current Keynesian economics, do more good than bad?

It's a serious, strong argument from a critic.

Socialism, that's basically what every Keynesian advocate ends discussing it starts nice and end badly...

Right. So, Keynesianism is a school of economics that focuses on society's growth, while Austrians focus on individual's growth?

[stompix]

Stagflation occured in the 70s tho and this disproved the assumption. And i suspect that we could be seeing it again not so far in the future, as theres first signs that point to it, that arent reflected in the statistics yet. But were not fully there yet and it doesnt have to occur. Thats why i just said first signs. I shouldve stated it more clearly, employment is still up but i think were in a dangerous position where it could start to flip, depending on how things will play out in the future.

And this is why I contradicted you because there is no such first signs, as employment is going up despite inflation, we're already not only past the pre-covid levels but fully 2% up in employment levels, and it would really go up higher if it would be possible but simply there are no takers.

It depends a lot on what kind of inflation we're talking about if it's generated by a lack of products due to the economy falling apart, Venezuela style where there are no jobs available as everything goes bankrupt, or simply prolonged times of linear increase due to more expensive energy but with everything till up and running like it's happening right now in Europe and with a ton of available jobs.
Inflation alone is not that damaging to the economy alone, and certainly not when we're talking about 10%-20%.

Turkey is experiencing inflation of over 50% for a while and you can still see that true employment levels are not changed that much:
https://tradingeconomics.com/turkey/employment-rate

Debt-based finance began in 1929, because it was proposed as a solution to the depth of the depression. I don't know if it helped or not, that's what I'm trying to understand.

No, it didn't, many like to correlate the two things, the gold standard and money printing but the government printed debt their entire history, let's not forget the city-state of Athen was the first one in history to default on its debt, most of the wars were financed on state debt, the Bank of the United States itself started by basically issuing debt notes and caused a crisis in 1792.

Would a Bitcoin standard, which would abate the current Keynesian economics, do more good than bad?

For the average individual definitely more good, for a state or a country, I think it will not matter that much anymore.

So, Keynesianism is a school of economics that focuses on society's growth, while Austrians focus on individual's growth?

In theory yes, but it's more like Keynesianism wants to build an utopia on formulas while Austrians like to focus on what's in their pockets!

[tadamichi]

Stagflation occured in the 70s tho and this disproved the assumption. And i suspect that we could be seeing it again not so far in the future, as theres first signs that point to it, that arent reflected in the statistics yet. But were not fully there yet and it doesnt have to occur. Thats why i just said first signs. I shouldve stated it more clearly, employment is still up but i think were in a dangerous position where it could start to flip, depending on how things will play out in the future.

And this is why I contradicted you because there is no such first signs, as employment is going up despite inflation, we're already not only past the pre-covid levels but fully 2% up in employment levels, and it would really go up higher if it would be possible but simply there are no takers.

It depends a lot on what kind of inflation we're talking about if it's generated by a lack of products due to the economy falling apart, Venezuela style where there are no jobs available as everything goes bankrupt, or simply prolonged times of linear increase due to more expensive energy but with everything till up and running like it's happening right now in Europe and with a ton of available jobs.
Inflation alone is not that damaging to the economy alone, and certainly not when we're talking about 10%-20%.

Turkey is experiencing inflation of over 50% for a while and you can still see that true employment levels are not changed that much:
https://tradingeconomics.com/turkey/employment-rate

I respect your opinion, but i still disagree. What i mean with first signs are: Many companies are starting to get into tough spots and have to bear higher costs at the moment. Things like energy prices will bring their production costs up, but at the same time many are only able to produce less at the moment. And at the same time inflation is decreasing purchasing power in the population, so to combat this there is pressure to increase workers wages at the same time. But at the same time they have to bear inflation too and the costs of it. Then we have rising interest rates that will also make it harder to pay off new loans. So we have rising production costs, but lower production ability, lowering purchasing power and potentially higher interest rates at the same time. This could lead to layoffs if companies cant bear this.