But you can use it to buy DRUGS!

Senators Schumer and Manchin are upset about Silk Road, a hidden website that is an "Ebay for illegal narcotics." They accept only bitcoin as payment, because bitcoin is the closest thing to cash on the Internet. Watching the press conference, I get the impression they're also upset at bitcoin; Sen. Schumer says bitcoin is "an online form of money laundering."

First, that's just not true! The biggest bitcoin exchanger (Mt Gox) is careful to comply with all anti-money-laundering laws and regulations. If the operators of Silk Road make lots of bitcoins then if or when they try to exchange them for dollars or euros they're going to have to tell Mt Gox who they are, Mt Gox will be required to report the transaction to the government, and the Silk Road folks might find themselves explaining to an IRS agent how they managed to earn so many bitcoins. It is no different from any other financial institution.

Second, nobody can control what is purchased with bitcoins, just like my local bank cannot control what I do with the cash I withdraw from their ATM machine. I wonder if Senators Schumer and Manchin would like to replace all cash with a government-issued smart card; after all, that would make it much harder for criminals to get away with buying illegal goods anonymously, and if we are all law-abiding citizens then we shouldn't worry about the government knowing about all of our purchases... right?

Finally, I hope that the Senators realize that trying to ban an innovative new technology like bitcoin will put the United States at a competitive disadvantage versus the rest of the world. The US government tried to control strong encryption in the 90's, and only succeeded in driving a lot of cryptographic product development overseas. This is supposed to be the Land of the Free; I think we should learn the lessons of the past and be brave about taking advantage of new technologies like bitcoin, instead of fearing them.

Better to give than to take...

Sony recently announced that somebody got into their customer database and got the names and addresses (and maybe credit card numbers) of 100 million of its customers.

Michaels Crafts Stores recently announced that debit card readers in 80 of its stores were hacked to steal customers' bank information and PIN numbers.

There's a problem with the way we pay for things these days. The root cause of the problem is that we're trusting somebody else with the keys to our financial life. We hand over our credit cards or bank account numbers and trust merchants to only charge what we've purchased and to keep our personal information safe. Unless we pay in cash, we're always implicitly authorizing them to take money from our accounts.

It doesn't have to be that way. Businesses could give us their information and ask us to deposit money into their accounts, just like we give them cash which they deposit into their cash registers. If Michaels' cash registers had been hacked and a bunch of money stolen, that would be bad for Michaels but it wouldn't affect their customers at all.

Bitcoin is like cash. Merchants that accept bitcoin ask you to send coins to their address-- you never give them permission to reach into your account and take coins. One of the reasons I think bitcoin could take over the payment world is because that is a much better way to do things, for both the customer and the merchant.

If Sony accepted bitcoin payments from its customers, it might have lost a lot of money by screwing up security and having its private keys stolen. But it wouldn't be facing lawsuits from customers worried about identity theft and future fraudulent credit card charges.

Thirty-five dollar wires

We'll be in France for a couple of weeks next month, and paying for the house we're renting has involved three trips to the bank and will cost $35 (plus whatever costs are hidden in the exchange rate).

Granted, a couple of those trips to the bank wouldn't have been necessary if we'd gotten everything exactly right the first time. But still... I found myself thinking "paying for this using bitcoins would be SO much easier and less expensive."

Maybe paying for vacation rentals in other countries will be one of the "killer applications" for bitcoin; I bet vacation property owners are the kind of small entrepreneur that might like to cut out the credit card or bank middle-men.

The Wise Leader fallacy

I've been thinking a lot lately about taking Bitcoin mainstream. Right now, most people interested in a "nobody in charge pseudo-anonymous" internet currency are libertarians and the techno/crypto crowd.

People like me. Which makes me wonder: are my biases making me think Bitcoin is a technology destined for greatness?

If I play Devil's Advocate and try to think of what might prevent Bitcoin from going mainstream, I think the biggest barrier might be a widespread belief in the Wise Leader Fallacy (which is a form of argument from authority).

We tend to reward and blame our leaders for things that are completely out of their control. If the economy is doing badly-- fire the President. If the baseball team did great during the regular season but got swept in the playoffs-- fire the manager. I think we have a strong need to feel like somebody is in control, whether that somebody is our King or our President or our God.

The idea that wise men are in control of our money is, I think, comforting for most people who believe that our economy can be steered towards stability. They will smooth out the natural ups and downs, making the economy heat up when it is getting too cold and cool down when it is getting too hot.

Combined with people's natural risk aversion and suspicion of anything new, I wonder if that will be enough to prevent people from using bitcoin. "If it ain't broke, don't fix it" is a good rule of thumb; maybe bitcoins will only become mainstream in places where the monetary system is obviously broken.

Why do we pay teachers for advanced degrees?

First, to all of my liberal, union-friendly (and union-employed) friends and acquaintances-- please don't hate me. I'm an equal-opportunity skeptic; I'm skeptical of everything from homeopathy and astrology to fair-trade coffee and the power of unions to improve society.

So, Max in the comments to my previous post says:

1. Public employees in Massachusetts make LESS (total pay and benefits) than private employees with comparable education. The same is true is Wisconsin. You can look it up.

2. No "public good" for higher than average wages? Huh? Isn't that PRECISELY the way you attract good people to do important jobs...like teach your children? Back to Finland: one crucial way they took an average educational system (as it was in the 1960s and 1970s) and made it the best (as it is now) was to dramatically raise the pay of teachers. That attracted lots of the best graduates....like the ones who in the United States go right to law school or business school so they can become investment bankers.

Why the heck wouldn't you want to pay people who perform absolutely essential jobs a top wage?

Is there any research showing that teachers with more education (beyond a basic teaching degree) are better at educating students? All the research I've run across says that advanced degrees don't matter.

As for paying people who perform absolutely essential jobs more: I completely agree, as long as they actually do a good job. We have been paying teachers more and more and yet we're not seeing better results. We have run the experiment of throwing money at underperforming schools, but money doesn't work. Listening to a recent podcast from the Center for American Progress (CAP is a progressive think-tank) drove that point home for me (podcast here).

By the way: I can think of a lot of things that are MORE essential than learning where the private sector seems to do a good job with non-unionized workers. Starting with the food and shelter industries.

One of the things that drove me nuts working at UMass in a unionized position was that my job performance didn't affect how much I was paid, or what benefits I got, one iota. Salary was based on years of service, and the union, while I was there, was actively trying to DEFEAT a pay-for-performance proposal.

Maybe I'm weird expecting that if I do a good job I'll be paid more. Wouldn't we get better teachers if we paid them more when they did a great job?

I think employees should have the right to organize themselves to demand better wages and working conditions. But I don't think it is right that most public employees in Massachusetts must, by law, be unionized.

Why are teachers unionized?

Maybe I should ask: "why do we require that the people who teach our children in public schools pay union dues?"

Don't get me wrong-- I think teachers should be free to join whatever organization they want.

But why do we REQUIRE union membership (or at least payment of union dues) to teach in the public schools?

Do we think teachers are too dumb to negotiate their own salary?

Do we think that school boards and principals and superintendents will trick teachers out of fair salaries and benefits?

Unions are supposed to improve working conditions and get better salaries and benefits for their members, and there is a "free rider" problem if membership is voluntary-- nothing but Massachusetts State Law stops somebody from deciding NOT to pay for a union that is negotiating for everybody.

So it is obvious why unions and unionized workers like laws that require employees to participate in collective bargaining agreements. They get better working conditions and higher salaries and benefits!

I can see the 'public good' angle for better working conditions; working conditions for people in slaughterhouses in 1910 really were terrible, and those terrible working conditions caused external costs that weren't paid by the slaughterhouses (like sick or injured workers that had reduced life expectancies). Working conditions for teachers in 2011 everywhere besides inner-city schools seem pretty good to me, though, and I doubt they'd be worse if the teachers' union disappeared.

I can't see any public good angle for higher-than-average wages and benefits. And if you disagree and think teachers are overworked and underpaid and have to put up with tyrannical bosses and bad working conditions... then tell me again why teachers are forced to pay union dues? Wouldn't they be better off just keeping all that union dues money for themselves?

Why argue over trivia?

Scott Sumner has a very interesting take on why we spend so much time arguing over the little stuff and ignoring the big stuff:

I would like to argue that most of the really important public policy issues are not even part of the ongoing debate in the press. Here are some examples:

1. The huge rise in occupational licensing.

2. The huge rise in people incarcerated in the war on drugs, and also the scandalous reluctance of doctors to prescribe adequate pain medication (also due to the war on drugs.)

3. The need for more legal immigration.

4. The need to replace taxes on capital with progressive consumption taxes.

5. Local zoning rules that prevent dense development.

6. Tax exemptions for mortgage interest and health insurance.

These 6 policy failures impose enormous damage on the country, far more than the issues typically discussed on the evening news. Why aren’t they discussed? I would argue that it is partly because the disagreements tend to break down on values, not ideology. Most idealistic intellectuals agree with me on all of these issues. They are not issues that divide the left and the right. It’s also true that most real world politicians agree on these issues. However their views are exactly the opposite of the views of intellectuals. Hence there is no “policy debate” in either the political or intellectual arenas, and hence no “fight” for the media to report. They become invisible issues.

I've written about a few of those things in the past. Even local news seems to focus on "small in the grand scheme of things" issues. For example, the school Superintendent search has dominated local news for the last month or two. But how important is the Superintendent in the grand scheme of things? It seems to me we like to think that a Wise and Strong Leader will Lead Us to the Land of Milk and Honey, but in reality how our kids do in school is really much more a function of how we treat them at home than who is pushing pencils in the head office.

Yeah, yeah, I'm probably underestimating the impact a great superintendent can have on a school district. But in all the opinion pieces I've seen in the local news about the superintendent search I don't recall seeing even one person explaining exactly HOW a great superintendent might vastly improve the screwed-up school system we're stuck with...