This podcast episode of Bitcoin Study Sessions delves into James McGinnis's essay, "Securing America's Future in the Age of the Electron," from the anthology "National Security in the Digital Age," exploring the shift from the age of oil to the age of the electron and its implications for the U.S., featuring Lucas as a co-host.
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Summary:
The essay "Securing America's Future in the Age of the Electron" discusses the transition from the age of oil to the age of the electron, marked by cheap and abundant electricity, primarily from solar and wind, with the lithium battery as a key driver. The current monetary system, based on the petrodollar, is seen as undermining the U.S. by preventing the reshoring of industry. The petrodollar system, where the U.S. ensures the protection of Saudi Arabia and oil trade routes in exchange for OPEC selling oil exclusively in U.S. dollars, has preserved the dollar as the global reserve currency. However, this system is unraveling, leading to a potential shift to an "electrodollar" system based on electricity.
The Triffin dilemma, which affects any global reserve currency issuer, is exacerbated by the petrodollar system. The world needs dollars to buy oil, requiring the U.S. to provide sufficient dollars, leading to a structural deficit. This results in cheap products flowing into the U.S., causing domestic manufacturers to relocate abroad where labor is cheaper, thus deindustrializing the United States. The age of the electron, however, will make energy cheap to produce but expensive to transport, acting as a deglobalizing force and leading to the reshoring of industry. In the age of oil, energy is easy to transport, making it cheaper to move industry to areas with cheap labor. In contrast, electricity is expensive to transmit but cheap to produce, incentivizing the relocation of energy-intensive industries closer to power sources.
Bitcoin is positioned as a potential new global reserve currency in the age of the electron, with Bitcoin mining setting a floor price for electricity usage. The profitability of Bitcoin mining is directly tied to the cost of electricity, incentivizing the productive use of energy. Bitcoin mining acts as a filter, disincentivizing economic activity that does not lead to actual growth and productive surplus, unlike fiat currencies that drive mindless consumption. However, there are concerns that Bitcoin mining could drive away valuable uses of electricity by setting the floor price too high. McGinnis argues that a higher Bitcoin price incentivizes more miners to enter the market, driving down the marginal cost and preventing mining from robbing energy from other productive uses.
China's dominance in the infrastructure for the age of the electron, particularly in lithium batteries and solar panels, poses a strategic challenge for the U.S. An "Ouroboros" strategy, where the U.S. imports clean energy tech, can lead to more industry returning home and the domestic production of more tech. However, there is a difficulty that the more clean energy tech that the US imports, the more its dependence on fossil fuels declines, which could bring down the petrodollar system and diminish its ability to finance clean energy tech. Ultimately, the U.S. must transition to a neutral reserve asset world and prepare for the inevitable decline of the petro-industrial complex by consciously navigating its entry into the age of the electron.
