Is Bitcoin Only Valuable to Crooks and Tax Cheats?

It isn’t every day that University of Chicago economists Eugene Fama and Richard Thaler see eye to eye. Fama, who won the Nobel Prize in 2013, is one of the best known proponents of the efficient market hypothesis. Thaler, in contrast, champions behavioral economics. Indeed, Thaler spends a great deal of time criticizing the efficient market hypothesis in his recent book, Misbehaving.

Both economists, however, seem to be on the same side when it comes to bitcoin. Commenting on Fama’s recent interview with the Bitcoin Uncensored podcast, Thaler tweets: “Must say I agree with Fama here. Only value of bitcoin seems to be to crooks& [sic] tax cheats. Negative social value.”

Richard Thaler Tweet

Fama and Thaler are not alone. Many regulators worry that, absent sufficient government oversight, cryptocurrencies like bitcoin will be used to conduct illegal transactions and transfers on a massive scale. For example, Sen. Joe Manchin has claimed that the “clear ends of Bitcoin [are] for either transacting in illegal goods and services or speculative gambling.” Likewise, Sen. Charles Schumer has described bitcoin as “an online form of money laundering.” Some have even warned that bitcoin might be used to fund terrorism. Like Fama and Thaler, many people outside the bitcoin community seem to believe bitcoin is basically for criminals.

But they’re wrong. To date, the black market transactions that trouble Fama, Thaler, and others have been quite limited. Consider Silk Road, the premier bitcoin-for-drugs website in operation from February 2011 to October 2013. The best available evidence suggests there were roughly $1.2 million worth of transactions made on Silk Road each month. More recent estimates put the figure at roughly $4.7 million per month. That modest figure hardly made Silk Road the Amazon of drugs, as Gawker once claimed. Amazon averaged roughly $6,204.2 million per month in 2013. That’s more than 370 times the highest monthly transactions volume estimated for Silk Road. Silk Road was not even the Etsy ($112.32 million per month) of drugs.

One might counter that the volume of transactions on Silk Road was low because so few people were using bitcoin at the time. But the volume of transactions on the Silk Road was also small relative to the total volume of transactions conducted in bitcoin. The monthly transactions volume for the entire bitcoin system averaged just under $16 billion from February 2011 to October 2013. That means that Silk Road transactions were responsible for a measly 0.03 percent of all transactions conducted in bitcoin. In other words, it was not just that few people were using bitcoin, but that of those who did few were buying and selling illegal substances on Silk Road.

What about terrorism? The U.S. Treasury Department itself has found no evidence of bitcoin’s widespread use in funding terrorism. That really shouldn’t come as a surprise. Terrorist groups have much more convenient ways to secure funding outside of legitimate banking channels. Moreover, to the extent that terrorists are located in developing regions, they would encounter the same hurdles to adopting bitcoin that others in developing countries face.

If they aren’t buying cocaine or funding terrorists, what are users doing with all that bitcoin? Answer: a lot of things. They are purchasing flights, Xbox games, and, well, anything sold on They are paying college tuition. They are ordering satellite television. They are purchasing premium memberships on dating sites and then using Yelp! to find a romantic coffee shop or trendy bar that—you guessed it—accepts bitcoin. They are sending remittances to family members around the world at a fraction of the usual cost. They are donating to support art, open source projects, and foundations. A better question would be: what aren’t they doing with bitcoin?

Contrary to popular opinion, bitcoin is not basically for criminals. It is barely for criminals. In that respect, it resembles ordinary cash—that is, Federal Reserve notes. As a matter of fact, the case is probably stronger for eliminating cash than bitcoin. Harvard economist Ken Rogoff has claimed more than half of all cash in circulation is used to hide transactions from tax or law enforcement authorities. More formal estimates by Edgar Feige suggest roughly 48 percent of cash held by the public is employed in the domestic underground economy. For those interested in transacting outside the law, cash—not bitcoin—is king.

In short, most bitcoin users seem to be a lot like you and me, if perhaps a bit more tech savvy. They want to purchase legal goods and services and remit funds as cheaply and conveniently as possible. To the extent that bitcoin is more effective than traditional payment mechanisms for making some transactions, it lowers transaction costs, encouraging production and exchange.

In other words, Thaler is wrong: bitcoin has a positive social value.

[Cross-posted from]

NCLB Compromise Looking Pretty Bad

Is pre-kindergarten part of elementary and secondary education? By definition, no. But according to preliminary reports about what is in a compromise to reauthorize the No Child Left Behind Act – really, the latest iteration of the Elementary and Secondary Education Act (ESEA) – a preschool “competitive grant” program will be added to the law. And that’s just one of several troubling items that will reportedly be in the final legislation.

One hallmark of good lawmaking are laws that are easily understood by the people, and larding on lots of items not germane to the topic of a law is one way to move away from that democratic ideal. Adding pre-k to the ESEA lards on, though as I’ll discuss in a moment, apparently the preschool addition isn’t all that will heavily complicate the legislation.

The bigger problem with expanding federal funding and reach on preschool is that the evidence is preschool has few if any lasting benefits, at least that have been rigorously documented for any large, modern efforts. Infamously, that includes Head Start and Early Head Start, which the federal government’s own studies have found to be largely impotent, and in the case of Early Head Start, potentially detrimental to some groups. The compromise would apparently also keep the 21st Century Community Learning Centers program, which federal research has also shown to be impotent or even counterproductive, but at least it is k-12.

New Study on Higher Education Aid

The U.S. Department of Education spends tens of billions of dollars a year on subsidies for higher education. Federal Pell grants are more than $30 billion a year, federal student loans are about $100 billion a year, and grants to colleges and universities are $2.5 billion a year.

College aid is growing rapidly, which is imposing a rising burden on taxpayers. And the subsidies create numerous harmful effects, as Neal McCluskey and I discuss in our new study posted at Downsizing Government.

A key concern is that government money comes with government control. There is increasing pressure to top-down plan America’s higher education system from Washington. As we’ve seen with health care, K-12 schools, disaster aid, transportation, school lunches, and many other activities, federal subsidies invariable end up being the vehicle for central planning.  

This is a big threat to the future of higher education, as our study explains. When the subsidies start flowing, the do-gooders in Washington just can’t keep their hands off. Regulatory manipulation is just too tempting for the politicians and bureaucrats, who hide their big-government impulses behind conservative-sounding phrases such as “standards” and “accountability.”

Even with its problems, the American postsecondary education system is the best in the world. Driven by consumer choice and competition between independent institutions, it has an unmatched vibrancy. However, increasing federal control and subsidization from Washington is creating a serious threat.

Efforts by the current and prior administrations to micromanage accreditation and other aspects of higher education threaten to undermine the system’s diversity and flexibility. The waste and bureaucracy of top-down federal control is exemplified by the regulatory juggernaut of education’s Title IX, the gender discrimination rules.

As we conclude in our study, the best way to avert rising central planning is to cut, and ultimately end, federal subsidies for higher education.

Police Officer Reinstated Despite Regularly Having Body Camera Off

Jeremy Dear, an Albuquerque police officer, has been reinstated despite the fact that his body camera was not on when he shot and killed 19-year-old Mary Hawkes, a suspected car thief who allegedly pointed a gun at Dear during a foot chase in April last year. Dear’s reinstatement is a reminder that officers who do not have their body cameras on when they are supposed to should face harsh disciplinary consequences.

In June 2013 Dear, who was the subject of numerous complaints, was ordered to have his body camera on for every interaction with the public. According to reporting from the Albuquerque Journal, Personnel Board documents show that Dear didn’t have this body camera on for about half of the calls he responded to. Dear’s failure to record his encounters with citizens prompted Albuquerque police chief Chief Gorden Eden to fire him last December.

At the time of the Hawkes shooting Dear was equipped with TASER’s Axon Flex camera. Below are illustrations from the instruction manual for the camera, showing how the camera is attached to the collar and connected to the controller.

Dear claims that his camera was accidentally unplugged from the controller when he killed Hawkes. Dear’s camera was sent to TASER for analysis. TASER’s report on Dear’s camera states that it was shut down and activated a number of times on the day of the Hawkes shooting and that the camera would not have shut down because of low battery power.

TASER’s report also stated that the connector cable on Dear’s camera was damaged at both ends and that the cable retention clip on the controller was missing, thereby making the removal of the cable from the controller “easy with minimal force.”

The report went on the say that “Stress was placed on the cable by twisting and pulling it but without disconnecting it from the system. This stress did not result in a powering down of the system.”

TASER’s report doesn’t contradict Dear’s claim that his camera’s cord was unintentionally detached from the controller. But it is worth remembering that his camera did activate and power down normally numerous times on the day of the shooting.

Dear’s case raises questions about what the repercussions should be for officers who fail to have their cameras activated when they should. I and the ACLU’s Jay Stanley think that in such circumstances there ought to be “Direct disciplinary action against the individual officer.”

A Diatom’s Response to Three Levels of CO2

Phaeodactylum tricornutum is a marine diatom that is also a potential alternative energy source due to its high growth rates and lipid (fat) content, the latter of which – according to Wikipedia  – constitutes about 20 to 30 percent of total dry cell weight under standard culture conditions. Given as much, this species is of interest to scientists, such as the seven-member research team of Wu et al. (2015), who recently conducted an experiment to determine how this potential biofuel responds to different levels of atmospheric CO2. More specifically, the group of Chinese researchers studied the response of P. tricornutum to three levels of CO2 (150, 350 and 1500 parts per million (ppm)) over a period of seven days. 

For comparative purposes, a CO2 concentration of 150ppm is around the threshold value required to sustain plant growth on this earth. We came perilously close to this at the nadir of the last ice age. 350ppm is the concentration from a quarter-century ago (we’re around 400ppm now) and 1500ppm is quite a bit higher than even the most optimistic forecasts can get it to around 2100.

And what did they learn? As shown in the figure below, diatom growth rates rose with the level of CO2 treatment. The growth at 350 and 1500 ppm treatments were approximately 70 and 192 percent greater than that observed in the lowest CO2 treatment (150 ppm). And those values may be conservative, given that growth rates at the two higher CO2 concentrations appear to still be rising at the end of the experiment on day 7 (i.e., the green and red lines have not peaked). Similar trends were seen in culture dry weights, where the mean dry weight values reported for the medium and high CO2 treatments were 31 percent and 195 percent greater than in the low CO2 treatment. Lastly, lipid content, expressed as a percent of dry cell weight, amounted to 33, 36 and 54 percent in the 150, 350 and 1500 ppm treatments, respectively.

In discussing their findings, Wu et al. note their results are “consistent with numerous previous studies that higher levels of CO2 support higher growth rates.” And, they further demonstrate the possible viability of using P. tricornutum as a biofuel, which many persons today consider an added benefit.



Wu, S., Huang, A., Zhang, B., Huan, L., Zhao, P., Lin, A. and Wang, G. 2015. Enzyme activity highlights the importance of the oxidative pentose phosphate pathway in lipid accumulation and growth of Phaeodactylum tricornutum under CO2 concentration. Biotechnology for Biofuels 8: 78, DOI 10.1186/s13068-015-0262-7.

Vermont Official Foresaw Collapse of ObamaCare Co-Ops

The Daily Caller has an excellent article recounting that it wasn’t just opponents who saw trouble ahead for ObamaCare’s health-insurance cooperatives, of which more than a dozen have now collapsed. 

Susan L. Donegan was commissioner for Vermont’s Division of Insurance in 2013 when she refused to issue a license to the proposed Vermont Health CO-OP, saying it failed to meet state standards. Her action barred the Obamacare non-profit from selling health insurance in the state…

Today, she looks like a prescient state official who likely saved thousands of Vermonters from buying their health insurance from a doomed insurer.

That’s because 13 of the 24 co-ops set up under Obamacare have collapsed, costing the federal treasury $1.3 billion. More than 800,000 co-op customers now find themselves without health insurance coverage and are scrambling to find new policies due to the co-op failures. 

Turns out that some of the biggest problems she identified two years ago in her state also doomed co-ops across the country…

Denying a license to the health co-op was not an easy decision for Donegan, who first joined Democratic Gov. Peter Shumlin’s administration as a deputy insurance commissioner in 2010.

First, she already knew when the co-op’s application arrived at her her office that federal officials in Washington, D.C., had pre-approved the co-op’s plan and allocated to it $33 million in taxpayer funds.

Second, she knew the co-ops were an important part of President Obama’s signature health reform effort. Obama is extremely popular in Vermont, having garnered 67 percent of the vote in his 2008 and 2012 campaigns…

Donegan sensed trouble as soon as she read the co-op’s application. There were optimistic and questionable forecasts, a board filled with friends, sweetheart deals, high salaries, deep conflicts of interest and a staff with little business expertise.

The failure of more than a dozen other ObamaCare co-ops suggests these problems were not limited to Vermont’s proposed co-op. Yet regulators in those states, not to mention CMS, nevertheless approved them.

One might even say the rule is that government regulators either were unable to spot these co-ops’ looming insolvency, or worse, allowed political considerations to trump their judgment; and Vermont is the exception, where regulators both identified the problem and had the courage to pay the political cost of denying that carrier a license. Something to keep in mind when contemplating the costs and benefits of government regulation of insurance-carrier solvency.

Any count of failed ObamaCare co-ops should be sure to include Vermont’s.

H/T: Greg Scandlen.

Ted Cruz’s Mixed Record on Immigration Reform

Republican presidential candidates Ted Cruz and Marco Rubio both impressed audiences in the last debate.  Senator Rubio’s positions on immigration are discussed frequently, but Senator Cruz is normally viewed as an immigration restrictionist – an unfair characterization.  It’s more important to look at Senator Cruz’s actions when he offered amendments to the 2013 “Gang of Eight” comprehensive immigration reform bill (S. 744) than it is to cherry-pick a few quotes.  Senator Cruz did end up voting against S. 744, but only after he offered many amendments.   

Senator Ted Cruz was a tremendous supporter of skilled immigration and supported massively expanding the size of those programs, even beyond what was proposed in S. 744.  He offered four amendments (1324, 1326, 1586, 1587), to expand the number of employment based green cards to over a million annually.  Senator Cruz offered two amendments (1325 and 1585) to increase the number of H-1B visas issued annually to 325,000 while S. 744 allowed an upward bound of 180,000 annually (with some upward adjustments possible).  In other words, Senator Cruz’s amendment intended to practically double the number of H-1B visas over that which was proposed in the Senate’s 2013 comprehensive immigration reform bill.  Amendment 1587 also increased the number of H-1B visas and employment based green cards.  Senator Cruz’s amendments would have also allowed the spouses of all H-1B visa holders to work legally – going beyond President Obama’s actions to increase work eligibly for those spouses.  Expanding the number of green cards and H-1B visas for skilled workers would have been a tremendous boost to the U.S. economy.