Category: Public Policy

Blog author: jcarter
Friday, April 19, 2013
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What does it mean to see like a State? “In short, to see like the state is to be myopic,” says Brian Dijkema. “This myopia views geography, people, their customs and traditions in a way that “severely brackets all variables except those bearing directly” on the state’s interests of revenue, security, and order.”

An example from the institutional point of view of schools illustrates the point well. Education, and the shape of the schools that provide it, is one of the most contentious issues in Canadian and American public debate. While there are notable—and hopeful—examples to the contrary, both countries tend to view education, and therefore schools, as being in the service of the state and its goals. Both tend to see schools as being at the service of the economy and the state. Don’t believe me? Listen to recent Canadian debates about education in the trades, or consider the size of Harvard’s endowments and the culture that has grown up around America’s elite schools. It is a rare occurrence indeed to hear a politician speak of schools as places of character formation or of the deepening of wisdom. Instead, they are training grounds for the modern economy. Where deeper questions about the purpose of education are asked, they too are posed with a view to the interests of the state. Where Canadian schools—usually religious schools—attempt to maintain their freedom from central state schemes, they have faced the full brunt of the coercive power of the state. The same fate has befallen other religious institutions that attempted to work outside of the directives of the state in America.

Read more . . .

New research suggests that school vouchers have a greater impact on whether black students attend college than small class sizes or effective teachers:

Matthew M. Chingos of the Brookings Institution and Paul E. Peterson, director of Harvard’s program on education policy and governance, tracked college enrollment information for students who participated in the School Choice Scholarship program, which began in 1997. They were able to get college enrollment information on 2,637 of the 2,666 students in the original cohort.

The researchers compared the outcome for 1,358 students who received a voucher offer and a control group of 1,279 students who did not. They found that 26 percent of black students in the control group attended college full-time for some period of time within three years of expected high school graduation, while 33 percent of those who received vouchers did.

Read more . . .

New York City’s hipster and elitist class seem to believe that they should have some role in determining what business owners do with their property. Like hipsters and elitists around the country, New York’s cohort are banding together to protest companies that do not present the utopian vision for the neighbors where these elites dwell (most of whom are renters, by the way). There is much buzz in New York City right now because more and more national chains are setting up shop causing great consternation. In a recent AM New York newspaper story, readers get a sense of the angst:
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A-Win-Win-Solution--The-Empirical-Evidence-on-School-ChoiceA new report by Greg Forster of the Friedman Foundation finds that of all the “gold standard” research on children who utilize school vouchers, 11 of 12 studies conclude all or some of those students achieve better educational outcomes. No study found choice participants were worse off than those remaining in traditional public schools:

The evidence points clearly in one direction. Opponents frequently claim school choice does not benefit participants, hurts public schools, costs taxpayers, facilitates segregation, and even undermines democracy. However, the empirical evidence consistently shows that choice improves academic outcomes for participants and public schools, saves taxpayer money, moves students into more integrated classrooms, and strengthens the shared civic values and practices essential to American democracy.

These results are not difficult to explain. School choice improves academic outcomes by allowing students to find the schools that best match their needs, and by introducing healthy competition that keeps schools mission-focused. It saves money by eliminating administrative bloat and rewarding good stewardship of resources. It breaks down the barriers of residential segregation, drawing students together from diverse communities. And it strengthens democracy by accommodating diversity, de-politicizing the curriculum, and allowing schools the freedom to sustain the strong institutional cultures that are necessary to cultivate democratic virtues such as honesty, diligence, achievement, responsibility, service to others, civic participation, and respect for the rights of others.

Read more . . .

Joe has done us all a real service in putting together his three part (1, 2, 3) primer on Bitcoin (full PDF here).

I am curious, though, what the justification is for referring to Bitcoin as a “commodity” currency. Consider this from Izabella Kaminska at the FT Alphaville blog:

For those who insist that the term “fiat” refers exclusively to government-issued fiat currency, it’s perhaps better to interpret our use in the evolutionary sense.

Meaning that Bitcoin (and other virtual currencies) represent not commodity money, not managed money, nor even old fashioned government-issued fiat money, but a whole new type of super fiat that is rendered valuable by the issuing crowd (made up of independent entities) rather than the state.

The idea is that Bitcoin isn’t “declared” to be valuable by the state, but that it is “declared” to be valuable by common consent of the community of Bitcoin users. Consider this a kind of communal rather than governmental fiat.

This is why I wondered earlier about Bitcoin as “merely fiat money without the pretensions.”

But then again, isn’t this kind of communal agreement or declaration of value what money has always really been? Isn’t that, as Joe relates, what we learn from the example of the rai of Yap? (Their real innovation seems to be that they anticipated something like the “virtualization” of money exchange.)

Here again I’ll invoke the insight of Richard Whately: “It is not that pearls fetch a high price because men have dived for them; but on the contrary, men dive for them because they fetch a high price.” People are mining Bitcoins because they fetch a high price…at least for now.

[Note: This is the third entry in a three part series. You can read the introductory post here and part two here.]

The Disadvantages of Bitcoin

For people who are not obsessed with anonymity and are not waiting for the U.S. to return to the gold standard, the reasons for avoiding entering the Bitcoin market are numerous:

1. Convertibility – Whereas other currencies are convertible into other financial instruments (dollars to checks to certificates of deposit, etc.) and through numerous third-party services (e.g., Visa, PayPal, Citibank), commodity currencies like Bitcoin can only be exchanged for fiat currencies—and then only through an online exchange. Indeed, unless your computer is working overtime on Bitcoin mining, the only way to acquire the currency is to buy it from one of the 30 online exchanges.

These exchanges are completely unregulated and are subject to problems that do not affect other financial markets. For instance, in 2011 the largest Bitcoin exchange, MTGox, had a security breach that resulted in the theft of nearly $9 million worth of Bitcoins. The theft caused the value of Bitcoins to crash from $17.50 to one cent before the market was able to recover.

2. Instability – The MTGox breach—and the subsequent market crash—taught Bitcoin owners a harsh lesson about commodity currencies: they can be wildly unstable. Over the 8 month span from October 1 2010 to June 9 2011, the market value of Bitcoins skyrocketed 9667-fold from a value of $0.06 to $29.

The rate had dropped in 2012 and at the end of last year a Bitcoin was worth only $13.51. Last week, though, Bitcoins were trading as high as $266 before plummeting to less than $100. Anyone who had bought $1,000 worth of currency in October 2010 would theoretically have $4.4 million worth of Bitcoins. However, the convertibility problem would make it nearly impossible to extract that money without crashing the market and devaluing the entire currency. A gradual sell-off over an extended period of time would be necessary to take advantage of increase in valuation.

Still, being the seller of the overvalued currency is preferable to being the buyer. The Winklevoss twins, millionaires famous for their legal battle with Facebook, claim to own around one percent of all Bitcoins currently in existence (around 108,000). They began buying the currency in 2012, making some early Bitcoin holders very rich.
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[Note: This is the second in a three part series. You can read the introductory post here and part three here.]

How Bitcoin Works (The Simplified Version)

In order to use the Bitcoin system, a user installs a “wallet” on their computer or mobile phone. Once installed the wallet generates a Bitcoin address (similar to an email address) that allows the user to send and receive payments. Bitcoins are divisible to 8 decimal places yielding a total of approx. 21×1014 currency units. This allows a person to spend a fraction of a Bitcoin (the current exchange rate as of April 15, 2012 is 1 Bitcoin = $95.36000). Unlike standard e-commerce and money transfer system, Bitcoin transactions are irreversible.

How Bitcoin Works (The More Complicated Version)

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A Bitcoin is merely a chain of digital signatures attached to a transaction log. In the very first transaction of the system, Nakamoto’s computer program (which is open source and distributed across a peer-to-peer network) created 50 Bitcoins. When Nakamoto spent some of the coins, it created a new transaction that subtracted the amount from his account and credited it to the recipient’s. All such transfers entail the owner digitally signing a hash (a numerical value created by an algorithm) of the previous transaction and providing the public key for the encryption to the next owner. Both items are then added to the coin’s transaction log. A payee can verify the signatures to verify the chain of ownership, which prevents double spending of the same coins.

This transaction—and all subsequent exchanges—is distributed to the entire network for verification. Collections of transactions, known as “blocks,” are deemed valid when another computer on the network creates a transaction log for it that matches the previous blocks. To prevent the falsified logs from being accepted, the system must provide a means of verification that is prohibitively costly to any individual user, but relatively cheap for the network as a whole. As explained in The Economist:
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Over at the IFWE blog, Elise Amyx takes a look at Brian Fikkert’s argument about the origins of the modern American welfare state:

According to Fikkert, the evangelical church’s retreat from poverty alleviation between 1900 and 1930 encouraged the welfare state to grow to its size today. Church historians refer to this era as the “Great Reversal” because the evangelical church’s shift away from the poor was so dramatic.

In Faithful in All God’s House: Stewardship and the Christian Life, Gerard Berghoef and Lester DeKoster make a similar case. They argue that “the church is largely responsible for the coming of the modern welfare community.” They also cast the hopeful vision that another reversal might occur: “The church could be largely responsible for purging welfare of its faults and problems if enough believers caught the vision.”

While Fikkert is largely drawing on the early twentieth century in America for his argument, Berghoef and DeKoster examine more broadly the Christian perspective on the relationship between faith and works of charity. This dynamic is, after all, is a perennial challenge for Christian social engagement, and the interaction between the Social Gospel and evangelicalism in America is just one example. Another is the reversal over the last century or so in the Netherlands, where there has been a move from Abraham Kuyper’s claim that “all state relief for the poor is a blot on the honor of your Savior” to the church’s plea “for social security that is not charity but a right that is fully guaranteed by government.”
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2787733The second-hand clothing industry in parts of Africa is big business. In fact, many charities receive substantial revenue from the sale of these clothes. Why buy a t-shirt for 10 dollars when you can buy one for 32 cents? These trends should come as no surprise to Americans because consignment shops and thrift stores are plentiful. However, the difference is that in many parts of Africa second-hand clothing is the primary means of buying clothes and is, therefore, inadvertently stifling the growth of local African economies. Sadly, charities are playing a role in killing this growth.

For example, CNN just ran a story about how Americans sending over old clothes is killing Africa’s economy:
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Blog author: jballor
Thursday, April 11, 2013
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Bitcoin-coinsWe’ve had some intriguing discussion about Bitcoin at the Acton Institute offices today. It is certainly a phenomenon worth greater attention, and something of significant cultural, social and economic import. But I’m not buying Bitcoin, at least not yet.

My initial skepticism is in part due to my lack of familiarity with the details of the currency and its formation. I certainly need to learn more.

But also in large part my skepticism is due to my doubt about the productiveness of the effort that generates the currency. Is it merely fiat money without the pretensions? Is it the logic of subjective value-theory brought to the final conclusion? I worry that the computing power expended to mine BitCoins is vacuous and parasitic at its core. It does not represent a good or service that has been provided for or contributed to anyone.

A Bitcoin has value simply because people have decided it has value. People “mine” Bitcoins because, as Whately would note, “they fetch a high price.”

But what does a Bitcoin block represent in terms of actual human utility? I worry too that this is a system that relies parasitically on real-world resources, e.g. coal which provides a large part of the electricity, which is used to run computers so that they can then in turn “mine” something entirely virtual.

What is Bitcoin teaching us, really?

If you’ve had experience with Bitcoin or thoughts about the phenomenon, please share them in the comments below.