Category: regulation

Abortion

Views on abortion have always been difficult to reconcile. Under our constitution, anyone born here is a citizen and has all of the rights of all other citizens. But when does a human fetus or embryo become a person with such rights? The question can be most challenging when the rights of two people—the mother and the fetus—conflict. My own view is that a fetus obtains the status of person with the right to protection, when it is viable, i.e., capable of living when removed from the womb.

The recent ruling by the Alabama Supreme Court that an embryo is a person that must enjoy the protections of the law, moves the goal post to a whole new level. Dr. Ito Briones (MD, Ph.D) argues that, if that is true and applied into practical terms, then women will be subject to a whole new level of restrictions on their behavior in the interest of the unborn person. His interesting observations follow:

The recent ruling by the Alabama supreme court to equate the embryo as a person started when embryos frozen in tubes were accidentally destroyed in a fertility clinic. The parents sued the clinic based on Alabama’s  law of “wrongful death of a minor’s act”. The lower courts said that this law does not apply but the Alabama Supreme Court overturned that decision. And so here we are.

As a practical consequence of this ruling, IVF clinics in Alabama have expectedly suspended treatments. There are already numerous outlets online and in the news that discuss this topic and so I will not discuss this here anymore. Unfortunately, there are also other unintended consequences from this decision that might turn the mundane day to day life of a woman into a dystopian mess.

Here are other issues that may need to be considered because of this ruling. 

  1. Is a restaurant owner liable for serving alcohol to a pregnant woman even if she didn’t know she was pregnant and does not inform the establishment? Presently, restaurants and stores can be held legally liable if they serve or sell alcohol to minors. The liability is valid even if they were not aware of the age status of the patron. To solve this issue, restaurants ask for an ID to confirm age. Does this mean women should also be required to show a negative pregnancy test before being served any alcohol? 
  • Coffee has been scientifically proven to be harmful to the embryo. Do women also have to show a negative pregnancy test before being served coffee? Caffeine is the main culprit in harming embryos and caffeine is also present in tea, chocolate, soft drinks and other foodstuff. Should the government limit the sale of these items to women?
  • How about pregnant women who have breast cancer or any cancer? Can they get treatment even if it will most probably harm if not kill the embryo? 

Before this ruling, a medical case of a pregnant woman with cancer will involve an intimate discussion with the woman, her husband and family, and the doctor. Because of this ruling, the government and law enforcement will have to join the already hypersensitive and impossible dilemma that she will face.

Additionally, any medical treatment on a pregnant woman will have to be reviewed by lawyers to make sure that the embryo’s rights are taken into consideration.

Medical studies have shown that stress on pregnant women may harm the embryo. Stress can induce sleepless nights, hypertension, loss of appetite or a tendency to overeat, headaches, etc. 

Can pregnant women (at any trimester including the first) work as nurses (exposing the embryo/child to harm) or police officers? Should women in these jobs show a monthly negative pregnancy test while at work?

Driving can be very stressful for the woman. Can pregnant women drive? 

Do women have to show a negative pregnancy test while enrolled in college?

By the way, is every miscarriage going to be handled as a possible homicide?

If I have any recommendation about this ruling it is that one should invest in pregnancy test kits soon. The stock value of these tests in the market will surely skyrocket. 

Should the State mandate or advise?

It depends of course. But in America, which was established to empower each individual to make their own decisions, the state should only regulate those individual activities that might harm others such as violating property rights. This attitude presumes that each of us cares more about our wellbeing than does anyone else and know better how to achieve it taking account of our differences in tastes, interests, and risk preferences. It has resulted in a society of more prosperous and happier members.

This can be contrasted with the view that the average person is not intelligent enough or self-motivated enough to maximize their potential and needs to be guided by smarter, wiser people.

A society in which each individual enjoys the maximum freedom of choice hardly means that the government has little or no role in our wellbeing. In addition to providing public safety, shared institutional and physical infrastructure development, and the adjudication and enforcement of contracts (the rule of law), government can contribute to the provision of the knowledge to help inform the individual choices we each make. I want to review two very different areas of government involvement that have reflected the above conflicting attitudes of the government’s best role—monetary policy and public health policy.

Section 8 of the US Constitution gives the federal government the power “To coin Money, regulate the Value thereof,…” Our twelve Federal Reserve Banks and the Board of Governors of the Federal Reserve System carry out that mandate via a system of market determined prices of goods and services and an inflation target of 2%. While I would prefer a monetary policy in which currency was issued or redeemed at a fix price for a hard anchor (traditionally gold) in response to market demand (currency board rules), the Fed has behaved very well within its inflation targeting regime over the past two years (after keeping its policy interest rate too low until two years ago).

A successful inflation targeting policy requires keeping inflation expectations anchored to the target (2% in the US) so that economic wage and price decisions are made in light of that expectation. But todays’ policy actions are only fully felt over the next year or two (what Milton Friedman called “long and variable lags” in the effects of policy). Federal Reserve policy is implemented largely by setting the rate at which it supplies the money it creates to the market. If it sets that rate below the so called neutral rate, it must supply money to keep the rate low. If it sets the Fed Funds (and related) rate above the neutral rate, it must absorb money from the market to keep the rate high. Setting its policy interest rate is the lever by which it controls the rate at which the money supply grows. Each Federal Reserve President and Governor must evaluate all available information about economic activity most likely over the next one to two years and determine in like of that what monetary growth is most likely to result in 2 percent inflation over that period. If market participants believe that the Fed’s choice is most likely to result in achieving the stated target in the future, their wage and price decisions will anticipate that inflation and thus bring it about.

It should be obvious that if Fed officials are honest it attempting to achieve their target and explain as fully as they themselves understand the prospects to the public and the public has confidence in the Fed’s commitment, this is the best that can be done. In fact, the Fed deserves high marks for such transparency in our uncertain and evolving world. Each person and firm make their own forward looking decisions in light of their best guesses of future conditions. The Fed’s guidance is the best and most the Fed can do to bring or keep inflation on target.  

When governments don’t trust “the people” to make their own decisions (they are not smart enough or are two lazy or whatever), they must mandate the “proper” behavior. Consider our approach to the public’s health during the Covid pandemic. Whether government should offer advice and provide information on what is known about a disease such as Covid-19 is complicated by the fact that we should not be free to expose others to communicable diseases. In the case of Covid the government’s understanding of its nature and best protection grew and evolved over time. But the US public heath agencies lost credibility from the beginning by telling well intentioned lies.

“In early March 2020, Dr. Fauci said ‘there’s no reason to be walking around with a mask.’ In the same interview he said people could wear masks if they liked, but they wouldn’t get perfect protection, and it would further pinch what at the time was a short supply of masks for doctors and nurses.” PolitiFact | Marco Rubio says Anthony Fauci lied about masks. Fauci didn’t.

But more to my point, CDC officials thought that their shut down and isolation mandates would be more effective than allowing individuals to determine how best to protect themselves and others. The subsequent evidence suggested that they were wrong. Any benefits were outweighed by very substantial costs. Read the following articles and studies for examples.

Scott Atlas on Lies

“I explore the association between the severity of lockdown policies in the first half of 2020 and mortality rates. Using two indices from the Blavatnik Centre’s COVID-19 policy measures and comparing weekly mortality rates from 24 European countries in the first halves of 2017–2020, addressing policy endogeneity in two different ways, and taking timing into account, I find no clear association between lockdown policies and mortality development.” https://academic.oup.com/cesifo/article/67/3/318/6199605?login=false  

“The most restrictive nonpharmaceutical interventions (NPIs) for controlling the spread of COVID-19 are mandatory stay-at-home and business closures. The most restrictive nonpharmaceutical interventions (NPIs) for controlling the spread of COVID-19 are mandatory stay-at-home and business closures. Given the consequences of these policies, it is important to assess their effects. We evaluate the effects on epidemic case growth of more restrictive NPIs (mrNPIs), above and beyond those of less-restrictive NPIs (lrNPIs)….

“After subtracting the epidemic and lrNPI effects, we find no clear, significant beneficial effect of mrNPIs on case growth in any country…. While small benefits cannot be excluded, we do not find significant benefits on case growth of more restrictive NPIs. Similar reductions in case growth may be achievable with less-restrictive interventions.”  January 2021 study

Worrying About Mandates and Lockdowns as Delta Variant Hits Unvaccinated Californians

Child labor

How much should the government protect us from things?  What form should government protection take? When does “protection” become top down coercion?

The US Labor Department wants to roll back some of the relaxation of “child labor” restrictions allowed by some States. https://thehill.com/homenews/education/4123821-dol-cracks-down-on-child-labor-while-states-loosen-laws/  What should we (or for minors—our parents) be allowed to decide for ourselves and what should the government be allowed to decide for us?

Back to my childhood in Bakersfield again. I was absolutely thrilled when I was able to earn money delivering the morning newspaper. I can’t remember my age exactly, but I think it was 14 or 15. I got up at 5:00 or 6:00 in the morning when a stack of the morning paper was dropped on our porch. I rolled them up and put them in a backpack, mounted my bicycle, and threw them as close to the porches of the subscribers on my list as possible. Bakersfield being semidesert was pleasantly cool in the summer mornings and very cold –freezing cold—in the winter. It virtually never snowed in Bakersfield because if virtually never rained, but it certainly froze any water around in the winter. The wide swing of temperatures between the night and the day is typical of deserts.

Having this job absolutely thrilled me more than the modest money I earned. Prior to qualifying age wise to deliver newspapers, I made money growing tomatoes in our back yard and selling them to the neighbors door to door. They were thrilled to buy my big red delicious and very fresh from the vine tomatoes. No one minded that I might have been breaking some law or other. When I became 16 and had a driver’s license, I went to work for Fedway Department store as an assistant to the parking lot attendant. The next year I was promoted to a salesclerk inside the store. These were weekend jobs.

The money I made was helpful (75 cent per hour if I recall correctly) but the experience was even more valuable. I loved having these jobs. They were indications of growing up. If for some reason and some how they were bad for me (exploitive?? Ha ha), it was rightly up to my parents to say no. Big Brother is overreaching into our lives again. Helicopter moms are bad enough.

Resolution of First Republic Bank

JPMorgan Chase’s purchase of First Republic Bank appears to be a standard purchase and assumption resolution of a failing bank. The Federal Deposit Insurance Corporation (FDIC) has organized hundreds of such bank resolutions there by painlessly purging bad banks for the banking system. The only mistake in my view was selling it to the country’s largest bank.

Purchase and assumption resolutions involve the simultaneous purchase of a failing bank’s good assets and the assumption of its deposit liabilities by a good bank and putting what’s left into bankruptcy (wiping out its shareholders and some or all of its corporate debt). Its the risk of loss to shareholders that provides the market scrutiny of bank risk taking. “Institutional and Legal Impediments to Efficient Insolvent Bank Resolution And Ways to Overcome Them”

Money (currency and demand deposits) should not be at risk of a bank failure. Depositors should not need to evaluate the safety and soundness of the bank they chose to hold their money in. So the FDIC insures deposits up to $250,000. But all deposits in the last three banks to fail were made whole whether insured or not and there is talk that all deposits should be explicitly (rather than just implicitly) insured. Central Bank Digital Currency (CBDCs) would provide such total protection to those holding it (retail CBDCs would be issued/administered by commercial banks and fully backed by an equivalent amount at the central bank).

Public “runs” on banks in order to move vulnerable deposits to cash or a safer bank, result from the fact that banks can fund long term loans with callable deposits. They can lend your deposit to someone buying a house with a 30-year mortgage. This works as long as banks keep enough cash or quickly liquidated assets on hand to cover any deposit withdrawals their depositors might want to make. An alternative to deposit insurance for all deposits is to isolate demand deposits from bank lendable resources by requiring that they be 100% back at the central bank (as with CBDCs) and not available to cover any losses on other bank activities.

It is time to take so called narrow banking (or The Chicago Plan) seriously. CBDCs are the natural vehicle for this restructuring of our money and credit systems.  “Protecting bank deposits”

Econ 101: SVB and bank runs

What is a bank run and how can we prevent them? A bank run, as I am sure you all know, is a rush by depositors to withdraw their deposits for fear that the bank will not have the money to give them. But there is a lot to unpack there in order to understand what is going on and how runs might be prevented.

It is important to understand the difference between debt and equity—between lending a specific amount of money with specific terms and investing an amount of money in exchange for a share of the earnings (or losses) of the recipient. When you buy shares in a company, it has no obligation to return your money. If you no longer want to invest in that company, you can sell your shares to someone else or the company might, at its discretion, buy them back. Its failure to “return” your money cannot be the cause of a company’s bankruptcy (take over by creditors to collect what the company is no longer able to return).

The deposits that we make in our banks are a special case of debt finance of whatever the banks do with our money. As we know, they lend much of it to people and companies for one thing or another and invest some in hopefully safe assets like Treasury bills and keep a tiny bit on hand for when you need cash. But the deposit contract says that you have the right to withdraw (or pay to someone else) any or all of it whenever you want to. Thus, banks must keep sufficient liquid assets in order to satisfy such withdrawals by selling them in the market when you demand your money back. The Federal Reserve, our lender of last resort, also has facilities for lending to banks needing cash against the collateral of bank assets.

The difference between illiquidity and insolvency is critical as well. A bank is solvent when the value of its assets match or exceed the value of its liabilities (such as your deposits). But having sufficient good assets doesn’t mean that that bank can always honor your deposit withdrawal demand. That is a question of liquidity. Does the bank have enough of its assets backing your deposit in forms that it can pay out immediately (cash in its vault, deposits at the Federal Reserve that it can transfer to another bank or use to buy cash, or assets it can quickly sell such as t-bills, or credit lines with other banks or the Fed, etc.)?  “The difference between bank liquidity and capital” Thus, even a solvent bank (positive capital) might fail to honor your withdrawal demand if it doesn’t have sufficient liquid assets. “The big bailout-what next?”

Usually, a bank becomes insolvent when more of its loan assets default than the bank has capital to cover such losses. But as we will see in the case of Silicon Valley Bank, insolvency can also result from a decline in the current market value of a “good” asset.  When depositors suspect that their bank might be insolvent, they will withdraw their money while they still can. This tends to use up the bank’s liquid assets compounding the risk of default. As the word spreads the classical bank run takes off (electronically these days rather than long lines outside the bank as in the old days).

The SVB, which specialized in financial services to start-ups and technology companies, enjoyed a huge increase in its deposits over the last four years, increasing from $49 billion in 2018 to $189.2 billion in 2021 dropping back to $175.4 billion at the end of 2022. It invested most of those deposits in “safe” long term government and similar debt. While the default risk for these assets was negligible, the risk of a loss in current market value if market interest rates increased was high. No one will pay the face value of a 3% ten-year bond while current market rates for the same maturity are 4%. The rapid increase in interest rates as the Federal Reserve reversed money growth to fight inflation tanked the current market value of a large share of SVB’s assets making it impossible for it to come up with the cash depositors might demand if they “ran”. That is how runs work. On March 10 SVB was put into receivership.

The original sin of modern banking is financing long term loans/investments with money (demand and savings deposits). Islamic banking, what uses equity investing, is wiser in this regard. During the Savings and Loan crisis in the U.S. in the 1980s and early 90s (financing mortgages with deposits) more than 1000 S&Ls failed when interest rates increased. But in fact, the U.S. bank regulation regime has some good features. While bank risk taking is subject to many, often costly, regulations, the ultimate check on risk taking comes from the knowledge of bank owners that they will lose their entire stake if their bank becomes insolvent. The Federal Deposit Insurance Corporation (FDIC), which oversees America’s deposit insurance scheme, has developed effective bank bankruptcy and resolution procedures that allow it to take over and resolve insolvent banks with barely a ripple. A favorite tool is the so-called purchase and assumption transaction by which a healthy bank buys the assess of the insolvent one and assumes its liabilities (deposits), usually over a weekend. Thousands of insolvent banks have been resolved by the FDIC in the last fifty years.  See “Institutional and Legal Impediments to Efficient Insolvent Bank Resolution and Ways to Overcome Them” by Warren Coats and Arno Liuksilo “Warren Coats-17”

Most bank depositors pay no attention to the financial condition of their bank because their deposits are insured against losses, which until last week had been raised to $250,000. But the government has now implicitly extended such insurance to all deposits via accounting and other tricks, thus removing any remaining check on bank risk taking from all depositors. On Monday, President Biden announced that no depositors in SVB (and Signature Bank of New York) would lose any of their deposits.  Following the banking crisis of 2008, the Dodd-Frank law further strengthened financial sector regulations. The most important and helpful provisions of this 2,300 page law provided for significant increases and strengthening of bank capital requirements.  

The overuse of debt rather than equity financing is a more general weakness in our economy. The IRS should stop subsidizing it. Interest on borrowing is deductible from taxable income while dividends on equity financing are not. While increasing bank capital makes them less run prone, a simpler and easer to regulate approach is to remove the cause of runs all together by eliminating any risk that your bank can’t honor its obligation to return your money on demand. Another few thousand pages of laws and regulations might catch the last mistakes (though it is hard to see why regulators didn’t address the obvious duration risks taken by SVB), but there is an easier, less costly solution. Bank failures result from the mistakes of banks (their owners and managers) and the failure of depositors to more carefully evaluate the soundness of the bank in which they deposit their money. But depositors have little competence to evaluate bank soundness, and why should they be expected to?

Money (bank deposits) should be fully separated from credit. Deposits should not finance loans. Those financing investments should share in its risks (and rewards) via equity financing. “More than decade ago Professor Kotlikoff and [John Goodman] proposed “limited purpose banking” in The New Republic and in Investment News. The idea is that credit market institutions should be intermediaries between savers and investors and should not themselves use depositors’ money to make risky investments.”

When we deposit money in banks for safekeeping and making payments there should never be any doubt about the bank’s ability to return it on demand and thus no reason to “run” on the bank to protect our deposits. This is the essence of the Chicago Plan which would replace so call fractional reserve banking with 100% reserves (deposits at the central bank). When my bank deposit is backed totally by my bank’s deposits at the Fed, I would know with certainty that they were 100% safe and instantly available.  The “Chicago Plan” and New Deal Banking Reform | Levy Economics Institute (levyinstitute.org) Narrow banking schemes have a similar motivation. “A proposal for the feds balance sheet”

Who Decides?

Who decides what we eat, drink, and how to go about being merry? Societies range from those that rely heavily on government determination to those that leave most choices to individuals. At one end of the spectrum, the government determines what it is healthy or safe for us to consume and do and at the other end each person freely makes their own decisions about most aspects of their life.  Neither of these extremes is absolute, of course. At the freedom end we are not free to violate the freedom of others (steal their property, assault their bodies, etc.).  At the cradle-to-the-grave -government-protection end we safely eat, drink, and enjoy the activities the government allows us to.

America flourished economically and culturally because we were largely free to make our own decisions. Government largely enforced property rights and public safety and provided information on which we could make better informed private choices. We innovated and took calculated risks with the deployment of our ideas and flourished.

In recent decades the government has increasingly restricted our choices to what it determined was good or safe.  The superiority of our private choices depends on how well informed and responsible we are. While we and the government may both think we are motivated to act in our personal best interest, the incentive to get it right is stronger for the individual actor.  And incentives always matter.

Take but one example—the “War on Drugs.”  Despite this war, 11,712 people died from drug overdoses in 2000 rising in two decades to 83,558 in 2020 (from 6,190 to 64,183 for opioids). “Drug overdose deaths-fentanyl-Greenville NC” I believe, with many others, that ending the drug war (legalizing the purchase and consumption of them) and instead educating the public about their effects (honest, fact-based information) would reduce such deaths.

The growing, selling and consuming of Cannabis is now legal in 21 states. When I gave into the social pressure in college to take a drag as a joint was passed around, I learned that it makes me less social. Wine was my better option. Not only do I enjoy wine, but I appreciate its socializing properties.  So, it has probably been 50 years since I have smoked marijuana. Its not clear whether its legalization along with better information and education on its pros and cons will increase or decrease or leave unchanged its consumption. The destructive prohibition of alcohol and the organized crime syndicates that grew up to circumvent it and its subsequent repeal did not eliminate the damage that alcoholism visited on some people.  However, Americans have generally benefited from the reliance on education and persuasion rather than government coercion.  Rather than crime syndicates to distribute illegal booze, we have AA and health facilities to help those who have not been able to resist overusing it.

Challenging and sensitive examples concern racial, sexual and religious discrimination.  The Civil Rights Law of 1964 attempted to address racial discrimination but in some ways overreached. The case of same sex marriage and the cake baker come to mind. We are still struggling to find the best balance between potentially conflicting individual rights.  I fail to see how the refusal of a baker to cook for the marriage of two men (which violates his religious beliefs), interferes with their right and ability to marry —an arrangement society has always seen as beneficial and important (and thus not to be denied to homosexuals).

The case of affirmative action also provides a challenging example of addressing a problem with social attitudes vs coercion. The Supreme Court decided in 1978 that the prohibition against racial discrimination could be violated for a temporary period in the interest of greater racial diversity and balance.  Harvard University chose to discriminate against Asian students, who would have been overrepresented if admitted on the basis of academic merit only, in order to admit a larger number of African Americans.  Asian students have challenged Harvard’s policy and the Supreme Court is expected to rule next year in “STUDENTS FOR FAIR ADMISSIONS, INC., Petitioner, v. PRESIDENT & FELLOWS OF HARVARD COLLEGE, Respondent” on the question “Should this Court overrule Grutter v. Bollinger, 539 U.S. 306 (2003), and hold that institutions of higher education cannot use race as a factor in admissions?”

I believe that a public discussion of the benefits of diversity to schools and other institutions as well its contribution toward overcoming earlier and existing negative discrimination against African Americans is the more promising and flexible approach to this issue than government coercion. I find it interesting that many federal court judges take race into account in hiring their clerks.  “Appeals court judges consider race of their clerks”  This is also an interesting perspective: “How liberals lost their way on affirmative action”

The times are changing

In 1978 China began to free up and open its economy to move its economic policies toward ours. Although the Communist Party of China remained in complete control of the political domain, the growth in China’s economy was dramatic. “According to the World Bank, more than 850 million Chinese people have been lifted out of extreme poverty; China’s poverty rate fell from 88 percent in 1981 to 0.7 percent in 2015, as measured by the percentage of people living on the equivalent of US$1.90 or less per day in 2011 purchasing price parity terms.” “Poverty in China”

As I wrote 11 years ago: “Chinese people strike me as more like us than most any other people (including Europeans) I have met. And who do I mean by “us?” I don’t mean just Anglo Saxons like myself. I mean the hard working, innovative, entrepreneur types who are creating most of the wealth in this country like Google founders, Larry Page (American born Jew) and Sergey Brin (Russian born Jew), or Steve Jobs, who was born in San Francisco to a Syrian father and German-American mother, as well as many Anglo Saxons like myself.” ‘My G20 trip to China”

Sadly, Xi Jinping has been reversing this free market trend with very damaging results to economic growth and personal privacy and freedom in China.  

Sadder still, the United States has reversed direction since 9/11 as well, though more slowly. Not only has our government increasingly intruded into our privacy (it didn’t end with Edward Snowden’s revelations:  “Civil rights-Brennan-domestic terror-white supremacy”), but it has flooded the economy with excessive regulations, increasing trade restrictions and even the launch of industrial policies and subsidies that violate WTO rules. “US chip war to hit allies as hard as it does China”   “Competing with China” Our championing of the rule of law is growing increasingly hollow. Asset forfeiture provides but one example: Coats on the abuse of civil forfeiture”  and George Will on civil forfeiture nightmare”

How can this be? Why do we seem to want to be more like China? Many of today’s voters had not been born when the Berlin Wall fell in 1989. We must make the case for free markets and limited government again and again, but in a way that is understood by, and appeals to the concerns and sensitivities of, generations X and Z and our future children.   “Global protests-democracy-autocracy”

The difference between Bitcoin and FTX

Bitcoin is a digital currency (cryptocurrency) that can be paid to another bitcoin user willing to accept it via a blockchain account.  It is backed by nothing and promises nothing. Its US dollar value has fallen from $65,496 on November 14, 2021, to $15,630 on November 21, 2022.

“FTX Exchange was a leading centralized cryptocurrency exchange specializing in derivatives and leveraged products. Founded in 2018, FTX offered a range of trading products, including derivatives, options, volatility products, and leveraged tokens. It also provided spot markets in more than 300 cryptocurrency trading pairs such as BTC/USDT, ETH/USDT, XRP/USDT, and its native token FTT/USDT.12 In early November 2022, the exchange and the companies in its orbit began a steep fall from grace….  According to its bankruptcy filing, FTX, which was once valued at $32 billion and has $8 billion of liabilities it can’t pay, may have as many as 1 million creditors…. On November 16, a class-action lawsuit was filed in a Florida federal court, alleging that Sam Bankman-Fried created a fraudulent cryptocurrency scheme designed to take advantage of unsophisticated investors from across the country. ” “FTX exchange”

The difference between Bitcoin and FTX is that Bitcoin is a digital coin/token that some believe might achieve wide adoption as money and thus a stable demand that could stabilize its price. In my opinion, this is HIGHLY unlikely. I explained this potential eight years ago: “Cryptocurrencies the bitcoin phenomena”   “The future of bitcoin exchanges”  But most people buying Bitcoin are gambling that they can sell it for a higher price than they paid for it (first cousins to slot machine addicts).

On the other hand, FTX and its related products and services promised real things and to play by known rules (contracts). On November 11, FTX and its affiliated firms were put into bankruptcy. Billions of dollars where missing? Founder Sam Bankman-Fried (SBF) claims that he was just careless. It appears more likely that he was a lying fraudster. “An attorney also said the firm had been run as a ‘personal fiefdom’ of Bankman-Fried with $300 million spent on real estate such as homes and vacation properties for senior staff.” “Crypto lender genesis says no plans to file bankruptcy imminently”  Presumably to promote himself as a good guy and to win influential friends, SBF also contributed millions to charities and politicians. 

Most crypto product and service providers want regulations that will give potential investors and customers more confidence in their products but that will not stifle the potential creativity of a dynamic industry.  Hopefully congress will get on with it — carefully. “Crypto bill criticized”

“Sam Bankman-Fried, the founder of the FTX exchange and Alameda Research, a cryptocurrency trading platform, seemed to confuse his bank and his companies. According to John Ray, the new CEO in charge of the restructuring of his empire which went bankrupt on November 11, Bankman-Fried received a personal loan of $1 billion from Alameda. He is not alone: ​​the firm, which is a kind of cryptocurrency hedge fund, has also lent $543 million in personal loan to Nishad Singh, an associate of Bankman-Friend, and $55 million to Ryan Salame, the co-CEO of FTX Digital Markets, one of FTX’s affiliates.  

“’Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,’ Ray wrote. ‘From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.’”  “Bankman-Fried received 1bn in personal loan from his company”

“Bankman-Fried’s net worth peaked at $26 billion.[11] In October 2022, he had an estimated net worth of $10.5 billion.[12] However, on November 8, 2022, amid FTX’s solvency crisis, his net worth was estimated to have dropped 94% in a day to $991.5 million, according to the Bloomberg Billionaires Index, the largest one-day drop in the index’s history.[13][10] By November 11, 2022, the Bloomberg Billionaires Index considered Bankman-Fried to have no material wealth.[14]”  “Sam Bankman-Fried”

I assume that jail is next, perhaps in the cell previously used by Bernie Madoff.

If you subscribe to The Economist you can read fascinating details here: “The failure of ftx and Sam Bankman-Fried will leave deep scars”

Lockdown Lessons Learned During Covid

We are two and a half years into the Covid-19 pandemic. Data has accumulated on the effectiveness of lockdowns in reducing deaths and of the costs associated with lockdowns. The overall effectiveness of lockdowns must consider both aspects. Moreover, lockdowns took different forms in different places—total, targeted, etc.  Dyani Lewis has provided a very careful review of the major studies of these data in Nature  “What Scientist have Learnt from Covid Lockdowns”

To overcome issues of correctly attributing deaths to Covid, excess deaths is generally used (excess from all causes each period over the recent—usually five year– average for the same period). “The pre-vaccine period of the pandemic does show that countries that acted harshly and swiftly — the ‘go hard, go fast’ approach — often fared better than those that waited to implement lockdown policies. China’s harsh lockdowns eliminated COVID-19 locally, for a time.” But the economic and public moral costs in China are very large and continue to mount. “The most effective measures were policies banning small gatherings and closing businesses and schools, closely followed by land-border restrictions and national lockdowns. Less-intrusive measures — such as government support for vulnerable populations, and risk-communication strategies — also had an impact. Airport health checks, however, had no discernible benefit….

“The impacts of lockdowns also differed from one pandemic wave to the next. By the time second waves emerged, so much had been learnt about the virus that people’s behaviour was quite different…. These changes dampened the extent to which countries benefited from lockdowns” because people adjusted on their own.

“There’s a fundamental difficulty with analysing the effects of COVID-19 lockdowns: it is hard to know what would have happened in their absence…. [Many studies] could have overstated the size of the benefit because it assumes that without lockdown mandates, people wouldn’t have reduced their social contacts. In reality, rising deaths would probably have changed people’s behaviour….

“And lockdown policies did bring costs. Although they delayed outbreaks, saving lives by allowing countries to hang on for vaccines and drugs, they also brought significant social isolation and associated mental-health problems, rising rates of domestic violence and violence against women, cancelled medical appointments and disruption to education for children and university students. And they were often (although not always) accompanied by economic downturns….

“Pure economic analyses of whether lockdowns were worth it generally try to estimate the value of lives saved and compare that with the costs of economic downturns. But there is no consensus on how to make this comparison…. Not all harms can be [objectively measured]. Loss of education because of school closures might indirectly harm children in the long run, potentially decreasing their future earnings and placing them at greater risk of poorer health outcomes…. Such harms are so far off — decades, in some cases.”

Learning the lessons that experience teaches us is very important when formulating public policy. But extracting those lessons can be difficult. Lewis’s summary is the best I have read, and I urge you to read it. I continue to believe that when we are provided the best understanding available (which obviously grows over time) we will each make the best decisions for ourselves and our families, striking the balance that is best for each of us.

Affirmative Action

Like most Americans I believe that our laws should be color blind. That means that race should not be a factor in who to hire or who to admit to college. But put aside what is required by the law for a moment and ask: what is good admission policy for a university? What we consider “good policy” itself depends on the purpose or objective of the policy.

Let me focus on private universities and colleges that are not benefiting from taxpayer (our) money, if there are any, who are thus free to determine what they consider “good policy.” Such universities are likely to want to provide the best educational experience for their students possible.  Having smart, motivated students is an important component of an enriching intellectually stimulating environment.  Diversity of ideas, personalities, and ethnic backgrounds is also a good component of such an environment.

Basing student admissions solely on SAT scores or such metrics will, unfortunately, over-represent Asians and underrepresent blacks. The goal would not necessarily be exact proportionality of the share of these groups in the population (U.S. population or global population??), but it might well be sensible given the desire for diversity, to shade admissions a bit toward more blacks and fewer Asians. Enlightened university admissions officers might well operate this way. Catholic and Hebrew schools have a different purpose, but it is expressed more on the side of applicants than admissions officers. My point is that there can be a good and proper place for such judgements in a “good” society.

“In 2003, Justice Sandra Day O’Connor, writing the majority opinion upholding affirmative action in Grutter v. Bollinger, expressed the hope that race-conscious admissions would be unnecessary 25 years hence.”  “Harvard UNC affirmative action admissions before Supreme Court”  Because of earlier discrimination against blacks, in part through inferior elementary and secondary education, it was accepted as OK to temporarily discriminate modestly in favor of blacks when admitting students to a college or university. Such “affirmative action” has increased black college enrollment considerably. “Affirmative action-supreme court cases”

But 40 years of affirmative action (the waving of equal treatment under the law) is stretching the notion of temporary and the SC is likely to end it. In many respects it is about time. However, it also illustrates that the rigidity of a legal remedy in place of more nuanced judgement can be second best. This is a dilemma.

While enjoying an intellectually stimulating time in college may help attract good students, the real test of a college’s success is the extent to which the experience promotes a richer (in all senses) life after graduation. This requires admitting students who will benefit most from what the college offers, whatever their starting point. It requires looking deeper than such indicators as SAT scores. Prof. Roland Fryer’s experience suggests possible approaches. “Affirmative action-Supreme Court and college admissions”

As he often does, George Will confronts us with the frequent contradictions in our thinking on such tricky issues: “College racial discrimination and affirmative action”

The Role of Social Media

With Elon Musk’s purchase of Twitter, the discussion of whether and how to regulate such platforms is intensifying.  “Social media and false information”  Francis Fukuyama, Barak Richman, and Ashish Goel have reviewed this issue in the current issue of Foreign Affairs:  “Fukuyama-How to save democracy from technology”  Their review is well worth reading. They offer a new suggestion for shifting control from Facebook, Twitter, etc. to their users (us) that deserves attention.

“If regulation, breakup, data portability, and privacy law all fall short, then what remains to be done about concentrated platform power? One of the most promising solutions has received little attention: middleware. Middleware is generally defined as software that rides on top of an existing platform and can modify the presentation of underlying data…. Middleware could allow users to choose how information is curated and filtered for them. [Middleware] would step in and take over the editorial gateway functions currently filled by dominant technology platforms whose algorithms are opaque.”

There are many issues to resolve with this approach, but they should be explored. I already rely on a service that reports on the trustworthiness of news sources (does the source adhere to high journalistic standards, etc.)  https://www.newsguardtech.com/. The proposed middleware would put what we see on Facebook, Twitter, Instagram, etc. in our own hands where it belongs. But, as we must never forget, our freedom produces results no better than how wisely we use it.  If we chose to see only comments and articles with views we agree with, we will remain in the bubble these social media platforms already put us in.  

Young people (and old) should be taught the importance of checking “other” views along with what they already believe.  I am reminded of the left-wing dad who complained that his kids graduated from college with all the “right” views but having heard nothing else they were totally unable to defend any of them.   “Social media and fake news”