Episode Summary: Saifedean Ammous on Understanding Bitcoin Economics - WBD127

Podcast Information:

• Title: The Peter McCormack Show
• Host/Author: Peter McCormack
• Description: I’m Peter McCormack. I have questions.
• Episode: Saifedean Ammous on Understanding Bitcoin Economics - WBD127
• Release Date: July 19, 2019

1. Introduction to Austrian Economics and Bitcoin

The episode features Saifedean Ammous, author of The Bitcoin Standard and an associate professor of economics at the Lebanese American University. Both hosts share a passion for Liverpool FC and Bitcoin, setting the stage for an engaging discussion that intertwines economics with personal interests.

Peter McCormack begins by highlighting the rise of Bitcoin in political discourse, noting its mentions by prominent figures and its growing influence. He introduces Saifedean as an expert in Austrian economics, emphasizing the relevance of his work in understanding Bitcoin's economic implications.

2. Motivation Behind Saifedean's Educational Initiatives

Saifedean explains his transition from university teaching to offering online courses in Austrian economics, driven by the surge in interest sparked by Bitcoin. He underscores that Austrian economics uniquely supports Bitcoin, contrasting it with other economic schools that traditionally oppose it.

Saifedean Ammous [06:13]: "Bitcoin has really ignited interest in the school of economics, because Austrian economics is the only version of the universe in which Bitcoin works."

3. Austrian Economics vs. Mainstream Economics

Saifedean delves into why Austrian economics is pivotal for understanding Bitcoin. He contrasts it with mainstream schools like Keynesianism and Marxism, which advocate for government-controlled monetary policies, leading to inflation and economic instability.

Key Concepts Discussed:

• Stock-to-Flow Ratio: Defines money based on its scarcity and production rate.
• Time Preference: Individuals constantly make trade-offs between present and future benefits.
• Market Efficiency: Markets allocate resources based on voluntary exchanges without central interference.

Peter McCormack [09:51]: "Austrian economics is about understanding the real world, understanding how the world functions, understanding human decisions and human behavior."

4. Bitcoin's Alignment with Austrian Principles

The conversation highlights how Bitcoin embodies Austrian economic principles by offering a decentralized, scarce form of money that resists inflationary pressures exerted by central banks.

Saifedean Ammous [49:37]: "My favorite example of that is when Turkey got rid of six zeros in its currency... the Turkish economy continued to function normally."

5. Critique of Government Intervention and Social Systems

Saifedean critiques government-run systems like the UK's NHS and public education, arguing that government control leads to inefficiencies and misallocation of resources due to the absence of market-driven price signals.

Examples Highlighted:

• NHS Inefficiencies: Lack of budget constraints leading to spiraling costs and suboptimal healthcare recommendations.
• Public Education: Stifles individual interests and creativity, advocating for homeschooling and specialized alternative schools.

Peter McCormack [24:19]: "Austrian economics is the only serious economic treatment of socialism that has been written."

6. The Viability and Future of Bitcoin

Discussion shifts to Bitcoin's potential to become global money. Saifedean believes Bitcoin is still in its early stages, needing increased liquidity and broader adoption. He emphasizes that Bitcoin's fixed supply makes fractional reserve banking unfeasible, ensuring its integrity as a decentralized asset.

Peter McCormack [65:10]: "Bitcoin needs to build up liquidity, and that's just not something that can happen overnight."

7. Central Banks, Libra, and the Privatization of Money

The episode explores Libra, Facebook's cryptocurrency initiative, analyzing its implications for traditional monetary systems. Saifedean argues that while privatizing money could hinder central banks' control, Bitcoin offers a resilient alternative that central banks are unlikely to adopt willingly.

Peter McCormack [61:26]: "Bitcoin is optimized for avoiding state control... If Bitcoin continues to grow to the point where it massively undermines monetary policy, it might undermine the reason for its own existence."

8. Adoption Challenges and Potential Threats to Bitcoin

Saifedean addresses potential threats to Bitcoin, including government bans and monetary policy improvements. He draws parallels to BitTorrent, suggesting that while Bitcoin may not become the dominant monetary system immediately, it will influence and potentially improve existing monetary policies.

Peter McCormack [67:52]: "I think the thing that would really kill it would be the improvement in monetary policy."

9. Education and Personal Responsibility

The dialogue emphasizes the importance of self-driven education and personal responsibility, criticizing traditional systems for their rigidity and lack of accountability to individual needs.

Saifedean Ammous [42:43]: "Alternative schools focus more on creativity and less on these academic subjects that teach people to work in a factory in Victorian times."

10. Integrating Personal Interests with Economics

In a lighter segment, both hosts engage in a discussion about football, particularly Liverpool FC's prospects and management strategies, illustrating how economic principles like time preference and resource allocation apply beyond traditional economics.

Peter McCormack [14:14]: "Jurgen Klopp's approach towards team building is a very low time preference approach... it's going to pay off in the long run."

11. Conclusion and Future Directions

The episode wraps up with Saifedean sharing information about his online courses available at safedean.com, encouraging listeners to delve deeper into Austrian economics and Bitcoin. Peter expresses optimism about the future integration of Austrian principles in global monetary systems and reflects on the personal growth both hosts have experienced through their engagement with these concepts.

Peter McCormack [55:54]: "Sort your own house out and stop worrying about politics and all that nonsense."

Key Takeaways:

• Austrian Economics offers a robust framework for understanding and supporting Bitcoin's decentralized nature.
• Government Intervention in monetary and social systems often leads to inefficiencies and misallocation of resources.
• Bitcoin's Fixed Supply and decentralized structure make traditional fractional reserve banking incompatible, preserving its integrity as a form of money.
• Education Systems can benefit from more personalized, interest-driven approaches as advocated by Austrian economics.
• Future Adoption of Bitcoin depends on increased liquidity, broader understanding, and the global migration of wealth.

Notable Quotes:

• Saifedean Ammous [06:13]: "Austrian economics is the only version of the universe in which Bitcoin works."
• Peter McCormack [09:51]: "Austrian economics is about understanding the real world..."
• Peter McCormack [24:19]: "Austrian economics is the only serious economic treatment of socialism that has been written."
• Saifedean Ammous [42:43]: "Alternative schools focus more on creativity..."
• Peter McCormack [55:54]: "Sort your own house out and stop worrying about politics..."

This episode provides an in-depth exploration of how Austrian economics underpins the functionality and potential of Bitcoin. Through a blend of economic theory, real-world examples, and personal anecdotes, Peter McCormack and Saifedean Ammous offer listeners a comprehensive understanding of the interplay between decentralized digital currencies and economic principles centered on individual freedom and market efficiency.