Not sure I would describe a power transfer from individuals to the state as a cause for optimisim, but hey, this is The Economist.
Fiscal policy is a tool in a larger toolbox. I agree that it’s not currently being used well, particularly in the Eurozone where a zero-sum game is played out between the “export based economies” and the “economies screwed over by the export based economies but are stuck with a currency they don’t control”.
My hope is that more effort is put into society building, and a versatile toolbox is needed.
I'd say the Economist is pro incumbent-centric market
https://www.economist.com/leaders/2020/11/26/will-big-firms-...
"Yet the rapid changes that have been forced on many industries are leading to innovation that will outlive the pandemic—and in some cases are leaving incumbents less mighty than before. Consumers and trustbusters alike must hope that these newly competitive parts of the economy remain hotly contested long after the pandemic abates."
Look no further than state control of resources (in this case oil) in the two countries Norway and Venezuela. Same idea (state controls oil revenues) and two vastly different results. Because one is a democracy and the other bought public support by social programs spending to prop up his cronies' assault on government wealth.
So yes, ideal thing would be democratic control over capital and means of production. That's better than the current effectively oligarchic control where a small elite disproportionally holds unaccountable and opaque power. However, that's probably still better than an authoritarian government control.
Libertarians want a very strong government, they simply don’t want it to do much.
"The idea of a strictly limited government has proved to be utopian; some other, more radical means must be found to prevent the growth of the aggressive State. The libertarian system would meet this problem by scrapping the entire notion of creating a government." (The Libertarian Manifesto)
https://en.wikipedia.org/wiki/Libertarianism
“Libertarianism originated as a form of left-wing politics such as anti-authoritarian and anti-state socialists like anarchists,[6] especially social anarchists,[7] but more generally libertarian communists/Marxists and libertarian socialists.[8][9] These libertarians seek to abolish capitalism and private ownership of the means of production, or else to restrict their purview or effects to usufruct property norms, in favor of common or cooperative ownership and management, viewing private property as a barrier to freedom and liberty.”
That said, anarcho-capitalist still wants the rule of law they just don’t want to call it government. Rothbard's anarcho-capitalist society would operate under a mutually agreed-upon "legal code which would be generally accepted, and which the courts would pledge themselves to follow".[11] This legal code would recognize contracts, private property, self-ownership and tort law in keeping with the non-aggression principle.[11][12]
Anyway, Rothbard, a prominent anarcho-capitalist, states quite clearly that "libertarians" (i.e. anarcho-capitalists) are opposed to government, which contradicts your statement that anarcho-capitalists want "a strong government".
Anyway, I agree that Rothbard doesn’t want government, but I am saying he does want the rule of law which is a separation point from pure anarchism. How exactly you get a court system that’s not backed up by the threat of force without people simply ignoring it is a point of contention.
I don't think there is a 'vacuum' because people have a need for a boot on their face, that first the King put his boot on people's faces (which is now how it worked, it was a huge mixed bag), and then the govt must do it or else a strongman might do it again.
There is no 'power vacuum', just a need for certain societal order. How that societal order is provided is where all these things happen. Monarchies are 'a' way to provide that societal order (for national defense and other things for that matter). Similarly Democracies are another one of that. Imagine if you went to 900 BC and tried to install a democracy to the people there? Would it really work out? Would people happily rejoice? Or they'd lose their democracy to a King soon enough?
There is an argument that can be made that political systems people embrace, depends upon the weapon systems available to them [1]. That, printing press gave us the age of enlightenment (and Protestantism, which is a reversion of Christianity to the original text, as opposed to the Papal church), but the invention of (widespread) guns gave us the Democracy. Because earlier only a lifetime of trained soldier could fight but now the training of a firearm (to become lethal) can be acquired in a very short amount of time.
As an anarchocapitalist, in 2000s we envisioned private companies providing that societal order which allows us to get away with governments, and this was heavily criticized that this would just cause private companies to just become govts. But in 2010s, I can say that blockchain (and yes I understand the unpopularity of the idea) have the capability to create that societal order. In 2000s we always envisioned [2] that the free market money would look like Amazon Bucks or Walmart Bucks, but now we realize that with cryptocurrencies we don't need a single company but a decentralized network to do the same job.
1. Weapons Systems and Political Stability, by Carrol Quigley
2. https://www.lewrockwell.com/2008/11/sj-masty/austrian-econom...
In short, if cryptocurrencies threaten the power of violent governments, they will use violence to destroy cryptocurrencies. I don't see any way around it. Crypto is a technical solution to a social problem.
There are smart contract based solutions like Ethereum. The latter offers to create system which fundamentally avoids disputes (like a lock, once you lock your home, you don't have to worry about someone easily just entering and squatting your home). Govts have no reason to oppose this, just like govt have no real reason to oppose people using Uber to hail rides.
Smart Contracts can also create dispute resolution mechanism which does a far better job than today's judicial system or the opaque arbitration system we have today. Again, govts don't have a problem with this.
You're confusing a smart contracts based blockchain platform with 'replace-the-dollar' cryptocurrencies like Bitcoin Cash (not mentioning Bitcoin because they aim to replace Gold from your portfolio, and not the cash). These things threaten the govts, but the former category of technology doesn't.
Democracy is the best system, but it still needs to be checked in different ways. Like individual rights. I'm open to the idea that currency competition could be interesting.
The term to search for is free banking.
Both legitimate and questionable issuers were both claiming to supply "dollars", either directly or as an IOU for government-issued ones. There was consumer confusion baked right in, and probably to the great benefit of dishonest players. Some privately issued coins during the gold rush were a bit underweight, and a lot of private paper currency traded well below face value. A whole system of newsletters and discounting rates evolved to document exactly whose "dollars" were legitimate.
A new currency competition environment in 2021 has this sort of awareness built in. We're not in a newly cleared Homestead Act town dealing with stopgap measures for a lack of government issued currency. Anything but a FedCoin, even a Tether-style linked product, is clearly a private product and has a documented exchange rate. There isn't the same "information travels slowly in 1860" gaps to keep fraudulent products afloat.
I wonder how much of the interest in alternative currencies was based on hoping to exploit that sort of timing gap. The existing ones that don't have a built-in exploit system-- the "labour pool" ones denominated in hours, the "keep the money local" closed-loop currencies, don't seem to get huge momentum beyond local enthusiasts.
In a way, the current crypto FOMO mania smells of similar "trying to stay ahead of the information flow" plays. It's less that the issuers are hoping to pass 80 cents of gold as a dollar, but more speculators buying them at 40 cents, not really knowing what they're actually worth, but hoping they will settle at 80 some day. I wonder what happens once prices stabilize-- will interest fade away if they're back to competing on technical merit rather than the possibility of moonshot gains?
A well-regulated democracy isn't a good thing inherently. People can be awful and oppressive and this is why founding fathers rejected the idea of a democracy for US. We needed to put a republic with heavy constraints on the power of the govt precisely for that reason.
A great example of well regulated democracy which is terrible is India, because its founding fathers failed to control the power an average voter has, in India you can file a Public Interest Litigation [1] to the courts and get cryptocurrencies banned (without going through the legislative body).
Compared that to say Lee Kuan Yew. Not free press (can't criticize Lee Kuan Yew, protest freely, or strike freely), but you'll see Singapore work way better than say India.
1. https://en.wikipedia.org/wiki/Public_interest_litigation_in_...
Edit: wow, that google search is ugly.
You will eat ze bugs
You will own nothing
and will be happy
It also allows for a true negative inflation rate. Imagine being unable to remove your cash from an account that earns negative interest.
Digital currency enables this. And _does_ massively shift power away from the individual.
This is happening already, but is expected to accelerate over the next few years.
That said, and I know I’m going to get hassle for this, I’m still struggling to be against it (as long as I’m still able to spend the money on other assets as it’s obtained - on the basis that the government can’t freeze what isn’t there).
There are whole classes of crimes (financial and otherwise) that this would make completely infeasible.
Cash is a check on centralized power. An important one.
Firstly in a totalitarian state they can already freeze your assets at will. Chinese banks regularly do this and there's nothing the victims can do about it. Secondly, although unlikely that states will do so, it's perfectly possible to design CBDC to be privacy preserving.
What digital central bank money actually does is shift power from private banks to the central bank. It also gives those who want to hold large sums of cash more security as they will be able to directly hold the actual currency instead of private bank credit money which is uninsured at large sums.
But if the all economical activities are in the central bank I am not sure you can have the private part of all these non-government activities.
Not to mention mining the details of your transactions are so much easier and social credit system is so much enforceable.
The article mentioned of Norway is a good case illustrated someone beyond this line of thinking. But once the central Gov can control all, can even democracy survived one wonder. The decentralised part is the key assumption in democracy.
Will this happen? I doubt it. Because the trend goes to ever more authoritarianism. But it could be easily implemented if there were a will to do so. And again, we don't need digital currency for the government to turn against the citizen, many governments around the word manage perfectly fine without it already. Private banking isn't immune to the law. Instead of being scared of regulation, the citizens should lobby for the right regulation. The current financial system already discriminates against us and only aids the wealthy.
I see this a problematic because now non-totalitarian states will have that power. And it will give them an ability to go "oops we made a mistake and shouldn't have frozen your assets".
And don't forget about all the asset-forfeiture laws that are still on the books. I can imagine police departments all over the country salivating at the ability to grab whatever they want at a routine traffic stop. "Can't explain how you have that much money in your account? Well, we'll just grab it and sue the money, and you can get it back if the court determines it's yours."
Negative inflation is deflation, so you money is getting worth more. From a consumer point of view that would be a win.
Deflation is also a win for people who have inherited their wealth a long time ago, because they have to do absolutely nothing to protect their wealth. It's basically rent seeking but this time it is with money.
There is another problem, the real value of debt grows over time, which makes it harder to repay debts.
However, I will admit one thing, occasional deflation spikes are not a bad thing, if they are followed by inflation that meets the 2% target.
>It also allows for a true negative inflation rate.
Already possible and has nothing to do with CBDCs
>Digital currency enables this. And _does_ massively shift power away from the individual.
No, you are completely misinformed what these CBDCs actually are and do. It simply a central bank "dollar" that isn't tied to an account at the central bank. So 2 banks can transact them between each-other without the need to change balances of their central bank account (balance sheet). Its p2p fiat. Issued by a central bank but does not need the central bank in between every transaction.
It reduces fiction in the technical system. Its purely technical it has zero effect on how people use money or whos in power. (the issuer has the controller/power which is still the central bank)
CBDCs Explained: https://cinnamon.video/embed?v=557927432749843622
CBDCs, if widely adopted, will drain most (if not all) banks of deposits, and thereby trigger a banking crisis. Either that, or banks will have to immediately cut fees and start paying meaningful interest, which will make many banks unprofitable, instigating a banking crisis.
Given that many central banks are prudential regulators of commercial banks, and are tasked with preventing banking crises, it seems very unlikely to me that CBDCs will be released to consumers. Not because they wouldn’t be revolutionary, but because they would be too revolutionary.
In the US, banks do often try to justify high fees by pointing to the relatively high cost of administering small accounts. But those accounts are still profitable for the banks because of the fees—they don't actually want to give up that revenue. And CBDCs don't just threaten banks' consumer banking business.
Although my previous comment was focused primarily on consumer account holders, similar incentives exist for businesses. Any business that has bank account balances in excess of the FDIC insured amount is extending credit to its bank. Yes, banks tend to be trustworthy, but the 2008 crisis showed us that even the largest institutions can fail, and then you are just hoping that the US government stands up and covers more than what the FDIC is obligated to.
As a business owner, it wouldn't be a difficult decision to shift all my bank balances over to CBDCs, provided that the physical security and anti-fraud risk could be sufficiently covered. I would much rather have 100% of my risk exposure be to the US government, rather than to a bank that may or may not be backed by the US government if the shit hits the fan. Banks today are unable to offer interest rates that would compensate for that risk differential.
I am also confident that a CBDC would be easier to use and more flexible from a user experience perspective than my bank's current systems.
All this is to say that we would all hear a giant sucking sound emanating from banks' balance sheets if CBDCs were introduced, not only because people would be closing their consumer accounts, but also because businesses would be withdrawing funds from their business accounts.
Yes, there are accommodations and affordances that can be made to keep the banks in the game somehow, and there are "bank-like" roles to be filled in a crypto economy. However, banks today would find it difficult and disruptive to make that shift, and many wouldn't be able to make that shift at all.
Banks would go out of business. Big banks would go out of business, and that is the last thing that any central banker wants to have happen. The fact that by introducing a CBDC a central bank itself would be the direct cause of bank failures makes the whole concept quite dubious, in my mind.
Kinda [0]:
> Germany’s biggest lenders, Deutsche Bank AG and Commerzbank AG , have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. The more customer deposits banks have, the more they have to park with the central bank.
That is creating an unusual incentive, where banks that usually want deposits as an inexpensive form of financing, are essentially telling customers to go away. Banks are even providing new online tools to help customers take their deposits elsewhere.
Banks in Europe resisted passing negative rates on to customers when the ECB first introduced them in 2014, fearing backlash. Some did it only with corporate depositors, who were less likely to complain to local politicians. The banks resorted to other ways to pass on the costs of negative rates, charging higher fees, for instance.
In The Netherlands the ABN AMRO uses a different strategy [1] to nudge clients to put deposits above 10k at a different bank.
---
[0]: https://www.wsj.com/articles/banks-in-germany-tell-customers...
[1]: https://twitter.com/wmiddelkoop/status/1387480070390943755
Also, I'm not sure if I would describe this as banks wanting to get rid of deposits, rather than wanting to make money off of them. It's not as if banking customers have meaningful alternatives at the moment, do they?
But in practise it's 65% Chinese miners?
And most people use cloud wallets and you know what they say:
Not your key, not your crypto.
> I got the impression that the theory was that the power was the individual. But in practise it's 65% Chinese miners?
Are Chinese miners not individuals? China has the largest population, so it's only natural that it will also have the largest fraction of miners.
A lot of people seem to have a short memory: https://en.m.wikipedia.org/wiki/GHash.io
what?
Governments can't do that with transactions through banks.
Given the nature of bank regulations today, I don't think that the power-relationship between individuals and the government will change substantially with the introduction of CBDCs. Even today, governments set policies as to what kinds of accounts banks can keep open, and what type of business bank customers are permitted to transact using their bank accounts. Banks are required to report potentially suspicious activity surreptitiously to law enforcement agencies, and are required to disclose their customers' information and activity to the government when asked. I'm not sure how much more power individuals would be giving up.
What will change, however, is that banks would find it difficult to operate once a CBDC has been introduced in a country. Consumers would prefer to receive and make payments through an electronic system that charges lower fees. Businesses would prefer to hold their cash assets in a flexible medium that is fully backed by the central bank, rather than having to worry about extending credit to a commercial bank (which could become very risky after the introduction of CBDCs). Bank balances would be transferred to CBDCs on a massive scale, putting many banks in financial peril.
An argument might be made that CBDCs would speed up the demise of physical cash—which I wouldn't entirely disagree with. That is, however, a question pertaining to the slope of that particular trend line, not its general direction. The current banking system is already pushing us towards giving up cash; the pressures that are preventing physical cash from being eliminated are largely cultural and political, not economic or infrastructural. CBDCs' effect on the politics and culture of physical cash will at most be general and incremental.
Banks have a profit motive and therefore keep trying to do things which value instant reward over stability.
Governments (when not corrupt) are motivated by the actual success of the nation as a whole rather than individual sectors. They mostly only need to care about short-term wins for elections.
What Erdogan should do is to support the agriculture sector and help it provide enough food for everyone.
By forcibly lowering interest rates he is actually cutting off financing for the most productive companies. High interest rates are supposed to drive out unproductive companies and make it harder for them to acquire financing.
If the agriculture sector is highly productive (indicated by rising food prices) then it will automatically obtain more funding and other companies will have to downsize, which makes more resources and workers available to agriculture companies.
Citizens don't trust private banks. They don't trust the government since congress sells out to lobbyists.
>> They promise to make finance work better
That's the good part. ("better")
>> but also to shift power from individuals to the state
That's the not so good part. Note the "but".
Good grief. I can only hope this was just a poor grasp of English on the part of the author, not actually intended as an imperative.
The most important digital currencies are those that empower to the people. Not fund wars and beaurocracies.
The Economist has been possibly the leading voice for free market capitalism since the mid-19th century. If it has any mission, that's it.
This statement is very short, but it is full of unsubstantiated implications:
1. To have such a transfer, there must be powers to individuals in the first place. But currency in its modern sense has never been "individual power". It's a common denominator of value transfer, and a measurement of credit. No individuals can possess such thing. It's inherently social and community based.
2. The power has always been within the government. It was somewhat stolen by the capitalist moguls, who, including other pro-market deeds and statements, have managed to turn government into the foundation of monetary power, but deprives the government from exercising actual control over it. For instance, government forced taxpayers to bail financial institutions, but are powerless to fundamentally alter the behavior of the financial system.
3. Transfer, no, these type of social-economic dynamism can never been reasoned using the English word "transfer". It's more like social engineering, of adapting people's perception, setup societal, and business organizations, and laws to match that design.
You and the economist are basically on the same camp, but arguing a superficial issue that doesn't even matter.
The goal is always make government become the safety net of the actually powerful entities, and ensnare the whole population to surrender the majority of their freedom for the enrichment of the few.