My Appearance on Bitcoin Fixes This

Sitting down with Jimmy Song to discuss fiat money, Bitcoin, and higher education.

Last month I sat down with Jimmy Song, a Bitcoin entrepreneur and educator, on his podcast “Bitcoin Fixes This.” I hosted Jimmy two weeks ago in College Station, where he spoke in both of my Bitcoin classes. I used his terrific textbook “Programming Bitcoin” as the basis for my computer science class, so it was fitting that he would give the last lecture. Over lunch, we discussed the challenges and opportunities of Bitcoin education, and he hosted me for a one-hour discussion about higher education and some of the incentive problems on his podcast. Here is a link to the podcast.

We talk mostly about the role of the federal government in higher education, specifically major research universities. Vannevar Bush, the former dean of the College of Engineering at MIT and architect of the National Science Foundation (NSF), imagined that the federal government would support basic research through large grants to American universities. He forged MIT out of this model, and many of the leading American universities followed, like Stanford, Cornell, Michigan, and Texas A&M. Most research funding from the major technical universities in America receive large grants from the NSF, and the university itself levies a 50% tax on these grants, using them to pay for indirect costs, i.e. the general operating costs of the university.

Today, science and engineering faculty compete relentlessly against others in a nationwide tournament to obtain the latest NSF grants. Some are at the individual level, others across multiple faculty, and still others across multiple universities. The competition has become so fierce that writing grant proposals dominates the time of faculty, to the point that writing a grant proposal can be as much work as doing the research itself. And because there is a scarce number of grants, winning one is a clear signal of talent to the university, and so universities have essentially outsourced tenure decisions to the NSF.

There are a few distortions that emerge out of this odd arrangement. First, faculty follow government priorities rather than their own scientific interests. It naturally creates incentives to pander to the interests of the grant committee. Sometimes the NSF does legitimately want to fund research that the market has ignored, such as investments in rural health. But often the NSF follows rather than leads market priorities, like research on AI. The end result is that faculty inevitably chase market priorities.

While universities are supposed to pursue truth for its own sake and be agnostic to what the market values today, the end result is that faculty do research that is identical to the private sector. One example is the vast array of research in mechanical engineering on autonomous driving. Instead of just working on theoretical problems, universities get into the business of building out real prototypes, even though that business really should rest in the private sector, where companies like Tesla can acquire vast amounts of capital and utilize pay-for-performance contracts to advance innovation.

A second distortion is in human capital. NSF funding accrues to faculty research labs, the majority of which ultimately and pays for graduate student tuition and stipends. While a few students from the top universities get academic jobs, the majority of them enter the industry. So essentially American taxpayers are subsidizing foreign Ph.D. students to work at Tesla, Amazon, and Facebook.

This makes no sense. Big tech can easily pay for their own human capital, but they take advantage of this loophole in the educational system, where they can shift the educational cost to the American taxpayer and capture the future upside from the new employee. I have direct experience with this: I once had a very smart computer science Ph.D. student from China who coauthored a research paper with me that applied game theory to computer networks. He now writes code to sell ads for Facebook.

Even Vannevar Bush was concerned that government funding of basic science would transmute into funding for applied research. In other words, R & D at universities should be more R but would become more D. That is exactly what has happened in American research universities. And it creates a host of incentive problems discussed above.

Connecting this to Bitcoin, we discussed some of the resistance that universities have toward dedicated Bitcoin classes. I ran into this when the curriculum committee wanted a more general blockchain class that was similar to ones offered at Stanford and MIT. But those classes, once again, reflect the university’s desire to follow market priorities, specifically, the large venture capital funding of the non-Bitcoin crypto ecosystem. I stuck to my guns and persisted in keeping the focus on Bitcoin only: It is the oldest, largest, and most decentralized cryptocurrency.

Jimmy recently wrote “Fiat Ruins Everything,” which gives a broad critique of fiat currency and the pervasive problems that it has permeated throughout our society. And one could easily argue that fiat currency has created excessive government funding, which itself has created these incentive problems in higher education. There is much that is true in his book.

But my view on this is that eliminating fiat currency is a necessary but not sufficient condition for destroying these pernicious incentive problems in higher education (or other industries). The central bank may indeed induce Congress to approve large fiscal expenditures, but those expenditures could still occur even absent a central bank. So, I would not claim that the Fed is causing a nationwide resistance to Bitcoin education. Rather, the discretionary monetary policy of the Federal Reserve weakens the fiscal discipline of the US Congress, which allows for a larger size and scope of government, that can permit incentive problems in a host of industries, like financial services and education. This does not diminish the need for eliminating the central bank and adopting a Bitcoin standard, but it does require us to be intellectually honest on the precise channels.

Jimmy and I may disagree on this point. For him, fiat currency is directly responsible for these problems in higher education. But we disagree in degree, not in kind. Eliminating the Fed is the first, but not the last, step in reforming higher education for the better.