Today’s video is an attempt to bridge a gap I see in a lot of economic discussion on twitter, in academia and in mainstream journalism. There seems to be a growing sense that the US economic consensus is changing in a bigger way that it has for four decades. The old Reaganite consensus seems to be falling apart. Some deplore this shift, but many more seem to love it. What neither the pro- or anti-camp seems to be doing in a serious way is reckoning with how cryptocurrency fits into this picture. This is a major oversight. How can we talk about the economy, money and finance without discussing a growing insurgency against all of those things? Today’s video attempts to put the two pictures together, and point out that Crypto ideology is very much on one side of this broader economic debate.
Video Transcript after the jump…
Hey there. Last time I talked about why Bitcoin and the broader cryptocurrency movement are a much bigger threat to the United States than China is. Today I want to dive into the world view behind this movement. Cryptocurrency advocates like to bill themselves as something new and revolutionary, when in fact their ideology has been running the world for 40 years now. And it’s honestly a pretty tired ideology, that many think we are growing beyond. Well, we won’t outgrow it if Crypto advocates have anything to say about it. Bitcoin is Ronald Reagan’s revenge.
Ideology is important. As I mentioned last time, I am appalled that US governmental and financial elites now seem to be more interested in buying into the crypto craze than trying to regulate it. Elites are buying into an ideology and technology that is openly promising to overthrow them. None of this would have been possible without Ronald Reagan, a man who served as US president from 1981-1989, and who has symbolized and defined economic life in the US and worldwide for the past 40 years. I talked about his importance at great length in a video last year.
“The US has indisputably been the most powerful country in the world for 75 years now. This period can be divided into two eras, the era of FDR, and the era of Reagan. This is obviously an absurd oversimplification, nobody responsible would make things out to be this straightforward, etc. etc. But I think a lot of historians would agree with me on the broad strokes here. The era of FDR lasted about 48 years, and the era of Reagan has lasted 40. Measuring history according to presidential terms is a dumb oversimplification as well, but It works surprisingly well in this very big picture case.”
“FDR came to power during the Great Depression, at a time when capitalism was seen by many as having failed. FDR saved capitalism from communism and fascism by massively increasing government involvement. The balance he created between the public and private sectors has been characterized as managerial capitalism, focused on mass production and government fine tuning of the relationship between capital and labor. During this period Government produced marvels like interstate highways and the trip to the moon. The experts, public and private, were creating an affluent society, and we were all supposed to do our part and enjoy it. Reagan defined himself in opposition to all that. He wanted free trade and free markets. Reagan heralded the return of the entrepreneur, and the mass disruption of big government, and even some big businesses. Capital had to be free, and government had to get out of the way of the job creators. Creative destruction was the order of the day and things like labor unions and national borders were inconvenient obstacles to be crushed.”
In that video last year I emphasized that it’s silly to talk about these two approaches as if they are good or evil. They both worked for a time, and then they both failed spectacularly. What more and more have concluded since 2008, and what I decided for myself after Trump’s election in 2016, is that the Reagan era has run out of steam even more conclusively than the FDR era ran out of steam in the 1970s. We just have no idea what’s next.
In the year since I made this video, events seem to have closed the door on Reagan’s era even more conclusively. Covid, and Trump and Biden’s absurdly generous government response seem to have convinced our governing, and more importantly our financial and business elites that the old school approach is dead. In 2009 fears about inflation prompted Obama to take a very limited, Austerity first approach to financial recovery. Trump, even before Covid, threw this idea out entirely, and the results were great. The economy improved, and we have seen no inflation by traditional metrics. In recent weeks we have seen many assets that people imagined to show the real inflation plummet in price, like crypto and lumber, or at least stop growing as fast, like used cars. Much Like Reagan, who presented an over arching ideology to justify choices Carter was already making, Biden is talking about government and its role in ways we haven’t really seen since LBJ. Trump broke the mold, and Biden is trying to make a new one.
Recent months have seen a flurry of long reads that attempt to explain and justify what’s happening. The New Republic’s take on the career of the Reagan inspiring economist Milton Friedman, probably oversimplifies things a bit too much, but it provides a good summing up of the rise and fall of Reaganite economic thinking. The most striking example of that fall may be the bipartisan confirmation of Lina Khan to the Federal Trade Commission on June 15th. Trump’s judges will stand in the way of this legal scholar’s mission to break up big tech, but it is tremendously significant that that 21 Republicans joined 46 Democrats to endorse her stridently pro government power vision. The death of competition law has been one of the chief characteristics of the past 40 years, and it’s promised resurrection is a big deal.
Everybody seems to agree that the Reagan era is dead and buried, and we’re all ready to march into the sunlit Keynesian uplands of economic justice and government guaranteed prosperity for decades to come. Well nobody told this happy story to the crypto market. Crypto may sell itself as revolutionary, but it’s Karl Marx is Milton Friedman, and Ronald Reagan is basically its Che Guevara.
Crypto is all about cutting out the government. Bitcoin isn’t private, though some other currencies, like Monero are, which sounds potentially very illegal. What Bitcoin is,is supposedly uncensorable. The record of transactions is public, and distributed, and the transactions are meant to be irrevocable. Supposedly there is no way for government to get into this. That’s the liberatory promise of Bitcoin. Now there are many ways this promise breaks down in practice, which I will get into in the next video, but crypto’s deeply libertarian promise is fundamentally very Friedmanite and Reaganite. It’s basically a metastasizing anti-government subculture bubbling up at the exact moment that both political parties have rediscovered government. And the infuriating thing, is that the problems that Crypto promises to solve but won’t were all caused by the winner take all nature of the Reagan era.
It’s now fashionable to condemn everything about the past 40 years, and that’s profoundly wrong. In 1980 the US desperately needed some entrepreneurial vigor. We had lost tech leadership to Japan and Germany. We looked a lot like Europe does today, stagnant, with multiple actors fighting over a diminishing pool of post-war prosperity and power. Tech guru Paul Graham has pointed out that the richest Americans in 1980 were all people who had inherited wealth. Some were plutocrats running on century old industrial fortunes. Today America’s richest are largely people who created their own billions, by taking back US tech and finance leadership. That is a tremendously valuable accomplishment. If we are now able to craft a more just settlement for all Americans, it’s because of the pools of wealth the Reagan era created.
But what the Reagan era lacked was the ability to help the majority of Americans. It’s emphasis on the market over all tragically failed like 80% of the population. Yeah, cell phones are nice, but education, healthcare and housing have all been given over to Wall Street with disastrous results. The ability to stream any tv show you want from your trailer park is not most people’s idea of the American Dream.
What’s more, outside of the top 20%, the Reagan era’s economic record is actually kind of crappy. The supposedly so lame and boring FDR era put up significantly better GDP growth figures in the aggregate. There is probably an ideal level of income inequality. You probably do need some to inspire people to excel. We are far beyond that point now. At a certain level, you begin to reach diminishing returns. All that money put into private islands and private space flights is a lot less valuable to the economy than it would be if it was spread out more equally, being spent on the production of goods and services that can drive mass employment and make the whole economy richer. We need some level of Reaganite vigor in our economy. But if you let it run rampant, we all lose, which has been the case since at least 2008.
The system absolutely has failed the majority of Americans. It makes sense to hate on the system that produced this, and I can see why Crypto’s anti-esrablishment message has such a broad appeal. But it’s going to fail at curing America’s ills. It’s not a new solution. It’s just a more virulent version of the ideology that puts us in this position in the first place.
For 40 years all our prominent political actors have been shouting that government is a stupid mess, that is only capable of blocking things through regulation. That actually wasn’t what the government looked like in 1980, but after 40 years of signing it over to the private sector as Reagan suggested, a lot of government has become a stupid, embarrassing, corrupt mess. More Reagan is not the answer in 2022
Crypto claims to be against everything, against government, and against the Wall Street that has used government to screw us all over so royally. But as any honest crypto holder will admit, that’s not how it’s working in practice. Wall Street has already worked it’s way into the crypto movement. And no matter how anti-establishment a crypto holder claims to be, the vast majority of them embrace this. Because the only way to keep prices escalating is to draw in Wall Street, and it’s access to the more boring and risk averse trillions of the broader investing public. So what crypto offers is not a solution to the winner take all Reagan era, it’s an acceleration of it.
There’s no question that Crypto creates a new class of winners, but it does it in the worst way possible. The Reagan era has seen a dramatic escalation of the importance of finance. Outside of the internet, we have seen a great technological stagnation. One explanation for this is the fact that since the 1980s all our best and brightest have been going into finance instead of hard science. Winning became about using spreadsheets to screw around with the points system, rather than coming up with anything truly new. Silicon Valley used to be the great exception. Now that tech has fallen into crypto mania, it’s becoming just another branch of the finance industry. What a tremendous waste of talent.
I have come to view Crypto as just another runaway process of Reaganite dissolution, part religion, part way of life, part anarcho Libertarian conspiracy. And the scary thing is that it seems to be working. Crypto has minted a fresh new crop of millionaires and billionaires, but they won’t change the direction of this country in the slightest. Their political activism is most likely to strangle efforts to build a more socially just America. You thought the Koch libertarians had a strong influence on our politics, wait until you see what the Crypto libertarians do. Bitcoin is Ronald Reagan’s revenge.