Mark Ames pointed out that the left had become clueless about finance, and we’ll soon turn to the latest example, their stunningly naive belief that cryptocurrencies are somehow inclusive. Seriously. I’m sure many of you are already scratching your heads in wonderment , but let’s give Ames his say before returning to the main event:

By a quirk of historical bad luck, the American Left has gone two generations without understanding finance, or even caring to understand. It was the hippies who decided half a century ago that finance was beneath them, so they happily ceded the entire field—finance , business, economics, money—otherwise known as “political power”—to the other side. Walking away from the finance struggle was like that hitchhiker handing the gun back to the Manson Family.

Sadly the crypto touts have made enough money to fund a lobbying effort in Washington as well as enlisting some mayors as promoters, most notably New York City’s Eric Adams. Two initiatives are underway: a Democratic party initiative to set a regulatory framework for crypto, as well as a Fed inquiry about a digital dollar.

I have not yet turned to the Fed paper on the digital greenback, which was so badly written a college intern should have been embarrassed by it. I suspect this document was foisted on the Fed by the Biden administration. I hope to get to it at some point.

The Democrat crypto bill is not likely to pass this year due to intra-party splits. Given the high odds of a Democrat wipeout in the midterms, one has to wonder what becomes of it in 2023. An article earlier this week in Politico describes the fuzzy-headed “progressive” enthusiasm for it:

Sen. Elizabeth Warren of Massachusetts — who has long led the left’s charge to crack down on banks and Wall Street — has emerged as one of the party’s most vocal cryptocurrency critics, warning that it exposes consumers to danger, is ripe for financial crimes and is an environmental threat because of its electricity usage.

But a new generation of progressives — and a number of other senior Democrats — are embracing the startup industry. They’re arguing against regulations that could stifle what proponents say is a new avenue for financial inclusion and a breakthrough alternative to traditional banks….

“The banks have not served the American public well,” Warren told reporters when asked if she sees any societal benefits to crypto. “There’s a reason that crypto takes hold in some areas because the banks have continued to impose fees on transactions at a time when the cost of transactions should be dropping fast. However, substituting an unregulated, unverified system in which scammers and cheats and terrorists mix in with ordinary consumers and no one can tell who’s on the other side of a transaction is not a safe substitute.”

The stupid, it burns. The high environmental cost alone of crypto alone should make it a complete non-starter for soi-disant progressives.

The source of the current round of fluffy-headed thinking seems to be that ‘distributed” “new” and “Internet” are ever and always better than “traditional” and “regulated”. Perhaps the reptile brains of progressives equate “traditional” with “male patriarchy.” However, they seem to forget that “innovation” in finance means “better customer fleecing”. This is not just our view but also that of Paul Volcker, who declared the last bona fide innovation in banking to be the ATM .

And even if traditional banking is more male dominated at the top (the industry actually has more female than male employees), crypto is vastly more so.

First, let us start with the fact that crypto does not even remotely approach either a currency or banking. You can’t use to crypto to buy much of anything in the real world except presumably drugs. All the currencies have such volatility versus the dollar and euro that they can’t be considered to be stores of value. Buying a cryptocurrency is akin to buying readily tradeable property, where you can quickly get a bid and a payment. Guns are a close analogy, except gun prices are more stable than crypto and you can’t store a gun on your cellphone. But with guns you have the added benefit of use value, aka personal protection, in the meantime.

Before you get to anything approximating a banking system, these crypto players will wind up having to create a lot of new pieces from scratch. Wallets are one such piece, a place that provides for safe custody of your crypto (charitably assuming you don’t lose your passwords or have someone else manage to get to them….bank deposits are much better protected from theft or loss).

Given the number of currencies and players, this means the rebuilding of a lot of capacity that replicates existing banking industry activities. Those run at massive scale at super low costs (the fact that the banks mark them up is a different matter). It’s hard to think that repetitive services, developed by people who seem determined to stumble around reinventing the wheel due to their antipathy to finance, will wind up with something with lower costs. The fragmentation of currencies virtually assures they won’t get near banking’s scale economies.

More costly is hardly nice to the poor and therefore cannot be considered inclusive.

Second (which overlaps with the discussion above) is that crypto is more vulnerable to theft and loss. If you keep your crypto on your local devices, you are at risk of hard disk failure. This has happened as many stories of losses of crypto due to computer death or mistaken disposal attest. And the ones that make the press are the big ticket items. For every guy who lost a million dollars, there are easily 100 who lost at least $1000.

Otherwise you need a wallet. More costs! Coinbase wallets pretends to be free, but if you want to move your coins around, you incur transaction costs. So free is not free. There is at least what amounts to an exit fee.

Third are transaction costs of trading in and out of crypto, which you don’t face when dealing in dollars. And it’s not even clear that you get what you think you are getting. When I buy and sell stocks, I can see the bid -asked spread in pretty much real time at pokey Vanguard from regulated players. No one in crypto is regulated. Even if you see bid-asked prices, you have no idea if they are honestly reported, no idea if the bidders are spoofing. And in any event, bid-asked spreads are higher than for stocks or FX.

Fourth is crypto transactions are not revokable. Yet many real world transactions are. Again, once you get outside the world of criminal activity, most buyers want to be able to inspect their goods or test a service. That is the big rational reason for using credit cards despite their comparatively high cost. They make it easy for small fry to dispute a charge if a product was not delivered or was defective. In trade, letters of credit also allow a period of time before a payment held by a bank is released to the shipper. Crypto would need to build mechanisms like that to even begin to approach the functionality of banks.

Progressives have lost their minds. They somehow think that newbie finance overlords (and they are here already, a banking system cannot operate on a decentralized basis) will be nicer than the current bunch, with no foundation for that belief.

Why aren’t they pumping for obvious remedies? A Post Office bank is vastly more inclusive, particularly for the elderly and tech averse, or those so poor that they can’t afford a cell phone plan all the time. Or did they forget that banks are regulated, and they can be required to offer truly free accounts to the poor?

As Georgetown Law professor Adam Levitin pointed out by e-mail:

I’m all for financial inclusion, but this is a Rube Goldberg way to achieve it. The Canadians have figured out Ockham’s razor: they have a mandate for free or low-cost basic banking accounts. What’s nuts is how cheap it would be for the US to do. Using ABA account cost estimates, it would cost about $9B/year to provide free accounts for all unbanked households. Even a retail central bank digital currency would cost massively more.

Time for progressives to start focusing on simple numbers, like the hard dollar costs of making current banking “inclusive” as opposed to the much higher expenses of “Gee whiz technology” gimmicks.