Reading about bit coins there are strong arguments for and against bit coins. Many people believe the whole system will collapse, some believe that it's a complete ponzi scheme, and others believe the government will simply shut it down if it becomes too popular. Doclawson cites in his blog post several articles that address the governments response to bit coins. They state that the governments will institute policies directly targeting internet currencies such as bit coins. Another article by Eric Posner talks about how bit coins are simply a ponzi scheme. He cites the fact that all money supplies need to grow with demand and bit coins simply cannot expand as fast as possible. He believes that when they fail to meet the supply competitors will join the fold and simply destroy what he believes is the bit coin bubble.
My efforts to finding the good side of bit coins seem to have fallen short. But why have they started to succeed and why do they capture people's imagination in the way they do? I believe it is because they are a currency for and from the free market. Bit coins aren't subject to the monetary supply of any nation, there is no federal reserve to regulate how much interest is going on in the supply of bit coins with them being a fixed amount coming in at any time. I believe the sort of middle finger to the man is what initially gained the interest of many people with the promise of monetary gains making them stay.
Tuesday, April 23, 2013
Friday, April 19, 2013
Thoughts on Bitcoin
Well I've spent the last hour or so reading about the technical aspects of Bitcoin, and have to confess that I am hopelessly confused about the technology. P2P stuff, no matter how many times I try to get my head around it, always leaves me confused.
But I have nevertheless come away with a basic understanding of the process.
Basically, Bitcoin is made-up money. That's not a worry to me. After all, the U.S. dollar is made-up money and it seems to work--not necessarily well or optimally, but it works on some level.
Indeed, Bitcoin, if successful, would demonstrate the unimportance of having a precious metal (or other commodity) backing for money. For a money to be useful, it needs to be relatively scarce and hard to create new units. That is all. Through the ages, precious metals have helped served this function nicely, but there is nothing special about gold or silver or any other commodity. With modern fiat money, the scarcity, such as it is, is established by the central bank. I find it somewhat humorous the number of "gold bugs" who have enthusiastically endorsed Bitcoin's type of fiat money. To be sure, Bitcoins are not likely to be deflated in value like the dollar since the long run number of Bitcoins is heavily constrained unlike the dollar. This gives Bitcoin an advantage over dollars on the inflation front.
The key is that the protocol limits the creation of Bitcoins according to a fairly strict mathematically-defined process with an ultimate limit of 21m Bitcoins to be reached in 2040. The Bitcoin servers create new Bitcoins at a roughly 25 per 10 minutes at present, and these can be sold or exchanged using the Bitcoin network.
Having established Bitcoin's scarcity, the next really valuable aspect of Bitcoin is the ability, through anonymous P2P, to make transactions with Bitcoin anonymously. Thus Bitcoin combines the anonymity of currency with the convenience of online transactions. Frankly, this aspect of Bitcoin strikes me being even more important as an advantage over the dollar.
Will Bitcoin be successful?
No.
I hate to say it, but if Bitcoin becomes really successful, the Feds will kill it somehow. Remember the Liberty Dollar? While the decentralized nature of the network and the anonymous P2P exchanges will make it hard to kill, I can't imagine the Feds will let this succeed once they determine it is a threat to the dollar.
I hope I'm wrong, because having a money supply that was immune from inflation and allowed for anonymous trades would be a great thing to have.
UPDATE: Lest you think I am paranoid about the Feds' intentions, Bradley Jansen over at the Free Banking blog echoes my worry and bring some evidence to bear.
See also: Matt Ridley here, and George Selgin here.
But I have nevertheless come away with a basic understanding of the process.
Basically, Bitcoin is made-up money. That's not a worry to me. After all, the U.S. dollar is made-up money and it seems to work--not necessarily well or optimally, but it works on some level.
Indeed, Bitcoin, if successful, would demonstrate the unimportance of having a precious metal (or other commodity) backing for money. For a money to be useful, it needs to be relatively scarce and hard to create new units. That is all. Through the ages, precious metals have helped served this function nicely, but there is nothing special about gold or silver or any other commodity. With modern fiat money, the scarcity, such as it is, is established by the central bank. I find it somewhat humorous the number of "gold bugs" who have enthusiastically endorsed Bitcoin's type of fiat money. To be sure, Bitcoins are not likely to be deflated in value like the dollar since the long run number of Bitcoins is heavily constrained unlike the dollar. This gives Bitcoin an advantage over dollars on the inflation front.
The key is that the protocol limits the creation of Bitcoins according to a fairly strict mathematically-defined process with an ultimate limit of 21m Bitcoins to be reached in 2040. The Bitcoin servers create new Bitcoins at a roughly 25 per 10 minutes at present, and these can be sold or exchanged using the Bitcoin network.
Having established Bitcoin's scarcity, the next really valuable aspect of Bitcoin is the ability, through anonymous P2P, to make transactions with Bitcoin anonymously. Thus Bitcoin combines the anonymity of currency with the convenience of online transactions. Frankly, this aspect of Bitcoin strikes me being even more important as an advantage over the dollar.
Will Bitcoin be successful?
No.
I hate to say it, but if Bitcoin becomes really successful, the Feds will kill it somehow. Remember the Liberty Dollar? While the decentralized nature of the network and the anonymous P2P exchanges will make it hard to kill, I can't imagine the Feds will let this succeed once they determine it is a threat to the dollar.
I hope I'm wrong, because having a money supply that was immune from inflation and allowed for anonymous trades would be a great thing to have.
UPDATE: Lest you think I am paranoid about the Feds' intentions, Bradley Jansen over at the Free Banking blog echoes my worry and bring some evidence to bear.
See also: Matt Ridley here, and George Selgin here.
Thursday, April 11, 2013
Shameless Self-Promotion
Not sure what's on the agenda, if anything, for this week, and I'm about to catch a flight to Maui for the Association of Private Enterprise Education meeting, so I thought I'd plug a few recent papers of mine.
(1) Economic Freedom of the World: An Accounting of the Literature
The Economic Freedom of the World (EFW) index was first produced by Gwartney, Lawson and Block (1996) and has been updated annually since. During this period, the EFW index has been cited in hundreds of academic articles. Here this paper provides an accounting and description of this literature. Of 402 articles citing the EFW index, 198 used the index as an independent variable in an empirical study. Over two-thirds of these studies found economic freedom to correspond to a “good” outcome such as faster growth, better living standards, more happiness, etc. Less than 4% of the sample found economic freedom to be associated with a “bad” outcome such as increased income inequality. The balance of evidence is overwhelming that economic freedom corresponds with a wide variety of positive outcomes with almost no negative tradeoffs.
(2) Capitalism and Labor Shares: A Cross-Country Panel Study, 1970 to 2010
The paper examines the empirical relationship between the institutions of economic freedom and labor shares in a panel of 90 countries covering 1970 through 2005. The paper finds that a sample standard deviation increase in the Fraser Institute’s Economic Freedom of the World (EFW) score is associated with a 15 percent increase in labor share.
(3) Do Travel Visa Restrictions Impede Tourist Travel? [E-mail me if you want a copy.]
Yes. Using a travel visa data set developed by Lawson and Lemke (2012) and travel flow data from the World Bank and the UN’s World Tourism Organization (UNWTO), we investigate the deterrent effect of travel visa requirements on travel flows. At the aggregate level, a one standard deviation more severe travel visa regime, as measured, is associated with a 30 percent decrease in inbound travel. At the bilateral level, having a travel visa requirement on a particular country is associated with a 70% reduction in inbound travel from that country. The gains associated with eliminating travel visas appear to be very large.
(1) Economic Freedom of the World: An Accounting of the Literature
The Economic Freedom of the World (EFW) index was first produced by Gwartney, Lawson and Block (1996) and has been updated annually since. During this period, the EFW index has been cited in hundreds of academic articles. Here this paper provides an accounting and description of this literature. Of 402 articles citing the EFW index, 198 used the index as an independent variable in an empirical study. Over two-thirds of these studies found economic freedom to correspond to a “good” outcome such as faster growth, better living standards, more happiness, etc. Less than 4% of the sample found economic freedom to be associated with a “bad” outcome such as increased income inequality. The balance of evidence is overwhelming that economic freedom corresponds with a wide variety of positive outcomes with almost no negative tradeoffs.
(2) Capitalism and Labor Shares: A Cross-Country Panel Study, 1970 to 2010
The paper examines the empirical relationship between the institutions of economic freedom and labor shares in a panel of 90 countries covering 1970 through 2005. The paper finds that a sample standard deviation increase in the Fraser Institute’s Economic Freedom of the World (EFW) score is associated with a 15 percent increase in labor share.
(3) Do Travel Visa Restrictions Impede Tourist Travel? [E-mail me if you want a copy.]
Yes. Using a travel visa data set developed by Lawson and Lemke (2012) and travel flow data from the World Bank and the UN’s World Tourism Organization (UNWTO), we investigate the deterrent effect of travel visa requirements on travel flows. At the aggregate level, a one standard deviation more severe travel visa regime, as measured, is associated with a 30 percent decrease in inbound travel. At the bilateral level, having a travel visa requirement on a particular country is associated with a 70% reduction in inbound travel from that country. The gains associated with eliminating travel visas appear to be very large.
(4) Alchian and Allen Revisited: Law Enforcement and the Price of
Weed. [E-mail me if you want a copy.]
Alchian and Allen (1964) theorized that the imposition of a fixed fee or a unit cost in a market with multiple quality grades of the good would encourage consumption of the higher quality grades. Using newly available data on marijuana prices by state, we empirically test the hypothesis that the price of higher quality marijuana will be higher in states with more strict enforcement of marijuana possession laws. Consistent with the Alchian-Allen theorem, the relative price of both medium- and high-quality marijuana are found to be greater in states with stricter law enforcement, suggesting an increase in demand for such varieties.
Alchian and Allen (1964) theorized that the imposition of a fixed fee or a unit cost in a market with multiple quality grades of the good would encourage consumption of the higher quality grades. Using newly available data on marijuana prices by state, we empirically test the hypothesis that the price of higher quality marijuana will be higher in states with more strict enforcement of marijuana possession laws. Consistent with the Alchian-Allen theorem, the relative price of both medium- and high-quality marijuana are found to be greater in states with stricter law enforcement, suggesting an increase in demand for such varieties.
Wednesday, April 10, 2013
Devil's angel
2 to One: deduction
Defining both ends of the spectrum is not exactly an art, but I think
that kurt Vonnegut captures it better than Adam Smith. Does that mean i discount Hayek? HELL NO! In
fact, the roughness with which most people
base their understanding of reality off of is vague at best. It seems as
though Hayek is saying that there are things that human beings can do,
and there are things that humans CAN'T do. He pushes it forcibly in my
opinion, but some people just need to hear the harsh truth. Could it be
because he believed order-ignorants need to be contacted more than
order-sapients needed to be left alone? 
I sincerely appreciate Doc Lawson's Sports example for putting it into a format I can understand. Can you imagine seeing a world of 1's and 2's? Thank HEAVEN for more than dichotomous linguistics. The message which many economists send out is designed to have a high level of applicability to an expanding large populous (which has most recently been increasing at previously unknown levels). Sorry for the short/odd post. I didn't actually get the chance to read through the whole article, my generation is such that, without succinct information, we cannot be drawn into deeper study of a topic. The kind of information that we can appreciate can be referred to as blurbs.
Induction: One to 2
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