Bitcoin Regulation: “Assume the Existence of Public Interest Benefits!”

You’ve probably heard some version of the joke about the chemist, the physicist, and the economist stranded on a desert island. With a can of food but nothing to open it, the first two set to work on ingenious technical methods of accessing nutrition. The economist declares his solution: “Assume the existence of a can opener!”…

There are parallels to this in some U.S. state regulators’ approaches to Bitcoin. Beginning with the New York Department of Financial Services six months ago, regulators have put proposals forward without articulating how their ideas would protect Bitcoin users. “Assume the existence of public interest benefits!” they seem to be saying.

When it issued its “BitLicense” proposal last August, the New York DFS claimed “[e]xtensive research and analysis” that it said “made clear the need for a new and comprehensive set of regulations that address the novel aspects and risks of virtual currency.” Yet, six months later, despite promises to do so under New York’s Freedom of Information Law, the NYDFS has not released that analysis, even while it has published a new “BitLicense” draft.

Yesterday, I filed comments with the Conference of State Bank Supervisors (CSBS) regarding their draft regulatory framework for digital currencies such as Bitcoin. CSBS is to be congratulated for taking a more methodical approach than New York. They’ve issued an outline and have called for discussion before coming up with regulatory language. But the CSBS proposal lacks an articulation of how it addresses unique challenges in the digital currency space. It simply contains a large batch of regulations similar to what is already found in the financial services world.

Admitting FutureGen’s Failure

The Department of Energy (DOE) is admitting that it failed. Last week, it announced that it will stop development of FutureGen 2.0, a federally-financed, coal-fired power plant in Illinois. FutureGen, and its successor FutureGen 2.0, wasted millions of tax dollars, and was beset with multiple delays and cost overruns.

FutureGen was one of many federal energy projects experimenting in so-called “clean coal” technology. FutureGen sought to demonstrate the technical capabilities of carbon capture and sequestration (CCS) technology. CCS attempts to capture carbon dioxide emissions from coal-fired power plants and store it underground, eliminating an increase in atmospheric carbon dioxide.

FutureGen was launched in 2003 by the George W. Bush administration as a public-private partnership to demonstrate CCS with a site chosen in Illinois. Costs would be shared among the federal government and 12 private energy companies. The project’s estimated cost grew from $1 billion to $1.8 billion by 2008, when it was cancelled due to the cost overruns.  

In 2010 the Obama administration revived the project using stimulus funding. The new project, FutureGen 2.0, was allotted $1 billion from the federal government, with private investors supposed to be providing additional funding.

The Great Temperature Adjustment Flap

Matt Drudge has been riveting eyeballs by highlighting a London Telegraph piece calling the “fiddling” of raw temperature histories “the biggest science scandal ever.” The fact of the matter is some of the adjustments that have been tacked onto some temperature records are pretty alarming—but what do they really mean?

One of the more egregious ones has been the adjustment of the long-running record from Central Park (NYC). Basically it’s been flat for over a hundred years but the National Climatic Data Center, which generates its own global temperature history, has stuck a warming trend of several degrees in it during the last quarter-century, simply because it doesn’t agree with some other stations (which also don’t happen to be in the stable urban core of Manhattan).

Internationally, Cato Scholar Ross McKitrick and yours truly documented a propensity for many African and South American stations to report warming that really isn’t happening.  Some of those records, notably in Paraguay and central South America, have been massively altered.

At any rate, Chris Booker, author of the Telegraph article, isn’t the first person to be alarmed at what has been done to some of the temperature records.  Others, such as Richard Muller, from UC-Berkeley, along with Steven Mosher, were so concerned that they literally re-invented the surface temperature history from scratch. In doing so, both of them found the “adjustments” really don’t make all that much difference when compared the larger universe of data. While this result has been documented  by the scientific organization Berkeley Earth, it has yet to appear in one of the big climate journals, a sign that it might be having a rough time in the review process.

The Libertarian Mind — Now Available

The Libertarian Mind cover

I’m delighted to announce that my new book, The Libertarian Mind: A Manifesto for Freedom, goes on sale today. Published by Simon & Schuster, it should be available at all fine bookstores and online book services.

I’ve tried to write a book for several audiences: for libertarians who want to deepen their understanding of libertarian ideas; for people who want to give friends and family a comprehensive but readable introduction; and for the millions of Americans who hold fiscally responsible, socially tolerant views and are looking for a political perspective that makes sense. 

The Libertarian Mind covers the intellectual history of classical liberal and libertarian ideas, along with such key themes as individualism, individual rights, pluralism, spontaneous order, law, civil society, and the market process. There’s a chapter of applied public choice (“What Big Government Is All About”), and a chapter on contemporary policy issues. I write about restoring economic growth, inequality, poverty, health care, entitlements, education, the environment, foreign policy, and civil liberties, along with such current hot topics as libertarian views of Bush and Obama; America’s libertarian heritage as described by leading political scientists; American distrust of government; overcriminalization; and cronyism, lobbying, the parasite economy, and the wealth of Washington.

Regulations and Taxes: Democrats Then and Now

In recent decades, the Democratic Party has moved far to the left on economic policy. I have discussed the leftward shift on tax policy, which was illustrated once again by President Obama’s generally awful proposals in his new budget (see here, here, and here).

What about regulations? Consider the following statement by President Jimmy Carter on his signing a landmark railroad deregulation bill in 1980. Have you ever heard President Obama express such views or push for similar sorts of legislation?

Today I take great pleasure in signing the Staggers Rail Act of 1980. This legislation builds on the railroad deregulation proposal I sent to Congress in March 1979. It is vital to the railroad industry and to all Americans who depend upon rail services.

By stripping away needless and costly regulation in favor of marketplace forces wherever possible, this act will help assure a strong and healthy future for our Nation’s railroads and the men and women who work for them. It will benefit shippers throughout the country by encouraging railroads to improve their equipment and better tailor their service to shipper needs. America’s consumers will benefit, for rather than face the prospect of continuing deterioration of rail freight service, consumers can be assured of improved railroads delivering their goods with dispatch …

This act is the capstone of my efforts over the past 4 years to get the Federal Government off the backs of private industry by removing needless, burdensome regulation which benefits no one and harms us all. We have deregulated the airlines, a step that restored competitive forces to the airline industry and allowed new, innovative services. We have freed the trucking industry from archaic and inflationary regulations, an action that will allow the startup of new companies, encourage price competition, and improve service. We have deregulated financial institutions, permitting banks to pay interest on checking accounts and higher interest to small savers and eliminating many restrictions on savings institutions loans.

Where regulations cannot be eliminated, we have established a program to reform the way they are produced and reviewed. By Executive order, we have mandated regulators to carefully and publicly analyze the costs of major proposals. We have required that interested members of the public be given more opportunity to participate in the regulatory process. We have established a sunset review program for major new regulations and cut Federal paperwork by 15 percent. We created a Regulatory Council, which is eliminating inconsistent regulations and encouraging innovative regulatory techniques saving hundreds of millions of dollars while still meeting important statutory goals. And Congress recently passed the Regulatory Flexibility Act, which converts into law my administrative program requiring Federal agencies to work to eliminate unnecessary regulatory burdens on small business. I am hopeful for congressional action on my broad regulatory reform proposal now pending, to help complete congressional action on my regulatory reform proposals.

Today these efforts continue with deregulation of the railroad industry and mark the past 4 years as a time in which the Congress and the executive branch stepped forward together in the most significant and successful deregulation program in our Nation’s history. We have secured the most fundamental restructuring of the relationship between industry and government since the time of the New Deal.

In recent decades the problems of the railroad industry have become severe. Its 1979 rate of return on net investment was 2.7 percent, as compared to over 10 percent for comparable industries. We have seen a number of major railroad bankruptcies and the continuing expenditure of billions of Federal dollars to keep railroads running. Service and equipment have deteriorated. A key reason for this state of affairs has been overregulation by the Federal Government. At the heart of this legislation is freeing the railroad industry and its customers from such excessive control.

Measuring Misery in Latin America 2014: More Dollarization, Please

In my misery index, I calculate a ranking for all countries where suitable data exist. My misery index — a simple sum of inflation, lending rates, and unemployment rates, minus year-on-year per capita GDP growth — is used to construct a ranking for 108 countries. The table below is a sub-index of all Latin American countries presented in the world misery index.

A higher score in the misery index means that the country, and its constituents, are more miserable. Indeed, this is a table where you do not want to be first.

Venezuela and Argentina, armed with aggressive socialist policies, end up the most miserable in the region. On the other hand, Panama, El Salvador, and Ecuador score the best on the misery index for Latin America. Panama, with roughly one tenth the misery index score of Venezuela, has used the USD as legal tender since 1904. Ecuador and El Salvador are also both dollarized (Ecuador since 2000 and El Salvador since 2001) – they use the greenback, and it is clear that the embrace of the USD trumps all other economic policies.

The lesson to be learned is clear: the tactics which socialist governments like Venezuela and Argentina employ yield miserable results, whereas dollarization is associated with less misery.

Obama’s Transportation Plan

President Obama proposed an expansive spending plan for highways, transit, and other infrastructure in his 2016 budget.

Here are some of the problems with the president’s approach:

  • Misguided Funding Source. The president proposes hitting U.S. corporations with a special 14 percent tax on their accumulated foreign earnings to raise $238 billion. This proposal is likely going nowhere in Congress, and it is bad economic policy. The Obama administration seems to view the foreign operations of U.S. companies as an enemy to be punished, but in fact foreign business operations generally complement U.S. production and help boost U.S. exports.
  • Increases Spending. The Obama six-year transportation spending plan of $478 billion is an increase of $126 billion above current spending levels. Instead of increasing federal spending on highways and transit, we should be cutting it, as it is generally less efficient that state-funded spending. To close the Highway Trust Fund (HTF) gap, we should cut highway and transit spending to balance it with current HTF revenues, which mainly come from gas and diesel taxes.
  • Increases Central Control. The Obama plan would increase federal subsidies for freight rail and “would require development of state and regional freight transportation plans,” according to this description. But freight rail has been a great American success story since it was deregulated by President Jimmy Carter in 1980. So let’s not reverse course and start increasing federal intervention again. Let’s let Union Pacific and the other railroads make their own “plans;” we don’t need government-mandated plans.
  • Undermines User Pays. For reasons of both fairness and efficiency, it is a good idea to fund infrastructure with charges on infrastructure users. In recent decades, the HTF has moved away from the original user-pays model of gas taxes funding highways, as funds have been diverted to mass transit, bicycle paths, and other activities. Obama would move further away from user pays, both with his corporate tax plan and with his proposed replacement of the HTF with a broader Transportation Trust Fund.
  • Expands Mass Transit Subsidies. The Obama plan would greatly increase spending on urban bus and rail systems. But there is no proper federal role in providing subsidies for such local activities. Indeed, federal transit subsidies distort efficient local decision making—the lure of “free” federal dollars induces local politicians to make unwise and wasteful choices. Arlington, Virginia’s million-dollar bus stop is a good example.

For background on the transportation battle heating up in Congress, see my articles here and here. And see the writings of Randal O’Toole, Robert Poole, Emily Goff, and Ken Orski.

And you can check out the writings of Robert Puentes of Brookings, who joined me on C-Span today to discuss these issues.