Saturday, November 30, 2013

Bitcoin: My Two Bits

My view in a nutshell: I support a free market in money, credit, currency and banking.  If you think I write something counter to that in this post, you are mistaken; re-read the first sentence.

I will use an opinion piece by Edward Hadas to walk through some of my views on bitcoin; I will also use his post to put a spear in some of his views.

The developers of bitcoin are trying to show that money can be successfully privatised. They will fail, because money that is not issued by governments is always doomed to failure.

Money issued by governments is also doomed to failure – and has always failed.  We already know all of the historic failures.  What of the money (or currencies) of today?  There is no currency issued today, to my knowledge, which can be deemed a success.  Significant loss of purchasing power and default on commodity backing are two reasons to come to this conclusion.  Why hold private money to a higher standard?

Money is inevitably a tool of the state.

Here, Hadas introduces an important concept (or makes a significant admission).  In terms of realpolitik, Hadas is quite correct – and this statement has significant implications regarding bitcoin as a private and anonymous currency.

Hadas pooh-poohs the traditional view:

Economists have long declared that currencies are essentially a tool to increase the efficiency of barter, which they consider the foundation of all organised economic activity. On this view, money is a convenient instrument used by individuals to get things done. It is not inherently part of the apparatus of government.

But it is not “inherently part of the apparatus of government,” or need not necessarily be such.  Currencies / money are just another good, to be traded in the marketplace.  Unless one views money as a tool of the state.

Friedrich Hayek…proposed replacing the state’s monopoly on legal tender with competing currencies offered by rival banks.

This certainly has happened in the past – there is no reason it could not happen again.  If Hadas had any real belief in his views, he would advocate competition without fear – after all, isn’t he confident that government money would win?

…Hayek might well have dreamt of bitcoins becoming a global currency for wages, prices and loans. He would, though, have hoped for a more stable value, not the increase from $13 to $900 per bitcoin in less than a year.

It is interesting that one criticism of bitcoin as money is the wild swings in valuation.  This, of course, is a valid criticism.  However, this says nothing about how bitcoin might evolve – it is not only a new “coin,” it is an entirely new concept; what history is there from which to derive a current value?  Left to the market, might not bitcoin gain enough acceptance to better develop a mature price signature?

…truly private money is an inferior alternative to the money that comes with the backing of a political authority.

Why?  On what basis?  Would I feel the same about a car?  Sending an overnight package?  A visit to the hospital?  Just look at bottled water for your answer.

After all, no bank or bitcoin-emitter can be as public-minded as a government, and no private power can raise taxes or pass laws to unwind monetary excesses.

I am waiting to read of the first example where a government successfully unwound monetary excesses.  In the meantime, a private issuer will get unwound pretty efficiently – bankruptcy.  No “too big to fail” or any other such nonsense to get in the way of a market providing proper discipline. 

Bitcoin exemplifies some of the problems of private money. Its value is uncertain, its legal status is unclear and it could easily become valueless if users lose faith.

Users of government money have lost faith countless times in recorded history – there is nothing unique to private money in this.  Users have lost faith in virtually every good ever invented, if one judges this based on current use.  Have you used any papyrus lately?  A buggy whip?  The market has its ways of channeling resources to goods deemed desirable.  There is no reason to wish or expect from currency something that has not been possible for any other market-provided good.

As to its value being uncertain – welcome to the real world, Hadas; all value is subjective, hence uncertain.  In the meantime, it is only government standing in the way of the other objection – the legal status of bitcoin. 

Part of the interest in virtual currencies like bitcoin is that their anonymity can provide a convenient cloak for criminal activity.

Why is it assumed that anonymity is only a benefit for criminals?  Does Hadas want a camera in his bedroom?  Why not?  Criminal activity, perhaps?

Besides, if bitcoin ever really started to take off, governments would either ban it or take over the system. The authorities might be motivated by a genuine concern about the stability of a shadow monetary system or they might act out of self-preservation.

This is the fundamental risk to bitcoin – not the market, but the state.  Hadas is not shy in pointing out that it is only government force that truly threatens private money.

My two bits, in summary? 

  • I am all for a free market in money – and all systems that support money; I have no reason to criticize bitcoin in this regard.
  • It is too early to make a call on the future of bitcoin or other virtual currencies.  But I have every reason to hope for success – there must be a replacement offered before the current can be replaced.
  • Money is far less complicated than many other economic goods that the market provides. The market can provide money (and has done so in the past).
  • The biggest risk to bitcoin is the government, not the market.  Bitcoin threatens one of the government’s most important franchises – control over money.  The government will take every action necessary to maintain this franchise.

As for Hadas?  If he was so certain of his position, he would advocate for competing money, credit, currencies and banking.  But level the playing field – no legal tender laws, similar tax treatment for all currencies, and most importantly, taxes can be paid in any currency.

Come on, Hadas – use your keyboard to pound out this message.

Friday, November 29, 2013

NAP and the Unborn Child

I have previously written about abortion and presented the case against abortion solely in terms of both contract rights and property rights in the womb for the duration of the pregnancy – both of which, I conclude, favor the unborn child.

A few days ago, via a circuitous path not worth retracing, I came back to the topic – this time in my first and stumbling attempt to address it in a different manner, asking the question when is a human human.  I was hoping for some dialogue in that thread, dialogue that would help me clarify if not my thinking, at least the questions; my hope was fulfilled. 

Well, I think I understand the questions to be addressed; in this post, I will take a crack at answering them in a less stumbling manner than in the last post.  I have no idea if I will end up with something coherent, but at least I hope to push my thinking along.

I will start with my view on the NAP and life.  It seems obvious to me that the end of life is the ultimate separation from the possibility of liberty (absent a person’s views about an afterlife – far beyond my scope).  I guess I have to state that because not all violations of the NAP are created equal in my view.

Given this, any view that justifies the taking of life must be weighed carefully – it seems to me the burden of proof must be on the one taking action to take a life.  Given the significance of the taking of a life as it relates to liberty, the weight of evidence must be significantly in favor of the taking of life.

This seems easy to do in the various war actions taken by most states – almost all offensive and therefore completely unjustifiable.  Carpet bombing civilians, nuclear bombs, Agent Orange, drone strikes, depleted uranium – all violations of the NAP.

What of self-defense, or defending another who is in jeopardy?  Here, the theory seems easy although at times the application might be a little difficult.  For this post I am focused on theory, not application.

What about the death penalty?  I have come to conclude, even without leaning on the reality that the state cannot be trusted to make such a decision, that it is not right for anyone to take such a decision.  Taking a life is so…final, no matter who does the taking.  This is no act of self-defense.  Lock them up and be done with it.

Now I come to abortion.  And now I come to what I believe are the right questions.

Thursday, November 28, 2013

Murder as a Cure for Economic Stagnation

This will be short and to the point: Ambrose Evans-Pritchard sees Keynesian stimulus in the bubbling fight over a few rocks in dispute between China and Japan:

Asia is on the cusp of a full-blown arms race. The escalating clash between China and almost all its neighbours in the Pacific has reached a threshold.

War as a diversion?  One that would be valuable to China, Japan, and the US given the economic problems faced by these governments?

All other economic issues at this point are becoming secondary.

Yes, perhaps.  Ambrose certainly sees it this way:

Even if the immediate crisis can be defused, we are clearly sliding into a new Cold War. While it is dangerous, it could have paradoxical and powerful side effects. Rearmament lifted the world economy out of slump in the late 1930s, working as a form of concerted Keynesian fiscal stimulus. It could do so again.

This would be an answer of sorts to the West's "secular stagnation" – to use the term of former US treasury secretary Larry Summers – or the liquidity trap as others call it. But be careful what you wish for.

Ambrose, perhaps you should be careful.  Why do you so easily accept the connection of death and destruction as being the cure for economic stagnation?  Is it possible that good can ever come from such total evil?

Even if your moral center is a mess, don’t you at least understand the fallacy of the broken window? 

If you are so gung-ho to intervene, why not put two new cars in every driveway?  At least millions don’t then have to be murdered for your catastrophic theory – they will merely die quietly due to your continued advocacy of interventions.

QE Without End, Amen

Word is getting out.  Central banks won’t end QE and will have little reason to end QE anytime soon.

The message is sinking in - economies of the rich world face super-easy money far into the future and central banks are now convinced it's the least of all policy evils.

The Austrians have been clear about this for a century or more – intervention begets intervention.  Once the intervention ends the mother of all busts will appear.  So the monetary inflation will continue until brought to either a conscious (by central bank decision) or forced stop (due to the market).

That's not to say money managers are all cheer leading this. Many who spoke at Reuters Investment Outlook summit last week doubted its long-term efficacy and feared its social and political fallout even as waves of cheap cash continue to push stock markets to new records.

If financial asset owners benefit more from 'quantitative easing' than the jobless or low wage earners, they insist, then monetary pumping merely exaggerates already disturbing wealth and earnings inequality in the United States, Britain and beyond - injects unforseen and incalculable political tension.

“Social and political fallout”; “unforseen and incalculable political tension.”  This may be what stops the interventions – or perhaps changes the form (which I will come to shortly).  The battle between price inflation (due to monetary inflation) and price deflation (due to lack of demand) allows the Fed to continuously intervene and inflate – consumer prices are seen as relatively benign, and so the popular uproar is kept, for now, to a minimum.

But more and more assets are being diverted to non-productive uses: the state, and the bankers / financial players.  This is seen in the stagnant standard of living for the middle-class – stagnant at a time of almost unprecedented technological progress and unprecedented increase in goods from lower cost jurisdictions.

The benefits of productivity have been virtually entirely skimmed by the politically-connected class thanks to the monetary and fiscal interventions into the market.

Even the Austrian view of allowing the bust do its cleansing work is getting a mainstream mention:

For some, such as Carmignac Gestion's Didier Saint-Georges, this may leave us all in a "QE trap" - paying back over many more years the price of preventing economic catastrophe five years ago.

The artificial lowering of interest rates via QE clearly prevented a deeper economic bust in 2008/2009, he reckons. But the net result of depressed rates has been to slow and elongate any recovery as each pop in economic activity leads to minor but unsustainable interest rate rebounds that choke the upturn.

Yes.  Too bad Bernanke wasn’t an expert in the crash of 1920, instead of a pseudo expert in the Great Depression.

What of the possibility of a changed form of the interventions?

[Philip] Saunders reckons some wage inflation has to be allowed to come through after "five years with the clamps on" and this may help offset some of QE distortions.

I have previously suggested that Yellen might chart a different course, one that looks to get the money to the masses:

What new trick does Yellen have up her sleeve?  About all that is left is real helicopter money – not just over lower Manhattan but over fly-over country.  Might there be a coast-to-coast fly-over trip in Yellen’s future, dropping bundles of cash along the way?

Such a move could provide short term relief to the middle-class, but will certainly risk higher price inflation.

In any case, we will likely see this stagnant economy and continued interventions for a long time to come.  There is no reason for these interventions to come to an end absent significant price inflation or overwhelming strife to the middle-class due to economic stagnation. 

One or the other will manifest – it just may take much longer than many Austrian-influenced voices have believed.

Tuesday, November 26, 2013

Pope Advocates Theft

You think this is a lie?  Blasphemy against the church?

There is blasphemy, but it isn’t by me.

Pope Francis called for renewal of the Roman Catholic Church and attacked unfettered capitalism as “a new tyranny’…

Given that we do not live in a world of unfettered capitalism (or capitalism in any meaningful manner), I believe the Pope is battling a straw man. 

…urging global leaders to fight poverty and growing inequality in the first major work he has authored alone as pontiff.

Let me rephrase, for clarity: “…urging [politicians] to [further institutionalize lies, deceit and theft in order to expand the strangling of the middle class in favor of the elite] in the first major work he has authored alone as pontiff.”

Francis went further than previous comments criticising the global economic system, attacking the “idolatry of money”…

The pope attacks the single-most important commodity in the division-of-labor economy; the single most important commodity in keeping man from an instant return to subsistence living; the single most important commodity in ensuring that resources are efficiently allocated and utilized in accordance with the wishes of living, breathing human beings.

The conclusion is clear: the pope hates mankind.

…and beseeching politicians to guarantee all citizens “dignified work, education and healthcare”.

I will rephrase, for clarity: “…and beseeching politicians to [steal from middle class citizens in order to continue the control by the elite, all under the guise of ensuring for all] citizens ‘dignified work, education and healthcare’.”

He also called on rich people to share their wealth. “Just as the commandment ‘Thou shalt not kill’ sets a clear limit in order to safeguard the value of human life, today we also have to say ‘thou shalt not’ to an economy of exclusion and inequality.

Did God forget something when He spoke to Moses on Mt. Sanai?  Did He forget to mention something to one of the many human conduits He inspired in the writing of the several books of the Bible?  The pope decides to add something now?

Sunday, November 24, 2013

More Libertarians and Grayscale…When is a human Human?

A few days ago I posted regarding libertarians attempting to live a life in accordance with the non-aggression principle in this world of institutionalized aggression.  This post was prompted by an article by Eric Peters.  I will summarize: Peters states that taking a job working for the government is always wrong; I suggest that being pure in this muddy world in not so simple, and drawing a line where Peters does is arbitrary.

Why am I returning to this?  Well, I am not…exactly.  The comments at Peters’ post number in the hundreds, and somehow have taken a turn toward the topic of abortion – I don’t recall how, I think someone said this issue of abortion was his libertarian litmus test – favoring abortion was his proper libertarian conclusion.  This prompted many comments on each side.

Some of the discussion was rather…interesting?  Is an unborn child a life; thereby fully subject to the philosophical protection of the NAP?  What about minor children?  Some suggest that these be considered property of the parents, thus the parents are pretty much free to do as they please with the children.  Interesting.

I have previously written regarding my view on the subject of abortion; while I consider it to be morally wrong, and certainly a violation of the NAP, I wrote on the basis of Walter Block’s concept of evictionism.  In other words, I tackled the subject based on real estate law and contract law – concluding that the unborn child has property rights in the womb.  Abortion violates the unborn child’s property rights.

But what of this slippery slope – from conception until reaching majority, the child is property of the parents, and the parents are free to deal with their property in any manner they decide?  Or perhaps, stated more appropriately…until a child reaches majority, does it have the full rights inherent in the NAP?  This is a moral question, begging for a consistent application of the NAP and requiring reason both consistently and objectively applicable.

I will try – being my first real attempt at taking this approach, let’s call this my work in progress.

I guess to tackle this it is first necessary to address: is an unborn child human?  This seems to me a clear yes.  On the day it is born, there is no doubt about this.  So what about the day before, while still in the womb?  Is it something else?  This seems illogical – only one day before, could it be a zebra?  A tree?  Obviously not.

Then what about one week before?  One month before?  Eight-and-one-half months before?  I will quote Block (as cited in my above-referenced post), who, while supportive of the woman in evicting the child, nevertheless recognizes that the unborn child is human:

At what point does human life begin?  There are really only two reasonable possibilities: at conception or at birth; all other points of development in between are merely points along a continuum which begins and ends with these two options.

So which is it? Does life begin at the beginning point of this nine-month continuum or at the end of it? We take the former position. We maintain that the fetus is an alive human being from day one onward, with all the rights pertaining to any other member of the species.

I will come back later to address “with all the rights pertaining to any other member of the species” later, as I do not completely agree.  However, if one concludes that the unborn child is human on the day before its birth, where does one draw the line in the preceding nine months?  I suggest there is no line to draw other than conception; as Block does, all points between conception and birth are arbitrary – one end or the other must be chosen.  In this, I agree with Block – the unborn child is human from the time of conception.

Dr. Paul also agrees:

If the life of the fetus may be destroyed while within the body, there is no consistent argument against the same mother destroying that same life the minute or the week after birth in it is in the mother’s home. Whether the baby is four centimeters below the skin or lying in a crib within the home, the right should be the same according to this argument, for both the body and the home are the property of the mother.

Next – is the unborn child viable?  If “evicted” (to use Block’s terminology and concept), can it survive?

Inflation: The Cure for a Slow Economy

The young store clerk was having a hard time of it.  He had been working at the Save-Mart for a few months, bagging groceries, stocking shelves, sweeping the aisles, and compressing and baling the cardboard boxes.  It bothered him only a little that this last duty seemed to be the most enjoyable – perhaps because it required the least interaction with people.

It wasn’t supposed to turn out this way.  He was a very bright, if not well-adjusted boy.  He always got the best grades in school, and tested out the highest on his standardized tests.  He was accepted at one of the finest universities.  Unfortunately, he majored in one of those degrees that offer little in the way of a meaningful career opportunity.

Now he was a store clerk at the Save-Mart, the local grocery store in a town best known for…well, not much of anything.  There was the paper mill, but it shut down a while back.  The semi-pro hockey team was about the best excitement around, but this would be their final season here – they were moving out of state.  Unfortunately, times were slow, and there was little reason to expect that this sad truth would change anytime soon.

Save-Mart was not immune to this malaise.  As one shop after another closed, the owner of Save-Mart saw his sales dwindle.  Sure, people always had to eat – and liquor sales had never been higher.  But people stopped buying steak – it was now ground beef.  And no one visited the “locally grown” section of the produce aisle anymore – iceberg lettuce was the vegetable of choice for many.  People still bought soda-pop and cereal, but more often than not it was now the generic variety – lower sales, and lower margins.  In every aisle, the lower priced substitute was always the most popular.  The store was barely holding on.

The young clerk knew that something had to be done; sales were slowing, and soon even this job would be at risk.  He considered the possibilities – what can be done at the Save-Mart to improve the situation?  How can we improve our sales?

Sadly, little in his formal education was helpful in his quest – he truly mastered a subject that was of little use in the real world, a condition that he shared with many of his generation.  Try as he might, he could not find an answer.  Two-hundred thousand dollars, clearly gone to waste.

He decided to go through his class notes – remember, he was always a smart student and he certainly was proud of his notes.  His notes were very thorough.  Perhaps he could find some clue.  Every evening after work, he would spend hours poring through his class notes.

Several weeks went by.  Then one day he found it – the answer to his problems, or more accurately, the problems at the Save-Mart.  He found the sure-fire way to increase sales. 

He could not sleep that night – he couldn’t wait to get to the store in the morning and tell the owner.  He was quite sure that the owner would reward this insight with a promotion and an increase in responsibility…well, as long as he could keep compressing and baling the cardboard, that would be OK.

Saturday, November 23, 2013

John Mauldin: Seduced by the Fed…Again

Poor John Mauldin.  He is familiar with Austrian economics; he sees the Federal Reserve take actions that just a few short years ago would have ensured the Fed Chairman’s membership in the Turnip Truck Society; he knows that economists are clueless when it comes to forecasting; in peddling his latest book, “Code Red,” he has no problem pointing out the dangers of the grandest of all monetary experiments ever; he can see the bubbles forming.

But throw him a little tease – show him a little leg from any member of the Board of Governors – and he can’t help himself; he jumps right back in, knowing that this time – despite the risk of contracting disease – his dreams will be safely fulfilled.

Charles I. Plosser, President of the Federal Reserve Bank of Philadelphia is Mauldin’s latest fatal attraction.  Plosser delivered a speech at the recent Cato Institute’s 31st Annual Monetary Conference.  Mauldin gushes at the hope he finds in the speech:

Some of you will want to read this deeply, but everyone should read the beginning and ending. I find this one of the most hopeful documents I have read in a long time. Think about the position of the person who delivered the speech. You are not alone in your desire to rein in the Fed. (Emphasis added)

Mauldin demonstrates his naïveté, claiming to be surprised that Cato would invite a President from the Fed into its world.  He thinks he is going to a church social, when instead he has entered a cat house.  Don’t be surprised, John; even those who work directly for the Cato Institute love central banking.

Now on to the speech, entitled “A Limited Central Bank.”  Right off the bat, the title suggests the high level of cognitive dissonance in the speaker.

He begins by outlining the power vested in central banks, and that with such power must come some limits:

Yet, in recent years, we have seen many of the explicit and implicit limits stretched.

“Stretched” is a good word, if you define it as “infinitely beyond the wettest of wet dreams of the wildest professor at the University of Chicago while in his most drug-induced state.”  In addition to the explosion in the balance sheet, Plosser identifies the issue of the composition of assets – including the targeting of specific industries.

I have spoken on a number of occasions about my concerns that these actions to purchase specific (non-Treasury) assets amounted to a form of credit allocation, which targets specific industries, sectors, or firms. These credit policies cross the boundary from monetary policy and venture into the realm of fiscal policy.

And after all, aren’t we all better off when congress and the president are responsible for fiscal policy?

I include in this category the purchases of mortgage-backed securities (MBS) as well as emergency lending under Section 13(3) of the Federal Reserve Act, in support of the bailouts, most notably of Bear Stearns and AIG.

I think he neglected to mention the bailout of Goldman Sachs, JPMorgan, Citibank, Bank of America, Wells Fargo, and every other major money-center bank in the country.  Probably a bit of a stretch from the official mandate of the Fed – the one invented solely for public consumption.

Plosser goes on to make a fantastic statement – I am not being facetious; this is truly fantastic:

Let me begin by addressing the goals and objectives for the Federal Reserve. These have evolved over time. When the Fed was first established in 1913, the U.S. and the world were operating under a classical gold standard. Therefore, price stability was not among the stated goals in the original Federal Reserve Act.

Under a classical gold standard, price stability was not a concern.  Imagine that!

Indeed, the primary objective in the preamble was to provide an “elastic currency.”

An “elastic currency” is nothing more than expanding credit beyond reserves – fractional reserve banking, if you will.

Now banks have practiced FRB for centuries, both within and without a central banking environment.  Elastic currency was provided by banks – again, often with no central bank and no government guarantees. 

So why was the Fed needed?  The elastic currency concept already existed – the government did not invent it.  Private banks were able to make currency as elastic as they wanted, limited only by the trust of their depositors and the creditworthiness of their debtors. 

The Fed was needed for one reason: to backstop the banks – to protect the banks that extended lending beyond a prudent reserve ratio, or that made loans to creditors who later were unable to repay.  The Fed came to existence to ensure that the banks could expand FRB to the maximum amount in order to maximize interest income, while at the same time providing a backstop with a printing press to ensure poor lending decisions did not result in negative sanctions – bankruptcy.

Plosser makes another truly fantastic statement; he mentions several positive attributes of a gold standard:

The gold standard had some desirable features. Domestic and international legal commitments regarding convertibility were important disciplining devices that were essential to the regime’s ability to deliver general price stability. The gold standard was a de facto rule that most people understood, and it allowed markets to function more efficiently because the price level was mostly stable.

Sadly, war got in the way:

But, the international gold standard began to unravel and was abandoned during World War I.

It was abandoned in order to finance that war, not because of that war.  Cause and effect should be clearly understood.  It is no coincidence that the bloodiest century in recorded history is also the century of central banking and democracy.  Plosser neglects to mention this….