Elon Musk and Bitcoin show the ‘new normal’

Por Alejandro A. Tagliavini: Publicado el 24/02/21 en: https://alejandrotagliavini.com/2021/02/24/elon-musk-and-bitcoin-show-the-new-normal/

SpaceX Is Ushering in the Era of Space Commercialization as Insurers  Prepare for Take Off : Risk & Insurance

Thanks to the “pandemic”, beyond a short-legged totalitarianism that currently flows globally, the questioning of politicians, “governments”, States, and all kinds of institutions is steadily growing. And, if a “new normal” loom, contrary to what fans of the “pandemic” believe, it will be where people are increasingly aware – and independent – that they are, and not a decadent and unreliable “Authority”, the doers, and caretakers of your future.

              It is not by doing politics that the world will be changed, which would be an irony, on the contrary, this would imply playing the game of the establishment that has strongly tied its interests and it is practically impossible to enter politics and not fall into their networks.

              Undoubtedly Elon Musk is today one of the most influential men in the world if not the most influential, and bitcoin is the topic of the moment competing with the toxic news about the covid. And if something characterizes him, it is his total detachment from “the authorities” and his evident disinterest in politicians.

              Like when Elon defied the quarantine imposed by the bureaucrats and won the fight and, above all, with his space race that, in the end, aims to create “private” human colonies, far from the current toxic “governments”. His goal, he said, is to contribute to the creation of a multi-planetary civilization. To do this, and beginning in 2026, he intends to send, by 2050, one million humans to Mars in 1,000 SpaceX spacecraft.

              Another major player in this “new normal” is Bitcoin. And there is already talk of the possibility of reducing adherents to gold, traditionally considered as an active refuge.

               For Goldmoney’s Alasdair Macleod, while there is a growing consensus that the days of fiat currencies are numbered, it would not be Bitcoin its successor but gold. Although he recognizes that this will take time, it is very audacious to say that fiat currencies are coming to an end, it is that the States, as we know them today, could not continue without this vehicle that allows them to issue and obtain funds that are essential for their survival.

               Undoubtedly, gold has a great advantage and that is that, even if investors ceased to have an interest in it as a currency or safeguard of value, it would still have industrial and jewelry value. Bitcoin on the other hand, say its detractors, would have no value, however, it has a huge advantage especially today when States abuse their interference in people’s lives, and that is, that it is impossible to control and track.

               And governments, seeing their future threatened, try to control it but, given the evidence that they will not be able to do so, the idea of ​​establishing their “own digital currency” has occurred to them. Thus, large central banks are studying the possibility of issuing digital cash and defending themselves against threats from the private sector to traditional money. The project is called CBDC and they are the electronic equivalent of cash. But progress is slow, and indeed the president of the European Central Bank has said that the digital euro will take years.

                   This is when the dead believe they are alive because it happens that, precisely, the great advantage of Bitcoin is that it has not centralized, known or traceable issuer, that is, the philosophical principle of “digital currencies” is precisely to implode central banks.

Alejandro A. Tagliavini es ingeniero graduado de la Universidad de Buenos Aires. Asesor Senior de The Cedar Portfolio, Miembro del Consejo Asesor del Center on Global Prosperity, de Oakland, California y fue miembro del Departamento de Política Económica de ESEADE. Síguelo como @alextagliavini

Knowledge Problem in Central Banking: Part I

Por Nicolás Cachanosky. Publicado el 2/8/17 en: http://soundmoneyproject.org/2017/08/knowledge-problem-in-central-banking-part-i/


In my previous posts, Andreas Hoffmann and I discussed the problem of unintended consequences in monetary policy, particularly as applied to the U.S. Federal Reserve and the European Central Bank in the context of the 2008 crisis. This post tackles a related issue: the so called “knowledge problem.” This term was coined after Hayek’s engagement in the debate on the feasibility of economic calculation under socialism. It has also been applied to central banking; even though banking faces different problems than those Hayek was concerned about, there are some common threads. This first post discusses Hayek’s “knowledge problem.” Our next post extends the problem to monetary policy.

The economic calculation problem

The economic calculation problem refers to the impossibility of economic calculation under socialism. This debate took place in the early 20th century. Socialism was understood as an economic arrangement where there are no property rights on the factors of production. Because of this, market prices for factors of production cannot exist, as without property rights, market transactions cannot happen.

In a very small community, this might not be an issue, because each member has an intimate knowledge of his fellow villagers. Given the small population involved, information on how to allocate resources can be acquired through other means and sorting out how much food to produce, etc., is simpler. Low technological expertise also means that there are only a few options of how to produce any given good, so there is no need to deal with advanced and complex (“roundabout”) production processes. An even smaller example of this situation is a household, where family members don’t trade among themselves.

But applying socialist arrangement to large societies, where this personal and intimate knowledge across members of society is lacking, is much more complicated. Economics tries to explain how coordination is possible with anonymous transactions and without given information.

If intimate knowledge of a society’s preferences are unknown, and there are no prices to channel these preferences, establishing an economic order is not feasible. When economic rationality is not an option, another guide needs to be chosen, i.e. a dictator ruling the society, asking the Gods for guidance, intuition, etc. But despite its imperfections, economic rationality is essential, as it looks at the most efficient way to organize a large society.

Hayek’s knowledge problem

Hayek rises a number of issues; we will focus on two of the most relevant ones. The first one is the dispersed nature of the information required to plan an economy centrally. To assume that information is given does not to solve the problem so much as it avoids it. And it happens to be that this required information is dispersed in tiny bits across all market transactions. This information is not located in one place. Each single transaction that happens in the market represents a bit of information.

Hayek’s main point is not that the government lacks calculating power to collect and run the optimization problem and determine how to allocate resources. Rather, Hayek’s point is more subtle, emphasizing the fact that without market transactions, there is no such information in the first place. Exchanges generate this information; this is why each price is a piece of information. Market transactions and information are two sides of the same coin and cannot be separated. To avoid market transactions by eliminating private property rights on the factors of production also eliminates the process that generates the information required by the central planner. Quite a “catch-22.”

The two previous paragraphs talk about information, which a quantitative concept and as such can be complete or incomplete. But embedded in Hayek’s argument is knowledge, which is a qualitative concept and therefore can be neither complete nor incomplete. Data such as prices is objective, but knowledge is subjective. This points to another problem that the central planner faces: that of knowing how to process the information. Having complete information is not enough to efficiently allocate resources (i.e. be in equilibrium). The right knowledge is also needed.

What is the economic view of the world held by the central planner? Is the planner, for instance, a monetarist, a Keynesian, a Marxist, an Austrian, etc? The same perfect information would trigger different policies for each economic view of the world.

What does this have to do with central banking?

At first glance, the problem of central banking does not seem to have much overlap with Hayek’s knowledge problem (as applied to the socialist debate.) Central banks may have monopoly powers, but that is a different issue than the elimination of private ownership of the factors of production. Market prices still exist, and the price of money does not disappear either. Private property on money is not eliminated, rather, the supply of base money is eliminated.

Central banks usually have access to a good quantity and quality of information, but they do face a knowledge problem as defined above. These particular problems are discussed in the next post.


Nicolás Cachanosky es Doctor en Economía, (Suffolk University), Lic. en Economía, (UCA), Master en Economía y Ciencias Políticas, (ESEADE). Fué profesor de Finanzas Públicas en UCA y es Assistant Professor of Economics en Metropolitan State University of Denver.