Opting out of Inflation
Escaping the Hidden Tax
Central bankers and policymakers assure us that inflation is natural, a sign of a healthy economy. But what if the story is upside down? Despite decades of technological breakthroughs making goods and services cheaper to produce, we’re told to expect rising prices year after year. Why does it take more dollars to buy the same things, even as innovation accelerates all around us? The answer isn’t found in the marketplace, but in the hidden mechanics of money itself – a system designed to quietly take your purchasing power and put it in the hands of government policymakers. Understanding this disconnect isn’t just academic; it’s the key to reclaiming the benefits of progress that inflation quietly steals from us all.
Deflation is Natural
When the Federal Reserve says “we’re going to target 2% annual inflation,” what they’re really saying is “we’re going to steal 2% of your purchasing power this year, and every year into the future.” They even frame it as a good thing, like we should be happy they only want to make our money worth 2% less each and every year. What really adds insult to injury, however, is that in a truly free market economy, prices should be going down every year, not up - otherwise known as deflation, the opposite of inflation.
In a free, unmanipulated economy and monetary system, prices fall over time because of continuous technological advancement and competition, which push prices towards the marginal cost of production. As technology improves efficiency and productivity, goods and services become cheaper. For example, the price index for personal computers and peripheral equipment dropped by 90% between 1997 and 2021, and the cost of solar power fell by 89% between 2010 and 2021 – both examples of deflation driven by technological progress. In a tech revolution from 1870 to 1890, prices dropped by 0.4% per year on average, with some years seeing decreases up to 4%. This period – notably before the Federal Reserve was created in 1913 – benefited from new manufacturing processes, increased electrification, telegraph networks, and railroads – all creating massive productivity gains that naturally reduced prices.
Today, innovations in automation, artificial intelligence, and energy systems are further driving down costs in production, distribution, and consumption, exerting persistent deflationary forces on the economy. Prices naturally fall as productivity increases.
Yet Inflation is Persistent
Why then is persistent inflation the norm in modern economies? Because of central bank money printing and government spending and deficits. When central banks and governments expand the money supply, they dilute the purchasing power of money already in circulation. Each dollar buys less and less.
Central planners – governments and central banks – have strong incentives to print and spend money: the additional spending power allows politicians to fulfill campaign promises, fund government programs, and reduce the real burden of the national debt. Not to mention that constant growth of the money supply is necessary in debt-based economies, such as ours. The downside is that every person earning and saving in dollars has their money debased. The resulting effect is that your purchasing power is stolen and put in the hands of the government – a hidden tax.
The money supply has grown at 6.8% annually over the past 66 years. If the money supply expands at 7% and tech-driven productivity drives prices down by 5%, the net result is 2% inflation. In other words, money supply growth crowds out any price decreases from productivity gains.
This happens year after year, and the result is that society becomes numb to inflation, accepting it as a given. However, for those not willing to accept this inflationary fate, there is a solution.
Opting Out
If central planning and money supply expansion are the root causes of the inflation problem, then the solution is decentralized planning and fixed money supply. Simply, Bitcoin. With a distributed, decentralized network enforcing a hard supply cap of 21 million coins, Bitcoin is immune to arbitrary supply increases, making in inherently deflationary. For the first time, individuals can opt out of the traditional central banking system and its inflationary pressures.
When goods and services are priced in Bitcoin instead of dollars, the deflationary dynamic of a free market reemerges. The price of houses denominated in Bitcoin, for example, has decreased over time, reflecting the absence of money supply manipulation and government intervention. In this environment, the purchasing power of Bitcoin increases (over a long enough time horizon). Prices fall when denominated in Bitcoin instead of dollars – just as you would expect in a market driven by technological progress and competition instead of government manipulation of the money supply.
This graph shows that over the past 10 years, as the median house price has increased in dollar terms, the number of Bitcoin required to purchase a median house has decreased substantially - deflation in Bitcoin terms.
It's a remarkable irony that inflation has become so normalized that falling prices now seem unnatural. Decades of innovation should have made life steadily more affordable, yet we’ve come to accept rising prices as a fact of life, not a policy choice. Recognizing this disconnect is the first step toward reclaiming the true benefits of progress. By questioning what we’ve been taught to see as normal, we open the door to a future where technology delivers on its promise and our money actually works for us, not against us.
Credit to Jeff Booth and Joe Bryan for the ideas presented in this article.
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