October 6, 2015 at 9:00 am
Former Nicholls State University professor, and a founding member of the group of economics writers that formed “Bastiat’s Bastions,” Norbert Michel (now at the conservative think-tank, The Heritage Foundation) and Gerald Dwyer, recently wrote this “Backgrounder” on bitcoins, titled “Bits and Pieces: The Digital World of Bitcoin Currency.”
Bitcoin is the most prominent privately issued digital currency today. It is neither issued by a government nor backed by a physical commodity. Bitcoin’s underlying technology also serves as the basis of an electronic payments network. Bitcoin is the first technology that allows people to reliably exchange funds on the Internet without relying on a third party, such as a bank or PayPal. A key aspect of the technology is the blockchain, a publicly available database that records every bitcoin transaction. Bitcoins are created by “miners,” who expend resources to create new bitcoins, analogous to the physical process of mining gold. Unlike gold mining, the number of bitcoins to be produced is determined by a fixed schedule. Bitcoin is now accepted as payment by well-known companies, such as Dell, Papa John’s, and Overstock.com, but it remains a very small part of global commerce. It is a technological innovation with the potential to benefit millions of people. Policymakers should prevent burdensome regulations that single out Bitcoin’s development or drive it offshore.
Their Key Points
- Bitcoin is the most prominent privately issued digital currency. It is neither issued by a government nor backed by a physical commodity, and its underlying technology serves as the basis of an electronic payments network.
- A key aspect of Bitcoin is the blockchain, a publicly available database that records every bitcoin transaction. The blockchain is maintained by a decentralized computer network rather than by a central authority.
- Regulations for cryptocurrencies, like all currencies, should focus on general rules concerning contracts, disclosure, and fraud. As with U.S. dollars, the use of bitcoins by criminals does not imply that Congress should outlaw Bitcoin.
- As with any privately produced good, inferior forms of money should not be expected to replace an economy’s preferred medium of exchange. Monetary policy is likely to be worse when shielded from competition, and better when competing against alternative monies.
Bitcoin and private digital currency provides a very interesting development in the history of money.
September 8, 2015 at 1:37 pm
Norbert Michel was one of the original writers for the Bastiat’s Bastions blog. He and I penned the very first post here almost a decade ago. Norbert is now a researcher at the Heritage Foundation, a very influential think-tank in Washington, D.C. and is a regular Forbes Blogger. Here are two of his recent contributions on congressional attempts at taxing banks to pay for Congressional spending for highways in influential congressmen’s home districts:
“Milking banks for highways” and
“Milking banks for highways, Part II”
August 19, 2015 at 2:28 pm
Economists for centuries have mostly been for free trade. The namesake of this blog, Frederic Bastiat, was among the most outspoken free traders of his day. You can read a bit about Bastiat here. You will find a link to his short, but famous “Petition” on that page. It is well worth reading.
It seems pop musicians in Africa are arguing, much like Bastiat’s candle makers, that music from foreign countries should be limited. They are arguing for a restriction on the radio air time for foreign music to give local music a chance. You can read and/or listen to a news story about this cultural movement here from NPR’s All Things Considered program.
The reporter points out, that just like with other protectionists moves, this cultural protectionism is also likely to spark trade wars, just as the Smoot-Hawley Tariff Act of 1930 led to tariffs on US goods by our trading partners of that time, worsening the Depression.
You will quickly see, as did the reporter for NPR that this move is less about trying to support local culture and more about protecting the local music industry. As Clemson’s Bruce Yandle argued concerning Bootleggers and Baptists, often we find powerful special interests wrapping regulation and protection for their own industry inside some well-meaning and good-sounding, popular notion. Many regulations that sound good are often just devices to enrich the few in that industry at the expense of everyone else.
June 19, 2015 at 12:28 pm
The Pope recently released his encylcical on the evironment, Laudato si, and man’s relationship to his natural surroundings. While I would not ask a Catholic to dissent (from the Catholic Herald, a British Catholic magazine) from this teaching of the Pope, I do think that as far as the encyclical deals with economics and not just theology, it is important to recognize divergent points of view. In the same issue of the Catholic Herald as the warning agains dissent is this thoughtful dissent that raises some excellent points, points I would raise as an economist, but already written by Philip Booth.
Tim Taylor, in this blog post, reports some interesting international comparisons of minimum wages. What Taylor does not show are comparisons of teen and minority (and especially minority teen) unemployment to overall unemployment.
But how many people actually earn the minimum wage? Take a look at this article by Antony Davies. It will probably be an eye opener for many. Why do you think there is so much back and forth discussion about something that affects so few workers?
June 17, 2015 at 12:55 pm
In the U.S. in the 1970s, Congress banned the export of oil from the US. This restriction on trade did not seem to do much when the US was a new importer of oil–the reason a country is a net importer of a good is because the good is mostly cheaper elsewhere, we valued it more here than other did abroad. With new finds of oil, mostly in the Dakotas, oil in the US will soon be cheaper than in many other areas and we could be in a position to export oil. It will be worth more to those in other countries than it is worth to those in the US. But with a ban on oil exports, such trade would be illegal. The bigger the price difference between here and abroad, the bigger the incentive will be to export oil, whether legal or not.
Take a look at this article in Roll Call by Margo Thorning and Bill Shughart (one of my co-authors), arguing to lift the ban on oil exports.
A little more than an hour south of California captial city of Sacramento, is the somewhat wealthy town of Mountain House. Their only water source is from California’s irrigation system (built with federal dollars), but one with “senior” Riparian water rights. That means that those on that system get to use water first. Somehow, the State of California is closing down their water source to divert it elsewhere, to those who do not have “junior rights.” Here is the news story.
On NPR’s “Here and Now” program was this interview with the Behavioral Economist, Richard Thaler, of the University of Chicago. Behavioral economists reject strict rationality assumptions of economics. They note that people’s behavior sometimes varies from strict rationality in predictable ways. The idea is that there are certain biases in people’s actions and sometimes to the attention that they pay to certain bits of information that causes them to stray, in predictable directions, from the rational choice.
However, before one is concerned about biases away from rational choices, it is very important to understand rational choices and how changes in incentives, changes in marginal benefits and/or marginal costs, cause people to change their behavior in predictable ways. Rational choices provides a first step in understanding behavior. Understanding biases, then get you to the next step, a bit closer to the truth. It we do not understand rational choices, we have missed an important part of the puzzle of human behavior. As Thaler remarks, it was important that economists first focused on predictions based on rational behavior and saw how far that could take them. And it has been pretty far. Understanding biases takes us to the next step.
On NPR’s “Planet Money” program was this episode about a guy who developed an app so people could sell their “free” parking space to the highest bidder. Click on “Listen” after going to the link to hear the program as it aired. There are several great lessons here.
First, if something is scarce, it is costly to obtain–so “free” may not be, no matter what the nominal price label.
Second, if something is held in common (common property resource) with open access to the resource, people will compete for it is some way or another.
Third, this is a great illustration of the “Tragedy of the Commons.”
Fourth, trying to take something out of the commons and establishing some sort of private property rights over it, so that it can be traded, is likely to be met with some push back from many people.
Here at Nicholls, students, faculty and staff pay about $50 a year for parking. However, that just allows the proud owner of a parking hang tag the right to drive around for hours looking for a space. There is no “marginal cost” of parking each day–the purchase of a hang tag is a sunk cost, once made, and the cost of parking again is zero. All you have purchased is the right to compete in a race for parking spots, not for an actual parking spot.
How would you react to the use of this developer’s “Haystack” app for getting a parking space at your campus?
April 22, 2015 at 6:21 pm
We have discussed agricultural price supports in class. Here is a similar program set up by the state of California to monopolize the sales of raisins and keep prices up. When crops are bountiful, the state of California takes a part of each farmer’s crop and holds onto it and sells it to school lunch programs and such. The amount it takes from each farmer is done without compensation, clearly in violation of the constitution.
Here is an article from the LA Times on the Supreme Court case that was just heard. Supreme Court watchers think that they farmer and against the California Raisin Board. Listen to this while you read the article.
Do you think they will side with the farmer or the Raisin Board? Why?