Moving Beyond Currency

Some comments on the economics of what you're saying:

1.) I think you're mixing up some facts about the Fed. First, is decidedly a federal body. I'm not sure what you mean by an "entity that is neither federal nor corporate in nature." Its role also is not to directly control or mediate interactions or use of money, but rather to indirectly control the money market through the discount window via Open Market Operations (OMO). In fact, there is serious contention amongst economists at the validity or effectiveness of the Fed given that the instrument it uses to control the money supply isn't used with this purpose in mind given the erroneous fascination with interest rates that the Fed employs (ala: Keynesian economics).

Basically, it's not the Treasury (who actually controls money) or the Secret Service (who enforces the monetary laws of the government). It's something else.

2.) There are significant laws in existence to arbitrate online transactions. At the very least, there's the Interstate Commerce Act from Gibbons v. Ogden. The Federal Rules of Civil Procedure and Sarbaines-Oxley both contain significant provisions for online commerce in the form of restrictions on records for ESI - Electronically Stored Information. Online commerce remains robust as is without the introduction of further regulation.

3.) Inflation remains an issue, but that's because it's tied to the value of the currency used. If you go fully-online that doesn't change. Inflation is simply a form of change of value in a currency. It's not an issue endemic solely to physical currency. If we stored and distributed value in something intangible, there can still exist inflation in such a monetary system.

Inflation also is often created by the very same regulation you're hoping for. The Keynesian revolution ended in a blast of Stagflation, largely a consequence of radical increases in governmental spending without a proper respect for the monetary economics in play. If you regulate money even further, it does not necessarily help out that money market. In fact, it might even ruin it.

4.) Yes, it would be pretty optimal if we didn't have to trade currencies to do business in foreign places. But if we all had a standard note of value, nobody can control it or else you've got problems with deadweight loss due to the market power of a single government (e.g.: the value of the note may arbitrarily rise and fall at the whims of the government, reducing consumer surplus and potentially creating inflation with forcibly moving the value of the currency away from the market equilibrium point). The Gold Standard's pretty good at this, but we haven't been on that for almost forty years.

Commodity money like gold is the best way to do this, arguably, because the unit has intrinsic value. I'm not sure if you can do it then online given that there is no intrinsic value to the collection of set bits on the 64-bit integer that make up my bank account balance on WellsFargo.com or BofA.com

5.) "The danger, however, is that these are monitored, managed, and run largely by for-profit corporations, so the revolution would need official sanction and direction." This is how money works in currency form also. Well, none of these systems of value are monitored or really even managed by corporations (Visa can't directly change the market value of the dollar). Money is merely a store of value and unit of account that's given value by everyone that uses it. Just as corporations use money to conduct business, and thus have a vested interest in ensuring that the money achieves an efficient free-market rate to maximize their utility of the currency, individuals use money to conduct their own business. Value is then attributed by all parties in the market.

The government can indirectly control this value via changing the money supply, but it can't just do the "I Dream of Genie" thing and make a currency more or less valuable for all people that use it.

No, I'm not.

1) I'm not saying the Fed does it's job well, and I even say that in the article. Also, the Fed is independent of both Congress and the Treasury, while not being directly (which is arguable given their associations with Goldman Sachs et. al) associated with the private banking industry. What I am saying is that an entity of the same *intention* is needed to mediate the coming digital future of currency.

Something official, something not from the private sector.

2) Laws don't mean crap unless they're enforced, and then only when violations of these laws are brought to light by the correct people to get enough attention in order to *force* investigation. If you don't believe me, I suggest you revisit the last two years of American banking/investment history.

3) I'm not saying inflation doesn't go away. But one of the concerns being voiced is that the Treasury can print more/less money based on how much Congress wants to spend, economy, etc. which is very risky business - ask Zimbabwe about this.

By going digital, and not having a default option to "just make the money we need!", we could be slightly safer from adverse reactions.

4) I disagree. The point is that the countries using this currency would submit to the machinations of this central body for all issues related to currency. The EU has done a pretty good job of managing the Euro, and that's a decent use-case for a potential world currency.

Basing it on gold is probably too outdated. Just like how the kilogram is going to be based on an atomic mass, rather than the mass of a physical object, currency needs to move in that direction. What the answer is, I'm not sure, but it's not gold. The U.S. has done fairly decent for not having anything backing the USD, so the option for the future may just be an arbitrary value.

5) I agree with you, somewhat - the Fed does what they want, largely due to the influence of bankers and investment types. The danger lies in the systems that process and run the money. The constant deceit by banks is unacceptable, especially if they're to be trusted in an all-digital world. They need to be held accountable for their actions, but, more importantly, act responsibly in the first place.

The fact that U.S. banks make such huge profits off of "helping" customers through automatic enrollment in "Overdraft Protection" is a perfect example - this is not helping anyone besides their own pockets. The same principle needs to apply to the entire system: the way money is spent (online and debit cards), accessed (online), managed/held ("don't steal my money"), etc.

An all-digital system that is largely at the mercy of corporations looking to charge fees "for the benefit of the customer" is one that is going to fail miserably.

*That* is why the government, either ours or a future unified one, needs to be directly involved.

--Kyle

The Fed isn't independent of the Congress. At least, not in implementation. The President appoints the Chairman of the Fed and the Senate has to confirm him to sit his term. Both the Executive branch and Congress have complete control over the Fed through the Chairman. I'm not sure what you're talking about with Goldman Sachs also. Everyone is affected by OMO, but I don't believe you understand what the Federal Reserve actually does.

As for these laws, they're rigorously enforced. SOX and FRCP have forced many companies to adopt new standards. Culpability due to a lack of ESI control is a huge problem and is a huge industry for data management and cryptographically-secure storage companies.

I'm a bit confused by the kilogram simile. Atomic mass is physical; simply the scale is smaller, more precise, and it sounds cooler because it has the word "atomic" in it. Why we would base something in gold (and why gold remains an extremely valuable currency that has enjoyed relative stability in value) is because it's a commodity currency. It has intrinsic value. By contrast, fiat currency such as the modern US dollar and what I imagine you'd think of for a fully digital currency has no intrinsic value. This leaves it particularly vulnerable to inflation and other issues related to valuation.

There's an entire field of economics dedicated to this topic. If you're interested in it, reading Friedman's Economic History of the United States or nearly anything by Murray Rothbard might yield some more light on to this topic.

U.S. banks do gain money from overdraft protection and fees. But their primary way of gaining money (which trumps the various surchages and fees they hit consumers with) is via loans and lines of credit established as a result of fractional reserve banking. This is one of the reasons why the Credit Crisis took down so many banks - their primary method of income was devastated by frankly foolish loaning practices and bad math.

Banks do not explicitly control money also. Individual banks do have market power, but the entire money market lies more in the hands of consumers, large businesses, and in the case of a fiat currency system with the government (the Treasury, indirectly the Fed, etc.)

My personal problem - and the problem that a lot of economists have - with the Fed isn't that they "do what they want," it's that historically they're largely ineffectual. Their control over the money supply is significant, but they do it through a backwards channel that can have dramatic side-effects.

Your issues with corruption are a bit misguided, I feel. Why corporations have some sort of effective control on the Fed is the same reason why the government has control on what's supposed to be an independent regulatory body. They all know each other. It's a lot like tech: they all went to the same schools, they all worked together, and they can all call in "favors." The entire system - government or not - is just as self-servicing. There's a whole field of economics called Public Choice economics dedicated to understanding this; at the end agents act in their self interest.

This is actually the bases for the argument for deregulating currency from government control: corporations are self-interested to compete amongst each other. It is more optimal for corporations to ensure that currency is dergulated to ensure an efficient market value for currency (deadweight loss results from governmental control just as any other type of monopoly).

And like any sorts of deadweight loss, consumer surplus takes a substantial hit.

Don't get me wrong, it's an interesting post and your dedication to technology is commendable as always. But there's already a lot of research going into this area and we already have some pretty concrete answers to address some of the issues you have in the market.

There's always "alot of research going into this area" whenever someone criticizes an industry or the status quo that many profit off of.

How long have "energy companies" been "researching" alternative sources of energy? And have they produced any tangible results? No. The innovation comes from external sources that create products and methodologies that the "energy companies" rather reluctantly adopt.

And very slowly and ineffectual at that.

The same goes for health insurance, pharmaceuticals, and anywhere else that corporations make millions (or billions) by continuing to follow the same procedures from decades past.

This is why startups, in any arena, are so effective - they're disruptive.

--Kyle

If you want to keep attacking me, I'm going to start deleting your comments. We can have discussions without you getting on a high-horse because you'll soon have a degree in Economics from San Jose State. Not necessarily the most prestigious or difficult degree, and other people, if smart, can understand these things too. So know that going forward.

a) The Fed is not technically independent, no, but they *operate* independently. That was part of the reason they were created. Yes, the Chairman might have to answer a Congressional summons, but at the end of the day it's the Chairman that decides the actions of the Fed, and *not* Congress, the President, the Treasury, or anyone else.

b) Goldman Sachs is known for its incestuous relationship with its executives moving from GS to the Treasury or the Federal Reserve. Take a peek through the last few decades, and it even came up in a recent "please feel sorry for the CEO of GS, his life is so hard" article in TIME Magazine [Issue 178.4 - 2009].

c) I don't disagree that gold is valuable. I simply think that, moving forward, it's both unrealistic and unnecessary to expect currency systems to be based on some exchangeable standard. And the point of the kilogram analogy was that standards can change over time.

d) $39 billion in Overdraft Fee profits. That may not be the entirety of their revenue, but it's a large sum. End of story.

e) I never said that banks "explicitly control money". And the idea that the money market "lies more in the hands of consumers" is laughable - the number of banks to choose from is even slimmer than before, and it's usually like choosing the lesser of two evils, as they all practice the same brand of juju, just with different flair.

It's important to note that it's not the consumers that created the bullshit AAA rated properties that resulted in sub-prime mortgages being so prevelant - the banks did that. Yes, people used them, but they didn't create them.

f) I'm, once again, not arguing that the Fed is good, let alone effectual or America's white knight. Just that the reason they were created can act as a model for this future entity I think needs to exist, but hopefully with better net results than the Fed.

g) I don't care if they know each other. It is absolutely, definitively, unequivocally, and ethically wrong for some of the activities that occur between banks, investment firms, and the government (via the Treasury, Congress, and the Fed). Lies, slush money, perks, etc. aren't made acceptable by the fact that they know each other.

That's like trying to argue it's ok for someone to murder a prostitute because "the client and hooker knew each other".

And my issues with corruption *are not* misguided. Again, see the last two years of banking and investment history for reference.

h) Giving corporate interests the power to regulate currency is like asking if a dog to stare at raw steak but not eat it - it's only a matter of time until the inner desires of the dog overcome the command of the master. I've expressed this view enough times, both in the article and in the comments, that I'm not going to explain the idiocy of expecting corporations to be intrinsically ethical and good.

--Kyle

Kyle, I'm not attacking you. I feel your ad hominem's kind of weird too: we both go to the same school and study the same stuff. Why bag on San Jose State when you and I even had the same class last semester in algorithms? As for econ being "not difficult," I can tell you that in my experience as both an econ and CS student that I've taken more math than some CS majors because it's required for the particular type of economics that I study. It's especially the case now that CS doesn't require you to take Calc 3 and Applied Stats; BS economics students take two more classes in statistics and calculus in the form of Math Methods for Economics (Econ 104) and Econometrics (Econ 103).

But I'm digressing.

First, the Fed business. The president appoints the chairman of the 'Fed. If the executive branch or congress doesn't like the actions of the 'Fed, they can recall the chairman or appoint new ones to coincide with their own political volitions. They thus exercise and extreme control over the 'Fed. I brought up that I felt like it doesn't seem like you know what the 'Fed does because you never brought up what they actually do. In your original article, there's no discussion of Open Market Operations, the Discount Window, or reserve ratios. There also wasn't any sort of discussion about fractional reserve banking, which is the cornerstone of modern banking systems. If you're going to talk about how the current monetary system needs to be changed, I'm surprised that you didn't talk about how it works in the first place.

The incestuous relationship you describe with Goldman-Sachs and the federal government isn't the result of some sort of evil pact wherein robed investment bankers chant Bernanke's recent edicts in Latin. It's actually the same reason why there's a lot of incestuous relations in technology: they all know each other. Finance and tech are very similar in that they're both very small worlds. If you spend a few years in Silicon Valley, you're bound to run into people you studied or worked with either in your competitors' firms or in the government bodies that regulate your business and demand expert knowledge in your field. The same is true in finance. In fact, technology is just as sketchy if not moreso given some of the unspoken practices of major high tech firms. Palm and Apple's recent spat with anticompetitive "poaching" agreements is a widely known but often unspoken topic within the 'Valley.

39 billion is a lot of money. But compared to how much money gets pumped through major banks due to loans and derivatives trading, it's significantly less. The FOREX market trades in volumes of something like 3 trillion daily. Skimming even a bit off the top of that is a lot more than 39 billion. Again, I'm surprised you didn't dive in-depth into the fractional reserve banking system. If you're focusing on how your system of currency is superior, that seems like it'd be a better place to wage your battle rather than talking about the comparatively pithy amounts of money you get in consumer overdraft fees.

As for the idea that the market lies in the hands of consumers being laughable, consider why we're in this current recession. CDO's that you rightfully criticize stemmed from consumer subprime mortage loans. When it hit main street, Wall Street soon reeled. Consumers may not feel like they have that much power given the perceptions of oppulence. But consumer demand drives GDP just as much as investment does. The general agreement in economics of why we keep having this same type of recession over again is a criticism of everyone who has market power, including consumers and investment bankers. CDO risk pricing using bad math like normalized Gaussian Copulae (used how they were to price CDO's - see Wired's discussion on the topic) is stupid and obviously a criticism of the financial sector. Consumers knowingly taking on loans they knew they'd default on is obviously a criticism of consumer behavior. The government bailing out firms that allow stuff like tihs and contributing to moral hazard issues is obviously a rag on the government. Everyone's to blame because everyone has a fair amount of makret power. It's just not obvious.

And no, corporations don't "regulate" currency. In fact, there's a huge argument in economics that nobody should regulate currency (Rothbard) becuase it leads to a lot of problems with valuation. But the perfectly competitive market structure is optimal for corporations and consumers alike. Perfect competition involves corporations fighting with each other to grab revenue from consumer demand. It drives down prices for the consumer, and is mathematically optimal for all parties. what I was talking about is perfect competition. It's not obvious, but letting the "dogs" fight for the steak makes the steak all the more valuable.

Basically, my comments are not intended to say that you don't know what you're talking about in terms of economics. I fully, 100% support anyone getting excited about this kind of stuff because I find economics a fascinating and interesting field. In fact, I hope more computer scientists go in and ask questions about these kinds of things because a fresh perspective is important and there's a lot of crossover mathematically between the two disciplines. But just as you use combinatorics and graph theory in programming, the topics you're discussing involve a lot of theoretical economics - game theory, monetary economics, and public choice just to name a few. Your argument can profit from using these fields and utilize the knowledge generated by people (some of whom sort of agree with you) whose job it is solely to research this issue in question.

My comment about being misguided are an example of this. I'm glad that you're so interested in breaking up corruption in the financial sector. But adverse governmental control can and does lead to deadweight loss just as much as corruption does (systemically they're pretty much the same on a graph). It's not about the questions you're asking being wrong, I'm just not sure you're pointing the gun in the right place.

Whether you study economics is irrelevant.

SJSU:
a) I'm at SJSU not by choice, but by default. That's a long story. So I don't have to like it or be reverent of a system that helps people graduate even when they don't deserve it.

b) The point was that Economics is not entirely difficult if you apply yourself to it properly, and we're at SJSU - not Stanford, not Yale, not MIT.


c) I was a Computer Engineering major for two years before transferring to SJSU and changing majors to Computer Science. And since I finished 99% of the Engineering Core, I suggest that we don't get into a "my classes are harder than yours" or "I took more math and science than you" pissing contest, for your sake.

Your ongoing diatribe:
a) I'm not writing essays on market functionality or those things. I wanted to express my distaste for the current banking system of fees etc., and share what I thought would be a better, digital, future of money. And in light of that, I only provide only information that is relevant, and even then just enough for someone to look up the details if they don't know what I'm talking about.

However, being able to appoint/recall someone is not the same as direct control. See the Recall Election Process for California, how often it's used, and how much havoc can be caused before the person is replaced. It's not the same, no, but it's similar enough.

b) Again, just because it's not literally "cloak and daggers" doesn't mean their actions aren't. And just because it happens in the Valley too is not a reason to agree with it. You're providing allegories rather than a defense.

c) I'm not drafting a proposal for a new system of currency, but rather trying to sow the seeds in others who are in a position to affect change. You consistently misinterpret the intentions of these pieces, time and time again, in the same manner.

No-one else does besides you. Ever.

And I get decent traffic.

d) Chastising a dog for biting you after you poke it with a stick for ten minutes in the face is no different than blaming those who picked up attractive loans that were offered to them - it's passing the blame, and it's stupid.

The average person in America not only didn't cause this situation, but they have no idea what "the situation" actually is. However, those that do are the banks - because they caused it.

e) There is no "perfect competitive market", in any arena or field. A semblance of one may exist for a short time, but it's soon eclipsed by large conglomerates with more power, more money, and more influence that bend the rules, and those that make the rules, to their interests.

And guess what happens when one of the dogs not only has rabies, is extremely hungry, and has been a test subject of both growth hormones and anabolic steroids for months?

Non-competition.

f) See my previous comment about you missing the point and the audience.

g) I'm not saying that full-on government control is wonderful either - which is why I suggested an unbiased third party entity would be in control. Sanctioned by the government and given the power to do its job. Not interested in profits or self-propagation.

Regulation is not evil when done properly, and the sooner that you and the GOP release this, the better off America will be.

h) I am pointing the gun in the right place. It's no coincidence that banks and investment entities make giant profits off of "heads I win, tails you lose" situations and agreements while causing a rush to the brink of American economic collapse.

I'm not surprised that you take such offense to my objections to the financial system, just like I wouldn't be surprised if Ben Bernanke or Lloyd Blankfein called this out as crap. You're entrenched in the system (or soon will be), taught to think the way as the system wants/needs you to, and heavily invested (or soon will be) in the success of prior models, theories, and methodologies.

The insurance industry doesn't want healthcare reform because it will ruin their massive profits, and the investment industry doesn't want regulation of the markets that the industry created to circumvent reality and achieve higher profit from speculation on made-up properties.

Funny how the situations are very similar, eh?

Actually, no it's not. It's what you should expect. And it's what I expect.

What intelligent, thinking, independent people should expect of a system, and its minions, that is only interested in the proliferation of profits and the system itself.

--Kyle

p.s. I'm done with this "conversation".

Yeah, I don't think we're going to get anywhere else with this. You seem like a pretty unhappy guy with the whole situation with SJSU. There's a lot of good work at our school, Kyle. Our Applied Math (highly recommend Math 161A and B with Bremer, aweosome professor) is pretty good as is our Engineering and CS departments. And it may surprise you that if you passionately apply yourself in your studies here at State, you'll be just as prepared to accomplish wonderful things in technology as CS students from CMU or Course 6.2-s from MIT. A lot of my friends and co-workers go to both of these schools, and we actually end up taking the same courses as a consequence of our ABET accreditation requirements.

Really, the only people I've heard blast State for being inferior to either of these schools are SJSU students themselves. If you love what you do, work hard, and study even harder, it's just as easy to get into a top tech firm if you studied in San Jose as it is if you came from Boston or Pittsburgh.

By the way, the only difference in math between CS and Engineering is one class - differential equations. The material covered in Econ 104 covers that difference in the form of a fairly involved review of constrained optimization (Legrange Optimization, advanced linear programming, etc.). If you're interested in diffEQ, I highly recommend taking a look at some of the advanced systems analysis and optimization mathematics we employ in Econ on a regular basis for analytics. It's also required for Econ students to go wild on regression, something that's 1-2 classes further than the maximum amount of statistics you need to take for ENG or CS students (Math 161A). Econ majors that study math economics are really just weird applied mathematicians and statisticians who like to wear expensive suits.

No offense, but you haven't taken the econ classes you're calling "not entirely difficult." The professor who teaches 104 here happens to be from UMichigan (one of the premiere Math Econ schools along the same caliber in the field as MIT). Sure, it wasn't that out of left field for the CS or Math majors in the room. But every major does work hard in their own way. With regards to economics, it's really hard to talk about how cheap an experience may or may not be if you haven't experienced it yourself. The fact that undergrads from 'State's econ program that go on to grad school trickle off into places like George Washington and Harvard should be pretty telling if you're still focused solely on prestige.

I hope you find what you're looking for with college, Kyle. I admire your audacity and willingness to question how you can make things better. But in this case it seems like you forgot the training we were supposed to learn as CS students to objectively review the hard math and theory surrounding an issue then consider the context, and rather just are buying into the popular screaming and raging that's ignorant of the foundational economic complexities in play.

Good luck in your endeavors.

a) I was at Santa Clara University before I decided to leave for non-academic reasons. So I can most definitely criticize SJSU as being inferior.

b) I'm no longer interested in working for a tech firm after graduation - I have other plans. That's another topic for another discussion of how I'm jaded.

c) There is a minor difference in math, yes. But the sciences and the engineering aspects of ... Engineering tower over both CS and Economics. It's a much better program, to be honest, if you're looking for overall knowledge acquisition.

d) I'm trying to graduate as fast as possible, so there will be no extra classes.

e) I don't really care about academic prestige. To be honest, I consider anything that isn't an engineering, sciences, or high-level math degree easy. Not necessarily inferior, but definitely easy. Why? Because when you compare the material, time inputs, workload, course difficulty, etc. they pale in comparison. It's kind of how Business majors laugh at Art majors, but the Engineers laugh at the Business majors.

f) If you've objectively read anything I've ever written in the last eight months, you would have noticed that I am decidedly not part of the "popular screaming and raging" group. It's laughable of you to even suggest that, given my personal ideologies.

As I said before, I believe you and your brethren are tainted by drinking too much of the group's Kool-Aid. I don't disagree with you on all points, as you should have seen by now, but I wholeheartedly disagree with your conclusions.

After objectively reviewing the situation and considering the context.

--Kyle

"The difference here is that when the currency is planned/mandated to be digital, it becomes subject to the same oversight and regulation that paper notes have in America today."

Very true!

Disclaimer: I am not an expert on monetary theory or history. I am only an undergrad econ student who likes Micro.

A few things to keep in mind:
1)Public Choice Theory (those of you who aren't familiar, I recommend the article on EconLib.org, just search for Public Choice).

2)There is a good deal of literature that supports free (for-profit) banking ("free as in free speech, not free beer"). I am inclined to support the view that free banking is viable as an alternative to gov't monopolized currency (partly because Public Choice concerns make gov't currency significantly less than perfect, leaving a good deal of room for improvement).

I want go into too much detail on the arguments, but if anyone is interested, please check out the Wikipedia article on Free Banking. Basically, banks with long-run profit interests (especially banks owned by many investors rather than one Ebenezer Scrooge who's about to die anyways) have an incentive to not inflate their currency and to back it with something valuable (e.g. gold, cattle, diamonds, office furniture, whatever. The more valuable the backing, the more people will want to use the currency). As I understand this has worked in the past (absent political pressure), with modern technology it's even more viable than ever.

3) RE: Andy/Kyle below (2) Again, Public Choice. Democracy is a "common pool" (you can also look up "tragedy of the commons" or "common pool resource/problem"). As long as the government makes decisions on things like seat belts and avocados, there is a strong potential for government to put its fist in other proverbial pies. These laws dramatically change the game, the incentives and the actions of people in the financial (currency) markets. They also make a great deal of corruption possible. There is no corruption in an unregulated market, only embezzlement and fraud, both of which could be treated as torts.

4) RE: Andy/Kyle below (4) A currency that is not backed by anything may or may not be supported by actors in the market. If it is imposed on them by law, they will use it, but some will still barter. If it is the only option and people don't want to use it, a good deal of economic activity will not occur. If it is the only option and some people don't want to use it, then there are still marginal loses.

5) RE: Andy/Kyle below (5) This goes back to the idea of Free Banking, but the point bears repeating. Despite popular belief, your congressman is just like all the others. And all of them are just human. And humans respond to incentives. Public Choice! Public Choice! Public Choice!

Just as a bank may now scam you out of a few bucks (and that adds up over a few million people!) the government can do it to. Unfortunately, when the government does it there is no possibility to sue (I'll return to this in a second). Nor can I go to another government. If Wells, B of A, and Chase all scam their customers out of $30, the customers can't really do anything. But if B of A scams their customers out of $50, their customers will quickly leave.

Given current legal rules (set by congressmen, many of whom were lawyers) it is very difficult to sue anyone, especially a bank. I wouldn't spend the thousands of dollars it would take to lose a lawsuit to a bank over $30. This isn't a market failure, it's a government failure. More sensible legal rules would greatly reduce the banks ability to scam you. The rules were made by lawyers with a vested interest in making their services (and the services of their firms) necessary. Banks will also like these rules if they allow to skim a little off the top. But absent these rules, there would be a lot less scamming and a lot more economic activity.

Anyways, I hope I contributed something of value. Have a nice evening. (Note: Sorry guys, I only read the first two comments. I'll have to read the rest in the morning. Sorry if I've repeated something you've already gone over. Still, I know that Andy-the brilliant economist that he is-tends to touch on different points than I do, so maybe there's hope.)

Rick,

I agree with you more than I do/did Andy.

In response to your disclaimer, I'm not either - I'm just an intelligent outside observer who wanted to share an opinion.

For your (4), you should remember that the U.S. Dollar is no longer backed by gold - a fiat currency. And this is true for most of the modern currencies. But I don't really see much bartering in the Western World...

For your (5), I agree. Except with the caveat that the banks are in collusion, either directly or by implied agreement, and so they all have, generally, the same policies, fees, restrictions, rules, etc. So your example of every bank scamming people is more appropriate, because that's what happens and consumers largely have no choice.

I also agree that it's partially a government failure - I recognize in the article that the Fed has failed to do its job properly, and that the entity I suggest would hopefully do better. The same goes for the regulation of banks (which you state) - I think regulation of the banking and investment industries needs to be larger, heavier, and more enforced. However, I think that without the rules we have in place, we'd be even more screwed than we currently are... your Scrooge analogy is exactly why.

Thanks for commenting though... it's nice to see that someone in the collegiate Economics world agrees with me, and doesn't want to just lord their class curriculum over me. ;-)

--Kyle

p.s. How'd you find this? I'm assuming you know Andy since you reference him?

Speaking of class curriculum: In a competitive market, we expect businesses to make the "normal rate of return". If a business makes more than that, we'll see it's stock price bid up until it is making the normal rate of return. All these banks are (in the long run) making about the same amount. There does appear to be a certain amount of tacit collusion among the banks, but consumers' choices aren't limited (for example, they can keep their cash in a credit union), so we can't expect to see oligopoly returns (to any great extent). What I'm trying to say is that shysty behavior as normal business practice may just be the way they handle their costs in the current environment. If we move to some utopian banking, we might see the return of bank fees for checking accounts, etc. The hidden/implicit prices might surface and we might see more of the same, just in a more honest form.

RE: My (4) --> My real point was that a more legitimate currency (i.e. a bottom-up currency rather than a top-down currency) may encourage at least a little bit more economic activity. If it's 0.1%, that means $10B more activity in a $10T economy (maybe it's not so much...).

I think it's pretty clear that digital currency is viable, the question is how can we build an incentive structure that minimizes foolish actions and corruption? Big regulation seems appealing, but it only creates a great deal more opportunity for corruption. The Fed and the federal government are the two biggest players in the financial market in America; that's a lot of power to put in the hands of humans who have many of the same cognitive limitations as me (Hell! It'd be a lot of power to put in the hands of people with the cognitive limitations of Einstein, and he was a smart cookie).

What are your thoughts as to how to address some of these problems?

Once again, I haven't had the chance to read every comment, but I'm moving through. I saw that Andy mentioned Public Choice. I can't emphasize enough how important this is; just as corporations will try to be corrupt (to the extent that customers won't leave them) bureaucrats will tend to be corrupt (and collude with corporations so they can get a cushy job when they leave gov't) to the extent that people will stick with that government.

But I have to go! First day of school!

Kyle, if you want to embark on a tangental trip into Economics, I think you might like the Austrian School, and especially (though he isn't fully "Austrian") Joseph Schumpeter.

I am at SJSU as well. I know Andy through Econ and have met a few CS people through him.

I don't really have any solutions for the problem of the financial markets or a full digitization of currency, other than those I've already stated - if I have an Einsteinian moment, I'll let you know.

--Kyle

Sorry for working through this all so slowly...

"There is no "perfect competitive market", in any arena or field. A semblance of one may exist for a short time, but it's soon eclipsed by large conglomerates with more power, more money, and more influence that bend the rules, and those that make the rules, to their interests."

This is a good point for three reasons.
First: a concentration of power is a prime target for corruption and rent seeking (e.g. If the government regulates what kind of coal can be used, coal companies will soon be lobbying congress). Take a look at topics like rent-seeking and regulatory capture (if and when you've got time).
Second: There is a perfectly competitive market where there is no conglomeration because there are significant dis-economies of scale. The market I'm thinking about is tooth-brushing. Nobody comes to anyone's house to brush their teeth for money. The point is, given institutional frameworks, a business will only get as big as is efficient. Monopolies rarely happen outside a government framework. This points to research by industrial organization economists.
Third: Although there is no "perfect competition", a market that is imperfect can still pretty closely approximate it's outcomes.

"I'm not drafting a proposal for a new system of currency, but rather trying to sow the seeds in others who are in a position to affect change."

I understand now. I'm some of that fertile ground that's caught one of your seeds, so to speak. Mind you (as you may have noticed), monetary theory isn't a primary interest of mine; I like public choice and constitutional economics.

Kyle (and any readers), if you would like me to point you toward at least some of the economic discussion, I would be more than happy to. I understand that you're busy and I won't be disappointed if you don't ask me for a few months, if ever.

This discussion has been enlightening for me, thank you and Andy too. I look forward to reading more of your stuff. I hope having another economist read your blog won't become too much of a bother.

Cheers,
Rick

It seems we agree on alot of points.

I'll also agree with your toothbrush market example, but in the "real world" of larger products and financials, that situation doesn't exist in very many places that matter - if any.

I wish it did though.

--Kyle

I'm certain you understand, but I just want to clarify for any of your readers who stumble upon these comments...

The point of the toothbrush example is to point out that firms will not grow indefinitely. In fact, marginal cost has to go up eventually (http://wp.me/pzMgT-f for a novel demonstration of this as well as a very brief introduction to Marginal Cost graphing). This is an extreme example, but because MC has to increase eventually, no firm will be able to (in a profit maximizing way) take over the world (this has been demonstrated historically by the fact that not even any government has managed to take over the world), and that only under very specific conditions can a firm even take over an entire market (and their ability to do that is limited by the size of that market, which is to say competition and free-trade are great ways to limit monopoly).

Fun discussion Kyle!

;-)

Keep the comments coming... I have a feeling I'll be hearing from you Mondays and Thursdays when I put up OpEds.

--Kyle