Why Blockchain has no economic future

When Bitcoin went public in 2009 it introduced to the world of finance and economics the technology of blockchain. Even the many who thought Bitcoin would never make it as a major currency were intrigued by the BlockChain technology and a large set of new companies have tried to figure out how to offer new services based on blockchain technology. It is still fair to say that very few economists and social scientists understand blockchain, and governments are even further behind.

I will argue that blockchain has no economic future in the regular economy. I will give you the bottom-line, then describe blockchain, discuss its key supposed advantages, and then take it apart as a viable technology by giving you a much more efficient alternative to the same market demand opportunities.

The bottom line for those not interested in the intricacies of blockchains and public trust

The essence of my argument is that a large country can organise a much more trustworthy information system than a distributed network using blockchain can, and at lower costs, meaning that any large economic role for blockchain is easily displaced by a cheaper and even larger national institution.

So in the 19th century, large private companies circulated their own money, in competition with towns and princedoms. In that competition, national governments won, as they will again now.

The reason that the tech community is investing in blockchain companies is partially because some are in love with the technicalities of blockchain, some hope to attract the same criminal and gullible element that Bitcoin has, some lack awareness of the evolution and reality of political systems, and some see a second-best opportunity not yet taken by others. But even in this brief period of missing-in-action governments, large companies will easily outperform blockchain communities on any mayor market. Except the criminal markets, which is hence the only real future of blockchain communities. Continue reading “Why Blockchain has no economic future”

I guess I can’t run for Australian Parliament

I’m not sure if anyone was hoping I might return to Australia one day and run for Parliament. I certainly never thought about it. But it had never occurred to me that I might be prohibited from doing so. After all, I am an Australian citizen, was born in Australia, and right at the moment am not, to my knowledge a citizen of another country. I did know — thanks to the experience of my long-time co-author, Andrew Leigh, that if I wanted to run for Parliament I could not do so while holding a position at an Australian University as that would make me a government employee. But at least there was something I could do about it.

For those who don’t know, my brother — Jeremy — is a law professor at the University of Melbourne. That hasn’t really impacted on my life although he has lamented the inability to get the coveted ‘j.gans’ username there and previously at UNSW. He mostly writes about criminal stuff and even has a popular book out on some ridiculous jury laws in the UK. But over the past few months he has become somewhat obsessed with s44 of the Constitution which has now caused several MPs — including the Deputy Prime Minister — to be booted out of Parliament with perhaps more to follow. I have been waiting for all this to get on John Oliver but apparently it is still way down the list of Australian craziness.

Anyhow, in the wake of the High Court decision, he went on a rant about how ludicrous it was. The High Court basically decided that, in order to ensure that potential MPs did not shy away from checking whether they are beholden to a foreign power, they had better interpret the Constitution not as some sensible person might but as a strict rule that if you are potentially a citizen of another country — that is, they would be nice to you if you had nowhere else to go — then you had better make sure you have renounced your citizenship so that you cannot be tempted to be their agent in the future. I know that isn’t the legal interpretation but that is the way I read it.

Now Professor Jeremy’s rant — despite a surprising tie in with Gilbert and Sullivan — is mostly legal stuff and is kind of long so I didn’t notice until now this part:

I’m fortunate to have never contemplated nominating for elected office. But, like many Australians, the recent debate has caused me to ponder my own status under s44(i). Despite being born in Sydney and long assuming that I was exclusively an Australian citizen, my eligibility for election to my own nation’s Parliament proves to be quite a puzzle.

The simplest half of the puzzle is my father’s birth as a German citizen in Frankfurt in the 1930s. Thanks to  Adolf Hitler, whose 1941 Eleventh Decree to the Law on the Citizenship of the Reich stripped my Jewish father of his citizenship years after he arrived in Australia, I am certain I’m no German.

But there is a complication: Article 116(2) of Germany’s Basic Law provides that people in my father’s position ‘and their descendants, shall on application have their citizenship restored’. Although I haven’t applied, it seems arguable that I am nevertheless ‘entitled to the rights or privileges of a subject or a citizen of a foreign power’ (a phrase that the current High Court says is part of the same ‘limb’ as s44(i)’s ban on foreign citizens.) This interesting legal question can only be tested if someone like me is first elected as an MP and then has her eligibility challenged in the Court of Disputed Returns.

The trickier part of the puzzle is my mother. She was born during World War Two somewhere on the Soviet side of the front. However, precisely where in the former Union she was born (and hence her potential current foreign citizenship in a former Soviet Republic) is something that only my long-dead grandparents know for sure. My mother obviously can’t confirm her birthplace with any certainty. Her earliest memories are crossing countless borders as a war refugee. (My grandparents themselves were very vague about the details and timelines of their respective wartime ordeals. It is obvious that they were awful.) While none of these facts concern me at all, every single detail would be crucial to determining my current eligibility under s44(i).

The current High Court’s judges (some of whom would also be my future electoral executioners) saw fit to smugly declare:

“It is necessary to bear in mind that the reference by a house of Parliament of a question of disqualification can arise only where the facts which establish the disqualification have been brought forward in Parliament. In the nature of things, those facts must always have been knowable. A candidate need show no greater diligence in relation to the timely discovery of those facts than the person who has successfully, albeit belatedly, brought them to the attention of the Parliament.”

But, if I was ever elected to a very narrowly divided parliament, then there would be a good many people with much better resources and motivation than me to solve the mystery of my citizenship. Somewhere, there may be an old Soviet record, or a wartime refugee camp form, or a surviving acquaintance of my grandparents, or a genetic link to some ‘atomic globule’ in Central Asia, that could belatedly confirm me as a citizen of one of a potential dozen or so nations, each with their own highly complex and shifting citizenship laws. My own ignorance of these matters (no matter how diligent my personal search) would be absolutely irrelevant to my future eligibility,. So holds Re: Canavan.

And for me to do my constitutional ‘homework’ would, at a minimum, be punishingly expensive, much more so than the truly ridiculous sums that Sam Dastyari had to pay to (probably) rid himself of his Iranian citizenship. Worse, there is every likelihood that I would be unable to ever be sure that I wasn’t a foreign citizen, much less satisfy any party contemplating nominating me. The likely result of any ‘serious reflection on the question’ of my eligibility is that nominating me would not be worth the risk. And I am hardly an unusual case (outside of the ‘came with the First Fleet‘ set, that is.)

Hang on a second I thought as I read this. Jeremy’s mother and father are my mother and father too — sometimes it takes a minute for the ball to drop on that. That means all this crap applies to me!

And not just my but prominent MPs like Josh Frydenberg and several other Jewish MPs.

So I don’t see how I could ever run for Parliament. Well in Australia. If I become a Canadian citizen — and no, they don’t care how many other citizenships I hold in order to do that (phew!) — then I could run for Parliament here. In other words, I am potentially barred — forever! — from running for Parliament in Australia by the High Court decision but can actually do so elsewhere.

But there is another thing. While Malcolm Turnbull and the current government I know did not agree with the High Court’s decision as they put forward an argument that would not have led to this if they had adopted it, I do now wonder what the Opposition’s position really is. From my reading, they have been playing politics in criticising the Government and now taking seriously the idea of contesting the new by-elections etc. That sounds like they accept that interpretation. If that is so, am I to read that they also believe that immigrants and children of immigrants should never run for Parliament in Australia? I think we all deserve an answer on that one.

[Update: it gets worse for Jewish people in Australia. They may all be prohibited. A High Court test case on this is urgently needed.]

EU plans for VAT taxation are doomed to fail. Again.

Taxation is the potential downfall of the EU as an institution. The reason is that within the EU, several member states are making money from the tax evasion in other member states, a situation akin to having a wife slowly murdering her husband with poison. Unless this stops, a divorce becomes inevitable.

Luxemburg, the Netherlands, Ireland, Lichtenstein, Austria, London, and several others are at it: they help large corporations avoid their taxation responsibilities. They either make deals that allow companies to hide their tax obligation, have idiosyncratic definitions under which there are less tax obligations, provide re-labelling services such that head-offices can be a mere post-box, etc.

These tax-avoidance enablers have also systematically frustrated all attempts over the last 30 years to harmonise taxation and reverse the damage they have done to the integrity of the other nation states in the EU. Whenever the issue of tax evasion was in the public eye, for instance during the GFC, they stalled by insisting tax evasion should be solved internationally and should include all other tax havens. Predictably, these were impossible demands. They have also made life difficult inside committees and government forums.

The EU bureaucracy has just put out a new set of proposals regarding VAT on large international corporations (like Google and Amazon), impact evaluated and all. I have read them and predict they will not be implemented, nor would they work anyway.

For one, the EU commission has no power to enforce new tax rules, and these proposals are in a long line of ignored prior proposals. To become law they would need the unanimous backing of all EU members. They hence need the cooperation of about 5 countries that would lose billions if they complied. Fat chance, even with Brexit reducing the political clout of London.

Secondly, the proposals repeat the main mistake of the past: they advocate a rules-based administrative system of taxation which is cumbersome, highly-complex, and easy to game. I explain how over the fold. Continue reading “EU plans for VAT taxation are doomed to fail. Again.”

Adverse Action Lawyer wanted in Frijters versus UQ case

I am seeking a lawyer to run an Adverse Action case connected to the recent Fair Work Commission verdict that found systematic breaches of procedures and procedural fairness in the University of Queensland’s actions against me following my research on racial attitudes in Brisbane. I first raised these breaches late 2013, but they were never addressed, with lots of new ones added to them as the case dragged on. The VC of the university was also personally informed of these breaches in April 2014, publicly denying there was anything wrong about UQ’s action in February 2015. He was again informed in March 2015, consistently failing to rectify breaches of procedure brought to his attention. I wish to bring an Adverse Action case to claim back my considerable costs.

feb2015cover3264x1078

I expect the case to be worth at least a few hundred thousand dollars in terms of damages (legal cost, value of my time, etc.), and for it to be potentially one of many others because the FW case uncovered widespread breaches of procedures in UQ’s handling of misconduct cases. So there might well be many others who are now looking to bring Adverse Action cases against UQ.

I offer a pay-for-success contract wherein the first part of any awarded damages would go to the lawyer, but after a threshold payment I want 50% to go to the successful lawyer and 50% towards Vanavil, which is a school for orphaned victims of the 2004 Tsunami flood in India. I feel that helping the poorest Indians will go some way to nullify the damage that the managers of UQ did when they suppressed evidence of adverse treatments of Indians (and Indigenous peoples) in Brisbane and made it harder to research these things in general. And I want to feel that I haven’t wasted my time these last three years on fighting mindless bureaucracies, but that my efforts ended up helping people in need.

Negotiations on the offered contract are possible. Please contact me on email if you are interested or have a good suggestion for a good adverse action lawyer ( p dot frijters AT uq dot edu dot au).

[Ps. The VC of UQ was still making inappropriate claims last week on the UQ media about his lack of involvement and has refused to retract his claims this last week when I pointed his errors out to him.]

Top Trump: The Game theory of the Trump endgame

pres15-001For those of us outside the US, the Trump entry into the US Presidential race so many months out from the actual election has been entertainment heaven. Sure, he is destroying the fabric of a great nation by bring horrific stereotypes and misinformation to the fore, but sometimes that is the price to pay for depravity.

But there is a strong sense that this will come to an end. There is no one who believes he will be the Republican nominee, let alone President. Our favourite prediction markets have the odds of the former at 7% and the latter at 3%; both actually higher than the priors of most. The real question is how long will he last. To be sure, as viewers our interests are in him lasting some time, but when we put our rational heads on, what prediction do we get?

To apply game theory to all this, we need to make some assumptions:

1. The GOP will not nominate Trump

2. For Trump, running and losing has more disutility than not running. I don’t know this for sure but I am willing to go with it. Trump doesn’t strike me as someone who wants to be tested.

3. For Trump, losing as a third party candidate involves less disutility than losing as the GOP nominee.

4. Trump could not stand to be at an event without being the centre of attention.

5. Trump is not really able to “work for it.” In other words, coming from behind isn’t in him.

That should do us to get some predictions.

First of all, let’s consider the actual primary race that starts early next year. The Iowa caucuses aren’t really that critical for leading candidates but New Hampshire is. The chances are, the field will have shrunk enough by then that, whomever is the alternative to Trump, will actually poll higher than Trump in New Hampshire. Thus, being at that race for Trump means losing.

Second, given this, he won’t run in that race. He has two options. First, to pull out for the GOP race prior to that and run as an independent. Second, to pull out of the race entirely for that citing medical reasons. This last one is appealing as a prediction as it satisfies Trump’s preference assumptions. If this is the case, however, he will want to do this when it was still the case that he had a chance in New Hampshire. That way he can claim “I was going to win, but what can you do?” Effectively, the Republican equivalent of Bobby Kennedy although with a healthier degree of endogeneity to the decision.

Third, what this means is that running as an independent isn’t likely to happen. When we get to just the point where the medical exit or mexit is feasible, the mexit option will be taken. So there will be no opportunity for the independent run at that stage.

Fourth, which brings us to now. The first Republican debate is next week. Trump and nine others will be on the stage for a couple of hours. Think about that for a moment. Trump will be on stage with nine other people presumably with rules that will require him to spend 80 to 90% of the time listening to others speak. We are all tuning in to watch it. But to be sure, we are doing so because we don’t think that can happen.

Fifth, in addition, there is a strategy available to the other candidates. We can term it “Top Trump” or alternatively the “Quayle Fail.” Remember when Quayle stood there like a stunned mullet against Lloyd Bentsen. If one of the other candidates can get that reaction or sometime equally embarrassing from Trump, not only will Trump be out of the race but that candidate will become the leader. Basically, the “vanquished Trump” title is a game winner. But it will take something big and if someone can do it, they deserve kudos up the wazoo.

Sixth, just before you get too excited, the game theorist in me has to tell you that Trump will surely know about the “Top Trump” possibility. He’ll be watching for it. Obviously, if someone can do it, it is too late for him.

Seven, points 4 – 6, suggest that there is a reasonable probability that Trump will pull out of the debate or, at the very least, be off the stage early to destroy it. He’ll claim “why am I on a stage with all you losers” and that will be it. It is a clear win-win for Trump. A debate does him no good and carries risks — especially at this stage.

Will that mean that he forms a third party then and there or that he pulls out altogether shortly after with a mexit? Sadly, this is as far as my game theorist’s predictive lens will take me. My point is: I hope I’m wrong but our entertaining run seems like it will come shortly to an end.

An MYEFO mystery: what’s with the resource tax?

It’s the time of the mid-year Economic Fiscal Outlook (MYEFO) and we’re told that we’re about 11 billion deeper in the red this financial year than we thought, with the treasurer blaming the dropping iron price and the reduced wage growth. I have gone over the MYEFO documents (which are an exercise in obfuscation if ever I saw one), found that wage growth and the dropped iron ore price would ‘only’ cost us 2.3 billion each in this financial year (2014-2015), noted that this was far short of the 11 billion headline, and thus went looking for the ‘real story’.

This threw up the mystery of the resource tax. Here is what it says on table 3.2:

Table 3.2: Impact of Senate on the Budget (underlying cash balance)
Estimates Projections
2014‑15 2015‑16 2016‑17 2017‑18 Total
$m $m $m $m $m
Impact of decision taken as part of Senate negotiations(a)
Repeal of the Minerals Resource Rent Tax and related measures -1,684 -2,334 -1,670 -947 -6,634

which seems to means that the repeal of the minerals resource rent tax (and related measures) is costing us around 2 billion per year. Yet, in the ‘Overview Part’, the MYEFO says “The repeal of the Minerals Resource Rent Tax and other related measures will save the budget over $10 billion over the forward estimates and around $50 billion over the next decade.”.

What is going on?

Update (thanks Chris Lloyd): it seems to be a language issue. Part of the story seems to be that the MYEFO is counting the repeal of the mining tax, which was an election promise, as something the Senate inflicted on the budget, so the 2 billion a year is ‘revenue foregone’. So the MYEFO is blaming the Senate for the outcome of an election promise, using an odd formulation to say that the repeal will save us 50 billion when it seems to imply it would cost us 50 billion. Weird.

Remembering Whitlam

Gough Whitlam was the first prime minister I was aware of. Actually, I recalled yesterday that I had seen every Australian Prime Minister since (up until the current one) in the flesh. What other country is that possible?

I saw Whitlam for the first time, in the flesh as it were, when I was 5 year’s old. It is one of my earliest memories. We were at Coogie Beach. I thought we were there for the clown show but, in fact, we were there to hear Whitlam speak. I remember him shouting at the crowd — that is what one of his speeches sounded like. It is clear in my mind today as I thought about it ever since.

A year or so later, he was part of another very early memory. I remember a newspaper on November 12th 1975 with the headline “Dismissed.” I asked my father what that was about and he told me that the PM had been sacked. I asked why and he said that he had lied. My parents, you might guess, were not Whitlam supporters.

Fast forward another 7 years or so later and I watched the wonderful ABC Mini-series, The Dismissal. It was before the Hawke election. There is a moment in many people’s lives when their political leanings are set. I personally think there is a large element of choice to that — especially for people who have not known personal suffering in their childhoods. That series was my moment. It made me left leaning and pro-economy at the same time. The Whitlam government was both (think pipelines not saving rainforests). I softened each of these since then (in fact, on the environment, I flipped from my 14 year old days). But that series was the moment and I was outraged that it had happened. Suffice it to say, I was no fan of Fraser; at least, not until recently when he joined Twitter and became the voice of reason in Australian politics.

Everyone has a politician that is formative to them. For me, Whitlam was that person at a ridiculously young age. He may have been PM for only 4 years of his 96 but what a 4 years it was.

[Update: my parents tell me that they voted for Whitlam on at least three occasions. So I guess I was wrong about my inference there.]