Sunday, June 27, 2010

Money, Broken

Last Friday I saw The Money Fix and heard about Valley Time Trade-- a "time bank" in Northampton. You can pay a small yearly membership fee, spend a little bit of time being interviewed and trained to use some facilitating software, and then can sell and buy "time dollars" by working for, or hiring, other time bank members.

They seem like incredibly nice, earnest, caring, enthusiastic people. So it makes me sad to say it, but I think their project is doomed.

Maybe I'm just a big cynical meanie who doesn't see that the Time Bank will foster mutual respect, increase community interaction and connect people with unmet needs to people with untapped resources.

But I think I'm a realist who has looked hard at how economics really works, and I think there are two really fundamental lessons of economics:
  1. Incentives Matter
  2. Productivity Matters
Valley Time Trade ignores both of those lessons.

On incentives: Valley Time Trade is a "mutual credit system." Everybody starts out with a zero balance, and if I do work for you I get credit and you get a debit that you're supposed to work off at some point in the future, for me or somebody else. The Time Trading Adminstrators keep track of everything, and talk to people to try to get them from either hoarding credits or running up huge debits.

I think that will work really well on a small scale, but will eventually fail. People leaving the system (moving to another state, perhaps) have a natural incentive to leave with a zero or negative balance. Peer pressure and a sense of social obligation will keep that from happening when everybody in the system knows and trusts each other, but eventually that trust will break down. This is the same reason communes and other utopian organizations typically fail after a few years.

On productivity: Time Trade systems assume that any hour of work is the same as any other hour of work. One of their goals is to: "Promote equality, recognizing that all services are necessary to society and equally valuable."

Bullshit. They don't really believe that. I certainly don't believe that soldiers providing me the "service" of keeping me safe from terrorism by bombing the crap out of some foreign country is necessary or valuable.

And they don't really believe that an hour's worth of open heart surgery is as necessary and valuable as an hour's worth of lawn mowing by a ten-year-old kid.

Some people are more productive than others because they're smarter or stronger or have invested a lot of time and effort to learn how to do something. Money is society's way of telling you whether or not you're doing something useful.

Take away that price signal and you'll eventually end up with people doing as little as possible to get by. North Korea is one of the poorest countries on earth because people there are not rewarded for extra effort.

Again, peer pressure and the warm fuzzies from doing nice things for your neighbors will keep Valley Time Trade going for a few years. But eventually there will be a few assholes who exploit it by getting the most valuable services that they can but giving just enough to get by. Which will make the people giving those valuable services a little bit resentful, so maybe they decide to stop giving those valuable, in-demand services and give something else, instead.

The average commune lasts about 10 years. I bet the average Time Bank will last about half that.

Saturday, June 26, 2010

Money, Fixed

I'm happiest when I'm working on One Big Thing. I think I've found my next Big Thing, and I'm excited!

Bitcoin is a new kind of money that fixes a bunch of bugs in the old-fashioned money you have in your bank account and your wallet.

Getting excited about a new kind of money is kind of crazy. You're probably thinking I've been brainwashed by the loony wing of Tea Party that believes that the Federal Reserve was illegally created and that we should go back to a solid currency backed by gold stored in Fort Knox. Or that I've drunk the Rainbow Sunshine Kool-Aid of the loony wanna-be Socialists who think that local currencies are the answer to everybody's economic problems.

I'm excited because Bitcoin isn't a pie-in-the-sky theoretical idea for how to make a better currency. It is a working system that a few geeks (like me!) are already using and trying to break. It fixes these bugs in our current monetary systems:
  • It doesn't require trust in any central authority; there is no central bank or company or board of directors controlling the currency.
  • It is immune from long-term inflation, because it is designed so that only a limited number of Bitcoins will ever be created.
  • It is a global currency and, like the Internet, national borders are pretty much irrelevant in the Bitcoin world.
  • Because it is based on the best currently-known cryptography, it cannot be counterfeited.
Of course, it is possible there's some terrible, fundamental flaw in the Bitcoin system that nobody has thought of yet. I've been thinking about it really hard (and dissecting the C++ source code) for the last month or so and I can't see any flaws, but I know that time and experience are the only true test of any new system.

I'm already putting my Bitcoins where my mouth is, and have created a simple little website to get some experience with handling Bitcoins. The Bitcoin Faucet will give you 5 Bitcoins to play with.

For free.

Maybe I am crazy. What percentage of crazy people think they're sane?

Monday, June 07, 2010

Wax or Plastic?

It is more than twice as expensive to use wax paper sandwich bags than cheap, flimsy plastic bags.

I know this because a friend asked me to do a little research to try to figure out whether wax or plastic was better for the environment.

Well... wax-coated paper is probably better. Both paraffin wax and plastic are created in oil refineries, but paraffin is biodegradable; there are bacteria that can eat it. Polyethylene plastic isn't biodegradable (although it is theoretically recyclable, recycling it isn't economical or practical).

But is spending money on wax paper bags better for the environment compared to spending less money on plastic bags and spending the money you save on something else? 100 fold-top plastic bags cost under $2; 100 wax bags bags cost over $4.

So what if you used the plastic and then donated the $2 to the Nature Conservancy? Would the environmental benefit outweigh the cost of dumping those 100 plastic bags in a garbage dump?

I dug up the Nature Conservancy annual report, and just dividing their budget by the number of acres of land they were able to acquire last year works out to $1,400 per acre. So giving them the $2 you save by buying plastic lets them purchase and preserve 1/700'th of an acre of land, or about 60 square feet. I'm going to buy plastic and donate more.

Of course, maybe buying the plastic bags will make you less environmentally conscious, and you'll spend that $2 doing something environmentally unfriendly like. Or conversely, maybe buying the wax bags will make you more environmentally conscious.

Unfortunately, this research shows the opposite: effect, a green purchase licenses us to say “I’ve done my good deed for the day, and now I can focus on my own self-interest.” I gave at the office, I paid my dues, I did my share — that sort of thing.
So next time you go shopping, buy the cheapest non-organic non-environmentally-friendly option. Then feel guilty about it, and promise yourself that your penance will be writing a nice fat check to your favorite environmental charity.