– July 10, 2020
elephant

One of the most important things that scientists try to convey to the public is the virtue of nuance. One size rarely fits all, and the world is a complicated place – much too complicated for the clickbait-y attention span of today’s social media. 

In a very readable article in The Quarterly Review of Economics and Finance, the director of AIER’s Sound Money Project Will Luther with co-author Peter Hazlett examine the monetary role of bitcoin. By invoking the relevant domain and nuance, they try to answer a very simple question: is bitcoin money?

Sure, in some places and for some goods bitcoin does function as money: at certain online merchants, in darknet transactions, as payment mechanisms in the grey economy or as ways to thwart capital controls, as settlements among crypto aficionados, as well as a gateway currency for many alt-coins. 

Even though the present domains in which bitcoin is money are quite small, there is no doubt that within those domains it is. Hazlett and Luther make a comparison to regular fiat currencies: the U.S. dollar is widely considered and accepted as money in America – and often also in many places around the world, such as in Guatemala. The Guatemalan Quetzal, in contrast, is most definitely used as money in Guatemala City – but not at all in Oklahoma City. In determining money-ness of various currencies, the domain matters. 

As the British economist Tim Harford never tires of pointing out: truth is tricky and the world is complicated – even when supported by powerful tools like statistics.

Ecological issues like access to freshwater or the impact of warmer climate are also complicated issues whose precise domain matters. An interesting case-in-point are environmental issues in Iceland. Situated at the edge of the world, right between two major continent shelves and just below the Arctic circle, we tend not to think about Reykjavík as a particularly warm place. Still, thanks to the Gulf Stream that brings warm tropical waters north, the Icelandic capital is often warmer than New York City in winter. 

If climate change should weaken the Gulf Stream, or alter its flows, most of the comparatively mild winters of Iceland and seaside northern Europe will turn into extreme winter harshness associated with Siberia or Northern Canada. But as global temperatures rise, assuming the Gulf Stream remains intact, Iceland is looking at even milder winters, warmer summers, fewer glaciers – and faster reforestation as the tree line moves up the mountains and reforestation efforts are helped. 

The ecological feedback loops of climate change are intricate and varying, not universal and simplistic. Domain matters. 

Another iconic environmental issue on the North Atlantic island is freshwater access – but its scarcity and the impetus for conserving it is far from uniform. In many places of Iceland, a nation covered with water in frozen or liquid form, freshwater is usually not scarce. Drink as much as you want from the closest river, and high-quality freshwater streams from household and public faucets left and right. 

A guesthouse that I recently visited in the western part of the country epitomized this very well: stationed outside was a large well, filled with water and with connected taps accompanying messages to avoid plastic bottles. Next to it, a sign that – humorously – said “Water for sale, clean and unspoiled. Half a liter = 0kr; 100 liters = 0kr.”

In this part of the island, fresh water is in other words so abundant that it is given away for free in almost any quantity. No need for conservation!

Drive 800 miles away, into the interior of the country’s desolate and famously moon-like (or Mars-like) landscape, and the situation is very different. In the simple restrooms next to the massive Dettifoss falls, one of Europe’s largest, a warning sign reads “There is a shortage of water in this area. Please save the water.” How can that be, you wonder, with a mighty 45-meter-high and 100-meter-wide waterfall thundering behind you?

The volcanic deserts of highland Iceland are exactly that – deserts – and geologists and ecologists refer to them as ‘cold’ or ‘wet deserts.’ Something like 40% of Iceland is considered desert, where despite ample rainfall that quickly gets absorbed into the ground, the landscape is dry, grey, black or otherworldly-red and largely devoid of plants. Freshwater access is, consequently, difficult and expensive – far from the abundance elsewhere on this extraordinary island.  

Let’s take another utensil in the environmentalist toolbox: melting glaciers and sea level rises. If the Icelandic glaciers keep shrinking – currently by an area of some 40 km2 per year – another odd feedback loop may start to work on the continental ridges on which Iceland sits: Glacial Isostasy, also known as Post-glacial rebound. As the immense pressure and weight from withdrawing glaciers disappear from the earth’s crust, land masses rise. With melting glaciers, the physical land on which Iceland sits might actually rise faster than warming oceans and melting polar caps raise the ocean level. Effectively, Icelandic shores may witness a lowering of the sea level. 

In the south-eastern parts of the country, close to Europe’s largest ice cap, this is already visible, says Tómas Jóhannesson, head of the glacier group at the Icelandic Meteorological Office. “We can already see a substantial rise in the land around Höfn,” he argues worryingly, “it’s rising by one or two centimeters a year.” 

In most places, environmental issues of melting glaciers and warmer oceans mean dealing with an incrementally rising sea level; in Iceland, the same process causes land to rise faster than oceans, meaning that the sea retreats. 

Domain matters. One-size-fits-all explanations don’t work for environmental issues either. 

We can extend this argument to all kinds of climate change-related topics. Taking the train instead of driving (or flying) is not necessarily more environmentally friendly – it depends on the energy sources powering the train or the car. “Clean” transportation methods are seldomly more environmentally friendly than the energy sources used to power them. Over half the British electricity grid is powered by fossil fuels. Diesel-powered trains, common in England and Scotland, or trains running on coal-powered electricity grids in, say, Poland or Germany, score as environmentally poorly as does flying (though the exact figures depend on how you account for high-altitude emissions). A sole person driving a car is often worse than the same person sharing a densely packed long haul flight. 

Flaunting the environmental credentials of driving a Tesla in the U.S., for instance, is a loser’s game as two-thirds of American electricity generation comes from coal or natural gas. The same Tesla, running on electricity from Iceland’s low-emission geothermal or hydro-powered plants, is a very different emission story. Electric cars can make a lot of environmental sense – but only in the right domains. 

The same goes for recycling. In countries that know what to do with their trash and can effectively put them to use, recycling is responsible and sensible. In the U.S., it’s mostly a virtue-signaling shell game. As Mike Munger has expertly shown on this site and numerous articles at EconLog, recycling and separating trash is mostly a waste of time – and quite possible a net environmental harm

As environmentalist heuristics it may be useful to say that we ought to always conserve fresh water, don’t fly, always worry about rising sea levels, always consider climate change a net harm, and always recycle. In reality, these things are not universal and don’t hold all the time. 

Nuances matter. Systems matter. The domain in which you’re considering a complicated issue matters. One-size-fits-all solutions in our political discourse are often made to work for every topic globally. Reality is not like that, as both economic and ecologic matters frequently assert.

Joakim Book

Joakim Book

Joakim Book is a writer, researcher and editor on all things money, finance and financial history. He holds a masters degree from the University of Oxford and has been a visiting scholar at the American Institute for Economic Research in 2018 and 2019. His writings have been featured on RealClearMarkets, ZeroHedge, FT Alphaville, WallStreetWindow and Capitalism Magazine, and he is a frequent writer at Notes On Liberty. His works can be found at www.joakimbook.com and on the blog Life of an Econ Student;

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