Content Review: Robert Breedlove and Jeff Booth

Deflation and The Price of Tomorrow

When I was growing up, my grandparents would tell me stories about going to the grocery store when they were a kid. They said that they could take a single dollar, and come home with a bag full of vegetables. One dollar might buy a whole loaf of bread, along with a piece of candy for a reward. I later learned that the phenomenon of goods getting more expensive is called inflation. Deflation then is the opposite phenomenon; goods getting cheaper.

What strikes me as odd, even in today’s day and age, is people’s acceptance of inflation as a natural thing that happens to all goods and services. Inflation is not a normal thing, it is a byproduct of state intervention in our monetary supply. Whether or not the impact of inflation is good or bad is another discussion entirely. The point is, that inflation is not the only economic model.

I know very few people my age that are able to get a house without having a super stellar well-paying job. Ever since I learned of the destructive force of inflation, I had to understand it because I saw it as vital to overcoming my own financial challenges.

I finished listening to Jeff Booth, the author of The Price of Tomorrow - (Why Deflation is the Key to an Abundant Future), and his 8 discussions with Robert Breedlove on his show What is Money? I learned much more about how to think about deflation, and what to do with the fact that it is happening all around us.

It is my hope that I can impart some of the knowledge from the shows enough that you will go and watch them yourselves.

Technology is Deflationary

Technology is Deflationary. You may have heard this phrase before, but its meaning is not very intuitive. I am still wrapping my head around the full implications of this phrase. Ultimately, technology being deflationary means two things to me.

  1. Technology itself gets cheaper over time (ex. Phones/Computers)

  2. Technology makes services cheaper by democratizing them (ex. AirBnB, Uber)

The reason why technology has the effect of making everything cheaper is because it has virtuous cycles (positive feedback loops) that improve how cheaply the product can be manufactured and delivered to its customer. The effect this has over the course of years and decades is a general precipitous decrease in price of consumer goods.

  • Food is much cheaper because of agritech

  • Base Medicines (penicillin, painkillers, creams) are much cheaper because of drug manufacturing

  • Books, Prints, Stickers, Posters, Physical Media are all cheaper due to printing tech

  • Cars are much cheaper due to improvements in automated assembly lines

The same cannot be said for houses, as they haven’t experienced the same level of automation and technological innovation as other sectors. That being said, 3D-printed houses are certainly on their way here. China is already doing this as a single house can be printed in one day for less than $10,000.

Deflation — A general reduction in either time or money required to acquire a good or service.

Deflation is a Force that Drives Prosperity

It is better for more people to have access to technology. The more people with cellphones in their pocket, the more people can join the global economy. Access to the economy and the ability to engage in the free market is tantamount to freedom.

Anyone with a cellphone can educate themselves, book plane tickets and hotels, find a job, or buy/sell bitcoin. This macro-effect of having an entire world be educated is only possible in a deflationary economy. A deflationary economy is the only economic model (that we know of) that allows those who find themselves at the lower end of the social spectrum to pull themselves out of their own circumstances en mass.

Again, by making everything cheaper, and more accessible, more people are able to gain access to tools that save them both time and money. Eventually, these time and energy savings add up to be enough to pay for immigration, or a new tractor for agriculture, or a computer.

The Two Forces: Inflation and Deflation

Right now as we speak, there are two economic forces at play. Inflationary forces driven by an expansionary monetary policy. Deflationary forces driven by efficiencies gained by technology and innovation. The first drives the relative price of things up, the second drives them down.

Relative Pricing

The last thing you need to understand to wrap your head around inflation/deflation is that all prices are relative to the Unit of Account (UoA) that you are using to measure the economy. In most cases the unit of account for which thing are measured in, is the USD. Since the number of USD in exitense keeps on rising, so too does the price of things you can buy with USD. An ever increasing number of units is used to measure an ever increasing number of goods. Production of goods, and demand for those goods needs to keep pase with the amount of money that is being printed. Otherwise, we get ourselves into a situation where there is too much money, that is used to measure too few goods. This is where money itself loses its purchasing power, and is called “hyperinflation”.

With bitcoin, there is and always will be a finite number of them. This means that as more people buy/hold/use bitcoin, it becomes worth more relative to everything else. The same number of units are used to measure an ever increasing number of goods. As demand continues to rise for bitcoin, the supply stays the same. Over time, you can buy more and more things, with the same amount of bitcoin. This is the essence of deflation.

A Money Model for Modern Times

Our current monetary model is inflationary and expansionary. It increases the prices of goods and services indefinitely into the future. People who have wages and salaries that are not rising as fast as inflation, are getting poorer. People who’ve bought assets for the last 30 years are richer than ever.

In a monetary model with a deflationary currency at its center, the relative price of things may still increase, but the money that is being used to purchase these goods will only decrease. Jeff Booth makes the argument that we need a deflationary currency driving our monetary systems to really kick into gear the deflationary effects that have been, and will continue to happen exponentially faster.

The Bitcoin Forcing Function

Throughout the podcast series, both Breedlove and Booth agree on one fact. Bitcoin is inevitable (Bitcoin obtaining global reserve status). The best part is that there is hours of discussion, and reasoning behind this conclusion. One of the themes I found most pertinent to understanding their argument is the idea of a forcing function. The definition of forcing function is ambiguous depending on the context. In general, Breedlove and Booth used forcing function in the context of a free market economy.

In a free market, the money that has best perfected the 6 properties of money (durability, portability, fungibility, limited supply, acceptability, uniformity) will out-compete all other money in existence. The example from history we can point to is gold.

Gold was not selected by rulers to be the money of the globe, it was selected by the free market because of how reliably it could retain its value across space and time. Gold becoming the global reserve asset through the expression of the free market is an example of a forcing function.

Bitcoin is in the process of forcing itself into global reserve status. As we speak, it is being bought and sold on the free market. It is competing to be the global reserve asset. For Booth and Breedlove, because bitcoin is driven by the same free-market forcing function that drove gold in earlier centuries, it is not a matter of if it becomes the global reserve currency, it is a matter of when. In other words, it is just a matter of time.

Bitcoin is Inevitable

Bitcoin is like a key for a lock. It is a perfect solution for the economic strife that our world is currently faced with. This podcast series (along with most of Breedlove’s other content) is very bitcoin focused. This is a good thing for anyone wondering how exactly bitcoin is set apart from other cryptocurrencies despite its “legacy” technology.

To Breedlove and Booth, Bitcoin is inevitable. This is not a phrase these guys throw away willy-nilly either, they do the hard intellectual work behind articulating how and why it is inevitable. It is a breathe of fresh air to hear such well thought out arguments behind bitcoin, and not just the classic 150 word tweet on the merits of bitcoin. The podcast series, as well as Jeff Booth’s book “The Price of Tomorrow” is well worth the investment.

Regards,

Keegan


The latest episode of our podcast was on The Philosophy of Money and Value with Ankur and Amruta.

It was an in-depth philosophical discussion on money, value, and cryptocurrencies. Both are accomplished professionals in their own fields of data science and biology. The two of them dove into cryptocurrency two years ago with our help, and have been developing fascinating perspectives worth sharing ever since.

Listen to it on Spotify, Apple Podcasts, or RSS.