Tag Archive for: ElonMusk

The Economist Whose Theory Predicted Today’s Calls for Censorship in the 1970s

Estimated Reading Time: 4 minutes

Nobel Prize-winning economist Ronald Coase wrote a paper in 1974 that implicitly predicted the increasing popularity of censorship among the intellectual class.

 

After Elon Musk’s offer to purchase Twitter was accepted, the Department of Homeland Security unveiled plans for a “disinformation” governance board. Musk’s purchase is not final, and the governance board is now paused, but the reaction to these events has been telling.

One might expect professionals in the market for ideas would be concerned by a government agency policing speech. Curiously, many groups who historically have defended free speech against interference seem slow (or absent) in response.

Members of the journalism industry have reacted negatively to Musk’s vocal support of free speech. His purchase is “dangerous,” and his commitment to free speech will lead to people being “silenced”.

Meanwhile, the Associated Press attacked Musk for wanting free speech, claiming that this desire was inconsistent with the fact that he has criticized people in the past.

This claim by the AP confused many, as criticism is obviously compatible with free speech.

Time magazine voiced opposition to Musk from another angle, trying to disparage his “tech bro” obsession with free speech

CNN writers crafted the suggestive headline, “Twitter has been focused on ‘healthy conversations.’ Elon Musk could change that”.

At The Conversation, Filippo Menczer, a professor of informatics and computer science at Indiana University, argues John Milton’s idea of the uncensored marketplace of ideas is outdated and calls for “refereeing” of social media. And of course, this refereeing isn’t censorship. Why would you think that?

Another professor writing for The ConversationJaigris Hudson, argues Elon Musk’s free speech push will make speech less free because if harsh language is allowed some people will stop talking. This article when set next to this Washington Post piece and the AP tweet underscores a consistent theme of mistaking free speech for freedom from criticism.

Head bureaucrat of the government’s “paused” disinformation board, Nina Jankowicz, also wishes Twitter would move in another direction. Jankowicz wonders, why not allow verified accounts to edit the Tweets of people using free speech too dangerously?

Although it isn’t uncommon for high-level military bureaucrats like Jankowicz to desire censorship, academics and journalists have long been stalwart defenders of the importance of an uncensored marketplace for ideas. For a long time, universities and newspapers were seen as places where controversial means and ends could be debated publicly. “The truth will out” was the final defense of these institutions against calls for censorship.

This defense of the marketplace of ideas was so universal among the professional intellectual class that it inspired Nobel Prize-winning economist Ronald Coase (1910-2013) to write a paper trying to explain why this was so. And, using this same paper, we can see Coase implicitly predicted the increasing favorability of censorship among the professional intellectual class.

In a 1974 paper, Coase, the Clifton R. Musser Professor of Economics at the University of Chicago Law School, mused over an interesting puzzle. Professional intellectuals focus tremendous effort in highlighting why the market for goods and services requires regulation. Meanwhile, those same intellectuals often argued that the market for ideas should be free from regulation.

So, why the asymmetry?

To answer this puzzle, Coase first dismissed two popular but wrong explanations for this paradox.

The first explanation is that markets for goods and services can have market failures. For example, if gasoline buyers and sellers don’t have to pay for the pollution gasoline generates, they will buy and sell too much at the expense of those who experience pollution.

However, the problem with this explanation is obvious. There can also be failures in the market for ideas. Even if it’s correct that the best idea will win, it’s obvious that the best idea won’t always win immediately. Pollution in the market for ideas, such as disinformation, is also possible.

In other words, the market for ideas also has market failures. On this criteria, both types of markets should be regulated–or neither.

The second wrong explanation for why professional intellectuals defend the market for ideas from regulation is that unregulated speech is necessary for a functioning democracy. This explanation sounds okay at first, so what’s wrong with it?

Well, the market for goods and services is also necessary for a functioning democracy. As Coase puts it,

For most people in most countries (and perhaps in all countries), the provision of food, clothing, and shelter is a good deal more important than the provision of the “right ideas,” even if it is assumed that we know what they are.

So good ideas being necessary for a functioning democracy can’t be an explanation for why the market for ideas should be unregulated, since professional intellectuals favor regulation for goods and services which are also necessary for a functioning democracy.

The asymmetry remains.

Coase finishes his essay by solving the paradox. Why do professional intellectuals defend the market for ideas against regulation but not the market for goods and services?

The market for ideas is the market in which the intellectual conducts his trade. The explanation of the paradox is self-interest and self-esteem. Self-esteem leads the intellectuals to magnify the importance of their own market. That others should be regulated seems natural, particularly as many of the intellectuals see themselves as doing the regulating.

So, the market for ideas is the market controlled by intellectuals. They see their market as a higher and more important calling. The market for goods and services, in their view, is both less important and more corrupted.

So how does Coase’s explanation here predict the increasing calls for censorship in the market for ideas?

Remember the explanation Coase gave. Professional intellectuals considered the market for ideas as above regulation because they controlled the market.

But times have changed since Coase wrote his article in 1974.

The internet has revolutionized the landscape of the market for ideas. It’s no longer the case that the well-credentialed have the most sway in the ideas market. Recent years have been characterized by creators on YouTube, podcasts, and, most recently, Substack dominating the market for ideas.

Now that the market for ideas is no longer dominated by academia and the journalism industry, members of those groups no longer have the same incentives to stop industry regulation.

In fact, as in many industries, it may be in incumbents’ best interest to regulate competition. After all, if people get their new commentary from Joe Rogan and not CNN, that hurts CNN’s bottom line.

So, although Coase did not foresee the decentralization of the market of ideas in his piece, the logic of his paper gives a clear prediction. If the ones who hold the reins to the market for ideas lose their grip, calls for regulation are sure to follow. And this is exactly what we’re seeing.

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This article was published by FEE, Foundation for Economic Education and is reproduced with permission.

A Musk Inspired Anti-ESG Takeover Wave?

Estimated Reading Time: 5 minutes

It’s fun to see memes suggesting that Elon Musk should buy Alphabet, Amazon, Coca Cola, Disney, Meta, Netflix, YouTube, and so forth, but of course he cannot afford all that. But we can. By we, I mean value investors. Musk’s purchase of Twitter has validated my critiques (see hereherehere, and here) of ESG-based investment (environment, social, governance), which despite its weak financial record currently constitutes about $2.7 trillion globally. And it has demonstrated the potential power of anti-ESG funds, which I have called Friedman Funds, after Milton.

An anti-ESG Friedman Fund would, firstly, short companies overvalued due to capricious or government-dictated ESG metrics and buy companies undervalued due to said metrics, and, secondly, buy controlling interests in potentially valuable companies that are going broke, or at least earning less than they could, because they went woke, as Musk and his investors recently did.

The goal of the fund would be to earn above-average risk-adjusted returns, period.

The effect of the fund would be to increase financial market efficiency and economic productivity by punishing deviations from rational valuations and rational business decision-making processes.

The first approach is widely called value investing. Although understood in general terms by investors since at least the 18th centuryBenjamin Graham popularized and quantified the approach in the first half of the 20th century. The gist is to buy stocks when their market price falls below their rational value and to sell or short them when their market price exceeds their rational value. Value investors tend to buy and hold, ignoring daily price gyrations so long as the market price remains near rational value, the price toward which the stock will gravitate in anything approaching an efficient market.

A stock’s price might deviate somewhat from its rational value because investors like or hate the company because of what it makes, or how it makes it, or who runs it, or something its executives say or do. In other words, the shares of presumably “good” companies can gain from a “halo effect,” while shares of allegedly “bad” companies sometimes languish due to a “devil’s horn effect.” Some investors overestimate the importance of those various soft factors on other investors, causing them to value the stock higher (halo) or lower (horn) than the rational investor does.

ESG funds and ESG ratings – given regulatory teeth by the Securities and Exchange Commission directly, or indirectly through bond rating agencies – could produce significant halo/horn effects that value investors could exploit for their own gain while reducing financial system fragility in the process. Because ESG represents politicized and largely subjective concepts, ESG ratings can diverge significantly from reality. Unless checked by value investors, they could easily lead to bubbles (too much investment in certain assets, like dotcoms or mortgage-backed securities) or anti-bubbles (too little investment in certain assets, like fossil fuels). 

ESG bubbles could be particularly costly because the overinvestment might go into companies that actually hurt the environment or the downtrodden. As scholars like Ozzie Zehner, author of Green Illusions, have been arguing, and as Michael Moore tried to explain to fellow progressives in his 2019 documentary Planet of the Humans, very few “green” technologies provide net environmental benefits because they are inefficient, rely on tax subsidies, need rare earth metals to work, have major environmental side effects, and so forth. Similarly, as recently pointed out by Harvard Business Review, ESG ratings are not correlated with better environmental or labor regulatory compliance! 

Moreover, many social justice initiatives at major corporations, like many government programs, aid Democrat politicians but do little or nothing to help American Indians, blacks, Hispanics, women, or the poor. Once exposed, ESG darlings could become dogs overnight, hurting investors and potentially sparking a financial crisis.

The second approach that a Friedman Fund could take is typically frowned upon. According to the so-called Wall Street Rule, investors who do not like management decisions should sell instead of raising a stink. It’s a good rule of thumb because corporate management is usually well-entrenched. Most stockholder proposals fail because managers dominate corporate elections due to their control of the proxy mechanism and employee-owned shares.

A few simple rule changes, like cumulative voting, secret ballots, proxy mechanism reform, and larger board member and executive stock holdings, would make it easier for individual shareholders and institutional investors to pressure management to maximize long-run stockholder returns by making more rational business decisions, like not alienating their median customer to please vocal extremists.

Until then, Friedman Funds have to be willing to purchase underachieving companies like Twitter through stock market purchase of controlling stakestender offers, or proxy votes. Yes, such tactics are often derided as “corporate raiding” but the poor state of corporate governance can render such raids economically necessary. In the 1980s and 1990s, the takeover of poorly performing corporations by funds led by corporate raiders like Carl Ichan and leveraged buyout firms like Kohlberg, Kravis, Roberts reinvigorated the US economy by forcing rational changes at stagnating or inefficient companies.

It was no accident that the classic film on corporate takeovers, Other People’s Money, hit theaters in 1991. Its famous climax pitted Lawrence “Larry the Liquidator” Garfield (played by Danny DeVito) of Garfield Investments against Andrew Jorgenson (played by Gregory Peck), head of the failing New England Wire and Cable Company, the biggest employer in a small Rhode Island town. At the company’s annual stockholder meeting, Jorgenson argued, like every other adherent of the “stakeholder” theory of the corporation, that “a business is worth more than the price of its stock. It’s the place where we earn our living, where we meet our friends, dream our dreams.”

After being derided by Jorgenson as a greedy, big-city corporate raider who “builds nothing” and is basically committing “murder,” Garfield retorted:

This company is dead. I didn’t kill it. Don’t blame me. It was dead when I got here. It’s too late for prayers. For even if the prayers were answered, and a miracle occurred, and the yen did this, and the dollar did that, and the infrastructure did the other thing, we would still be dead. You know why? Fiber optics. New technologies. Obsolescence. We’re dead alright. We’re just not broke. And you know the surest way to go broke? Keep getting an increasing share of a shrinking market. Down the tubes. Slow but sure.

You know, at one time there must’ve been dozens of companies makin’ buggy whips. And I’ll bet the last company around was the one that made the best goddamn buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company? You invested in a business and this business is dead. Let’s have the intelligence, let’s have the decency to sign the death certificate, collect the insurance, and invest in something with a future. …

Me. I’m not your best friend. I’m your only friend. I don’t make anything? I’m makin’ you money. And lest we forget, that’s the only reason any of you became stockholders in the first place. You wanna make money! You don’t care if they manufacture wire and cable, fried chicken, or grow tangerines! You wanna make money! I’m the only friend you’ve got. I’m makin’ you money.

Take the money. Invest it somewhere else. Maybe, maybe you’ll get lucky and it’ll be used productively. And if it is, you’ll create new jobs and provide a service for the economy and, God forbid, even make a few bucks for yourselves. And if anybody asks, tell ’em ya gave at the plant.

Granted, Musk’s play on Twitter is somewhat different. Unlike buggy whips, microblogging isn’t a doomed industry yet. But clearly Twitter, despite its sizable first mover advantage, was losing market share to direct competitors like Parler, as well as newer “social media” concepts like Clubhouse and Mastodon, because it was alienating many customers with its over-the-top censorship of demonstrably true “misinformation” and opaque account shutdowns and throttling. That is what Musk meant when he told Twitter’s board that he could unlock the platform’s value in his offer letter. And it turns out that Twitter was overstating the number of its users by over a million, too!

Many other companies also appear to underperform their potential in the name of progressive politics. When executives and board members earn big salaries but own little stock, they have strong incentives to downplay the importance of share prices while catering to tiny but vociferous and even vicious progressive cabals. If incentives cannot be better aligned between management and stockholders from within, then somebody from the outside, like Larry the Liquidator, Musk the Magician, or Friedman Funds, must step in so that the economy doesn’t suffer the large costs associated with underutilized assets.

Thanks to occupational licensing rules (e.g., Series 65), sundry regulations, and other startup costs, I cannot start a Friedman Fund myself. But I can, and would, invest in an ably led one, as would many others interested in making Adam Smith proud by reducing economic irrationality by profiting from it.

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This article was published by AIER, American Institute for Economic Research and is reprinted with permission.

Critics Raise Alarm Over New DHS ‘Speech Police’

Estimated Reading Time: 2 minutes

Critics have raised the alarm after the Department of Homeland Security announced the creation of a new federal board that will monitor and combat speech it deems “disinformation.”

DHS Secretary Alejandro Mayorkas spoke about the “Disinformation Governance Board” while testifying before Congress this week. Mayorkas called disinformation a “threat” that needs to be addressed with federal law enforcement power. DHS has pointed to disinformation given to migrants as well as Russian disinformation.

“The goal is to bring the resources of (DHS) together to address this threat,” he said.

U.S. Sen. Marco Rubio, R-Fla., posted a video on Twitter saying the “Soviet-style censorship agency” is evidence that “the Marxist left is coming after your most basic constitutional rights.

“A lot of people don’t know this, but the Department of Homeland Security just set up a new office that’s going to be a speech police,” Rubio said. “They’re basically going to be focused on misinformation … so instead of the Department of Homeland Security focused on stopping drugs from coming into America or securing the border, stopping illegal immigration, they’re not going to be focused on that. They’re focused on policing speech, on making sure that people cannot share information or say things that they decide is misinformation.

“Guys it’s time to wake up,” he added. “If you don’t think these people are coming after free speech. If you don’t think they are … coming after freedom, you better believe it now.”

Those concerns were heightened when news broke that Nina Jankowicz announced online that she would be “serving in the Biden Administration [DHS] and helping shape our counter-disinformation efforts.” Jankowicz worked as a global fellow at the Wilson Center where her research focused on disinformation.

Critics quickly pointed to Jankowicz’s remarks about the Hunter Biden laptop story and disinformation. The laptop story has become a focal point in the debate over censorship, particularly on social media, as evidence has increasingly verified many parts of that story that was labeled as misinformation and censored by mainstream and social media in the weeks before the 2020 presidential election.

“Back on the ‘laptop from hell,’ apparently – Biden notes 50 former natsec officials and 5 former CIA heads that believe the laptop is a Russian influence op,” she wrote on Twitter during the 2020 presidential campaign.

After taking criticism this week, Jankowicz defended her remarks.

“For those who believe this tweet is a key to all my views, it is simply a direct quote from both candidates during the final presidential debate,” she said. “If you look at my timeline, you will see I was livetweeting that evening.”

The DHS plan comes just days after billionaire Elon Musk has all but secured the purchase of Twitter. Musk has emphasized the need to restore free speech to the platform, calling it a modern “town square” for our democracy.

Notably, Twitter censored the Hunter Biden story during the last presidential election.

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This article was published by The Center Square and is reproduced with permission.

Trudeau’s Emergency Act Sent A Shockwave Through The Cryptocurrency World

Estimated Reading Time: 3 minutes

In a move that has angered crypto investors, companies and enthusiasts all over the world, the Canadian government is considering permanently extending the emergency measures that allow it to monitor and seize cryptocurrency.

“The government will also bring forward legislation to provide these authorities to FINTRAC on a permanent basis,” Freeland said.

Prime Minister Justin Trudeau revoked the Emergency Act on Wednesday, but it is unclear what specific cryptocurrency rules will be made permanent under Canada’s anti-terror laws, and which will end with the emergency powers. Freeland’s office did not respond to an inquiry from the Daily Caller News Foundation. (RELATED: Canada’s Justice Minister Says Trucker Convoy Supporters Who Are ‘Pro-Trump’ Should Worry About Having Bank Accounts Frozen)

Prominent executives in crypto have spoken up against what critics call a government overreach. Tesla CEO Elon Musk mocked Trudeau by comparing him to Hitler, Ethereum cofounder Vitalik Buterin slammed Canada’s crackdown on crypto and the CEOs of Kraken and Coinbase — two of the biggest centralized exchanges in the world — each sent strongly worded tweets.

The CEOs’ tweets were strange since they actively encouraged their users to defect to competitors. The tweets even piqued the interest of the Ontario Securities Commission, which flagged them to the RCMP because they appeared to encourage people to skirt the rules about donating to the truckers’ protest.

“We are aware of this information and have shared it with the RCMP and relevant federal authorities,” wrote the OSC’s manager of public affairs.

Both the tweets explicitly refer to “non-custodial wallets,” a simple version of which would be like storing cryptocurrency on a USB stick under a mattress. A more complex non-custodial wallet is a piece of software known as a “smart contract.” There are thousands of non-custodial products that lie in the space between smart contract and USB stick, but in each type, the user holds their own “private key,” thus ensuring that cryptocurrency assets are immune to financial censorship.

“Custodial wallets,” in contrast, store cryptocurrency on a cloud that is owned and operated by whatever exchange is entrusted to hold it. From a legal standpoint, such centralized exchanges may have no choice but to comply with government orders and FINTRAC monitoring, assuming they want to keep doing business in Canada.

“It is unfortunate that the Emergency Economic Measures Order is indiscriminately targeting the whole cryptocurrency ecosystem,” said Justin Hartzman, co-founder and CEO CoinSmart, a Toronto-based crypto trading platform, to the DCNF. “The addresses associated with this alert have been widely disseminated to the entire crypto community here in Canada and have reportedly been reported to the blockchain monitoring softwares that service the industry world wide. We will cooperate with the OPP and the RCMP and fulfill our obligations, if any, under the Emergency Economic Measures Order.”

Non-custodial companies are speaking out more bluntly against Trudeau’s emergency measures.

“We cannot ‘freeze’ our users assets. We cannot ‘prevent’ them from being moved. We do not have any knowledge of the existence, nature, value, and location of our users’ assets. This is by design,” said Nunchuk, a non-custodial wallet company, in a letter to the Ontario Supreme Court of Justice. “Please look up how self-custody and private keys work. When the Canadian dollar becomes worthless, we will be here to serve you, too.”

The DCNF spoke with two additional non-custodial wallet companies, Edge and Swype.

“This topic really is a key purpose of all of our products,” said a spokesperson for Edge. “Whether or not someone agrees with the protests themselves isn’t the point here. The point is that, if you’re cheering this on, some day the other side will be in charge, and you might not be so cheerful. At our foundation as a people, we have to have rules that we all play by which can’t be violated. Crypto was built for this.” (RELATED: El Salvador Becomes First Country To Use Bitcoin As National Currency)

“Governments justify these restrictions by claiming they’re acting in our interests,” said a spokesperson for Swype. “We think people know their interests. Crypto means there’s no need for these middlemen anymore for people to act in their own interests, and as crypto adoption increases, these governments will need to invent some other story.”

New cryptocurrency regulations may be coming to America as well. Last week the FBI announced that they are “launching a unit for blockchain analysis and virtual asset seizure.”

Editor’s Note: At the time of writing this article, the author owned various long positions in Bitcoin, Ethereum and several other coins and/or crypto derivatives. None of these coins are stored on any of the exchanges or wallet companies mentioned in this story.

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This article was published by the Daily Caller News Foundation and is reprinted with permission.