Rothbard Graduate Seminar 2018

Rothbard Graduate Seminar 2018

06/11/2018Tho Bishop

Today was the first day of this year’s Rothbard Graduate Seminar. A total of 27 students from 13 countries have joined us in Auburn to dissect and discuss Murray Rothbard’s economic treatise Man, Economy, and State. RGS stands alone as the sole academic program in the world that applies the tradition of a great book seminar to Austrian economics. It has proved to be an invaluable asset in developing modern scholars in the Misesian tradition, and is possible thanks to the incredible generosity of  Alice Lillie.

Man, Economy, and State is a work deserving of the title "great book, it having played an important role in the history of Austrian economics. Dr. Joseph Salerno has credited the publishing of Rothbard’s masterpiece as being vital to the revival of the Austrian tradition in the United States. As he wrote in his paper, The Rebirth of Austrian Economics — in Light of Austrian Economics:

This handful of scattered contributions to Austrian economics forthcoming in the 1950s, however, would have defined the death throes of the school rather than the prelude to its rebirth were it not for the creative genius of Murray Rothbard, which came to fruition in the early 1960s. The revival of Austrian economics as a living scientific movement can be dated from the publication of Rothbard’s Man, Economy, and State in 1962, a contribution to Austrian economics and to pure economics in general that ranks as one of the most brilliant performances in the history of economic thought.

In his review of the book in 1962, Ludwig von Mises also identified Man, Economy, and State as an important contribution to economics that built upon the contributions of the Austrian school:

The main virtue of this book is that it is a comprehensive and methodical analysis of all activities commonly called economic. It looks upon these activities as human action, i.e., as conscious striving after chosen ends by resorting to appropriate means. This cognition exposes the fateful efforts of the mathematical treatment of economic problems…

In every chapter of his treatise, Dr. Rothbard, adopting the best of the teachings of his predecessors, and adding to them highly important observations, not only develops the correct theory but is no less anxious to refute all objections ever raised against these doctrines. He exposes the fallacies and contradictions of the popular interpretation of economic affairs.

Today’s RGS sessions focused on the first three chapters of Man, Economy, and State, with Dr. David Gordon lecturing on praxeology and Dr. Guido Hulsmann leading discussion on topics such as direct and indirect exchange.

Some photos from today’s sessions can be found below:

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Bake the Cake: The State of Colorado Is Still Persecuting Baker Jack Phillips

08/15/2018Ryan McMaken

The Colorado Civil Rights Commission is at it again. It's going after Masterpiece Cake Shop owner Jack Phillips for refusing to "make a cake with a pink inside and a blue outside, celebrating a gender transition from male to female."

This comes only months after the US Supreme Court ruled against the Commission's regulatory attack on Phillips for not baking a cake for a gay wedding.

Although the Supreme Court ruled in Favor of Phillips, it nevertheless took a very narrow view.

Instead of criticizing the very existence of laws that trample on property rights by mandating that people be forced — under threat of state violence — to provide services for certain privileged groups, the Court only took issue with the reasoning employed by the Colorado Civil Rights Commission when it ruled against Phillips.

When the ruling came down, I commented on the specifics of the Court's narrow ruling:

The US Supreme Court today ruled 7-2 in favor of a Denver small business owner who has been threatened, sanctioned, and ultimately driven out of business by the Colorado Civil Rights Commission. The controversy arose when the cake shop owner, Jack Phillips of Masterpiece Cakeshop, refused to bake a cake for a gay wedding, claiming to be motivated by religious beliefs.

The cake shop was hauled up before the Colorado Civil Rights Commission where the commission ruled that the shop must "change its company policies, provide 'comprehensive staff training' regarding public accommodations discrimination, and provide quarterly reports for the next two years regarding steps it has taken to come into compliance and whether it has turned away any prospective customers."

Justices Kennedy, Roberts, Alito, Breyer, Kagan, Gorsuch and Thomas all voted to overturn the earlier appeals court's decision to uphold the Commission's ruling against Phillips. Only Ginsburg and Sotomayor dissented.

In the decision , authored by Justice Kennedy, much of the reasoning centered on the fact that the Colorado Civil Rights Commission had demonstrated an apparently obvious bias against religious people, even though "neutrality" is legally required in such cases. The ruling states:

As the record shows, some of the commissioners at the Commission’s formal, public hearings endorsed the view that religious beliefs cannot legitimately be carried into the public sphere or commercial domain, disparaged Phillips’ faith as despicable and characterized it as merely rhetorical, and compared his invocation of his sincerely held religious beliefs to defenses of slavery and the Holocaust.

The SCOTUS ruling also noted that both the Commission and the appeals court largely ignored and glossed over the fact that the Commission had on three prior occasions ruled in favor of bakers who had refused to bake cakes with anti-gay slogans on them. There was an enormous double standard at work.

As Kagan notes in her concurring opinion, the Civil Rights Commission was abandoning neutrality in favor of making decisions “based on the government’s own assessment of offensiveness.”

In other words, the Commission was deciding, based on the members' own personal prejudices and biases, who shall be forced to bake cakes, and who shall not.

With this ruling, the court took a small step in the right direction by taking exception to the Commission's claim that freedom of religion doesn't exist. As noted by Justice Kennedy, the Commission essentially dismissed the very idea that religious conviction could be a valid reason to claim an exemption from the Commissions rules and regulations.

The Court came back and slapped down this reasoning, but it left the Commission plenty of leeway to rule against Phillips using different reasoning.

Thus, as long as the Commission can manufacture a different rationale for ruining Phillip's business, it is free to do, as far as the US Supreme Court is concerned.

The court's limited approach here illustrates the problem with the Court's strategy on the matter of anti-discrimination law has always been problematic.

By limiting Philipp's free use of his property only to cases in which he can prove some sort of religious conviction, the Court — and the law in general — relies essentially on mind reading in determining whether or not Phillips should be allowed to use his property as he sees fit:

This has led to a number of absurd legal and legislative acrobatics in which property owners must prove that their business decisions are motivated by artistic choices or religious conviction, but not by some other motivating factor. Thus, government commissions and courts are required to read the minds of business owners and determine whether or not their internal feelings and religious views fall under some government-approved motivation for refusing some sort of business service.

Proving or disproving internal motivations, of course, has always been an extremely sketchy way of doing things. After all, the Colorado Civil Rights Commission concluded that Phillips was using his religious views to justify unlawful discrimination. This, of course, requires that the commission members somehow have certain knowledge about the thoughts in Phillips's head.

This sort of reasoning also has the habit of working against business owners who hold views that are held only by small minority or otherwise might be considered especially idiosyncratic. One might argue that one is religiously opposed to providing some sort of service. But unless those views are recognizable to judges and bureaucrats as part of a known religious movement, the business owner is likely to be accused of simply making up an ad hoc religion to "mask" unlawful discrimination.

Ultimately, this sort of subjectivity invites just the sort of corruption and bigotry we see on the Colorado Civil Rights Commission.

There's a far less complicated way of protecting rights in these cases, however, we should stop talking about "freedom of religion," and focus on ordinary property rights instead. In practice, freedom of religion can only be truly protected by protecting property rights overall. After all, all rights — including freedom of speech and freedom of religion — depend on the ability to exercise control of one's own body and property.

As Murray Rothbard has demonstrated, rights to religious expression and speech are simply types of property rights. Consequently, religious liberty and free speech can be protected with a more general respect for property rights. By saying that Phillips ought to be forced to bake a cake, the Commission is asserting that Philipps does not enjoy ownership over his own body, or the shop and tools he acquired by using his body to perform labor.

Having refused to acknowledge these property rights, though, the Supreme Court has empowered the Colorado Civil Rights Commission to continue its war against small-time bakery owners who are no threat to anyone and impose their views on no one. The Commission already knows how it's going to rule. Its hostility to Phillips is apparent, and there's not reason to believe the Commission will stop until it has succeeded in ruining him. The challenge the Commission faces, however, is in reverse engineering a ruling that can survive a legal challenge. I'm sure that with the help of a sufficient number of taxpayer-funded lawyers, the commission can succeed in this endeavor.

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Congress Has Become Very Good at Spending Money

08/15/2018

This week President Trump signed the 2019 National Defense Authorization Act, increasing America’s war budget to a whopping $717 billion. For comparison, this is roughly equal to the next 11 highest military budgets combined.

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In fact, the $107 billion increase from last year alone is roughly equal to the total military spending of Russia and Germany together.

Congress isn’t done spending taxpayer money yet though. Next up is a spending bill that will fund the Departments of Labor, Health and Human Services, Education, and Defense, because the Pentagon apparently can’t get by with a humble $717 billion. This will be the third “minibus” to pass Congress  in 2018, the result of which has been the US running its highest deficits in years.

Of course reckless Federal spending isn’t anything new. What is particularly noteworthy about Congress’s recently behavior is that it has now become extremely efficient at passing these spending bills.

Congressional budgets are broken up into 12 different bills. When this next package clears the Senate – as expected – it will have passed 9 of the 12. As Axios notes, the Senate “has already passed the majority of spending bills by early August for the first time since 2000.” Should Congress continue on this pace and complete all 12 budgets by October, it will be the first time this has occurred since 1996.

None of this is surprising. As Ryan McMaken noted prior to the 2016 election, no one spends money more liberally than a Republican-controlled Federal government. Ideas like fiscal responsibility (and political decentralization) makes for great rhetoric in a political minority, but are extremely inconvenient when in a position of political power.

What makes this all the worse is that the GOP’s fiscal irresponsibility will inevitably result in blow back for some of its better policy victories, such as last year’s tax cuts.

Already progressive outlets are trying to peg last year’s reforms as the reason for historically high deficits, even though tax cuts have (unfortunately) increased government revenue. As such, when the Democrats next find themselves in political power, we can count on a push for tax increases to address America’s fiscal ills – likely while advocating for a new list of new government programs.

This cycle will continue to play out until the power to spend is taken away from Washington. The question is whether it will be due to a debt and monetary crisis, or pro-active restraints placed on it from the states.

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The Mission of the Mises Institute, In One Paragraph

08/14/2018Jeff Deist

The mission of the Mises Institute, as presaged by Ludwig von Mises in his 1962 review of Murray Rothbard's Man, Economy, and State: 

If we want to avoid the destruction of Western civilization and the relapse into primitive wretchedness, we must change the mentality of our fellow citizens. We must make them realize what they owe to the much vilified "economic freedom," the system of free enterprise and capitalism. The intellectuals and those who call themselves educated must use their superior cognitive faculties and power of reasoning for the refutation of erroneous ideas about social, political and economic problems and for the dissemination of a correct grasp of the operation of the market economy. They must start by familiarizing themselves with all the issues involved in order to teach those who are blinded by ignorance and emotions. They must learn in order to acquire the ability to enlighten the misguided many.

The entire review is fantastic, and demonstrates the degree to which Mises considered the young Rothbard an eminent and pioneering economist — nothing less than an "epochal" contributor to the science of praxeology. High praise indeed.

h/t Bob Robert.

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Trump vs. His Own Administration?

08/13/2018Ron Paul

Are President Trump’s senior cabinet members working against him? It’s hard not to conclude that many of the more hawkish neocons that Trump has (mistakenly, in my view) appointed to top jobs are actively working to undermine the president’s stated agenda. Especially when it seems Trump is trying to seek dialogue with countries the neocons see as adversaries needing to be regime-changed.

Remember just as President Trump was organizing an historic summit meeting with Kim Jong-Un, his National Security Advisor, John Bolton, nearly blew the whole thing up by making repeated references to the “Libya model” and how it should be applied to North Korea. As if Kim would jump at the chance to be bombed, overthrown, and murdered at the hands of a US-backed mob!

It seems that Trump’s appointees are again working at cross-purposes to him. Last week, Secretary of State Mike Pompeo announced that he was invoking a 1991 US law against the use of chemical weapons to announce yet another round of sanctions on Russia over what he claims is Putin’s involvement in the poisoning of a former Russian spy and his daughter in the UK.

The alleged poisoning took place in March and only now did the State Department make its determination that Russia was behind it and thus subject to the 1991 sanction law. Was there new information that came to light that pointed to Russian involvement? According to a State Department briefing there was none. The State Department just decided to take the British government’s word for it.

Where do we get authority to prosecute Russia for an alleged crime committed in the UK, by the way?

President Trump’s own Administration is forcing him to accept the State Department determination and agree to sanctions that may well include, according to the 1991 law, a complete break of diplomatic relations with Russia. This would be a de facto declaration of war. Over unproven allegations.

Trump has authority to reject the imposition of new sanctions, but with his Democrat opponents continuing to charge that he is in league with the Russian president, how could he waive sanctions just before the November US Congressional elections? That would be a windfall for the Democrats seeking to take control of the House and Senate.

The only way Russia could avoid the second, most extreme round of these sanctions in November is to promise not to use chemical weapons again and open its doors to international inspections. What government would accept such a demand when no proof has been presented that they used chemical weapons in the first place?

Certainly it is possible that President Trump is fully aware of the maneuverings of Bolton and Pompeo and that he approves. Perhaps he likes to play “good cop, bad cop” with the rest of the world, at the same time making peace overtures while imposing sanctions and threatening war. But it certainly looks like some of his cabinet members are getting the best of him.

If President Trump is to be taken at his word, that he welcomes dialogue “without pre-conditions” with leaders of Russia, North Korea, Iran, and elsewhere, he would be wise to reconsider those in his employ who are undermining him every step of the way. Otherwise, it is hard to believe the president is sincere. Let’s hope he does choose dialogue over conflict and clips the wings of those under him attempting to push him in the other direction.

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"FDA Approval" is a Monopolist's Scheme to Limit Competition

08/13/2018Hunter Lewis

Charging the price of an expensive car for a garden-variety amino acid, one we eat every day.

A year ago, the Food and Drug Administration ( FDA) approved a “drug” called Endari to treat sickle cell disease, which afflicts about 100,000 Americans of African descent and around 25 million more outside the US. Price tag: $28,000 a year.

So what is Endari? Anything approved by the FDA legally becomes a “drug.” But some have noted this “drug” is just a higher dose of L-glutamine, a common amino acid that is in our food and that our bodies also make. Indeed, The agency itself describes this “drug”  as "L-glutamine oral powder.” Amino acids are the building blocks for protein and we also use them for other purposes.

So here we have a “drug” intended to help Americans of African descent, but because it has been approved by the FDA, now costs more than $500 per week. Normally “drugs” benefit from two government monopoly grants: first a patent and then FDA approval. That ensures no competition and the ability to charge more than would be the case without a government-restricted market.

Glutamine, being a natural substance, cannot be patented stand alone, but the FDA approval still guarantees a monopoly, because nobody else will want to pay the cost of entering the market. The total cost of gaining approval averages in the billions. Even Endari, approved under the “Orphan Drug Act,” would have cost enough to keep a competitor out, and in addition the FDA would not look well on a second application under that Act. FDA approval is also crucial because Medicaid and Medicare and Veterans will then pay for it. They will not pay for a supplement, even if it is the same thing, even if it costs less than a tenth as much.

There is still an existing drug for sickle cell disease called hydroxyurea, which also costs less than a tenth as much as Endari, but which has serious side effects. The insert warns of anemia and leukemia, and in addition it may not work. Nevertheless, some insurance companies are telling doctors to continue to use hydroxyurea first. They are not of course telling doctors to do the logical thing which is to use the supplement form of glutamine.

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Facebook Censored Me, Criticize Your Government and It Might Censor You Too

08/09/2018James Bovard

Responding to Russian-funded political advertisements, Facebook chairman Mark Zuckerberg declared last month that “we will do our part to defend against nation states attempting to spread misinformation.” But Facebook is effectively sowing disinformation by kowtowing to foreign regimes and censoring atrocities such as ethnic cleansing in Myanmar. In the name of repressing fake news and hate speech, Facebook is probably suppressing far more information than Americans realize.

Facebook blocked a post of mine last month for the first time since I joined it nine years ago. I was seeking to repost a blog article I had written on Janet Reno, the controversial former attorney general who died last year. I initially thought that Facebook was having technical glitches (no novelty). But I checked the page and saw the official verdict: “Could not scrape URL because it has been blocked.”

“Pshaw!” I said, or some other one-syllable epithet. I copied the full text of the article into a new blog post. Instead of using “Janet Reno, Tyrant or Saint?” as the core headline, I titled it: “Janet Reno, American Saint.” Instead of a 1993 photo of the burning Branch Davidian compound in Waco, Texas, I substituted an irreproachable official portrait  of Reno. Bingo — Facebook instantly accepted that crosspost. I then added a preface detailing the previous blockage and explaining why I sainted Reno. The ironic headline attracted far more attention and spurred a torrent of reposts by think tanks and other websites.

I contacted Facebook’s press office to learn why the initial post was blocked. Facebook spokeswoman Ruchika Budhraja checked into the matter and notified me that I would be permitted to post that link. "But why was it blocked?" I replied. She responded: “There was an image in the post that incorrectly triggered our automation tools. That issue has been corrected.”

So when did showing the home of more than 70 people engulfed in flames after a FBI assault become beyond the pale? Facebook presumably blocked everyone who sought to share that image from the most vivid law enforcement debacle of the 1990s.

This was not the first time Facebook erased an iconic image that the U.S. government would be happy to see vanish. Facebook likely deleted thousands of postings of the 1972 photo of a young Vietnamese girl running naked after a plane dropped napalm on her village.  After coming under severe criticism last year, Facebook announced that it would no longer suppress that image. Unfortunately, Facebook is unlikely to disclose a list of the images it bans. Because most Americans are clueless about current events and recent history, they will have little idea of what vanishes into the Memory Hole.

Read the full article at USA Today
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Republican Congressman Charged with Insider Trading, Which Shouldn't Be a Crime

08/08/2018Tho Bishop

New York Republican Congressman Chris Collins was indicted today on a variety of charges stemming from an investigation of insider trading. Prosecutors allege that he, along with son and soon to be son-in-law, is guilty of trading on non-public information concerning the results of a drug trial. Collins traded stock in Innate Immunotherapeutics Limited, a company where Collins is a board member, in order to avoid over $768,000 in losses. 

While there is undoubtedly numerous actions Collins has taken as a Congressman that warrants him being criticized by society, insider trading is not one of them. This news story is a good opportunity to revisit an article by Bob Murphy on the subject, explaining how insider trading actually has social value and why laws cracking down on the practice open the door to the heavy hand of government going after all sorts of profitable activity.

Excerpted from Is Insider Trading Really a Crime? 

We Want People Trading on Unique Knowledge

To understand the social benefits of insider trading, we have to first realize that stock prices mean something. They reflect real facts about the world, such as the assets and liabilities of a particular corporation and how effectively its current management is using resources to satisfy customers.

If a computer glitch suddenly swapped the prices randomly on all corporate stocks, the result would be disastrous, and it would affect "Main Street" as much as Wall Street. For an exaggerated example, if the share price of Microsoft fell from its current level of around $25 down to $1, a "corporate raider" might find it very profitable to borrow money, buy a controlling share in the company, and sell off all company assets to the highest bidders. The high price of $25 per share fends off such efforts to break up the successful company. The assets currently owned by the Microsoft Corporation are best deployed by Microsoft, rather than being integrated into different organizations around the world.

In general, speculators perform a useful social service when they are profitable. By buying low and selling high (or by short-selling high and covering low), stock speculators actually speed up price adjustments and make stock prices less volatile than they otherwise would be.

In this context, we can see the absurdity of the general view of "insider trading." There is a whole literature on the economic analysis of the subject, and economist Alex Padilla's 2003 dissertation defended the practice from a specifically Austrian angle. In a nutshell, insider trading is beneficial because it moves market prices closer to where they ought to be. Those profiting from "inside knowledge" actually share that knowledge with the rest of the world through their buying and selling.

Insider Trading: Who Is the Victim?

Above, we acknowledged the fact that obtaining information in illegal ways obviously had actual victims. But the mystique behind "insider trading" suggests that somehow if a person financially profits from special knowledge, that he or she is bilking the general public.

In general, this analysis doesn't hold up, as Murray Rothbard has pointed out. For example, suppose a Wall Street trader is at the bar and overhears an executive on his cell phone discussing some good news for the Acme Corporation. The trader then rushes to buy 1,000 shares of the stock, which is currently selling for $10. When the news becomes public, the stock jumps to $15, and the trader closes out his position for a handsome gain of $5,000. Who is the supposed victim in all of this? From whom was this $5,000 profit taken?

The $5,000 wasn'ttaken from the people who sold the shares to the trader. They were trying to sell anyway, and would have sold it to somebody else had the trader not entered the market. In fact, by snatching the 1,000 shares at the current price of $10, the trader's demand may have held the price higher than it otherwise would have been. In other words, had the trader not entered the market, the people trying to sell 1,000 shares may have had to settle for, say, $9.75 per share rather than the $10.00 they actually received. So we see that the people dumping their stock either were not hurt or actually benefited from the action of the trader.

In fact, the only people who demonstrably lost out were those who were trying to buy shares of the stock just when the trader did so, before the news became public. By entering the market and acquiring 1,000 shares (temporarily), the trader either reduced the number of Acme shares other potential buyers acquired, or he forced them to pay a higher price than they otherwise would have. When the news then hit and the share prices jumped, this meant that this select group (who also acquired new shares of Acme in the short interval in question) made less total profit than they otherwise would have.

Once we cast things in this light, it's not so obvious that our trader has committed a horrible deed. He didn't bilk "the public"; he merely used his superior knowledge to wrest some of the potential gains that otherwise would have accrued as dumb luck to a small group of other investors.

To repeat, stock-market speculation is not a zero-sum activity. Even though we can look at any particular transaction and tally up the "winners" and "losers," the presence of speculators enhances the overall functioning of the stock market. For example, the market for any particular security is more liquid when there are rich speculators who will quickly pounce on a perceived mistake in pricing. If an institutional investor (such as a firm managing pensions) suddenly has a cash crunch and needs to dump its holdings, speculators will swoop in and put a floor under the fire-sale price. This is good for the beleaguered pension fund, and for the stock market in general.

Laws against Insider Trading Give the Government Arbitrary Power

Crackdowns on insider trading are harmful because they chill the cultivation of superior knowledge and speculative correction of market prices. Beyond this loss of general economic efficiency, insider-trading laws are insidious because of the arbitrary power they give to government officials.

In the specific case of Rajaratnam, prosecutors for the first time relied extensively on wiretaps to prove their allegations of insider trading. Legal experts predict that the government will expand its eavesdropping on the financial community in light of this courtroom "success."

More generally, Murray Rothbard argued that every firm on Wall Street is technically engaging in "insider trading." If they literally relied only on information that was available to the public, how could they make any money? Thus, the government has the statutory authority to harass or even shut down anybody in the financial sector who doesn't play ball. In Making Economic Sense, Rothbard declared,

There is another critical aspect to the current Reign of Terror over Wall Street. Freedom of speech, and the right of privacy, particularly cherished possessions of man, have disappeared. Wall Streeters are literally afraid to talk to one another, because muttering over a martini that "Hey, Jim, it looks like XYZ will merge," or even, "Arbus is coming out soon with a hot new product," might well mean indictment, heavy fines, and jail terms. And where are the intrepid guardians of the First Amendment in all this?

But of course, it is literally impossible to stamp out insider trading, or Wall Streeters talking to another, just as even the Soviet Union, with all its awesome powers of enforcement, has been unable to stamp out dissent or "black (free) market" currency trading. But what the outlawry of insider trading (or of "currency smuggling," the latest investment banker offense to be indicted) does is to give the federal government a hunting license to go after any person or firm who may be out of power in the financial-political struggles among our power elites. (Just as outlawing food would give a hunting license to get after people out of power who are caught eating.) It is surely no accident that the indictments have been centered in groups of investment bankers who are now out of power.

To drive home just how arbitrary and non-criminal "insider trading" really is, consider this scenario: Suppose someone had been planning on buying shares of Acme, but just before doing so, he caught wind of a bad earnings report. In light of the new information (which was not yet public), the person refrained from his intended purchase. Should this person be prosecuted for insider non-trading?

 

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Caitlin Long: ICE Cryptocurrency A "Double-Edged Sword"

08/07/2018Caitlin Long

Caitlin Long, a 22-year Wall Street veteran and a leader in the cryptocurrency sphere, recently took to Forbes to write about the pros and cons of the Intercontinental Exchange (parent of the New York Stock Exchange) announcement that it is building "a new ecosystem for cryptocurrencies." As she explains, while this is a major leap forward in the "normalization" of crypto, she has some concerns about what a growing role for Wall Street in the industry:

Positives

Bakkt is yet more evidence that incumbent institutions are increasingly taking the “join ‘em” approach to cryptocurrencies, as explored in Part 1 of my 3-part series about the building rivalry between cryptocurrencies and Wall Street. Bakkt could bring many positives to cryptocurrencies:

it will likely attract more institutional investors to cryptocurrencies,

it may solve the custody problem that has so far kept large institutions from investing in the cryptocurrency asset class due to the absence of a qualified custodian, which the SEC requires for investment advisors that manage $150 million or more,

it may help regulators become more comfortable with the sector to see ICE involved, and

most importantly—it will probably attract corporate issuers to raise capital using the Bakkt ecosystem. Cryptocurrencies offer issuers the prospect of covenant-free and preference-free capital at low cost. Investors have proven their willingness—rational, in my view—to trade standard investor protections in return for the low friction costs involved with cryptocurrencies—there are no underwriters, trustees, transfer agents, exchanges, custodians, clearinghouses or central securities depositories involved in cryptocurrency issuance, and—very importantly—cryptocurrency trades settle instantly and with no counterparty risk. Moreover, issuers incur only a small percentage of the costs of being a public company, such as investor relations costs, proxy solicitation costs and the significant compliance costs related to public-company financial reporting and auditing. Additionally, cryptocurrency issuers can repurchase coins or execute a tender/exchange offer much more efficiently than for traditional securities.

I doubt it will be very long before major corporate issuers join Telegram and Eastman Kodak in raising capital via these markets. This is the good type of financialization—attracting new investors to the networks, each of whom (in proof-of-work blockchains) makes the networks more secure by bringing new computer resources to the networks, directly or indirectly on their behalf—and that, in turn, makes the networks more decentralized, resilient and immune to attack.

Kudos to ICE for being first!

Negatives

But ICE’s news also has downsides. As explored in Part 2 of the 3-part series just two days ago, Wall Street's only shot at controlling cryptocurrencies is to financialize them via leverage—by creating more financial claims to the coins than there are underlying coins and thereby influencing the underlying coin prices via derivatives markets. It’s pretty much impossible at this point for anyone to gain control of the Bitcoin network (and likely the other big cryptocurrency networks too), so Wall Street's only major avenue for controlling them is to financialize them via leverage.

The financial system has perfected the art of leverage-based financialization, unfortunately, and ICE’s announcement about plans to launch a regulated, physical bitcoin futures contract and warehouse (subject to CFTC approval) in November means leverage-based financialization is likely coming to bitcoin in a big way.

This is exactly what I’d warned of in Part 2:

“As cryptocurrency markets develop further, here’s what I’ll be on the lookout for: financial institutions beginning to create claims against cryptocurrencies that are not fully backed by the underlying coins (which could take the form of margin loans, coin lending / rehypothecation, coin-settled futures contracts, or ETFs that don’t 100% track the underlying coins at any given moment). None of these are happening in the market yet, though.

“So far, regulators have only allowed bitcoin derivatives in cash-settled form among major derivatives counterparties. While cash-settled derivatives can affect the price of the underlying asset, the magnitude of the impact is lower than the impact if derivatives were settled in an underlying that is “hard to borrow” or “special” (using securities lending parlance). Bitcoin is especially “hard to borrow” so a requirement to deliver the underlying bitcoins into derivatives contracts would amplify bitcoin’s price fluctuations.

Eventually it’s likely regulators will approve bitcoin-settled derivatives among major derivatives counterparties. At that point, banks will be looking to borrow the underlying bitcoin—and that’s when the custodial arrangements made by institutional investors will start to matter. Will custodians make their custodied coins available for borrowing in “coin lending markets” as they do with securities lending today? Or will they deem the cybersecurity risks of lending coins (which entails revealing private keys) too high relative to the extra return available for coin lending? And will institutional investors even allow coin lending by their custodians? Regardless, when bitcoin-settled derivatives appear on the scene, it’s very likely that cryptocurrencies will be “hard to borrow” for quite some time because HODLers (long-term holders) own most coins and rarely use custodians.” (emphasis added)

Why does this matter? Bitcoin has algorithmically-enforced scarcity, and that’s a big part of what gives it value. If Wall Street begins to create claims to bitcoin out of thin air, unbacked by actual bitcoin, then Wall Street will succeed in offsetting that scarcity to some degree.

Read the rest of the article here

For more on this topic, listen to Cailtin Long's talk at our recent Future of Money conference in San Francisco. 

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American Immigration Policy and the Holocaust: There Is No Equivalance

08/07/2018Ryan McMaken

One would think this doesn't need to be said, but apparently it is: there's a difference between deporting foreign nationals, and murdering people en masse.

Having already thrown Godwin's law out the window by insisting that Donald Trump is "literally Hitler" the American left has now moved on to blithely comparing the detention of accused non-government-approved immigrants to Nazi death camps.

It's perfectly possible to oppose the detention policies without comparing them to the Holocaust, of course. Multiple Jewish organizations, for instance, such as this one , oppose the deportation policies, but point out the irresponsible nature of comparing them to Nazi death camps:

If somebody compared something I did to the Nazis, I hope in outrage I would jump right to the heart of Nazism: “The Nazis’ aim was to harness all the power of the state to industrial-scale murder and the destruction of an entire race. Unless you are actually talking about genocide, it’s demagoguery to compare any policy with which you disagree to Nazism.”

Having long ago gone off the deep end with All Things Trump, however, the sort of people who make these comparisons actually seem to think this is appropriate. But, as Bret Easton Ellis — who's not exactly a rightwing stooge — recently pointed out, the constant comparisons to Nazism has become insufferable:

These last few weeks really were a flipping point for me, with the depression over the Supreme Court and the way the detention centers were being spun by the liberal media. It’s obviously a game. Here’s Rachel Maddow crying on TV, and pictures of Trump detention centers. My stepfather, who is a Polish Jew, had his entire family wiped out when he was an infant. Throwing around words like Nazi, Gestapo and comparisons to Weimar Germany is like, “Really guys? You’re going there?” I’ve had enough.

Now we hear about a theater company in Los Angeles that's producing an updated version of the Diary of Anne Frank in which the family is hiding from American immigration agents instead of Nazis.

This position is basically the equivalent to saying that having your entire family worked to death or starved to death or gassed to death in a Nazi "labor" camp is the same thing as temporary detention and deportation. Moreover, keep in mind that the deportees are not stateless. They are foreign nationals who retain their citizenship in their home countries. Were they stateless, they would have additional legal protections under the US legal system. Victims of the Holocaust, of course, were either stateless — having had their citizenship abolished by the German state — or they were prisoners of an invading state. They weren't allowed to return to their home countries. Not even in theory.

The actual "living" conditions within the camps themselves was in no way comparable to those in American immigration detention centers today. Even when the Nazis weren't actively trying to kill people, they created conditions that led to countless deaths through disease. One example of course, is the typhus epidemic that likely killed Anne Frank.

And that last statement is an important reminder: Anne Frank died in custody of the German state — along with about 95 percent of her fellow Holocaust victims from the Netherlands.

Comparing that to modern American immigration policy strains all credibility to the point of being darkly laughable.

Moreover, current immigration policy in the US isn't even comparable to previous outrages in this country. For instance, one could point to the spate of lynchings and other killings that occurred in 1915 in the wake of the so-called Plan de San Diego in which elements in the Mexican government had attempted to incite a "race war" in the US using disgruntled Mexican-Americans. The plan to attack Anglos was small and failed, but was comparable to what we might call "terrorism" today. Around 20 Anglo Texans died in the attacks.

But the backlash was immense. In response, the Texas Rangers and local informal militias engaged in “a systematic manhunt” that made few efforts to target the actual perpetrators of the killings, but was geared more toward executing a campaign of terror against Mexican-Americans. Observers at the time estimated that the number of those killed numbered anywhere from 150 to 1,500 people, although the consensus today appears to come in around 300.

Benjamin Herber Johnson, in his book Revolution in Texas recounts some of the details from the time:

By early fall, the signs of the vigilantism were inescapable. It was not just that Tejanos [i.e., Mexican-Americans] knew of friends and relatives who were dealt summary justice and could speculate about the changes of meeting such a fate themselves. The violence directed at them had clear public manifestations in the piles of bodies left to rot in public. ..

Yet those who yearned to bury their loved ones were often too afraid to do so. The Rangers and vigilantes targeted relative of alleged bandits, and so to bury a friend or relative was to court death…

The ongoing sights were enough to convince any Tejano that there was no refuge in South Texas. In mid-September, for example, someone traveling from San Benito to Edinburg might have seen what a New York reporter witness “The bodies of three of the twenty or more Mexicans that were locked up overnight in the small frame jail at San Benito were found lying beside the road two miles east of the town this afternoon. All three of them were shot in the back.”

Tejanos also knew that their persecutors made deliberate efforts to terrorize those whom they did not kill outright … Others also recalled burnings. Interviewed by his grandson nearly sixty years later, Francisco Sandoval emphasized that the Rangers killed people simply for the pleasure of it, adding that “they burnt them, they burnt them alive…”

After awhile [sic] the sheer number of lynchings may have inured residents, especially Anglos; terror and fear had become part of daily life.

The anti-Mexican-American reprisals didn't stop in 1915. They continued sporadically for years afterward, as noted in 2015 in the New York Times:

On Jan. 28, 1918, a band of Texas Rangers and ranchers arrived in the village of Porvenir in Presidio County, Tex. Mexican outlaws had recently attacked a nearby ranch, and the posse presumed that the locals were acting as spies and informants for Mexican raiders on the other side of the border. The group rounded up nearly two dozen men, searched their houses, and marched 15 of them to a rock bluff near the village and executed them. The Porvenir massacre, as it has become known, was the climactic event in what Mexican-Americans remember as the Hora de Sangre (Hour of Blood). It led, the following year, to an investigation by the Texas Legislature and reform of the Rangers.

The acts had real repercussions for Mexican-Americans at the time.

Many Mexican-Americans in the region relocated to other states to escape the Texas Rangers, and some returned to Mexico. My own grandparents, being Mexican-Americans themselves, relocated to California from El Paso in part to escape the legal and political environment in Texas at the time. According to my grandmother, her brother Benito denounced the "gringos" and moved back to Mexico where he opened a hotel.

Unfortunately, that generation has long since passed on, but it's unlikely that even they, who themselves were acquainted with true ethno-nationalist bigotry, would ever allow themselves to make the sorts of over-the-top assertions now made by anti-Trump activists. In fact, the Nazi comparisons seem to be primarily the domain of highly educated non-Hispanic whites who feel the need to virtue signal by comparing every injustice to Nazi mass murder. 

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