If the government has this big new revenue source, right, that return on Bitcoin, does it use it to pay down its debt, to be more fiscally responsible?
Well, it's not being fiscally responsible with its current budget.
So why would we expect it to be fiscally responsible with a bigger budget, right?
And so we can set this entire conversation about what the expected return on Bitcoin is aside.
we still have to find some mechanism to get the government to be fiscally responsible.
If we don't do that, it doesn't matter what the return on these assets are.
The government's going to spend it all and then some.
So I think that's, you know, difficult nut to crack.
There's pretty much every model of fiat money that we have in economics as to equilibrium.
So there's an equilibrium where the fiat money has positive value.
And there's an equilibrium where fiat money has zero value.
And what we call the transition from that positive value equilibrium to the zero value equilibrium is hyperinflation.
Yeah, it's funny that that spending issue with Bitcoin is the same thing is true for inflation.
You know, so if the government's holding Bitcoin and they think, well, you know, now we have this valuable asset, so our debt's not as bad.
We can spend a little more.
And the same thing is true with inflation.
They're like, well, inflation is terrible, but at least it's pushing up the value of our Bitcoin.
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Without further ado, let's get into this Bitcoin talk.
Three economists on one podcast.
This is the most economists I've ever had in the same digital room at once.
So William, Thomas, Josh, welcome.
Thank you guys for joining me.
I am very excited to talk to you all.
Thanks.
Happy to be here.
You may find out that it's three economists too many.
That's a possibility.
Don't be so hard on yourselves.
No, you know, I mean, if you guys were all, you know, fiat Keynesian economists, that might be true.
But I think in this case, that would not be a fair label to put on any of you.
I am super curious just to set the stage for folks who may not know you all.
Can we just do like a little kind of round the horn?
And if you guys don't mind just introducing yourselves, just who you are, where you're teaching at.
You are all senior fellows at the Bitcoin Policy Institute, and the institute is doing great work, vibe-shifting our nation towards Bitcoin, which is amazing.
But just kind of love to know a little bit about your backgrounds and maybe kind of how you became an economist who was also into Bitcoin.
And maybe, William, if you want to start us off.
Sure. My name is William Luther. I'm an associate professor at Florida Atlantic University,
and I direct the Sound Money Project at the American Institute for Economic Research.
I guess, you know, I first heard about Bitcoin back in 2010.
My graduate advisor, Larry White, is what you might call a proto-Bitcoiner.
So back in the 90s, Larry White and his first student, George Selgin,
And we're having these debates with folks like Hal Finney and Nick Sabo about digital monies.
So when Bitcoin came along, they were already on the mailing lists.
They were already in those conversations.
So it was just a very natural thing for our working group to be thinking about and talking about.
And sure enough, one of my colleagues presented a paper on Bitcoin.
And, you know, it just goes from there, I guess.
That is, I was not expecting you to have heard about it that early.
So that's, I mean, quite really the bleeding edge there.
Yeah, you know, Thomas was in the same working group, actually.
And when Thomas finished his PhD, he gifted our advisor some Bitcoin.
Wow.
So early days in the Bitcoin community.
And Thomas, maybe if you want to go next.
Yeah, that's right.
We traded some Bitcoin in 2010 or 2011, but strictly for research purposes.
Naturally.
So I'm Thomas Hogan.
I'm a professor of economics at the University of Austin, not the University of Texas at Austin.
We are a brand-new university, the University of Austin, with a brand-new group of freshmen, our first-ever set of students.
So I'm excited to be founding this new university.
I previously worked at Rice University and a few others, and I was formerly the chief economist of the U.S. Senate Committee on Banking, Housing, and Urban Affairs.
I do research on financial regulation and monetary economics.
And as Will mentioned, when we were in grad school, we were talking about Bitcoin in 2010 and 2011.
And part of that was that we were doing research on how money works outside of the government.
What did we have before we had the Federal Reserve and this new idea of Bitcoin?
Was this going to be a new money?
Was it going to be the first experiment in non-governmental money that we'd had in 100 years?
And so it was a pretty exciting topic for us.
And Will ended up doing a lot of research on it. And Josh and Will and I have worked together on some Bitcoin related research. And now we're all fellows at the Bitcoin Policy Institute trying to advise and influence government policy related to Bitcoin.
I want to give Josh a chance here too, but I want to just put a pin in that and remember to circle back because I'm very curious of what the kind of takeaways of your research and your thesis at that time was and if that's evolved at all.
But Josh, maybe if you want to give yourself an introduction too.
Yeah, so I'm Josh Hendrickson.
I'm a professor and the chair of the economics department at the University of Mississippi.
I guess I found out about Bitcoin in 2011.
Um, the, so I was finishing up graduate school and kind of the focus of my research had really
been on monetary policy.
But what I was really focused on was typically when economists talk about like policy, they're
talking about, um, Hey, like there's some kind of market failure.
And so like the, the, you know, the government steps in and then they actually just kind of
replicate what a market would do kind of thing. But what I kind of noticed is that when it came
to monetary policy, a lot of people were not talking that way about policy. And so one of my
interests was kind of, okay, suppose you're stuck with the Federal Reserve.
What should the Federal Reserve do that would replicate what a market-based system would do?
And so that really got me into thinking about alternative monetary regimes and things like
that. So I was kind of reading all of that stuff. And so I heard a podcast in 2011 about Bitcoin,
and there were just a lot of themes in the podcast where they were just describing how it was
designed. And I recognized those themes, you know, like, and how similar that some of this stuff was
to like Larry and George's work, which I knew and also to a guy named Ben Klein's work. And so
So it just kind of fascinated me and I kind of thought, OK – I mean in 2011, I thought, OK, this is probably not going to – this is probably not going to go anywhere.
It's probably not going to be successful.
But maybe there will be a period where it gains some popularity or success and then we can kind of learn from that.
But from my perspective, it was like, well, as an economist, this is a fascinating thing to study because no matter what happens, whether it succeeds or whether it fails or whether it's somewhat –
in between, it will teach us something about what we really know about monetary economics.
And so from my perspective, it was like, well, this is something that's worthwhile to study
regardless of what happens to it.
First of all, I'm already fascinated because you guys have been aware of Bitcoin for a very
long time.
And I think that people often don't think of folks in the – I think economics has perhaps
gotten a very bad rap because of, you know, maybe it's folks like Paul Krugman, who are,
you know, very famously, you know, economists and very famously bad on Bitcoin. But you guys have
been tuned into this for such a long time. I'm curious, just Thomas, kind of going back to your
initial graduate thesis there. What was it? And did you, you know, does it still hold up today
As you're thinking on Bitcoin as an alternative to centrally controlled money, has it evolved significantly since then?
Well, it certainly made a lot more progress than I expected.
Early on, it seemed like Bitcoin was potentially just going to be sort of a niche thing.
And a lot of the debate was, is this money?
Should we consider it to be money?
At what point does it gain enough users that we think of it as money?
And certainly within some small community, you could have people trading it and it would be at least money to them.
But I think we didn't really think it was going to do anything that would rival the US dollar or become a major reserve.
And it certainly seems like now that's becoming pretty serious.
And so it's made a lot more progress on that front than we expected.
But also I think the reliance on it, the community of Bitcoiners that have all rallied around Bitcoin and made sure that there's no attempts to change the issuance or no fundamental changes to the protocol really gives it a sort of reputation and reliability that the other cryptocurrencies just don't have anything like that.
And then with that community, it really puts a lot more trust in Bitcoin and that's something that we didn't know was going to happen at the time that I think is a lot better.
And so now with major institutions, with some governments adopting it, it's even more solid foundation than it's had before.
And that's something like we could have guessed but I definitely did not expect when we were talking about it in 2010, 2011.
William, I'm curious to hear from you as well. Does that mirror your experience? Has Bitcoin exceeded expectations, let's say?
Yeah, certainly. And just in terms of the narrow monetary economics, Bitcoin has changed or maybe modified my thinking on some important questions.
So, for example, there isn't a lot of work in economics about launching new monies.
For some reason, it just doesn't seem to be a question that many economists have been all that interested in.
but prior to Bitcoin, I would say the best work, certainly the best work that I had read
on the topic was by George Selgin. And George put this view forward, which you might think of as
being in the Austrian tradition. He links the argument to Ludwig von Mises' regression theorem.
And the argument is basically that if you have an item that you want to introduce as money,
That item is either something that's already being used for other purposes, which we would
call a commodity, or it's what economists would call an intrinsically worthless item.
That is, it might play some role as a medium of exchange if people will accept it, but
it doesn't have any non-monetary value.
It doesn't have any use apart from any role it might play as a medium of exchange.
And George's argument, again, drawing on Mises' earlier work, was that the way we got fiat monies was that initially you had commodity monies circulating.
And then some government steps in and removes the redemption for the underlying commodity.
So you have some commodity like gold coins that's emerged, maybe banks or a central bank issues some paper claims on those gold coins that are redeemable.
And then that redemption gets removed.
And so in that case, people are already using the paper notes when it becomes a fiat money.
So you haven't really launched a fiat money.
George indicates, he points to another way that you can launch fiat monies.
And this is, for example, with a currency like the euro.
In that case, you have these national currencies that are already circulating.
So first, you establish a fixed exchange rate between this new money, the euro, and the monies that are already circulating.
By the way, a fixed exchange rate that is backed by or at least supported by, maybe to be a more precise, supported by governments.
They're committed to maintaining that fixed exchange rate.
And then it's only after the euro begins circulating that that fixed exchange rate is removed.
So that background raises some questions about how Bitcoin gets off the ground.
Right. So questions that I was grappling with in some of my earlier research, you know, Bitcoin, it's not a commodity in, you know, when it's first introduced, nobody is is using it for for anything.
Right. And so if you're trying to if you're trying to purchase a pizza with some Bitcoin, you're basically asking someone to give you something of value for something that nobody else has any use for at the time.
an intrinsically worthless item. At the same time, you don't really have a government that is
supporting a fixed exchange rate. So there was this idea that these non-government,
intrinsically worthless items just couldn't get off the ground, that they suffered from this
problem similar to the mechanism in Mises' regression theorem, where since
nobody accepts them at the outset, nobody has an incentive to accept them. Therefore,
nobody ends up accepting them. And what I came to appreciate a bit more is the role of coordination.
If you go back and look at the early Bitcoin community, they were aware of this sort of stuff.
Hal Finney was a very smart guy. He's citing George Selgin on the forums, right? He understood
monetary economics. And they knew that you had to coordinate, right? You had to establish some
baseline value for this thing in order to get it going. But then once you get it going,
it can, you know, other people can accept it because it's no longer a worthless item.
So this, both the role of coordination in establishing some initial value and the idea
that this threshold between zero and positive
is just much smaller than I thought it was previously.
I think it was certainly in George's earlier work,
it was seen as this insurmountable hurdle
just couldn't be done or was extremely unlikely.
But you don't have to go from a totally worthless item
to something that's very valuable in that first transaction.
You can move in very small increments
and gradually get to something that's a more valuable item.
So I would say that's probably the thing,
the idea that's changed the most
in thinking about Bitcoin for me.
Well, it's kind of a,
it's a bit of a paradigm shifting moment, I think,
because obviously before Bitcoin,
there wasn't something that had done this.
I mean, correct me if I'm wrong here,
but I don't know if there's,
there's never been anything like Bitcoin.
And certainly, I mean, there were other attempts,
obviously at digital currency that failed for whatever reason, whether that be the,
they were centrally controlled and the government, you know, stepped in, uh, or for whatever other
reason, but we haven't seen something like Bitcoin before. And I mean, I think that's,
you know, it's very easy to get frustrated with people who even still in the year 2025,
you know, aren't grokking Bitcoin, but then you take a step back and you realize, well,
okay, I can't entirely blame them. Uh, the media hasn't done them any favors and trying to
understand it. They've been fed, you know, a lot of a lot of garbage in terms of the information
that's available. And also, we just have never seen anything like this before. Like this is a
fundamental shift. And I'm kind of curious where you guys see, is there ever any going back from
this? Like, I'm of the opinion, you know, I think that the chances that Bitcoin fails at this point
are extremely, extremely low.
I think that it's permeated enough of the world
and of our economic systems
and of our collective thought
that you're going to have a very hard time
killing Bitcoin off.
That said, I mean,
does the genie ever go back in the bottle?
Like now that we know that this can be done,
is there ever any return?
Like will governments ever be able to,
you know, to do these kind of fiat bait and switches
that you talked about,
where it's like they never really launched a fiat currency from nothing.
They had other means by which they did it.
Subtle rug pulls of exchange rates with either other currencies or commodity monies.
Can they ever get away with doing that again as we go into the future now that Bitcoin exists
and has proven that you can go – the free market can determine the price of money?
Well, we should never underestimate the government's ability to engage in a rug pull.
Fair enough.
You know, we have to remember that those governments, they employ an army of people, and I mean a literal army of people with, you know, guns and tanks and bombs.
They can do things.
They can persuade strong-arm people into doing things that you or I and ordinary market participants just can't.
So certainly the world is different now.
People have an exit that they didn't have in the past.
But the government is still a force to be reckoned with, right?
And many governments around the world do not hesitate to use that force for their own ends.
Yeah, I mean, for the three of us, our early work on Bitcoin was really about how will governments try to stop this.
I mean, that's really what it was. And so if we're talking about how things have changed and what happened that was unexpected is, you know, our working assumption from the beginning was always, you know, what are the things that governments can do to stop this from happening?
And then, you know, you fast forward a few years later and you've got the Bitcoin conference and you've got RFK Jr. and Donald Trump running for president saying, oh, we're going to buy Bitcoin and we're going to hold it, you know, on our balance sheet and things like that.
And so I think that's kind of the biggest surprise.
But I do think that there's a lesson here, though, that's important, which is if you look at the history of all of these things, I mean, we do have to be careful here, right?
Because, yes, it is a lot better when you have governments who are not actively trying to stop you from using this.
But at the same time, you have to recognize that there are other risks that are associated with their support, right?
So conceivably, the government is going to want to use this for their own purposes.
And they're going to try to figure out ways to manipulate things.
I mean even if you go back – you'll often hear people say things like, oh, well, like the gold standard was a constraint on government's ability to spend and borrow and things like that.
But that's false and the reason it's false is that a lot of central banks – once you had central banks on the gold standard, they figured out this really neat way to pay for wars,
which was you go to war and you suspend the convertibility of your currency into gold.
And then when the war is over, you just restore the convertibility and you go back to normal.
And so doing that allowed you a lot of borrowing capacity.
It allowed you a lot of capacity to print money during the war.
And yes, it also led to sort of costly recessions after the war because you got to go back on the gold standard.
But the point was is that they figured out how to manipulate that system to their advantage.
And so I do think that we always need to have that in the backs of our minds about when we're thinking about government support is that government support for this technology is not – it's not necessarily a universal good just because they're supportive of it.
They're going to want to use it in the ways that are going to allow them to achieve the goals that they're trying to achieve.
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Yeah, I would also say, you know, part of the question, if we're asking, could they put the genie back in the bottle?
Are we ever going back?
Well, it depends on where are we going, right?
Like what do we think is the outcome here when governments are starting to hold Bitcoin as reserves?
What does that really mean?
Are they going to start allowing people to use that as money?
Are they themselves going to use that as money?
Are they going to make their own currencies redeemable for Bitcoin?
I think some Bitcoiners think we're headed for hyper-Bitcoinization.
I had Parker Lewis and Will Cole speaking by Bitcoin class about a week ago, and they were saying within five years.
I don't want to put words in their mouth, but I'm sure they say stuff like this.
Very soon they believe, look, everything is going to be priced in Bitcoin.
Governments are going to have no choice but to start using that as money.
I'm not so sure about that.
So I think that it depends a lot on which government we're talking about.
The United States Federal Reserve, as much as we hate it, is better than most other central banks around the world.
And as much as we love Bitcoin and the advantages it brings, a lot of Americans just don't care very much.
They're happy to keep on using dollars.
And I think that will change, but I'm not sure it's going to change the entire monetary system of the United States.
Whereas in other countries, Bitcoin is a much bigger advantage, right?
And so I could see a lot more adoption of Bitcoin both by individuals instead of their local currencies but also by governments in other countries that just don't have reliable banking systems.
So does that make those governments and our government more or less likely to try to interfere with Bitcoin?
I don't know. Certainly I think governments are going to try to use the monetary system to their advantage as much as they can.
If the United States is not reliant on Bitcoin but holds reserves, maybe they have some ability to manipulate that.
But also maybe if they see other countries that are in some sense our enemies, maybe if other countries are using Bitcoin and Americans are still using dollars and a lot of people around the world are using dollars, maybe some governments, including our own, would still be trying to manipulate Bitcoin.
And so I do – I worry – it's funny.
Like for all of us, our main worry is the government screwing it up again, right, just in different ways.
And so we think about all these different ways that it could happen.
And so like I think in the current scenario where people are starting to adopt it more, where it's proving to be a more reliable currency and being more adopted for transactions by people in a lot of countries,
I think we will see some switch over to that.
But like right now, I think governments basically are just going to try to hold it as reserves.
And hopefully they won't have a big incentive to try to interfere with the system.
I guess one would hope that the game theory of Bitcoin is sound enough that it is not in any – if a government is holding a lot of Bitcoin, it's not in their interest to mess with Bitcoin.
because they potentially are going to decrease the value of that thing they hold a lot of.
Like, you know, you want Bitcoin to kind of keep doing its thing.
If you mess with it and you hold a lot of it, well, I mean, unless you're just trying to, you know, burn it all down around you,
I guess that's a different strategy.
Yeah, well, I mean, that's why forks exist.
Right. Yeah. I mean, right. We'd like for that to be the case.
And I think in general, you're you're exactly right for any for any large group of or any individual that holds a lot of Bitcoin.
That's certainly the case is like you don't want to mess it up because it hurts you if you do that.
But sometimes governments don't care, right?
If the United States saw that China were using a lot of Bitcoin and even if our own government was holding a lot of reserves, they might be willing to destroy those reserves or harm themselves in some way if it harmed China more, right?
But I hope that they wouldn't do that and I think like right now, I don't think that they'll have the incentive to do that.
And we just need to see over the next five years or a decade how it plays out and what countries start using this.
And are they sort of passively involved, whereas individuals are just using it more for monetary transactions?
Then hopefully the government won't have the big incentive to interfere.
But we don't even have to look at hypotheticals here, right?
Like we have some relevant history.
The U.S. used to be on a gold standard.
That was a – at least initially, a market-based money.
And what did governments do with that gold standard? Well, first, they undermine the supply mechanism, right? They had their own issuance on top of that gold standard. They would, you know, hoard the supply. And so the, you know, essentially that's like, you know, there being less gold in the world or release that supply, right?
They could play around with the circulating supply, even if the actual supply is determined by gold mining.
And then they issued so many redeemable claims on those.
The U.S. wasn't able to honor its redemption pledges.
It's suspended temporarily, we were assured, in 1971, just a temporary measure.
Nixon promised us we were going to return to the gold standard.
But here we are, 2025, no return in sight. So this idea that maybe the government would mismanage some market-based money, it's not just a hypothetical. It's a historical reality. That's actually what the US government did. So certainly not a concern we should take lightly.
I'm curious what you guys think, just speaking of gold as well.
Obviously, gold does have a proven track record as a neutral reserve currency.
It's been money for thousands of years.
It's done pretty well as money.
For a shiny piece of metal, it's really held its own.
It does not function so well in the digital era where information can travel at the speed of light around the world.
Everything is real time now.
Gold is not a real-time settlement mechanism, at least not too physically transacted and not to actually change the custody of it.
It requires quite a lot of work to keep that gold safe versus a $50 hardware wallet that you can use to secure some Bitcoin.
But I'm curious.
I mean, we've obviously seen central banks around the world.
Looks like they're making some moves in terms of trying to accumulate more gold.
I mean, China and Russia have been doing this for a while.
Well, the U.S., I'm not sure how much gold we really have in Fort Knox.
I think that's perhaps up for debate.
But, I mean, do you think that where we're at right now, you know, Thomas, you were saying you don't think this hyper-Bitcoinization is as close as some Bitcoiners would lead you to believe.
Do you think that we're more positioned right now for a return to gold as a neutral reserve asset?
Or does Bitcoin actually have a shot at this in the near term?
Or do we need to watch gold fail again as a neutral reserve asset before Bitcoin comes in?
Yeah, that's a great question.
I think – so one thing I would say first is the situation with gold right now is a lot different than when we were on a gold standard.
When we were on the gold standard, for most of U.S. history, we had a very stable price level except for, as Josh mentioned, when we had a couple of major wars and they suspended the gold standard.
But other than that, very, very stable long run price level. Right now, we see a lot of fluctuations in gold because we don't have a stable price level because we're not on a gold standard. Right. And so if we went back to that, we might move back to a more stable standard.
And there are people that would like to see that. We went off the gold standard on an executive order by FDR in 1933, and people are arguing, look, we could go right back on it.
Trump could come out tonight and say as of tomorrow or Monday or whenever, we're back on a gold standard. All of your dollars are redeemable for gold.
And as you mentioned, like if we've got the gold in Fort Knox, then potentially we've got enough gold to handle that kind of a system. Would that be good?
I don't know. I think there are a couple of problems. One is that it would provide some constraint. But as Josh mentioned, it's not a total constraint if we still have a central bank that's going to be managing it.
It wouldn't be quite as good as the previous gold standard because we wouldn't be on an international gold system that would enable exchange.
And also it depends a lot on what people expect. If they don't believe that we're credibly on the gold standard for the long run, then they're just not going to believe that it's going to be a stable system and so we won't have that same benefit.
I tend to think that a better plan might just be tell people to use whatever they want. Make money – the choice of money free. And if people want to use gold, they can use gold. If people want to use Bitcoin, they can use Bitcoin.
You know, Will mentioned our advisor Larry White's got this great book, Gold, Fiat or Bitcoin, Better Money, Gold, Fiat or Bitcoin, where he compares these.
And I think Larry believes that if people had the choice, they would switch back to a gold standard.
And his argument is kind of like you mentioned that, look, countries are all over the world adopted gold.
Like everyone ended up on some kind of gold or silver standard when they had the choice and it just naturally evolved that that was the same thing that everyone chose all over the world.
And so Larry I think believes, look, there's just something good that people like about having some physical money that they can rely on.
And maybe that's true. I don't know.
I tend to think young people today are much more comfortable with digital assets and might prefer going to Bitcoin.
But a lot of people would just stick with dollars at least for now.
And so I would love to see – we don't have to switch back to a gold standard if we'll just give people the choice.
And if they want to use gold, that's fine.
But then a lot of them I think would choose to use Bitcoin.
If you're listening to this right now, you should just hit pause and go buy Larry's book, Better Money.
uh and and if larry's listening to this right now he should give thomas and i a kickback for the
for the ad i have it but seriously it's a great book so check it out i purchased it a little while
ago i've been it's on my next up reads uh but yeah excited to dig in because i heard a lot of
good things and now i've just heard two more ringing endorsements so i'm gonna have to dig
into it well i think another aspect of this is like there people have been really slow to realize
that there are a lot of issues with the current sort of international monetary system that
were considered hypothetical problems that are now starting to become less hypothetical
and more realistic.
And so, you know, the entire kind of reason that Nixon suspended the gold standard in
the first place was the Bretton Woods system was sort of designed to be like a better gold
standard, right?
So it was kind of designed like, hey, the problem with the gold standard is that all these central banks, when they all want more gold at the same time, this just creates deflationary conditions.
And those are artificially generated conditions which impose costs on society.
And so we could actually just eliminate those pressures by just having gold and dollars be perfect substitutes because we can create dollars.
So if everybody just wants more reserves and there's not enough gold, then we can create dollars and they can hold the dollars instead.
And the problem is, is that what the Nixon administration kind of learned was – well, I mean it started long before the Nixon administration.
I mean, throughout the 60s and then it sort of culminated with the Nixon administration is that people are kind of realizing that the system doesn't work the way that it was designed because it's not consistent with the policy goals of the United States.
The United States is going around providing a defense umbrella for a lot of its allies and spending lots and lots of money.
And if you're getting people to hold dollars, they need to accumulate those dollars, but they can't produce them, which means that they have to trade with you and acquire those dollars.
And so what started to happen is there were too many dollars floating around in the system, and foreign central banks wanted their dollars redeemed for gold, and the United States didn't want to do that.
And so the original kind of suspension came out of a conflict between the Nixon administration and our European allies, which was basically, look, we're providing these public goods to you.
And what do we get in return is you guys complaining that there's too many dollars and you want to redeem them for gold and that sort of thing.
And what the United States wanted was basically, well, we want to continue doing all the things that we're doing, but we want you to stop complaining that you're not getting the gold back, right?
Like we want all the benefits of this system.
We don't want the costs.
And the Europeans were essentially saying the same thing.
Yes, we want your defense umbrella, but we also want the gold.
And so the – but the problem is is that sort of like leaving that system for the current system created a new problem.
And that is that what replaced gold as the primary reserve asset of the rest of the world was US treasury securities.
And that's kind of unique in human history that you would have this debt instrument that's kind of serving as like the main reserve asset of the rest of the world.
And the issue with that is that when the United States is growing faster than other countries, that's a perfectly sustainable kind of model.
But what we've seen over the past couple of decades is as all of these developing countries kind of grow faster than the United States, because of the monetary system we have, their demand for dollars and their demand for these reserve assets, which are debt instruments for the United States government, are growing faster than the US.
And so if the US doesn't increase its debt, what we end up with is we end up with very, very low interest rates that cause a lot of distortions in the economy.
On the other hand, if the United States supplies all of that debt to the rest of the world so that they can hold it, the United States starts to look like it's on an unsustainable trajectory for its debt.
And so you have this tradeoff, right, where it's do we allow ourselves to accumulate this debt that might be unsustainable because everybody wants this debt?
When in reality, like it's sort of like everybody wants this debt, but supplying it might actually undermine people's confidence in it in the first place, right?
It creates this odd scenario.
But then if you restrict it, there are still all these economic costs associated with that because now you're going to drive interest rates lower.
You're going to get misallocation of capital.
You're going to get all these kinds of economic costs associated with it.
And so you face this difficult tradeoff and people have been talking about this for a long time and warning about it for a long time.
But I think it's only in recent years that people have kind of realized that like this isn't really just a hypothetical scenario.
We're sort of in that scenario now.
Well, I'm curious.
I mean just speaking of unsustainable paths, I mean you even had Jerome Powell saying on multiple occasions that the current debt trajectory of the US is unsustainable or I believe he – I think he used that exact word.
And, you know, we see we're at what, 36 something trillion in debt. And you'd see a lot of MMT folks say things like, oh, you know, the debt doesn't matter. And, you know, public sector debt is just a private sector surplus. And so we can just kind of forget about this. And like, we can't ever go broke because we print the global reserve currency.
and now you have trump saying things like oh i'm we're going to pay down this debt like we need to
be reducing this debt but is that actually feasible with where we're at right now i mean the interest
expense and the debt is i think still larger than our you know annual military budget it's it's it's
massive it's like over a trillion dollars is there uh you know as lynn alden would say you know nothing
stops this train in your opinions is there anything that stops this train is there any
option other than to continue to kick the proverbial can down the road as it relates to
our monetary policy. I mean, I can't imagine that the folks at the Federal Reserve or any politician
who happens to be in power wants it to be on their watch that we go through an absolutely brutal
reset. But that's kind of what's required if we want to be able to actually
fix and cut the dead parts out of the system, right? I mean, do they have another path?
I want to say this very clearly because I don't have the opportunity to say it very often.
I agree with Jay Powell. Wow.
On the record, on the record.
Mark the date and time. It's not something I've said that often, but I agree with Jay Powell.
The debt is unsustainable. I do want to say we should probably think about why the debt is unsustainable a bit more than most people typically do.
I think there's this idea that, well, since the debt is growing, it's getting so big, maybe because it crossed some threshold like 100% of GDP, right?
Therefore, it's unsustainable.
But you've got to think about good debt and bad debt.
I currently have some debt.
I purchased a house a few years ago.
I'm not concerned about that at all.
Many of my students will take on some debt to finance their education, and they're learning
economics from me, so they're going to do very well.
Good investment.
Right. So those are those look like productive, you know, borrowing. And if what the U.S. government were doing were, you know, making use of its, you know, privilege as the global reserve currency issuer and, you know, taking out debt at very low rates because people want our our treasury so much.
And it was using this to make valuable investments or at least, you know, purchasing some asset that will have some rate of return that they can, you know, is very liquid and they can sell if need be and capture the spread in the meantime.
But, of course, that's not what they're doing.
Right.
Most of the expenditures are on current consumption.
Right.
And so this looks a lot less like, say, financing an education or financing some productive business and a lot more like having one heck of a weekend in Las Vegas.
and you know so that I think is the real problem here with the debt it's not so much
the size of the debt though certainly when you you know you have an interest expense there
and interest rate risk when you have that much debt but it's not so much the size of the debt
but rather it's the the the spending that has taken place as a result of that debt and what
we got for that. And what we got, you know, was some very happy old people. But unfortunately,
that doesn't bolster our ability to repay that debt in the future very much.
So that I think is why it's worrisome to me.
Yep. Let me mention a couple of things more specifically about that. So I totally agree
with what Will said. But if we're thinking about the composition of spending and what is big and
important difference between discretionary and non-discretionary spending. And so every year we
pass a – well, we don't always pass a budget, but when there are arguments about what should go
into the budget and what government is spending money on, that is all discretionary spending that
are short-term commitments. And non-discretionary spending is long-term commitments that we've
promised people money. Part of this could be defense spending that we've committed to for
decades in the future. But a large part of it is and the most worrisome part is Medicare,
Medicaid, Social Security. And so those things are – if you've seen these graphs where our debt
just exponentially goes off the charts, that's largely because of increases in Medicare and
Medicaid and to some degree Social Security as well, though that will probably plateau after
baby boomers. But the big deal is part of the solution potentially is that the exponential
growth is largely caused by promising people more money in the future than retirees are getting
today, even in inflation-adjusted terms. So we're promising people that are going to retire in the
future more than we're paying people that are retiring today. And if we were just willing to
say, hey, look, people that retire in the future get the same amount adjusted for inflation as
people get today, it would basically cut off the exponential growth and be something that we could
potentially manage through other small cuts and not something that's going to blow up and
completely destroy the country, right? And so the problem is nobody wants to make those small
changes. Even Donald Trump has said he doesn't want to make those kind of cuts. And so unless
we can get some kind of political commitment to do that, then we're going to continue to have a
problem. I mean it's possible. Canada did it in the 1990s when they had a budget that was going
to blow up. They actually cut their spending by about 50 percent. It's still higher than we are
today. It was like 60 percent of their GDP at that time and they cut it to 30, which is still a little
bit more than we have in the United States. But it just seems like we're not going to do that
until we're on the precipice, until we're about to fall off the cliff and destroy the economy.
That's when we're finally going to get people together. It would be better if we could get
some kind of political traction, but it just doesn't seem like we're going to do that.
If we had a gold standard or like a Bitcoin standard or something that was going to prevent
overspending in terms of monetary policy, maybe that would handcuff the federal spending as well
because there wouldn't be this outlet, wouldn't be this possibility to inflate away the debt.
And so maybe that would help a little bit, but we don't know. We're not close to really either
of those things right now Well and I think the other thing is we really have to kind of reflect on the fact that the world that we live in now is kind of weird in the sense that governments Western governments essentially just after World War II they became like massive insurance companies
Right. So where you pay your premiums and taxes and then and then the spending, you know, and then you get your benefits through government spending.
And I think like this is something that we significantly discount because most people alive today have never sort of lived in a different world.
But I mean if you go back before World War II and you look at most governments, the main thing that governments were spending money on was like national defense, right?
Like so they were spending money on armies and wars and things like that.
But the point is is that that was like the majority of their spending.
And what's really happened over the last, I guess, three quarters of a century is that what we've had is just this massive expansion of entitlement programs.
And so the creation of these entitlement programs is where a lot of these spending obligations come from.
And another important aspect of this too is like you can't even necessarily solve these obligations by printing money because if you think about how Medicare works, yes, we budget Medicare in terms of like the amount of dollars that you have to spend.
But what the obligations really are are like new hips and new knees and cancer treatments and things like that.
And so as you create inflation by printing money, you're also making those things more expensive, right?
And so you don't – it's not possible to just kind of like inflate away those costs.
And like with Social Security, you get cost – recipients of Social Security get cost of living adjustments.
So as you're creating inflation, like what you owe to those people who are on Social Security is also going up.
And so a lot of times like we think, well, inflation is a way out of this.
Well, inflation can eat away at the value of the debt because you could just print a bunch of money and pay off the debtors and kind of start over.
But there are these other budgetary consequences of doing these things.
And the extent to which governments have just become massive insurance companies I think is a sort of missing element of this discussion is that, yes, the international monetary system creates some really bad incentives, especially for the United States government.
But you've also got these entitlement programs on the other side.
And so just fixing the monetary system is not necessarily going to fix the problem because you've got to figure out how you're going to pay for these obligations to all of these people and the fact that like entitlements are only ever growing.
And then there are also the hardest things to get rid of because you've made promises to people.
And so to make – to have reforms, you have to renege on those promises and governments don't want to renege on the promises.
They like – to quote – to paraphrase an old Seinfeld episode, right?
It's not the taking of the promise – it's not the making of the promises.
It's the important part.
It's the keeping of the promises that are the important part.
And so no one wants to bear the cost of having to tell people that, no, we can't actually follow through on this promise that we made to you.
I mean do you think that there's – does Bitcoin fix this?
Not to be cliché but in any meaningful way?
I believe it was Senator Lummis' bill where she proposed acquiring a certain amount of Bitcoin.
And then the only way that we would ever dispose of any of that Bitcoin would be to pay down the debt.
Presumably part of that debt is also being racked up due to some of these entitlements as well, which continue to grow and grow and grow in size.
does Bitcoin, does a government holding a significant amount of Bitcoin and appreciating
asset, rapidly appreciating, does that in any way allow them to be more fiscally sound, let's say,
even though they're issuing a depreciating currency? Does that impose or provide any sort of,
does it impose any sort of strict, you know, kind of limits on them? Or does it provide any sort of
benefit where down the road, oh, look, we actually are solvent because the value of our holdings has
increased so much that now turns out we can keep all these promises that we made? Or is that just,
you know, just some Bitcoin maximalist pipe dream government edition?
So I think there are two things that you have to, you have to believe in order to think that the
Strategic Bitcoin Reserve fixes this. The first is in terms of the return on Bitcoin, right? If
you don't have, say, a significant increase in the demand for Bitcoin over time, then the price
of Bitcoin doesn't go up or doesn't go up as fast as other assets. And so it's not a good investment,
right? So you have to believe that. And I think that this is where a lot of Bitcoiners stop.
They say, well, of course we're going to get a big return.
And so this is going to solve all of our problems.
So what I want to say is let's table that.
Let's suppose that that's true.
We don't even have to think about whether or not that return is going to be less than whatever you believe it will be.
Suppose that it is whatever you think it will be.
Does that solve the problem?
Well, I kind of think of it – maybe you've read these old books, The Hunger Games.
They were popular maybe a decade ago, right, where folks in the capital had decided that I think they could take a pill and not get fat.
Basically, it just made them all bulimic, right?
Well, if the government has this big new revenue source, right, that return on Bitcoin, does it use it to pay down its debt, to be more fiscally responsible?
Well, it's not being fiscally responsible with its current budget.
So why would we expect it to be fiscally responsible with a bigger budget?
And so we can set this entire conversation about what the expected return on Bitcoin is aside.
We still have to find some mechanism to get the government to be fiscally responsible.
If we don't do that, it doesn't matter what the return on these assets are.
The government's going to spend it all and then some.
So I think that's a difficult nut to crack.
There's also a catch-22 here, right?
Because if you think about pretty much every model of fiat money that we have in economics
has two equilibria.
So there's an equilibrium where the fiat money has positive value.
and there's an equilibrium where fiat money has zero value.
And what we call the transition from that positive value equilibrium
to the zero value equilibrium is hyperinflation, right?
And so the thing is, is that the quirky thing about these models of fiat money
suggests that one way to get from that positive value equilibrium
to the zero value equilibrium can be that there's some big event that happens, which
creates self-fulfilling expectations that we're going to zero, right?
And so that the money is going to be worthless.
And so, you know, it's kind of a catch 22 here in the sense that, yeah, if you expect
Bitcoin's price to appreciate, if you expect to make very large returns on Bitcoin, having
the government own Bitcoin could be beneficial to them if, you know, they don't change their
spending behavior in the meantime. And if Bitcoin appreciates the way that they expect, then yeah,
in the future, you could sell some of this and start paying down, you know, your debt obligations.
The issue is, is like, to what extent do you start buying this? Because if you're looking at your debt
situation and you're thinking maybe we should buy some Bitcoin because maybe this is getting
unsustainable, well, then surely the people holding your debt are also thinking the same
thing about your debt. And so if they see you going out and buying tons and tons of Bitcoin,
they might look at you and say, maybe things are really worse than we thought,
which pushes you towards that self-fulfilling equilibrium. So I think there's this little
catch-22 here where maybe if you do this on a smaller scale, you don't have to worry about that.
But then, of course, that limits your ability to kind of pay down the debt with your returns.
On the other hand, the larger scale that you do this, it might enable you to – if you're correct, it might enable you to pay down a lot of this debt.
But the problem is in the meantime, it might scare people into thinking that things are really bad and much worse than they have realized, in which case you sort of set off the event that you're trying to prevent in the first place.
This is an upside to President Trump, right?
Because most people, rightly or wrongly, just assume that he doesn't know anything about economics, that he does these dumb things.
And so when he says like, oh, strategic Bitcoin reserve, we're going to buy a bunch of Bitcoin, right?
It doesn't initially set off this fear like maybe things are worse than we think they are.
It's like, oh, this guy just does stupid things.
So it's probably nothing, right?
Whereas if a typical president did this, then I would expect that mechanism that Josh is talking about to kick in much sooner, right?
Like, well, wait, he must be doing this for a good reason.
What is that reason?
So maybe we have some cover here for a moment.
Yeah, it's funny that that spending issue with Bitcoin is the same thing is true for inflation.
You know, so if the government's holding Bitcoin and they think, well, you know, now we have this valuable asset.
So our debt's not as bad.
We can spend a little more.
And the same thing is true with inflation.
They're like, well, inflation is terrible, but it's at least it's pushing up the value of our Bitcoin.
Right.
Yeah, it really I mean, what a what a beautifully vicious cycle there.
Right.
You start to want to devalue a little bit faster.
And then it's just it's a race to zero, I suppose, all all around the world.
I'm curious, too.
you know, do you think just as it relates to the U.S. specifically, I mean, there's been a lot of
talk about, you know, kind of the end of dollar dominance and, you know, a lot of a lot of trade
being settled outside of that dollar system that, you know, are we entering, in your opinion, a new
a new era of that kind of, you know, Bitcoin aside, maybe just like what we're already seeing,
like talking about right now, in your minds, have you do you see a shift already? Is that a shift
that is ultimately, you know, is that in the long run?
Maybe it's positive for the American citizen.
It's bad for the American government.
Like how do you see that working out?
Or do you think, you know, the dollar stays the biggest kid at the schoolyard for some
time to come?
So I think – so Josh probably has some comments about the system that we may be switching
to. But I'll just say like I personally am not as worried about the threats to dollar dominance
because we've heard the same kind of thing over and over for decades. It was going to be the euro
that was going to overtake the dollar and it was going to be the Chinese yuan that was going to
overtake the dollar. And then recently there was this proposal from the BRICS nations, Brazil,
Russia, India and China that maybe they were going to put together a gold standard. I was doing
interviews a year ago when they floated this idea and people were asking like, what if China and
Russia introduced a gold standard and have these international currency that redeemable for gold?
And I was like, do you really trust Russia and China to hold your gold? Like those countries
aren't really known for a good property, right? It's like, oh yeah, I definitely want to give
China my gold and have them give them a redeemable. Like, no, no, I'm not concerned about that at all.
Are we going to see more usage of Bitcoin? I don't know. I think that would be great. I mean we do see a number of countries that have dollarized, that have given up their own currency to use dollars instead.
And that typically happens because their central banks are irresponsible and people in those countries don't trust the government to control the currency.
So they switch to something more reliable. And I see that as an opportunity for Bitcoin.
But I don't know that at least in the short term that would lead to rivals for international usage of the dollar.
It could.
I think we do see some people that want to switch in international trade to a more stable currency.
The Swiss franc is actually a great example of that, that it is widely used in international trade despite the fact that Switzerland is very small.
Not that many people are actually trading with Switzerland, but they want to use the Swiss franc because they know it's stable.
And so I think Bitcoin could be used in international trade, but if it is used more, it maybe is stealing market share from something like the Swiss franc or from other countries as much as it does from the dollar.
I mean as an American, I tend to think that I'm a beneficiary of dollar dominance.
We have this exorbitant privilege.
We send the rest of the world dollars, which costs us basically nothing to produce.
and they send us valuable goods and services, that's a pretty good deal.
I've been trying to get other people to accept things that cost me nothing to produce in
exchange for valuable goods and services.
No one will take me up on it.
But at least on the national level, even if the government squanders a big portion of
that, I think we're still beneficiaries of that.
that said you know what it does seem like we're losing some of that it's kind of a situation where
you know it's like the dollar is dying long live the dollar we're you know we're still the
international reserve currency but there are more contenders today than there were in the past
And maybe that's good for those places. I think there's some debate about that. I think it's difficult to argue that the decline of dollar dominance will be good for the U.S., though I wouldn't rule that out either. Maybe Josh will persuade me.
Well, I think there's a couple of things here. So, I mean, one thing is there should be nothing more – there's no prediction that has been more humbling for economists for the last like 30 to 40 years than, oh, the dollar can't survive in this system.
I mean you can go back and you can find very, very prominent economists talking about the decline of the dollar for the last 30 to 40 years and it hasn't happened.
And so that should be an incredibly humbling experience and that should give you some pause when you predict it.
But I do think that a lot of people on the other side of that argument are a little too arrogant about it.
And the reason I say that is if you just look historically, you know, the international gold standard, which I think in our heads we think was this really, really long like period of time really only lasted about 40 years.
And, you know, and then we had the interwar period and we had the Bretton Woods period and the Bretton Woods period, you know, lasted even less time.
And the sort of system that we're in has lasted longer than both of those. But now we're starting to see evidence that, you know, of the sort of inherent problems with this system. And so I think that it's naive to think that the system would go on forever. But saying that something can't go on forever doesn't actually give you a timeline for when it ends either. Right.
I do think like the most interesting thing to me about American politics has been the dramatic change in the discussion of the dollar in our national politics.
If you look at the people in the Trump administration, these people are sort of universally concerned about this.
They want to maintain dollar dominance, but they want to do so in ways that minimize the costs of dollar dominance.
Now, the question is whether you could actually do that or not.
So like their opponents are essentially saying, well, if you do these things, like you're going to end – you're actually going to end dollar dominance, right?
But they clearly believe that they could reduce some of the costs without necessarily having a similar reduction in the benefits.
But you see this from top to bottom.
I mean you see this with Stephen Moran at the Council of Economic Advisors.
You see this with Scott Bessent at Treasury.
There's very consistent messaging coming from these people that sort of this system is not working for us and that there are significant costs and that maybe the costs are starting to outweigh the benefits and that we need to rethink this kind of a system.
But I think from the United States' perspective, like I think their objective is, you know, giving – saying nice things about gold, saying nice things about Bitcoin is actually kind of in the interests of the US government from this perspective because one of the reasons that the United States is afraid to give up this dollar dominance is they don't want to transfer that dominance to some other currency.
They don't want dollar dominance to become euro dominance or yuan dominance, right?
They would prefer to keep that for themselves. But even if you have to give up some of the benefits, you would like the benefits that disappear to sort of dissipate, right?
And so if people are moving from U.S. treasuries into holding things like gold and Bitcoin on their balance sheet, then you're not actually transferring the benefits of dollar dominance to some other sovereign country because they're buying these neutral reserve assets.
And those neutral reserve assets, there's no issuer that's benefiting from that, right?
There's no monopoly issuer that benefits from that.
And so I think that to the extent that they say positive things about gold and Bitcoin, I think it's very strategic in the sense that they recognize that in order to keep the current system of dollar dominance but reduce some of the costs associated with that system, you need people who are concerned about the system to move towards neutral assets and not other sovereign assets.
I think that's – it's very interesting.
I want to maybe go back in history a little bit.
One thing first, William, just to your point of, you know, like we've been beneficiaries of this system, right, with the dollar as the global reserve currency.
We export.
You know, inflation becomes our number one export.
We're really good at it because, you know, our marginal cost of production for each of those dollars, especially when they're digital, is zero.
But, you know, then you look at something like the fantastic website, you know, WTF happened in 1971.
And you realize, well, like by what metric have we been the beneficiaries?
You know, from a global dominance perspective, perhaps from a cheap Chinese goods perspective, perhaps.
But from, you know, life expectancy, from happiness, from suicide rates, from all these other metrics, I think you can make a compelling argument that perhaps this system hasn't been beneficial for the majority of Americans.
even though we enjoy the highest standard of living in the world, by other metrics, it's a
little bit murkier. I'm not saying you're wrong, just more so that there's a lot to that. And I
think that's some of maybe what's being realized now with the destruction of the American
manufacturing class and the creation of this very rusty belt that we have and what kind of Trump is
trying to do purportedly with these tariffs, right, to try and reshore some of that manufacturing
that was offshore because we were exporting inflation instead. And I would love to get,
because I have seen so many conflicting opinions on tariffs, I would love to get your guys'
thoughts on these. As economists, what do you think? Good, bad, ugly? Is this 4D chess? Is this
not 4D chess. What are we dealing with here? How are you guys thinking about this?
Yeah. Please help me understand.
Before we turn to tariffs, let me just push back again against the standard of living question.
So I grew up very poor. I'm from rural Southern Ohio. My parents were on welfare when I was a kid.
I lived in government housing, a very poor area of the country, also an area that's been hit very hard by the opioid epidemic.
There's a journalist, I think he's with the LA Times named Sam Keones, who wrote a book a few years ago about the opioid epidemic in the US titled Dreamland.
And the only reason I remember the title of this book is because the name of the book comes from a pool in Portsmouth, Ohio, which is where I grew up.
It was the community pool that my dad went to as a kid.
And so this was literally the center of the opioid epidemic.
And I visit my family there almost every summer.
My sister grew up in the same household that I did.
She still lives there, didn't go to college, and yet has a much higher standard of living than we had as kids.
Her kids are doing great, right?
And so even the folks that, you know, we would be inclined to think are being left behind, folks in the Rust Belt who didn't go to college, who didn't move away, you know, most of those folks have a higher standard of living as well.
Now, we might say it could be even higher, perhaps. But the reality, and what I think is just the undeniable reality, is that technological progress has been so incredible that even the least well-off in the U.S., or certainly most of the least well-off in the U.S., are just much better off today than they were 20, 30, 40, 50 years ago.
So despite this ongoing political rhetoric that some – that folks have just been left behind and their living standards have stagnated, I think that it's really difficult to actually go to those places, particularly if you lived there at some point in the past, and honestly say that the living standard is worse today than it was when it was then.
But do you attribute that more so to the export of inflation or to the unstoppable march of deflationary technology and the productivity gains that it brings along with it?
Certainly it's not due to inflation, right? But if we're going to have a conversation about whether or not trade is good or whether or not these tariffs are going to make us better off or worse off, we kind of have to start with the facts of the situation.
And I think a lot of folks believe that, you know, places, you know, people who were born in places like Portsmouth, Ohio, are obviously worse off today than they were a generation ago.
And I just don't think that's true.
even in the places that have been
been hit hard by
say the China shock or or the opioid epidemic or what have you Folks in those places are also doing better today than they were a generation ago And so the relevant question is would they
be better or worse off? But we should recognize at the outset that they're doing better than they
were, which I think is not as widely appreciated as it should be. I think one of the things that's
not really understood is like this is often framed in economic terms like uh about decline
but i think mostly what people are talking about are things that are kind of like related to
economics but not necessarily like um so like they're related to your standard of living but
they're not necessarily how we would calculate your standard of living if that makes sense
i think a lot of what people are complaining about is like declines in social capital
Right. Like there's, you know, in these places, you know, there's not as much community as there used to be.
I think, you know, another issue is is like, you know, what these kinds of things have done to families.
I mean, if you look at like single parent households and things like that, where you see rises in single parent households, as you see this in communities like where people maybe would have used to work in factories.
Right. And a lot of that is because you have people who have maybe a maximum of a high school education in a previous generation.
They probably would have gone to the factory. They would have gotten a job. They would have made a good income and they would have been considered husband material.
And now they don't have those same job prospects. And so they're not really considered husband material.
But yet they're part of the dating market. And so occasionally, you know, they have children with with other people.
But then those other people choose to raise those children on their own because they don't believe that that man can sort of can kind of support them.
I think that's really what people are kind of talking about is like there are social aspects of decline that they see, which is sort of like the rise in single parent households, the rise in or the decline in sort of social capital and just, you know, this sense of community.
And I think that's really what people are kind of pointing to. And then on top of that, it's not just that people like see these things. It's that they don't see politicians as reactive to that at all. Right. They see the politicians as basically ignoring that.
and I think like
you know a different way of stating like Will's point
is you know
there was a Nobel Prize winning economist
Robert Lucas
and you know he sort of famously said
like once you start thinking about economic growth
it's hard to think about anything else
and the point that he was making when he said that
is that the magnitude
of the effects of economic growth
are so large
that they dwarf a lot of other effects
So you can have negative things going on, right? But if you have those negative things going on in the midst of economic growth, a lot of times economic growth can kind of offset those things. But economic growth doesn't necessarily generate like a sense of community, right? Economic growth doesn't necessarily lead to like healthy marriage markets, right? It depends on what's going on where you are and it depends on a lot of other things.
And so I think that, look, at the end of the day, like these things, I mean, at the end of the day, everything is an economic issue, right?
Like if you're raising a child alone, you can frame that as an economic issue, okay?
But you could also frame it as a social issue.
But I think that a lot of times these things all get kind of lumped together.
But I think that's a lot of what people are complaining about is that it's not so much that they're saying, hey, things are worse.
I think what they're really saying is like things could be better, right?
Like we could have it better than we do.
Like if we had all of this technology that we have now and there was still that factory down the street, like things would be much better.
I think that's the argument that people are making oftentimes.
But it's hard because when you're talking about growth effects versus distribution effects and things like that, it gets very, very messy in terms of thinking about what are costs and what are benefits and whether somebody is better off in an absolute sense versus a relative sense and all of those kinds of things.
Yeah, I'll follow up on this a little bit to say like I totally agree with those things and I think – in terms of what's causing those.
So we can say like, look, people are better off, but they're maybe not happy for different reasons because there are some bad things that are happening.
And what's causing those?
Partly inflation I think is a problem that creates distortions in the economy.
But there are a lot of other things as well.
We have regulations that are going to prevent jobs in a lot of areas.
And if those jobs move because the industry changes and moves away from manufacturing to other places, people don't move like they used to in the United States.
They don't move to where their jobs are partly because of welfare programs and other things that just make it difficult and interfere with the market and all that makes it harder for Americans.
We could also think about specifically in terms of tariffs.
There are a variety of arguments.
I think most economists just don't want people to interfere with free trade.
But I think Will and Josh and I all think, well, look, there are a lot of other distortions.
We could talk about the changes in taxes and is a tariff really worse than income tax or are we going to see some change there?
We can think about whether manufacturing really has some kind of external benefits that's going to make it a better type of job for Americans or especially low-skilled workers to have.
But I think a lot of it is partly just political that gets left out of the economic conversation about tariffs.
Economists always just want to keep this strictly about the areas that they know about.
But I think part of Trump's reasoning has nothing to do with economics.
Part of it is, as Josh mentioned before, some of Trump's advisors want to rethink the global order in terms of international trade and finance.
We don't know exactly what their ultimate aim at, and so it's really, really hard for us to think about – judge the cost and the benefits without knowing what the ultimate strategy is.
So it's a little bit difficult to make those kinds of estimates.
But I think even bigger picture than that, a big part of Trump's approach is to get rid of people that are – or push back against the forces that are in the United States anti-American and to push a more patriotic message about bringing Americans together.
And it may be that he doesn't even believe that we'll get benefits for manufacturing jobs. But making Americans work at something together and feel patriotic and believe in America rather than having pockets of people that hate America and are sharing all these like terrible ideas and dividing our society, bringing people together is maybe the most important thing.
And I think a lot of what Trump is trying to do is all part of that and to think about these individual policies strictly in an economic sense or as not part of this bigger push to bring America together.
If you just look at the policy alone, I think you can't understand that.
Well, I think, too, there's a reason why there's pushback against the government, right? There's a reason why this is a sort of populist thing, is that what you see is, you know, this system where you have to send dollars abroad leads to, you know, the dollar being overvalued for longer periods of time than maybe it would be otherwise.
And the thing is, is if the dollar becomes sufficiently overvalued, well, then it makes sense to move production someplace else because now things become a lot cheaper.
And so when – if you're living in these towns and your factory leaves because it's now cheaper to produce the stuff in China or Vietnam or wherever they're going, you – that's a seen cost.
Like you observe that cost and you associate that with US trade policies, right?
And so you're looking at that and you're seeing that.
But then on the other – and then what you're told though is that the messaging from politicians for a long time is, look, this is just comparative advantage.
We just go to the – like production goes to where the cost is the lowest and this is just comparative advantage.
And we don't really have to compensate like the losers from trade, right?
And I think this is an important point because if you teach international trade, what you teach is that, yes, international trade makes us all collectively better off, right?
Just in the same way that just local trade makes us better off, right?
Specialization and trade make us better off.
The issue is that when you go from a world – when you have a policy change that changes the relative cost of trade, well, that's a deliberate action that you've taken, right?
And so when people see that there's this deliberate action that's been taken, well, yes, collectively like that might make us all better off.
But one of the things that we teach is that there's distributional effects, right?
And so the distributional effects of trade mean that like, yes, collectively we're better off, but there are going to be people who win from this and there are going to be people who lose from this.
And the policy response has always been, well, we don't need to like do anything to compensate the losers.
They're being compensated with like lower prices and things like that.
And first of all, just from a pure politics perspective, like that just seems like it's
inevitably a loser, right?
Like if these changes are very small in magnitude, yeah, that's probably not something that you're
going to have to worry about.
But if you're seeing this on a much larger magnitude, well, people are going to start
getting upset because you have these losers who see these costs, right, from these policies
and they're looking to the winners and saying, hey, you know, you're – I have cheaper goods,
but I also don't have this job anymore, right? And now I have a worse job. And so yes,
things are cheaper, but like you have the same job and things are also cheaper.
And so like why should you get that benefit? And just politically, I just think it's obvious that
you're going to get this kind of conflict. I mean in fact, this is how we segue from
international trade theory to international trade policy when we're talking about this in classrooms
is that you hinge on this distributional argument and you say, okay, well, this is what creates some political conflict.
And so like let's talk about the policies and things like that.
So I think that's also an important aspect of this.
And then on top of that, like I don't think that like the entire populist sentiment is driven by lots of different things
because simultaneous to this, what you're also seeing is you're also seeing large-scale immigration in the United States
and large scale immigration that's coming with a lot of government benefits.
And so when you look at this and you say, well, wait a minute, I can't be compensated from trade,
but then you're going to compensate like these people who come here.
It's inherently going to create political conflict, whether you think that we don't need to worry about the trade
or whether you think we don't need to worry about immigration or not.
Like to deny that this is going to create political conflict is just a not recognized reality.
Right. When you see groups who see them, who who see these policies and say, hey, I'm suffering from this and you're not doing anything to help me.
And then you see other people who are being helped. It's natural to say, hey, wait a minute. What about me?
And so I think that the that's something that sort of gets lost in all this as it relates to the tariffs.
I mean I think like we're – the three of us are not necessarily going to give you the typical response because like the instinctual thing for economists to do is say like free trade is good.
We shouldn't infringe on free trade, right?
That since trade makes us better off, restricting trade must make us worse off.
I think there are a couple aspects to this that are important is that a lot of the arguments, as Thomas kind of alluded to,
A lot of the arguments against tariffs are actually just arguments against taxation, right?
So they just say, well, this distorts this.
And so, you know, we don't want to do that.
And it's like, well, any proportional tax distorts economic activity, right?
Any tax that, you know, anytime you're taxed for doing an activity, people are going to do less of that activity to avoid the tax.
And so the idea that it's distortionary, that's not the end of the story.
That's the start of the story.
The relevant question in economics is always compared to what?
And so if you were going to have slightly higher tariffs and slightly lower income taxes, that actually might be a win for everybody, right?
The other thing too is that getting back to the international monetary system, when we think about the tariffs, there is an important point that the Trump administration has made that I don't think gets enough attention, which is the fact that since the dollar is the global reserve currency,
when the U.S. government imposes tariffs on the rest of the world, we typically think about,
okay, what's the cost in terms of the tax incidence, right? So how much does the price
to the consumer go up and how much does the price to the foreign producer go down, right?
And one aspect of this though, is that what we really need to think about this is in real terms,
not in nominal terms. And so one of the things that people like Stephen Moran have pointed out
is that if you look at the tariffs on China, for example, that the United States imposed
during the first Trump administration, yes, what happened is that the goods priced in terms of
yuan went up after these tariffs. But the thing is, is US consumers pay for those things in terms
of dollars. And what happened is that the dollar appreciated after these tariffs. And the reason
is that when you levy these tariffs, the price goes up. Initially, people start importing less.
That means fewer dollars are going abroad, which creates an excess demand for dollars.
And so dollars become more valuable. And so if the price in terms of yuan is going up,
but you can buy more yuan with a given dollar than you could before,
then at least part of that cost is being offset by that arrangement. And so that's also kind of
a relevant question that we have to ask is that if those two forces are going to offset, then
the typical costs of the tariffs that we talk about are not going to be as large as people
predict. I guess I would just modify one thing that Josh said in terms of compensating the losers.
It's not that the elites haven't compensated the losers at all or haven't pursued policies
to compensate the losers, but rather it's that many of the schemes that they have employed
to compensate the losers have some pretty significant unintended consequences.
So for example, the permanent welfare rolls that were available in the 1980s and replaced
by the Clinton administration in the 1990s, what were they replaced with?
Well, ostensibly they were replaced with a temporary welfare system.
But there's some great reporting on this from Hannah Jaffe-Waltz from NPR about a decade ago.
You can Google it.
It's called unfit to work.
And what you see is that you get this massive swell in the disability roles.
So what's happening?
All right.
So you have put some folks out of work and you want to compensate them.
But the way that you go about providing a social safety net is to condition it on being disabled.
And the thing is that on the margin, there are some unclear cases.
And if you're disabled, as opposed to being on a permanent welfare roll that you could potentially come in and out of, if an opportunity does emerge, if you see a chance and you think maybe I should shoot my shot here, there's a pretty big downside.
because in acting on that, you reveal that you are actually able to work and then you can't fall
back on that social safety net. So that's a big problem. And, you know, Josh was talking about the
cultural stuff earlier, but it's also worth noting that a lot of the assistance that we provide to,
you know, ostensibly to families and to children is conditioned on whether or not those are intact
families, whether or not they're a two-parent home or not. If you're a single parent, you can
collect on some benefits that you wouldn't be able to collect on if you had a working spouse.
And so in some of these low-income communities, it's certainly not unheard of, and indeed,
I would say not at all unreasonable, that you have these what look like long-term relationships,
But folks aren't actually married. They haven't actually made these real long-term commitments because doing so would be costly.
So we – this is just a few examples.
But we have a lot of these schemes to erect a social safety net that will help the least well off so that when there are losers of trade or innovation or economic growth, that we can compensate them.
But oftentimes those compensation schemes do more harm than good.
I'll give one more example here.
If you think about the – I mentioned the opioid epidemic earlier.
One of the big fuel to the fire here of the opioid epidemic is that this was a mechanism for very low-income people to monetize their Medicaid benefits.
That is, they had access to basically close to free or free drugs.
They just had to get the prescriptions.
and once you get that, you can sell them to other people.
And how else do you get that income, right?
If you have conditioned what are essentially payments to very poor people
on them getting prescriptions,
well, then they're going to get a lot of prescriptions
and they're going to sell those prescriptions to other people.
So again, you have tried to help the least well off,
but the way you've done it is kind of ham-fisted
and it ends up making them worse off than they otherwise would have been.
So I don't want to say that we haven't tried to compensate the losers of trade or innovation,
but rather that some of the ways that we have tried to compensate folks have just not worked
out very well and probably need a big rethink.
Yeah, I think that's the important point because what it is is what people want,
what these people want is they want the dignity of work. Like that's what that's fundamentally what
they want. They want that factory job where they can go make a good income and feel good about
themselves and know that they produce something of value for society. Right. And what's happening
is, is like we're giving them, we're saying, yeah, the factory closed, but we'll just give you,
we'll just send you this money. So isn't that, you know, isn't that just as good? Right. And the
thing is, is that, you know, if you're just thinking about this in a pure economic sense,
you might think that that's, that, that that's fine. Right. It's like, oh, well, you know,
they, they lost their job. They lost this money. We'll just send them money. But that's, but you
know, life is about more than that. People care about these kinds of things. And I think that
that's what, I think that's the thing that's really, really hard for people to understand
in our current political environment is that what people, what people really seem to want is they
really seem to want these things that the government can't provide for them, right? They
want the dignity of work. They want a sense of community, right? They want healthy marriage
markets, right? That's the things that they want. And they see, you know, and they see the
government as the reason that those things are no longer available to them.
Sorry about your job and family. Here's some pain pills. You can sell them if you want to.
We even now? We good? Yeah.
I mean, it's not just that we're sending folks money, though, right?
It's that we're conditioning those payments on things like being disabled or not working or taking out prescriptions, right?
If we were just sending folks money, right, then they could potentially go get a job and have the dignity of work and have the money.
but in order to get the money, you can't have the dignity of work. That's not going to work out so
well. Or if in order to have the money, you can't have a two parent home, that's not going to work
out so well. So we got to think carefully about what you're conditioning those payments on.
Guys, this was, I want to be conscious of time because I realized we ran a bit over and I
appreciate you guys taking the time. I could pick your brains for probably several more hours,
but we may have to save it for another session.
I do want to give a shout out because as senior fellows of the Bitcoin Policy Institute,
you all have a summit coming up on June 25th, 25th and 26th in D.C.
Myself and my wife are both going to be there.
So we're very excited about that.
First political summit type event in Bitcoin,
unless you consider last year's Bitcoin conference in Nashville to be one as well.
But I think this will be a little bit of a different vibe.
But extremely excited for that. So for anyone listening, go to BDCpolicy.org or BDCpolicySummit.org and you can grab tickets for that. Anywhere else you guys want to send people, I'll link your X accounts, but anywhere else they should go if they want to either read more of your work or check out what you're doing.
uh we all uh write a bit for the american institute for economic research because we're
fellows there and as will mentioned he's the director of the sound money project
um and yeah we also write occasionally for bpi and as you mentioned you know you can find us on x
and thomas and josh i think you guys are going to vegas soon right yes we will be
speaking.
I'll see you guys there then.
Looking forward. No Vegas for you, William?
I can't make it, unfortunately. But I'll be in
D.C. So go to
btcpolicy.org.
Get your tickets.
And we'll see you there.
Yeah, we'll see you there.
Well, guys, appreciate your time very much.
And yeah, looking forward to doing it again.
You know, it wasn't too many economists. We could even bring on
a fourth next time, I think.
We'll have to find one.
Yeah.
Yeah, somewhere, somewhere.
All right.
Thanks, guys.
And that's a wrap on this Bitcoin Talk episode of The Bitcoin Podcast.
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