Headline of the Day

“Crypto” Is Silicon Valley Speak for Waste, Fraud, and Abuse

—Dean Baker discussing the cryptocurrency bill going through Congress.

He's right.

I particularly like his analogy between trucking and finance here.  It describes the problem:

The Republicans in Congress, along with many Democrats, are rushing ahead with legislation to promote crypto currencies in various ways. Their motivation is not hard to understand; they got hundreds of millions of dollars in campaign contributions from the industry. In terms of economic policy, the effort to promote crypto is taking the country 180 degrees in the wrong direction. The only real question is how bad the results will be.

When we think of finance, we need to think of trucking. Just as we need the trucking industry to transport items to factories and stores, we need the financial sector to make payments and allocate capital. But both finance and trucking are intermediate goods; they don’t directly make us better off, like healthcare or housing.

The fewer resources (labor and capital) we devote to these sectors, the better. If we have fewer people working in these industries, it means that we have more people available to work in sectors that provide the items we value.

Everyone can understand this with trucking. If the size of the trucking sector had quintupled relative to the size of the economy in the last half century, we would probably all be talking about how incredibly inefficient our trucking industry is.

But almost no one complains about the inefficiency of our financial system, even though the share of some components (the securities and commodities trading sector) has quintupled over the last half century. Maybe this is because people in the financial industry teach at elite institutions, have columns in elite media outlets, and hold top positions in administrations of both parties.

But political power does not change reality. An efficient financial sector is a small financial sector, and our financial sector is clearly not small.

This is all essential background for any discussion of crypto. The crypto industry obviously intends to make money by pushing the stuff. The question is what will the rest of us get out of the increased use of crypto?

The answer is at best, not much. The best story from the crypto bros is that it will reduce transactions costs. They focus largely on the high swipe fees charged to retailers by credit cards.

Spoilers: Swipe fees in the EU are almost an order of magnitude less, because they regulate these fees, and transaction costs of cryptocurrency are huge compared to cards or Western Union wire transfers. 

Preach it, Brother.