Would you pay good money for accurate predictions about important events, such as election results or military campaigns? Not if the U.S. Commodity Futures Trading Commission (CFTC) has its way. It recently took enforcement action against overseas prediction markets run by InTrade and TEN. The alleged offense? Allowing Americans to trade on claims about future events.
The blunt version: If you want to put your money where your mouth is, the CFTC wants to shut you up.
A prediction market allows its participants to buy and sell claims payable upon the occurrence of some future event, such as an election or Supreme Court opinion. Because they align incentives with accuracy and tap the wisdom of crowds, prediction markets offer useful information about future events. InTrade, for instance, accurately called the recent U.S. presidential vote in all but one state.
As far as the CFTC is concerned, people buying and selling claims about political futures deserve the same treatment as people buying and selling claims about pork futures: Heavy regulations, enforcement actions, and bans. Co-authors Josh Blackman, Miriam A. Cherry, and I described in this recent op-ed why the CFTC’s animosity to prediction markets threatens the First Amendment.
The CFTC has already managed to scare would-be entrepreneurs away from trying to run real-money prediction markets in the U.S. Now it threatens overseas markets. With luck, the Internet will render the CFTC's censorship futile, saving the marketplace in ideas from the politics of ignorance.
Why take chances, though? I suggest two policies to protect prediction markets and the honest talk they host. First, the CFTC should implement the policies described in the jointly authored Comment on CFTC Concept Release on the Appropriate Regulatory Treatment of Event Contracts, July 6, 2008. (Aside to CFTC: Your web-based copy appears to have disappeared. Ask me for a copy.)
Second, real-money public prediction markets should make clear that they fall outside the CFTC's jurisdiction by deploying notices, setting up independent contractor relations with traders, and dealing in negotiable conditional notes. For details, see these papers starting with this one.
[Aside to Jerry and Adam: Per my promise.]
[Crossposted at Technology Liberation Front, and Agoraphilia.]
Wednesday, December 12, 2012
CFTC Targets Prediction Markets; Hits First Amendment
Tuesday, November 27, 2012
The Freeman on Free Cities
Eager to bring Hong Kong-style growth to their beleaguered Central American country, Honduras amended its constitution in 2011. The new provisions allowed the creation of quasi-sovereign special development regions. Libertarians thrilled at the prospect.
By making it easier to escape from bad government to better government, the Honduran plan would put the forces of competition and choice in the service of the Honduran people. Formerly, Hondurans who voted with their feet had to flee their homeland. Now, they could stay and wait for good government to come to them--at least to the neighborhood.
Those grand visions came to nothing, however. Instead, the Honduran Supreme Court struck down the constitutional amendments as ... unconstitutional. Does that spell the end of the Honduran experiment in newer, freer cities?
Sunday, May 24, 2009
How Union Bullies Fund their Critics
The L.A. Times' blog recently reported that the Los Angeles police officers' union tried to bully the San Diego Union-Tribune into firing editorial writers who argue that "lawmakers should cut back on salaries and benefits for public employees in order to help close gaping budget deficits." Gail Heriot calls the incident "chilling," and with good reason. I see a bright side to it, however.
Platinum Equity, a private firm, relies on a $30-million investment from the union's pension fund, along with large sums from the pension funds of other groups of California government employees, to help it buy companies. Platinum recently acquired the San Diego Union-Tribune. The L.A. police officers' union thus regards itself as a part owner of the paper—one that has purchased the right fire unwanted employees.
Exactly how much clout the union actually has over the paper remains to be seen. The San Diego Union-Tribune has publicly rebuffed the union's demands. As Heriot observes, however, "threats like these can cause a newspaper to soft-pedal its views even when the threats aren't carried out."
So what is the bright side? Many newspapers face financial difficulties, and would welcome capital infusions. This imbroglio will suggest to alert publications a ready way to attract investments from government-employees' unions: repeatedly and loudly demand that lawmakers reduce those employees' salaries and benefits. In effect, unions have signaled their willingness to subsidize their critics. State action would never have that effect; there is no profit to be had in suffering censorship. Score another point for the relative efficacy of market mechanisms—even when used by ignorant bullies—in encouraging freedom of expression.
Saturday, April 19, 2008
Amsterdam on the Reservation
I'm currently attending a Liberty Fund conference on, "Liberty, Property, and Native America." The assigned readings, drawn largely from Self-Determination: The Other Path for Native Americans (2008), have exposed me to a wonderful range of new ideas. The chapter written by Ronald N. Johnson, for instance, "Indian Casinos: Another Tragedy of the Commons," opened my eyes to a way by which Native Americans might both radically increase their fortunes and our liberties. The idea, in brief: The same loophole that allows them to run casinos might also allow Indians to offer legal access to recreational drugs, prostitution, and extreme fighting.
Native Americans won the right to run casinos thanks to cases like California v. Cabazon Band of Indians, 480 U.S. 202 (1987), and Seminole Tribe of Florida v. Butterworth, 658 F.2d 310 (5th Cir. 1981), and the Indian Gaming Regulatory Act ("IGRA") that such cases inspired. To generalize, U.S. law allows sovereign tribes to offer gaming services on their reservations, subject to three conditions:
- First and foremost, a reservation's host state must permit the particular sort of activities in question, even if under a very restrictive regulatory regime, rather than prohibiting and criminalizing them. In Seminole Tribe of Florida, for instance, the tribe successfully relied on the claim that Florida law allowed certain forms of bingo.
- Second, to judge from cases forbidding the sale of fireworks on reservations, and the illegality of Indians offering Internet gaming to off-reservation customers, a tribe must not exercise its sovereign powers so as to gut the effect of its host state's regulations. What happens on the reservation must, in other words, stay there.
- Third, as a matter of rhetoric if not hard law, it helps a tribe to emphasize that it has a long history of enjoying the same amusements that it offers its guests. Indian casinos thus often emphasize the role that games of chance traditionally played in the host tribe's culture.
Depending on the state and tribe, those three conditions might apply to a tribe offering recreational drugs, prostitution, and extreme fighting on its reservation. Thanks to Employment Division v. Smith, 494 U.S. 872 (1990), and 42 U.S.C. 1996a, for instance, states must permit the religious use of peyote, a traditional practice among some Native Americans. So long as a tribe administers that sacrament under controlled conditions, rather than by selling it for off-reservation use off, offering peyote would arguably qualify for the same sort of legal protections that have allow Indian casinos to thrive. Similar arguments might well apply to marijuana in many states (though here the case for traditional Indian use appears weaker than with regard to peyote), prostitution in Nevada and Rhode Island (though, again, the alleged "wife sharing" customs of some tribes do not quite equate to the same practice), and violent or even deadly sports among consenting adults.
According to Ambrose L. Lane, Sr.'s book, Return of the Buffalo: The Story Behind America's Indian Gaming Explosion 44 (1995), in 1979, California's Cabazon Band of Mission Indians considered cultivating marijuana and jimson week (a traditional Native American hallucinagen), only to set the idea aside. Beyond that, I've found no evidence that any tribe has considered pursuing the sort of legal strategy I've described. Given the large profits that offering drugs, sex, or extreme martial arts might garner tribes, however, and the competition that increasingly cuts into their gambling businesses, we might soon see many Native American Amsterdams.
Friday, April 04, 2008
Obama: An Oppressed Minority Who Might End the War
As an oppressed minority, Barak Obama has seen life from a perspective all too rare among politicians. He has suffered being cast out of restaurants and other public accomodations. He has strived to pass himself off as a member of the ruling majority, only to have his efforts cast into doubt and his minority status thrown back into his face. Some people think that none of this matters—that we should not discuss Obama's minority status, much less consider it as a factor in his candidacy. To the contrary, I think we should celebrate it as a something that makes him more likely than McCain or Clinton to pursue a policy of peace.
I refer, of course, to Obama's nicotene habit and how it might encourage him to take a fresh perspective on the ongoing Drug War.
As a cigarette smoker, Obama has, like others in that oppressed minority, suffered shame and rejection. Obama has evidently tried to stop or at least hide his habit, only to have reporters badger him about his efforts and doubt his sincerity. Some people think we shouldn't care whether or not Obama smokes. As someone who struggles with addiction daily, though, Obama surely knows better than most that criminalizing drugs offers a very poor way to help the afflicted. More than any other presidential candidate, he can understand first-hand the appeal of recreational drugs, and can empathize with those who let their bad habits get the best of them.
Thanks to his addiction to cigarettes, Obama offers us the hope of a kinder, freer, more peaceful America.
Wednesday, March 05, 2008
Mixed Feelings
I mildly prefer Obama to Hillary, for pretty much the reasons given by Radley Balko and David Boaz. Nevertheless, I wasn't terribly disappointed by last night's big win for Hillary. Why not? Because politics is most easy to stomach when taken as a form of entertainment. Hillary staying firmly in the race enhances the odds of having a brokered Democratic Convention, and that will assuredly prove much more exciting than the usual love-fest for the anointed one.
Monday, February 25, 2008
Gaming the Electoral College
Somehow I didn’t realize until this election year that the Republicans and Democratics don’t have exactly as many delegates for their nominating convention as there are electors in the electoral college. There are 538 electors (found by adding the number of reps and senators from each state, plus three for D.C.). But the Democrats have over 4000 delegates for their convention, the Republicans almost 2500 (I’ve gone with ballpark figures here because the actual figures seem to be in flux).
Nevertheless, the number of delegates is approximately proportionate to the number of electors, at least once you ignore delegates from territories (which get no electors but which have delegates in the Democratic Convention). My quick calculations for the D’s (I was too lazy to do it for the R’s) showed that the percentage of delegates and the percentage of electors from a state never differed by more than one percentage point.
That means that there’s still room, in future elections, for one or both parties to alter their convention rules to game the electoral college. The basic strategy would be to put extra weight on states that could easily go either way in the general election, and to put minimal weight on states that are clearly in one camp or the other. For example, it would make sense (for both parties!) to reduce the number of delegates allocated to California, which will almost assuredly go Democratic, and also to reduce the number allocated to Texas, which will almost assuredly go Republican. The delegates should be reallocated to states like Ohio and Florida, which have demonstrated their willingness to go either way.
Note that it does not make sense to give more weight to a state that your party “owns,” because those electors are essentially yours anyway. The Democrats will probably get California regardless of their nominee, so Californians’ opinions are not very informative in choosing the candidate with the best likelihood of winning the general election.
Now, why haven’t the parties already done this? One answer is that it would seem undemocratic. But that doesn’t really fly, because (a) the electoral college itself is undemocratic in some sense, yet both parties now allocate delegates approximately in line with the college’s electors; and (b) the Democrats have a large number of super-delegates (about 20% of the total) who are free to vote however they want, regardless of primary and caucus results, and the Republicans have a smaller number of delegates with similar freedom (though they aren’t usually called “super-delegates”).
The existence of super-delegates (or their Republican equivalent) points to another answer: the parties already have a mechanism for incorporating strategic considerations. Delegates not bound by the states’ primaries or caucuses can throw their votes to candidates favored in those states that should strategically have more weight. But why not change the allocation of regular delegates so that it will already reflect good electoral strategy? Then you can let the super-delegates focus on other considerations that are not as easy to include mechanically.
A third possible answer is that the parties have other purposes for their delegates. The Democratic Party (and maybe the GOP) allows its delegates to determine its national party platform – which makes sense of the otherwise bizarre decision to grant delegates to territories that cannot vote for president. But why not simply have a different set of delegates for that purpose? Yes, it would be complicated – but the status quo is also mindbogglingly complex for the average person. In general, the parties don’t shy away from complex strategies that will improve their electoral odds; consider, for instance, the widespread practice of gerrymandering.
So what gives? Are there dollar bills on the sidewalk in the presidential market?
Thursday, December 20, 2007
How to Prognisticate a Paul Presidency
Lots of debate about Ron Paul over at Marginal Revolution (see both the in-post links and the comments). The main question is whether Paul’s advocacy of the gold standard makes him a kook. I’m not much of a macroeconomist, so I tend to bow to my betters on this one. I’m naturally suspicious of having a government agency in charge of the money supply; but when a libertarian like Tyler Cowen says the gold standard is a bad idea, I’m not inclined to argue that vigorously. (On the other hand, I also trust the judgment of Steve Horwitz, a macroeconomist who is somewhat more friendly to Paul’s anti-Fed position.)
But is a debate about the Fed really relevant to the question of whether Ron Paul would make a good president? Every candidate has at least one crazy idea. I suggest we should not judge a candidate by his kookiest position, but by his kookiest position that actually stands a chance of implementation. It’s just not plausible that the Fed would be dismantled under a Paul administration. The President cannot unilaterally do such a thing; it would require the cooperation of a Congress that, realistically, would never agree.
What the President can do, with frighteningly little interference from Congress, is shape our foreign policy by (for instance) deciding whether to embroil us in lengthy and costly military adventures. The President can also dramatically affect the behavior of the Justice Department, especially with regard to the expansion of executive power at the expense of civil liberties. On both these fronts, I would trust Paul more than any other candidate, hands down.
Friday, December 14, 2007
Butting Out of Baseball
Should the federal government decide how many strikes make an out, or how many innings constitute a game? Should federal law finally put an end to the designated hitter controversy? Do we need a federal ruling on the wisdom of the in-field fly rule?
Should we establish a federal commission to certify umpires? To set standards for the weight and length of baseball bats? To establish uniform locker sizes for home and visiting teams? To standardize – or prevent standardization of – the signals exchanged by pitchers and catchers? To decide the number of umpires and their optimal placement on the field?
No? Then why on earth should the federal government get involved in the steroid issue? As far as I know, the steroids in question are legal. (And if they’re not, then the relevant laws can be enforced upon baseball players the same way they’re enforced upon anyone else.) All the questions about the use of steroids – which if any should be allowed, how strictly prohibitions should be enforced, and by what means – fall squarely in the category, “What are the rules of baseball?” I just can’t see any good reason for the federal government to try to answer that question.
Major league baseball already has its own government; it’s called Major League Baseball.
Tuesday, November 06, 2007
Rizzo on Becker's Presidential Medal of Freedom
Mario Rizzo, my co-author and erstwhile dissertation advisor, has some choice comments about the recent awarding of the Presidential Medal of Freedom to Gary Becker. He agreed to let me post them here:
Recently it was announced that Gary Becker has been awarded the Presidential Medal of Freedom. There is no doubt in my mind that Gary Becker's work is so good that he deserves every academic honor. And he has received them, including the Nobel Prize in Economics in 1992.UPDATE: This is Glen now. To those who disagree with Mario's reasoning, I pose this question: Would you accept an honor from Kim Jong Il? If the answer is no, then I submit that we're only quibbling about where the line should be drawn. Sadly, I think GWB is on the wrong side of the line.
However, let me offer my gratuitous and perhaps meddlesome opinion that he should not accept the award. Why? That is simple. It is the Presidential Medal and George W. Bush is no friend of freedom. Here I can only list without proof several claims. First, it is clear, I believe, to all objective analysts that he lied us into a war. He intentionally exaggerated or cherry-picked the evidence to show that Saddam Hussein had weapons of mass destruction. Second, Bush has violated the UN Charter (to which the US is a signatory) by invading Iraq without any immanent or even medium-term threat to the US. Third, he has violated the Geneva Treaties and allowed, negligently or intentionally, torture of prisoners at Guantanamo. Fourth, his Administration has engaged in completely extralegal rendition of prisoners to other countries where he knew or should have known that they would be tortured. Fifth, and perhaps least important, he has allowed the explosion of government spending not seen since Richard Nixon and Lyndon Johnson.
All this raises a much larger issue than Gary Becker's medal. This is the attitude among many academics that the state is really benign, at least the good old US of A state. As long as the state recognizes their achievements, excellent as they may be, this shows that these guys can't be all bad. And, what's more, the government (the NSF, for example) awards funding for their worthy research. So what is there to complain about? However, the evidence continues to mount about the malign effects of this government's policies, in particular, and of the fundamental structural deficiencies (to use a mild word) of our state.
The president is not in a position to convey honors to anyone, least of all to a truly great economist like Gary Becker. How can the dishonorable convey honors?
UPDATE 2: Mario emails the following addendum:
Some people are saying that I am being a "libertarian purist." My point is not that it is wrong to accept government money in all cases. I intend to accept my Social Security payments, for example. In fact, if it were simply that Gary Becker would get a check in the mail, I would say fine. Better it should go to him than down the usual rat holes.The problem is that so many people think that it is an HONOR to receive a presidential award from Bush or that, quite fantastically, this medal can enhance Becker's reputation.
Monday, May 14, 2007
Why Can't They All Lose?
I was very pleased when the Democrats took Congress in 2006 -- not because I have any love for their policies (I don't), but because I'm a fan of gridlock. But if Bruce Bartlett is correct that Democrats have a near-lock on the White House in 2008, what are we pro-gridlockers to do? Pray for a swing back to the GOP in Congress? Or hope against hope that the Republicans will pull a rabbit out of a hat in the presidential race? I really don't know what to do. Good thing my vote doesn't make a difference anyway.