A Response to Roubini – Trustnodes

A Response to Roubini


Vitalik Buterin, chief scientist at the Ethereum Foundation, stated this Friday he’d “be happy to directly testify” to the senate. He’s also stated he’d be happy to debate Roubini.

That follows a testimony by the Keynesian political economist Nouriel Roubini, which was widely seen in the crypto space as highly insulting to the many good men and women working on blockchain tech.

Instead of a comparable figure to Roubini, who uses highly emotive language to effectively temporarily numb logical thought, the Senate had the very measured representatives from Coincentre, a lobbying group of sorts.

They could have invited instead someone willing to fall to Roubini’s level, like Andreas M. Antonopoulos or even Roger Ver, if they were going to invite someone like Roubini who was kind enough to describe this space as:

“The motley crew of crypto con men, scammers, criminals, trolls, shills, carnival barkers, self-serving ignoramuses, price manipulators, conflicted insiders, HODLrs.”

Or as his idol, Karl Marx, would have said: the unwashed masses. Yet this man now presents a unique challenge to this space: Should we even respond?

Unique because in many ways Roubini was one of the intellectual architect of the banking bailout. He ferociously disagreed regarding the way it was carried out, stating it could have been done for circa $175 billion rather than $700 billion, but his premise and the reason why he is anyone is because he gives intellectual cover to casino bankers:

“Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction,” he said back in 2008.

With the discussion window now closed as far as should we or should we not give our money to banks, Roubini moves on to details, strongly arguing against purchasing toxic assets and instead arguing for taking common shares in the banks.

In other words, he strongly argued against the way US engaged in the bailout to the point it seems he is against bailouts completely, while strongly arguing in favor of the way UK bailed out the banks.

The end result is of course our money given to his clients with Roubini at the time consulting for “a number of senior executives from major financial institutions.” That being massive global banks.

Some call him a lapdog, an intellectual cover to a system now many have revolted against, with his CV being long. Consultant to Fed, IMF, World Bank, Bank of Israel, “major financial institutions,” former advisor in the Clinton administration, member of the Council of Foreign Relations and so on.

In other words, an unelected global figure who nonetheless directly of indirectly makes policy decisions that affect everyone.

“Everyone should respect the independence of the Fed regardless of whether you believe that the Fed is hiking too fast, too slow or just right,” he said. Yet why should the Fed be unaccountable to the great public when they might be responsible for another crash, he doesn’t say.

But as a former and as perhaps a present “consultant” to the Fed, we obviously should not expect anything else from Roubini than defending central banks, defending commercial banks, and when the latter go under, shouting down everyone to give them our money or the world will end.

With that background, should he be debated? Especially when he seems to think the notion of private money itself is idiotic:

“The idea that hundreds of cryptocurrencies could viably operate together not only contradicts the very concept of money with a single numeraire that can be used for the price discovery of the relative price of thousands of good; it is utterly idiotic as the use of multiple numeraires is like the stone age of barter before money was created.”

That, of course, contradicts an economist that has stood the test of time, Friedrich Hayek, who in the Denationalization of Money strongly argued that money itself should also be subject to competitive forces, stating:

“The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process… only competition in a free market can take account of all the circumstances which ought to be taken account of.”

Roubini thus disagrees with a fundamental premise of cryptos: that they exist at all. He seems to think only the Fed should have the right to decide what is money, and in that decision mechanism there should be no public input, there should be no accountability (i.e. should be “independent”) and Fed’s good management or, far more often, mismanagement should not be constrained by market competition.

If, therefore, he disagrees with something so fundamental as whether cryptos should exist at all, can he engage in an honest debate with the aim of reaching some sort of truth or with the aim of educating the public?

That’s a difficult question to answer and it is tempting to say he can not, especially considering the way he has engaged so far. That’s while bearing in mind that everything is detail and in many ways irrelevant as far as Roubini is concerned, with the real point of debate being whether Fed should be subject to competition.

He may argue about scalability and so on, but that’s just to score points. He doesn’t care about all those aspects. That’s because he does not want cryptos to exist even if they were the most perfect thing on earth, fully scalable, utterly decentralized, with honey and cookies.

Can he really therefore not be “dishonest,” with our use of that word here being very limited to mean the arguing of ancillary, somewhat irrelevant, points rather than tackling the actual disagreement head on.

Can he engage in good faith? Well, reading his testimony the answer has to be no. Having in focus nothing else, but just that document itself, one has to conclude he has already decided there is nothing to debate, and now it’s more just a question of tilting public perception by using highly emotional language and insults.

Perhaps, however, that’s something that should be born in mind than presumed. Perhaps it is best to start by giving him the benefit of doubt, despite his background, but do so by tackling head on the actual disagreement rather than get bogged down in details.

Has the Fed done a great job so far is a leading question that will allow him to say yes. Considering the speed with which Greenspan raised interest rates, 18 times in two years, do you not think he was at least in part culpable for the banking crash, would be a better question and an interesting one to hear him answer.

An even better question would be: How can the fed possibly know what is the right interest rate when there are quadrillions if not more factors to consider? Are they not little different from Soviet statisticians deciding the price of bread? Something which has now been proven to be unworkable. Shouldn’t fed thus be subject to competition so that the market can give it far better real time information than any statistical model possibly can?

That too would be very interesting to hear him answer if he does tackle the question in a genuine manner rather than in a defensive posture.

He, of course, would have good points to make if for nothing else than because we can’t quite easily imagine how competitive currencies can work within the same borders.

Just one money does on the surface appear convenient, but network effects would naturally lead to a dominant money as we see across industries and as the 80/20 distribution suggests. The ordinary man and woman thus wouldn’t necessarily need concern him or herself with the nature of money itself in ordinary life, it so left to traders and so on, somewhat similar to forex markets.

Plus one can argue we do already have multiple currencies. Bitcoin or eth might not quite fit the definition of money to the same extent as the dollar, but both btc and eth are money in as far as 1eth is a unit of account, eth can perform an excellent function of means of exchange and while it might not be a short-term stable store of value compared to the dollar, it is nonetheless a store of value if for nothing else than because 1 eth is 1 eth.

In this, albeit very limited, environment of competing currencies, the world is working very fine. Fed keeps doing what it does, cryptos keep doing what they do, the market as always keeps judging everyone.

Why should Roubini or anyone else tell us that we should not have such freedom? Why should anyone force the market into a money monopoly where the economy is completely distorted by the decisions of one man who necessarily has no clue whatever so hikes rates to the point economies crash?

That too would be something debatable with Roubini and something we would be interested in hearing him explain. Not least because that’s his area, economics, not tech or code. He probably doesn’t even know how to code, which is fine, but presumably he does know how interest rates affect markets and presumably does know just how bad fed’s decisions have at times been.

Beyond that point, Roubini might be persuaded that the economic aspects and the technology are two different things. One can design a decentralized network that has a certain level of inflation and sets the supply of money to increase or decrease based on price levels in an algorithmic manner to target inflation in such a way as to keep prices stable.

That’s, in fact, the idea behind Dai, which currently is simply pegged to the dollar, but the ambition was and remains to algorithmically manage supply based on real time price data, something which we probably won’t see for a decade or two at best.

As far as blockchain without a coin is concerned, he says that’s just a database. If he prefers that simple description that’s fine. A database that allows for global coordination in a way you don’t have to trust the counter-party because all participants have the same data, thus the data can’t be changed without it being noticeable.

Making it slightly more than a database, but whatever. It’s not his area of expertise so he is not really placed to comment. IBM thinks there is something to it. We’ll see.

Where it is his area of expertise then a debate might be worth it if one is familiar with the Denationalization of Money. Where tech aspects are concerned, he hasn’t said anything we don’t know already.

Yes, blockchains are a very new invention, so right now they do not scale very well just as dial-up could not scale very well to handle videos, or just like cars initially could not scale very well to handle lorry level loads.

That’s how breakthrough inventions tend to start. Just the skeleton that makes this very new thing work. Then you add all the incremental improvements, all the decorations, and eventually it becomes a convenient part of daily life.

Blockchains will scale. The code will bend to the intellectual powers of women and men. It is just a matter of time because there is nothing fundamental to prevent parallelization (sharding) work. That’s how computers have scaled for decades. How blockchains will scale for decades.

Distribution in crypto is a fair point. Some are highly concentrated. Some intentionally so, some because distribution has to start somewhere. You can obviously airdrop the coins to everyone, but then that everyone is really anyone who is interested. Something which so far has necessarily been a very limited amount of people.

In bitcoin, distribution started purely through mining. That was a design decision due to two constraints: one wants as wide a distribution as possible while also distributing in a decentralized manner.

Initially, therefore, inflation was very high, 50 btc per block, while mining a block was very easy: one block a day or two with a laptop.

Anyone could mine, but again that anyone necessarily was people who knew of it, and people who wanted it thus bothered to mine.

There are plenty of stories of bitcoins thrown to landfills because their value wasn’t appreciated. There are also plenty of stories of people who knew of bitcoin yet could not be bothered to mine. Just as there are stories of people who could have bought a bitcoin at $58 yet didn’t.

As time progresses, distribution becomes more spread as far as the design itself is concerned. New coins tend to have a far higher ownership concentration, because there are less people interested in them, than something like bitcoin which has seen a process of re-distribution over the past decade through simple market forces of supply and demand.

Ethereum initially distributed the coins to anyone who wanted to buy them in a pre-sale ICO of sorts. Conceptually that makes it more decentralized in supply ad initio because tens of thousands of people bought, with anyone free and able to do so at the time if they wished.

Ethereum then moved to mining on launch, with it now planning to move to staking whereby anyone can lock their eth and gain more eth at a yearly interest rate of crica 5%. That will move distribution to basically anyone with a laptop, but again anyone is whoever is interested.

One can not therefore conceptually criticize distribution, especially when it is compared to the way the dollar enters circulation.

Roubini knows far better and if we make some mistake he’ll forgive us, but basically money enters circulation by commercial banks borrowing from the central bank at a current interest rate of 2%. Banks then lend out this money in mortgages at currently around 5%, or loans at circa 10-15% or credit cards which are at a stupendously high interest rate of 17%.

That 15% difference at one end is pocketed by bankers who are able to tap into very cheap money supply, which they then “sell” at a far higher “price.” The public or industry/companies can not partake in this scheme of privileged first access to freshly “minted” fiat.

It would indeed be very interesting to hear from Roubini what he thinks of the role interest plays in our society as far as the nature of money itself is concerned. Fed employees seem to think if the public knew, there may be riots.

On that point, he seems to think the system of bank bailouts is a plus, rather than a rip-off as he called it in 2008 or 2009 after the fact. He says:

“When I use traditional financial systems based on fiat currencies there are many levels and layers of security. First I rely on institutions with a reputation and credibility built over time… there is even the bailout of systemically important too-big-to-fail (TBTF) institutions with provisos to control this TBTF moral hazard.”

Banks are for profit private companies, not institutions. Whether that system works, moreover, remains to be seen. That’s because that bankers’ debt has not gone anywhere. Merely transported to the government, that being all of us. The government now has to face rising interest rates. If Powell goes too fast, a technical bankruptcy of the US government is not out of the cards.

Some of the above are points Roubini himself has made, but on the security front cryptos do have challenges. One way of resolving them would be through smart contracts if things like Dai do continue to prove unhackable code can be a thing.

He makes many other ancillary points, like decentralization being fake. Something which can be true, XRP and/or EOS for example are fairly centralized in design, but even they are more decentralized than Fed.

Then there’s the question of manipulation, but Libor was manipulated at a grand scale with trillions of dollars, yet no one was held accountable for it. In crypto at least you can not manipulate the actual supply through interest rates.

As for scammers and so on there’s plenty of Madoffs in the world and where criminals are concerned they still far prefer fiat, with banks quite willing to serve them in laundering money to the tune of the entire crypto market cap for just one bank.

And that ICOs are a security is not an argument. Putting forth a case for why only the rich, like Roubini, should be able to invest in ICOs under century old laws, while everyone else is prohibited, that might be an interesting argument to hear.

On energy, ethereum is moving to Proof of Stake and on killer apps there have been some, but the movement of ethereum and bitcoin across the world to the tune of a trillion or two a year is probably the biggest killer app yet.

In conclusion, like all systems designed by intellect there are naturally some problems which are being addressed, but such problems are minuscule compared to the current financial system which is fundamentally flawed due to the requirement of interest in the creation of money.

Cryptos may have problems, but the current financial system is fundamentally unfair to all industries and all parts of the economy except for banks. Plus, even if that point is disagreed with, cryptos are simply a more advanced form of money due to smart contracts.

As just one example, it is impossible, and it has never been possible, to give machines a bank account. Now, due to ethereum’s smart contracts, something like a fridge or a car can make payments on your behalf.

An economist may ignore the tech aspects because he might be interested in just the economics, but cryptos are interdisciplinary, with the tech aspect a very important part of it because the code design can allow coders to do many things on public blockchain networks that previously were not possible or as convenient.

The professor thus would do well to have an open mind in our view and consider that perhaps there is something to this whole crypto thing. That maybe early rhetorics by some within crypto have perhaps misled him.

He maybe should consider that the open nature of cryptos means anyone can talk on their behalf and that no one can talk on their behalf for fundamentally the technology is neutral. Just a tool usable as one wants to design it. Whether that being a centrist design, libertarian, marxist, or whatever one wishes.

Finally, the professor would do well to bear in mind he is talking to a new audience of millennials, many of whom may have not heard of him before and thus may not be getting a nice first impression.

Some might even be welcoming his loud entrance to our space. An old metaphorical father who barks to his 30 year old about the ways of the new world as he watches his own world he himself designed unravel due to a system of bigger and bigger debt levels with bigger and bigger defaults, now potentially of governments.

If at the very least he favors free markets over communist economies, Roubini may well want to consider whether perhaps cryptos are the way capitalism is saved from itself.

Copyrights Trustnodes.com


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