The exciting news of Javier Milei’s election in Argentina last year was widely welcomed on the Bitcoin network and in libertarian circles. Decades of hyperinflation in Argentina deserve to lead to a natural skepticism about the central bank’s overprinting of money, and it is reassuring that policy can stick to this basic logic. This is a major victory for the forged financial movement, of which Bitcoin is a part. The election of the former TV commentator as head of state is a wake-up call for all central bankers around the world. the world, and a wave of hope that democracies can overcome the strength of government bureaucrats.
Argentina has also played an important role in the war waged in the field of university economics over the past 30 years. Giants of this field such as Robert Lucas, Thomas Sargent, and Ed Prescott worked in the economics branch of the University of Chicago. .
Lucas presented the official critique of the central bank’s stabilization policy in his Nobel Prize-winning paper “Expectations and Monetary Neutrality. “He made a technical contribution by building a new mathematics box applied to macroeconomics, following in the footsteps of John Muth. Luke is a master storyteller and his main concept is an undeniable parable that even the youngest can understand.
Imagine a network of other people in a circus who magically get an extra $20 bill in their pocket. At first, everyone rejoices over the new cash and buys more cotton candy, coasters, and hot dogs. There is now new cash circulating in the circus, and yet the general source of goods and facilities remains fixed. Over time, values have only one way to go: increase. There will possibly be some time to adjust, but increases in value are inevitable. Then, the purchasing power decreases, and the overall value point increases.
But here’s the thing: other people are rational, so they know this is going to happen. So, the moment everyone gets their $20 bill, they know in advance that it’s all going to end up costing $20 more. Therefore, it is highly unlikely to inspire them to do so. finish more now. In economic terms, those rational expectations will not lead to adjustments in genuine intake. This was a general complaint of Keynesian economics, that expanding the source of cash can lie to other people. Keynesian economics has given carte blanche to central bankers to manage the cash source in an attempt to spur economic growth. But Luke argued that such a solution was a foolish task. You can’t get other people to replace your genuine income or investments if they’re smart enough to shape rational expectations about the future.
The rational expectations movement took hold in economics in the 1970s and 1980s at the freshwater schools of Carnegie Mellon, the University of Minnesota, and the University of Chicago, as a reaction to the saltwater schools of Harvard and MIT. Lucas and Sargent have cited hyperinflation in Argentina as the most productive example of central bank folly. At the beginning of the century, the University of Chicago imported dozens of doctors from Argentina who had lived through this daily experience of hyperinflation where costs are not replaced quarterly or monthly, but via week or day. And it’s a sad story, because 25 years later, the same thing happens.
It is a loss for academia to see the death of Robert Lucas, the pioneer of the peak of early central bank complaints. But how are rational expectations compatible with Bitcoin?This answer is sophisticated and nuanced. On some level, rational expectations are a harsh complaint of central banks, just like Bitcoin, so they have a not unusual enemy. Or they criticize the potential bad options that inevitably result from humans managing their own cash supply. For Lucas, trying to stabilize the macroeconomy by converting interest rates every six weeks is a waste of time and inefficient.
But the arguments in favor of Bitcoin go further. Bitcoin’s issuance timeline is a strong endorsement of a very explicit, predictable, and immutable type of cash source. In rational expectations, cash doesn’t matter, because other people are too wise to be fooled by finances. Changes. For Bitcoin, the source of cash is important, and that is that everyone knows the source of cash in advance and that it cannot be changed. So, on some level, there are other assumptions about other people’s rationality. Lucas argued that other people are too rational to be fooled by an errant central bank, while Satoshi assumed (in his protocol design choices) that other people are not rational enough to fully adapt to bad central bank policies, which is why a constant and immutable system was created. The source is better.
Erratic financial policy, such as that recently pursued by central banks, can hurt individual investors and tear apart the social fabric. The rollercoaster of interest rates constantly oscillating between cash and scarce money is having a profound effect on a different country. An unknown but essential component of the economy: the allocation of our human capital. The search for yield encourages individual investors to play in the stock market and young academics to pursue a career in trading rather than in the production of goods and facilities in the genuine economy. A fixed, immutable source of cash prevents the worst human instincts from taking over, just like a setting on your iPad prevents your kids from spending more screen time.
Thus, Argentina has promoted the movement of rational expectations in the field of university economics, this movement has now closed the circle. Bitcoin puts some decisions entirely in the hands of Americans (such as mining a block or setting transaction fees), but not all decisions (such as deciding when to issue new money). I believe that this is the right balance and is closer to what we can and will have to aspire to in our economic policies.
Argentina would be an excellent candidate for Bitcoin and would give the world some proof of concept that it would actually need. But even if Argentina doesn’t ultimately adopt Bitcoin as legal tender, Bitcoin has still managed to frame the debate around a solid currency, which will eventually feature central bankers in the future. Although this is all Bitcoin does or does, it’s still a resounding good fortune for me. It is the only generation that has been able to resist the force of central banks.
Korok Ray, PhD is an associate professor at Mays Business School in Texas A.
A community. Many voices. Create a free account to share your thoughts.
Our network aims to connect other people through open and thoughtful conversations. We need our readers to share their perspectives and exchange ideas and facts in one space.
To do so, please comply with the posting regulations in our site’s terms of use. Below we summarize some of those key regulations. In short, civilians.
Your message will be rejected if we realize that it seems to contain:
User accounts will be blocked if we become aware that users are engaged in:
So, how can you be a user?
Thank you for reading our Community Standards. Read the full list of publication regulations discovered in our site’s terms of use.