Trickle Down Economics – also called trickle-down theory, refers to the economic proposition that taxes on businesses and the wealthy in society should be reduced as a means to stimulate business investment in the short term and benefit society at large in the long term.
When discussing Bitcoin with people, I often hear arguments of early investors being too rich, or that financial equality is instantly off of the table in a Bitcoin based world. This is similar to someone saying if they invested early into Amazon or Tesla, them selling their stocks is unfair because they have a financial advantage in the marketplace over other participants.
In a Keynesian economic world (the one we currently live in), “investing” is required to avoid the effect of inflation. The Federal Reserve creates USD, ‘injects’ that money into the economy by streamlining that newly created currency directly to corporate interests and investment firms. As that money is created at the top, the people who save their wealth in that currency (the US Dollar) are vulnerable to their purchasing power being inflated away. This meme is a good visual of what i’m attempting to portray. The purchasing power of the dollar has consistently declined since the Federal Reserve was created in 1913, and it’s no coincidence that Gold has risen from $35/oz to $1800/oz in the same time. When stock values rise in markets, the value of the stock is not increasing. The medium required to purchase the stock is not worth as much, requiring more of it to purchase the same amount. This is why Bitcoin is currently around $9,000.
In an Austrian Economic world (vs Keynesian) this issue is not present. On a gold standard, when the *actual monetary unit* used is finite, prices drop over time. As technology advances the human condition, less human time is required for the same or more output in
productivity, materials, labor, goods and services. In theory, “time” becomes cheaper for humans on a global scale. A system built this way requires no government intervention and regulates itself. Wage hikes are not required, inflation is obsolete, entrepreneurial investment is calculated and free market equality is available for any and everyone who seeks opportunities.
By championing inflation, the US government is able to (without permission) create debt obligations, sell them to national investors, and inflate the value of that debt issued away, paying it off with newly created debt. Every investor, company, firm and fund chases percent based returns, which means every corporation has to raise prices regularly to meet those expectations to the shareholders. Where a vehicle loan 20 years ago may have a $150/mo payment, an average vehicle payment for 2020 is over $300/mo. Subconsciously and psychologically it would have been in the best interest of the person obtaining the loan to acquire it sooner rather than later.
The fundamental mentality to spend money rather than save it is absolutely reflected in households in the USA. Almost no citizens have meaningful savings. The Keynesian economy we are living in is trickle-down and has caused these issues. The government creates and spends the money to directly benefit corporate interests. In theory, those corporate interests create jobs for the community, and those jobs support households. Since the households are supported by corporate interests, the citizens are able to ‘stimulate the economy’ by spending, paying taxes (owed by money creation) and “keep the economy going” – completely through spending. This theory was created by John Maynard Keynes, here is more information if you are interested in who he was.
The problem with this form of economics is that it punishes saving in an invisible way. By inflating the money supply, you are punishing people who save their wealth in that money, forcing them to spend in order to retain purchasing power. This is the main catalyst as to why the stock market “always climbs”. Piling cash earnings into the stock market promises “return for investors”. This has fueled a climate of incredible mal-investment. Passive investing has taken over smart investing since the early 2000’s. If you pick any ‘large cap stock’ and save your entire wealth in it, it will accumulate more USD wealth. This is what Keynesian economics has done to free market capitalism. Businesses that have real potential don’t get a fair playing field, or the same level of funding as the FAANG stocks, both by Government and citizens of the US. The stock market has been changed from a tool of investment and growing the US economy into a tool of lazy returns via passive investing that doesn’t add any *real* additional value to the United States or it’s citizens. The stock market simply serves to enrich the rich and provide returns for those privileged enough to access the US economy (which isn’t very many people globally).
We all know money is time, and time spent is to earn money. By saving your wealth in USD, you are accepting the terms and conditions given to you by the creator of the USD system – the Federal Reserve.
When Bitcoin was new in 2009, nobody knew what it was. Nobody understood the implications of this newly created technology, it was simply used as a vessel to transact without permission (Silk Road). Bitcoin was created with a simple goal in mind – 21 million coin supply cap, and open for everyone to use. After Bitcoin had proven itself successful in this realm as a real free market alternative to the Keynesian extractive system we live in, technical developers and economic scholars became drawn to it, causing the price to jump on a parabolic rise. As the early users of this currency held it and witnessed it’s extreme volatility, they sold their supply during these run-ups for USD gains, and new market entrants were willing and did pay a higher price to obtain those same coins.
As time has gone on, Bitcoin has proven itself as more than an experiment…so far. Most very early users of the money have cashed out their profits. People who came later for different reasons (medium of transfer, store of value, censorship resistant, immutable, impossible to steal) have been willing to pay a higher price based on their understanding of the technology. People that buy Bitcoin today see a future of sound currency, no fiat debasement and smaller government. Most people involved in Bitcoin don’t understand the serious implications this will have on future generations, and most investors (hedge funds, pension funds, wall street traders) simply cannot understand this undertaking. If you’ve gotten rich on a broken system, it’s nearly impossible to see any other system succeeding.
As price continues to rise and fall, new market participants are willing to pay more for the value proposition that Bitcoin offers on a global scale. Most early investors will be left buying Bitcoin at a higher price in the future without full understanding of how Austrian economics benefits everyone. The early investors who understand how a finite money supply benefits mankind will never sell their Bitcoin for fiat currency again.
As society progresses and Bitcoin rises in value, the market participants that understand economics and investing will be able to efficiently provide capital to markets to create businesses that benefit citizens. As time goes on, quality of life rises for everyone as real world prices continue to drop from advances in technology. This is no different than investing in Apple at $1. The difference is the fundamental technology underlying the investment – one is meant to steal from you, one is meant to save your finite time for proper investment, or retirement if you so choose.
If trillions of dollars aren’t able to be printed, billionaires simply can’t exist. If the roof on the currency is unlimited, so then is inequality. With sound money, if a person or company wants to earn more of the fixed 21,000,000 coin supply, they must show innovation and out preform other businesses in their industry. Businesses must show promise rather than using debt to fuel their insolvent investments. In a Bitcoin world, humans thrive and the abuses of central banking end.
Time is finite, your money should be, too.