David Andolfatto — Why the Blockchain should be familiar to you

Today's post is more about marketing the idea of blockchain. The word sounds intimidating to many people. That's probably because attempts to explain it often make use of a highly technical trade language that few people understand. My goal here is to think of ways to communicate the idea of blockchain in a manner that will make people feel like the concept is familiar to them. Indeed, I believe that the broad conceptual idea of blockchain should be familiar to us all.

Renowned Bitcoin expert Andreas Antonopoulos writes here:It will take time for the idea of decentralized trust through computation to become a part of mainstream consciousness, and until then, the idea creates cognitive dissonance for those accustomed to centralized trust systems. With thousands of years of practical use, centralized systems of trust are accepted unconditionally and without much thought as the only model of trust.

It's an excellent article and I highly recommend you read it. What I want to do here is push back a little on the notion that decentralized trust systems should necessarily create cognitive dissonance. In particular, I should like to point out that we've had tens of thousands of years of experience with decentralized trust systems. Alright, so let's get started.….

Very worthwhile read if you don't know much about blockchain already. It's a simple explanation that David Graeber might have written. It's basically how decentralized systems based on mutual trust work and have since prehistory, and how digital networking allows this to be scaled.

Notice how the blockchain described above could serve a very useful economic purpose. In particular, notice that the act of consumption (medical services) in [1], John is effectively using [2] as currency. At least, this is how things work in what anthropologists describe as "gift-giving societies." And if you think about it for a while, you'll notice that the same principle is at work in the various groups you interact with on a daily basis (your friends, your family, coworkers, etc.). Much, quite possibly most, economic exchange occurs via such localized trust networks.

The problem with this ancient blockchain technology is that it doesn't scale very well. There's only so much data we can fit in our brains. So as populations grew and as people started forming large communities, a new type of record-keeping system was needed. The model that came to dominate is one in which databases are collected and maintained by trusted third parties. Much effort is expended in keeping these private databases secure (not always successfully). It is often difficult for these agencies to communicate and reconcile their databases (as in when you try to send money from your bank account to your friend's foreign bank account overseas).

And so enter the "new" technology, blockchain. I hope I have convinced you what is new here is not the principle of the blockchain. The new technological developments are: [1] bigger brains (increased capacity for data storage and processing via computers); [2] better communications (the Internet); and [3] computer-based algorithms to serve as communal consensus mechanisms (e.g., proof-of-work).

These innovations will permit a revolution in the truest sense of the word: we are traveling back to where we began--but with planet earth as our village.

MacroMania

Why the Blockchain should be familiar to you

David Andolfatto, Vice President, FRBSL

Brian Romanchuk — Primer: Can We Consolidate The Central Government And Central Bank?

One of the strengths of Modern Monetary Theory (MMT) is that it provides a clean analytical framework for the analysis of "modern" economies (economies with a free-floating currency and which controls its central bank). One of the ways in which it does this is to consolidate the central bank with the fiscal side of the central government. Such a consolidation has extremely important effects for understanding government default risk, and is controversial as a result.

It should be noted that this is a somewhat abstract issue, and it was generally not the direct topic of debates. Instead, academic debates revolved around the more concrete implications of this issue. However, since the concept is consolidation is used a lot within MMT, this topic provides a natural starting point for addressing those other debates. However, I keep the discussion here relatively short, as I hope to discuss the more substantive issues elsewhere.....

Bond Economics
Primer: Can We Consolidate The Central Government And Central Bank?
Brian Romanchuk

John Vidal — Corporations and wealthy elites now control more than 75 percent of the world’s farmland

The world’s food supplies are at risk because farmland is becoming rapidly concentrated in the hands of wealthy elites and corporations, a study has found. 

Small farmers, the UN says, grow 70% of the world’s food but a new analysis of government data suggests the land which they control is shrinking every year as mega-farms and plantations squeeze them onto less than 25% of the world’s available farmland, says international land-use group Grain. These mega-farms are less productive in terms of amount of food they produce per area of land, the report argues.

“Small farms have less than a quarter of the world’s agricultural land – or less than 20% excluding China and India. Such farms are getting smaller all the time, and if this trend persists they might not be able to continue to feed the world,” says the report which draws on government statistics and calls for a stop on land grabbing by corporations.

The Raw Story
Corporations and wealthy elites now control more than 75 percent of the world’s farmland
John Vidal, The Guardian

Capitalism leads to consolidation, and consolidation to monopoly capital.

Scott Fullwiler and Stephanie Kelton — Krugman, Helicopters, and Consolidation

Paul Krugman has a new post that explains why the debate over money- vs. bond-financing of government deficits is really much ado about nothing. In it, he essentially echoes longstanding MMT-core principles, as we will show below.

New Economic Perspectives
Krugman, Helicopters, and Consolidation
Scott Fullwiler and Stephanie Kelton

Neil Wilson — The Consolidated Government Sector

The key analytic technique that MMT uses that sets it apart from most others, is that it uses a consolidated government sector in its analysis (although apparently the mainstream is slowly catching on). This allows it to cut through the obfuscating political constructions between the various government departments and institutions and concentrate on the essence of what is happening

This is entirely consistent with accepted accounting practice, using a technique known as group accounting - which produces consolidated financial statements (income, balance and cash) amongst a related group of entities. The international accounting standard for that is IFRS 10 'Consolidated Financial Statements' which requires that entities under common control present a consolidated set of accounts so that external users can obtain a 'true and fair view' of the actual underlying economic transactions.

The Central Bank in all sovereign jurisdictions falls under the definition of control by the Treasury - often de facto by the operation of law (Bernanke: "Our job is to do what Treasury tells us to do"), but also de jure, e.g in the Sterling area HM Treasury actually owns the entire shareholding of the Bank of England. The control model in IFRS 10 is elaborate to try and catch all those little tricks that entities use to avoid having to consolidate accounts and is worth studying to see the various 'Wizard of Oz' methods that control can be imparted even though the public face is supposedly independent.

Given the control relationship, consolidated financial statements are entirely appropriate and correct accounting which reveals the essence of the underlying transactions. Therefore in your model you should be able to swap out the detailed entities and replace them with the consolidated entity and nothing about the response should change. If it does then it is likely your model is wrong.

3spoken
The Consolidated Government Sector
Neil Wilson

Tim Duy — When Can We All Admit the Euro is an Economic Failure?

The last month of data flow from Europe is nothing short of depressing. It seems that the history of the Eurocrisis can be summed up as a repeated effort to snatch failure from the jaws of defeat. The Euro and the policy framework that supports it is now clearly inconsistent with anything but sustained recession.... 

Bottom Line:  How high does unemployment need to rise, how much output needs to be lost, how much poverty must be endured before European policymakers realize that the policymakers see that the framework supporting the Euro politcally is an economic failure?

Amen.

And the morons eurocrats are calling for even more "fiscal consolidation."

Tim Duy's Fed Watch
When Can We All Admit the Euro is an Economic Failure?
Tim Duy