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How do I listen to a podcast? I’ll discuss the results and your favorite episodes of the year, next week. Writer, reporter, and film producer Jim Epstein of Reason, whose recent crazy article on what is happening in Venezuela really fascinated me. And that’s our topic for today.
It’s a thrill to be on my favorite podcast. And I also want to say right at the outset that I actually first heard about Bitcoin by listening to your 2011 interview with Gavin Andresen. Jim Epstein: And I remember standing in my kitchen, listening to that interview, thinking, ‘This can’t possibly work. And, you know, over the course of 6 years, I, through a gradual evolution, including through my reporting on Venezuela, I’ve come around to the idea that’s it’s going to actually change the world.
So, I also wish I’d purchased a few. Russ Roberts: You’re not alone there. I have a friend, a very wise adviser friend who mocks me constantly for my failure to purchase at that point. Hindsight is 20-20, though, and we don’t keep track of all the times we didn’t buy the things that didn’t go up. We don’t do investment advice on this program, of course, so consult with your adviser for what the right activity is for yourself, those of you listening out there. Jim Epstein: The state of the economy is–I think the most important thing to mention is that for a long time, and for many cases now, still, the supermarkets are empty.
So you can’t really buy food the normal way. And that has to do with price controls. So, an enormous black market has grown up in food. So, it’s okay for the middle class. If you are poor, it’s particularly difficult. You can wait in line for a long time at a Venezuelan supermarket.
Russ Roberts: And, there’s debate about how bad it is. Caracas, in the outside regions, in other parts of the country. Jim Epstein: Well, I guess I’ll first talk–so basically, what’s happening in Venezuela is that people are using Bitcoin. And, what is driving this, in part–and we can talk a lot about Bitcoin’s unique attributes, what gets around the government’s currency controls. But, what’s really driving it in Venezuela and causing such a rapid increase in uptake is that electricity in Venezuela is virtually free. It’s a token sum that you pay. It’s heavily subsidized by the government.
If you can set up a Bitcoin Miner–and people are discovering this: it can even be an outdated miner, which is a specially-designed computer, which would be essentially worthless, would get you nothing here in the United States–you can set it up there and you can start making money. And this is in the midst of a country where there’s not enough food. Russ Roberts: So, a little background. Those of you who don’t remember or missed our previous Bitcoin episodes, you can go back and listen to them.
We’ll put a bunch of them up as links to this episode. Jim Epstein: Well, I mean, Venezuela has an awful electric grid. It’s like everything else in the economy. The infrastructure there, it’s falling apart. They’ve had 3-day government holidays to shut down the office buildings.
There’s been rolling blackouts in some parts of the country. So, yes, there are electricity shortages. Russ Roberts: And just as a footnote, I also should have mentioned that when people list the causes of Venezuela’s problems, the fall in the price of oil has been very hard on them. And also, of course they are not the only country that has had to face that. And their economic situation I think is really due to really poor economic policy. What are they doing with it?
A lot of people would say, ‘Well, what can you do with bitcoin? You can’t use that in the grocery store? Jim Epstein: Well, Bitcoin is the first successful digital currency that runs on the Internet. And that’s–if you think about any other digital money–and most of us primarily use digital money at this point–it’s routing through the traditional financial system. There is a third party involved.
Generally a third party that is involved with the government. Jim Epstein: There’s no Federal Reserve. It’s a complete free market in currency. And it’s sort of an amazing technological feat that this is possible. But, so, in Venezuela, in 2003, Hugo Chavez, I think it was an oil strike that initially prompted this, put in place currency controls, setting up a fixed exchange rate. Russ Roberts: Yeah, there’s virtually exchanges where you can move back and forth between bitcoin and dollars.