Perverse Incentives And The Rise Of Crypto…”Governments created cryptocurrencies…”

Thursday, January 18, 2018
By Paul Martin

by Tom Luongo,
Thu, 01/18/2018

Governments created cryptocurrencies…

Policy decisions from the most mundane regulations like pet licensure to the big ones like the bank bailouts after the fall of Lehman Bros. pushed the alliance of hard-money advocates and cryptography experts together to form Bitcoin.

From its earliest days, Bitcoin advocates understood why they were spending their time developing its infrastructure. They wanted a way out of the system created by what I consider the superstructure of world capital movements. Alex Jones calls it the “Globalists,” others the “Atlanticists” and the alt-right just calls it “The Jews.”

None of these are adequate descriptions of who/what this group of international power-brokers, financiers, old money, secret societies, et cetera are. But their over-arching goal is what the modern Marxists rightly identify as the accumulation of nearly unlimited power.

Lacking any true moral center or humility, “The System” is nothing more than a giant capital vacuum constantly tugging at us to give up just a little bit more of ourselves to keep them from annoying us further.

Gimme Some of that ol’ Time Rent Control
In economics we call these types of people rent-seekers. Rent is defined as unearned wealth taken as a fee while giving lesser value or none in return. It is not a like-for-like exchange of value. Taxation is the ultimate form of rent. It’s also theft, but that’s just dispensing with childish euphemisms.

The problem with rent-seeking behavior is that it creates perverse incentives within an economy, which, in turn, waste capital.

The most obvious example of this is farm subsidies which prop up the price of one crop by paying farmers not to plant another crop.

In lobbying to protect the lives of certain constituents (the farmers/agribusiness corp.), politicians trade the lives of other constituents who have less political pull within the government, be that government representative or otherwise. Everyone who profits along the way collects rent as either a direct consequence (the farmers and/or agribusiness) or a bribe (the politicians/bureaucrats).

And now everyone who gets paid in support of this policy has a vested interest in maintaining it. From the secretary filing the paperwork and the farmer sitting on his ass to the CEO of Monsanto. This is the essence of perverse incentives and it is a cancer that eats away at the fabric of an economy.

Perverse Incentives Create Perverts
But, the rot goes far deeper than that. Prices are information. They transmit our desires of the moment into tangible comparisons. So, if you distort the prices of things, you distort not only the value of them but the incentives for entrepreneurs to schedule future production.

People respond to incentives the same way always. They do more of that which satisfies their needs. This is why all forms of poverty reduction policy results in more poverty. It sets up the perverse incentive to not work to better yourself.

These interventions also consume more capital handing that capital out than it will ever produce in future returns on it. You have to pay everyone up and down the line. To them this is free money. It simply is not as scarce as it should be relative to the effort they expended to acquire it.

They will tend to waste it knowing they don’t have to work hard to get more tomorrow. In the process, they bid up the prices for those frivolous things and under-value those things that create real value.

And that destroys not only their work ethic, but ultimately their self-worth while keeping capital-starved the engine of real growth which is the pool of real savings, which I’ve discussed in previous posts.

Those inflated prices are transmitted through the pricing system in an ever-degrading downward spiral of capital destruction. The political class responds with more interventions, more monetary debasement to prop up prices for their partners-in-rent-seeking. This exacerbates the natural business cycle, misprices the most important commodity in any economy, the money.

Money Shrugged
It is this mis-pricing of money through the artificial depression of interest rates that is the most pernicious. And the whole modern financial system is based on managing these effects to extract the most rent but not collapse the system, ending the gravy train.

The Rest…HERE

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