Tag Archive for: ElonMusk’sTwitter

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and computer science at Indiana University, argues John Milton’s idea of the uncensored marketplace of ideas is outdated and calls for “refereeing” of social media.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.

Incensed By Elon Musk’s Twitter Takeover, The Left Won’t Even Pay Lip Service To Free Speech

Estimated Reading Time: 5 minutes

There was a time not long ago when liberals at least pretended to support free speech. Those days are gone, and never coming back.

 

If you want to know how insane our disinformation discourse is right now, consider this: on Wednesday, just two days after Elon Musk secured a $44 billion deal to purchase Twitter — triggering apoplectic doomsaying from his critics on the left — news broke that the Department of Homeland Security has created a “Disinformation Governance Board” to combat misinformation ahead of the 2022 midterms.

Testifying before the House Appropriations Subcommittee, Homeland Security Secretary Alejandro Mayorkas said the new entity would address the “threat” of so-called targeted misinformation campaigns among minority communities. Hours later, Politico reported the DHS board would also focus on illegal immigration and Russia, and would be led by Nina Jankowicz, a former disinformation fellow at the Wilson Center and an advisor to the Ukrainian Foreign Ministry, who also happens to be a Russia collusion truther.

In addition to spreading the false story that former President Donald Trump was put in office as part of a nefarious Kremlin plot, Jankowicz once claimed armed Trump supporters would show up to the polls to intimidate voters. In the runup to the 2020 election, she spread the false narrative that Hunter Biden’s laptop was a Russian influence operation.

Indeed, the choice of Jankowicz to head a DHS office targeting election misinformation ahead of the midterms tells you everything you need to know about what the Biden administration means when it uses terms like “misinformation,” and sets up a board at DHS to “combat” it. The point of the board is to suppress any information or news that runs counter to the administration’s political aims and policy agenda. Understood in this light, the new DHS board amounts to a Soviet-style Ministry of Truth, a propaganda operation designed to quash speech and hide information from voters ahead of national elections — the exact opposite of its stated purpose.

News of this Disinformation Governance Board should snap the entire Musk-Twitter saga into focus. The unintentionally hilarious freak-outs from corporate media and left-wing blue checks about the end of democracy if Musk takes control of Twitter are not, according to the left’s point of view, overreactions.

For them, the purpose of Twitter is not to facilitate free speech or the salutary exchange of ideas or even robust debate. They care as much about all that as, say, Mayorkas and Jankowicz care about disinformation ahead of the midterms. Nor do they care all that much about hateful speech or targeted harassment on Twitter. So long as the targets of hate and harassment are on the right, it’s fine by them.

When they decry Musk’s takeover and lament that it will threaten democracy, what they mean is that they fear losing control over the platform, which, although smaller than some other social media companies, is a remarkably powerful tool for controlling narratives, shaping political discourse, and influencing news coverage. For them, “free speech” means speech they allow, that falls within boundaries they themselves have set and can change as needed. None of the people who now claim Musk’s ownership of Twitter is a huge problem saw any problem at all with Twitter’s suppression of the Hunter Biden laptop story ahead of the 2020 presidential election — a major case of actual misinformation that arguably affected the outcome of the election.

You cannot get them to admit this, though, in part because they will not admit it to themselves. Epistemic closure on the left makes it impossible for someone like The Atlantic’s Adam Serwer, for example, to understand the Musk takeover of Twitter as a potential victory for authentic free speech. For Serwer, the entire debate about free speech on Twitter is a canard, “a disingenuous attempt to frame what is ultimately a political conflict over Twitter’s usage as a neutral question about civil liberties, but the outcome conservatives are hoping for is one in which conservative speech on the platform is favored and liberal speech disfavored.”

That pretty much sums up what the left is telling itself about all this. Allowing conservatives to speak their minds on Twitter about, say, transgenderism or abortion or critical race theory, can’t possibly be considered “free speech.” To them, it’s just “hateful conduct” conservatives engage in as part of a power dynamic, which in turn warrants censorship.

Same goes for raising concerns about last-minute changes to voting rules ahead of the 2020 election, or questions about the origins of Covid-19 and the efficacy of the vaccines. None of it counts as free speech, according to the left. Mention any of that, and you’re liable to get locked out of your Twitter account. (Believe me, I know whereof I speak.)

For the left, this isn’t only right and just, it’s necessary to “protect democracy.” Consider the recent remarks from former President Barack Obama — the living, breathing avatar for this mode of thinking. During a speech at Stanford University, Obama said censoring speech online is necessary to thwart disinformation that could hoodwink people into believing falsehoods or losing trust in their leaders, and of course we can’t have that. “Once they lose trust in their leaders, in mainstream media, in political institutions, in each other, in the possibility of truth, the game’s won,” he said.

It never occurs to Obama, or to his rapt audience at Stanford, that our leaders richly deserved to be distrusted, as do the mainstream media and our political institutions. The important thing, for Obama and those with his mindset, is not that these people and institutions prove themselves actually trustworthy, only that they be seen as such. If that means a little more online censorship, then so be it.

It was not always so. There was a time not long ago Obama himself at least made it sound like he thought free speech was important. Speaking at the United Nations in 2012 just weeks after the terrorist attack on the U.S. Embassy in Benghazi that killed Chris Stevens, the U.S. ambassador in Libya, along with three other Americans, Obama mounted a spirited defense of free speech. (Set aside, for the moment, that he did so under the false pretense that the Benghazi attack came about as a result of spontaneous protests of an anti-Muslim video, and not, as everyone at the time knew, a coordinated assault by Islamic militants affiliated with Al Qaeda.)

The reason the United States protects free speech, Obama said, is “because in a diverse society, efforts to restrict speech can quickly become a tool to silence critics and oppress minorities,” and because, “given the power of faith in our lives, and the passion that religious differences can inflame, the strongest weapon against hateful speech is not repression, it is more speech.”

Efforts to suppress free speech, he went on, are doomed to fail because “in 2012, at a time when anyone with a cell phone can spread offensive views around the world with the click of a button, the notion that we can control the flow of information is obsolete.”

What a difference a decade makes.

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