Economics of Bitcoin – Part 2

Please find below the second part of text transcript regarding the economics of Bitcoin.  We hope to expand this series with lots more articles based on how digital currency is being used and particularly the effect it will have on developing economies.

There’s little doubt that for less developed nations the possibilities (and arguably the risk) is much greater than those with solid international currencies.  A proper validated and trusted digital currency could help significantly both in economic development and international trade.

It’s often forgotten that Bitcoin has more to it’s potential uses than simply anonymity.  although this is probably the greatest driver currently and one of the reasons Governments and banks are reluctant to fully back any digital coin.  Mind you if Governments continue to adopt draconian measure and filters across the internet like the upcoming UK Porn filter – the attraction of anonymous transactions and currencies will continue to grow.

Continuation from previous Post – http://www.jubileesouth.org/economics/economics-of-bitcoin-part-1.shtml

 

Text Transcript Continued – credit –

Malavika Nair

– https://youtu.be/DMoTSJjPCkQ

So it’s not that bitcoin is backed by dollars. Even if you can buy and sell easily, it will not make it redeemable. So bitcoin is not such a thing, it is not an alternative currency. This makes me use the elimination method It should be the commodity currency closest to it. It is close to the commodity currency because it behaves like a commodity It has no other significant use value other than being used as currency. However, I mean people choose to hold it You know, for speculation, or just think it’s cool stuff People choose to hold it at the beginning when it has no trading value. Just buy it and see what happens next. So it still has some use value, although not so obvious It is intangible value Not what we generally think of But the closest thing should be the commodity currency or the so-called external currency.

The special emphasis is that it is not endorsed and cannot be redeemed by anything. It also has no guarantee from any government. George. Sergey has published an interesting paper. He proposes a term “synthetic commodity currency” to classify bitcoin. I think this is a very useful term. Basically it is completely like a commodity currency but it is synthetic But it has most of the qualities of a commodity currency. The biggest problem is that this is the most interesting question I think. Why would anyone want to use and trust this thing? I mean, just like that… is that simple? I can easily start creating a currency tomorrow. Can I do this? you know It is a thing born out of thin air Then people start buying it and betting on the money, the price is constantly fluctuating, which looks like a bad investment.

Why do people believe in it? This is an important question worth answering. It’s so interesting because when we talk about the medium of trading, the question of trust is very important. If you think about trading media versus consumer goods Consumer goods means anything you would consume like a meal or car When you are driving, you are consuming a car. Your house, you live in the house, you are in the consumer house The trading medium is completely different Only when you know that others will accept it and give you merchandise will you buy it and hold it So think about how difficult it is for a new currency. No one has ever heard of this thing, right? Everyone already has the money they are using, right? Why is anyone going to hold it? If I want to hold it, I need to believe that others are willing to accept it, right? But everyone else has the same problem because it is the medium of trading If he wants to accept the media I give him, he needs to know that others will accept it to exchange goods and services.

Because this is the main function of money This is why we use money We never consume money, right? It’s not like ice cream, it’s not like a car It is not a consumer product The only reason to use it is as money So how does a new currency begin to flow? People need to believe that others will accept it. This is a huge problem So trust Maintaining or building trust and maintaining it is the key to any new currency The same for the old currency If tomorrow, for some reason, people lose trust in the dollar, there will be many people who lose patience and will no longer believe it. I mean, at this time, the dollar will have something violent. For money, trust is the key Consumer goods on the other hand It is important to believe in the credibility of the other party, but it is easy to verify You consume it If you like something, you enjoy it and you will buy it So created the demand for such things But the need for a new currency comes from knowing and believing that others accept that they can be used to trade goods and services.

And everyone has the same problem, right? So the question is why is there anyone who wants to believe it first? I think this is an important question worth considering its answer. I think there are three bitcoin features or features that make it trusted by people. I don’t think it was just created out of thin air. People are just on the rise, believe it today, and don’t believe it tomorrow. It is not produced like this I think people believe it based on some real reasons. There are real reasons behind using it as a currency These reasons will not change casually. The first point is of course the fact that it is a fully open and verifiable ledger.

The fact is that you don’t have to trust any third party Have the right to monopolize this currency No one has the right to monopolize this monopoly And the fact that everyone knows this creates trust Because you know, even if you never really verify it It’s like saying, you said, I’m going to check if this is true. When I send Bitcoin, is it really the actual operation like this? Even if you don’t really check it, you know it can be publicly verified.

right This can help build trust If you want, you can In fact, many people are verifying it This led to the establishment of trust in it. The other is of course that it is a completely open blockchain. That is open to everyone Because you know now Some people say that they want to create a private blockchain. Like a blockchain within a government or company But Bitcoin is based on a public blockchain that is completely open and free (free) Free (free) join, free (free) leave Anyone can join anyone can leave Again, this helps build trust Because it is completely decentralized, it is also geographically dispersed.

No country has a government that can monopolize it. Again, this helps build trust The third point is the fact that it is based on open source software code. I think this is the most important, so I want to explain it a bit. You know what is open source software Very short, open source software has a long history. Linux is the most famous example Let’s think about its (open source software) economic principle. How does open source software work in this part of the money? Economists have thought about open source software But never discussed it in terms of money benefits.

There are two types of software, one that is completely proprietary, such as a company like Microsoft or Apple. We are using these software They are proprietary software, obviously, right? These softwares are paid for, they are not free These companies have ownership of the code They also control and have the power to modify these codes These are proprietary software, imagine Microsoft Open source software is completely different on the other hand. It’s free for anything Anyone can download it Like bitcoin code, if you want to help improve it Or give suggestions to developers or fix code errors.

You can do these things. This is open source software. It relies on contributions that are mainly from the public. Continuously help it develop and help it modify the problem to make it better Of course, this question is what economists think is a free ride. Why do you want to invest in something that doesn’t have any money? You didn’t get anything but you still put it in So there is quite a lot of literature in economics discussing this issue. How do we explain the problem of free rides that open source software shows? Later, they found that although people did not get direct returns, they still invested in the development of open source software. Because these experiences can be converted into monetary value later. For example, you can write it in the resume. You can say that I solved this code error for this open source project when I interviewed with Google.

This proves that I am very talented. So some open source projects have always attracted many very talented people. From the individual’s spontaneous investment and time only to keep the open source software running This is the power that drives Bitcoin now. Let’s see if a proprietary software, such as Microsoft’s software, they try to create the currency that belongs to them. Try to put it on the market You all know that this currency was issued by me (Microsoft). This thing no matter what you call it Think about the question of trust Everyone knows that Microsoft is privately controlled by private companies. Meaning they have the private rights and control of the code, if they want, they can change it at any time. They told you in advance that we will not modify it if we issue a total of 21 million currencies.

You know, it is designed in the same way. But you know, they actually have the power to change the power they have to manipulate it, making it good for itself. right? Because it is based on proprietary software How many people do you think will believe it? Not too much Such a currency will not be too successful And Bitcoin is based on the facts based on open source software. At the same time, everyone knows that it is based on open source software. Make people believe it Because no one can modify it for their own benefit When the modification is proposed, it has to go through a complicated process and it needs to pass everyone’s consensus. Many complicated issues need to be agreed by everyone. In fact, there is a big debate now These are happening in the public, you know, Bitcoin is about to face a major fork. There is a lot of debate in the Bitcoin community that has a lot of debate among developers. Which method should we use? Should we increase the block capacity, or should we use other methods? This is part of open source software Open source system Interestingly..

I will come back and say this later. This way of making decisions requires everyone’s consent, but no one has absolute power. All depends on the public This seems very confusing Is there a central bank that is not more efficient? Someone (organization) has the power to have the power to make decisions completely. Everything he has said, just as Microsoft can have the power to decide what to do. Look at this crazy situation, what is happening now Look at these bitcoin people are quarreling with each other It seems confusing but it is actually very It provides the power of the entire Bitcoin system Because everything is transparent, which brings a lot of trust.

Because everything needs to be made public, even if it is for example Even core developers want to modify the code for their own benefit. They must also make public changes and everyone will immediately know that something is happening When this happens, most people will stop using it. This is like the game theory Developers know that other people know what they are doing so they won’t mess around Because you know that you will be discovered soon. Then you will lose everything you built hard That will be the end of Bitcoin Because if you lose trust If a currency loses people’s trust Especially something like this Completely from the market mechanism There is no central bank without federal savings insurance.

When you lose people’s trust, everything is over. Even cheating to manipulate code can bring you benefits. The loss caused by this will be even greater, which will become a disadvantage. From another perspective Its clever thing is The software itself is free and obvious. You can’t profit from the software itself. If you contribute software development and assist in modifying the error, you will not get a monetary return. What you can get money back is Develop applications on it using its open source code There are a lot of bitcoin entrepreneurs out there.

Develop apps, develop payment systems, make money and make a lot of money Entrepreneurs create their own proprietary software based on open source code The result is that entrepreneurs tend to participate in the development process themselves. Now make sure that it works well for them and has a substantial interest in them. Make sure it’s transparent, make sure it works smoothly for everyone to see that we are not manipulating it Because they will be the loser Because the premise of making money is that Bitcoin works very well.

Because the applications they develop depend on the good foundation of the open source code. Make sure the code works smoothly, making sure it’s transparent and building a niche for them Make sure that there are no cheating behaviors in progress All of this is an important factor in solving the trust problem. When it comes to money, this is a big deal. Think about this strange open consensus consensus decision Decisions made by the central bank with its discretion to close the door No central bank is bound by rules But they are given discretion, which is the majority of the situation now. When there are these unknown things, some people know something that others don’t know. What happened in the door, how do they make decisions They are given a lot of discretion This actually caused mistrust If you think about the Fed Most people, if you ask them for advice from the Fed You know, most people are, um, I don’t know them.

But they seem to have a lot of power Actually, in fact, they have a lot of power. They can make these decisions Because they have the power to monopolize these decisions If they decide in a discretionary way, this will lead to mistrust This is why many of the economists are pushing the rules to impose restrictions on the central bank. With open and transparent rules, I hope everyone knows how decisions are made. Then What are the benefits of using Bitcoin? What are the benefits for individuals? One obvious benefit is that it gives you more privacy protection.

You don’t need to provide a lot of information like your name, put your information publicly You only need one password, you need to protect it. At the same time you have a public address And these are all generated by cryptographic calculations. This is more private than the current credit card system or PayPal. These systems now contain a lot of personal information. This has led to a lot of fraud every year. The amount of fraudulent identity is very high through the amount of fraud in the international payment system. Bitcoin offers the benefit that you don’t need to provide any personal information. This is an obvious benefit This reduces the chance of fraud The biggest benefit of making Bitcoin so successful is Merchants can have lower transaction fees For businesses, shopkeepers, hotels, etc. like overstock.com Accept bitcoin why? Because of this they can get monetary benefits Because the store accepts credit or debit cards every time You have to pay 3% of the fee to the credit card company. If you are using bitcoin A lot of companies like Bitpay and Coinbase can do the same way for merchants to convert Bitcoin and USD instantly.

Or you can keep Bitcoin directly if you like. But the handling fee is much lower 1% or less Many times, it is free, it is 0% So if you are a business, you don’t have to think about it, right? I mean, why not increase the acceptance of bitcoin payments? I accept credit cards, debit cards, PayPay, VISA, everything is good and also accept bitcoin payments. Because if people really pay for each sale with bitcoin, I can save 2~3% of the handling fee. This is a large number This is actually a big part of your profit.

When you are the boss This is actually a key to current success. There are currently hundreds of thousands of stores around the world that accept bitcoin I read in the report that more than 250,000 stores in Japan will start accepting bitcoin payments. This can be said to be the key to success. Another cool thing is The convenience of transfer, the speed of transfer I can use the same time to send bitcoin to you sitting here and send bitcoin to someone on the other side of the world. This is really amazing. If you think about people in developing countries of the world They have no traditional financial system to use Those that we take for granted like debit cards, ATM machines Anything, you know, the app on your phone But in many parts of the world, there are not some of these places in Africa, in Asia.

For things like Bitcoin, you only need to have a phone, an app and an internet connection. Things like this you can send money to far away Still safe Because there is no fully developed financial system You can basically rely on cash Or you rely on expensive wire transfers or remittances to get the money back home Things like this are a big step forward. This is why you have heard something like M-Pesa in Africa (Mobile Money mobile cash, remitted by telecom operators) They become very important But mobile cash is just an alternative currency. It is not money itself Things like Bitcoin are more complicated It’s actually safer and faster Ok, these are the advantages and benefits. What challenges are there? Too many challenges, do you know? Bitcoin has achieved great success But it has not reached the level of universal acceptance that everyone will use it.

I have done very well since it started. No one thinks about such a thing. Anyone who studies monetary economics doesn’t think It’s amazing that you can use it to buy a bunch of things outside. Really amazing people use it to believe it But is it a currency that is already widely used? No, will it become popular? We still don’t know, maybe not This is the case, if you imagine that there is already a system in the United States or anywhere that has a good functioning of the legal currency issued by the central bank.

It’s really hard to overcome the network effect I’m going to discuss next. It is difficult to overcome the so-called network effect Imagine everyone has built a huge social network on Facebook. Now if there is a new social platform that wants to compete with it Or replace it to get people to move to a new platform I said this is really difficult because everyone has already established a connection on Facebook. The question is who wants to go to the new platform first, for what? Especially when there is a huge so-called migration cost Why should I take a platform that works well from what I already have? Switching to a platform I don’t know is unfamiliar. I don’t even know if there are people I know. Why do I have to change, right? It’s almost a similar situation Bitcoin needs to face the huge network effect of existing US dollars and other currencies that are already functioning well. This explains how Bitcoin can achieve such success. When there is a lot of inflation, malignant inflation.

Or political instability in some countries recently. Whenever these happens, the adoption rate of Bitcoin has risen sharply. This is a good thing For those people, this is a good thing. Because now they can have a choice They don’t have to lose all their savings or money just because of their currency inflation problem They hope to convert Bitcoin to save some of their assets Then convert to other currencies But this is different from being used by everyone in the usual situation. This is the real problem Do we see everyone turning the dollar away to bitcoin? Oh, I don’t know if this is a difficult question to answer. So the biggest challenge I think is At this moment, there is no monetary benefit for consumers like you and me.

For example, some of us have bitcoin but how many people use bitcoin to buy things, who used it to buy things. Ok Yes, that’s it, this is what I have to say. It’s like, we buy it just, oh, this stuff is cool. I want to take it to my friends. You know, show off, do you have bitcoin? You know How many of us have really used it? No, um, I mean this is part of the process It’s a bit confusing, how is it used? What should I do with it? Another part is that it lacks the money benefits like a business.

For merchants, it is very obvious that you save 2~3% of the handling fee per sale, you will start accepting it. If there is a similar monetary benefit to the consumer If you use Bitcoin to pay for a store such as Amazon or Dollar-Price, etc. If you pay with bitcoin you can pay a price 5% less. This is a discount on using Bitcoin I think more people will start using Bitcoin.

We will try How is this thing used? I can really get a 5% discount! I will use it, right? If you have 5% and 3% cash discount, you will choose 5% If there is some kind of monetary benefit, although it is not yet, it is possible Occasionally you know there is a so-called Bitcoin Black Friday (Black Friday, US Big Purchasing Day) If you pay with bitcoin, you can buy a bunch of things at a very cheap price. At those times you will see many people selling and paying with their bitcoin Because there is no obvious monetary benefit, the reason why consumers don’t really want to use it Of course, the truth is that this is a very high information burden. This is like a prejudice group It seems like you know in a prejudice group, maybe 20~30% of us have bitcoin But if you go outside like I asked the students in my class, they behave like, who cares about this I have my debit card I have my bank account and it has insurance for federal savings insurance.

I know that the money will not disappear, they are safe. Look at this thing, its price fluctuations are so powerful. I don’t want to buy it So this is a big information burden for consumers. First, you need to understand that it knows how it works. You need to keep up with what is happening at any time How is the price now? what happened? right? It’s like an age we’re used to. We are used to the convenience of things we have ATM, we have credit cards, debit cards Here is the story of what happened to my bitcoin. This is when I bought it when it was about $100, I bought a few bitcoins When you have bitcoin, you have this huge password and it’s super long And you have to protect it safely I lost my password. Really shameful, I know But this is also part of the story Why, you know when people think about investing in assets and investing money It is not convenient Now you have to protect your password because once you lose your password, your bitcoin will never be found.

It doesn’t look like you are logged into your bank account You lost your password, will they say that you forgot your password? You can reset it, right? The money will not go anywhere. You won’t lose them because you lost your password. The true story happened to me I tried not to think about how much they are now worth. Yes, I don’t think about that. However, it just has a lot of work to do I think this is a bias group for most people. But most of the population they are not willing to do those things When you have fiat currency, you have a federal savings insurance to protect your bank account. Forgot your password and won’t lose your money. This is what the Federal Savings Insurance is doing, right? Even if your bank goes bankrupt, they will protect your money. They will pay you all the money in the original bank account.

These have created a huge burden I think this is because most people tend to become satisfied after a while. You know that we don’t have a lot of choices about money products. You have fiat currency as the only currency I mean, you can choose a bank but what is the difference between them? I mean, if you go to any bank, the federal savings insurance will protect your bank account. Not that big difference, right? Do you really care? Are you really going to check how they use your money? This is a problem that has caused many lack of competition in history. Sometimes we don’t even think about currency goods competing with each other. This is like something that has never been possible Because this makes most people meet the status quo It seems difficult to change people’s habits This is indeed because it is a money relationship, which is even more difficult.

If you think about consumer goods A commodity that has no competition under control, such as a car produced in a socialist country You know, I am from India, once we only had one kind of car. But when we practice socialism, we only have one kind of car government to make this kind of car. Everyone has this kind of car. Guess what happened after the liberalization of this country At least ten cars have appeared Of course people feel hesitant You will hesitate to try new things and have many choices There are many competitions in the market, and a lot of new things have appeared. But you still try, right? You will be like this, ok, if I don’t like it, I will still choose my original car.

The results of it? Everyone starts with Chevrolet Honda, Hyundai, etc. This is the car that everyone is driving in India now. Because it is a consumer goods It’s easy to test if it provides its value in use. If it’s valuable, you’ll change the choice. But for money, testing is more difficult Because only you know that when other people will use it, you will use it. Others will use it when you are willing to use it. So it’s like something that locks each other Plus its high information cost With Bitcoin, you have to know that everything knows its situation.

When prices fluctuate, you may lose money These are the challenges and obstacles it faces. So I will feel that if there are more applications that provide consumers with financial incentives to use it For example, there is an app you can download and say I want to buy this and pay with bitcoin Then you can have a 3~6% discount Then people will be willing to use it In fact, there is such a thing called Fold App. Has anyone heard of it? You can go and see if they are doing something like this. It seems that only Starbucks can be used at present. If you use their app, I don’t know how they do it.

However, they give you a 20% discount on the purchase of Starbucks coffee. This is very good, right, because Starbucks coffee is quite expensive. So, Fold App Basically, you pay with Bitcoin. You can get a 20% discount at Starbucks. This is great, and they try to expand to more retail stores like the Whole Foods Supermarket (a supermarket chain selling organic food) We need to have more discounts at the Whole Foods Market, right? Ok, so I will summarize it soon. I think some big thing is that Bitcoin is like in many controversial events. Many people say this is crazy, it will fail There will be many price fluctuations, many people fail and many people lose, many people go bankrupt But this market is working like this The market is not perfect This is the merit of the Austrian economics.

We take these into account, right? We understand that there are real failures and losses in entrepreneurial and real markets. They won’t be perfect bitcoin and won’t be perfect It won’t be perfect, so we shouldn’t expect it to be perfect So whenever you see someone failing, some people say it’s the end of it. No, this is normal. This is the way the market works. This is the first time What makes me really interested is that this is a very rare moment when we can witness the competition of currency goods. This is a very rare moment in history. Because it is still largely unregulated, there are many related ventures. There are a lot of profits, a lot of losses, we see a lot of ups and downs, right? It will be very interesting to see how currency goods will compete.

Bitcoin and blockchain will not disappear Blockchain must also be that they will only grow stronger The government has begun to use the blockchain to register property certificates. So this technology will definitely stay But on the basis We should all support and be optimistic about things like Bitcoin. Because after all, it is creating an option Even today, for someone in the US, you don’t see the need to use it. But it’s there, it gives you an option. If you need it, you can use it, right? Imagine someone in Argentina or a war zone Think about those people, this gives them an option This is a great thing For this reason, we should all support it. Thank you.

 

Additional

Great program/documentary on RTE last month regarding digital currencies and their future.  For those outside Ireland you’ll need an Irish proxy in order to access the channel and it’s archive.

Economics of Bitcoin – Part 1

It’s been described in all sorts of ways from all sort of economists – ranging from the global currency of the future to a complete digital scam. The truth as always, probably lies somewhere between the two descriptions. In some markets though it’s become an important currency already, for example digital transactions that take place using anonymous methods like rotating proxies will often have the need for anonymous payments.

Whatever the real future of the digital currency turns out to be there’s one thing that is certain – people will make money from Bitcoin whether it’s successful or not. This useful video was recorded at the Mises Institute in Auburn, Alabama, on 27 July 2017.

Text Transcript follows: (Part 1)

I am Dr. Malawi, I teach at the Johnson Center (School of Political Economy) at Troy University. If you don’t know the Johnson Center, you can go to Google to get a little understanding of it. We have a great teaching team there. We have a major in economics and master’s degree Anyone interested in a deep understanding of economics has a cool teaching team at the Johnson Center. I teach there, my husband is also teaching there. Have time to find out about us I teach “Currency and Banking” This is my main job, and I graduated from this major. So I am really excited to come here to talk to you about something that I find very fascinating “the economics of Bitcoin” How many of you have bought or held Bitcoin before I started? OK, not too bad, it is much better than my past class.

But such a result is expected I will focus on the economics of Bitcoin Not too deep into the technical level you know, this is not the theme of today I will take some backgrounds very quickly so that everyone has a basic understanding. “What is Bitcoin” is just a few basic technical aspects Then we will enter the part of its economics So what is it? Obviously, we now know that it is a digital currency. It is completely decentralized It’s a peer-to-peer network meaning there is no monopolist issuer It can be said that this protocol is used to generate bitcoin from this computer code. And no one can control it Basically this network of computers is producing bitcoin At the same time this network is also responsible for verifying them. This is why it is so interesting. Because usually, when we think about money and fiat money Specifically, you know that there is a monopoly issuer. There is always a government behind to issue these currencies and endorse them. And this is totally different This is a kind, you know… Basically produced by the market and completely decentralized What does it do specifically? It solves the problem of double spending (repetitive consumption) (meaning that the same money is used for different expenses) This is a big problem when you use any kind of electronic data.

Imagine when you send an email or send an attachment on an email You can attach a file to a person and then go back and send the same file to another person. No cost, right? It can be perfectly copied and sent to others And electronic data or digitally sending valuable data or money through the Internet has the same problem. It is easy to be copied by double flowers This is the role of commercial banks. They play the role of a third party They stand in the middle of the people of the trading parties and maintain a set of books This is their role, right? So when you log in to your debit or checking account online You will see every sale and purchase transaction for you. Every expenditure goes to someone’s account. That is what commercial banks are doing. They are responsible for maintaining the books and maintaining account records.

Okay? Maintain those electronic money transactions Otherwise, if it is directly paid by us to each other, it is easy to cause double flowers. Now let’s see how Bitcoin solves such problems. Again, no third party in Bitcoin is supervising the transaction. Bitcoin’s solution to this problem is through what we call the blockchain. It is a complete… Maintaining the books with respect to the supervisor who uses a monopoly of a third party Bitcoin provides a fully publicly verifiable ledger So it’s like everyone’s supervision, okay? Everyone is supervising this book, the book is called the blockchain. Basically the blockchain records all transactions that have occurred Another cool thing is It is set to, or the code it writes is designed to only generate up to 21 million bitcoins, ok? The bitcoin that has been dug out in circulation is about 16.5 million.

Another very important feature, we will go back and discuss in detail later. It is based on the facts of open source software It has considerable economic significance. We will discuss it again later. And the way it works is that miners produce bitcoin by investing in computer computing power. To help blockchain operations So you are confirming the transaction You provide your computer computing skills to help blockchain work If you are the first person to dig into a particular block or someone who completes this set of transaction verifications You will be given a bitcoin reward So he fits the incentives to some extent. It rewards anyone and anyone can become a miner. It provides a reward for monetary rewards.

If you have finished your work, you can get Bitcoin rewards. Bitcoin is produced in this way. But not just that This mechanism also ensures the operation of the blockchain ledger. That is, the verification of the transaction So it’s really fun The incentives it is designed for So let’s take a quick look at the price of Bitcoin. This is the historical price of Bitcoin from the beginning to the present. This is January 2009 This is the beginning, you know that there is nothing happening for a while, of course no one cares. Here, things have become interesting since this time. Its price has come to about $100 Yes, about this time I bought a few bitcoins I will tell you this story later. At this time I started some This time is about July to September of 2013. I was teaching “Monetary and Banking” classes. My students and I talked about Bitcoin. After a semester, the price has risen here in December (about $700~900) In that class, I said, I will tell you earlier, you should buy some At this time, you have already made a lot of money.

Then this happened later (price fell) Of course, when prices fall, people say it, it’s a bubble, it’s a bubble. The bubble is about to break, it will be broken. The point is that the bubble will not show this trend You know, the bubble won’t go up, then go down, then go up again, then hover again, stop, then go up again You know, right? The bubble won’t be like this, it’s not a bubble.

No matter what it is, it is definitely not a bubble, right? I mean, whenever something happens, a group of people will yell, it’s over, it’s over. You know, it’s still there. So it is definitely not a bubble The next picture is how many wallet users there are. one more time I think it is about from 2012. Once again you can see that it has been growing almost Let you probably have a concept We saw that it probably remained there But is it being used for speculation, or is it really used as a currency transaction, like buying a commodity and it’s indeed This is the number of confirmed transactions per day It is a very obvious long-term growth trend It has some recent declines I am not sure why, maybe it is the relationship of rising prices.

So obviously it’s not just a bubble to illustrate it. It is not just used for speculation There are people who buy it, hold it, use it to trade, okay? This is the information we have. Now the first question I think is this is money? Economics can tell us what we can say is bitcoin money? Is it money? Right What makes money money, right? How do we define the money? Basically money is very interesting stuff. Money is determined by its function. Not determined by its style If you think about what is Apple Do you know what apple is? Apple is an apple, banana is not an apple. What is a car? The car is different by certain functions and certain styles of cars and trains. But what is money? Money does not have a specific natural style Many different things can become money So money is defined by what it can do. It satisfies the function as a trading medium So what is the trading medium? It is a thing used to trade and buy goods and services.

It’s something we hold it just to be able to exchange and buy goods or services with it. If we look back at history, we will find Many things have been used as money There are many examples of different commodity currencies Recently, we have more money in the form of legal currency paper and money in electronic form. So I mean there is no real reason to say that Bitcoin can’t be money. A basic question we have to answer is whether you can buy and sell goods and services in Bitcoin now. If you only consider this, is it now a medium of trading? Can you buy a bunch of things and people will accept that you pay in bitcoin and give you goods and services? The answer is yes It is a trading medium that is used as a trading medium Although it has not been widely used, I will not call it a currency. But it must be a medium of trading, so it is a kind of money, right? I think to be called currency, it must be extremely widely used.

But this does not actually have a clear definition. What can you buy with bitcoin? Now you can buy a lot of things in Bitcoin. Like restaurant consumption, hotel reservations, gold, movie tickets, etc. Anything on overstock.com (an online e-commerce that uses bitcoin transactions for global users) Over one million items on Overstock.com Like those things Someone will accept Bitcoin to sell the goods to you. This is the fact that makes it a medium or money for trading So it must be a kind of money because money is based on what it can provide as a function of the transaction.

And people voluntarily use it to trade This is the interesting part of it This brings me to the next level. Which kind of money does it categorize? If it is a kind of money, how do we classify it? How to understand it Because many people You know when such a scene appears It is very interesting for monetary economists. Like, what is this? Is this legal tender? Because it is obvious that it does not have any value support or value. How do we understand this thing? I want to use Mises’s classification of money to look at this problem. He divided the money into three categories.

One is credit currency Legal and commodity currencies We look back Credit currency is a kind of money that has redemption value in the future. But it is treated as cash in the current circulation. So the credit currency is no longer so popular. It was used at the time when Mises was writing. So it is more like a thing that is equivalent to a deposit (storage) proof. Circulated in reality and used to trade goods and services People nowadays basically no longer do this. Legal tender, we all know what legal tender is Technically, legal tender is the currency issued by the government. It is accepted by the public for circulation because the government has enacted a law saying that this is legal tender. Legislation with legal currency endorses it Because people have confidence in their government So people believe and use this legal currency Generally speaking, the legal currency is banknotes, right? So you can see the denomination of legal tender For example, 100 yuan banknotes and 10 yuan banknotes have the same commodity value.

But their denominations are different But what actually supports it is that there is a government endorsing it. There is a monopoly power that puts confidence on it. Finally, the commodity currency Mises further classified it as a real currency and an alternative currency. Here tells you what is the concept of alternative currency For now, your account balance is like an alternative currency. Every time you use a debit card to swipe your card, your account balance will be reduced. And someone’s account balance will increase Such an account balance is an alternative currency About 150 years ago, banks will issue their own bills, bank notes Those bank notes are also an alternative currency You deposit gold in the bank. Gold is a real currency. It is a commodity currency with its own value, right? In addition to the meaning of the money itself, it also has value and use value.

This is the so-called commodity currency The alternative currency is basically a piece of paper that can be used to redeem (evaporate) the real currency. There has been a lot of controversy What exactly is Bitcoin? Is it an alternative currency? Or is it a so-called internal currency? (The bank has the responsibility to redeem the assets) Can it be used to redeem (exchange) dollars? My point is that it is not an internal currency Although many markets have been developed to use Bitcoin to exchange dollars, it does not have the conditions to redeem the US dollar. Have a complete definition when it comes to redeeming or redeeming on request Especially for monetary economists The implication is that you deposit money to someone who promises to give you the same amount of money when you make a request. There is no price in the middle, it is one-on-one There is no price in the middle, this price can’t change. He is one-on-one (how much is saved) And the difference between buying and selling bitcoin in dollars so easily is that there is a price in the middle, and this price fluctuates frequently, right? This tells you that it is not the same as what can be redeemed.

How Do Economies Grow – A Simple Example

Sometimes economics an sound incredibly complicated and difficult, but when you start to analyse the core issues it’s really not. This great little video explains one of the core concepts that drive economists in virtually every country in the world – growth. Although perhaps a little over simplified it is however a great little primer on the economics of growth.

Transcript of text is below:

What makes an economy grow? It seems most people have the notion that the inner-workings of an economy are impossibly complicated, too difficult for the average person to understand. Well, while it is true that an economy is complex in terms of how many different things are simultaneously interacting in it, the economic principles that apply to those interactions are actually pretty easy to understand. Let’s start with a simple economy. Suppose there’s a village of five people: A butcher, a cutler, a stone mason, a blacksmith, and a miner. And suppose the butcher starts with $100, and the other four are flat broke. Well, one day, as he’s trimming some meat, the butcher notices his knives are starting to dull and wear out, and he asks the cutler to make him a new set for his $100.

The cutler agrees and starts working. As the cutler’s sharpening the blades, he notices his grindstone is starting to crack, and so he asks the stone mason to make him a new one for the $100. Well, he gives the $100 to the stone mason, and the stone mason agrees and gets to work. Now as he’s chiseling away, he realizes he could use a new chisel. So, the blacksmith offers to make him one for $100. Now, before the blacksmith can get to work on the chisel, he has to refill his supply of iron ore, so he asks the miner to get him another ton, for the $100. Now the miner works all day, and in the evening he decides he could use a good meal after his long day of hard work. So, he drops the iron ore off at the blacksmith’s, and then swings by the butcher, where he buys $100 worth of steak. where he buys $100 worth of steak. Well, the blacksmith then makes the chisel for the mason, and the mason then finishes making the stone for the cutler, who finishes making the knives for the butcher.

Now, notice the $100 is back in the hands of the butcher, and everyone else again has no cash. Now on the surface, it would appear that the economy is exactly the size that it was. After all, there’s still only $100 cash in it. But the butcher has a new set of knives, the cutler a new grindstone, the mason a new chisel, the blacksmith has the remainder of the ore, and the miner has some delicious steaks. so while the total number of physical dollars has remained the same the economy is growing what u see true economic growth only comes when value is added to the economy growth does not come from simply putting more money into it suppose for example the everyone family received a big pile of money pretty soon own would want money is much because everyone has plenty of it inevitably people would have to offer more money to trade and at that point prices and wages have both the reason together only the numbers the actual value outside see the only reason we use the money is supports convenience you may not want with the other guy offers so he pays you and money and we use that money is sort of an i_o_u_ passed from person to person you’ll pass it onto the next guy whenever you find something you do want to in fact you can feasibly envision an economy where there is no actual currency or people simply trade product for product boom boom so uh…

A certain method of trading products and services is what grows an economy. The way to improve the economy is to have more avenues of trade opened up rather than to be restricted. Despite what politicians and bureaucrats believe is best for you. So remember it’s not complicated the easier it is to employ someone and trade the more likely your economy will grow.

Additional References:

Here’s a great link for any ex-pats feeling isolated from all the economic and political news in the United Kingdom. My favorite such program is actually on the Uk’s commercial channel ITV which you can access and stream abroad here. For politics try the program compared by their political correspondent – Robert Peston.

Digital Economies are Different: It’s true, any model of growth does become more complicated when you include the digital economy. Goods and services can be sold and transferred across the world much more easily, but they’re origin is more difficult to find. Using devices like rotating proxies you can actually operate in multiple countries and declare profits (if at all) in any you like potentially.

The Human Right to Water: Necessity for Action and Discourse

Originally posted on this site at December 12 2003
Dr. D Roy Laifungbam

“If the misery of our poor be caused not by the laws of nature, but by our institutions, great is our sin.”
Charles Darwin

The 21st century debuted with one of the most fundamental conditions of human development unmet: universal access to vital water services. Water is perhaps the most basic resource: “It is essential for life, crucial for relieving poverty, hunger and disease and critical for economic development” (UN Department of Technical Cooperation for Development). There is no life on Earth without water. It is one of the most vital issues facing future human use of the environment. Climate change, deforestation, protection of biodiversity and desertification, are all connected to water resource management. Unless used equitably and efficiently, water could become the most serious limiting factor to socioeconomic development within states and a potent source of conflict among them (CD 1997). Already today, the Commission on Sustainable Development (CDC 1997) estimates that as many as one third of the world’s population live in countries suffering moderate to severe water stress.

By the year 2025 two thirds of the world could find themselves in similar circumstances. Given its centrality to life, what legal frameworks exist for treating the right to water as a human right?

Access to a basic water requirement is a fundamental human right implicitly supported by international law, declarations, and State practice. Arguably, this right to water is even more basic and vital than some of the more explicit human rights already acknowledged by the international community, as can be seen by its recognition in many local customary laws, traditions or religious canon.

Rights to Water in Basic Human Rights Accords

The only universal human rights document which explicitly discusses a right to water is the Convention on the Rights of the Child (1990) where provision of adequate nutritious food and clean drinking water are specifically identified as responsibilities of State parties. Water is not directly mentioned in the 1966 UN covenants on human rights or in the Universal Declaration of Human Rights, and thus, if there is a right to water under international human rights law, it must be inferred. The Office of the UN High Commissioner for Human Rights, for example, has no reference to water in its website.

Nonetheless a strong case can be made for such an argument. In particular, Article 6 of the Covenant on Civil and Political Rights states that “Every human being has the inherent right to life.” This provision has recently been interpreted as obliging states not only to protect its citizens from arbitrary deprivation of life but also to adopt positive measures by pursuing policies that guarantee access to the means of survival, an interpretation which would include rights to water:

Thus, this modern view would interpret the right to life broadly, so that it ‘comprises the right of every human being not to be deprived of his life (right to life) and the right of every human being to have the appropriate means of subsistence and a decent standard of life (preservation of life, right of living)’” (McCaffrey 1999:0).

Articles 11 and 12 of the Covenant on Economic, Social and Cultural Rights also provides a basis for recognizing rights to water as basic human rights. It provides that parties “recognize the right of everyone to an adequate standard of living for himself and his family, including adequate food, clothing and housing, and to the continuous improvement of living conditions.” There is a strong argument for using the concept of “due diligence” as a means of assuring the governments attach a high priority to meeting basic human needs.

While the International Bill of Human Rights does not specifically spell out a direct right to water, it can be argued that the right to life (Article 3 of the Universal Declaration of Human Rights) entails access to water and bestows it with a human rights quality: Meeting a standard of living adequate for the health and wellbeing of individuals requires the availability of a minimum amount of clean water.

Clearly, sufficient food and health require that an individual has affordable access to drinkable water. In a General Comment on November 2002, the UN Committee on Economic, Cultural and Social Rights recognized that Articles 11 and 12 can be seen as a legal basis for the right to water.

More recent international human rights treaties include explicit references to the right to water. For instance, Article 14(2) of the Convention on the Elimination of All Forms of Discrimination Against Women (1979) stipulates that States parties shall ensure women the right to “enjoy adequate living conditions, particularly in relation to … water supply”.

What now is the content of the human right to water? It seems appropriate to define the obligations of states according to the right to water similar to their obligations according to other social and economic rights. The ICESCR calls for a progressive realization of these rights and acknowledges that – due to limits of available resources – immediate realization of this human right to water may be constraint. As a social and economic right, the right to water does not encompass a right to access to water, directly enforceable by each person against the state.

However, the right to water requires government activities to progressively increase the number of people with safe, affordable and convenient access to drinkable water. This includes government policies and strategies that create economic, social and political conditions for such access. The right to water also includes the obligation to ensure non-discriminatory access to water, especially of the marginalized and vulnerable sections of society. Depending on the particular circumstances, strategies to ensure non-discriminatory and affordable access to water can employ private companies operating in a liberalized, but regulated market, rely on public provision of water or utilize any other regulatory regime which adequately achieves universal and non-discriminatory access to water.
Water and Sustainable Development: Standards and Debate

Water is key to sustainable development. Growing populations, increased water degradation and other environmental problems create enormous difficulties to ensure equal and affordable access to drinkable water and to manage exhaustible water resources in a sustainable manner.

Perhaps more than other states, African nations have used the United Nations Declaration on the Right to Development as a basis for thinking about human rights. It is conceptually linked to the African Charter on Human and People’s Rights adopted in 1981 and it fits with the need for poverty alleviation recognized by most African government and peoples. In the document, development is conceptualized as a process of constant “improvement” incorporating economic, social, and cultural dimensions within a human rights framework.

Thus, satisfaction of basic human needs for water and food are regarded as rights in this document. Within this broad context, the right to development is accorded the stature of an alienable human right, without which other rights cannot be realized. This perspective is reflected in The Rights Way to Development published by the Human Rights Council of Australia:

… development and human rights are not two separate spheres that human rights are not simply one program component alongside others in the development process, but rather that development is a subset of human rights. Moreover, the right to development [underlining in original] and the economic, social and cultural rights have universal legitimacy and this has very practical implications for action by both donor and recipient governments. (1999: 22).

This framework is noteworthy because it does not radically separate the rights of the individual from broader social, economic and cultural rights, nor does it place all burdens of commitment on the state to meet these rights.

Increasingly, the United Nations Development Programme (UNDP), the World Bank, the OECD and governments are integrating rights discourses into their development agendas. One of the more challenging arenas of research and action concerns the means by which development institutions themselves may be held accountable to human rights accords. For example, should (or how could) the IMF and the World Bank be held accountable for the drastic declines in standards of living and health which have taken place in countries undergoing strict structural adjustment programs? How will these large-scale institutions come to terms with alternative development paths in an era of market hegemony promoted by their policies?

While the Declaration on the Right to Development was a product of the late 1970s and early 1980s, the right to development took on a new shape in the late 1980s and 1990s. This reflected a global effort to relate development, human rights and the environment. Integrating Human Rights with Sustainable Human Development published in 1998 by the UNDP exemplifies this orientation. Like The Right to Development, this text is convincing in demonstrating that human rights are multidimensional (social, economic, cultural and political), interrelated and interdependent (UNDP 1998:7). Further, the environment appears as a full and equal concern to be interrelated with human rights and development discourses and integrated into all UNDP programs.
Rights to Water in Environmental Declarations and Covenants

Environmental declarations are another source of recognition of the right to water a s a human right, as well as of the obligations of states to manage this resource so that their citizens’ right to water is insured. Statements to this effect are found in the 1972 Stockholm Declaration on the Human Environment (Principal 2), and in the 1992 UNCED Agenda 21, both of which reflect a focus on sustainable development. For example, Provision 18.2 of Agenda 21 states:

Water is needed in all aspects of life. The general objective is to make certain that adequate supplies of water of good quality are maintained for the entire population of this planet, while preserving the hydrological, biological and chemical functions of ecosystems, adapting human activities within the capacity limits of nature and combating vectors of water-related discases…

A number of water-specific declarations linking human rights discourses with developmental and environmental ones also exist. For example, the International Conference on Water and the Environment, held in Dublin, Ireland in January
1992 issued the Dublin Statement on Water and Sustainable Development. This document laid the groundwork for, and reflects the thinking on, freshwater resources found in Chapter 18 in Agenda 21. The Dublin conference identified four guiding principles for action at the local, national and international levels: 1) Fresh water is a finite and vulnerable resource, essential to sustain life, development and the environment; 2) Water development and management should be based on a participatory approach, involving users, planners and policymakers at all levels; 3) Women play a central role in the provision, management and safeguarding of water; and 4) Water has an economic value in all its competing uses and should be recognized as an economic good.

While decidedly anthropocentric, environmental declarations like the Dublin Principals and Chapter 18 of Agenda 21 also recognize that the environment itself has basic needs which must be respected if human life and well-being are to be sustained. This is reflected in the above quote from Provision 18.2 of Agenda 21.

This brief review of international human rights covenants and environmental proclamations suggests that there is a strong case to be made for the right to water as a basic human right. The overview also indicates that considerable latitude exists for interpreting and applying this right depending on the source document. The Universal Declaration of Human Rights and the Covenant on Economic, Social and Cultural Rights (and to a lesser extent the Right to Development), emphasize states; obligations to protect basic human rights and, in a derived way to meet basic human needs.

The Challenges: Neo-liberalism conflicts with the Human Right to Water

Sustainable development and environment proclamations often situate human rights to water in a development/economic growth context and emphasize reconciling human needs with long-term ecological sustainability. The Dublin Principals and Chapter 18 of Agenda 21 call for governments and other organizations to adopt specific policies.

Although presented as globally applicable, these reflect current neoliberal political and economic agendas rather than universal principals. They involve removal of subsidies, privatization, commodification of resources, and decentralization of management structures. Thus, tensions exist between different rights-based discourses concerning water – particularly those resting on basic human rights orientations and those informed by sustainable development and economic growth agendas.

In most countries, the supply and management of water has traditionally been a domain of public entities at the national, regional or local level. Yet, countries have employed different regulatory models at different points in history and governments have often played multiple roles in the water sector. These include the roles as natural resource manager, service provider and regulator.

This traditional “public domain” of the water sector has been challenged on the basis of a resurgence of neo-liberal market ideologies. Today, many politicians and commentators are convinced that the supply of water through private companies can bring about much needed solutions for the pressing needs in the water sector. During recent years, policies encouraging private (often foreign) investment in water services and privatization (including outsourcing and public-private partnerships) became the means of choice in many parts of the world.

Public or communal schemes of water supply came under pressure in favour of supply schemes requiring competitive water markets. The emergence of multinational companies specializing in water supply and privatization and commercialization policies reinforced this development and created a veritable international market for water services.

While many of these policy shifts were based on autonomous national decisions, international economic and financial institutions such as the World Bank also advocated a greater involvement of the private sector. Arguably, the re-definition of the role of public and private entities in the water sector is also reinforced through developments in the World Trade Organization (WTO) and its General Agreement on Trade in Services (GATS). As part of the overall Doha Agenda, WTO members are currently engaged in negotiations to further liberalize trade in services (GATS 2000 negotiations). After the initial request and initial offer phases in June 2002 and March 2003 respectively, the day-to-day negotiations now take place in bilateral settings and the outcome will probably only become public at the end of the Doha Round scheduled for 2005. Based on a general negotiating proposal and country-specific requests by the European Community (EC), these negotiations now also cover water services.

These developments, together with some high-profile examples of failures of private water management and supply, led to concerns about the future of water regulation. Critics point to the impact of GATS and the GATS 2000 negotiations, which are said to have major implications on water management and the ability of governments to regulate water services.

The critics’ voices came together in a statement of civil society groups issued at the WTO’s Cancun Ministerial Conference calling upon WTO Members to clearly exclude basic services such as water from the scope of GATS. Clearly the battle is on for the contest between “investor rights” and “human rights”.

Contesting Frames: Human Rights and Economic Logic

The internal logic of the capitalist system and its uneven and detrimental effects upon environment and society are well documented by political ecologists and eco-Marxists. Renowned scholars articulated in the early 20th Century that industrial and economic “improvements” often came at the price of social dislocation, and if the needs of the two are unevenly matched then the “community must succumb.” However, society need not be passive in challenging the paradigm, just as it has not been passive in challenging abuse of civil and political rights.
However, to work constructively towards a case that water is a human right one must confront a key fact. First of all, the proposition will almost always have a natural set of opponents prepared to counter it out of vested financial interest. Even Northern countries that claim tremendous democracy, transparency, and equity in water resource management experience times when internal economic logic has overwhelmed ethical behavior. It appears that Northern countries are struggling with their water policy priorities as well. Thus, it is clear that “solving” the problem of equity in safe drinking water distribution is not simply a matter of building a wealthier country and “defeating poverty,” with the assumption being this will ensure full coverage. Rather, it is more about building an ethic and changing frames in a way that respects concepts such as conservation, indigenous rights, and the importance of sustaining and sharing our “common” intergenerational water resources. At the heart of the case for a “human right to water” is the demand for not just action alone, but discourse in which equity is the core value.

Sources:

Turk, Elisabeth & Krajewski, Markus. 2003. The right to water and trade in services: Assessing the impact of GATS negotiations on water regulation; Paper presented at the CAT+E Conference “Moving forward from Cancun”; Berlin, 30-31 October 2003.

Williams, Colin, Using Proxies for Ticketmaster: Attending conferences as a freelance, Krakow, October 206

McCaffrey, Stephen. 1997. “Water Scarcity: Institutional and Legal Responses” Pp. 43-58 in The Scarcity of Water: Emerging Legal and Policy Responses edited by Edward Brans, Esther de Haan, Andre Nollkaemper, and Jan Rinzema. London and The Hague: Kluwer Law International
Gleick, Peter. 1999. The Human Right to Water. 1(5) Water Policy, 487-503 (1999)

John Barrow, Some Private, Dedicated Proxies Isn’t Enough.

Boyle, A.E. & Anderson, M.R. 1996. Human Rights Approaches to Environmental Protection. Claredon Press, Oxford, United Kingdom.

Thoughts on the Digital Economy

Most modern economies have developed fairly robust methods of charging and collecting taxes however there’s one area that most are struggling with. That is of course, the digital economy which most experts agree is not dealt with even remotely well. It’s certainly fair to say both private and corporate tax rules are basically hugely ineffective when dealing with digital businesses.

One of the problems is that current tax legislation is often used to try and collect these taxes and it’s often completely inappropriate. First of all it does not capture many business models often for the simple fact that sometimes the company making money doesn’t even have a physical presence there.

Take for example a media streaming website or digital business which operates solely online. It provides service over the web in exchange for payment in the form of single charges or more commonly using a subscription model. The business has no physical buildings or employees in that country. Even identifying the fact that a profit is being made is difficult, even quite large companies can easily operate under the radar. Simply banking profits and only declaring them in some far flung low tax principality somewhere. This means that there is a huge disconnect between where the value is created and where that company pays taxes.

Many large economies are extremely concerned about this as it means they are losing out on literally billions in taxation revenue from these services. The European Commission has been at the forefront of this issue and is trying to develop new rules which tackle the subject fairly – you can see their initial report here.

Basically they are suggesting that corporate tax rules in all countries are modified to ensure that profits are registered and taxed in the countries where they are primarily created. This overall seems the ideal solution but it is a difficult one to achieve. The EU has proposed until this is implemented that there is an interim tax levied which covers any activities which are currently escaping any tax.

One of the problems is determining where the value and hence the profits are actually generated. For an example you could have a French company streaming US made films and content to customers in the UK for a subscription fee. Also the servers which are hosting this content and streaming it to the customers could be located somewhere completely different. Its relatively simple for a company to argue about where the value is created, and obviously they’ll generally pick somewhere with the lowest tax rate.

What happens is a country which has no involvement in any of the activities will benefit from the taxation for one single reason – they have low corporate tax rates. This is of course entirely unfair and means that money is being extracted from one country without any taxation benefit being applied at all.

Although large companies hit the news with these tax evasion scenarios all the time, there is also a problem in small business market. Many people are now making their livings online and are becoming harder and harder for the normal taxation system to capture.

For instance I know a huge group of people from all over the world who make their living online simply from buying and selling hard to obtain products. One example is the purchase of sneaker (trainers in the UK) where people buy them and resell them at a profit. This sounds like a tiny sideline but in fact for many people it’s actually a huge business. People invest in automated software and method to hide their IP addresses (known as sneaker proxies like this).  In fact many people make hundreds of thousands out of these online deals which are very difficult to bring into the taxation systems unless they are voluntarily declared but the individual.

It’s not a small industry either huge marketing companies have developed by buying and selling online and make thousands of pounds of profit every day.  Yet again there difficult to tax as they could literally be based anywhere, indeed the only physical location will be web servers which are unlikely to be in the target country anyway.

Whether it’s huge international companies or just ordinary individuals, more and more people are making their living online and can easily sidestep the traditional taxation system.  Even the more advanced countries  are struggling to keep up with this so it’s important that they try and lead an example.  Obviously smaller areas and self styled tax havens have less incentive to promote any sort of value based taxation rules so are unlikely to help much.  It also easy to appear to be in any country too, a company in Panama can simply have digital offices and use a UK VPN like this to appear very convincingly to be in the UK.

Ultimately though it’s important that the world comes up with a way to tax these digital enterprises fairly.   The corporate issues certainly need some sort of global, international solution, however taxing individuals and small businesses could become increasingly important due to the scale of people moving to these employment opportunities.

The Brexit Game. Can it Be Won?

There’s little doubt that there’s one mathematical theory that seems perfect for analysing Britain leaving the European Union and that’s Game Theory.  Or more specifically will the UK get a good or bad deal at the expiration of Article 50.

As per usual in politics there are two opposite views which can be used to look at a solution.  Those who wish to leave argue that in the end, Europe need us more than we need them so there was always going to be a good deal offered.  On the opposing side the ‘remainers’ point to the fact that there are huge political considerations which this ignores, anything which looks beneficial could lead to the gradual dissolution of the Union as others leave.  We all probably have our own opinions on who is right about this.  However in order to properly analyse the situation, economist needs you to put these aside and analyse the situation by proxy from a distance.

If you look at this from an economist point of view, game theory looks perfect for analysing the possible outcomes.  It’s a branch of economics (or perhaps mathematics) which was created by John Nash, the Nobel prize winner.  If you’re not familiar with the story, seek out the film – The Beautiful Mind, it’s well worth watching.  John Nash was the first person to create a formal method of determining logical outcomes when two or more parties are playing a game.

The method relies on the fact that all parties have access to full access to the decision making process and can adopt various strategies in order to improve their position.  In the film John Nash, demonstrates the optimum strategy of attracting a beautiful blonde girl in the bar they are drinking in.

Does it work? In some senses that’s actually unimportant, as applying game theory actually is quite useful in analysing the situation.  Leaving the EU is actually perfectly suited to using Game Theory, two players with a range of strategies and possible outcomes.  The game can be summarized down to the Eu’s strategies – give the UK a good deal or give the UK a bad deal. The UK’s strategies however are best simplified to accepting or rejecting the proffered deal.

Obviously the reality is much more complex than this very simple framework.  There are lots of sub-options available to both sides potentially but in order to use Game Theory effectively you have to keep the framework simple.

Without going into the complexities, Game Theory suggests that the European Union would be best to offer a good deal, and the UK would do best to accept it.  It does require concessions on both sides, in order to reach this’best case’ scenario.

Unfortunately as soon as you introduce politics into the ‘game’ the solution looks much less simple.  The problem is that the economic and political costs need to equal each in order for the calculations to be made. However this is clearly not the case, and you could argue that there are actually more than two sides as the ruling party seems to argue among themselves over the solution.  There is an optimum solution in there somewhere, but it relies on minimal political issues and two sides who are equally matched. It is clearly the case that neither of these are true.

The reality is there is a huge in balance and even if you ‘play the game’ from the perspective of the UK having no control it’s still difficult to predict. There are lots of other potions available which in reality will affect the endgame.  After all some could argue that the UK could even cancel Article 50 and stay in the European Union.

Biased writer warning – my preferred option was suggested by an article I read somewhere that it would go to the wire but Europe would at the final step offer the UK a ‘great deal’ to stay in the European Union.  Whether that’s just the biased dreaming expectations of an aging remainer who want’s to stay, only time will tell.

One of the other advantages of using Game Theory is it can be used to develop strategies for getting your desired objective.  There are so many permutations it can get complicated, and I will add perhaps a simple summary to this post using my new video software – it’s actually a sales video creator but it looks perfect for adding a few tables of combination permutations.

Again the problem is that to use the theory you have to put in scores about possible outcomes for both sides.  It’s a testimony into how complex this situation becomes very quickly in that ‘remainers’ and ‘leavers’ will offer completely different likelihoods of almost all the possible outcomes.

The most effective strategies work on moving the equilibrium situation of the negotiations.  It’s a vitally important concept as it effects completely how each side plays the game.  For example if the equilibrium situation involves the EU offering a reasonable deal and the UK leaving then both sides can probably benefit from this situation.  However if you look at the political situation in the UK, it’s very easy to imagine now an equilibrium point where the UK decides to not bother and stay in the UK.  To achieve this one reading is for the EU to use a strategy of offering very poor deals where both sides are much worse off and in the event leaving is cancelled.

Of course, this might not be economically disastrous but it could well be politically so for one of the negotiators – the Conservative party.

Is all that clearer, no I didn’t think so!

Instagram Hits One Billion Users

The internet is of course full of meteoric rises, small web sites suddenly rising from nowhere to become global brands.  These stories are not quite as common as they used to be and nowadays for every one site or application that makes a success there are a myriad of well-funded failures that we’ll never even hear of.

Probably the biggest success story of the last year or so is that of Instagram, the social media site which is growing exponentially especially among the younger generation.  It’s audience is young, socially active and numbers over one billion active users. The fact that those users are active is crucial, there are millions of websites with massive amounts of users but if they don’t engage they are of limited value as far as the value of the company is concerned.

Take for instance the previous two ‘stellar’ performers in the social media market – Facebook and Snapchat.  Both of these have seen their growth pretty much stagnate and worse many users are leaving their accounts inactive and moving to other platforms.  Younger users in particularly are abandoning Facebook in their droves, moving to sites like Instagram and leaving their accounts dormant.

It’s not all bad news for Facebook though as they bought the Instagram platform a few years ago at what now seems like quite a reasonable price.  However Instagram has the usual problem to overcome with these wildly popular social media platforms – how to make money from them.   No-one is sure how much money Instagram currently makes out of advertising revenue.  It’s true though that many people already make their livings out of the platform already – running thousands of accounts by utilizing private proxies for instagram. Many of them use the platform to promote products, goods and services which appeal to the youth market.

Instagram is likely to become more and more important to Facebook if the growth levels continue at the same rate. The growth of Facebook is around 3% whereas Instagram has just crossed 5% and shows no signs of slowing just yet. There are reports that suggest that Instagram already accounts for nearly 30 of Facebook’s advertising revenue although only on the mobile platform
It’s this success on mobile phones that is largely responsible for Instagram’s amazing growth. It started as a very simple photo sharing site but has since developed into a full scale multimedia social platform.

If the fortunes of Facebook continue to decline especially combined with all the security and privacy issues they face, Instagram is likely to become much more important.  Many people are probably unaware that Facebook even own Instagram but that doesn’t stop the photo sharing application become more and more popular.

Many experts believe that the platform offers more potential than Facebook being more suited to selling products and services.  It’s certainly more suited than traditional online media and most of the commercial TV stations are very wary of it’s success.  You can see some interesting reports on the current growth rates and economic forecasts on the mainstream media.  Check out channels like the BBC for more up to date information, you can access it for free outside the UK by using a BBC iPlayer DNS solution at least temporarily although this is not required for people in the UK.

Essay on Globalization and Human Friction

The great Norwegian peace researcher Johan Galtung spoke of “structural violence”–the very real undermining of the well-being of life that results from policies, ways of producing and consuming, legal precedents, and bureaucratic and institutional practices. The profound macroeconomic changes involved in corporate globalization and the free trade treaties represent many instances of structural violence. It is vital that we recognize and name how these economic policies engender friction and violence, rather than attributing these effects to basic emotions and human nature, as Helena Norberg-Hodge points out. Then, rather than believing such violence is inevitable, we see how we can change these human-made policies.

Johan Galtung spoke of the silent nature of structural violence–and this makes it particularly pernicious. Today, as the negative impacts of globalization–the economic, environmental, social, psychological, and spiritual forms of breakdown–are being felt more and more, it is crucial that we attribute cause to silent economic changes rather than blaming ourselves, or others. Peoples’ self-esteem around issues of livelihood, identity, and culture could remain strong even when crises emerge in these areas. People could work to counter an economic system rather than people with darker skin. Here we see how essential it is to make the connections between the abstract policies of the World Trade Organization, the International Monetary Fund, and the World Bank, on the one hand, and life on the ground, on the other–both here, in the overdeveloped world and in the “developing” world.

Many economic policies of globalization engender greater poverty for the majority, and environmental, social, cultural, and psychological insecurity. As fear intensifies, the seeds are sown for growing fascism and fundamentalism. These were the influences that gave rise to Naziism in Germany in the 30’s. Today, we see the election of right-wing governments in many countries. If George Bush II continues to wreak havoc with the economy in a very fragile and volatile global economy, and if he bankrupts us and cuts social services in the name of war, the resulting economic breakdown will be extremely fertile soil for further fascism.

Eroded relationships result from globalization in many ways. We find ourselves running to keep up in the “competitive global economy,” driving more and more to get to larger and larger chain stores for basic necessities, living at a faster and faster pace that is dictated by modern technologies rather than by human rhythms, and having less time for each other. We compete more and more for scarcer and scarcer resources; ethnic friction and fundamentalism burgeon the planet over as people are severed from their communities, pulled from the land into megalopolises where they find high rates of unemployment. As Helena Norberg-Hodge describes, if you are not part of the consumer monoculture, your self-esteem can plummet in the face of a media that glamorizes white, urban culture.

As cultural diversity is eroded, and identities are undermined and lost, life’s meanings are often reduced to superficial values. As services are privatized, rather than provided for one another within a community as they have been for time immemorial, money rules more and more aspects of life. As land, water, the sky, and life itself in the form of DNA are privatized, nothing is valued for it’s own intrinsic worth, but instead for what it can garner on the world market. As the doctrine of comparative advantage dictates that each region should specialize in producing what it is best at producing and produce it on a large scale for export, we specialize in a few products and become dependent upon imports for the rest of our needs. Local decision-making and a sense of power and sovereignty is thus weaker.

The divides have been eroded by the internet, yet in some senses it still acts as a bridge to our nationality.  For example, if you visit any group of British expats anywhere in the world you’re likely to find they’re experts on things like proxies and VPNs.  This is because despite being across the world, most UK natives will be very attacked to British TV and will use things like these tools – BBC iPlayer DNS, to watch from wherever they happen to be.

As we transport products over vaster and vaster distances, the C02 emissions are creating climate change and we wage war with the natural world. This transport also means that our economy depends on oil, and a huge military to ensure that the world’s oil is ours at a price we dictate. And certainly as we, in the north, consume approximately ten times our fair share of global resources, resentment grows in the hearts of those many who are in more and more desperate need of the basics for survival. This is why, already in 1948 George Kennan wrote in a State Department Policy Planning Paper, “We have about 50% of the world’s wealth, but only 6.3% of its population. In this situation, we cannot fail to be the object of envy and resentment.

Our real task in the coming period is to devise a pattern of relationships which will permit us to retain this position of disparity. We need not deceive ourselves that we can afford today the luxury of altruism and world benefaction. We should cease to talk about vague and unreal objectives such as human rights, the raising of living standards, and democratization. The day is not far off when we are going to have to deal in straight power concepts. The less we are then hampered by idealistic slogans, the better.”

Or, more recently, the influential New York Times columnist Thomas Friedman has written, “The hidden hand of the market will never work without a hidden fist. McDonald’s cannot flourish without McDonnell Douglas, the designer of the U.S. Air Force F-15. And the hidden fist that keeps the world safe for Silicon Valley’s technologies to flourish is called the U.S. Army, Air Force, Navy and Marine Corps.”

It is possible to change these economic policies. Indeed, George Bush, the Senior, was incorrect when he said at the first World Conference on Sustainable Development in Rio de Janeiro ten years ago that “The American way of life is not in question.” In Santa Fe, and all over the world, people are deeply questioning this suicidal way of life and beginning to build a new, life-affirming way.

Additional Resource: Watching BBC Abroad for Free