While thinking about all of the different industries and companies that can be disrupted by Bitcoin is great, the most exciting changes coming from this new technology are the ones found in government. Various governments around the world are not going to be immune to the disruptive nature of Bitcoin, and there will be plenty of changes made to the way those in power are able to govern over individuals. Bitcoin will have implications for everything from the way we vote to changes in the ways taxes are collected, and it could also have a huge impact on fiscal responsibility.
Why Aren’t Governments Fiscally Responsible?
It is in the very nature of government to grow. It doesn’t matter what kind of new government a country starts with because it tends to become larger and impact more aspects of the population’s daily lives as time goes by. The United States is a prime example. What started out as the United States of America has slowly turned into the United State of America. The country is often viewed as a democracy now rather than a republic, and it seems that the “will of the people” is more important than the protection of individual rights in the Constitution. The US started with no income tax, but the federal government collected over $1.5 trillion via income taxes in 2013. George Washington’s non-interventionist view has also been long forgotten in favor of the largest military force the world has ever seen, and it seems there’s an official government department to control and regulate every aspect of human life.
When Matters Get Worse
As we’ve seen in the United States, the problem of government growth can get much worse as that government gains more control over the money supply. There’s a reason budget deficits in the United States exploded after Nixon closed the gold window. Governments love to borrow money, especially when it comes to funding wars, but they can get themselves into trouble when they’re unable to pay their debts. What do you do when you can’t pay your debts? You increase your revenues and cut spending. This is never something that’s politicaly easy, which is why debt crises can go on for many years. In the United States, default isn’t a problem at all because the government can always print the money to pay their debts. This means the only cap on spending for the US federal government is the prevention of hyperinflation. It’s no wonder as to how the United States has become the largest debtor nation in the history of the world.
Bitcoin’s Role in Fiscal Responsibility
The gold standard limited government spending in the past, and Bitcoin could play a similar role in the future. If Bitcoin were used by the majority of the general population, then there would be no Federal Reserve to buy more US bonds from the Treasury Department. There would be no central bank, so the only way to spend more money than the government was taking in through taxes would be to borrow it. If the government couldn’t pay back its debts, then it would have to default or ask for a bailout from an outside party. Since bitcoins are also deflationary, borrowing money would also be more expensive due to higher interest rates. The public would be less likely to accept paying interest on government loans when interest rates are not at historic lows. In other words, the US federal government would basically be forced to only spend within its means.
Removing the Inflation Tax
When governments are able to control the money supply, it also gives them the opportunity to tax the people of that country in a rather deceptive manner. Whether that newly created money is loaned to the government or private business does not really matter because it still leads to the same end-result for the middle class. The newly created money only reaches them after trickling down through the well-connected. By the time the people on mainstream get the money, the inflation has already taken place. This is basically a regressive tax on the poorest individuals in a particular country. Taking the control of the money supply out of the hands of government leads to the end of the inflation tax.
The End Result
In a Bitcoin economy, governments would be restricted to the point where Austrian economists may actually get a chance to see their views play out on the world stage. There will definitely be countries that will try to ban Bitcoin due to the fact that it removes some spending power from the state, but whether or not those bans would actually be feasible is still up for debate. At the end of the day, more prevalent usage of Bitcoin would not force governments to be more responsible with the funds they collect from taxpayers. It would just make borrowing money more expensive and politically unfeasible. The “lender of last resort” would not exist, so politicians would have to actually be honest with their constituents and raise taxes whenever they wanted to spend more of their money on things that most people don’t actually want.