Local software developer Geoff Golder comes on the program to explain and discuss the implications of the newly developing online currency called BitCoin.
Local software developer Geoff Golder comes on the program to explain and discuss the implications of the newly developing online currency called BitCoin.
In which I discuss public banking (i.e. the State Bank of North Dakota), monetary sovereignty, and the fate of the dollar with UVM Gund Institute Fellow Gary Flomenhoft.
After successfully defending my Masters thesis yesterday, I got to thinking that it would be nice if there was an on-line forum devoted to the discussion of the credit union movement’s history (my thesis was a case-study of the establishment and early growth of the VSECU). Given that, as far as I’ve found, there isn’t one, I decided to take the initiative and whip together a simple blogger blog to fill the gap. Unimaginatively titled Credit Union History, I’ll be getting the ball rolling over there with a series of reviews of books by Roy F. Bergengren, a credit union pioneer who was active from the 1920s through the 1950s. ASR will continue to be my outlet for free-wheeling observations on news, politics, economics, philosophy, etc., but if you’re curious to learn more about the origins of co-operative banking in America, check out the new project!
While lazing about the house one Sunday morning while my partner was out to lunch with a friend, I decided to take advantage of her absence to watch a documentary on the Netflix instant play (she’s not a huge fan of political or economics films, so this was a bit of a treat for me). While scrolling through the enormous selection in their database, I happened upon Michael Moore’s Capitalism: A Love Story. Now, given his propensity for ignoring nuance and shamelessly appealing to emotion, I’m generally not a huge fan of his work. However, given his influence among the statist left, I figured it’d be interesting to get a sense of his interpretation and framing of the financial meltdown, so I made a bag of pop-corn and settled in for a viewing.
All in all, I was pleasantly surprised. Sure, there were generous helpings of the shameless heart-string pulling and agenda-driven propaganda that Moore’s films are known for. However, he also does a decent job of laying out a good portion of the facts of what happened during the boom, bust, and bailouts we experienced over the last decade. In that aspect of his film, I felt like it was roughly equivalent in usefulness to Inside Job, the fantastic investigation into the financial crisis that won this year’s Academy Award for Best Documentary. Both films do a fine job of showing how the enormous fraud and subsequent politically corrupt bank bailouts played out historically; however, I also find that they fall flat in their attempts to prescribe a solution to the problems they so skilfully demonstrate.
The fixes that they advocate are representative of the overall left-liberal narrative of the financial crisis. The argument goes that, at the dawn of the millennium, the Glass-Steagall Act was repealed. This Depression-era regulation served to separate the functions of investment and commercial banks, and its repeal caused the banking sector to go on a hog-wild frenzy of complex transactions that served as a cover for an enormous wave of fraud in the mortgage market. This, in turn, resulted in an entire sector of our economy assuming the characteristics of an enormous Ponzi scheme, which came crashing down in 2008. The solution, liberals argue, is for the Federal Government to re-establish tight regulation of financial markets in order to ensure good behavior on Wall Street and prevent further calamities.
As far as it goes, I believe that this narrative has great descriptive value; the repeal of Glass-Steagall was, indeed, one of the major factors that allowed for the financial crisis to get out of control. However, I also think the purveyors of this line of reasoning fail to grasp an important piece of the puzzle. Underlying their model is the assumption that the behavior we observed during the meltdown is rooted in human nature. As a result, they believe that all financial markets will “naturally” behave in the same fraudulent manner if left unsupervised by the state.
The fatal flaw of this perspective lies in the fact that financial markets (and by extension, virtually all markets) are not primarily made up of atomized individuals, but, rather, people whose incentives and opportunities are powerfully determined by the institutions in which they are embedded. Far from being “natural” or fixed, the structures of human-created organizations can be as widely varied as the limits of the human imagination, and, in a totally free market, the ownership and incentive structures of firms would be essential factors in their performance. As a result, competition would pressure firms to organically evolve towards the structures that most appeal to consumers.
If all of that seems a bit abstract, let me provide a brief hypothetical example from the financial crisis. The Federal Government’s bailouts saved an enormous number of banks, many of which likely would have become insolvent and failed. By contrast, during the same period, only a tiny number of credit unions were in serious jeopardy, because the ownership structure of credit unions (the depositors are also the owners) steered the institutions towards more conservative, risk-averse behavior than their joint-stock cousins. Had the Feds not intervened on behalf of the banks with seven hundred billion dollars, many of those banks’ large depositors would have suffered serious losses. Furthermore, they would have noticed that their peers who’d kept their money with credit unions had not taken haircuts, and would thus subsequently view credit unions as safer places to store their deposits than banks. Credit unions would then find it easier to attract deposits, and banks would have to engage in an enormous amount of self-regulation to remain viable institutions.
As such, the effect of government regulation of financial markets (and of the economy in general) is to subsidize sub-optimally structured firms. A co-operatively owned credit union is inherently more trustworthy to a depositor than a for-profit bank, but regulations artificially level the playing field by establishing the State as a guarantor of the good behavior of banks. In good times, the shareholders of these firms reap the benefits of this subsidy; when their companies screw up, however, the whole of society often ends up paying for the inflicted damage. As a result, our economy is chock-full of firms that would succumb to more efficient, just, and trustworthy business models in a truly free market, but persist thanks to the legitimization that the state provides.
Given all of this, the proper response is not, as Moore and other liberals would have it, to create new reams of regulations. While creating temporary stability, such a regime would simply serve as a fig-leaf for the abuses and dishonesty that stems from the very structure of many presently existing businesses. Instead, we should go to the root of the problem and eliminate the entire regulatory regime. By opening up competition between different kinds of firms and forcing them to fully internalize the costs of their behavior, consumers would begin to take into account the structure of a business when deciding where to deposit their money, buy their groceries, etc. The best that regulators can hope to do is curb the worst excesses of fraudulent and exploitative behavior; by contrast, fully freeing our markets will finally provide us with the opportunity to witness the flowering of an economy that truly works for all of us, not just a handful of well-connected plutocrats.
After having been recently invited to what looks to be a Vermont Yankee cheer-leading session on Facebook, I got to thinking on the peculiarity of the fact that many folks I know who are generally pro-market also support nuclear power. As the nuclear industry is an enormous sponge for a variety of forms of corporate welfare from the Federal Government, such positions are inherently contradictory. I was thus planning to use this essay to lay out all the reasons why, but, fortunately for me, Jeff Taylor of the Reason Foundation has already done most of the grunt work in his essay entitled Nuclear Energy: Risky Business. Read it.
The one element that Taylor glosses over a bit, but which is a vitally important element of the free market argument against nuclear power, is expressed in a basic form when he notes that:
But the final nail in the coffin for the industry would be if the federal cap on the liability that nuclear power plant owners face in case of accidents (the Price-Anderson Act) were to be lifted.
This is one of the largest most important subsidies that the government supplies. If the cap were lifted, the owners of power plants would have to bear the full cost of a potential accident in their insurance premiums. While modern nuclear technology is relatively safe, no system is perfect, and the cost of a single major accident would be astronomical compared to any other form of power. As such, the premiums that the market would demand in order to cover the potential cost of a catastrophic failure would serve to price nuclear power far out of the market in comparison with other energy sources. Right now, the government effectively socializes that risk and thus subsidizes the shareholders of Entergy et. al. at the expense of the taxpayer; in a free market, they’d almost certainly be out of business.
As such, organizations that have publicly come out in favor of Vermont Yankee, such as the Ethan Allen Institute, which describes itself as “Vermont’s free-market public policy research and education organization,” need to take a hard look at their values and make a choice. They can support Vermont Yankee or they can support free markets, but they cannot do both while remaining credible. I’ll conclude with an incisive quote from Taylor,
Nuclear energy is to the Right what solar energy is to the Left: Religious devotion in practice, a wonderful technology in theory, but an economic white elephant in fact (some crossovers on both sides notwithstanding). When the day comes that the electricity from solar or nuclear power plants is worth more than the costs associated with generating it, I will be as happy as the next Greenpeace member (in the case of the former) or MIT graduate (in the case of the latter) to support either technology. But that day is not on the horizon and government policies can’t accelerate the economic clock.
In his recent post on the New York Times’ “The Media Equation” blog, David Carr notes an interesting and integral element of the multi-billion dollar valuations of leading social media sites such as Facebook and Twitter: namely, that “most of the value was created by people working free.” That’s not to say that such sites don’t create value in and of themselves as communications utilities; rather, the amount of face-time people spend on them is driven by the content that their peers and people who interest them create for non-pecuniary reasons.
This has profoundly disturbing implications, he goes on to observe, “for those of us who make a living typing … It’s less about the diminution of authority and expertise, although there is that, and more about the growing perception that content is a commodity, and one that can be had for the price of zero.” The resultant environment, Carr fears, is embodied in the title of his post: “At Media Companies, A Nation of Serfs.” To him, we’re entering a Brave New World in which the benefits of having a professional writers on the staff of a media outlet are undermined by the enormous amount of free monetizeable content that is available on the Internet.
Though he definitely makes some good points and the post is worth reading in its entirety, Carr ultimately misses an important emergent dynamic which will likely transform on-line media in the next few years. Namely, the simple fact that, as much as people like to do creative work for prestige, they also generally won’t turn down compensation. As small-scale on-line revenue generation systems have become increasingly sophisticated and user friendly, the best way for an upstart company to overcome the first-mover advantages of the big guys is to offer its users a cut of the revenue they generate.
A great example of this can be found in the example blip.tv. There are countless free video posting services, but, with the exception of a few niche sites like Vimeo, the hegemony of Youtube has remained fairly solid. However, blip.tv has broken out of the start-up ghetto by providing content producers with a simple deal: produce a regular web show, and blip.tv will split the revenue your show generates 50/50. Though that generally comes out to just a dime or two per episode for my small show (which is, admittedly, a hobby that I undertake for entirely non-monetary reasons), when faced with the option of get paid or don’t get paid, the choice is pretty clear.
As consciousness of such possibilities spreads, I think we’ll see an increasingly competitive market for what has formerly been “free” content in the form of providers offering larger and larger shares of specific content-generated revenue to creators, perhaps even at rates approaching the bare cost of service provision. A further step might even take the form of on-line producer co-operatives. Why should content producers fork over a portion of the proceeds of their creative works to third party shareholders or venture capitalists when they could simply hold a share of their own Youtube, Facebook, or Blip.tv and share in the profits accordingly? Perhaps, instead of becoming a nation of serfs, as Carr worries, we’re instead in the throes of an enormous transition that will leave creators freer than ever before in history. Ultimately, only time will tell whether we’re headed for dystopia, utopia, or some muddled in-between state, but I, for one, am excited to see what the future of media will hold…
…on some of the social and economic effects of increasingly sophisticated AI. One issue raised, which is as old as the English Luddite weavers who broke the power-looms in the 1810s, is the question of what will happen when high-paying, high prestige specialist jobs are replaced by machines/computer programs? My sense is that this dynamic provides an interesting case for the advantages of co-operatively owned firms. In joint stock firms, it is in the owner’s interest to capture efficiency gains, but it is often perversely in the interest of the employees to oppose them. However, if firms are structured such that the benefits of efficiency gains are widely (or even universally) distributed, then the contradiction of those interests might be resolved and the possible dislocations that are alluded to avoided. In any case, the developments discussed in the article ensure the next few years will certainly contain some interesting surprises…
An interview with Vermont filmmaker and anti-fluoridation activist Kevin Hurley, in which we discuss his upcoming documentary, Safe and Effective, as well as the history of the issues surrounding the use of fluoride as a tool of public health policy.
The analysis of one who knows far more of the situation than myself, sent out this morning around 1am:
Random thoughts on the ongoing political-economic revolution in Egypt, some my own and others from Egyptian friends – of course things are happening very fast so all this could change:
This evening I attended a special session of the Burlington City Council centered around the Queen City’s troubled municipal telecommunications provider (see this article from 7 Days for some backstory). After several grueling hours of presentations and Q&A, I left the room both understanding the present situation much better and feeling that the prospects for solving the crisis by way of the formation of a co-op are real and should be investigated further.
Though even after three hours of discussion some aspects are a bit hazy, the situation (to the best of my understanding) is as follows. Burlington Telecom (BT) has, after months of intensive work, accomplished something of a turnaround in that it is generating modest positive cash flows (when debt service costs are not included). As such, the consensus among the City Council seems to be that, in order to retrieve the $19 million in city funds that were used to temporarily finance the organization, it needs to be kept alive as a going concern while maintaining at least partial municipal ownership. However, since Citi Capital will likely repossess some of BT’s equipment in the medium term, the city is looking for a private partner to fund the purchase of new equipment in exchange for a stake in the firm. While non-disclosure agreements prevented the consultants from discussing the details of potential partners, it did come out that the size of the needed investment is in the ballpark of $6-8 million.
This state of affairs confirms that the idea of mutualizing Burlington Telecom might indeed be a viable option. Instead of selling a stake in the utility to a private equity firm from who-knows-where, it could be purchased a consumer co-operative consisting of BT subscribers. With slightly less than 5,000 customers, setting the price of a BT co-op share at $200 (equal to the price of a fully paid-up share of our local food co-op, City Market) would raise close to $1 million, which might be supplemented by low-interest loans from an organization such as the Cooperative Fund of New England. For their payment, BT users would not only retain local control of the service, but they would also be rebated a portion of the firm’s profits once its back on its fiscal feet. While the citizens of Burlington shouldn’t have to foot the bill for the mismanagement of a service only used by some, it would be an equal disservice to the public to allow the enormous public investment that has gone into the BT system to be snatched up by a private outside concern for below its market value due to the City’s being forced to sell under pressure. As such, I encourage Burlingtonians who are concerned about the future of BT to contact Mayor Kiss and your Councilors and urge them to consider the mutualization of Burlington Telecom as an alternative to outside sale.
This excerpt is from Robert Pirsig’s book Zen and the Art of Motorcycle Maintenance: An Inquiry into Values. I first read it when I was 18, and as I age it seems to become truer and truer. One’s whole relationship to knowledge changes when you voluntarily return to school motivated by the recognition of your ignorance and the desire to overcome it. Enjoy!
[His] argument for the abolition of the degree and grading system produced a nonplussed or negative reaction in all but a few students at first, since it seemed, on first judgment, to destroy the whole University system. One student laid it wide open when she said with complete candor, “Of course you can’t eliminate the degree and grading system. After all, that’s what we’re here for.”
She spoke the complete truth. The idea that the majority of students attend a university for an education independent of the degree and grades is a little hypocrisy everyone is happier not to expose. Occasionally some students do arrive for an education but rote and the mechanical nature of the institution soon converts them to a less idealistic attitude.
The demonstrator was an argument that elimination of grades and degrees would destroy this hypocrisy. Rather than deal with generalities it dealt with the specific career of an imaginary student who more or less typified what was found in the classroom, a student completely conditioned to work for a grade rather than for the knowledge the grade was supposed to represent. Continue reading