Category: Knowledge/Media/Libraries

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Bitcoin & The New Freedom Of Monetary Policy

Every developing technology has the potential for unintended consequences.  Blockchain technology is an example.  Although there are many possible uses of blockchain as a generally trusted and useful distributed approach to storing data, its most visible application has been virtual or crypto-currencies, such as Bitcoin, Ethereum and Litecoin. These once-obscure crypto-currencies are on a collision course with another trend that in its own way is based on technology — mostly digital government-issued money.

Although there are many possible uses of blockchain as a generally trusted and useful distributed approach to storing data, its most visible application has been virtual or crypto-currencies, such as Bitcoin, Ethereum and Litecoin. These once-obscure crypto-currencies are on a collision course with another trend that in its own way is based on technology — mostly digital government-issued money.

In particular, another once-obscure idea about government money is also moving more into the mainstream — modern monetary theory (MMT), which I mentioned few weeks ago in my reference to Stephanie Kelton’s new book, “The Deficit Myth”. In doing a bit of follow up on the subject, I came across many articles that were critical of MMT. Some were from mainstream economists. Many more were from advocates of crypto-currencies, especially Bitcoiners.

Although I doubt that Professor Kelton would agree, many Bitcoiners feel that governments have been using MMT since the 1970s — merely printing money. They forget about the tax and policy stances that Kelton advocates.

Moreover, there is a significant difference in the attitude of public leaders when they think they are printing money versus borrowing it from large, powerful financial interests. James Carville, chief political strategist and guru for President Clinton famously said, “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

For Bitcoiners, the battle is drawn and they do not like MMT. Here is just a sample of the headlines from the last year or so:

It is worth noting that MMT raises very challenging issues of governance. Who decides how much currency to issue? Who decides when there is too much currency? Who decides what government-issued money is spent on and to whom it goes? This is especially relevant in the US, where the central bank, the Federal Reserve, is at least in theory independent from elected leaders.

However, it also gives the government what may be a necessary tool to keep the economy moving during recessions, especially major downturns. Would a future dominated by cryptocurrencies, like Bitcoin, essentially tie the hands of the government in the face of an economic crisis? — just as the gold standard did during the Panic of 1893 and the Great Depression (until President Roosevelt suspended the convertibility of dollars into gold)?

This picture shows MMT as a faucet controlling the flow of money as the needs of the economy changes. If this were a picture of Bitcoin’s role, the faucet would be almost frozen, dripping a relatively fixed amount that is dependent upon Bitcoin mining.

Less often discussed is that cryptocurrencies, as a practical matter, also end up needing some governance. I am not going to get into the weeds on this, but you can start with “In Defense of Szabo’s Law, For a (Mostly) Non-Legal Crypto System”. The implication is that cryptocurrencies need some kind of rules and laws enforced by some people. Sounds like at least a little bit of government to me.

Putting that aside, if Bitcoin and/or other cryptocurrencies succeed in getting widespread adoption, then it would seem that they would limit the ability of governments to encourage or discourage economic growth through the issuance of money.

Of course, some officials do not seem to worry too much. This attitude is summed up in a European Parliament report, published in 2018.

Decentralised ledger technology has enabled cryptocurrencies to become a new form of money that is privately-issued, digital and that permits peer-to-peer transactions. However, the current volume of transactions in such cryptocurrencies is still too small to make them serious contenders to replace official currencies. 

Underlying this are two factors. First, cryptocurrencies do not perform the role of money well, because their value is very volatile and they are thus not very good stores of value. Second, cryptocurrencies are managed in ways that are very primitive compared to what modern currencies require.

These shortcomings might be corrected in the future to increase the popularity and reach of cryptocurrencies. However, those that manage currencies, in other words monetary policymakers, cannot be outside any societal system of checks and balances.

For cryptocurrencies to replace official money, they would have to conform to the institutional set up that monitors and evaluates those who have the power to manage money.

They do not seem to be too worried, do they? However, cryptocurrency might eventually derail the newfound freedom that government economic policy makers have realized they have through MMT.

As we have seen in the past, new technologies can suddenly grow very fast and blindside public officials. As Roy Amara, past president of The Institute for the Future, said, “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run”.

© 2020 Norman Jacknis, All Rights Reserved

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The Second Wave Of Capital

I have been doing research about the future impact of artificial intelligence on the economy and the rest of our lives. With that in mind, I have been reading a variety of books by economists, technologists, and others.That is why I recently read “Capital and Ideology” by Thomas Piketty, the well-known French economist and author of the best-selling (if not well read) “Capital in the Twenty-First Century”. It contains a multi-national history of inequality, why it happened and why it has continued, mostly uninterrupted.

At more than 1100 pages, it is a tour de force of economics, history, politics and sociology. In considerable detail, for every proposition, he provides reasonable data analyses, which is why the book is so long. While there is a lot of additional detail in the book, many of the themes are not new, in part because of Piketty’s previous work.  As with his last book, much of the commentary on the new book is about income and wealth inequality.  This is obviously an important problem, although not one that I will discuss directly here.

Instead, although much of the focus of the book is on capital in the traditional sense of money and ownership of things, it was his two main observations about education – what economists call human capital – that stood out for me. The impact of a second wave and a second kind of capital is two-fold.

  1. Education And The US Economy

From the mid-nineteenth century until about a hundred years later, the American population had twice the educational level of people in Europe. And this was exactly the same period that the American economy surpassed the economies of the leading European countries. During the last several decades, the American population has fallen behind in education and this is the same time that their incomes have stagnated.  It is obviously difficult to tease out the effect of one factor like education, but clearly there is a big hint in these trends.

As Piketty writes in Chapter 11:

The key point here is that America’s educational lead would continue through much of the twentieth century. In 1900–1910, when Europeans were just reaching the point of universal primary schooling, the United States was already well on the way to generalized secondary education. In fact, rates of secondary schooling, defined as the percentage of children ages 12–17 (boys and girls) attending secondary schools, reached 30 percent in 1920, 40–50 percent in the 1930s, and nearly 80 percent in the late 1950s and early 1960s. In other words, by the end of World War II, the United States had come close to universal secondary education.

At the same time, the secondary schooling rate was just 20–30 percent in the United Kingdom and France and 40 percent in Germany. In all three countries, it is not until the 1980s that one finds secondary schooling rates of 80 percent, which the United States had achieved in the early 1960s. In Japan, by contrast, the catch-up was more rapid: the secondary schooling rate attained 60 percent in the 1950s and climbed above 80 percent in the late 1960s and early 1970s.

In the second Industrial Revolution it became essential for growing numbers of workers to be able to read and write and participate in production processes that required basic scientific knowledge, the ability to understand technical manuals, and so on.

That is how, in the period 1880–1960—first the United States and then Germany and Japan, newcomers to the international scene—gradually took the lead over the United Kingdom and France in the new industrial sectors. In the late nineteenth and early twentieth centuries, the United Kingdom and France were too confident of their lead and their superior power to take the full measure of the new educational challenge.

How did the United States, which pioneered universal access to primary and secondary education and which, until the turn of the twentieth century, was significantly more egalitarian than Europe in terms of income and wealth distribution, become the most inegalitarian country in the developed world after 1980—to the point where the very foundations of its previous success are now in danger? We will discover that the country’s educational trajectory—most notably the fact that its entry into the era of higher education was accompanied by a particularly extreme form of educational stratification—played a central role in this change.

In any case, as recently as the 1950s inequality in the United States was close to or below what one found in a country like France, while its productivity (and therefore standard of living) was twice as high. By contrast, in the 2010s, the United States has become much more inegalitarian while its lead in productivity has totally disappeared.

  1. The Political Competition Between Two Elites

By now, most Americans who follow politics understand that the Democratic Party has become the favorite of the educated elite, in addition to the votes from minority groups. This coalition completely reverses what had been true of educated voters in most of the last century, who were reliable Republican voters. In the process, the Democratic Party has lost much of its working-class base.

The Republicans have been the party of the economic elite, although since the 1970s some of the working-class have joined in, especially those reacting to increased immigration and civil rights movements.

What Piketty points out is that, in this transition, working-class and lower income people have decreased their political participation, especially voting. He thinks that is because these voters felt that the Democratic Party has been taken over by the educational elite and no longer speaks for them.

What many Americans may not have realized is that this same phenomenon has happened in other economically advanced democracies, such as the UK and France. Over the longer run, Piketty wonders whether such an electoral competition between parties both dominated by elites can be sustained – or whether the voiceless will seek violence or other undemocratic outlets for their political frustrations.

In Chapter 14, he notes that, at the same time that the USA has lost the edge arising from a better educated population, it and other advanced economies that have now matched or surpassed the American educational level, have elevated education to a position of political power.

We come now to what is surely the most striking evolution in the long run; namely, the transformation of the party of workers into the party of the educated.

Before turning to explanations, it is important to emphasize that the reversal of the educational cleavage is a very general phenomenon. What is more, it is a complete reversal, visible at all levels of the educational hierarchy. we find exactly the same profile—the higher the level of education, the less likely the left-wing vote—in all elections in this period, in survey after survey, without exception, and regardless of the ambient political climate. Specifically, the 1956 profile is repeated in 1958, 1962, 1965, and 1967.

Not until the 1970s and 1980s does the shape of the profile begin to flatten and then gradually reverse. The new norm emerges with greater and greater clarity as we move into the 2000s and 2010s. With the end of Soviet communism and bipolar confrontations over private property, the expansion of educational opportunity, and the rise of the “Brahmin left,” the political-ideological landscape was totally transformed.

Within a few years the platforms of left-wing parties that had advocated nationalization (especially in the United Kingdom and France), much to the dismay of the self-employed, had disappeared without being replaced by any clear alternative.

A dual-elite system emerged, with on one side, a “Brahmin left,” which attracted the votes of the highly educated, and on the other side, a “merchant right,” which continued to win more support from both highly paid and wealthier votes.

This clearly provides some context for what we have been seeing in recent elections.  And although he is not the first to highlight this trend, the evidence that he marshals is impressive.

Considering how much there is in the book, it is not likely anyone, including me, would agree with all of the analysis. In addition to the analysis, Piketty goes on to propose various changes in taxation and laws, which I will discuss in the context of other writers in a later blog. For now, I would only add that other economists have come to some of the same suggestions as Piketty, although they have completed a very different journey from his.

For example, Daniel Susskind in The End Of Work is concerned that a large number of people will not be able to make a living through paid work because of artificial intelligence. The few who do get paid and those who own the robots and AI systems will become even richer at most everyone else becomes poorer. This blends with Piketty’s views and they end up in the same place – a basic citizen’s income and even a basic capital allotment to each citizen, taxation on wealth, estate taxes, and the like.

We will have much to explore about these and other policy issues arising from the byproducts of our technology revolution in this century.

© 2020 Norman Jacknis, All Rights Reserved

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Is It 1832 Or 2020? Virtual Convention Or Something New?

In these blogs, I’ve often noted how people seem wedded to old ways of thinking, even when those old ways are dressed up in new clothes.

Despite all the technology around us, it’s amazing how little some things have changed.  Too often, today seems like it was 120 years ago when people talked and thought about “horseless carriages” rather than the new thing that was possible – the car with all the possibilities it opened.

So it was with interest that I read this recent story – “Democrats confirm plans for nearly all-virtual convention”

“Democrats will hold an almost entirely virtual presidential nominating convention Aug. 17-20 in Milwaukee using live broadcasts and online streaming, party officials said Wednesday.”

Party conventions have been around since 1832.  They were changed a little bit when they went on radio and then later on television.  But mostly they have always been filled with lots of people hearing speeches, usually from the podium.

Following in this tradition going back to 1832, the Democratic Party is going to have a convention, but we can’t have lots of people gathered together with COVID-19.  This one will be “a virtual convention in Milwaukee” which seems like a contradiction – something that is both virtual but is happening in a physical place?  I guess it only means that Joe Biden will be in Milwaukee along with the convention officials to handle procedures.

Indeed, it’s not entirely clear what this convention will look like.  In addition to the main procedures in Milwaukee, the article indicates that “Democrats plan other events in satellite locations around the country to broadcast as part of the convention”.  I assume that will be similar.

“Kirshner knows how it’s done: He has produced every Democratic national convention since 1992.”

Hopefully this will be different from every convention since 1832 – or even 1992!

Instead of the standard speeches on the screen or even other activities that are just video of something that could occur on-stage, do something that is more up-to-date.  This will show that Biden will not only be a different kind of President than Trump, but that he also will know how to lead us into the future.

Why not do something that takes advantage of not having to be in a convention hall?

For example, how about a walk (or drive, if necessary) through the speaker’s neighborhood (masks on) explaining what the problems are and what Biden wants to do about those problems?

My suggestions are limited since creative arts are not my specialty, but I do see an opportunity to do something different.  It is a good guess that Hollywood is also eager to help defeat Trump and would offer all kinds of innovative assistance.  Make it an illustration of American collaboration at its best.

This should not be an unusual idea for the Biden organization.  Among his top advisors are Zeppa Kreager, his Chief of Staff, formerly the Director of the Creative Alliance (part of Civic Nation), and Kate Bedingfield, Deputy Campaign Manager and Communications Director, formerly Vice President at Monumental Sports and Entertainment.

Of course, the Trump campaign could take the same approach, but they do not seem interested and Trump obviously adores a large in-person audience.  So there is a real opportunity for Biden to differentiate himself.

Beyond the short-term electoral considerations, this would also make political history by setting a new pattern for political conventions.

© 2020 Norman Jacknis, All Rights Reserved

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Too Many Unhelpful Search Results

This is a brief follow up to my last post about how librarians and artificial intelligence experts can
get us all beyond mere curation and our frustrations using web search

.

In their day-to-day Google searches many people end up frustrated. But they assume that the problem is their own lack of expertise in framing the search request.

In these days of advancing natural language algorithms that isn’t a very good explanation for users or a good excuse for Google.

We all have our own favorite examples, but here’s mine because it directly speaks to lost opportunities to use the Internet as a tool of economic development.

Imagine an Internet marketing expert who has an appointment with a local chemical engineering firm to make a pitch for her services and help them grow their business. Wanting to be prepared, she goes to Google with a simple search request: “marketing for chemical engineering firms”. Pretty simple, right?

Here’s what she’ll get:

She’s unlikely to live long enough to read all 43,100,000+ hits, never mind reading them before her meeting. And, aside from an ad on the right from a possible competitor, there’s not much in the list of non-advertising links that will help her understand the marketing issues facing a potential client.

This is not how the sum of all human knowledge – i.e., the Internet – is supposed to work. But it’s all too common.

This is the reason why, in a knowledge economy, I place such a great emphasis on deep organization, accessibility and relevance of information.

© 2017 Norman Jacknis, All Rights Reserved