Some Funny Thoughts on Economics by Alpheus Madsen

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Some Funny Thoughts on Economics
by Alpheus Madsen

As a mathematician pretending to be a software developer recently looking for work, I couldn’t help but notice that there’s been an up-tick in companies looking for software developers who can program on blockchains — in particular, for projects to create automatically executable contracts for cryptocurrencies. I have learned a bit about these, and am particularly intrigued by the idea of recording transactions in a way that isn’t very susceptible to forgery … but for all the promise to revolutionize things, I would have to confess that I have a hard time accepting cryptocurrencies. And part of the problem is that I’ve encountered some rather bad economic thoughts I have associated with the justification of cryptocurrencies.

The biggest one, encountered a few years ago by a Bitcoin miner, was “cryptocurrencies have value because they take resources (energy, typically from coal) and labor (computers plugging away at computation) to create!” Ah, the labor theory of value … the heart of Marxist thought … and something for which counter-examples abound! No, there’s no inherent value in consuming — I can burn coal to crush big, smooth blocks of granite into rubble — but neither the coal I put in, nor the labor I exert to fill that hopper, will give that rubble any value. Indeed, I am wasting coal, my time, and fantastic blocks of granite that can be used for counter tops, buildings, and machine shops for both function and beauty. I am destroying value.

No, the value of cryptocurrency is, paradoxically, based solely on people choosing to value it. And this is true of everything, not just cryptocurrency. And people have all sorts of reasons for valuing something: it’s necessary for life, it can be used as a stable platform for putting things together, it’s pretty, it’s scarce or abundant (water is necessary for life, but because we have so much that our fundamental needs are met, we don’t value it as much as pure diamonds set in gold …) This core idea — called “marginal value theory” — is a fantastic explanation of why rare useless things can command such a high price!

Another funny idea (which I’m fairly certain I encountered in a cryptocurrency forum, but my memory is a little fuzzy on that) is the notion that, because inflation benefits people who are in debt — people who are allegedly poor — while deflation “only” affects people who are rich, we should always favor inflation, and always fight against deflation.

Sigh. This kind of policy doesn’t favor the poor. It favors people who have short attention spans, who can only see what the want right now and don’t care that, if they hold their horses, they can get even more, if they just wait until they can afford it; meanwhile, people who have even a modicum of future preference, who decide to save for the future, are screwed by inflation, because whatever they save now, becomes less worthwhile in the future! This can hurt the poor, because the poor widow trying to save her mites gets to see her mites evaporate … but what’s worse, is that it hurts the poor who are trying to become rich!

After all, who are the poor people? The people who can’t look beyond the horizon, and go into debt for everything. Who are the rich people? Generally, the people who diligently stay out of debt, and who save a little bit every month, so that it can grow into something that can allow them to retire — and sometimes even retire with style! Sure, you may have the occasional person who is bankrupt because of severe medical issues, or the occasional trust fund baby who is rich because their parents were rich … but these are far more often the exceptions rather than the rule, and too often, these exceptions are used to justify policies that are destructive to everyone, rich or poor.

Granted, at some point, I need to realize that these ideas aren’t necessarily inherent to cryptocurrency, and I need to dig into the core ideas to get a better feel for what value cryptocurrencies offer to us (beyond the crazy fluctuations that both make and break fortunes), but at this point, I’m on a roll, so I’m going to offer a crazy thought I happen to believe: that it’s this kind of thinking that gives us business cycles.

There’s a certain school of economic thought, called “The Austrian School”, that is convinced that saving is the key to economic advancement: by saving, day by day, some fish, at some point, I can take a week to make a fishnet, which can then allow me to catch more fish, and then take time to build a house, and so forth. Additionally, this school of thought is convinced that forcing interest rates to be below natural market value, is what causes bubbles that pop: artificially low interest rates lull businesses into believing they can expand, and so they do … but that produces inflation, because everyone thinks they can expand … which means that the businesses can’t expand as fast as they thought they could … which over-extends the businesses … until they can’t extend themselves anymore, and have to close things down, cancel projects, and lay off employees.

In contrast, the Keynesian school is convinced that savings is the enemy of prosperity — that we can tax and spend and go into debt, and so long as we have a Central Bank of some sort controlling our currency, and carefully controlling interest rates (usually by forcing interest rates to be lower than the Market says they should be), we can get rid of business cycles! Indeed, the Federal Reserve has been created precisely to do this. And oddly enough, the fact that we’ve had at least a dozen bubble pops (including one where the economy hadn’t recovered for an entire decade) hasn’t given very many people pause to reflect that hey, this Federal Reserve controlling the economy thing isn’t working as we expected … if anything, the assumption seems to be “Hey, it’s a good thing we have a Federal Reserve! Just think of how bad things would be if we didn’t have one!”

One final thought: when I took a Microeconomics class in college, one of the books we had was a history of economics focusing on six economists. I can’t remember who all the economists were, but I remember that Adam Smith, Karl Marx (who did for economics what Sigmund Freud did for psychology: took his personal, warped life, which was separated from the rest of mankind, and projected it onto everyone else), Milton Keynes, and some guy named Veblen were featured. Years later, I have come to that certain other economists — Milton Freedman, Ludwig von Mises, some guy named Hayek — were completely absent. I don’t necessarily think that this was on purpose, but considering that these economists pretty much go against the grain of all the others (with the possible exception of Adam Smith), it’s a pretty huge blind spot in the world of economics!

And now that I have written all of this, I think I have an inkling of understanding of why I don’t necessarily think that cryptocurrencies will fix everything. The solution that they are trying to offer — the decentralization of the control of currency, and the establishment of a decentralized way to definitively know who owns what — doesn’t solve the core problem that causes our economy to spin out of control: the conceit that is well-ingrained in our government, heck, even our society, that if only we had people who know what they are doing at the head of everything, they can fix things, and make sure that things run smoothly! (The actual solution seems to be “get out of debt, stay out of debt, and save money”, which doesn’t seem to be a very popular suggestion among the “elites”, and everyone else, for that matter …)

 

162 responses to “Some Funny Thoughts on Economics by Alpheus Madsen

  1. I’m sure someone has written about it, but I always wonder what very long-term effects the near hyperinflation that afflicted Argentina had on society. Punishing the savers, encouraging people to spend money as soon as they got paid so that their money would have less time to lose value… those I can see, but what about the multi-generational effects? How do they differ from what happened in Germany, Austria, and Hungary, or do they?

    I have unfond memories of the stagflation of the late 1970s. Not again, thanks. That should have shaken the neo-Keynesians out of their certainty, but no.

    • Sebastian Haffner, who grew up in Germany between the wars, wrote about the psychological effects of the Great Inflation:

      “The old and unworldy had the worst of it. Many were driven to begging, many to suicide. The young and quick-witted did well. Overnight they became free, rich, and independent. It was a situation in which mental inertia and reliance on past experience was punished by starvation and death, but rapid appraisal of new situations and speed of reaction was rewarded with sudden, vast riches. The twenty-one-year-old bank director appeared on the scene, and also the sixth-former who earned his living from the stock-market tips of his slighty older friends. He wore Oscar Wilde ties, organized champagne parties, and supported his embarrassed father.”

      • I’m familiar with the German experience, but what are long term effects? In Germany the war and its aftermath in some ways overshadowed the effects of the hyperinflation down the generations. Argentina and other Latin American countries didn’t really have that break, even allowing for the “regime changes” in the 40s-90s.

  2. If you go to a well stocked office supply store you can get a paper spreadsheet and a paper double entry accounting book. They allow you to do certain administrative tasks. Most people do not buy paper spreadsheets anymore. They have been almost entirely replaced by the electronic version. Crypto currencies replace the paper accounting ledger. The blockchain replaces the paper and the currency replaces the ink. Like the electronic spreadsheet, crypto currency adds features. This increases utility and therefore demand.

    Since crypto is so easy to create, attracting users requires you to solve problems or your customers will go elsewhere, or become your competitors. No particular crypto will solve all the problems laid out in the post. The system of crypto currency is doing better.

    • From local (very local) stuff, there was a (small, local) company here that recently went under because money paid for a tech project was misused, and put towards things that wern’t necessary to spend money on (they could have gotten the local city council to do it for them, as part of the city’s requirements to update the access to the building) and the funding for the actual project was not used towards getting the project done.

      The only reason why they even found out where the money went was because it was all meticulously written down by the little old lady accountant, who still did her accounting books on physical paper. Interestingly enough, none of it was really embezzled for personal use, just wasted on things that the social justicey managers wanted to use for virtue signalling purposes (putting in access ramps that they could have gotten the council to do FOR them, disabled parking signs -again, could’ve gotten the council to do it…) while at the same time shorting skilled technicians of proper pay.

      Do I need to note that the managers who did this were women? I probably should. Said managers were making things particularly toxic for the techs – both the males AND the females, mind. They’d get upset that the male techs would talk shop – you know, more tech related stuff, both related to the work, and outside of it – to the female techs… because TECHS TALK ABOUT TECH regardless of their private parts, surprise surprise. The female managers were jealous that the female techs were ‘getting lots of attention’ from the male techs.

      The one female manager who wasn’t batshit insane saw where this was going and was able to put in a policy that if a male employee had to meet with a female employee, they were 1) not allowed to be closed in a room away from other people, and 2) the male had to have a chaperone. Yep. She forsaw false #metoo accusations.

      • Odd. Usually at least a proportion of the managers are tech types.

        • They… kind of… were. As in, they could put together a basic end user computer and not have it blow up. But they were more focused on business management (badly) than tech; and invariably would be woefully out of their depth once things got into topics like security builds or data recovery. One of them even turned off a computer that was in the process of recovering customer data – which was a cause of tech rage because the tech in question was using his own rig in the office, because there was a power outage in his area and the job needed doing, so he came to the office to get the job done. Which he was allowed to. The manager who turned off the PC whined petulantly that she turned it off to save electricity – and was told, right before she was fired, that she was in an area she wasn’t supposed to even BE in, and not ONE of the systems there was something she was allowed to ever touch. She cost that poor tech a 20,000$ computer, and the customer’s data as well as the 600AUD fee for recovery.

          Hurray for affirmative action and ‘getting more women into tech.’ The ones who ARE good and want to be in tech HATE HATE HATE the power-hungry inept at tech socjus feminazis who have been invading the sector.

          • “The ones who ARE good and want to be in tech HATE HATE HATE the power-hungry inept at tech socjus feminazis who have been invading the sector.”

            Wouldn’t know. One of those female techs who didn’t have to work with other women whether as another tech or manager. But then I came to programming through Forestry (along with a lot of other foresters, thank you Spotted Owl) & didn’t have to work with other women there either.

          • It’s not just the tech field or socjus career climbers. Just went thru having to fight spreadsheet warriors to not be shorted on the time needed to do engineering work. Meanwhile tracking group hours (running meetings, powerpoints, hours, etc) exceeded my posited engineering hours by 20%.

            The misuse of metrics is part of why us businesses are so screwed up. It is a great tool if usedproperly but tracking for sake of tracking just eats productive time.

            • My last programming job was great. No metrics, period. Boss just insisted “everyone” be there between 8 – 12 & 1 – 5, put in your 8 hours & go home. Of coarse there were some more special than others that did not apply to, but, whatever. Every once in a while there’d be an email outlining & “enforcing” the policy. Since boss was on the road as often as not, he was very lucky to have a good crew. Still does, I think, I’m retired, so … Very few meetings, kept promising them, but nobody held bosses feet to the fire to get them 🙂

              Job before that, company went bankrupt, meeting after meeting, all the time. Why are you behind? Uhhh lets see. 1) Deadline you are advocating is marketing’s deadline, not engineering’s; and 2) Meetings … Not only that we had to “fill out” time for what projects we worked on & what activity (programming, support to tech support, documentation, etc.). BUT could only enter 8 hours per day … when 70+ work hours per week were “expected”. They wanted us to put down 8 hours of programming on project XYZ, then beat us up because project XYZ was not “running to schedule”!!!! BS to that. I used percentages, weighing heavily to whatever interrupted programming the most. Actually got front line tech support in trouble, because too much of my time was being taken up by stuff they were suppose to know. Not my problem. Someone should have scheduled more training time for them. I was ignored when I suggested it.

              • Use the right metrics for the right job and its a useful tool if the right solutions are sought. For example, identify the parts where defects occur or what part of a process is the bottleneck. On the other hand assigning one party entire responsibility and even if another party causes slip its the fault of third party. Or poor choice of metrics that really can’t be measured.

                As for time, there is a difference between ‘I screwed up’ which i will do some extra work to keep up, ‘situation changed’ which will vary, and ‘we overpromised’ which I’ll help with. At overtime. Minimum 8 paid ot hours. Otherwise not my problem.

  3. Well said! And some damn good points! It’s all about ‘assumed’ value. With nothing physically backing it, nor no country putting their backing behind them, they’re still vaporware…

    • Whereas those trillions of dollars of Treasury notes in the Social Security lockbox backed by the full faith and credit of the United States of America.
      Which I have compared unfavorably in the past to mom and dad leaving paper IOUs in juniors piggybank so they can buy beer and smokes.
      Only a fool believed that our fiscal policies are sustainable, the powers that be are simply counting on the crash not occurring on their watch, the ultimate “kick the can down the road” scam.

      • Most of them know it’s unsustainable. It’s just that they expect to be out of office before it all collapses, and they can claim qualified immunity if anyone bothers to call them to task, which never happens anyway.

        • The people who first made it expected to be dead before it was noticed. Life expectancy increased faster than linearly, leaving some alive to make the admission.

      • And people wax indignant about Congress ‘raiding’ the lockbox for current spending…as if they had a choice. As I understand it, a Supreme Court ruling holds that the government may not sequester money for any reason; it all has to go into the general fund.

        How well founded in Law that ruling is is beyond my capacity to check. Is it from xable through Legislation? Or is it a matter of Constitutional construction, and would require an amendment to change? Or is it simply Judicial activism and naval gazing?

        *shrug*

  4. I just have a real distrust of anything that isn’t backed by something. I even distrust the dollar since we dropped from the gold standard. 🙂

    • How valuable is it to be able to get money past currency controls? Vaporware? I think not.

      And my opinion has not changed now that I get paid in the stuff.

      • I think it is more valuable to the one who controls it– whether it is a person or a country. BTW in my humble opinion, the one who uses it is NOT the one who controls it.

      • Except that when it comes back into meat space as tangible property, the government can still demand an explanation of how you came by it. You won’t evade anything.

    • See Dave Berry’s commentary about how we’re currently on the Tinkerbell standard: we clap our hands and say, “I do believe in money! I do believe in money!”

      (And yes, I know the arguments against the gold standard. But you’ve got to admit that Mr. Berry has pretty much nailed what we’ve got now.)

      • I know some of the problems of the gold standard– i.e. no citizen could own gold *sigh but yes–

      • I’m a simple guy, I believe.

      • Where he makes a mistake is in that the Gold Standard simply transfers that ‘tinkerbell’ belief to Gold. Say somebody tows a solid Gold asteroid to earth, what happens to your Gold Standard.

        At some level, all money, even money backed by something, is founded on a shared illusion.

    • Money is never backed by anything. Gold has no more intrinsic value than paper. The idea of using gold as a medium of exchange is just as much a social convention as the idea of using dollars. The only advantage gold has over paper money is that it’s harder to expand the money supply, but that’s as much a disadvantage as an advantage. A money supply that doesn’t grow as fast as the economy is just as bad as a money supply that grows too fast.

      • Not true. I highly recommend Ludwig von Mises’s “Human Action”, and then if you want more, “The theory of money and credit”, both free downloads from the von Mises Institute (mises.org).
        It is a century-old fiction invented by the fake money people that the money supply must grow for the economy to work. Von Mises clearly explains that this is not correct. If the economy grows while the supply of money remains constant, that simply means that prices gradually drop in proportion. This produces cries of “Argh, Deflation!!!” as if lower prices are bad. (Do you mind lower prices on your computer?) Deflation has, on occasion, been a symptom of trouble (not a cause) when the government has mismanaged the money supply in the opposite direction from its normal mismanagement. But that has nothing to do with the healthy and expected outcome when hard money, as opposed to fake (fiat) money is used.
        As for “gold has no more intrinsic value than paper”, true to some extent. As von Mises explains at length, money is a “medium of exchange”, an intermediary item used in place of straight barter to make the economy more flexible. Any medium will serve if it’s non-perishable, and has a supply that doesn’t readily grow a lot. Gold originally was one of a number of options; over the centuries it became the predominant one because more people accepted it than the other alternatives, in more places in the world economy. But true, platinum would work as well. Or ruthenium. Maybe even uranium, at least if you used lead wallets. 🙂

        • You don’t need lead wallets for a uranium standard, it’s an alpha emitter. In fact, painted (or some other cladding) depleted uranium is often used for radiation shielding.

          The reason deflation is bad is because it can become self-reinforcing. Anyone can pull money out of the economy while counterfeiting is much harder. Why would I take risks investing my money when the First Bank of Sealy offers me a positive real return with almost no risk? A steady inflation rate pushes people to keep money in circulation, where it can grow the economy. Those who think that deflation doesn’t harm the economy are falling victim to the Broken Window Fallacy. They don’t see the exchanges – and the wealth created thereby – that don’t occur because there’s no money available to facilitate the exchange.

          • If I may, there is one more layer of “that which is unseen” to which you are in turn blind in the above — investment seeks the highest real rate of return. A 2% annual deflation means that an investment is a “real rate of return” of 8% returns 6% in money value (which is now worth 8% more in buying power). Just as a 2% annual inflation rate means that an investment with a “real rate of return” of 8% now must return 10% in money value (which is now worth 8% more in buying power). In neither case, deflation or inflation, have we changed the real rate of return. High inflation makes investments look good only to people who can’t do math — because while the rates of return may sound like big values numerically, the real rate of return (inflation adjusted) is much lower. And while many people can’t do math, they can hire other people who do! The point being that investment decisions of any significance are made on the basis of real rate of return, and neither deflation nor inflation (if modest and steady) affect that.

            Uncertainty about the long-term stability of money is clearly a deterrent to investment, however — if you don’t know what the money is going to be worth in two or four years, you can’t really assess what ‘real rate of return’ is! So you sit on your cash.

            I’m not aware of a “hyperdeflation” scenario in real history, while hyperinflation is all too easy to recall or to picture by turning on the news. Given any kind of “sound money” we ought to expect technological improvement to produce a long, slow deflation — improvements in productivity should mean that an hour of labor buys more stuff in a decade than it does today. To avoid the bogeyman of a long, slow deflation, we put inflationary tools in the hands of policymakers who seem to find the temptation to “turn the knob a little further” nigh-irresistible.

            • You’re ignoring the effect of risk on the return calculations. An investment with a 2% rate of return can be a better choices than one with a 10% return if the former is far safer. Deflation makes all investments better than their published return rates, including hoarding money.

              “I’m not aware of a ‘hyperdeflation’ scenario in real history,”

              The Great Depression in the US.

        • Christopher M. Chupik

          A uranium standard? Gives a whole new meaning to “dirty money”.

        • Milton Friedman once stated that deflation is easy to cure. Just print more money.

        • There was a story about using Uranium (U-235) or similar fissile substance. Everyone had a backyard pit, the same size pit, to store their money in, and if you filled your pit, you were expected to spend or give away any money after that. Filling the pit and being rich was good, hoarding money past that was bad and evil. And every so often someone would get greedy and build a bigger pit. And one day they would add one more coin and then…….

          critical mass. No more fortune.

        • ” If the economy grows while the supply of money remains constant, that simply means that prices gradually drop in proportion.”

          This can make life seriously difficult. If your smallest coin keeps growing in value, what happens is that it becomes difficult, even impossible, to differentiate prices among cheap things. If you can buy a meal with a penny, what will you spend to buy a soda?

          • Thus the desperate search for silver in Medieval Europe. Gold wasn’t used for coins other than as show pieces because it was so rare and had to be imported from North Africa. Silver was in great demand and could be found in a few places in Europe. But if you look at Early Medieval coins, you’ll see that many of them are small – the size of the nail on my pinkie finger. That’s how valuable silver was. There were no smaller coins in most of Europe until the 1200s, when copper and bronze “small change” appeared.

            And then along came New World silver and tanked the European economy (not that the Wars of Religion helped).

    • The reason so few people (me included) have a real grasp of economics seems to me to stem from the nature of money. Maybe I’m wrong, but it seems to me that ALL money is a shared illusion. Even money backed by, say, gold. Gold does not have a fixed value; look at what happened to the European economy as Spain imported large quantities of it. ‘Inflation’ of the value of Gold.

      The more one looks at the reality of money, the less there is there, until you realize that all forms of money are abstract storage unites for fragments of life. And the value scale is entirely subjective.

      Look at this too long, and you are likely to conclude that one day people will ‘wake up’ and money will be valueless. But barter is awkward beyond a simple trade level.

      All value is subjective. Where Socialism MUST fail is in that it assumes value to be relatively stable, and tries to manipulate it on that basis. The ‘system’ may look fine and equitable, but it is always too rigid, and so shifts in perceived value cause it to shatter.

      The non-evil Progressives are prone to talking about some vast, amorphous system whereby everybody ‘sets’ the value of things….and totally miss that that is what the open market DOES. Oh, it doesn’t consult everybody…because not everybody cares about every transaction. And it is hardly perfect, or colections of ephemera like Pokeman cards or comic books would never rise bery high in value. A significan fraction of ‘everybody’ will be people whose value judgements are screwed on one subject or another. But the Market is preferable to government control because government control ALWAYS screws up something, and then screws the screw up down tight rather than admit fault.

  5. Debt is also a tool of control, by way of threatening to destroy someone’s life.

    I guess there’s some dystopian sci-fi in that idea: Have the government start seizing _all_ the resources of people with student-loan debt, denying them food stamps etc., and offering ‘indenture’ contracts as an alternative to starvation.

    • Until those assets lost in tragic boating accidents get employed… then things get rather nasty.

    • madrocketsci

      Our financial geniuses are already floating random re-brandings of debt slavery. The one’s I’ve seen so far are various perpetuities and “selling shares of your future income” and allowing a board of directors to give you orders with respect to where you live and what work you do.

      I’ve already had professors (not in *my* department, thank god) float the idea that since our future incomes are dependent on abilities that they so graciously granted us, that we owe them shares of any future success and wealth.

      You can imagine my attitude towards *those* people.

      • So when things fail to work out, how do the students collect?

        • Heh. Glenn Reynolds has suggested something to the tune of, “allow people to file bankruptcy on student loan debt and if they do, bill the school that allowed them to borrow the money.”

          Seems fair to me. There were be far far fewer students encouraged to borrow for degrees that have little to no earning potential. That might be that all of the Art Historians are going to be from at least upper middle class families, but worse things could happen than creating incentives for students from poor families to take up something lucrative instead of finding themselves with a student loan payment the size of a house mortgage and flipping burgers.

          • Student loan debt used to be dischargeable in bankruptcy. Then they changed the laws. Then the banks started lending out more, because it was a “safer” bet. And money started getting pumped into the university system. And college started getting more expensive.

            If you make student loans dischargeable in bankruptcy, even without charging it back to the college in question, you’re going to have a lot of short-term pain. But honestly, you’d end up with a lot of long-term benefits from it, including maybe having HR groups not requiring collegiate degrees for entry-level jobs that shouldn’t need them…

            • The reason they changed the laws is that graduates in fields that have steep income curves, like lawyers and doctors, would declare bankruptcy right out of school, get their student loans discharged, then start making big money a few years later.

              • Donald Stephens

                It would have been better to have a ‘cooling off’ period of about ten years to cover the earnings curve problem, but this was the quick, easy, lets-be-outraged response.
                If that were fixed, it would be valuable to allow the lenders to do risk assessment based on the major’s earning potential, and after the sophomore year, the GPA. A major with no economic prospects wouldn’t get a loan – what good wold it do the student anyway?

              • Interesting. I think their solution created more problems than it solved, though.

            • HR groups not requiring collegiate degrees for entry-level jobs…

              Since we’re playing in the perverse-incentives sandbox, I should note that the practice of credentialism is the direct result of the courts banning the practice of companies giving what amounted to IQ tests as pre-employment screening, because that is of course raaaaaciss’. Once upon a time if you did well on those tests, the company hired you as a career prospect and sent you to whatever training they wanted you to have internally.

              Barred from doing that, companies turned to the Bachelors degree as the entry bar, with the presumption that the college entry and schooling process would provide some level of screening for basic learning ability. But the colleges were reacting to their own set of perverse incentives, and they both dropped the entry requirements and inflated grading to keep collecting student loan money, while simultaneously raising tuition far faster than the base inflation rate.

              This has led to baseline entry requirements at tech companies of Masters degrees as an attempt to try and weed out those college-grad free-riders who get through with a BS degree while lacking any learning skills at all, and to the foreigner work-visa preference, which assumes foreign “educated” college grads would be somewhat more screened at college entry (and be easier to manage, being essentially indentured servants until their green card came through).

              It’s perverse incentives no top of perverse incentives – like turtles, all perverse incentives, all the way down.

          • I have to agree with Glenn Reynolds on this. Heck, I would go so far as to say that if *someone* connected to giving out the loan in the first place, also had to face the pain of a former student declaring bankruptcy, it would have a positive effect on how many people can get loans for education.

            Currently, no one is asking the question “How is someone getting a doctorate Gender Shakespearean Underwater Basketweaving Lesbian Poetry going to pay off this $300,000 loan?” It’s too easy to get the debt (because, hey, education will put you in the middle class!) and too difficult to bankrupt the debt (because hey, some lawyers got their degrees, and then declared bankruptcy — we can’t have that!) so now colleges can hire all the administrators and adjuncts they want (oddly enough, tenured professors are slowly disappearing…) and build all the expensive buildings to attract students, and ultimately, all those students have to shoulder the cost of all those things!

            Sure, those loans disappear after the student dies, but that’s several decades in the future, and who cares if, in the meantime, the student can’t get ahead?

            • So what consequence attaches to a student who declares bankruptcy right out of school?

              • The same that attaches to all bankrupts. Inability to file again for a period is the one that pops to mind

                • Which isn’t much of a disencentive to someone who already has a low credit score due to short credit history. By the time they really need access to the credit markets the bankruptcy will have fallen off the report. Meanwhile, the university will lose tens or hundreds of thousands of dollars every time someone decides to be clever.

                    • Which means holding schools partially responsible for student bankruptcies would be fundamentally unfair without some way to ensure that the student isn’t just taking advantage of bankruptcy law.

                    • It’s fundamentally unfair because the schools have no way to compel the students to act responsible. And the students would be the first to revolt at the return of loco parentis.

                      Also, of course, you take out loans for living expenses, which the school does not get. Put the pizza place, the Chinese take-out, and Mrs. Sweetheart who rents a room on the hook!

                    • Yes, it seems unfair to put the burden on the school — but putting the burden there would mean that the school will have to ask themselves “will this student be able to pay back the loan or will they immediately just declare bankruptcy”?

                      If they think a particular student isn’t going to pay the loan back, they can just refuse to teach the student, or make sure the student is going to have a minimum of debt to lose (by keeping tuition down), or mostly teach subjects that will enable the student to be employable afterwards.

                      Right now, the burden is placed pretty much solely on the student, and that’s very toxic as well.

                    • Huh? How on earth can it be toxic to put the burden paying for the thing on the shoulders of the one person who reaps the sole benefit and furthermore is the one who controls most of whether he’ll be able to pay?

                      The notion that the school can answer that question in any meaningful way is silly.

                      Not to mention that you do not mention the pizza joint, the Chinese take-out place, and Mrs. Sweetheart who rents out rooms to students. They, not the school, should be on the hook for the loan moneys that were spent on living expenses.

                    • Sigh. Mary. Tuition has gone up to crazy amounts. They sell this to the kids with things like “English majors can work everywhere.”
                      It’s a retirement program for washed out hippies. The government made loans incredibly easy to get, which helps funnel the money to beardo the weird.
                      Do the students have some responsibility? SOME, depending on age and experience. But the schools RIGHT NOW are outright conmen.

                    • Then prosecute them as conman by the same rules of evidence as are used elsewhere. This proposal is to not only convict them without trial, but even when they are innocent.

                    • The problem is that politicians are among the conmen, and it’s going to be *very* difficult to convince them to hold themselves accountable.

                      Essentially, they enabled the schools by providing easy-to-get-but-hard-to-bankrupt loans. They have put the majority of the risk on the loan-seekers, rather than balance it out among lenders, educators and seekers.

              • Feather Blade

                i’m told that credit card companies start sending you even more mailers than they already do, because if you’re stupid enough to take them up on their offer, that’s 7 to 10 more years of interest they can get out of you that you can’t discharge.

                Also, you have to declare your assets (like any extra cars you have) and ransom them back from the bankruptcy court if you actually want to keep them.

            • MadRocketSci

              One thing that really worries me about my generation is that so many of them have sold themselves into debt-slavery for a degree. Any degree. Because no one in head-up-the-ass corporate America will even so much as glance at your resume without one, even for something that has no reason to need one. They’ve been on a vicious zero-sum status treadmill for their entire lives so far.

              The reason why the socialists are so popular is because they basically own the soul of everyone in my generation, just by hinting that they might nullify their student loans. They don’t even have to be serious – just the suggestion is sufficient to buy their loyalty. When it comes to facing a lifetime of misery for a skillset no one seriously wanted anyway (Surprise! Your job has nothing to do with the hoops you had to jump through to get an interview), they’ll throw in with anyone who promises to overthrow the system. They should be furious at their professors, but they’ll be furious at whoever their political patrons point them at.

              That the socialists will destroy the rest of the economy, society and work to enslave everyone anyway doesn’t matter to the student debt-slaves: They’d end up ground on the bottom of the current system, they have no incentive to preserve it.

              • Thing is, they shouldn’t be furious at their professors, many of whom are caught in the same trap as they are, particularly the adjuncts.
                No, the people they should be furious at are the administrators of the colleges and corporations who’ve managed to create this situation.

                • And let’s not forget the politicians and bureaucrats that created the easy-to-get-but-hard-to-bankrupt loans, who then go on and insist that the only way to have a middle-class life, is to have a degree!

          • bill the school that allowed them to borrow the money.

            ALLOWED?

            How, pray tell, would the school stop them?

            • They can do what Hillsdale College has done: refuse to accept so much as a dime from the Feds, which includes Federally subsidized money.

              Of course, they did it on accident, because they didn’t want the strings that the Feds attach to the schools by these loans. But it’s an option.

  6. You nailed why crypto won’t fix the problems up above: “No, the value of cryptocurrency is, paradoxically, based solely on people choosing to value it.”

    The US dollar and other government-backed mediums of exchange, are valued because people have some faith in the stability of the issuing government.

    You call me up, say you want my trio to play your wedding, and you’ll pay in a crypto, I’ll laugh at you. It’s worthless to me because the places I do business with don’t take it. (Well, Amazon might, haven’t looked.) Give me Benjamins, thank you, and we have a deal. Or if you gave me and the violist a side of beef . . . but the pianist is vegan, you’ll need something else to get him on board with barter. Maybe you could pay us in gift cards? We could do Costco gift cards . . . but Costco won’t take your crypto, you’ll have to convert it to USD, and you might as well just hand us the USD at that point. Actually, this is a side gig, and you just established yourself as a PITA customer. Try elsewhere for your wedding music.

    Far as I can see, crypto is backed by nothing but hope that someday it’ll be useful for regular exchanges.

    • From what I hear from my friends working in infosec, it seems the biggest use for cryptocurrencies right now is to buy pot and other drugs online. It makes the online transactions more difficult to trace than if you put in a credit card or bank account number. Not exactly what you want for regular exchanges.

      • I recall seeing somewhere that there’s a bug/feature of some crypto currencies that allowed the DEA to track and bust some guy who was doing darkweb drug stuff. Don’t recall the details, but it involved being able to track transactions. Which isn’t supposed to be a thing. Crypto is supposed to act like anonymous cash. Apparently it doesn’t.

        Just goes to show, if you can track every damn packet in the whole world (and they can), there’s not much you can’t see on-line.

        • Unless I misunderstand something the whole point of the blockchain is that every transaction gets promulgated to every copy of the ledger. The only anonymity comes from keeping the blockchain account divorced from your real identity. If the DEA is keeping a copy of the ledger – and I’m sure they are – when the dealer goes to cash his bitcoin in for traditional currency that transaction can be identified and the account the traditional currency went into can be found. If the dealer thinks that bitcoin is anonymous and doesn’t do any further laundering he’d be easy to track.

          • You are probably correct, this is a poorly remembered something I casually read somewhere, type of thing. Most likely the government penetrated the “laundry” end of the system in a surprising way.

          • Wendy McElroy wrote about this at length, her e-book is worth reading. The “identity” in the blockchain transaction can be just a one-time identity. If a sequence of transactions all have different keys, that doesn’t mean they were done by different people. So if I come to cash in a bitcoin, and 10 transactions ago it was used for an illegal transaction, that doesn’t mean I have anything to do with that — no more than would be the case if I hand a $20 bill to a bank for deposit and that bill was used to pay dope last month.
            Note also that bitcoin can be split, and probably merged (I forgot that part), so the connection with any past transactions is even more diffused. It’s a bit like saying that I’m depositing $100 into my bank account and last week someone spent $250 to buy a quantity of coke. Maybe so, but there is no connection between those two transactions.

            • So if Alice sends bitcoin to Bob using a one-time address, how does the system know that Bob now has the coin so that he can give it to Charlie?

              • William O. B'Livion

                It doesn’t.

                It knows that ID received the coin, which got sent to ID .

                Alice sent Bob a coin, Bob sent it to Sven. Sven sent it to Mohammad, Mohammed sent it to James, and James sent it to Charlie.

                Except that Sven, Mohammad and James are all the creation of a software agent that instantiates temporary identities and routes coins along them to create “plausible deniability”.

                • But if the system has to know that Bob has the coin before he can give to to Charlie, no matter the intermediaries. Since the system is public that means that the DEA can identify the accounts associated with drug dealers at the very least by injecting signals into the system and watching the propagation.

                  • The point is this: if X gives a coin to drug dealer D, who gives it to E who gives it to F who gives it to G who exchanges it for cash, you know who G is (because he shows up at the teller to get his greenbacks). But you don’t know who D, E, or F are, or whether they are the same person as G. They are merely owners of private keys, and any one person can create and use as many private keys as he wants.
                    Similarly, if D doesn’t want to be easily tracked, he can use a new identity D for each transaction. For the same reason as above, you can’t tell the difference between transactions done by a single person using multiple private keys, or transactions done by distinct individuals.

                    • Yes, but D and G are going to be the same person – you can’t buy everything with cryptocurrencies and nobody become a drug dealer without an expectation of profit. Yes, using a new identity for each transaction makes things harder to track, but a drug dealer isn’t going to set up an infinite number of wallets. He’ll have to reuse them, at which point his network become vulnerable.

                      Now, whether or not the DEA is interested in putting in the effort necessary to track that particular network is another thing entirely. The key to survival is to be smart enough to require effort to catch, but not so large that the effort is worthwhile.

    • Someone once pointed out that cryptocurrencies are basically a pyramid scheme, but without a physical maguffin to be passed down to lesser unfortunates — basically speculation based on nothing, tho some poor sucker had to spend a lot of electricity for it.

      • I’m not entirely convinced it’s a pyramid scheme — there’s really no concrete promise of value, and coins are supposed to be inflationary (albeit inflation with a cap). Furthermore, crypocurrency advocates want to have a currency — and they recognize that it needs to be stable in order for it to be currency. They *hate* the instability.

        Indeed, there have been cryptocurrencies that have tried to enforce stability, and they have failed miserably, because you can’t control market value. The only hope cryptocurrencies have of stability is to become popular enough that the price doesn’t change all that much.

        Either that, or for dollars and other “real” currencies to become so unstable, that this crypto stuff is sane in comparison….

  7. It’s also looking like cryptos can get hacked, too, so the system is not perfect. But the bigger problem for me is the lack of transparency. There are a number of cryptocurrencies out there. How long before a hacker creates a Potemkin CC that looks and acts like the real thing? If you create a wallet for it, will it have a keylogger embedded in the code?

    • When you ask the question “how long?”, you’re asking the wrong question. The appropriate question is “how long ago was the first?”.

      I don’t have the answer. As I’m now working for a cryptocurrency company (a longish story which deserves a comment once I can get to it…) I’m a bit more aware of some of the shenanigans that have been going on in the cryptocurrency world.

      Yes, you *definitely* have to be careful if you’re going to enter this space!

  8. Probably the most useful college class I ever attended was a little econ course called Time Value of Money. Explained a whole lot of hows and whys of economics.

  9. Terry Sanders

    The Esperanto of money?

    • Which makes me wonder if some ridiculous version will out-do it. Yes, I ponder the Klingon of currency.

      • madrocketsci

        The Klingon of currency? Ammo, probably 😛

        • madrocketsci

          “I can spend this one of two ways…”

        • “.25? Get out, we don’t take fiddling small change.”

          “But he just paid with .22…”

          “.22LR, which is worth something.”

          “.41 rimfire? Really kid? We all know this ain’t really yours. Go back home. NOW.”

          • Was it in a game or did I just hear it somewhere related to “prepping”? I don’t recall.

            But I’ve heard .22LR as a thing, mostly because it can’t be reloaded. So it’s both useful after the apocalypse because it can feed you, and highly trade-able because it’s hard to find. Oh, and it might not last forever but it will be good for many decades. Small and portable.

            • Dan Hamilton

              There is also another reason. There are a lot of 22s. They are VERY useful and they are cheap. Cheap is a very important thing. All the Gold lovers, Please tell me how you are going to get change for a gold coin when you use it to trade for TP, Coffee, or anything else. Answer you aren’t. But with 22s, I will give you 10 for that roll, no I will only take 15. That is a trade that can be made.
              Other ammo will work as well, as long as it is a common one, because ammo in that situation ALWAYS have value.

            • Trading anything that might be used against you would be a bad idea.

              • A valid point, and yet, one hopes we’d eventually re-establish trade in weapons….

              • The “lot of 22s” bit comes into play here. If there’s a lot of .22 ammo floating around, then chances are the specific collection of ammo that you just traded won’t be what causes the other individual to turn on you.

                • You are smart enough to conserve your ammunition. The vast quantity of the ammo out there will be gone within the week, mostly from gangbanger-style “hold it sideways over your head and fire randomly” to “blazing away at Things Going Bump In the Night.”

                  The idea that there’s not going to be any more after they use it up simply isn’t going to compute for many (most?) people. And even if they understand that the shelves are now empty, they’ll be expecting them to be re-stocked Real Soon Now right up until they’re eaten by a grue.

  10. clark e myers

    The college text mentioned is almost certainly The Worldly Philosophers. The selection and omissions if you will by Robert L. Heilbroner were quite deliberate in an end of politics view of the end of economic analysis – Erdogan when the democracy bus comes to your stop get off. It’s by no means “a pretty huge blind spot in the world of economics!” more an ignore the man behind the curtain. The choice of texts was likely enough an effort to offer a class for students who aren’t interested in and refuse to do the math and still call the class microeconomics. A better text at the time for microeconomics might have been Samuelson’s Foundations of Economic Analysis – not the once common intro text but a book for serious students willing to make the effort.

    For my money Keynes wasn’t so much wrong in writing about the economic behavior of his class in the UK – being cut in polite society works as an incentive not to game the system and engage in rent seeking so rent seeking is not an issue and the problem of the commons can be settled by a word at tea – as in generalizing about human behavior beyond a very small group – and of course being wrong about that group over time.

    Crypto currencies are the (internet information age) system trying to work around problems combined with a feeling it’s better to put assets in a risky container than to lose them all. Some premium as in negative interest rates accounts in Swiss banks to get a store of value. Value as always is derived in large part from exchange value as often on the internet buying porn and such. Long timers may remember the many times Dr. Pournelle mentioned micro-payment schemes over the years.

    Crypto currencies as they exist today are still a kludge.

  11. MadRocketSci

    I’m a bit of an obsessive saver myself, and have resented Keynsian assumptions for a long time. An economy run according to Keynsian dogma is *fragile*. Every little hiccup spirals into a disaster. Saving, far from being irrational, is pretty much your only means of security for weathering upsets – and that applies on all levels of scale. By waging a war on savings through inflation and other means, Keynsians are waging a war on people’s security and autonomy (both things somewhat dear to me.)

    If you have $50,000 in the bank, losing your job isn’t a tragedy, it’s just a setback. If you have $5000 in the bank, a fender-bender is just a setback, not a disaster. A $100 mistake to a grad student who went in with some margin of savings is something to laugh off, whereas for someone who went in straight out of undergrad with a lifetime of debt to service already, it’s a crying shame.

    Somehow (well, I know how, but long story) I’ve managed to reach this point in my life net-positive and debt-free, and because of this I don’t have to worry about a lot.

    I do worry though that my savings won’t retain their value long-term, given the way our country is run. (I haven’t really piled it all into stocks yet. I lost my shirt on my 401K in undergrad and haven’t had the time to really revisit it since.)

    • madrocketsci

      Well, okay. Savings and insurance. But insurance is basically renting someone else’s savings for a specified purpose.

      • Dan Hamilton

        No, insurance is you betting that you will get sick, your house will burn down, etc. and the Insurance Company betting it will not. They are Bookies nothing else.
        “renting someone else’s savings for a specified purpose.” That is the definition of getting a loan. The interest is just the rent.

    • “An economy run according to Keynsian dogma is *fragile*.”

      YES! Income and out-go is fine, as long as everything moves along without any lags. But when that inevitable time comes that something interferes with the flow, you -better- have something put aside to buffer the shock.

      This is the fixed-income nightmare. Grandma is doing great on her social security check every month… until the roof develops a leak. Now, if she doesn’t have sufficient savings to cover the roof, she either has to beg, or borrow. Borrowing has -interest- payments. That’s bad, because -fixed- income means no room for increasing costs.

      If it was expressed as an electrical circuit, savings would be a capacitor. A store of immediately available energy. Power circuits have caps in them to eliminate spikes and holes in the flow.

      Another thing that bothers me in the same vein is “Just In Time” manufacturing. Nobody carries any inventory. The factory, the middle-men, the retailers, there’s nothing on hand. If a single delivery is late, a whole supply chain can potentially grind to a halt. Inventory is, again, a capacitor to smooth the flow of business.

      While there is a cost-savings to individual factories, stores etc. to carry no inventory, on a wider scale it is an invitation to catastrophe. You can’t have a Just-In-Time society, as some people seem to think. Eventually somethings going to happen, like a snow storm, and then there’ll be trouble on the line.

      • It’s my understanding that Just-in-time manufacturing is a direct result of tax law that taxes your inventory. I’ve heard people praise the concept (it’s certainly an interesting one) but as you say, it also means that you can’t smooth out the disruptive spikes that inevitably happen.

        • That’s most of the reasoning. But the flip side nobody wants to talk about is that businesses that use JIT are fragile; if your supply of left-handed spud nuts doesn’t show up Tuesday, your whole line shuts down. And then you’re paying all of your overhead while making no money, and then the other trucks show up with widgets and snarflers, except you can’t unload them because you have no warehouse space, so you have to pay to have them delivered to temporary storage… and the reason the sput nuts didn’t show up was because someone living under a bridge started a fire that burned through a fiber cable, so your enquirires to Sput Nut, Inc. have been going to ;/deve/null…

          • I’ve been working for a JIT Manufacturer for a few years now and I’ve come notice that usually the issues that cause the most problems are internal (i.e. lack of proper inventory control). People don’t want to tell the system tracking that they’ve used some and so your planners think you have 20,000 sput nuts but you only have 100 on hand and you need 3000 on average a day. Expediting shipments costs extra and there goes some or most of your profit. And we run one shift behind our main customer so it can get rather dicey.

          • It is also a problem when instead of having a supply of components made in bulk but used infrequently you just order those parts with minimum quantity you need. It means instead of overnighting a half dozen fasteners from storage you need to go out for quote, buy at a premium, and wait for them to be made. See simple fasteners breaking 1000 per when the actual costs are about 5-10 dollars if not custom manufactured.

        • In relation to just in time there’s the deregulation of power companies. It actually has led to a decrease in electrical costs. The downside- minimum spares in stock. When I was young had a friend whose father worked for PSE&G in NJ. Said they had enough poles, wire, and transformers to rebuild the entire system. Many other utilities had very large stockpiles. The only thing that couldn’t be stockpiled was manpower. And utilities have labor sharing agreements for natural disasters. Now- all those inventories are gone. Accounting is done just like it is for every other company, and inventory is fixed carrying costs. Those large transformers you see if you’re the type of person who notices them? Nobody has them just sitting around anymore. Lead time on the bigger one is months. A natural disaster that takes down a few of those in a service area is going to be even more of a follow on disaster as power restoration is delayed by lead time.

      • William O. B'Livion

    • Oh, but saving is violating LEAN and Just-in-time concepts. That’s a big reason why the government loves to tax businesses inventories; and artificially get them to cut their own throats whenever the supply chain screws up. Of course with inflation, you can’t save. Whatever you have saved loses value. So the only way to stay ahead of the game is to invest it; which brings on its own set of risks.

      • I’ve always thought that taxes on inventories is a bad idea. So, they can write of business expenses, but they have to spend time and effort tallying up all their inventory and pay taxes on it? Who thought that was a good idea.

        • William O. B'Livion

          Politicians.

          • I was going to say the same people who cam eup with SOX/JSOX but you went with the shorter answer.

        • Donald Stephens

          The descriptions I’ve seen so far of the ‘inventory tax’ so far run as follows: you can no longer take an income write-down on the expected loss of value of material goods held in inventory, instead you must wait until you dispose of the goods, either by use, sale, or trash.

          If anyone here has a source for what sounds like a Federal business property tax please share it. Such taxes are legal – the Federalists imposed some property taxes in the 1790s. Some states have them (like Virginia, as a county option).

        • Pass thru companies. The sort that play middleman, taking your money, skimming a bit and having someone else send you the parts. Good chunk of the money churn thru silicon valley

      • “Of course with inflation, you can’t save. Whatever you have saved loses value.”

        Yes! So you buy something that holds its value that can’t be taxed away from you, or its value increases faster than inflation and taxes combined.

        For most people of our generation, that has been real estate. The only consistent income of any size I’ve seen myself came from spiffing and flipping houses. Spend 10K and a couple months of work, make a profit of $50K or more.

        That’s how we get the price of a house in Toronto to be over a million bucks. Spiffing and flipping since the 1970’s.

        The ultimate expression of that can be seen in China:
        http://izismile.com/2009/06/29/apartment_building_fell_down_in_china_12_pics.html

        All the new construction is being put up for investment, and the news is full of stories about whole developments that are unsafe to live in.

        I’m sure that will all work out well, just like all those smart Dutch tulip investors back in the day.

        • Ah, I remember the Keukenhof gardens in spring. Wife, my grandmother and I spent a wonderful day just wandering through the gardens and the fields of tulips.

    • I went a year without a job without missing a mortgage payment or paying off my credit card less than in full. Did cut back on expenses, but not wildly.

  12. Far, far more useful than a cryptocurrency would be some very different (still, distributed, decentralized) system (which might well use blockchain as a distributed decentralized ledger), in which a “basket of commodities” of hard-coded definition, was being traded. So one “thingcoin” equals one kilogram of wheat, one thousand liters of distilled water, etc. The fact that government fiat currency has become quite untethered from any restraint on inflation is bad enough. The fact that government has been playing games with inflation statistics to hide the result of that manipulation is worse.

    Something I’ve noticed is that “cost of energy” is a remarkably stable surrogate for economic value. The cost of a kilowatt-hour (or a megajoule, if you prefer), of energy in real terms (in other words, how much bread or timber or labor you would get if you exchanged it), has been remarkably stable (roughly factor of two variation from Roman times to today, in spite of the transition from human power to animal power to water power and wind power to hydrocarbon power). And furthermore, it has the very desirable property of being slightly deflationary — when technology improves, the “buying power” of a megajoule increases slightly. This is just what you want, as it incentivizes investment (by savers) in technology improvement — because that makes their savings more valuable.

    At first glance, it seems wildly counterintuitive that this is so — surely, we have enormously more energy today than they had in the past, so it must be cheaper, no? No. We have dramatically more of *everything* today — because we use that energy to power industries and other forms of economic activity, to feed more people, etc. Over time, we learn to generate (slightly) more economic activity from every megajoule. Perhaps easier to see in reverse. If you removed a megajoule from the Roman economy, it wouldn’t interrupt as much economic activity as removing a megajoule today. Still, factor of two variation over millenia is more stable than gold or wheat!

    Since then, I’ve stopped trying to work out how much things in a future Lunar or other space economy will cost (an impossible task), and focused on how much energy they take to produce — secure in the knowledge that the two of them will correlate well.

    The one thing you can say in favor of cryptocurrencies is that they essentially turn electricity in to currency. But as the original poster pointed out, they do so by destroying the energy in the process. We could achieve a much better result by trading “energy futures” in some decentralized worldwide exchange and having vendors who will accept a token for so many kilowatt hours in exchange for your breakfast.

  13. Since no one has posted it yet, this is the perfect excuse to share an old favorite:

  14. And oddly enough, the fact that we’ve had at least a dozen bubble pops (including one where the economy hadn’t recovered for an entire decade) hasn’t given very many people pause to reflect that hey, this Federal Reserve controlling the economy thing isn’t working as we expected … if anything, the assumption seems to be “Hey, it’s a good thing we have a Federal Reserve! Just think of how bad things would be if we didn’t have one!”

    That’s because we have at least as many examples of bubbles popping before the Federal Reserve was established, and the results were bad. The Federal Reserve didn’t come out of a drunked bet in DC, it was a solution to a real problem. The biggest problem with the Fed is their mandate to maintain full employment. That’s what drives the inflationary phase of bubbles. If there’s a problem with the economy the only thing the Fed can do is make money cheap. That does cause the economy to expand, but it’s not real expansion so it inevitably results in disaster. The Fed controls the money supply, their mandate should be to maintain inflation within a certain band and nothing more.

  15. ” I can burn coal to crush big, smooth blocks of granite into rubble — but neither the coal I put in, nor the labor I exert to fill that hopper, will give that rubble any value. Indeed, I am wasting coal, my time, and fantastic blocks of granite that can be used for counter tops, buildings, and machine shops for both function and beauty. I am destroying value.”

    Actually, if you’re building a road, bridge, dam, etc. that crushed granite can have a great deal of value – as aggregate in your concrete.

    • To a certain extent, though, that’s only because capitalists are good at taking something that seems to be waste, and then go and find value in it.

      Come to think of it, that was the genius of Rockerfeller: he thought that dumping the side products of crude oil processing into rivers was a waste, so he took some effort to fix that. He hired chemical engineers to determine that you can burn kerosene and gasoline, and make all sorts of products, and so forth — and thus use every last drop of that crude stuff.

      Not only did he eliminate waste, but his efforts were certainly good for the environment, even in a time when no one was thinking about the damage we could do to the environment!

      Of course, he got rich in the process, and we can’t have that! So Rockerfeller is an evil robber baron that *must* be despised!

      • Eh, that’s not the reason Rockefeller has a bad rep. The joke back in the day was that the only thing he couldn’t do with the Ohio legislature was refine it.

        • All we’ve got differently today is that you don’t need to buy the legislature. Just buy the regulator.

    • It’s a category error to conflate the argument that currency should have intrinsic value with Marx’s theory of value.

      For starters, one predates the other by millennia.
      Governments throughout history have attempted to violate the principle and debase their currency; it *very* rarely, if ever, works out well.
      Attributing one of Ayn Rand’s favorite hobby horses to Karl Marx risks tearing a hole in the space-time continuum.

      • But as the Prophet Geordi taught us, all we have to do is run a tachyon pulse through the main deflector array and all will be well within an hour.

      • But gold and silver doesn’t have intrinsic value, and the whole idea of “intrinsic value” is one that Rand rejects. What gold and silver have is value in relation to human existence. It’s like the difference between a piece of gold having mass (which it has anywhere in space/time) and its having weight (which it has only in relation to the gravitational field of another body such as a planet or satellite). Rand calls this “objective value” and makes a point of its being different from intrinsic value.

        • I have come to reject “intrinsic value” as well. Really, the only value in *anything* is what any individual decides that they can do with it.

          I generally don’t value water, because there’s so much of it, so I can easily satisfy my needs….unless, of course, there’s a drought, then I suddenly value it more.

          I generally don’t value diamonds, though, even though they are rare. I just don’t have a use for them. On the other hand, there are people who value them for their shiny properties, so they are willing to exchange a lot for them.

          The most interesting thing is that if I value X less than Y, and you value X more than Y, this difference of value makes trade possible, which, in turn, makes prosperity possible.

          Thus, the fact that nothing has intrinsic value is actually a feature, rather than a bug. It *does*, however, lead to weird things like people valuing things like dollars and bitcoins, when there’s no reason to value them whatsoever, other than believing that other people value them….

  16. BobtheRegisterredFool

    Currency is a store of value. Wealth sorta requires an available market to exchange that stored value for goods and services. What increases the carrying capacity and reliability of those markets?

    Markets have order that is created and maintained, against the cut of thermodynamics, by doing work on the systems.

    Controls theory tells us that there are systems that can have feedback controls designed for them that are mathematically known to be the best possible way to keep the system stable and operating within tolerances.

    What kind of system are we working with here? A human system. Now, human systems can look deceptively controllable, because humans lie, humans are challenging to measure, and for many applications we can select the humans involved for willingness to cooperate. Over the wider space of all possible human systems, we see some interesting obstacles.

    Consider a Federal agency to individually regulate and schedule the medically essential activities of eating and defecating. How do they know when I need to eat, what I need to eat, and when I need or should use the restroom? This is obnoxious when it is one person trying to track such for ten individuals living independently. You pretty obviously have the nonexclusive choice of too small to possibly be making those decisions for so many people, or too big to be held accountable for forgetting to have people eat. If such regulation was passed and obeyed, it would be disastrous. If it was passed, it would not be obeyed.

    For certain types of activities, past a certain scale, a set of central controls runs into two major problems. One is the problem of information. A individual knows many things, but an entity collecting information from individuals, processing, and then distributing decisions has less information than the sum of the individuals, and has more latency. The second is the problem of obedience. Command seems magical to some people. They do not realize that following is ultimately an individual choice, and that individuals can change that choice in unpredictable ways.

    Exchange is the correct measure of value. Before the transaction, even the individuals do not reliably have all information about the decision they will make. A computer or a bureaucracy would need precognition. A wealthier market, a better functioning one, is where suppliers minimize labor input for exchange value. The latter is unknown, must be predicted, and in situations which scale with group size a central decision maker is probably certain to make worse predictions. Probably, because this is my intuition, I haven’t yet learned the math to learn the math to prove it.

    When you don’t save, only spend and borrow, you expose yourself to the risks of shortfalls from malinvestment. The worse the prediction model that chooses your spending choices, the worse the outcomes over the long run as risks and poor choices catch up.

    Savings is a hedge against malinvestment. It is insurance for unpredictable future events.

    It seems one would have to be a particularly slow child not to work out that this will all end in tears.

    • I agree with you about saving, but it does a lot more. It also allows you to store economic power that you have now but that you don’t want to use, for a time when you won’t have as much economic power as you either want or need. Lending institutions offer incentives for you to, through them, allow others to borrow your current unused economic power to do things.

      The author talked about the Keynesian belief that inflation is good for those in debt. The error that makes them believe this is true is that they believe that debtors will suddenly change their economic behavior; they’ll live within their means and pay all of their current accounts responsibly and not incur more debt. Just because current dollars are “cheaper” doesn’t mean everything else gets better.

    • When you mentioned that commands can be ignored in unpredictable ways, I’m reminded of what happened to the Chinese governing philosophy called “legalism” — where practically every order had a death sentence.

      The government had called for their armies to come to the capitol. One army, however, was delayed because of some trees fallen on the road. After clearing the trees, they talked among themselves: “What is the penalty for being late? Death. What’s the penalty for rebelling against the government? Death. We might as well go and rebel against the government.”

      As they marched to the capitol, they explained to people what they were going to do, and their group got bigger and bigger. When they got to the Capitol, they completely overthrew the government.

      For centuries afterward, legalism had been completely ignored; if tyrants came to power, they justified their tyrannies through Taoism or Confucianism. (It’s also my understanding that lenient rulers used the same philosophies to justify their methods…) Legalism has only been resurrected, and that, by the Communists. I don’t find that a surprising coincidence….

  17. I’ve seen some guys who say that FGPAs ruling the roost for cryptocurrencies is just a start, that eventually something even more specialized may make them worthless by being able to take what now takes days or months to generate and churning it pout in dramatically less time . (Note: the advent of FPGAs caused a momentary drop and stabilization in bitcoin prices…)

    some of the other cryptocurrencies floating around with decent value, only have a presentable value right now because no one has programmed an FPGA to chew on them yet.

    • It’s my understanding that Bitcoin is primarily mined by Chinese these days, and they use ASICs to do so. There’s a concern that China might get control of Bitcoin because of this.

      I briefly looked at a cryptocurrency called Monero — I even tried to mine it for a bit (and after a week, I earned $0.04 worth of Monero!) because it’s especially intended to be mined by any computer, and not by specialized equipment.

      The problem with this, though, is that it’s “impossible” to design an algorithm that can’t be performed faster using specialized hardware. Apparently, someone had secretly designed FPGA or ASIC for Monero, and had been mining it (and making a hefty profit) for several months before it was caught; it’s even possible that they may have gotten majority (but if they did, there’s no evidence that they did anything nefarious with that majority). It’s my understanding that Monero has changed their algorithm since then, and they generally try to regularly change their algorithm to try to keep this kind of thing from happening….

      (I put “impossible” in quotes, because I doubt there’s a mathematical theorem that says this, and I can’t help but wonder if there’s an algorithm that *can* be more efficient on a general computer, than on specialized hardware…of course, whether that algorithm would be useful for cryptocurrency is an entirely different matter….)

  18. A reminder of the gold standard for all working people:

    How To Write When You Don’t Want To
    By Sarah Hoyt
    Most of the time, when I meet people who are interested in writing (did you know that writers are asked almost as many questions at parties as doctors, even if markedly different?) they tell me “I’d like to be a writer, but—”

    The but is never about the knowledge of the craft, but other things that stand in the way of writing, so I decided to do a series about those obstacles, and how I get around them. Yes, “get” because they never go away.

    Lately, I’ve been having a problem. It’s not as bad as it could be, but it’s bad nonetheless. It’s beautiful out, the grass is green, birds are singing, and the LAST thing I want to do in the world is to work on things I need to work on.

    To make things worse, I have to deal with those tasks that are part of writing but aren’t writing (which is the part I like) waiting for me: I have to correct/edit a hard SF short story and I need to edit a bunch of stories for an anthology I want to put together. I also have to go over copy-edits for my next short story collection. All of it is minutia work that isn’t as much fun as writing-writing.

    To make things worse, I’ve been under the weather. (Apparently, when they say when you take the shingles vaccine you might have more of a reaction than to other vaccines, they ain’t just whistling Dixie. We’re talking fever, aches, and just generally feeling like someone hit me with a hammer for a good part of the week.)

    Which is a problem. Because when writing is how you earn a living, you have to write. Even when you don’t feel like it. Even when you, to be fair, would rather saw off your hands with a blunt knife. Which isn’t where I am, but it’s where I’ve been in the past.

    So, how do you stay with it? …

  19. Rich Rostrom

    The economist who advocated deficit spending was John Maynard Keynes .

    Milton Keynes is a greenbelt “New City” NW of London.

    • I actually spent a few months living in Milton Keynes, as a missionary. That was probably a factor in my confusion…

    • Milton Friedman & John Maynard Keynes’ – confused – grandchild . . .

  20. Fue to travel, I’m very late. But this topic is irresistible for me.

    You’re totally right about cryptocurrencies’ valuations; it’s completely demand-driven, and not backed by the effort put into “creating” it.

    But maybe not. The almost totally opaque nature of the originators of cryptocurrencies is what gives me pause. Supposedly the number crunching done by the “miners” is to work on the encryption that makes their currencies work. I’m sure that was true for the first one, but I don’t know about anyone else. I can easily imagine a country’s government setting up a cryptocurrency for the sole purpose of using miners’ number crunching to *break* encryption of their enemies’ codes. Its value isn’t based on anything but their users’ faith in it and therefore their desire to have it, so why not? I would need a lot more confidence in the source of the money before I wanted to use it. Without that, using it for saving or investing seems extremely risky and foolish to me.

    Blockchain has an almost opposite problem. While cryptocurrencies give you anonymity, blockchain makes everything trackable. I don’t want any government, especially one with totalitarian leanings, to have that much information about your spending.

    • BobtheRegisterredFool

      I think some of the answer to ‘why cryptocurrency’ is ‘what else sexy is tech doing right now’?

      I think some of tech’s economic activity may have been bubbly for a while. Certainly renewable energy is heavily malinvestment.

      Over regulation limits the plausible economic gains from a new software development that is quantifiable. So the bubble effects drive investment towards things without quantifiable returns, like cryptocurrency.

    • I’m not sure how useful blockchain networks would be for breaking encryption keys; they usually use a hash for the “proof of work”. A hash is usually used to authenticate a document — it can provide a way to demonstrate that a document hasn’t been unchanged. It’s often called one-way encryption, and sometimes a “digest”, because of this.

      It should be observed that it’s possible to do nefarious things if you can crack hashes — it *may* be possible to replace a legitimate document with a malicious one, for example (the source version control system “git” uses hashes to authenticate source code, and this kind of attack would theoretically allow someone to slip in a back door into Linux…)

      The biggest problem with “proof of work” is that it requires intense computational resources, which doesn’t scale well. There are blockchains that are trying another concept “proof of stake” to get around this issue. I’m not familiar enough with “proof of stake” to explain how it works, though.

      It’s my understanding that each method has its vulnerabilities, and they can be rather weird ones. Under “proof of work”, for example, if someone can get control of a majority of the miners, they can do things like try to approve two transactions for the same bitcoin, or deny someone from getting their transactions approved (I say try, because a minority machine might approve a transaction before the majority gets to it…). I have the impression that proof of stake tries to fix this, too, but I seem to recall that it’s susceptible to different attacks.

      • I agree with you about blockchain. The encryption isn’t the issue, it’s the enhanced lack of privacy.

  21. Adam Smith has important things to say, starting with his basic point that “the wealth of nations” is productive capacity rather than specie. But there are things to be learned from his primary French follower, Jean-Baptiste Say.

    Say’s most important insight, later named “Say’s law,” has been disregarded for a long time, as a result of Keynes’s dismissal of it. But what Keynes wrote was intellectually dishonest; he made up a stupid paraphrase of Say’s law as “supply creates its own demand” and then mocked it. Obviously a supply of mud pies doesn’t produce a demand for mud pies (unless, of course, a Keynesian government steps in and prints money that it uses to pay for mud pies, but never mind). But what Say actually said was that the demand for any product is ultimately a supply of other products. For example, if you have a village that catches fish and a village that grows potatoes, the demand for fish takes the form of potatoes, and the demand for potatoes takes the form of fish; each one’s supply acts as demand for the other. Say’s law said that you could not have an oversupply of everything; if you had too many potatoes, and some of them were left over after the swap, you necessarily had not enough fish, and this generalizes to any N commodities. So you could not have economic problems from a “general glut” where demand for everything was insufficient; what you could have was too much production of some things and too little of others. But Keynes’s whole policy goal was to prevent a general glut; in effect, he wanted the central bank to be like the peasant in the joke who performs a ritual dance to keep tigers away. (“But there are no tigers in this part of the country!” “You see? it works!”) And so he had to persuade people to ignore Say’s arguments by making them sound silly.

    The larger implication of Say’s analysis is that you increase wealth by increasing production. Printing more money to buy what people produce doesn’t accomplish anything; “though there was plenty of money, there was nothing our money could buy,” as Kipling put it.

    • BobtheRegisterredFool

      Ooh. Thanks.

    • ‘Printing more money to buy what people [don’t] produce” = USSR. “We pretend to work and they pretend to pay us.”

      • Years and years ago, I read an article, I believe by some revisionist Marxist (I was editing sociological journals then), that said that where under capitalism you had either depression and persistent unemployment, or inflation, under the Soviet system you avoided unemployment by having massive waste.

        • Where do you think all the extra productive capacity freed up by technology has gone, other than filling out all the extra government paperwork.

    • That brings to mind my reaction to Nash’s line in A Beautiful Mind regarding Smith being wrong. No, Smith wasn’t *wrong*. He may have been incomplete, or not as fully developed as an additional couple of centuries of the study of economics could have made him, but he wasn’t wrong.

      • I will mostly agree with that about Smith, though I think he made errors on some specific points. On the other hand, I don’t hesitate to say that Marx and Keynes were wrong.

  22. I can’t remember when I submitted this as a guest blog post, but I have to provide an update to it, since I have found work since I first submitted it.

    I am currently working for a cryptocurrency company; this has caused me just a little bit of angst, to be sure! I can’t help but wonder if a collapse in cryptocurrency will cause us to go bankrupt, and cause me to be looking for work again…or if this will continue to make progress, and will prove to be something worthwhile.

    To make matters worse, I’m working to help establish a cryptocurrency that doesn’t exist yet, helping to design an “Integrated Development Environment” for a language that’s still in its infancy, that is being designed to write smart contracts similar to what Etherium uses. The language we’re designing, Rholang, is designed to be inherently parallel, and to address a lot of the problems that plague Etherium and Bitcoin, and keep them from scaling.

    Several years ago, I came across something called the Pi Calculus, which is a theoretical construct along the same lines of the Lambda Calculus (which is inherently sequential). I have experience with Lisp, which is an incarnation of the Lambda Calculus — thus I wondered what something based on the Pi Calculus would look like. What I like most about Rholang is that it’s an incarnation of a version of the Pi Calculus called the Rho Calculus. It’s something that I hope will gain traction in the computer world in general….

    I’m still convinced that cryptocurrency is a solution in search of a problem. I’m also convinced that our own currency — particularly when politicians suddenly decide that they can fix things if they just tweak it — is a problem that may explode in our faces. So perhaps some sort of cryptocurrency will be the answer to that….

    We happen to employ people all over the world. I remember our secretary describing to someone in Romania how our company has found it easier to pay employees in Bitcoin (and make adjustments, if necessary, because Bitcoin is volatile) than it is to deal with currency exchanges.

    I personally get paid in dollars, but there have been times over the years that I have wondered if I should be paid in something else, say, gold, because I’m not sure if I can trust the stability of dollars…

    One thing I really like about what I do, is the fact that I get to work with mathematicians who are trying to get this stuff off the ground. While I may be convinced that we’re working on a solution in search of a problem, I am convinced that if we can get what we are working on to get off the ground, it will be the best cryptocurrency solution in search of a problem!

    Sigh. I’m not sure what I will do afterwards, though, if everything comes crashing down. Before this, I’ve been using PHP for web development; as I looked for work, I had the impression that PHP is dying. On the one hand, I have grown to hate PHP, so I can’t help but rejoice! On the other hand, most of my work has been in PHP — how am I supposed to transition to something new? I’m not even sure if what I’m doing now is the key to doing that, because what I’m doing now (as much as I like it) is so very, very weird….

    • OMG, welcome to computer programming & development. Lets see, started out with C/C++, Cobol, & dBASE, internal small systems for a regional division of an international company. Division assets were sold & division shutdown, meant moving out of PNW to stay with company. For us, that meant making up 2 salaries, because hubby’s job is only performed in the PNW & Alaska.

      Started looking for work. Were any of the languages & systems I knew, either from taking a class or actually working in it current? Heck no. Shutdown let me get $$$ from county for “skills updating”, took Visual Basic & Java, the current “hot properties”. C++ would have worked for game programming, but I don’t play games, that’d be weird. Visual Basic was the winner … ironically ended up working on a program that allows programs to be written in C for DOS (well after “DOS” was dead) handheld scanner devices (marketed for non-programmers, uhhhh no, you had to be a programmer to realistically use it without getting into major trouble, but non-C DOS programmers, yep, go to town). So, now I can add Visual Basic, Java, more C++ & C, and C#. This company gets bought out, company that buys it goes bankrupt. On the market again. Same song, same dance. C# is “suppose” to be hot, but you have to have 2 to 5 years experience on a language that has only been released for 4 months & available for beta users for 12 (AHHHHHHH). No funds from the County this time (the cheap B’s).

      Last job I got, where I finished my career, used Delphi (Pascal based), super old version, & ironically, C/C++ Embedded, & C# (eventually), to program Intermec handheld Barcode for inventory. Boss did not know I had that skill set when he hired me. Came up about 6 months after I’d started, really thought about not saying anything (for reasons) but I was good. Pay was lousy, but it was a job.

      Not a mathematician. But lay out the math, theory, & formula, & I could figure out how to program it, whether it is statistical analysis, data mining, minimum path, etc. But give me the MATH.

      At least you are doing cutting edge software programming/development, I never was; did projects no one else had of type, but not cutting edge. Problem is, while you are working, what do you keep up with, that you aren’t currently using, what is going to be “hot” when something happens & you have to change jobs. Seminars & Time ain’t cheap, to take “just because” & seminars are not enough, you need a project.

      All I can say is “good luck.”

      • One of the worst things about “keeping up with new tech” is that (1) your current employer won’t necessarily keep up with the newest and greatest, (2) confound it, after working 40-hour weeks, I just want to go home and be with my family! and sometimes I find myself in crunch-time where I’m working 50- or 60-hour weeks, (3) if I guess wrong, I won’t have the popular skills anyway, and (4) confound it, the most fantastic tech — the tech that’s amazingly flexible, yet amazingly performant — the stuff I really want to use — is also the stuff that no one uses, because they are more comfortable with “mathematical” syntax.

        (4) is particularly ironic, because the languages that fall into this category — Haskell, Lisp (in all its flavors), Forth, Smalltalk, Erlang and J — are highly mathematical, but sacrifice “traditional” syntax in favor of flexibility.

        In my current position, I’m using JavaScript, but we decided to use Chicken Scheme for back-end stuff (in part because it can compile to C). Our company also uses Scala, but I haven’t yet been in a position to use it. Except for the JavaScript, it’s rather esoteric stuff…

        Of course, I *really* want to work as a mathematician, but I have the impression that most programming work typically don’t need mathematics, even if the product in question is highly mathematical — except for those little bits, where when you need mathematics, you *really* need mathematics. But then, I have that impression from a rather bizarre interview that started out for web development, but veered off into golf ball simulations; they would have liked a mathematician, but they stated flat out that most of the time, I probably wouldn’t be doing mathematical work….

        • I’m a programmer you would hate. Or at least the guys more mathematically inclined did; FWIW, that includes my husband, who is not a programmer, but was a math major before switching careers. I can do the math but I really, really, have to work at it, regularly. I “see” patterns. Worked great when creating new stuff, & even when finding that elusive “It only crashes occasionally” bug. Drove the guys nuts. After I retired, I had to go back (yes got paid) to explain how a new method of doing something was put together & why … hey, I documented the heck out of it, not my fault no one read my emails with the document attached. FYI. I’ve always been salary. What’s overtime? 😉 FWIW I was willing to work hourly on projects if they needed me, but I would not bid a project for a set amount. Not stupid.

          Regarding using “old” technology … the programming tools this company uses was 5 years or more old when I started with them in 2004 … other than the barcode tools for the Intermec units, which was a forced change, they are still using the same programming tools, today. Including technology they are one Windows Server patch of “Oh $#%&”. So far the main IT server guy has found solutions & kept the system running at all client sites. The senor programmer, in charge of all the base libraries has been searching for a solution to move to more current technology for 8 to 10 years. System has A LOT of parts. Changing library interfaces, just in the current system, is a PIA, everyone avoids like the plague.

          I get it on continuing technology education. I am very unemployable as a programmer now after 2.5 years of retirement, heck, after 12 years working for the last company (which puts me at least 14+ years out of technology date), other than going back, & that is so not happening.

          • I doubt that I would hate you as a programmer. Educationally I’m a very pure mathematician (which is one of the factors I think that keeps me from doing mathematical things), but I appreciate the engineering and physics that sometimes gives mathematicians something to do.

            Indeed, after I graduated, I learned about something called Finite Element Analysis — the process of dividing up a complex object into a bunch of simple little bits, and then applying differential equations to them to run simulations. It was something put together by some engineer, and it took something like 20 years for mathematicians to actually prove that the technique is mathematically sound.

            Looking back on some of the topology classes I took, I’m convinced I learned a good portion of the mathematics involved — in part because I could formulate a potential proof for how to prove that it works. I also have the feeling that had there been a problem with FEA, mathematicians would have found it, and figured out just what the corner cases were, so that work-arounds and avoidances could be developed.

            • 🙂

              Some of the most fun I’ve had, & the hardest challenge, was tracing & mapping existing mathematical code which was brilliantly coded. After mapping it, it was like “Wow! This is great! Oh $%&# how do I change it, without breaking it?” Because it had to be changed. FYI. No original developer available, no “documentation” other than code, no one else in the company knew anything about the code either; comments were lacking too (not after I was done mapping it, but that is a different conversation.)

              Every time that happened I came up with something that worked & did not break the original intent.