What John Oliver Could Learn from Mises

I usually enjoy watching John Oliver’s show, Last Week Tonight, because it is funny and informative at the same time. His latest episode on corporate consolidation was, alas, not one of the better ones.

The segment has Oliver talking about how certain industries are being dominated by a handful of firms and how that is bad for consumers. He particularly focuses on the airline and telecommunications industries. So far so good.

Everyone agrees that a lack of competition in the market is bad. Oliver then goes on to blame a lack of regulation for this and calls for the more aggressive application of antitrust laws.

Capitalism, Amirite?

This reminded me of one of my favorite Mises quotes:

As a rule, capitalism is blamed for the undesired effects of a policy directed at its elimination. The man who sips his morning coffee does not say, "Capitalism has brought this beverage to my breakfast table." But when he reads in the papers that the government of Brazil has ordered part of the coffee crop destroyed, he does not say, "That is government for you"; he exclaims, "That is capitalism for you.”

Corollary: Government regulation leads to calls for more government regulation to fix the problems created by previous regulation.

Mises wrote this outstanding paragraph right in the preface of his brilliant and insightful book Interventionism: An Economic Analysis, which I recommend to everyone.

Oliver’s segment on corporate consolidation is a case in point. He takes a problem created by government, namely oligopoly, and calls for more government control to fix it.

Government-Caused Oligopolies

Let us take the case of airlines. Why are there only four major airlines in the US? Robert W. Poole Jr., of the Reason Foundation, wrote way back in 2000 that the main obstacle to competition is the difficulty in obtaining gates at airports.

Large airlines sign long-term leases with airport authorities, which gives them exclusive access to gates at airport terminals, shutting out competition from new entrants. It also gives airlines monopolies over certain routes. This, Poole shows, is due to the airports being government owned, and thus risk averse. A long-term lease gives them a steady revenue stream.

He compares it with Europe, where airports are run privately. Since these airports are for-profit businesses, they lease gates by the hour to individual airlines, thus preserving competition in the market.

More recently in 2016, David R. Henderson defended the merger of American Airlines and US Airways along similar lines, saying that the main constraint was gates, and not the number of airlines. He also pointed out that in Europe foreign airlines were allowed to provide domestic flights, unlike in the US.

If a socialist cesspool like Europe has more, better, and cheaper airlines, clearly a lack of regulation is not the problem.

This is not just restricted to airlines. Every monopoly or oligopoly that has been sustained over a large time period has been aided by government regulations and subsidies. For instance, there is the telecommunications industry, where government backs monopolies for firms like AT&T. The health insurance market in the US lacks competition because insurers were, until very recently, prevented from competing across state lines.

It is deeply troubling, then, that people blame free markets for problems created by government. As I write this on the eve of Mises’s birthday, I feel that there is an ever greater need to highlight the evils of government intervention; to direct people’s anger at the real source of trouble. During such times, brilliant minds like Mises will be sorely missed.


Jairaj Devadiga


Jairaj Devadiga is an economist who illustrates the importance of property rights and freedom through some interesting real-world cases. When he is not doing research, he enjoys reading about medicine, astronomy, computers, and law among other things. Readers may email him at jairajdevadiga@gmail.com with questions, suggestions, feedback etc.

This article was originally published on FEE.org. Read the original article.

IMF Head Foresees the End of Banking and the Triumph of Cryptocurrency

In a remarkably frank talk at a Bank of England conference, the Managing Director of the International Monetary Fund has speculated that Bitcoin and cryptocurrency have as much of a future as the Internet itself. It could displace central banks, conventional banking, and challenge the monopoly of national monies.

Christine Lagarde–a Paris native who has held her position at the IMF since 2011–says the only substantial problems with existing cryptocurrency are fixable over time.

In the long run, the technology itself can replace national monies, conventional financial intermediation, and even "puts a question mark on the fractional banking model we know today."

In a lecture that chastised her colleagues for failing to embrace the future, she warned that "Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays. So I think it may not be wise to dismiss virtual currencies."

Here are the relevant parts of her paper:

Let us start with virtual currencies. To be clear, this is not about digital payments in existing currencies—through Paypal and other “e-money” providers such as Alipay in China, or M-Pesa in Kenya.

Virtual currencies are in a different category, because they provide their own unit of account and payment systems. These systems allow for peer-to-peer transactions without central clearinghouses, without central banks.

For now, virtual currencies such as Bitcoin pose little or no challenge to the existing order of fiat currencies and central banks. Why? Because they are too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable. Many are too opaque for regulators; and some have been hacked.

But many of these are technological challenges that could be addressed over time. Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays. So I think it may not be wise to dismiss virtual currencies.

Better value for money?

For instance, think of countries with weak institutions and unstable national currencies. Instead of adopting the currency of another country—such as the U.S. dollar—some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0.

IMF experience shows that there is a tipping point beyond which coordination around a new currency is exponential. In the Seychelles, for example, dollarization jumped from 20 percent in 2006 to 60 percent in 2008.

And yet, why might citizens hold virtual currencies rather than physical dollars, euros, or sterling? Because it may one day be easier and safer than obtaining paper bills, especially in remote regions. And because virtual currencies could actually become more stable.

For instance, they could be issued one-for-one for dollars, or a stable basket of currencies. Issuance could be fully transparent, governed by a credible, pre-defined rule, an algorithm that can be monitored…or even a “smart rule” that might reflect changing macroeconomic circumstances.

So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.

Better payment services?

For example, consider the growing demand for new payment services in countries where the shared, decentralized service economy is taking off.

This is an economy rooted in peer-to-peer transactions, in frequent, small-value payments, often across borders.

Four dollars for gardening tips from a lady in New Zealand, three euros for an expert translation of a Japanese poem, and 80 pence for a virtual rendering of historic Fleet Street: these payments can be made with credit cards and other forms of e-money. But the charges are relatively high for small-value transactions, especially across borders.

Instead, citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash—no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities. If privately issued virtual currencies remain risky and unstable, citizens may even call on central banks to provide digital forms of legal tender.

So, when the new service economy comes knocking on the Bank of England’s door, will you welcome it inside? Offer it tea—and financial liquidity?

New models of financial intermediation

This brings us to the second leg of our pod journey—new models of financial intermediation.

One possibility is the break-up, or unbundling, of banking services. In the future, we might keep minimal balances for payment services on electronic wallets.

The remaining balances may be kept in mutual funds, or invested in peer-to-peer lending platforms with an edge in big data and artificial intelligence for automatic credit scoring.

This is a world of six-month product development cycles and constant updates, primarily of software, with a huge premium on simple user-interfaces and trusted security. A world where data is king. A world of many new players without imposing branch offices.

Some would argue that this puts a question mark on the fractional banking model we know today, if there are fewer bank deposits and money flows into the economy through new channels.

How would monetary policy be set in this context?

Today’s central banks typically affect asset prices through primary dealers, or big banks, to which they provide liquidity at fixed prices—so-called open-market operations. But if these banks were to become less relevant in the new financial world, and demand for central bank balances were to diminish, could monetary policy transmission remain as effective?

Jeffrey A. Tucker


Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books, most recently Right-Wing Collectivism: The Other Threat to Liberty, with a preface by Deirdre McCloskey (FEE 2017). He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

This article was originally published on FEE.org. Read the original article.

Star Trek: Deep Space Nine – Crossroads of Time

Star Trek: Deep Space Nine - Crossroads of Time was an action adventure game for the Super Nintendo and Sega Genesis based on the Star Trek: DS9 TV series. It was released in 1995 which would have been around the third season of the show and still pretty early in the series.

Genesis

At the time the game was released, it received pretty mixed reviews. The graphics, sound and general atmosphere were praised for being very good and true to the show. The gameplay on the other hand left a little more to be desired. Action scenes were mostly simplistic, repetitive and the controls somewhat awkward. The rest of the game played more like a puzzle game. Fans of the show will probably get some enjoyment out of it but otherwise it wouldn't hurt to skip this one.

SNES

If you do seek this game out, the only way you can get it is for the Genesis and Super Nintendo. It hasn't had any newer releases that I am aware of. Of the two, the Super Nintendo has somewhat better graphics but both are pretty good in this department and the gameplay is more or less the same. I've always been a little surprised that there weren't more console Star Trek games in the age of Next Generation and DS9 but this is one of only a few choices available at the time and none of the others was based on DS9.

The Osmosis Theory of Wealth Transfer: Gold to USD to Cryptos

We are in the early stages of a new global financial epoch. The transfer of wealth from fiat into crypos is just beginning and will unfold over multiple decades. This article introduces a basic theory explaining how and why this wealth transfer is happening.

Osmosis

Do you remember from high school Chemistry the concept of osmosis?

Here is the high school definition that I remember learning years ago: Osmosis is the movement of a solvent from an area of high concentration to an area of low concentration through a selectively permeable membrane.

Here is the Wikipedia definition, with a nice diagram:

Osmosis is the spontaneous net movement of solvent molecules through a semi-permeable membrane into a region of higher solute concentration, in the direction that tends to equalize the solute concentrations on the two sides.[1][2][3] It may also be used to describe a physical process in which any solvent moves across a semipermeable membrane (permeable to the solvent, but not the solute) separating two solutions of different concentrations.[4][5] Osmosis can be made to do work.[6]

What has always fascinated me about this process is how it happens in a predictable and spontaneous manner. Also, if you study the Wikipedia diagram, you can see that the power of Osmosis is sufficient to actually counter the effects of gravity: the water on the one side of the beaker stands up higher than the water on the other side of the beaker.

Just like a difference in the concentration of solute across two sides of a membrane causes the process of osmosis to happen spontaneously, and the solvent will defy the effects of gravity and flow upwards to a higher center of gravity, I believe that a difference in the relative security strength of two financial safe haven assets will cause money to flow in a similarly predictable and spontaneous way.

Osmosis Theory of Wealth Transfer

Just what causes money to flow? Fear and greed. Apart from day-to-day transactional usages, I would guess that 90%+ of money flows between savings accounts, Gold, ETFs, stocks, bonds, etc is driven by fear and greed. It is simple human psychology at work.

As such, if some new safe haven asset for storage of wealth is introduced to the mix that is better than any prior safe-haven asset, then due to fear factors and greed factors investors will start to move some portion of their wealth into the new safe haven asset.

As this process unfolds, the rising value of this new safe haven asset will lead more skeptical people in society to eventually jump on the bandwagon as fear of missing out takes hold. Thus fear and greed drive the popularity and allure of the new safe haven asset even higher.

Thus, the pumping of financial wealth from the older safe-haven assets to the newly created and technically-superior ones will be as certain, predictable, and spontaneous as the process of osmosis “pumping of fluid” from one side of a selectively permeable membrane over to another.

In formal terms, here is the “Osmosis Theory of Wealth Transfer”:

If a differential exists in the security strength of two safe-haven assets, then this differential will lead to a certain, predictable, and spontaneous transfer of financial wealth, that is amplified by psychological factors of both human fear and greed.

As this cycle proceeds, the new suitor for the crown of global safe haven asset gains in its credibility thus casting a spotlight on the potential weaknesses of the former safe haven asset that the masses are fleeing, thus quickening the pace and overall net effect of the wealth migration.

Application

This simple theory explains the meteoric rise we are seeing in the value of crypto digital assets today (e.g. BTC, XRP, etc). These digital assets are technologically-superior versus the old safe haven assets Gold and USD. USD was previously perceived as the safest asset, as it was backed by the strongest government, and at one point in time, the US government even had the bravado to disallow the usage of the prior competing safe-haven asset, Gold, as a medium of exchange. But, in the end, the USD is still backed by a government, and, indeed, all governments can fail. With the continuous lifting of the US debt ceiling, the rapid rise of inflation in the US economy over the past three decades, and the irrationality of the US Congress and White House Administration today, the end no longer seems implausible.

In contrast, the crypto digital assets are supported by armies of decentralized computers across geopolitical boundaries, consensus protocols, and strong cryptography, and, this method is now successfully defending more than $150B of financial value. These new crypto assets are not at risk of government seizure or inflation, and they could survive even after the combined collapse of all of the political-economies in the West. Even with the entire world in utter chaos or World War III, there would not be any question of the safety and security of these assets.

The Osmosis Theory of Wealth Transfer explains how the process of financial flows from the old safe haven asset to the new safe haven asset is a natural, inevitable, and spontaneous process driven by human psychology. We are still in the early stages of this cycle, but, the pace is quickening now.

Reprinted from Medium

Ryan Orr


Dr. Orr is a Stanford University Professor, Consultant, Entrepreneur and Investor recognized around the world as an expert in infrastructure and technology.

This article was originally published on FEE.org. Read the original article.