Bill Gross: Past Performance in the Age of the New Normal

In the age where central banks have been propping up asset prices via the “wealth effect” as a way to lubricate “aggregate demand”, generating returns from investments requires unorthodox or unconventional or methodological templates.

So says Bond guru Pimco’s Bill Gross.

From Bloomberg (bold mine)

Bill Gross, manager of the world’s largest mutual fund, said the most renowned investors from Warren Buffett to George Soros may owe their reputations to a favorable era for money management as expanding credit fueled gains in asset prices across markets.

The real test of greatness for investors is not how they navigated market cycles during that time, but whether they can adapt to historical changes occurring over half a century or longer, Gross, 68, wrote in an investment outlook published today entitled “A Man in the Mirror,” named after a song by Michael Jackson.

“All of us, even the old guys like Buffett, Soros, Fuss, yeah - me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience,” Gross wrote. “Perhaps it was the epoch that made the man as opposed to the man that made the epoch.”

Gross, one of the co-founders in 1971 of Newport Beach, California-based Pacific Investment Management Co., is examining his legacy as the bond shop he built over four decades is seeking to adapt to an environment that looks very different from the bull market that fueled Pimco’s growth to one of the largest money managers in the world. The prospect of elevated market volatility, an aging population and climate change could make investing far more challenging in the coming decades, Gross said.

Bottom line: Past performance does not guarantee future outcomes.

Relying on historical data or statistics will unlikely be of a big help in the era founded on the deepening frictions from market distorting central banking inflationism and politicization of the financial markets via financial repression relative to changes in demographics, globalization and the information age.

To quote from the investing sage of Omaha (now crony) Warren Buffett,

If past history was all there was to a game, the richest people will be librarians.

Video: Gary North on the World's Transition to the Modern Economy

Via BBC's Hans Rosling, I have previously posted a video showing the modern economy's dramatic growth transformation which begun during the 18th century, from the agricultural age to the industrial era to today's post industrial information/digital epoch.

In the following video, Austrian economist Gary North expounds on Deidre McCloskey's theme that "ideas" or "rhetoric" or the "Bourgeois Dignity or Virtue" as the major force behind such monumental progress. 

As per Mr. North, Ms. McCloskey's theme signifies as, 

a change of attitude regarding entrepreneurship, and a change in attitude regarding innovation and personal wealth derived from innovation and entrepreneurship...

The argument is people’s attitude for the first time radically changed on the question of the legitimacy of personal wealth through entrepreneurial activities 

Mr. North adds two additional factors to the ideas or virtues of the pursuit of self-interests: one is ethics (view of right and wrong), which may have played a significant shift in the public's opinion, where acquisition of personal wealth became legitimate. Second is a shift of the view of the future (based on religious influences or what Mr. North calls as the "post millennialist eschatology"). 

In short, people's values and beliefs evolved overtime to reflect on the marginal changes on the course of actions undertaken which compounded to manifest on such progress.

Cancer treatment that kills every kind of cancer tumor

The information age will continue to bring about massive technological breakthroughs in various aspects of life. 

The “one drug that rules them all” in terms of cancer treatment may have just been discovered

From NY Post (hat tip EPJ)

Researchers might have found the Holy Grail in the war against cancer, a miracle drug that has killed every kind of cancer tumor it has come in contact with.

The drug works by blocking a protein called CD47 that is essentially a "do not eat" signal to the body's immune system, according to Science Magazine.

This protein is produced in healthy blood cells but researchers at Stanford University found that cancer cells produced an inordinate amount of the protein thus tricking the immune system into not destroying the harmful cells.

With this observation in mind, the researchers built an antibody that blocked cancer's CD47 so that the body's immune system attacked the dangerous cells.

So far, researchers have used the antibody in mice with human breast, ovary, colon, bladder, brain, liver and prostate tumors transplanted into them. In each of the cases the antibody forced the mice's immune system to kill the cancer cells.

"We showed that even after the tumor has taken hold, the antibody can either cure the tumor or slow its growth and prevent metastasis," said biologist Irving Weissman of the Stanford University School of Medicine in Palo Alto, California.

Classroom-less World: The World is your Classroom

The information age will be more about disruptive innovations or reconfiguring specific social activities via decentralized platforms. 

This should apply to education where online classes may be a transition towards a more decentralized paradigm: ‘Socialstructed learning’ or the world as your classroom.

Socialstructed learning as defined by Ms. Marina Gorbis writing at fastcoexist.com “is an aggregation of microlearning experiences drawn from a rich ecology of content and driven not by grades but by social and intrinsic rewards. The microlearning moment may last a few minutes, hours, or days (if you are absorbed in reading something, tinkering with something, or listening to something from which you just can’t walk away). Socialstructed learning may be the future, but the foundations of this kind of education lie far in the past.”

How the possible transition will go about, again Ms. Gorbis

Today’s obsession with MOOCs is a reminder of the old forecasting paradigm: In the early stages of technology introduction we try to fit new technologies into existing social structures in ways that have become familiar to us.

MOOCs today are our equivalents of early TV, when TV personalities looked and sounded like radio announcers (or often were radio announcers). People are thinking the same way about MOOCs, as replacements of traditional lectures or tutorials, but in online rather than physical settings. In the meantime, a whole slew of forces is driving a much larger transformation, breaking learning (and education overall) out of traditional institutional environments and embedding it in everyday settings and interactions, distributed across a wide set of platforms and tools. They include a rapidly growing and open content commons (Wikipedia is just one example), on-demand expertise and help (from Mac Forums to Fluther, Instructables, and WikiHow), mobile devices and geo-coded information that takes information into the physical world around us and makes it available any place any time, new work and social spaces that are, in fact, evolving as important learning spaces (TechShop, Meetups, hackathons, community labs).

We are moving away from the model in which learning is organized around stable, usually hierarchical institutions (schools, colleges, universities) that, for better and worse, have served as the main gateways to education and social mobility. Replacing that model is a new system in which learning is best conceived of as a flow, where learning resources are not scarce but widely available, opportunities for learning are abundant, and learners increasingly have the ability to autonomously dip into and out of continuous learning flows.

The good news is that the radical decentralization of the educational process will translate to its democraticization. With learning resources becoming more “abundant”, this means prices will fall towards zero bound— yes free education. And this means that education will span to cover greater number of people who will have access to specialized learning. This will also mean lesser politicization of the industry.

On the other hand, education service providers will have to discover other sources of revenues.

Also traditional education institutions will need to redraw their business models in order to adapt with the current changes otherwise face extinction.

Bitcoins: Safehaven from Cyprus Debacle and Officially Recognized by the US Treasury

I questioned yesterday the wisdom of mainstream’s assault on bitcoins, where the Economist calls bitcoins a “bubble”.

Well it figures that the recent spike in the public's interests on bitcoins has partly been a ramification or an offshoot to the Cyprus savings grab debacle

Here is Businessweek/Bloomberg,

Since Sunday, a trio of Bitcoin apps have soared up Spain’s download charts, coinciding with news that cash-strapped Cyprus was planning to raid domestic savings accounts to pay off a $13 billion bailout tab. Fearing contagion on the other end of the Mediterranean, some Spaniards are apparently looking for cover in an experimental digital currency.

“This is an entirely predictable and rational outcome for what’s happening in Cyprus,” says Nick Colas, chief market strategist at ConvergEx Group. “If you want to get a good sense of the stress European savers are feeling, just watch Bitcoin prices.”

The value of the virtual currency has soared nearly 15 percent in the last two days, according to the most-recent pricing data. “One hundred percent of that is due to Cyprus,” says Colas. “It means the Europeans are getting involved.”

So aside from gold, bitcoins appear to be a major beneficiary from the Euro crisis. So which shows more signs of a bubble: bitcoin or fiat money?

Yet for those who claim bitcoin lacks the widespread acceptance, well, they fail to take account that even the US Treasury now officially recognizes bitcoins.

From Bradley Janzen of Freebanking.org

Financial Crimes Enforcement Network (FinCEN) is the bureau of Treasury that enforces the Bank Secrecy Act (which requires banks to spy on their customers for the government).

FinCEN Issues Guidance on Virtual Currencies and Regulatory Responsibilities

To provide clarity and regulatory certainty for businesses and individuals engaged in an expanding field of financial activity, the Financial Crimes Enforcement Network (FinCEN) today issued the following guidance: Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies. The guidance is in response to questions raised by financial institutions, law enforcement, and regulators concerning the regulatory treatment of persons who use convertible virtual currencies or make a business of exchanging, accepting, and transmitting them. Convertible virtual currencies either have an equivalent value in real currency or act as a substitute for real currency. The guidance considers the use of virtual currencies from the perspective of several categories within FinCEN's definition of MSBs.

News Release: http://www.fincen.gov/news_room/nr/pdf/20130318.pdf

Guidance: http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.pdf

Welcome to the mainstream bitcoin.

Well, my favorite iconoclast Nassim Taleb has great words to say about bitcoins at the reddit.com: (hat tip Zero hedge)

Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.

A sentiment I share. 

Bitcoins could herald the epoch of decentralization or the information age and importantly perhaps a transition to F. A. Hayek's denationalization of money

Telecommuting: 10% of US Employees are Home Based

I wrote here and here denoting of how the forces of decentralization, which has been underpinned by the deepening of technology innovation trends, will likely upset on mainstream’s mantra of urbanization. 

Work will increasingly become mobile and move away from fixed time and or location as globalization spreads.  And such dynamic will reconfigure people’s lifestyles.

We are seeing more signs of such dynamic in play through increases in home based employment which now accounts for 10% of US employment.

From the Wall Street Journal Blog, (bold mine)

About one in 10 workers toils at least partly from home now, an emerging trend that could boost the productivity of the entire economy.

The U.S. Census Bureau said in a report Tuesday that some 13 million people, or 9.4% of the working population in 2010, worked at least one day at home per week, compared with just 9.2 million people in 1997, when 7% worked at least partly from home. People working either entirely or partly from home were more likely to be in management and business. Those in computer, engineering and science jobs saw among the biggest shifts home-ward: “Home-based” work in these fields jumped around 70% from 252,000 workers in 2000 to 432,000 workers in 2010. (Home-based workers work exclusively or part of the time from home.) According to Census figures, 5.8 million people or 4.3% of the U.S. workforce worked from home most of the week in 2010 — an increase of about 1.6 million since 2000.

Around the world, advances in technology are making it easier for millions to work from home. But there is much debate over the benefits of telecommuting Yahoo  Chief Executive Marissa Mayer set off a recent round of debate when she ended the company’s work-from-home arrangements.

Public or private projects based on the concept of centralization, such as urbanization, will be faced with greater risks.

Here Comes 3D Printed Cars

As part of the deepening of the information age, the 3D Printing revolution will affect large parts of today’s economy.

From Wired.com

Picture an assembly line not that isn’t made up of robotic arms spewing sparks to weld heavy steel, but a warehouse of plastic-spraying printers producing light, cheap and highly efficient automobiles.

If Jim Kor’s dream is realized, that’s exactly how the next generation of urban runabouts will be produced. His creation is called the Urbee 2 and it could revolutionize parts manufacturing while creating a cottage industry of small-batch automakers intent on challenging the status quo.

Urbee’s approach to maximum miles per gallon starts with lightweight construction – something that 3-D printing is particularly well suited for. The designers were able to focus more on the optimal automobile physics, rather than working to install a hyper efficient motor in a heavy steel-body automobile. As the Urbee shows, making a car with this technology has a slew of beneficial side effects.

Jim Kor is the engineering brains behind the Urbee. He’s designed tractors, buses, even commercial swimming pools. Between teaching classes, he heads Kor Ecologic, the firm responsible for the 3-D printed creation.

“We thought long and hard about doing a second one,” he says of the Urbee. “It’s been the right move.”

Kor and his team built the three-wheel, two-passenger vehicle at RedEye, an on-demand 3-D printing facility. The printers he uses create ABS plastic via Fused Deposition Modeling (FDM). The printer sprays molten polymer to build the chassis layer by microscopic layer until it arrives at the complete object. The machines are so automated that the building process they perform is known as “lights out” construction, meaning Kor uploads the design for a bumper, walk away, shut off the lights and leaves. A few hundred hours later, he’s got a bumper. The whole car – which is about 10 feet long – takes about 2,500 hours.

Pls. read the rest here.

The problem I see with the competition poised by 3D Printing could be that incumbent companies may lobby to impose regulatory obstacles (e.g. safety and energy standards, etc…) on them.

Nevertheless, 3D Printing seems yet at the fringe of the technology adaption cycle. (chart from evocator.org)

Information Age: Individual Job Outsourcing

Outsourcing has been largely thought as mainly company based commercial operations. However in the real world, given today’s deepening of the digital economy or information age, the application of outsourcing has been broadening to include individual operations.

The oxymoronic account  of where a company caught an employee  outsourcing one’s job, from CNN.com, which led to his termination, seems like a manifestation of such snowballing dynamic

After a U.S.-based "critical infrastructure" company discovered in 2012 its computer systems were being accessed from China, its security personnel caught the culprit ultimately responsible: Not a hacker from the Middle Kingdom but one of the company's own employees sitting right at his desk in the United States.

The software developer is simply referred to as "Bob," according to a case study by the U.S. telecommunications firm Verizon Business.

Bob was an "inoffensive and quiet" programmer in his mid-40's, according to his employee profile, with "a relatively long tenure with the company" and "someone you wouldn't look at twice in an elevator."

Those innocuous traits led investigators to initially believe the computer access from China using Bob's credentials was unauthorized -- and that some form of malware was sidestepping strong two-factor authentication that included a token RSA key fob under Bob's name.

Investigators then discovered Bob had "physically FedExed his RSA token to China so that the third-party contractor could log-in under his credentials during the workday," wrote Andrew Valentine, a senior forensic investigator for Verizon.

Bob had hired a programming firm in the northeastern Chinese city of Shenyang to do his work. His helpers half a world away worked overnight on a schedule imitating an average 9-to-5 workday in the United States. He paid them one-fifth of his six-figure salary, according to Verizon.

Some thoughts

Programmer Bob’s offense has really not been about outsourcing but of the unauthorized disclosure of what has been internal corporate affairs to a third party.

In the digital economy or the information age, non-contiguous work requirements enable outsourcing on an international scale. The non-sensitivity to geographic confines means that work can be delegated to a specialty agent wherever access to connectivity is present. This translates to job  decentralization or semi-autonomous jobs or jobs that allows for “home based” work or telecommutation.  I may add that semi-autonomous work may not really be “home based” or static work location but about mobility.

Deepening decentralization of industries and jobs will translate to decentralization of living areas. Thus, the incompatibility of mainstream concept of industrial age “urbanization” with decentralization.

Outsourcing, which contributes to the informal economy, should continue to grow as the world’s economy gravitates towards technology inspired specialization.

Deepening of the Information Age: More Signs of Telecommuting

Why I don’t buy the mainstream’s embrace of the supposed deepening trend of urbanization? Because the past is hardly the future. Technological advances extrapolates to increasing decentralization of social activities. And this covers commercial activities that can be seen from corporate operations. 

Proof?

From Wall Street Journal Blog

With nearly half its employees working from home now, Aetna Inc. is convinced it is saving a good deal of money with no adverse effect on productivity.

A nine-month experiment at Ctrip, China’s largest travel agency, overseen by academic economists at Stanford and Beijing University, suggests Aetna’s experience may not be unique.

Ctrip, was looking to save money on real estate costs and cut turnover. It asked 996 employees in its Shanghai call center if they’d be interested in working at home four days a week. Half were interested, and 252 qualified for the experiment by virtue of having at least six months on the job and broadband access from a quiet corner of their home. Those with birthdays on even days were selected to work at home, those with odd birthdays stayed in the office, making this the sort of random experiment that academics relish.

And as I noted in the past

I would add that increasing specialization will hallmark the knowledge economy. And specialization will diminish the economics of urbanization.

The changing nature of work can be exemplified by the telecommuting jobs, which have been rapidly growing.

These jobs are based on the web, are flexible and are not location sensitive (working from home, or elsewhere).

The trend of web and knowledge based work localization and flexibility will further deepen.

War on Internet: Internet Freedom Prevails over UN Sponsored Regulations

The United Nations via the International Telecommunication Union has failed in her mission to put a centralized legal kibosh on the internet.

From Forbes.com

For the last two weeks some of the planet’s most oppressive regimes have faced off against some of the most powerful Internet advocates in an effort to rewrite a multilateral communications treaty that, if successful, could have changed the nature of the Internet and altered the way it is governed.

On Thursday night that effort failed, as a US-led block of dissenting countries refused to sign the proposed updates, handing the United Nation’s International Telecommunication Union a humbling defeat.

The United States, which framed its dissent as defending “the open Internet,” was joined by more than 80 other countries, including Australia,Canada, Chile, Costa Rica, the Czech Republic, Denmark, Egypt, Finland, Greece, Italy, Japan, Kenya, the Netherlands, New Zealand, Poland, Portugal, Qatar, Sweden and the United Kingdom. (Some of the non-signers seemed to be seeking to avoid making too overt of a political statement, saying, regrettably that they could not sign because they had to “consult with capital.”)

On Friday, the remaining members of the ITU, which is made up of 193 countries, signed the treaty, known as International Telecommunications Regulations, but the gesture in many ways was hollow.

Like other U.N. agencies, the ITU strives for consensus, and it’s within that consensus that the ITU derives its authority. The ITU can’t force a country to abide by its treaties, but if representatives of all member countries agree to a global telecommunications framework, and subsequently pass laws enforcing the framework, the ITU itself grows stronger.

Dissenting countries led by the US have not really been for defending “open internet”, as the US for instance have pursued various forms of social media censorship (some examples see here here here and more). The difference, I think, is that these supposed “open internet” faction don’t want to be tied up with or submit to a global regulator via such treaty.

They seem to prefer approaching the internet via domestic policies.

The same article seem to give such a hint,

Interpreted as a power grab by the United Nations, the secrecy rang alarm bells. Distrust of the ITU began to approach panic after the contents of more controversial proposals became known. Some of the proposals endorsed by authoritarian countries would have increased censorship, potentially restricted the free flow of information and undermined the voluntary framework that forms the basis of today’s Internet.

In addition, upholding the treaty may also extrapolate to the dilution of power by the opposing bloc to the UN consensus led by authoritarian governments which would be unacceptable to opposition many whom are developed economies.

The good news is that forces of decentralization embodied by the internet continues to sow division on governments. Such factionalism will likely be more pronounced when the next debt crisis surfaces.

Third Wave Politics: Secessionist Parties in Spain Gains Political Footing

In the information age, forces of decentralization will function as the key agents of social change.

In the realm of politics, such evolutionary transition will likely be channeled through secessionist movements.

In Spain, the secessionist parties of Catalonia may have just gotten the momentum that could trigger a potential chain of events.

From Bloomberg,

Pro-independence parties in Catalonia won a regional vote, strengthening a drive for a referendum on secession in defiance of Spanish Prime Minister Mariano Rajoy.

Catalan President Artur Mas, who called early elections to force the debate on independence, won 50 of the 135 seats in the regional assembly for his Convergencia i Unio party, down from 62, with 99 percent of the vote counted. The separatist Catalan Republican Left, known as the ERC, more than doubled its seats to 21 from 10. Two smaller parties that also back a plebiscite secured 16 seats.

Rajoy, weakened by recession and speculation that Spain needs a European bailout, says a referendum on secession is unconstitutional. Mas’s losses showed his bid for a mandate backfired, leaving him dependent on anti-austerity separatists to govern Spain’s largest regional economy.

“With a majority, Mas could have negotiated for all kinds of goodies to postpone the referendum but clearly that’s not an option anymore,” Ken Dubin, a political scientist at Carlos III University and IE business school in Madrid. “He was hoping he’d have a stronger hand to negotiate some intermediate status, but his bluff has been called.”

Rajoy’s People’s Party won 19 seats, a gain of one. The Socialists took 20 seats, down from 28.

Mas has pledged a referendum within four years. In contrast, the ERC would be willing to declare independence unilaterally in 2014.

The above developments reminds me of, and appear as gradual confirmation of the predictions of futurist Alvin Toffler as elucidated in his highly prescient 1980 book, The Third Wave (p.317)

National governments, by contrast, find it difficult to customize their policies. Locked into Second Wave political and bureaucratic structures, they find it impossible to treat each region or city, each contending racial, religious, social, sexual or ethnic group differently, let alone treat each citizen as an individual. As conditions diversify, national decision-making remains ignorant of the fast-changing local requirements. If they try to identify these highly localized or specialized needs, they wind up deluged with overdetailed, indigestible data…

In consequence, national governments in Washington, London, Paris or Moscow continue, by and large, to impose uniform, standardized policies designed for a mass society on increasingly divergent and segment publics. Local and individual needs are forgotten or ignored causing the flames of resentment to reach white heat. As de-massification progresses, we can expect separatist or centrifugal forces to intensify dramatically and threaten the unity of many nation-states.

The Third Wave places enormous pressures on the nation-state from below.

It is happening.

Online Education: Movement for College Credits Gain Momentum

One of the main objections to online education has been in the aspect of credentials, i.e. it is not recognized by traditional universities and or colleges which makes them less appealing to prospective employers.

I’ve been saying that the deepening of information age will radically transform people’s lifestyle which should include education.

This will happen for many reasons; such as cost efficiency (more profitable), increasing network (more online graduates percolating the job markets will become future bosses, thus will likely decrease resistance; an estimated 4 million students are enrolled online in the US), better performance, greater specialization and or simply more tolerance for online graduates or a combination of all these and perhaps more unidentified factors.

In his defense essay at Cato Unbound on the online education debate, George Mason University Professor and Marginal Revolution blogger Alex Tabarrok (who along with colleague Professor Tyler Cowen has their own free online learning platform university called MR University)  notes of the other advantages:

1. Leverage of the best professors teaching more students.

2. Large time savings from less repetition in lectures (students in control of what to repeat) and from lower fixed costs (no need to drive to university). 

3. Greater flexibility in when lectures are consumed (universities open 24 hours a day) and in the lecture format (no need to limit to 50 minutes).

4. Greater scope for productivity improvements as capital substitutes for labor and greater incentive to invest in productivity when the size of the market increases.

5. Greater scope for randomized controlled trials of educational strategies thus more learning about what works in education.

Read the insightful arguments on the online education here.

Academicians can debate the merits or demerits of online education but the world has been moving forward: traditional colleges are now considering to give credit to online courses.

Notes the USA Today:

The American Council on Education, a non-profit organization that represents most of the nation's college and university presidents, is preparing to weigh in on massive open online courses — MOOCs, for short — a new way of teaching and learning that has taken higher education by storm in recent months.

A stamp of approval from the organization could enhance the value of MOOCs to universities and lead to lower tuition costs for students, who could earn credit toward a college degree for passing a particular course. At issue is whether the quality of the courses offered through MOOCs are equivalent to similar courses offered in traditional classrooms.

The popularity of MOOCs, which have been around for barely a year, has intensified quickly. Top faculty at dozens of the world's most elite colleges and universities are teaching hundreds of online courses in a variety of disciplines to millions of students around the world. The courses are free, but they don't count toward traditional degree programs

Online education will pop the government inflated education bubble and democratize ‘education’ via the competitive free markets. 

In the future I envision the proliferation of domestic graduates of Mises Academy, Coursera, Khan Academy, Academic Earth, MIT-Harvard, MR University, Stanford, University of People and more.

Traditional universities will either have to adapt or perish.

Picture of the Day: Thanks to Capitalism, These Gadgets Now Fit in your Pocket

(Hat tip AEI’s Prof Mark Perry)

Capitalism has brought about dematerialization, which has converged the benefits of manifold technologies to fit in a single devise.

ECB Says Bitcoin’s Origin is from the Austrian School

The information age has really began to affect even the state of money.

Digital money outside the ambit of government through the Bitcoin system has been on the rise.

chart from the Economist

The proliferation of Bitcoin has even gotten the attention of the European Central Bank (ECB)

Bitcoin represents a decentralized web based Peer to Peer (P2P) currency system or as defined by Wikipedia.org 

decentralized digital currency created by the pseudonymous entity Satoshi Nakamoto. It is subdivided into 100-million smaller units called satoshis.

It is the most widely used alternative currency, with the total money supply valued at over 100 million US dollars.

Bitcoin has no central issuer; instead, the peer-to-peer network regulates Bitcoins' balances, transactions and issuance according to consensus in network software. Bitcoins are issued to various nodes that verify transactions through computing power; it is established that there will be a limited and scheduled release of no more than 21 million coins, which will be fully issued by the year 2140.

Internationally, Bitcoins can be exchanged and managed through various websites and software along with physical banknotes and coins.

A short video explaining the bitcoin system below:

While skeptics allude to “anonymity” which comes with the innuendo of “illegal” transactions, as attraction to Bitcoins, the ECB in the following paper counters that the genesis of Bitcoins has been from the framework of the Austrian school of economics

Two influences on the Bitcoin says the ECB (See Virtual Currency Schemes October 2012).

First the Austrian Business Cycle.

The theoretical roots of Bitcoin can be found in the Austrian school of economics and its criticism of the current fiat money system and interventions undertaken by governments and other agencies, which, in their view, result in exacerbated business cycles and massive inflation.

One of the topics upon which the Austrian School of economics, led by Eugen von Böhm-Bawerk, Ludwig von Mises and Friedrich A. Hayek, has focused is business cycles.

In short, according to the Austrian theory, business cycles are the inevitable consequence of monetary interventions in the market, whereby an excessive expansion of bank credit causes an increase in the supply of money through the money creation process in a fractional-reserve banking system, which in turn leads to artificially low interest rates.

In this situation, the entrepreneurs, guided by distorted interest rate signals, embark on overly ambitious investment projects that do not match consumers’ preferences at that time relating to intertemporal consumption (i.e. their decisions regarding near-term and future consumption). Sooner or later, this widespread imbalance can no longer be sustained and leads to a recession, during which firms need to liquidate any failed investment projects and readapt (restructure) their production structures in line with consumers’ intertemporal preferences. As a result, many Austrian School economists call for this process to be  abandoned by abolishing the fractional-reserve banking system and returning to money based on the gold standard, which cannot be easily manipulated by any authority.

Second is the Austrian concept of depoliticization of money through competitive free markets

Another related area in which Austrian economists have been very active is monetary theory.  One of the foremost names in this field is Friedrich A. Hayek. He wrote some very influential publications, such as Denationalisation of Money (1976), in which he posits that governments should not have a monopoly over the issuance of money. He instead suggests that private banks should be allowed to issue non-interest-bearing certificates based on their own registered trademarks. These certificates (i.e. currencies) should be open to competition and would be traded at variable exchange rates. Any currencies able to guarantee a stable purchasing power would eliminate other less stable currencies from the market.

The result of this process of competition and profit maximisation would be a highly efficient monetary system where only stable currencies would coexist.

The following ideas are generally shared by Bitcoin and its supporters:

– They see Bitcoin as a good starting point to end the monopoly central banks have in the issuance of money.

– They strongly criticise the current fractional-reserve banking system whereby banks can extend their credit supply above their actual reserves and, simultaneously, depositors can withdraw their funds in their current accounts at any time.

– The scheme is inspired by the former gold standard.

But Austrians have objected to a complete connection for other theoretical reasons.

Although    the    theoretical    roots    of    the    scheme can   be    found    in    the    Austrian    School of   economics,    Bitcoin    has raised serious   concerns among    some    of    today’s    Austrian    economists.  Their    criticism    covers   two     general     aspects:

a)    Bitcoins     have     no    intrinsic     value    like gold;    they     are   mere     bits    stored    in    a computer; and  

b)    the    system    fails    to   satisfy the    “Misean  Regression   Theorem”,    which explains    that    money    becomes    accepted    not because    of    a   government    decree    or    social convention,  but because    it    has    its    roots    in a    commodity    expressing    a certain    purchasing    power.

The world does not exist in a vacuum.

The information age will provide alternatives not only to capital markets (e.g. P2P Lending and Crowd Funding) but to money as well.

Bitcoin or not, the incumbent political system’s sustained policies of debasement will only accelerate and intensify the search for currency alternatives premised on the burgeoning forces of “decentralization”.

War on the Internet: China’s Censorship on New York Times’s Expose on Chinese Leader’s Wealth Fails

The New York Times published an expose on the Chinese leadership which had been met by swift response and censorship by Chinese authorities.

Nonetheless, the article continues to generate readership within China via the informal or shadow internet economy.

From the New York Times (bold mine)

A spokesman for China’s Foreign Ministry on Friday criticized a decision by The New York Times to publish a lengthy investigation into assets accumulated by the family of Prime Minister Wen Jiabao, saying that the article “smears China and has ulterior motives.”

Speaking at a regularly scheduled daily briefing in Beijing, the spokesman, Hong Lei, also said that the Chinese government’s decision to immediately block access to the English- and Chinese-language Web sites of The Times on Friday morning was taken “in accordance with laws and rules.”

China’s censors also moved with unusual swiftness on Friday to delete any social media postings alluding even tangentially to the article, which cited publicly available corporate documents in reporting that Mr. Wen’s family has controlled assets worth at least $2.7 billion.

Sina Weibo, a very popular microblogging service similar to Twitter and traded on the Nasdaq in New York, on Friday morning immediately deleted the unofficial account that had been used to promote the culture and arts coverage on the Chinese-language site of The Times and that had nearly 60,000 followers. The site’s official account had been blocked since the site began operations in late June.

Even the term “$2.7 billion” was blocked on Friday on Weibo. But users were still discussing the article by using deliberate mistakes like “2.7b.”

Despite the censorship, there were signs that the article was attracting attention. According to the company’s statistics, the number of page views and unique users of the Chinese-language site fell by only a third on Friday compared with the previous Friday, even though 85 percent of users are typically located in mainland China.

The investigative article was the site’s most popular, drawing nearly a third of page views, while the home page drew another third.

The continued strength of traffic to the site was a sign that many users were using virtual private networks, or V.P.N.’s, to effectively bypass servers in China and circumvent the country’s censors.

The controversial article can be seen here

Earlier, Bloomberg had been banned for a similar expose focused on another political leader

This serves as more proof that China’s largely statist regime or her practice of state capitalism, where nearly half of the enterprises remain state owned, have been tainted with favoritism, nepotism, corruption, cronyism and all sorts of economic windfall derived from the privileges of wielding political power.

And this is why policies in China have remained predisposed to Keynesianism despite its record of mounting failures and of the explosive growth of private enterprises. The latter of which has grown into a political force enough to challenge the status quo 

This also debunks the myth of selfless or virtuous leaders. Politicization of economic opportunities universally leads to immoral actions or conflicts of interests.

And importantly, the failure to censor the article in the entirety also exhibits the shadow internet economy thrives in China, which serves as further proof that internet remains a free market despite frenetic efforts of governments to control or regulate flow of information in order to protect the status quo.

Forces of decentralization (Information age or the Third Wave) have been gnawing at the foundations of the 20th century designed political establishment.

Chart of the Day: More Economic Freedom, Lesser Corruption

This striking chart from the Economist exhibits a tight correlation between economic freedom and corruption perceptions which illustrates a very important message: MORE economic freedom translates to LESSER Corruption.

The trend of  democratization of economic opportunities through lesser interventionism or reduced politicization of the markets has been mostly influenced by the snowballing forces of decentralization through globalization and information and technology driven information-digital age than through an implied dynamic of having more socially and economically “conscientious” autocracies.  

A large number of the “Most improved” in Doing Business rankings according to the World Bank (also from the same Economist article) have also been the most dynamic countries in terms of information and technology  development based on the data from the International Telecommunications Union.

Free Online Education: 100k Signs Up for Harvard’s Offer; Minnesota’s Aborted Ban

One of the top universities of the world, Harvard University, has joined the bandwagon in offering free online education.

From Boston.com 

About 100,000 students have signed up for Harvard University’s first free online courses — computer science and an adaptation of the Harvard School of Public Health’s classes in epidemiology and biostatics. The online courses, part of a joint venture called edX, begin Monday, according to Harvard.

The university’s provost, Alan Garber, said Friday that the free courses are part of an effort to educate people worldwide and that the effort will help improve education on Harvard’s own campus.

“We really think that the first courses we offer will be great, but long term, the payoff is going to come from a better understanding about how people learn,” Garber said.

Harvard and the Massachusetts Institute of Technology established edX, a nonprofit organization, in the spring, and the University of California Berkeley joined the effort over the summer.

Courses offered through edX are branded MITx, HarvardX, and BerkeleyX. Anant Agarwal, president of edX, said interest has been equally high for the courses offered by all three schools: 155,000 students registered for a course in circuits and electronics that MIT offered through edX in the spring.

Students taking the online courses hail from around the world, but Agarwal said most of those in the spring course were in the United States, India, Britain, and Colombia.

Students can take as many courses as they wish through edX, and when they demonstrate mastery of a course they can receive a certificate of completion.

Graduates of online courses will eventually challenge those of the traditional courses on the job markets. And this will ultimately pop the current education bubble and radically alter current classroom based paradigms—which have been designed from 20^th century—as well as reduce  state indoctrination, diminish the welfare state, promote competition and lay emphasis on individualization/personalization of education (one teacher per student), expand knowledge specialization and democratize knowledge--yes, education for all willing to be educated. 

Free online education, thus, represents the diffusion and acceleration of the great F. A. Hayek’s knowledge revolution.   

The knowledge revolution will undermine justifications for government interference traditionally channeled through the politicization of the "poor" and "uneducated".

Meanwhile on a related field, politicians who pretentiously claim that they are for “education for all”, and the quack “education is a right” has shown their true colors by an attempted ban on free online education for specious reasons: legal technicalities or the enforcement of a state law that requires authorization from the state government

Notes the conservative Heritage Foundation

Lifelong learners, students wanting supplemental courses, professionals, and Americans across the country interested in enrolling in physics, history, music, and a variety of other courses can do so for free from the open-source provider Coursera. But Minnesota has just informed its residents that they are now prohibited by law from furthering their own education for free through courses offered on Coursera by the likes of Stanford, Duke, Princeton, and more than a dozen other universities.

As several reports have noted, the Chronicle of Higher Education first reported the following:

Notice for Minnesota Users:

Coursera has been informed by the Minnesota Office of Higher Education that under Minnesota Statutes (136A.61 to 136A.71), a university cannot offer online courses to Minnesota residents unless the university has received authorization from the State of Minnesota to do so. If you are a resident of Minnesota, you agree that either (1) you will not take courses on Coursera, or (2) for each class that you take, the majority of work you do for the class will be done from outside the State of Minnesota.

While students who enroll in a Coursera class cannot get college credit (although they can request that a professor send an email to a prospective employer, for instance, confirming that they took the course and reporting their success), models like Coursera are beginning to change the way Americans think about higher education and provide a huge opportunity to reduce costs and improve access.

Coursera—and others such as EdX (a Harvard/MIT online collaboration), Udacity, and Udemy—represent a shift in higher education toward credentialing content knowledge. Such a shift lays the groundwork for a revolution in higher education, allowing students to attain various credentials by demonstrating content and knowledge mastery from a variety of course providers. But that (literally) free pursuit of knowledge for their own personal edification or skill attainment is no longer available to Minnesota residents.

Politicians have obviously been feeling the heat from the internet whom threatens their longstanding privileges.

Cato’s Andrew Coulson wry but relevant commentary on the ban,

One of the classes you can take at Coursera is “Principles of Macroeconomics.” Maybe the folks who lobbied for and enacted the state’s education regulations are afraid that free learning and economic literacy would threaten their phony-baloney jobs. 

Fortunately, the snowballing forces of decentralization which has been enabled and substantially facilitated and buttressed by the internet has forced the Minnesota government to backtrack.

More signs of the deepening of the information-digital age