Gilder’s Take on the Blockchain Economy

I’m reading ‘Life After Google’, which is worthwhile and apparently a very popular seller now in China as well as in the West. Google’s model provides information and communications services for ‘free’ in the sense that you don’t pay money for them. But you do get subjected to advertising, and all your information is warehoused for ‘big-data’ AI to comb through for its future (multi-pronged) uses. Google’s reliance on freebies allows it to be loose with security and buggy beta releases without any liability. I think Gilder is correct that it is a model that is fundamentally flawed by-construction and as he points out, it is already losing ground in commercial advertising to Amazon, where people go in search of things to buy.

I also agree with him that the work ongoing now with blockchains and quantum encryption will lead to a new ‘security-first’ model of e-commerce which will supplant the Google model, and that this security will neuter much of the information gathering that Google intends to deploy for its future interests in an ongoing way.

However, a big thing that I think Gilder has overlooked is the relationship that big tech firms like Facebook and Google have with government, which can always interfere with the natural progressive evolution that free market competition drives simply by enacting laws to do so. Google does not only archive all of its gathered data into its data center in south Washington, it has also been sharing it with the NSA which archives it in its own data center in Utah.

It has been surreal to see Google, Youtube, and Facebook fulfill Orwell’s scenario of selective censorship and sanction against thoughts and opinions that those companies differ with. Their ability to do that is one benefit of offering all these information services ‘for free’ and gaining widespread buy-in on that. In the current political climate there could be a number of reasons why the government has not said much about this selective free-speech impingement, but its reliance upon Google and social media for a lion’s share of its information-gathering on the ordinary law-abiding citizens of America certainly is not prodding it to protest more sternly on it. Today’s front page of the Wall Street Journal contains an article indicating that Mark Zuckerberg was knowledgeably dismissive of lax privacy practices at Facebook. Such revelations, if the public cares about them, might prove to be a better prod.

Another hand-of-big-government issue that I think Gilder might have considered more thoroughly is the fact that, through history, governments have seen to it that the common currency in use (which was always coinage until about the last 2 centuries) remains under its control to issue and track. When Gilder envisions ‘stablecoins’ whose value is backed by some ‘time-based scarcity’ like gold, he ignores some important facts:

(i) The amount of all gold mined and refined to-date amounts to a de-minimis value in comparison the GDP of the world, or even of its biggest nations.

(ii) Most money today is already effectively’fiat’ (and electronic, actually whether it be PayPal, Google Wallet, or Apple that is the facilitator). In these past few years it has been printed at-will by the governments of countries like Japan and the US in huge amounts. This has been done primarily to enable their central banks to immediately buy-up the new issues of their own treasury debt that the private sector is beginning to find less confidence in, and appetite for. It is a curious means of funding, and raises the question why the people still need to be taxed at over 30% on their earnings to provide revenue to government.

(iii) Most importantly, in the past when governments had to ultimately face their own insolvencies, they turned to confiscatory-level taxation and outright confiscation of private capital to keep themselves propped-up a bit longer – and this is where Europe, America, and Japan are today. Asset-stripping the people is a more complicated affair when much of the value they hold lies in disparate e-currencies. But it is a very neat matter when it all lies in a single e-currency that the government issues, controls, and maintains oversight on.

Then there can no longer be any private transactions (black market or otherwise) that evade taxation. And when the next big federal debt crisis hits, private accounts can be given ‘haircuts’ against which their owners have no means of preventative nor evasive recourse. In the past when governments ransacked their people, the people responded by hoarding (burying their savings of coins underground in clay pots). Hoarding is impossible with e-money that is all ‘on-the-grid’ and thus within government’s reach.

So although I do see blockchains and quantum encryption enabling a new level of privacy and security in electronic commerce and communications, I doubt that government will allow that privacy to extend so far as to exclude its own transparency into these transactions. So why then is it allowing the bitcoin frenzies and the young people to run around buying their Starbucks coffees with their iPhones ? Perhaps it is so that, if and when it does consolidate all this under a new electronic monetary regime, people will already regard it as normal. All it takes is for a bill to be quickly passed in order to ‘urgently address’ a fiscal crisis (or for some other reason).

This type of measure has happened previously in the United States, and was effected quite unilaterally by executive order. In 1933 Hoover issued executive order 6102 making it illegal overnight for private citizens to store gold. The stated reason for the order was that hard economic times had led to hoarding of gold, which was stalling economic growth and worsening the depression. The people had less than a month to turn over all their gold to the federal reserve for a fairly measly redemption value, or face penalties of up to ten years in prison. No one saw it coming. Most analyses of the great depression attribute its severity to the inept response that government and the banking system made to it, but it was the people who were held to account, as usual. This sort of action can and most likely will happen again (it happened in Cyprus just a few years ago). And if a central electronic money unit is established in the process, government will have little difficulty thereafter milking extra funds from the private sector whenever it needs to.

However, it is worth noting that such a switch would like have a suppressive effect on future entrepreneurial risk taking and economic growth. People become less willing to mortgage their home, to leverage themselves to the hilt, and to work 14 hour days in pursuit of the fruition of their business idea when they know that its fruits can be confiscated from them by capricious fiat at anytime.

The German hyperinflation is widely attributed to money printing. But a careful examination indicates that it was catalyzed in December 1922 when the government confiscated 10% of everyone’s property and handed them bonds in return as a ‘forced loan’. It was at this point when it became evident that the government was not able to honor its lenders and was willing to seize private capital whenever it saw fit that confidence in government, it’s solvency, and its currency completely collapsed. So the government may be able put all money within its grasp by instituting a single electronic currency regime. But by doing so it will weaken the confidence and the incentive among private citizens to bear risk and to deploy what money they have in conjunction with their labor and ingenuity in order to entrepreneurially generate new real wealth in their society.

Gilder notes that new industries, products, and wealth-production flow from creative inspiration, which can be stated a bit more specifically as: The devising of completely new services, devices, goods, and value not by extrapolation nor improvement upon what previously existed, but from nothing (from ‘scratch’). A point of his that I do affirm is that this is something that no AI system combing big data will ever become capable of. It is a very mysterious capability of human consciousness. If you peruse the rest of my website, you will find that it is a capability I am quite interested in, particularly with regard to practices that can be undertaken to fortifying it and to more easily access it. It comes from a source substantially deeper than the rational analytic mind.