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Bitcoin also won’t put gas in your car or provide medical care for your family. To be clear, I mean this literally. I realize people have made millions and billions speculating in Bitcoin. They can use that money to buy food, gas, and medical care, but the point is that Bitcoin doesn’t actually produce these items or anything else that we directly consume.
That may seem obvious, but this simple point is important to anyone interested in thinking about Bitcoin seriously. If our economy is facing supply constraints, as was the case at times in the recovery from the pandemic recession, Bitcoin will not help address the problem. It does not produce any of the goods and services that people need.
If Bitcoin, or other crypto currencies, sell for high prices, it means that the people who hold these currencies can command more of a limited supply of goods and services. In other words, high priced crypto is a recipe for inflation, in the same way as would be the case if the government just dropped trillions of dollars from the sky for people to grab on the streets and in their backyards.
This is especially the case if we go through with the idea of creating a “strategic reserve” of crypto. This would effectively mean that the government is dropping tens of billions of dollars on the homes of people who own crypto. If the economy is producing near its limits, this would be a virtually certain way to increase inflation.
The crypto cult has insisted that we somehow need crypto. While crypto has proved somewhat useful for paying for drugs and blackmail, no one has yet identified a legal use.
People may feel better because they hold crypto. This can be said for lots of things. Many people feel better because they gamble, whether in Las Vegas or in financial markets, but none of these actions put food on the table. When people gamble, they are giving money to casinos. When they speculate in financial markets, they are giving money to the Wall Street boys. And, when they speculate in crypto, they are giving money to the crypto bros.
Of course, some people can win in crypto or on Wall Street, just like some people can win in gambling, but the vast majority of people don’t. They are just handing money to the intermediaries. That will allow crypto bros and the Wall Street gang to put more food on their tables, but this is the result of taking it away from everyone else, not because they are adding to the economy’s output in any way.
There can be an argument that financial markets, although not crypto, can increase output by better steering investments to their most productive uses. There is some truth to this, but we could probably steer investment just as effectively with a financial sector that is half its current size, as we did in decades past. The other half is just waste that makes Wall Street rich at the expense of the rest of us. (If we subjected financial transactions to the same sort of sales tax most of us pay when we buy food, clothes, and other items it would eliminate much of the waste in the financial sector. It would also raise a ton of revenue.)
Anyhow, it is understandable that politicians getting campaign contributions from the crypto bros would be singing the praises of crypto, but everyone not on their payroll should realize their song is nonsense. Crypto produces nothing, it is just a scheme to get money from the rest of us and hand it to the crypto bros.
The Foreign Trade Exception That Donald Trump Should Hate (If He Had a Clue)
There is one story where the country as a whole could in principle benefit from crypto. That would be the case if we could sell it to other countries in exchange for their goods and services. This would mean, for example, that we would get coffee from Brazil or cars from Japan and pay them in crypto.
In that story, the U.S. as a country would effectively be acting like crypto bros. We would be giving worthless digital bits in exchange for real goods and services. That would put food on our table, even if takes it off the tables of our trading partners.
However, there is an interesting twist on this story. This is essentially what the United States is already doing with its $950 billion annual trade deficit. We are buying $950 billion of goods and services that we are not paying for with our own exports, instead we are paying with dollar bills. This trade deficit allows us to consume more than we produce.
But this is exactly the story that has sent Donald Trump raging for years. In his speeches, Trump claims that other countries are ripping us off by selling more to us than they buy from us. Insofar as this is the case, they will be ripping us off even more if they sell stuff to us for crypto, instead of the goods and services we produce. That would make our trade deficit even larger.
Hopefully we don’t end up as a country heavily involved in crypto, and we will never have to worry about this story. But if we do it will be yet one more of the ironies of Trump policy that his crypto dreams will make the trade deficit “disaster” even worse. It’s all very MAGA!
This first appeared on Dean Baker’s Beat the Press blog.
