iRegulate – Apple’s solution to screen addiction and personalised paternalism

This week at their annual developer’s conference Apple released details of new software features aimed at curbing screen addiction. Such features might be considered novel by some and a cynical attempt to avoid legal action by others (Bradshaw, 2018 in the Financial Times), but to some people – by which I mean me – this marks an important step in the development of personalised paternalism.

Personalised paternalism is an interesting idea that exists, at least in theory, as a response to the existing problems standard paternalism in regulatory frameworks. Though, standard paternalism is a bit of a misnomer, so let’s clarify some terminology first.

Without full details, it’s hard to assess how closely Apple’s new software will be borrowing from nudge theory – a branch of behavioural economics (which itself is a branch of economics with a good helping of psychology mixed in) that focuses on adjusting (or, as some might argue manipulating. See, for example, Rebonato, 2014; Arad and Rubinstein, 2015) how a proposition is presented to a decision maker in order to influence their choosing of a specific option (see Thaler and Sunstein’s Nudge (2008) for more). However, some reported elements, such as time-usage reports and mandatory downtime options, clearly have a grounding in the world of nudge.

The trouble with nudges, at least philosophically, is primarily the question of who should nudge? We all like to think we make wise decisions most of the time, but what if you were told you were often wrong in your decision making? And further, what if you were told there was someone who, at no expense to yourself, was willing to nudge you in the right direction? When phrased like this, it’s hard to really be aggrieved at your benevolent advisor. But think about it this way: what if Apple didn’t let you set the downtime options, but instead decided that they understood your usage better than you and chose for you how long you’re access to a specific app was restricted?

This is part of the problem with paternalism (and it is definitely paternalism. Nudges, typically, do not objectively limit freedom of choice – there is some debate regarding nominal freedom of choice, but that’s beyond the scope of this piece). Whilst both you and Apple may agree you need and want to cut down on your screen time, and whilst Apple may be better informed of how to meet this end more effectively, there’s something deeply sour about this approach.

In nudge theory, the scenario is not so explicit. Say you want to pick a pension scheme, but there’s a lot of information out there and you don’t really want to trawl through it all to pick the absolute best scheme for you (assuming you’re even able to do that). Nudge theory may advocate a carefully selected default option pension scheme. The default option effect states that when faced with a decision, people are more likely to pick the default option than an alternative option. If the default pension plan is the optimal pension plan for the average saver, then, so the theory goes, welfare may be maximised by nudging people towards the default plan, rather than allowing them to sift through all the information and potentially pick the objectively wrong policy.

And for most people this system works. Whilst some argue against this idea, conjecturing it’s not possible to know what other people would choose for themselves (again, see Rebonato (2014), or, more broadly, On Liberty by Mill (1859)), this misses a point: in some situations, most people will not know what is the best option for them, and they’ll be happy enough to be nudged in the ‘good enough,’ direction (see Sunstein and Thaler (2003) who cite Beattie et al. (1994) on this point). The stronger criticism comes in the form of a question: can we do better?

This is where personalised paternalism comes in. The problem with either the hard paternalism example of Apple setting the downtime options or the soft paternalism of experts nudging people towards the best – on average – pension scheme is that most people will still be left somewhat unsatisfied by these approaches. Whilst the default scheme might be good enough, it won’t necessarily be optimal for me as an individual. Similarly, whilst on average it might not be wise for a person to spend umpteen hours a day on their phone, you might be able to cope with the effects of screen time much better than the average person. By adhering to averages, everyone will lose out – though some more than others.

To get the best of both worlds, we would need to be able to feed all our preferences, ideas and uncertainties into the system, and then let someone else’s expert judgement determine the best course for us specifically (assuming, of course, you want someone else making the decision). This is personalised paternalism, and as we begin to collect more and more data about ourselves, the potential for the theory to become realised skyrockets. Apple’s screen addiction software may mark an important step in this direction. Here’s why.

Say Apple reports back to you how much time you send playing Candy Crush every week, and you decide you want to cut down. You could specify an amount of time each week you are allowed to play Candy Crush, and let the software work in the background to keep track of everything. Perhaps in the future this software might access data in your calendar to know when you should be working, or your location data to figure out you like to play whilst you’re commuting to work, and it will build your allotted time around these preferable and not so preferable time frames? This might work fantastically, potentially increasing productivity and making downtime feel more rewarding.

Of course, it’s easy to spin all of this as a positive and ignore the negatives. If the goal of this software is to cut down on screen time, is it really the best strategy to let technology coordinate more around your life? Additionally, as I have argued before – following arguments put forward by Bar-Gill (2012) – even in disclosure interventions (when a person is given more information to help them reach a better decision themselves, rather than asked to trust the judgement of someone else who has that information, i.e. a nudge) which the above example is, there are still paternalistic aspects, and aspects that infringe on freedom of choice. For example, if I was told how much time I don’t use my phone every day, my feelings about how I should moderate my use will probably be different compared to the effect of being told how much I use my phone. The decision of how to frame information disclosure is a paternalistic act in itself.

Finally, we should always ask an important question: why do we need it? Personalised paternalism supposes to make our lives better by tailoring regulatory strategies and nudges to our specific requirements; but is it right that we should feel compelled to regulate ourselves? Is it the consumer’s fault that they spend too much time on their iPhone, or Apple’s for making such an appealing device, or King’s for using bright colours and sounds in Candy Crush? There is no absolute answer to these questions, but I believe they’re important ideas to think about nevertheless.

I generally believe Apple’s announcement is a positive one, and when we accept some form of paternalism will always exist, the ability to have some control over it if we want is an important feature to have. But paternalism, nudges and the agency question that surround both remain important questions to consider, and it would be dangerous to see one solution as a panacea.

References

Arad, A, Rubinstein, A (2015) ‘The people’s perspective on libertarian-paternalistic policies,’ working paper no. 5/2015, research no. 00140100. [Date accessed: 04/06/2018] [Online]: https://www.researchgate.net/profile/Ariel_Rubinstein2/publication/321161872_The_People%27s_Perspective_on_Libertarian-Paternalistic_Policies/links/5a129b3e458515cc5aa9e5a4/The-Peoples-Perspective-on-Libertarian-Paternalistic-Policies.pdf

Bar-Gill, O (2012) ‘Seduction by Contract’ Oxford University Press: Oxford

Bradshaw, T (2018) ‘Apple addresses screen addiction with new suite of tools’ Financial Times. [Date Accessed: 04/06/2018] [Online]: https://www.ft.com/content/e4048d90-6824-11e8-b6eb-4acfcfb08c11

Beattie, J, Baron, J, Hershey, J, Spranca, M (1994) ‘Psychological determinants of decision attitude’ Journal of Behavioural Decision Making, 7(2), pp. 129-144

Mill, J S (1859) ‘On Liberty’ in ‘On Liberty, Utilitarianism and Other Essays’ (2015), Oxford University Press: Oxford

Rebonato, R (2014) ‘A Critical Assessment of Libertarian Paternalism’ Journal of Consumer Policy, 37(3), pp. 357-396

Thaler, R, Sunstein, C (2003) ‘Libertarian Paternalism’ The American Economic Review, 93(2), pp. 175 -179

Thaler, R, Sunstein, C (2008) ‘Nudge’ Penguin Books and Yale University Press: London

A Modest Proposal for a New Social Media

For many observers and commentators of the recent Facebook data scandal, now is the time to bask in smugness. Smugness, in one regard, because it is Silicon Valley (or at least a major member of it) finally receiving what some might consider to be comeuppance, but also because many will claim to have seen such a scandal coming. The logic behind the latter consideration is simple; with so much data, and so many users, eventually something would go wrong. Popularity, or perhaps frequency, breeds inevitability – a notion that we will return to.

The response to such a scandal, too, has thus far been quite typical of the current digital age, with hashtag movements seeming to galvanise the popular, if sometimes discreet, zeitgeist rejecting social media (irony, of course, pervades, namely, a hashtag campaign to rally against Facebook membership). Meanwhile, governments, who, in more ways than simply potential election irregularities, have felt marginalised by social media, embrace the opportunity to assert some legislative position, even if ultimately nothing transpires from these witch hunts (the use of the phrase ‘witch hunts,’ is not done with some hyperbolic tone as might be conceived; such investigations are supported, and the phrase has been used for lack of a better word).

It is valuable, and indeed necessary, in my opinion, that we begin to examine the role of a) social media, b) digital enterprise more widely and c) big data within the frame of the democratic and social contract. Such examination, I believe, was necessary even before the several high profile examples of dubious social media exploits that have brought these questions to the fore; whilst one should be sad that said scandals have occurred, one must be grateful of any progress given the unrelenting ferocity with which some imagined, ‘future,’ seems intent on imposing itself on society (again, I fear the negative undertones in my words; to be sure, whilst sceptical, it is poetic license, and not the entrenchment of a position, that should be identified from my choice of phrasing). Be it some calls for the public ownership of big data, or the application of anti-trust laws in the face of Silicon Valley behemoths, solutions, be them effective or fanciful, are valuable if only in acknowledging that there is a problem.

Yet, despite the themes alluded to thus far, a precise picture of what has and is happening does not appear clear. It is argued here, to an extent, this is because nothing fundamentally has changed in the way Facebook and its users operate. I think it is a helpful to begin by considering the impending crisis in social media (which, I would suggest, is not necessarily a crisis solely within social media, but also within big data regulation and anti-trust laws around tech companies) to that of the 2008 financial crisis. The parallels, though superficial at times, do, I believe, provide a reasonable basis of thought with which to proceed.

In terms that are far too simplified, the 2008 financial crisis was a failure from regulators, from government, and from individuals, in moderating the behaviour of massive financial institutions as they placed a vast number of moral hazard trades. Such hazardous morality was (and is, to an extent) found in their size and importance to society at the time. The collapse of the banking system challenged not only the financial dominance of the Western world, but also the civil authority of governments – certainly their political authority. Genuine fears of the loss of deposits (even if the threat of such lost deposits was not genuine, the fears certainly were), of home repossession and so on highlighted the importance, yet simultaneous fragility, of the financial system as a social institution. Whilst profit-motive was certainly a driving factor from the perspective of bankers, from the perspective of customers, their motive was to receive some fantastic benefit – say, a home – from the perceived progress and innovation within the financial system. They were sold an idea.

I suggest similar, all be it less apocalyptic, parallels can be drawn between the 2008 financial crisis and Facebook (amongst others) today.

Social media and the social contract

It is foolish to ignore the integral social role Facebook, Twitter and Google play in our society, even if the actual purpose or value generated by these companies within an individual mindset is limited or even possibly negative. The value of these sites is not in the services they provide per se; rather, value is derived from the ubiquity of their services. It is quite impossible to tell if Facebook is the best social media company, or Google the best search engine; but we are quite certain that a plethora of friends may be found on Facebook, and a sufficient quantity of relevant information found on Google. This is the tenet of big data – precision may be forgone, provided a large enough sample is available (precision is oft the word used when discussing big data – it is perhaps more appropriate to say personality when discussing Facebook or Google, amongst others). Equally, quality may be forgone, provided what remains is sufficient given present demands. This phenomenon, rather than traditional mechanisms of establishing monopoly, is how these sites have become embedded in our society. They do just enough, and those few that would like more, or at least different, are just that – few.

It is the popular premise that big data, harnessed via social media’s complex algorithms, can provide a social networking experience that offers genuine benefits to the user; an augmentation of a user’s social interactions with others for the better. Yet it seems unreasonable to allow a company whose business is the augmentation of societal interactions to exist outside of the social contract that governs all other social interactions, especially when the natural barriers of reality are blurred and belittled by digitised substitutes (it might be cute and amusing to see a company’s sassy Twitter response to a customer, but one should not forget that each retweet is also advertising, for example).

By engaging in this industry, one must accept their social responsibilities, and the moral hazards that are also brought forth, and act in such a way as to not defile the former and exploit the latter. Further, and in what will be discussed in more detail below, it is an insufficient argument to suggest that the lack of obvious equitable exchange between a social media platform and its users constitutes a means of invalidating the social contact; quite the opposite, I suggest: data is not currency, and as such, any exchange involving it must embed the tenets of trust and consent that follow a great many other interactions governed by the social contract.

If one still remains unconvinced that social media holds a social contract with us, or more generally that the movement of activities from reality to the online space serves to invalid any formerly present social contract, one need only ask oneself would they divulge the same amount of personal information given online to real world strangers? Would they post a photo of themselves in the middle of the town, knowing that photo is not just liable to be seen, but also stolen and exploited, by those one neither knows nor trusts? Perhaps, if all one’s friends had also participated, but then we must ask the question of who is validating the action? Surely a social contract still exists; not between oneself and the entire town, but between oneself and one’s friends, whereby faith in their judgement is levied against any other consequences. However, such an argument seems dumb – the fury at any und to ord consequences is surely to be levied at the person who steals the photo or hijacks the information, not the colleagues who advocate the advertisement of such things in the first place. And surely, by extension, the existence of any fury demonstrates a violation of something borne between oneself and this mystery villain – a social contract.

And thus, even if you would be willing to give tremendous amounts of personal information to a stranger, be it for apparent benefit, or via a friend’s recommendation, or both, one might only deny the presence of a social contract if an undesired – yet possibly permitted – use of that information does not invoke outrage, fury or despair. Given the furore presently surrounding social media, and what I would contend is a perceived undercurrent of distain for social media more generally – though, of course, I offer no evidence for this conviction – I believe my argument is sufficiently valid, at least insofar as this piece is concerned, to take that as evidence of the presence, and recent violation of, a social contract between social media and society at large.

Accepting that a social contract does exist between social media and its users demands, thus, that we consider how this relationship manifests currently, which is to say how are these companies presently embedded within society?

Where Twitter has enabled the public broadcast of a stray thought as would previously be limited to a conversation in a coffee shop or bar, Google has enabled the modern construction of Alexander’s library. Facebook has perhaps been even bolder, combining all which might be called media into a self-curated space – what I have previously likened to the invention of the soul. These companies challenge our notions of institutions, public and private, by leveraging promises of efficiency that what might be called terrestrial institutions could never possibly achieve. The impetus of such efficiency is, of course, data; and it is to data we now turn (it is not beyond me that the transformative nature of social media makes the former comparison between social media and the stranger on the street dubious, as social media may redefine what a stranger is and indeed force us to question where, or at least how long and wide, the street is. Yet I feel the comparison still serves a relevant purpose, if only insofar as it makes a complex digital landscape more rational for non-digital entities – namely humans – to understand).

To understand what role social media plays in society, we must consider how we and it interact, and – in what might be an economist’s unavoidable habit – perform something akin to a cost-benefit analysis. I first propose a simple idea: that the exchange of data, insofar as it might act like currency, for greater efficiency through the medium of customisation, is as equitable a trade as the exchange of dollars for bread. Supposing this notion is true, then it is not the case, as some might suggest, that the act of exchanging data is inherently bad. Instead, it is an act that is concerned with choice and trust. Returning to the financial crisis, the act of taking out a mortgage was not in itself malignant; yet the act of irresponsible lending – where choice was manufactured and falsified, and trust manipulated – produced a crisis.

In a sense, one might accuse the transgressions during the financial crisis of consisting of an irresponsible leveraging of social equity, leading to dramatic consequences when such an account was ultimately balanced. Similar, I propose, has occurred with Facebook. In utilising personal data to achieve desired efficiencies such as targeted advertising, the leveraging of social equity has occurred, and it has been disastrous. In part, I feel, because the recent exploitation of private data was done with intent and purpose, rather than simple neglect, damaging the sanctity of trust between user and site.

But in part also because data is not currency. The value of data is not in the collective belief in its value, as currency might be said to function, but rather in its specificity to an individual. In that sense, we cannot compare the risking of deposits on risky mortgage products with the careless utilisation of data for questionable ends as the bank notes – regardless of one’s depository claims – bare no intrinsic relation to the depositor in the process of utilisation, whilst the data always does. The attitude of treating data like capital which might be utilised to achieve profit ignores the fundamental characteristic of data, and as such perpetuates its misuse. This serves to demonstrate the apathy of choice; that any utilisation of personal data demands that we choose to have our data utilised that way, and in absence of that conscious choice we feel betrayed. Such a betrayal may not intimately be felt when our deposits are gambled by banks, as we choose to deposit a specific amount of money, not a specific type of money (which is to say, we do not care if the bank notes we receive on withdrawal are the exact same notes we deposit, only that the value of the withdrawal meets the value desired).

Thus, in considering how social media is currently embedded in society, I suggest the answer is immediately prevalent. It is the process by which social interactions are used to derive and ultimately combined with those that might seek to interlope on such interactions – advertisers, special interests, punditry perhaps – which forms the odd amalgamation that is social media, and thus that leaves us wanting. The exploitation of personal data on an industrial scale on the one hand serves to atomise the individual’s relevance and degrades concepts of choice and trust attached to their data (for remember, data is not currency; unlike the bank deposit that can be spent as the bank wishes, for their only obligation is to return the deposit upon request, personal data is only ‘deposited,’ in the context of the need expressed by the company, and as such any further use of the data, serves to violate the data in the context of the social contract).

If we are to fix social media, or at least address some of the issues and concerns that are coming to the fore, it seems necessary as part of a partial solution to improve a user’s perception of their choice when using social media, and to improve the trust relationship between platform and user. These things are, of course, only part of the solution, though additional problems, most notably the widespread use of misinformation online, receive significantly more coverage than the problems of choice and trust. Whilst this piece does not seek to belittle the need to solve the problems of fake news and clickbait (to give them their accurate titles), these problems may be implicitly tackled by improving the choice and trust in social media. Choice, in that rather than algorithms identifying those potentially more susceptible to misinformation (and any targeted information, for that matter) it is the user whose conscious actions consent to their viewing that information. And trust, for whilst any misinformation online is undesired generally, a user will feel more aggrieved at, say, Facebook, if they believe either through intention or negligence they are receiving false information and that they can’t trust the site to respect their data and/or their intellect.

A  modest proposal

Multiple ways of embedding choice and trust surely exist, and are accessible to those minds more inspired than I; I offer here a single conceptualisation. It is an inescapable fact that those who use social media must be subjected to advertising, and thus it seems logical to target this element of social media beyond all else. My idea is rather simple at the heart of it: allow users to choose what advertising they see, and show them nothing they have not elected to see. Of course, we must then ask the question: why would anyone elect to see advertising? The answer I propose is because it is part of a fair, equitable exchange.

Here is the crux of my proposal. Social media should implement a reward based system for users, allowing users to generate some sort of token currency, perhaps even a cryptocurrency (yet, at this early stage of conception, this seems to create more problems than solutions), from their regular activity online. This currency could then be taken to an online marketplace where users could purchase benefits from innocuous cosmetic items to perhaps real-world discount coupons (in lieu of cryptocurrency once more, such a platform seems odiously suitable for a product such as crypto-kitties). In purchasing these coupons, users would consent to these companies advertising to them on the site, and thus an equitable exchange of sorts may be seen to have been established (again, and with emphasis on the infancy of this idea, such currency might be used to pay for online news subscriptions, adding a barrier to entry for dubious sites to get onto social media feeds, and imbuing in readers an expectation of quality news given they’ve laid out their hard earned, shall we call them, clicks?).

Several problems present themselves, most notably, how might such a system be created such that it is not rife for exploitation and does not degrade the meaning of a like or a share. Additionally, how might the financial relationship be structured such that a click (see above), which seems to have even less inherent value than real world fiat money, translates into a pound or a dollar?

On the latter note, my initial estimation would be that the spending commitment generated by the selling of a discount coupon is greater than the revenue generated from even well targeted advertising. Of course, without such a system in place to test such a hypothesis, we are left to pontificate. On the former, I would task the hypothetical computer scientists and mathematicians to resolve this problem. Exploitation of the laws of diminishing returns built into complex and tightly guarded algorithms with currency sinks (see cosmetic items) to regulate this new currency market seem like one answer, yet again, such a system seems difficult to judge purely theoretically.

I am not beyond the slippery slope. The slow but promising rise of Sesame credit in the East seems wholly comparable to the click system proposed here, and must certainly raise the question of where would it end. To regulate a secondary market in coupons, for example, a unique user code tied to each social media account may be necessary – how long before this becomes an online identification code?

Further, would such a system suck any soul out of social media, turning the process of socialising into a financial grind? Would a like become meaningless; a status update literally a means of earning the daily bread? For some, surely these things are already reality; yet who am I to subject others (potentially) to such a reality?

Finally, there is of course the problem of control. Those same algorithms and the computer sciences behind them would hold tremendous sway over a potentially enormous online institution. Any changes, and all judgement calls, would not just impact a person’s convenience, but also their financials. This is serious enough in itself; but when combined with the copious amounts of data also held by these gatekeepers, be it age or gender or race, the risk of implicit bias built into a system which, in its present state and for better or worse, is rather equal in this regard, seems not without concern. However, though not to diminish these issue, we should acknowledge that such faceless discretion is held by social media giants presently and must, as anyone in the regulatory and policy world will tell you, be held by someone no matter how the system is assembled. This is not to excuse this concern as one without solution; instead, I only wish to suggest any solution will likely not being wholly or even mostly satisfying.

I bring up these issues because they are inescapable whilst borne out in theory, and it is incumbent as part of good authorship to acknowledge them, even if solutions are not forthcoming. As part of any criticism that might surround this piece, surely these weaknesses must form an integral part. Whether one accepts the proposal given here as panacea, or rejects this proposal as a menacing nail in an imagined coffin, the key to any development, and certainly any online development, is time and consideration. Though hardly the sexiest of messages for Silicon Valley, if this piece has any point it is to highlight that social media cannot ignore its social responsibility, and thus, if any solution is to be proposed, it seems prudent to address the issues openly, as a means of forestalling negligence.

We cannot escape social media, and in the spirit of the internet – indeed, by the means which social media functions so effectively, it is difficult to rationalise an application of anti-trust laws as was seen with the robber barons. That is not to say these laws are irrelevant, but additional tools and nuanced ideas, of which it is hoped this piece has contributed towards, might sure to provide more effective solutions to the problems of social media.

The Disentanglement of Social Media

For all the difficulty and pretentiousness surrounding David Foster Wallace’s Infinite Jest, the point – if such a book can be said to have a point – is that what you believe is good for you, what you believe you want and even what you believe is right may not, after a while, turn out to be all that great.

Whenever I talk to people about social media, I get this feeling. It did not take last month’s data hacking scandal to convince the world that Facebook was in an overly powerful and compromising position; nor was it the impetus for misgivings about social media. If I were to speculate, part of the problem with the innate ill feeling that I do believe is prevalent in the face of social media is it’s hard to explain what these feelings necessarily are. I think Wallace sums up my view of social media in its current form best with this line:

“Was amateurish the right word? More like the work of a brilliant optician and technician who was an amateur at any kind of real communication. Technically gorgeous… but oddly hollow.”

-        Infinite Jest pp. 740, David Foster Wallace

To an extent it’s impossible to argue that social media is good or bad, partly, I think, because it’s spectacularly new compared to the contemporaneous mediums of news media and, well, human interaction. But also, crucially, because used theoretically it should simply reflect the user; in absence of a user, or taken as an entity in und itself, Facebook, for example, is a tabula rasa. Perhaps, I concede, it is that very thing; that the oddly hollow nature of social media reflects the fact that it is not a community or institution in the classic sense, but a system that may only mimic, and not create.

I understand such musings are not the day-to-day considerations of either the movers and shakers of these social media companies nor the users of said companies; yet, I believe, if we are to rectify the doubts that are present about social media in our society, and indeed to establish the place and purpose of social media in our society, it is crucial to understand quite what social media is intended to be.

The misappropriation of data, for example, seems to me less so an intrinsic breach of trust – for did we all truly believe such nefarious manipulations would not occur given how much data Facebook holds? – and more so a dramatic collision, or perhaps we might call it a reminder, of the reality within which the online presence is held; that all the silly little things we do on Facebook have consequences. Thus, I argue, social media is not just some innocuous means of disposing of time.

The rules and means by which we communicate and interact in the real-world are governed fundamentally not by laws, but by the social contract. The threat of the law is meaningless if we do not first have faith in the law (which is to say, in each other), and thus the social contract prevails. Likewise, such a contract governs the media, yet with an extension that demands the objective reality of the world, insofar as it can be perceived, to dominate the subjective interpretation of the world which we find in common social interactions.

These camps, when considered as a conversation on the street, or the browsing of a newspaper, are distinct and understood. The innovation of social media, when detached from its online domain, is that it seeks to combine these two camps into one, and, in the process, promises tremendous benefits. Yet, such benefits can only be understood as pertaining to either the social camp or the media camp, so long as the new notion of social media remains unembedded in the social contract. Social media may bring us closer together; however, it also highlights the discrepancies in our objective understanding of the world. It may inform our objective understanding of the world; but in doing so, it places us in silos.

The algorithms of social media are technically brilliant. But in practice the result feels absent of any real communication. This, I posit, is the source of any doubts – we, nor the social media giants, know what the purpose of social media is. Any failures of Facebook is also – party –  a failure of society in which Facebook is contained; it is not a question of why does Facebook need our data, instead, it’s a question of why do we need Facebook?

And, drawing on that question, the response we’ve seen in recent weeks of those leaving Facebook seems natural. However, I feel, unhelpful. Insofar as this brief analysis has posited, it seems more coherent to attempt to answer the question posed, as opposed to invalidate the question in the first instance. And the logical answer, again insofar as is posited here, is to break the hegemony of social media back into its constituent parts: social and media.

The benefits of online socialising have at no point demanded the intrusion of advertisers, companies and special interests. Such intrusions, if ever made prior to social media, were done so via the purposeful intention of those whom we were socialising with, and interpreted based on the social credibility with which we attributed to that person. Social media, insofar as notifications and likes are concerned, makes credibility unitary and eliminates purposeful intention. For social media to be social, it must seek to restore these virtues.

And yet, from a business perspective, social media must act as a platform for those aforementioned groups. This requirement being accepted, social media should present news and advertising in a way that absolutely distinguishes itself from the aspects with which the site is deemed social. Such distinctions would return the agency that exists in our current social contract to the user, as it would be their elective to browse the news and consider the advertiser’s propositions. Again, the business voice might say, such a system would result in users electing to avoid such media content and the site becoming unprofitable. To such an argument for the status quo, I reply as such: that is the nature of business, and if the product does not appeal, one cannot blame the customers.

To summarise, we should not reject social media, though we should demand changes. Yet part of those demands must be a holistic consideration by the users as to why, not how, we use social media. For social media, I suggest a distinct disentanglement of the social and media aspects of social media, less doubts be allowed to linger, and the foundations of our patronage be jeopardised. To return to DFW: we have the tools and the technical know-how to leverage them, yet our attempts thus far have been amateurish.

The Political Economy of Veganism

I’m not a vegan, though for no substantial reason I must confess. Perhaps it is this lack of tangible opposition to veganism which is why I find myself increasingly thinking about the motivations and mentalities of those that do pursue the diet; at the same time, I’m apprehensive to discuss veganism with sweeping generalisations. Yet, from a political economy perspective, veganism offers some interesting musings that – perhaps because they’re not wholly relevant beyond merely being interesting – I don’t believe are ever discussed that much. For the purposes of this piece, let us define political economy as the study of the distribution of excess production.

As the global population increases, food demands, logically, will also increase, and as such the means by which we produce food should also be re-evaluated. The philosophy of veganism, to an extent, attempts to do so. By advocating a diet that is not dependent (where dependent, depending on one’s perspective, might be replaced with exploitative) on animals, those means of food production that are very resource intensive – such as cattle farming – become challenged; if demand for meat were only to fall, so the logic might go, resources used inefficiently in meat production could be redistributed to crop production and used more efficiently, and thus satisfy the increased demand for food.

Whilst I disagree with this line of thinking, I do celebrate veganism for being one of few voices (if not the only voice) that seem to place, perhaps accidentally, questions of food security at the heart of their ethos. Still, I disagree. The problem of food security – and environmental concerns also, less we forget – is partly solved by more efficient food production, of which one might argue crops are compared to say, meat. Yet the problem, insofar as the developed West should be concerned, is not that of production, but of consumption. If one continues to consume the same amount of resources, the only difference being the source of the consumption, is the problem really solved? I’m not so sure. As a mental exercise, I do wonder whether the rise of vegan, ‘culture,’ does not serve to compound this problem?

Perhaps then, if not an obviously effective (though still, maybe, partly effective) solution to the problems of food security, we should consider the advantages veganism supplies in the ethical department, for, I concede political economy can be a cold subject that oft fails to capture such intangible things. On the question of ethics, generally, I think there is no question veganism is the superior dietary plan. I will not argue against this here; this piece, so far as it has a point, is to muse about perspectives. And thus, when vegan ethics is considered through the lens of political economy, another interesting consideration arises; does the cultivation of crops not exploit human labour in much the same capacity as animal labour, and as such why does veganism not advocate the consumption of foodstuffs produced only by the product of expressly voluntary (insofar as labour for food production can be voluntary, given we need food to survive) labour?

The great distinction that might be drawn is that, ‘animal labour,’ in food production involves killing said animal, whilst a human, even one exploited by the modern capitalist system (some might argue) is never actually killed in the process. To me, over the long-term, I think this is a pedantic distinction; it is certainly an unhelpful distinction, as such a distinction fails to explain the vegan opposition to, say, dairy production whilst simultaneously invalidating the question. Thus, I think the question remains valid, though not easily answered.

Allow me to consider this question with an alternative question: are vegans more likely to be socialists? Now, I retain my apprehension about speaking in sweeping generalisations, and thus I will not explicitly answer this question beyond saying recent research (see Wrenn, 2017) does seem to suggest the answer is yes. But, returning to the original question, veganism, I believe, serves as a fascinating framework with which to consider the long-standing question of the role of, and return to, labour in the production process; most prominently because the ethos already demands the emancipation of an entire – albeit non-human – part of the labour force.

This is the interesting side for the political economist; yet for progressive veganism, tackling such a question may, if dietary ubiquity is the desired outcome, have to be tackled in the future. So too then must more robust economic arguments be supplied re: food production – a process which may demand a whole re-evaluation of western vegan culture. Undoubtedly, there are more musing to be had, but yet, as what may constitute an outline of vegan political economy, I believe this will suffice.

References:

Wrenn, C L (2017) ‘Trump Veganism: A Political Survey of American Vegans in the Era of Identity Politics.’ Societies, 7(4), pp. 32-45

A Theory of Dual Monopolies

From the perspective of many, on the one hand, and the perspective of non-Austrian economists, on the other, neoclassical and Austrian definitions of monopoly markets fail to address the question of barriers to entry in order to abolish the monopoly. To an extent, both schools offer another solution – government intervention – yet given the more limited definition of monopoly within the Austrian school, as argued by Mises, this explanation is weak. Indeed, Mises specifies the second form of monopoly is one established by government. With this in mind, it is helpful to understand the respective monopoly models concerned here, before proceeding further.

A neoclassical monopoly may be found when a firm within a market has a price elasticity of zero. In effect, they may set any price for their product such that all buyers within the market must be price-takers. Of course, one may be tempted to charge an infinite amount for one’s product in this circumstance; yet as buyers may withdraw themselves from the market when given prices exceed the buyer’s willingness to pay (given demand is characterised by a buyer’s capacity and willingness to pay), there exists instead a price effective for achieving profit maximisation. Therefore, this monopoly firm will set prices at the point of profit maximisation.

Within the Austrian school, and as offered by Mises, the neoclassical definition of a monopoly market is not a monopoly, because competition may eliminate the state of monopoly. A classicist may disagree with this logic, arguing that high barriers to entry will prevent competitors entering the market. However, the Austrian rebuttal is that a market may not be a market without competition; further, competitive advantage will always exist as monopolies do not have perfect knowledge of the market they control, and as such they will forgo profitable opportunities out of ignorance or error. This enables competitors to lucratively enter these markets. Further to this point, an Austrian economist might argue the presence of a neoclassical monopoly is not due to a lack of competition, but rather because of competition, as the individual who enters a market and is able to exploit a monopoly of profitable activity has simply exploited knowledge and expectation – which is to say out-competed rivals – that others have forgone.

Austrians, therefore, draw an important distinction between entrepreneurial profit through better knowledge, and profit achieved through the exploitation of an Austrian-defined monopoly, which shall be discussed shortly. The reason such entrepreneurial and better knowledge exists is because market participants do not have perfect knowledge, as markets do not occur as equilibrium positions between buyers and sellers, but rather are processes that occur over time. For example, a supplier will not know their future demand curve, and as such they may miss-price their product in the future. Such an error may be exploited by rivals for profitable gain; further, such an error occurs because of the firm’s uncertain expectations of the future. Given this argument, Austrian’s dismiss the neoclassical argument of barriers to entry, as they suggest sufficient competition always exists within neoclassical monopolies (and all scenarios which we might call markets) to – over time – eliminate such monopoly positions.

It is Mises that offers two monopolies that may be deemed as such within the Austrian school. The first are those monopolies that are created by the state, and as such warrant limited theoretical discussion. The second occurs when a single firm controls the entire supply of a demanded resource. In this latter monopoly, it is argued, the firm may purposefully manipulate the supply of the monopolised resource to establish the point of profit maximisation. Such a practice is indicative of a neoclassical monopoly, and prompts the same criticism as such a monopoly for not addressing the problem of barriers to entry. Yet Austrians will argue such a monopoly is not a monopoly in the sense that the Misesian monopoly is not a market, for no better information may offer a competitive advantage to rivals, and thus no competition exists. Any gain by the monopoly-firm is not due to entrepreneurial knowledge, but due to circumstantial control of a resource that is demanded by some and that has not no substitute. Following this logic, to argue the issue of barriers to entry is to define or misunderstand this monopoly as a market – there is no competition, and thus no market, and thus Austrian theory does not have to explain such a state of affairs.

It is this paper’s argument, contrary to the logic presented above, that the problem of barriers to entry may be solved for both the Austrian resource monopoly and the neoclassical monopoly by considering the presence of monopolies of demand, and invoking the notion of processive competition employed by prior Austrian theory.

Both monopolies offered are monopolies of supply, achieved by a lack of competition and thus restriction in the neoclassical case, and by purposeful restriction of supply of resource in the Austrian case. The result is that monopoly firms operating in both models will set a price that maximises profit.

Yet any buyers in these models will desire a lower price. This statement is obvious, but may be mired in difficulty as buyers in monopolies must be price-takers. However, following the Austrian school, firms will compete with each other to gain advantage, with knowledge emerging over time. Such knowledge may be that, for a firm pricing at the point of profit maximisation, the withdrawal of a single buyer would result in a price position that will result in reduced returns for the firm. This gives every buyer in a monopoly a quasi-monopoly of demand. A buyer might gain a competitive advantage over rivals by withdrawing their demand less the monopoly-firm lower the price of its resource. Such action might be called irrational, as the refusal to purchase a necessary, monopoly-controlled resource would result in the ineffective activity (and potential failure) of the firm. This paper cites the findings of Kahneman, Knetsch and Thaler (1986), who argue individuals are willing to punish behaviour they consider unfair, even when at cost to themselves, as justification for this line of thinking (also see Zajac’s (1996) discussion on perceived economic fairness).

Irrespective, if exploiting this quasi-monopoly results in the failure of the buyer before the monopoly-firm must adjust prices in favour of the buyer, such attempt at competitive advantage will result in the emergence of better knowledge for all buyer’s transacting with the monopoly firm (it may also be a successful strategy, though one cannot say that the exploitation of a quasi-monopoly of demand will always result in one outcome or the other). This knowledge is that collective withdrawal will force price-adjustment from the monopoly-firm (of course, such certainty only occurs when all buyers threaten or do withdraw from the market; so long as one buyer remains, there is a theoretical ground that allows for negative – for the buyer – price adjustment to occur).

Such action would turn the monopoly-firm into a price-taker, with each reduction in the price resulting in a weaker collective position on the demand side. The logic for this weakness is that eventually the cost of the monopoly resource will fall to less than the cost of an alternative part of a buyer’s production process, and thus competitive gains will be found in greater proportions, for any particular buyer, in other areas. The monopoly-firm, in the Austrian model, will increase supply of the resource – previously restricted – as a means of maintaining profit levels prior to being a price-taker. In the neoclassical model, such a shift will enable more firms to enter the market, essentially increasing supply. Such a supply side response would be expected in a market where prices fall. The collective response on the demand side, which may be called the monopoly of demand, might be likened to collective bargaining within labour markets, and is not a logical, coordinated response within the neoclassical model.

The comparison to collective bargaining within labour markets in certainly a fair one, and indeed, perhaps serves as an exemplar extension to the Mises resource monopoly. Certainly, it serves as evidence for the premise suggested here: that no monopoly on the supply (demand) side might occur without the emergence of a monopoly on the demand (supply) side to challenge it. Yet this paper will not dwell on the labour comparison, for regardless of the theoretical approach taken here, markets such as those for labour are multifaceted and so should not be used as the sole comparison of theory. It is this multifacetedness on the demand side, which may be called entrepreneurial or competitive rivalry in the Austrian school, which offers an extension of the neoclassical model, which should be addressed.

The neoclassical model supposes that demand is determined by the maximum a buyer is willing to pay. It is, therefore, a fallacy in this model to argue a buyer might decide that the price they are willing to pay is not a price they are willing to pay. It is Austrian arguments of time and competition that address this issue: a buyer’s demand for a product at a certain price might only be stable so long as there are other forms of competitive advantage that offer greater returns to be realised. As these returns are realised over time – in part because demand side coalitions may need time to form and effectively lobby – the demand curve, even at stationary prices, will vary over time. It is this logic that explains why an acceptable price for a buyer may simultaneously not be an acceptable price – because there are alternative costs that are more important to address presently.

This paper has briefly offered an adjustment to the neoclassical notion of monopoly by utilising tools espoused in the Austrian school of economics. In doing so, this paper has offered an address of the barriers to entry criticism of the Mises resource monopoly, with respect to the address already offered by the Austrian school. This paper has argued that all monopolies face the emergence of a counter-monopoly that rectifies the original monopoly position. This counter-monopoly emerges due to competition that occurs in other markets. This logic holds for the neoclassical theory of monopoly if a temporal element is added to the evaluation of the demand curve, and addresses the Mises resource monopoly by suggesting competition on the demand side substitutes for the supply side competition, challenging the monopoly firm.

References

Kahneman, D, Knetsch, J, Thaler, R (1986) ‘Fairness as a Constraint on Profit Seeking: Entitlements in the Market’ The American Economic Review, 76(4), pp. 728-741

Kirzner, I (1998) ‘The Driving Force of the Market: The Idea of “Competition” in Contemporary Economic Theory and in the Austrian Theory of the Market Process’ In Prychitko, D (ed.) ‘Why Economists Disagree.’ 1^st ed. Albany New York: State University of New York

Zajac, E E (1996) ‘Perceived Economic Justice: The example of public utility regulation’ In Peyton Young, H (ed.) ‘Cost Allocation: Methods, Principles and Applications.’ Amsterdam: North-Holland.

An Unacceptable Metric

The current crisis in the National Health Service will persist until rising temperatures and a media exhausted by repetition of the acronym allow the ‘story,’ to disappear. There will be no new money, substantive or otherwise. Nor will there be any bold action, any concessionary or apologetic speeches – anything that might be considered leadership.

The consequence will be repetition. There will be an NHS winter crisis over the 2019 new year. If the system – or the government in charge of it – has not broken by then, the same will be true of the 2020 period. It is a sad truth of politics that when no obvious or easy solutions present themselves, inaction becomes a viable option. Yet inaction creates a vacuum that gets filled with ideas that are dangerous, disruptive or just wrong. Inaction allows the narrative to be hijacked by those with wicked agendas, who will then point to future crises whilst wearing incredulous grins chuckling “I told you so.” In a sense, this is the long-term danger of a lack of leadership with the NHS – that those who talk of privatisation may rear their heads and become validated in the eyes of some.

And thus, we return to the need for leadership. It is opportune that in the same week the NHS was reaching breaking point, the health secretary Jeremy Hunt was proving where his loyalties lie – himself. He is obviously the individual whom blame should most firmly be placed, if for no other reason than his position makes him the figurehead of the organisation. He should be sacked, not because of politics, but because anyone, in any line of work, who was failing in their position so egregiously should be, and would have been, sacked.

Yet the Prime Minister can’t. Indeed, it seems she is incapable of doing much of anything, but staying on point momentarily: her attempts to remove Mr. Hunt from health were scuppered by her own weak position. Justine Greening, formerly of education, had already walked, and Mr. Hunt must surely have been aware that his departure would have threatened Mrs. May’s government. Again, despite politics (and frankly, despite the NHS crisis) when a Prime Minister does not have the authority to appoint, dismiss and rearrange members of their cabinet, we must question their capacities. Of all the things that can be said about the current government, incompetent does not seem wholly fair, whilst cruel implies some conspiracy. Instead, I prefer sycophantic.

But returning to the NHS, what can Mrs. May do? An initial action immediately presents itself – more money. Many critics, including myself, argue that simply throwing more money at the NHS will not solve the underlying problems within the system, and that is true (though money is clearly a large part of any solution). But whilst there is an immediate crisis, concerns for fiscal efficiency must be set aside so that people may be seen, treated and given a bed if required. For those, mostly elderly individuals, who have paid taxes and now call on the medical services of the NHS, it is their right and this government’s obligation to ensure those services are provided and unimpeded.

I understand it is not possible to expand the capacity of our hospitals, or the number of doctors and nurses on the wards, overnight. That is why Mrs. May should move to commandeer the resources of private healthcare providers in the short-term. Such powers are those exclusive to the government, and should be utilised when the situation calls for it. Right now, the situation calls for it, yet such a bold move seems outside the reach of those presently in power.

Finally, and I think most importantly for the long-term, the government needs to understand the pressures facing the health service. Of course, the government will claim it does (amongst other claims), but I offer some tangible actions that might add credence to this quite vapid statement.

Firstly, Theresa May should visit every hospital in the country. She should not visit one or two with a press pack, and talk only to those members of staff who have been photogenically lined up by the reception desk. She should visit every hospital, and field the concerns of every doctor, nurse and patient who wish to speak to her. For Mrs. May, it must not be an act of PR or policy launching, but simple listening and observation.

Second, there should be an inquiry into the cause of the current NHS crisis that places blame and puts forward solutions, so as to prevent the predictions I have made above. Certainly, the heads of hospital trusts should testify, as well as Jeremy Hunt, and the Prime Minister if so required. Only once the social, financial and political causes of the strains in the NHS are understood should further ideas – such as royal commission – be considered. This seems only logical.

Third, we must not ignore the NHS. As eluded to earlier, the coverage in the press plays a huge role in how the health of the health service is understood by the public. Yet if during the summer we ignore the state of the NHS, simply because there are no headline-grabbing stories, should we not expect issues to arise when the winter pressures hit? Indeed, should we not be more aware of the constant pressures facing the NHS? If we only fight for something when there is an existential risk to it, are we not partly to blame when it disappears? 

There are some things the government could be doing right now to solve this problem, but through distraction and weakness they are failing to serve the NHS, and by extension the country. The consequences of doing nothing, in both regards, may be counted in lives lost, and surely that is an unacceptable metric?

The Colour of Bitcoin

Stock markets tend to go up at the end of the year. Quite why this happens isn’t all that obvious, but it may be fair to say even stockbrokers feel the holiday spirit once in a while. The fact that stock markets tend to fall slightly in January and February may also be testament to this – I mean who likes January?

As much as it is a novel trait, it is dubious to impose such a trend onto the virtual currency market. Throughout December Bitcoin has been on a generally upwards sloping trend, with the new price heights the currency has reached bringing to the fore, quite prominently, concerns of a bubble. The trouble with virtual currency, unlike say, the dotcom bubble of the late nineties, is that virtual currencies are not simply new investment products within a new technology (almost like tech shares in the new online space), but possibly a catalyst – or at least a necessary tool – for the emergence of a truly digital economy. And, further, as regulators around the planet have been slow to act, the conditions surrounding the growth and innovation of the industry remain unbounded, and thus – apparently – unpredictable.

But the dotcom bubble is vitally important to remember in this discussion, not just because it was a bubble, but because it was a bubble formed within unexplored horizons. It is fair to look to dotcom when pondering the future of virtual currency. However, I aim to argue within this short piece that whilst the parallels between the current virtual currency market and previous bubbles exist, the likes of Bitcoin and others pose a unique challenge that warrants perhaps more concern than it is receiving.

How many sides to a Bitcoin?

To start, we must consider the two conditions of the most popular virtual currency, Bitcoin, that affect its would-be viability as a ‘real,’ currency.

The basic philosophy of a virtual currency is the philosophy of all fiat, namely that something has value because people believe it has value. I, amongst others, would suggest a thing only has value at the point it is used in the exchange of goods, which is to suggest money in the bank, or indeed your pocket, is only worth something when someone is willing to take it in exchange for an item you value (for the purposes of simplicity, I am ignoring the consideration of the value derived from a thing’s potential to be transacted, which I do believe is a form of value also, and I have written about previously). Given this proposition, I would suggest Bitcoin, with few entities accepting it as valid payment, has no value. Yet this argument is plainly void, and not really of concern here.

The immediate concern is of utility, namely a currency must be able to be utilised in order to have value. People may believe Bitcoin is worth several thousand dollars, but my point of contention would be it is worth dollars. Until there is an active trading market for Bitcoin, by which I mean you can buy and sell things in Bitcoin, the value of Bitcoin must always be determined as the value of an alternative, utilisable currency. Bitcoin in itself has no purchasing power. If one wanted to see a sign of a bubble, I would suggest mass investing into an item that in itself cannot be utilised for any valuable purpose is one, for the emperor most certainly has no clothes in this regard.

The second condition, much more unique to Bitcoin than a ‘real,’ currency, is the ability to mint more of it. There is only so much Bitcoin in the world, just as there are only so many dollars or pounds in the world. Yet tomorrow the Federal Reserve or Bank of England could choose to print more of their respective currencies. This would incur inflation, and impact confidence or alter interest rates. All of these things would impact the exchange rate, which is essentially the metric we are using to value currency (a weakness of the point above – Bitcoin must be valued against another currency, for the value of one unit of currency is meaningless without comparison. The point above is more trying to suggest the consequence of purchasing power, namely that Bitcoin has none, and thus its value might only be reflected in the dollar’s purchasing power). Of course, part of the appeal of Bitcoin and other virtual currencies are the absence of central banks and governments, in what some will surely see as a truly democratised currency. Yet without the ability to create more Bitcoin, I suggest Bitcoin is identical in substantive terms to gold.

Gold, just like Bitcoin, holds no intrinsic value in und itself. Nor will a shop keep accept a bar of gold or a transfer of Bitcoin, instead preferring the dollarized value. Finally, and returning to the point, there is a finite amount of gold on the planet, just as there is a finite amount of Bitcoin left to be, fittingly, mined. The consequences of this perspective are interesting – it may bring calm and alarm to the current situation. Calm as the volatility in the price of Bitcoin is similar volatility that has been seen in the price of gold for centuries, and thus we might question whether recent events are really a cause of concern. Alarm, because it means rather than betting on the future, as some Bitcoin speculators surely think, they are essentially betting on the price of gold and hoping – through the sheer act of betting – that the price rises. In short, and irrespective, the nuance is lost.

Not the same story

Of course, the parallels between the dotcom bubble and golden Bitcoin also exist. Ignoring some important considerations such as voting rights and dividend pay-outs, Bitcoin, gold and stocks might be grouped similarly, all owing value, but value found through conversion. Indeed, in a discussion with colleagues regarding the vast increase in the number of ICOs, the dotcom bubble was raised in the following context:

perhaps there is a bubble, and many of these coins are worthless and will be swept aside. But companies such as eBay and Amazon were born in the days of the dotcom boom. Right now, people are simply looking for the Amazon of virtual currency, whilst aware many more will fail.

The above is paraphrased, but the point remains clear. However, my issue with that line of thinking is it is too simplistic. Whilst accepting a bubble exists, the search for the Amazon of virtual currency assumes that the currency exists to be found. I would argue we cannot find hope in virtual currency in the same way we found hope in the late nineties because that assumes the likes of Bitcoin does something fundamentally different to, say, Ethereum. After all, Amazon did not survive whilst others failed because of random chance – they survived because they were better than their competitors.

If confidence in the virtual currency market is lost, just as in the days of the dotcom bubble, the loss will affect every currency. Some will argue that, within the coding of various coins, exist tangible features that enable them to rise above the rest. This may well be true, but until the market exists for these coins to be utilised, and thus these features’ benefits demonstrated, the differentiating factors are irrelevant. At least with a company like Amazon (in its early days) one could at least test out their recommendations service, even if they remained sceptical of the viability of the actual company. Currently, there is no logic in thinking the emergence of a bubble in virtual currency is just the same economic natural selection in progress. I suggest this is because our way of thinking about virtual currency is profoundly flawed.

Who are we betting on?

Why does the dollar exist? I’m sure there is a complicated historical reason, but the pragmatic answer is the nation of America required a currency for the purposes of conducting trade between themselves and others, just as the British did with the pound or the French with the franc. The currency existed not for its own sake, but because the country that backed it (with gold, most prominently) and utilised it existed. That concept of country was itself backed by the intangible sense of nationality, and the more tangible threat of firepower. Another question to consider is why did the dotcom bubble occur? One might find emphasis in the bubble part of that question, but fundamentally the dotcom bubble occurred because the internet came into being, which facilitated the creation of online companies.

For the most part, the trading of a currency is not the trading of a country, just as the dotcom boom was not about betting on the internet itself, but about betting on entities being founded in the online space. Colonisation may also be considered – the territory colonialists sort to settle was never in question; they were gambling on their ability to settle.

Really, beyond the question of is there a bubble in Bitcoin, and beyond the technical conditions that distinguish and make interesting virtual currencies, is what is the point of virtual currencies? We already have a largely online banking system, whilst the internet remains without sovereign status and the very real power of nuclear weapons protects the global financial order. To answer this question, I am going to move away from some of the metaphysics discussed above, and explain why I believe the question must not concern whether there is a Bitcoin bubble, but rather whether there is a much more explosive fragility in the virtual currency market itself.

The real problems of virtual currency

The rise of virtual currency is found in its alternative name – cryptocurrency. It is no surprise that the transactional market for the likes of Bitcoin stems from its use in the anonymous purchasing of illicit items. This aspect is, on the one hand, a criticism in itself, and on the other, a point worthy of praise – in the age of big data, with the need to ask questions about who owns our personal data, and the anonymity of cryptocurrencies may be a valuable tool in this area. It is not the purpose of this piece to argue for one hand over the other, though I do confess as an answer to my rhetorical question, “what is the point of virtual currency,” anonymity may serve as a valid reply.

But today, anonymity seems only a point of technical excitement for those in developer circles, and unable to explain the cacophony of speculation that surrounds Bitcoin’s December ascendance. Instead, I want to again consider the paraphrase above, as well as the novel story of the Ice Tea shop that increased its value massively simply by adding ‘Block Chain,’ to its name. A quick Google search will show that 2017 saw a meteoric rise in the number of ICOs (initial coin offerings), ranging from obvious jokes to serious propositions. And, importantly, the money generated in these offerings is real, and for some extremely large. This practice of rapid production for quick public offering does and should raise echoes of the dotcom boom or just a classic bubble, but unlike the dotcom boom there is a much more pressing concern – who is issuing these virtual currencies?

Just like the Ice Tea company (cynically) leveraged the furore surrounding block chain technology for profit, so too will celebrities leverage their fame to make a quite buck. Unlike the sale of shares in a company, or the entering of a loan agreement, or even the good faith transaction that occurs via crowdfunding sites, the launch of virtual currency comes with no obligation on the part of the issuer to honour or maintain the value of the currency. And, though the same could be said with a share issue, there is at least the acceptance of risk on the part of the shareholder that their investment may lose value. When we mentally evaluate virtual currencies, there is a danger we think of the purchasing of Bitcoin simply as a currency transaction, with no evaluation of risk because the cash in our wallet does not (often) become worthless overnight – why would the cash in our virtual wallet do anything different? (I don’t really want to talk about all of this here, but I think a mention of how the industry is branded and marketed is important. Calling virtual currency portfolios wallets as opposed to accounts, for example, associates the ‘investment,’ with something innocuous. Similarly, the presentation of trading websites, with an emphasis on user friendly access – not in itself a bad thing – should raise the alarms of a bubble. When something complex is sold as something simple, mistakes will happen)

But celebrities may simply operate on the periphery. Companies might choose to raise capital via a coin offering in the knowledge that they as the issuer have no obligation for the performance of the currency there after. If these offerings were then used in share buybacks, as has been the habit on Wall Street in recent years, we would see a massive and baseless shift surrounding corporate wealth. This, of course, ignores the fragility that is unearthed when considering the issuing of virtual currency by corporations – what happens to the value of all other virtual currencies when Google, Facebook or Apple engage in their own ICO? For virtual currencies, where value is derived entirely from the confidence people place in them, the above companies will certainly command a great deal of confidence – and belittle others as a result. Further, when these companies issue coins whilst retaining data rights to the coin’s ledger, they cement their monopoly positions, and destroy the benefits of anonymity. For those that praise the anonymous aspect, they must become aware of this. For the technologists that presume virtual currencies to be inevitable, they must re-imagine their paradise with various corporate logos.

Finally, we must consider the role of countries in this emerging market. As it stands today, when a country wishes to borrow money they issue gilts on the bond market, and repay those gilts in accordance with the conditions of – what is essentially – the loan. My question would be when will we see countries engaging in the virtual currency game, again, for the same benefits as those of already discussed? The phenomenon would, essentially, be the same – the leveraging of perceived prestige and security to create confidence in the ICO, only for it to be discovered later that neither the prestige nor the security are part of the deal. It is here we find another point of contention.

That same idealistic technologist mentioned above may well retort to much of my criticism that once the digital economy has fully developed, with the transactional capabilities of say Bitcoin proven, the problem of the reliance of confidence will be absolved much like the fiat nature of many ‘real,’ currencies is accommodated already. But, I argue, there are two fundamental problems with this logic when we introduce corporations and countries as players into this market. The first is that, in order to reduce their exposure and protectionist burden towards a virtual currency, a country might actively discourage the integration of that currency as a part of the economy. The second, and I suggest more realistic response, will be extremely tight regulation of virtual currencies such that the benefits are maintained for the issuer and not for the holder. In this new, imagined digital economy we must question whether it remains a free market economy.

Regardless – and I do believe the above rhetoric is weak – it would be a mistake to assume our current currency structures, which have developed over centuries, will immediately make the leap into the virtual world.

The involvement of nation states into the virtual currency market is not fantasy however, and I believe is much more inevitable than many realise. The primary example currently is Venezuela, which finds itself in the mists of economic turmoil. With an economy dependent on oil, and many traditional lines of credit unavailable to the Venezuelan government, the talk of an ICO for the country has been making the rounds. Some will argue this is merely a conflagration of headlines – on the one hand Venezuela’s crisis, on the other hand Bitcoin’s ascendancy – turning into an idea that will never actually come to fruition. I argue otherwise. If we are to believe virtual currency and the fully realised digital economy are inevitable, we must look to the game of empire played centuries ago by the world’s leading super powers to see they will either forge the path, or be left behind. Whilst nuclear missiles and battleships might ultimately maintain the dominance of the dollar, those same resources will, I believe, ensure a similar power for America’s eDollar.

In many ways, for the purposes of advancing the digital economy and maintaining a certain level of financial stability, the involvement of nation states into the virtual currency market may be the best outcome. Yet, assuming my prior cynicism is unfounded, that surely means the benefits of decentralisation and anonymity currently enjoyed by virtual currencies will be lost, in which case I return to a previous question – what is the point?

Conclusion

To conclude, Bitcoin is quite clearly in a bubble at this moment in time. But this bubble is not the serious point of contention when we consider virtual currency. As I have argued, the problem with virtual currencies is that they are masquerading as real currencies, with no sovereign state nor regulation to maintain their value – only confidence. I suggest confidence is a dubious thing, and I believe I make a compelling argument in comparing the investible nature of virtual currency to the investible nature of gold. I also dismiss the claims that the current virtual currency market is simply the re-imaging of the dotcom bubble by pointing out that all virtual currencies suffer from the same flaws, and thus the emergence of an Amazon of virtual currency is a fallacy position.

I believe absolutely that virtual currencies are here to stay. Really, this is why I believe governments will end up embracing virtual currencies, rather than persisting with the current policy of reactionary regulation. And despite my apparent tone in places, I do not dislike them.

However, I believe in the same capacity that we must – as a society – debate the role of big data and social media from a health and liberty perspective, so too must we approach virtual currencies with caution. I remarked above that the bubble of Bitcoin has formed in the unexplored horizon of virtual currency; I am not the first to make the parallels between the American Frontier and the digital economy. But the Frontier eventually met the Pacific Ocean, at which point consolidation, integration and regulation of the territories was vital to ensure prosperity. We must do this now with virtual currency, though the decisions we make will fundamentally influence the shape of the digital economy, and who holds power in the digital economy. It is futile to argue about a bubble in Bitcoin – whether it explodes tomorrow or not is irrelevant, virtual currencies are here to stay. Let’s accept that fact, and have a much more profound discussion about what we want this technology to be.