Life as I see it podcast #12 Bitcoin part 3

 

This is the third installment of podcasts about bitcoin. It’s the last one I have planned but I reserve the option to make more if things get interesting. The Bitcoin protocol is actually pretty flexible. If it proves to not be flexible enough it is easy to fork the code base and make your own Bitcoin based system. Here are some of the articles and stories I referenced in the podcast.

 

Twister is a peer to peer, decentralized social network based on the Bitcoin protocol. Still in alpha, download it at your own risk!

Danny Bradbury writes about Colored coins. Colored coins pain sophisticated future for bitcoin. 

Bitcoin: How its core technology will change the world by Jacob Aron. 

A video introduction to Ethereum. Also a good, quick inter to the uses of the Bitcoin protocol. That page also has lots of info graphics and explanations, recommended.

Bitcoin is not just digital currency. It’s Napster for finance by David Morris for can.com. Not a fan of the comparison to Napster but a good article.

 

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Life as I see it podcast episode #11 Bitcoin pt.2

 

This is my second podcast about Bitcoin. In it, I mention some links where you can read about some of the potential problems with bitcoins and then talk at length about some of the other potential uses of the protocol. Notice how I keep using the word potential? The links for the pitfalls are rather technical from an economics point of view, I don’t think there is any real discussion of the cryptology or network configuration. Ran across a great article in the NYT. Do read it, I found a lot to be interested in it.

 

How and Why Bitcoin will Plummet in Price by Tyler Cowen at Marginal Revolution

The Marginal Cost of Cryptcurrency by Robert Sams at cryptonomics.org

A list of 83 different cryptocurrencies

Why Bitcoin Matters from the New York Times by Marc Andressen

 

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Life as I see it podcast episode #9 Bitcoin

 

My friend Mary had asked me to talk a bit about Bitcoin. It turned out to be a more complex topic than I had realized. In this podcast I talk about what Bitcoin is, what are the advantages and disadvantages of it, and some of the more important aspects of it. I think the even more powerful aspects of Bitcoin is still to come. I’ll do another podcast about those…

Something I mentioned that I’d get back to but didn’t in the podcast was the ability to do multiple transactions with the same bitcoins. It is possible to game the system but you would have to have 51% of the processing power of the entire bitcoin mining capacity. This became a bit of an issue the other day when the largest group of bitcoin miners announced that they control 45% of the processing power of the whole network. They did come out and say that they had no plans of going over the 51% level. Makes sense that they wouldn’t want to wreck the system, after all, they would be in the position to lose the most if they called into question the integrity of the system.

I mentioned that fees are low because miners are rewarded in bit coins. It isn’t clear how that will change once you can no longer mine new bitcoins.

 

Here are some extra links to read up on Bitcoin:

 

Bitcoin wiki. Wikipedia is always a good place to start for an overview.

Bitcoin values in different currencies. 

Tyler Cowen of Marginal Revolution talking about the problems of Bitcoin competitors. 

Horace Deidu of Asymco talking on The Critical path podcast about Bitcoin. A rambling, expansive talk on Bitcoin.

 

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Life as I see it podcast episode #7. Money, what is it?

 

My friend Mary wanted me to talk a little about Bitcoin. I’m going to start that by talking about money in general. There are some interesting things about money that are really important to understand if you want to know how something could be used as money. I’ll do a few more podcasts before I finish up the topic. Dunno when that’ll happen though..

Child Labor

I cringe whenever I read about child labor laws. Western, prosperous countries have a real aversion to the thought of child laborers and anew quick to denounce and to combat it. Every time another concession is reached to limit child labor the success is trumpeted and progress is seen to have been made. Funnily enough, I have never seen any of those organizations track the outcomes of the children themselves to see if they are being helped.

Like everything else in life, the issue of child labor is about options. I can guarantee that whenever you find child laborers, you will find crushing poverty as well. I believe the best way to think about child labor is to imagine what they will do if they are not allowed to work legally. Clearly, if they needed to work before, the passing of a law will not change that circumstance. We have an analog of what happens right here in this country with illegal aliens. When you are not permitted to work legally, you are driven underground. You might find regular work, but at a much lower rate of pay. The ones that aren’t lucky enough to find work as gardeners, carpenters, cooks, etc. or aren’t willing to accept the low wages end up in the black markets. Drugs, prostitution, and other types of illegal activities are careers open to people that can’t find legal jobs.

I don’t have any evidence, but there are plenty of anecdotal accounts of sheet children being forced out of jobs by the new laws and into much less savory occupations. The stories from Yemen alone are heartbreaking, I can’t imagine what its like in more urban places like SE Asia.

I wish that people that pursue these laws would spend as much time worrying about what the kids will do once they lose their job. I also wish that people in the US and Europe would understand that they don’t really have a good idea of what real poverty is like and what choices people living in it face. Child labor is a terrible thing, no doubt, but if we’re going to take that away from kids, we need to provide them with something other than the thing they are avoiding by working…

The problem with democrats and republicans

Ludwig von Mises summed up the entirety of political “solutions when he penned:

 

Scarcely anyone interests himself in social problems without being led to do so by the desire to see reforms enacted. In almost all cases, before anyone begins to study the science, he has already decided on definite reforms that he wants to put through. Only a few have the strength to accept the knowledge that these reforms are impracticable and to draw all the inferences from it. Most men endure the sacrifice of the intellect more easily than the sacrifice of their daydreams. They cannot bear that their utopias should run aground on the unalterable necessities of human existence. What they yearn for is another reality different from the one given in this world. They long for the “leap of humanity out of the realm of necessity and into the realm of freedom.” They wish to be free of a universe of whose order they do not approve.

 

I got that from the Mises Institute blog talking about how the OWS crowd is attempting to shut down west coast ports. So many people have definite ideas of what should be accomplished and how to accomplish it, they don’t take any time to try to understand what might happen if they actually do what they intend. Their daydreams of sticking it to the 1% are going to cost a lot of regular folks paychecks. If they had their way, they would punish the 1% by making it much more difficult for everyone else to get stuff from Japan, Thailand, Vietnam, and yes, China. Even a basic understanding of economics would allow them to understand that it is impossible to “hurt” one group in isolation without affecting everyone else.

Mises.org also quotes Rothbard in that same post:

 

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

 

You can do what you want with yourself. Because it is impossible to know but the largest first order effects of any overall economic activity, acting on everyone else’s behalf should be the first warning sign that you’re out of your depth.

Investment grade debt

Most actual investment (as opposed to places to park your money) involves buying debt. Or to put it another way, you loan money with the hope of making more later on. Bonds are the most common way to do direct investment, you have a time frame and a specific rate of interest. Stock IPO’s are another way of investing in a company. 

When you buy a bond from a company, you look at how likely it is that you’ll be repaid based on the business involved. If its a good company with good products, they will create profits and be able to pay you your interest. But what about municipal and sovereign debt? There are no profits to be had, just ongoing tax collection. On the face of it, that seems pretty safe, that’s what governments do after all. But all isn’t well in tax land. Europe continues to crumble, their very currency may go away. When that happens, there is an excellent chance that the folks that loaned them those Euros will be left holding the bag. We’re also hearing about more and more municipalities declaring bankruptcy. A casual glance at states like California make you wonder how safe those bonds are as well. 
My (perhaps not so humble) suggestion is to invest in productive, profitable businesses instead relying on tax collection for your investment. It’s common sense really, invest in things that have upside! Or think of it this way, how much do you trust politicians? How much do you trust that they’ll do the smart thing with your money? More and more we’re seeing what that trust will get you, a lot less money.

Thinking in aggregates (corporations aren’t people)

Mit Romney has been getting some press for his “Corporations are people” blurb. Lots of people are mocking him, pointing out the obvious, that corporations are not people. The irony is that the people mocking him are missing the point. Not only that, they are assuming that corporations are people after a fashion. Let me explain…

What Romney was trying to say was that corporations are made up of people and anything that is done to a corporation eventually ends up affecting the people that make up that corporation. The people mocking him are essentially assuming that a corporation is a stand alone entity. They think they can tax it and regulate its speech without affecting actual people. To my mind it is yet another example of being sucked into the fallacy of aggregates being tangible things. And like all of the other examples of that fallacy, acting against that fiction causes problems for actual people.

Paul Krugman is another great example. Whenever he claims that an alien invasion, or 9/11 would be good for us, he is thinking of GDP. GDP is an aggregate of production in a country. It is a loose proxy for economic activity. What he overlooks, and we should never forget, is that GDP is an aggregate measure that doesn’t tell us the first thing about prosperity. Trying to boost GDP can in fact have effects, and it might even make that measurement go up, but what does it really mean for all of us? If GDP gets a boost from rebuilding from a disaster, will anyone care?

I myself am guilty of talking about aggregates. How often do I rail against “the government” as if it were a single, monolithic thing? I should be more precise and bemoan the laws passed by congress, the unilateral action of the executive team in the White House, or the actions of the board of the Federal Reserve. It’s important to remember just how few people are actually moving things around for the rest of us. All of those groups try to co-opt us by saying that they are doing what they do for “the American people.” As if there were a simple group mind that is happy with the same things. They do what they do for the benefit of what they think the American people are, but how often do you or I agree with them?

And of course the most common aggregate fallacy of them all is all of the talk about “the economy.” There is no such thing. We are the economy. Each one of us, each action we take, every transaction we do, every act of cooperation with someone else, that’s what the economy is. There is no way we can sum all of that up with a single concept let alone a word. When you look at it like that, phrases like “The economy is depressed,” or, “The economy needs to be boosted” stop making sense. We need to respect the enormity of what we are summing up in that aggregate. The idea that a single action can improve all of the things that make up the economy is pure hubris.

Things are complicated. We like to sum things up for the sake of being concise, but we quickly lose what is actually being discussed. Language has a funny way of shaping our thoughts, we need to be careful about lumping too much into neat, orderly concepts because that rarely exists in the real world.

Competing currencies (Good news from Zimbabwe)

Zimbabwe has been the poster child of central bank excess but this article from the Globe and Mail talks about how they have gotten out of their inflation hole and has given them a chance to get back to normal. They still have lots of trouble, but at least their currency isn’t hamstringing them any longer. How did they rebound from 89.7 sextillion percent inflation? They abandoned their currency. They allowed people to use whatever they wanted as money.

The effect has been dramatic. Folks use The Rand, the dollar, the pound, the euro, and the kwacha and things are functioning again. It has removed the Zimbabwean central bank from the equation and has forced the government to spend only what it has on hand. The government has abetted this by first announcing that the Zimbabwean currency was no longer valid and then allowing people to use whatever they want.

Backing a currency with gold or silver has a lot of logistical issues regardless of the wisdom of it. Competing currencies are a valid alternative to enforce discipline on central banks. If we can’t control them, we should at least have the ability to leave them when we want to.

Krugman Stimulus (updated, not Krugman)

UPDATED!!! This wasn’t Krugman, but see below…

 

“People on twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage.”

-Paul Krugman

 

Paul Krugman is an ass. Yes, he is the Nobel Laureate columnist for the New York Times. Yes, he has forgotten more economics than I’ll ever know. But yes, he is an ass.

A prime tenet of Keynesian economics is that spending is what makes an economy go. Recessions are caused by a drop in spending. The theory then says that to get out of a recession, you need to increase spending. If the private sector won’t do it, by God the government will. It doesn’t matter who is doing the spending, what is being bought, or even why people spend, as long as they spend everything is good.

Hence, big ticket items like wars and cleanup after disasters are seen as opportunities in the Keynesian model. Rational people understand that wealth doesn’t come from things being destroyed. Nor does it come from making things that blow up and blow people up. Normally, a reductio ad absudum critique of this theory goes something like this, well, why don’t we destroy vast swaths of property and rebuild, that will surely do wonders for the economy!

Instead of refuting this argument, Krugman has doubled down and said that yes, that is the idea. He seems to regret that the earthquake didn’t cause more damage, probably because he’s a patriot and is only looking out for the good of the country. It has certainly worked for Haiti and Japan. Aren’t we jealous of the opportunities those countries have gotten? Krugman is currently being savaged on Twitter, here are some of my favorite riffs on the destruction breeds prosperity theme:

 

From the #Krugmanstimulus feed:

The Iranians don’t hate Jews, they’re just trying to stimulate the Israeli economy.

Army Air FOrce General Curtis LeMay given lifetime achievement award for #Krugmanstimulus.

When God unleased the 10 plagues, He was actually trying to boost the Egyptian economy.

They should let students play grand theft auto in economics classes so they’ll understand the application of #krugmanstimulus.

The US should invade Europe, that way it can stimulate both the American economy and the Eurozone.

#politicalmath has some amazing ones:

“And I looked, and behold a pale horse: and his name that sat on him was Krugman, and Stimulus followed with him.

“It’s a liquidity trap! Commence attack on our own main reactor! Admiral Krugman Ackbar

The Unibomber was just trying to create some job openings.

 

This stuff just writes itself. Krugman had also just recently said the the world’s economic problems could be solved if the nations of the earth thought they were going to be invaded by aliens. No really, he thinks that the militarization of the world would be great. Take all of our resources and turn them into armaments. We’d be rich! This is what passes for economics, this is the kind of though that went into our stimulus efforts. Is it any wonder they don’t work? I’m hoping that Krugman (the world’s most popular advocate of Keynesianism) has done enough damage to discredit that line of economic thought. If this doesn’t do it, what will? The Onion understands Keynesian economics, why doesn’t everyone?

 

 

UPDATE:

 

OK, so the comment has been shown to be a fake. Krugman did not actually say that things would have been better if there was more damage. He did say that an alien invasion would help, and he did say that 9/11 would be good for economy too so I think this critique still stands.