Tit for Tat

“Trade wars are easy to win”, says Trump. Unfortunately for the USA, trade wars are not only not easy 
to win, they are impossible to win, because every ‘victory’ leaves you poorer than before. Free trade is 
under attack, it has been daemonised, not only by leftists and populists, but also by more centrist 
politicians. The sad truth is that truly free trade has been dead for a long long time. One positive outcome 
of Trump’s actions is that is has brought trade back into the spotlight, and his unpopularity is driving people 
into the free trade camp.

Our “propensity to truck and barter” separates us entirely from the animals. Humans are traders, our 
survival depends on it. If left alone to create all the means necessary for our own survival ourselves, we 
barely subsist and then we die. Through specialisation and trade however, hunger is virtually unknown 
and we can devote large portions of our time to leisure.

“In every country it always is and must be the interest of the great body of the people to buy whatever 
they want of those who sell it cheapest.”, those immortal words of Adam Smith explain what is almost 
universally accepted by all economists: trade is a win-win. When two people freely exchange, both 
parties are better off. By allowing the butcher to focus on rearing cattle and the baker on makes loaves 
and allowing them to trade, both will have a greater amount of bread and meat than if they tried to make 
each themselves.

This is true on a national scale also. Some countries have the climates, skills, infrastructure, knowledge 
and natural resources that allow them to specialise in the production of certain goods. Even if one country 
is better at producing everything than another country, the less efficient country still benefits by focusing on 
what it is good at and trading for the rest. This is the rule of comparative advantage.

These admittedly very basic facts about economics, like many basic economic facts escape the vast 
majority of the population. The masses who believe that prosperity is a fixed pie, and that one nation’s gain 
is another’s loss are easily swayed by the arguments of protectionism championed by economic illiterates. 
Indeed, who or what is protected under ‘protectionism’? As Friedman liked to say, it is the people who are 
protected, from low prices.

The main arguments used by protectionists are that a certain industry is being affected by ‘unfair’ trade, 
or that it needs to be boosted to catch up with international competition or that it needs to be helped in 
order to preserve it for cultural or national security reasons.

There is no such thing as ‘unfair’ trade. If a foreign government is so ill-advised as to tax its own subjects 
to send low-price goods to another market, this is actually foreign aid and the citizens in the “dumping” 
market benefit form lower prices and a higher standard of living. After all, the vast majority of us don’t work 
for the sake of it, we want to enjoy the fruits of labour.

Wrong also, is the idea that a protectionist tariff, which is just a tax on the import of specific goods will 
somehow give domestic industry a leg up. Such measures invariably lead to complacency in these 
industries that can just raise their prices almost by the amount of the tariff without having to invest in plant 
and equipment. The measure intended to preserve certain industries end up dooming them to a 
zombie-like fate of irrelevance.

The national security argument is also a cop-out. The idea that, due to a war, a country would no longer 
be able to import steel, aluminium or unobtainium has never borne out. Also, if national security was really 
the concern, there would be much cheaper and more effective ways to guarantee a supply than a stupid 
tariff. For example, steel mills could be mothballed, just like battleships, or steel could be stockpiled. It is 
interesting that those invoking the national security argument never mention alternatives to tariffs or 
subsidies.

The most damning point about the national security argument is that trade wars lead to wars. Or rather, 
trade leads to peace. The more interconnected two countries are when it comes to trade, the more 
expensive it would be and therefore the more reluctant the parties would be to seek a destructive war with 
their trading partners.

We have seen this in Europe. 50 years of peace on a content that had previously scarcely known a year 
without war. The European free trade zone has been instrumental in this security. Interestingly, the 
European Union, the champion of inter-community free trade is on aggregate anti-trade, as highlighted by 
it’s Brexit stance.

Although it has sought to free up trade as much as possible between member states, the EU has started 
and participated in several trade wars. Also, it is in favour of managed trade; encyclopedia-sized trade 
treaties with specific countries that impose massive regulatory tariffs on imports and leave the developing 
world out in the cold.

A real free trade treaty could be written on the back of a business card: unilateral free trade. Everyone can 
buy or sell whatever he or she likes from whoever he or she likes. The citizens of the EU, especially the 
poorest, are not helped by the imposition of one-size-fits-all quality standards. Nor are they helped by 
targeting foreign companies with lawsuits over ‘unfair’ trade practices in courts clearly biased towards 
their home constituents. They aren’t helped either by having cheaper poorer-quality goods from 3rd world 
countries shut out of their markets - and neither are the citizens of those countries. Food for thought the 
next time you pick up a “fair trade” banana.

Pisa, March 9th 2018

TLDR: It's about time we stop hurting ourselves and each other with policies spouted by economic illiterates that we should have left buried in the 18th century

 

Trump's trade war receives a frosty reception

Bitbubble

Bitcoin is arguably the biggest thing in the technology space to catch the public’s imagination since
the smartphone. As a computer scientist, a libertarian and an amateur economist, one would think 
that I’d be massively enthusiastic about cryptocurrencies. After all, isn’t it a private initiative to break
the monopoly on money by a central banking system that cannot be trusted with the value of our money? 
That it is, unfortunately there are a number of reasons I believe that Bitcoin will not replace our fiat 
currencies and will instead go down in history as the 21st century version of Tulip Mania.

To understand why Bitcoin will not work as money, we have to understand where money comes from. 
Before money, goods and services were exchanged for each other in the highly inefficient barter system.
The butcher would give the baker a steak in exchange for two loaves. Within this system, some 
commodity is eventually bartered for that is not directly needed, but because it is highly exchangeable 
for other commodities, this is the birth of money.

Any commodity can be money. Indeed the earliest forms of money where food, especially livestock 
and grain, because of its near-universal acceptability. Different commodities have different qualities that 
can make it better or less well suited for use as money. Wheat spoils and is very bulky to transport and 
store. Cattle is more portable and lasts longer than wheat but must be kept alive and a cow cannot be 
divided without destroying it. It is widely accepted that there are eight properties a commodity should 
have to be ideally suited for use as money. Gold and silver were money for 3,000 years precisely 
because of these qualities.

The commodity should be durable, gold doesn’t expire like wheat and cattle. A Bitcoin too, is permanent. 
It should also be recognisable, gold’s heavy weight and yellow colour make this relatively easy. In this 
area too, Bitcoin has no serious issues. Both gold and Bitcoin are also divisible to very small fractions, 
this allows for very small transactions. At a purity that is easy to assess, one gram of gold is exactly like 
another, just like one Bitcoin is identical to another. This homogeneity is important to prevent people 
paying their debts with their oldest and sickest cattle.

The commodity must also be portable. Gold has a very high value density, so you can carry a large 
amount of value in gold with you. Bitcoin is ethereal, so you could carry it around without issue, however 
transacting in Bitcoin is a computationally intensive process that reduces its portability. Gold can be 
exchanged via an intermediary or receipts, so one can transact in gold or silver without actually moving
it around.

The commodity must also be acceptable, while gold was accepted for goods and services for thousands 
of years until Nixon closed the gold window in 1971, Bitcoin is not accepted. You might disagree there, so 
perhaps I should explain. If you buy something on the Internet using something like BitPay, you are not
exchanging Bitcoin for whatever it is, you are using a service to sell your Bitcoin and use the money for 
the purchase. This can be done with any commodity, this is not the same as the vendors quoting their 
prices in Bitcoin and accepting and holding the currency. That only happens with few small vendors 
whose owners happen to be speculating in Bitcoin. This is not a deal-breaker for Bitcoin, as this might 
still develop, as the proponents insist.

Malleability is another property that will promote a commodity's use as money. If once I turned my gold
into a ring, it was stuck that way forever, this will make it less useful in exchange if the new owner 
couldn't refashion that ring into a tooth filling or a bar. Bitcoin isn’t malleable.

The last property is stability. If I found an ancient gold coin (discounting any historical or numismatic 
value the coin may have), the value of the gold it contains would pay for a remarkably similar amount of 
goods and services today. If you owned a large chest of gold in ancient Rome, you were rich, the owner 
of the same chest today would also be rich. Bitcoin doesn’t have a long history, but so far it has been 
extremely volatile and so it is not possible for people to set prices or wages and sign contracts 
denominated in Bitcoin.

The ultimate issue with Bitcoin, is that there is no inherent value to store. Gold is a real physical 
commodity with use in decoration, medicine, electronics and others. The blockchain might have many 
applications, but Bitcoin is not the blockchain, which leads me to the next big problem: inflation.

Inflation, as classically defined, is an increase in the supply of money. These days it is equated with an 
effect of inflation, which is an increase in prices. Fiat currencies, particularly the Dollar, the Euro and the 
Yen have suffered a lot of inflation in their history, particularly lately. New gold can only be mined out of 
the ground at a slow relatively constant rate. Bitcoin cannot be created easily and there is a fixed limit on 
the number of Bitcoins that can be mined, however there is no limit to the number of cryptocurrencies 
that can be created. If Bitcoin is so valuable, it is too easy to create Fitcoin, Gitcoin, Hitcoin, etc with 
exactly the same properties as Bitcoin, or perhaps improving upon them. Indeed, it wasn’t the first 
photocopier company, Xerox that won out in the end, nor the first major social network MySpace. So 
why should Bitcoin be worth anything in the future?

Bitcoin is not being used as a currency, it is being used as a speculative asset. People are not buying 
Bitcoins to transact in them, they are buying them because they are going up (or at least were going up). 
The massive hunger for speculative assets which has sent cryptocurrencies, stocks, real estate and 
collectables to record levels is fueled by a long period of the most dovish global central bank policies in 
history. Anecdotal evidence that it is a bubble include dodgy ads on Youtube and Facebook and a sudden 
interest in cryptocurrencies by people who have never invested their money before. Even a taxi driver in 
Germany who barely spoke English was trying explain to me why Bitcoin was going even higher.

There are genuine uses for the blockchain. However, tokens that have no intrinsic value, digital fiat, will 
not be used as money. A cryptocurrency backed by come real commodity (and therefore with 3rd party 
risk) would work. A cryptocurrency backed by gold would be ideal. Unfortunately, the crash that seems 
to already have begun in the Crypto bubble will make unregulated non-government money look bad and 
make the flawed, ugly government fiat currencies look good in comparison.

It should be remembered that government action (massive easing) caused the speculative mania in the 
first place. Also, that all fiat money is flawed and that one day we will return to that standard of value we 
used until 1971: gold. An amount of gold is a good measurement for value, just like the meter is a good 
measurement for distance. Having government decree our measure of value makes as much sense as
having them decree the length of a centimeter, a privilege they would abuse by shortening it every year 
and thus making their private parts ‘bigger’.

Boston, February 19th 2018

TLDR: Bitcoin is a bubble, get out while you can.

I can't believe they're still fixing this bridge

Absolute Corruption

As the smoke clears, the picture gets no clearer. What did she know? Was it a criminal gang? 

Was it someone in government? Is there even a difference? Corruption is, rightly, today’s hot-button 

issue. Many are angry, they should be. Many say corruption is rife, they are right. They clamour for 

change, but of what sort? Will electing the right people really make a difference?

The old aphorism is true: power corrupts, absolute power corrupts absolutely. I have heard nobody since

the tragedy ask the right questions or propose a solution that can work. Are we seriously trying to 

understand the nature of corruption? Will trying to do the same thing over and over ever yield different 

results?

Luckily, corruption is a solvable problem. To solve it requires an understanding of where it comes from. 

It does not come from bad people, it does not come from greed. We are all imperfect, we are all greedy. 

Corruption comes from power. To solve it, requires the confiscation of power from the political class and 

its rightful return to the people as individuals.

To remove all power from government is an absurd extreme, a straw-man that would suggest I am in 

favour of anarchy. But to understand the relationship between power and corruption is logical, to see it as 

a sliding scale; the more power, the more corruption, is borne out by the evidence. If we had less political 

power, we would have less corruption. Having no government power whatsoever is as undesirable as 

having no corruption whatsoever is impossible. Power corrupts, a little power corrupts a little.

So what then, specifically? Where to start? Government is responsible for many many areas that it was

previously not responsible for. This gives ministers and bureaucrats so many opportunities to award 

contracts to their friends, reward their backers and accept money under the table to help them make up 

their minds when deciding on policy.

In a simple and topical example, if the government was not in charge of energy procurement, there would 

be no way that any alleged wrongdoing would even have been possible in the Azerbaijani scandal. Do 

you think that shareholders in a private company would have accepted a CEO's decision to buy energy 

from anything but the best source? Alas, when it comes to the public interest, politicians, as well as 

everyone else, knows that what is good for them, is good for the country.

This is human nature, and it is a good thing, that when guided by the invisible hand of the free market, our 

self-interest guides us to do good to the general public, even though this was not our intention. To pine on 

socialist morality totally ignores this human nature, with predictable results. Alas again, we do not need 

to predict the results. Friends, we have seen this movie before.

Our choice then, is clear to me. One option is that we blame the few bad eggs or the many bad eggs, and 

change one colour of politicians for another. Hope in vain that this new crop of leaders is superhuman, 

un-human that they will self-sacrifice themselves for the greater good. This will not work, they will be as 

corrupt as those they replace, or more so. If they are not, they will become so.

Another option then is to dilute political power, separate and ring-fence it. More watch-dogs. Watch-dogs 

watching dogs. This is progress; there will be more people to bribe. Each one for less, to the extent of 

their power. It will also increase the cost of government. And does it even work? This has also been tried. 

In software we ask “who guards the guards?” A single point of failure is sufficient. If such re-organisation 

could work, the Soviet Union would have defeated corruption.

The right option is to open our eyes. Our leaders, past present and future, blue, red, green and yellow are 

not at fault. The fault is our own; for letting them get away with the usurpation of so much power. Of 

course it will corrupt them, have you not heard that power corrupts? If the recent tragedy was indeed the 

result of some government corruption, we should punish the political class collectively by never trusting 

them again with so much. The children have run amok, we have to take their toys away and return to the 

time when we took responsibility for ourselves. 

Leipzig, January 8th 2018

TLDR: 
The only effective way to reduce corruption is to reduce government power.

Clouds on Europe's horizon