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  • Bitcoin Is a Great Counterpoint to Calls for Government Innovation Subsidies

    Bitcoin Is a Great Counterpoint to Calls for Government Innovation Subsidies

    Title: How Bitcoin Highlights the Problem with Innovation Subsidies

    Subtitle: The story of bitcoin shows us that true innovation follows its own path.

    Abstract: If bitcoin is a specific case that exposes the general flaw in innovation economics, what other opportunities are being suppressed or missed because capital is being misallocated by innovation subsidies?

    Dave Birnbaum

    Have you heard of “innovation economics?” This relatively new school of thought represents a shift away from traditional economic theories, and emphasizes entrepreneurship, technological innovation, and, you might have already guessed, government intervention as key drivers of economic growth.

    Since one of the members of the Federal Reserve Board of Governors subscribes to the concept of innovation economics, understanding this school of thought may help us interpret or even anticipate policymaker’s decisions that will affect us all.

    Rooted in the ideas of thinkers like Joseph Schumpeter, this framework seeks to recognize the importance of innovation to an economy, not just the management of resources, and provides a theoretical framework for how to encourage and accelerate the creation of new technologies, products, and services.

    Unlike classical economics, which focuses on equilibrium, innovation economics sees economies as dynamic and continuously evolving. While it’s true that the economy is a dynamic system, its proponents take this a step further, arguing that targeted government support can stimulate technological advancement, productivity growth, and economic progress.

    This approach has shaped policies in the United States over the past 20 years. Proponents point to the America COMPETES Act, STEM education initiatives, and technological research and development grants as notable outcomes.

    However, when you strip back the jargon, it becomes clear that innovation economics is just a new veneer on an age-old concept: government picking winners and losers. It is centralized industrial policy making updated with the trappings of the 21st century, and nets out to yet another form of state capitalism. The clear evidence for this can be found in an unlikely place: bitcoin.

    A decentralized digital currency that is radically improving the world economy, bitcoin’s story is remarkable. In 15 short years, a moonshot to create a universal honest ledger has been adopted by hundreds of millions of people, and even nation-states. It is sound money that can be sent anywhere in the world, and promises change that both sides of the political aisle could get behind, from healthy market competition in the financial sector, to protection from exploitation for the populations of poor countries.

    Ironically, bitcoin would be an ideal candidate for an innovation subsidy, given the tremendous positive impact it could have once key technical problems are solved. Its potential to revolutionize the financial system, enhance privacy, and democratize finance makes it a game-changer. And, although there is a robust commercial and industrial ecosystem evolving naturally around bitcoin, there is no question that the ecosystem would develop faster if it were subsidized.

    However, the benefits offered by bitcoin come at a cost to the power of state apparata, which depend on seigniorage (profiting from money-printing) as a key lever of power. Whatever you think of bitcoin and its long-term prospects, there’s no question that if it were to succeed, it would obviate the need for government-controlled fiat currencies and the central banks that issue them, and reduce the power of the state over the economy.

    Hence, even though bitcoin subsidies would seem to be consistent with the stated objective of innovation economics of helping people, bitcoin would never receive government support precisely because it works against the government’s interest in maintaining control over fiat currency. This exposes a congenital defect of innovation economics—it must be biased towards preserving the power and control of those who decide what to subsidize.

    This leads to a broader question that the reader must ponder. If bitcoin is a specific case that exposes the general flaw in innovation economics, what other opportunities are being suppressed or missed because capital is being misallocated by innovation subsidies?

    The story of bitcoin, an innovation that emerged and thrived without government support, serves as a sobering reminder that true innovation often follows its own path.

    Furthermore, it is not possible for the government to pick winners and losers in the innovation race without prejudice or self-interest. While innovation economics has alluring promises and can point to specific successes, it fails to escape the biases and conflicts that inevitably arise from government intervention.

    Despite its modern facade and claimed successes, the theory of innovation economics falls short of delivering an unbiased, effective path to technological innovation. The specific case of bitcoin, coupled with the general potential for missed opportunities due to biased capital allocation, calls into question the very foundations of this approach. Policymakers and economists would do well to carefully consider these flaws.


    Dave Birnbaum

    Dave Birnbaum is the product director at Coinbits, where he leads a team that is making Bitcoin user-friendly for the next generation of Bitcoiners.

    This article was originally published on FEE.org. Read the original article.


  • Why EVs Are ‘Piling Up’ at Dealerships, Despite Massive Taxpayer Subsidies

    Ford Motor recently announced it is slashing prices on its F-150 Lightning, an electric vehicle the company rolled out in 2021.

    The Lightning now carries a suggested retail price of $49,995, about $10,000 lower than its previous recommended price tag ($59,974), a reduction the company says is possible because of lower “battery raw material costs and continued work on scaling production and cost.”

    It’s certainly possible that reduced overhead from battery minerals and production costs played a role in Ford’s decision to trim its price tag by nearly 20 percent, but that may be only half the story.

    Several reports show EVs are not exactly flying off dealership lots. In fact, there’s a glut of them.

    “After a prolonged period in which EVs quickly disappeared from dealerships, the electric vehicle industry now has the opposite problem: unsold models are piling up,” reported Money last week. “About 92,000 EVs currently sit on dealers’ lots; that’s a 342% increase from a year ago, when only about 21,000 did so, according to automotive research firm Cox Automotive.”

    Ford is not immune from the weakened demand for EVs. Sales of its flagship car, the Mustang Mach-E, have slumped, down 44 percent in May from the same month last year.

    The Lightning, which won the title of EV king of pickup trucks after Ford moved nearly 16,000 units in 2022, has fared better but is still struggling to keep pace with 2022. And now the company is facing some stiff new competition. (More on that in a minute.)

    This was not the scenario many people predicted.

    In April, the International Energy Agency released a report in which it predicted EV sales to increase 35 percent after a record-breaking year. But economists I spoke with said such predictions were overly optimistic considering current macroeconomic conditions.

    This invites important questions. Is the glut of EVs simply a product of tightened money supply?

    Apparently not. As Axios noted, the 92,000 EVs currently sitting on lots is comparatively high relative to gasoline-powered cars.

    “That’s a 92-day supply — roughly three months’ worth of EVs, and nearly twice the industry average,” wrote Joann Muller. “For comparison, dealers have a relatively low 54 days’ worth of gasoline-powered vehicles in inventory….”

    In other words, dealerships are sitting on a lot more EVs than gasoline-powered vehicles—despite efforts to entice consumers to buy EVs with taxpayer-funded credits up to $7,500.

    This is evidence that pretty much everyone—from central planners to auto manufacturers—misjudged the demand for EVs, which are not even as environmentally friendly as politicians would have you believe.

    Not only do EVs require an astonishing amount of mining—an estimated 500,000 pounds of rock and minerals must be upturned to make a single battery, physicists point out—but their carbon footprint isn’t much smaller than gas-powered cars.

    It turns out that EVs actually require a lot more CO2 to produce than gas-powered cars. EVs can make that up, but it takes a great deal of time because EVs also often run on electricity generated from fossil fuels. Just how long? In 2021, Volvo admitted that its C40 Recharge has to be driven 70,000 miles before its carbon impact is lower than its gas-powered version.

    All of this is to say that a bunch of unused EVs isn’t just a financial headache for auto dealers and motor companies; it’s also an environmental problem.

    That said, the weaker than expected demand for EVs doesn’t mean the future of electric vehicles is doomed. On the contrary, demand for EVs is likely to increase as battery technology and EV infrastructure improves. Ford’s Lightning, for example, only has half the range of its gas-powered F-150 because of its small battery—a clear concern when charging stations are not yet readily available in many places.

    For now, however, motor companies are competing with one another to attract customers in a smaller than anticipated EV market. Which brings me to Elon Musk.

    Tesla last week rolled out  its much-hyped Cybertruck, which is a direct challenge to the Lightning, and likely played a role in Ford’s price cut.

    Federal lawmakers may have created a glut of EVs with their meddling, and it’s likely to have an adverse impact on both the auto market and the environment. But one of the virtues of capitalism is that consumers will ultimately decide who wins in the EV market and who loses.

    Whether that turns out to be Musk’s Cybertruck or Ford’s Lightning remains to be seen. Either way, the competition is bringing down prices, which is a win for consumers looking to purchase an EV.

    But the glut of electrical vehicles on the market reveals the danger in letting lawmakers decide what consumers should be driving.

    This article originally appeared in The Epoch Times. 


    Jon Miltimore

    Jonathan Miltimore is the Managing Editor of FEE.org. (Follow him on Substack.)

    His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune.

    Bylines: Newsweek, The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times. 

    This article was originally published on FEE.org. Read the original article.


  • American Taxpayers Are Subsidizing Cronyism in Eastern Europe

    Because of their aggressive support for bigger government, my least-favorite international bureaucracies are the International Monetary Fund and the Organization for Economic Cooperation and Development.

    But I’m increasingly displeased by the European Bank for Reconstruction and Development, which is another international bureaucracy (like the OECD and IMF) that is backed by American taxpayers.

    And what does it do with our money? As I explained earlier this month in this short speech to the European Resource Bank in Prague, the EBRD undermines growth with cronyist policies that distort the allocation of capital.

    In some sense, the argument against the EBRD is no different than the standard argument against foreign aid. Simply stated, you don’t generate growth by having the government of a rich nation give money to the government of a poor nation.

    Poor nations instead need to adopt good policy—something that’s less likely when profligate and corrupt governments in the developing world are propped up by handouts.

    That being said, the downsides of the EBRD go well beyond the normal problems of foreign aid.

    I recently authored a study on this bureaucracy for the Center for Freedom and Prosperity. Here are some of the main findings.

    The EBRD was created with the best of intentions. The collapse of communism was an unprecedented and largely unexpected event, and policymakers wanted to encourage and facilitate a shift to markets and democracy. …But good intentions don’t necessarily mean good results. Especially when the core premise was that growth somehow would be stimulated and enabled by the creation of another multilateral government bureaucracy. …Unfortunately, even though its founding documents pay homage to markets…, there’s nothing in the track record of the EBRD that indicates it has learned from pro-intervention and pro-statism mistakes made by older international aid organizations. Indeed, there’s no positive track record whatsoever.

    • There is no evidence that nations receiving subsidies and other forms of assistance grow faster than similar nations that don’t get aid from the EBRD.
    • There is no evidence that nations receiving subsidies and other forms of assistance enjoy more job creation than similar nations that don’t get aid from the EBRD,
    • There is no evidence that nations receiving subsidies and other forms of assistance have better social outcomes than similar nations that don’t get aid from the EBRD.

    I also delved into three specific downsides of the EBRD, starting with its role in misallocating capital.

    In a normal economy, savers, investors, intermediaries, entrepreneurs, and others make decisions on what projects get funded and what businesses attract investment. These private-sector participants have “skin in the game” and relentlessly seek to balance risk and reward. Wise decisions are rewarded by profit, which often is a signal for additional investment to help satisfy consumer desires. There’s also an incentive to quickly disengage from failing projects and investments that don’t produce goods and services valued by consumers. Profit and loss are an effective feedback mechanism to ensure that resources are constantly being reshuffled in ways that produce the most prosperity for people. The EBRD interferes with that process. Every euro it allocates necessarily diverts capital from more optimal uses.

    I explain why taxpayers shouldn’t be subsidizing cronyism.

    …the EBRD is in the business of “picking winners and losers.” This means that intervention by the bureaucracy necessarily distorts competitive markets. Any firm that gets money from the EBRD is going to have a significant advantage over rival companies. Preferential financing for hand-picked firms from the EBRD also is a way of deterring new companies from getting started since there is not a level playing field or honest competition. … cronyism is a threat to prosperity. It means the playing field is unlevel and that those with political connections have an unfair advantage over those who compete fairly. To make matters worse, nations that receive funds from the ERBD already get dismal scores from Economic Freedom of the World for the two subcategories (“government enterprises and investment” and “business regulations”) that presumably are the best proxies for cronyism.

    Here’s a chart from the study showing that recipient nations already get low scores from Economic Freedom of the World for variables that reflect the degree of cronyism in an economy.

    Last but not least, I warn that the EBRD enables and facilitates corruption.

    When governments have power to arbitrarily disburse large sums of money, that is a recipe for unsavory behavior. For all intents and purposes, the practice of cronyism is a prerequisite for corruption. The EBRD openly brags about the money it steers to private hands, so is it any surprise that people will engage in dodgy behavior in order to turn those public funds into private loot? …Recipient nations get comparatively poor scores for “legal system and property rights” from Economic Freedom of the World. They also do relatively poorly when looking at the World Bank’s “governance indicators.” And they also have disappointing numbers from Transparency International’s “corruption perceptions index.” So, it’s no surprise that monies ostensibly disbursed for the purpose of development assistance wind up lining the pockets of corrupt insiders. For all intents and purposes, the EBRD and other dispensers of aid enable and sustain patterns of corruption.

    And here’s the chart showing that recipient nations have poor quality of governance, which means that EBRD funds are especially likely to get misused.

    I also cite several EBRD documents that illustrate the bureaucracy’s hostility for free markets and limited government.

    Just in case you didn’t want to watch the entire video, here’s the relevant slide from my presentation.

    And remember that your tax dollars back this European bureaucracy. Indeed, American taxpayers have a larger exposure than any of the European countries.

    P.S. I’m also not a fan of the United Nations, though I take comfort in the fact that the UN is not very effective in pushing statist policy.

    P.P.S. I’m most tolerant of the World Bank, though that bureaucracy periodically does foolish things as well.

    Reprinted from International Liberty.


    Daniel J. Mitchell

    Daniel J. Mitchell is a Washington-based economist who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

    This article was originally published on FEE.org. Read the original article.