What rights do we need to guarantee our political freedom. Well, the right to speak freely, of course. The right peaceably to assemble, and to petition the government for a redress of grievances. Even in trucks.
But without economic freedom you cannot have political freedom. The right to work, which requires the right to hire. If the government, or political pressure groups, can stop you from being hired, you cannot speak, you cannot assemble, you cannot act politically. Communist countries didn't need to put people in jail. They could just stop them from working.
And the right to transact, freely and anonymously. If the government can monitor your transactions, freeze your assets, "sanction" you, or freeze your ability to transact, to buy or sell anything, it can quickly silence you, stop your political participation, undermine political movements or even aspiring individual politicians.
This is playing out in Canada right now. I have stated the principle before, but now we have a good example before us of just what the danger is. I don't care how you feel about the truckers, but look at the power the government has used to silence their political protest. The government can use the same power to silence individuals. Or protests from the left.
Reports that there are bank runs and outages as Canadians try to quickly take money out of banks are an interesting consequence.
This is going to be a hard question as we move to electronic transactions, whether fintech or crypto. If we have arbitrary, cheap, completely anonymous transactions, tax evasion, theft (ransomware), fraud, can go haywire. If we have complete surveillance and control, political liberty goes out the window.
Just found your blog. Interesting reading & great to hear you.
ReplyDeleteHere's how the priorities should work:
ReplyDelete1. Human rights (right to body)
2. Contract rights (right to collaborate)
3. Property rights
4. Political rights (ability to affect policy toward others)
These are implicitly commandments 6-9. You don't have effective property rights unless theft is prosecuted, contract rights unless violation is prohibited, or human rights unless murder is prosecuted. Similarly, if abuse of the political system is permitted, the political system loses its legitimacy and we effectively lose political rights too.
Excellent synopsis. Thx. Especially grounding our rights in Scripture. Rational governance is Supra-rationally grounded in the ineffable.
DeleteHobbes, like Machiavelli before him, promoted the idea that monitoring really does matter. And, like North, institutions restrict an option set, not by virtue of the probability of being caught, but the certainty of it.
ReplyDeleteThe US government shut down railroads strikes in the late 1800's because rail cars were being used to transport US Mail. So there's a precedent in the US for shutting down protests that interfere with government business and general commerce.
I'm not sure what the equilibrium will be with digital commerce when it comes to enforcement. With fintech, all transactions can be harvested and flagged based on who writes the algorithms and for what purpose. This makes the MC of fighting corruption potentially very low, but with unknown externalities.
"Weapons of Math Destruction" by Cathy O'Neil does a great job of exposing how algorithms can be used to punish and restrict economic activity and opportunity.
Regarding crypto - I believe the Treasury dept has been laying down some regulations for transactions on Crypto Exchanges as a means to monitor wealth creation. How it could be used to monitor potential criminal activity is another matter. Converting crypto to whatever fiat currency still requires some work, but the lineage of transactions being anonymous presents issues.
Surveillance capitalism isn't just on the social media side: it'll find its way into transactions, too. Already recommender engines use transaction logs to suggest more stuff to buy. Can build a preference model of that data, along with search.
"You can run, but you cannot hide."
John,
ReplyDelete"This is going to be a hard question as we move to electronic transactions, whether fintech or crypto. If we have arbitrary, cheap, completely anonymous transactions, tax evasion, theft (ransomware), fraud, can go haywire. If we have complete surveillance and control, political liberty goes out the window."
It's not really that hard a question to answer. The answer is that you must migrate away from your thinking about transactions in terms of two parties and move toward three party transactions. That third party can be government but does not need to be.
In a two party transaction it takes the mutual consent of both parties for the transaction to take place.
P1 - No, P2 - No - Transaction does not happen
P1 - Yes, P2 - No - Transaction does not happen
P1 - No, P2 - Yes - Transaction does not happen
P1 - Yes, P2 - Yes - Transaction happens
In one of four (25%) cases, the transaction takes place.
Contrast that with three party transactions:
P1 - No, P2 - No, P3 - No - Transaction does not happen
P1 - Yes, P2 - No, P3 - No - Transaction does not happen
P1 - No, P2 - Yes, P3 - No - Transaction does not happen
P1 - No, P2 - No, P3 - Yes - Transaction does not happen
P1 - Yes, P2 - Yes, P3 - No - Transaction happens
P1 - Yes, P2 - No, P3 - Yes - Transaction happens
P1 - No, P2 - Yes, P3 - Yes - Transaction happens
P1 - Yes, P2 - Yes, P3 - Yes - Transaction happens
In 4 of 8 cases (50%), the transaction happens.
Markets are INEFFICIENT because they rely predominantly on two party transactions.
Samuelson and Fama are incorrect.
No-one is going to want to participate in a system where any two parties can conspire to force a transaction on an unwilling third party, which your example implies.
DeleteIf all three parties have to agree, then the transaction occurs in only 1 in 8 cases (12.5%). But, that's irrelevant: the probabilities of the 8 cases are not equal; they depend on expectations of value creation.
Anonymous,
Delete"But, that's irrelevant: the probabilities of the 8 cases are not equal; they depend on expectations of value creation."
The probabilities on the 4 cases in a two party transaction are not equal either; they also depend on expectations of value creation.
The point of the exercise was to do an apples to apples comparison of two party and three party transactions.
"No-one is going to want to participate in a system where any two parties can conspire to force a transaction on an unwilling third party, which your example implies."
Do you live in a cave or on some deserted island?
See prosecutor (party #1), jury (party #2), and defendant (party #3) in any criminal proceeding.
Or see taxation for that matter. Can two parties (elected representatives and other voters) conspire to force me to pay taxes? They most certainly can. I will have a vote in the matter, but as with my three party example, I may get outvoted.
John,
ReplyDelete"This is going to be a hard question as we move to electronic transactions, whether fintech or crypto. If we have arbitrary, cheap, completely anonymous transactions, tax evasion, theft (ransomware), fraud, can go haywire. If we have complete surveillance and control, political liberty goes out the window."
It's not really that hard a question to answer. The answer is that you must migrate away from your thinking about transactions in terms of two parties and move toward three party transactions. That third party can be government but does not need to be.
In a two party transaction it takes the mutual consent of both parties for the transaction to take place.
P1 - No, P2 - No - Transaction does not happen
P1 - Yes, P2 - No - Transaction does not happen
P1 - No, P2 - Yes - Transaction does not happen
P1 - Yes, P2 - Yes - Transaction happens
In one of four (25%) cases, the transaction takes place.
Contrast that with three party transactions:
P1 - No, P2 - No, P3 - No - Transaction does not happen
P1 - Yes, P2 - No, P3 - No - Transaction does not happen
P1 - No, P2 - Yes, P3 - No - Transaction does not happen
P1 - No, P2 - No, P3 - Yes - Transaction does not happen
P1 - Yes, P2 - Yes, P3 - No - Transaction happens
P1 - Yes, P2 - No, P3 - Yes - Transaction happens
P1 - No, P2 - Yes, P3 - Yes - Transaction happens
P1 - Yes, P2 - Yes, P3 - Yes - Transaction happens
In 4 of 8 cases (50%), the transaction happens.
Markets are INEFFICIENT because they rely predominantly on two party transactions.
Samuelson and Fama are incorrect.
FRestly, check your logic. In the two-party transaction example, in 1 of 4 combinations, 25%, a 2-way transaction occurs. In the three-party transaction example, in 1 of 8 combinations, 12.5%, a 3-way transaction occurs. The conclusions expressed in the penultimate and the ultimate sentences bear no relation to the examples given.
DeleteOEE,
DeleteCheck your reading comprehension skills.
In the three party transaction, I am relying on majority rule (2 votes out of 3) for the transaction to take place the same way that I am relying on majority rule in a two party transaction (2 votes out of 2). With three party transactions, that occurs in 50% of possible voting outcomes.
The point is that there is a trade off between economic efficiency and economic freedom as illustrated by the example above.
Two party transactions provide the most individual freedom but are the least economically efficient.
Three party transactions sacrifice some economic freedom (you may vote no on a trade, but be outvoted) but are more economically efficient.
Robert Mundell (your fellow Canadian) made a similar observation regarding currency exchanges here:
https://en.wikipedia.org/wiki/Redundancy_problem
FRestly,
DeleteMy remarks referred to your statement:
"It's not really that hard a question to answer. The answer is that you must migrate away from your thinking about transactions in terms of two parties and move toward three party transactions. That third party can be government but does not need to be."
“…transactions in terms of two parties…” are bi-lateral transactions, in the meaning of that term as it is used in the Wikipedia page cited.
“…move toward three party transactions…” are tri-lateral transactions, in the meaning of that term as it is used in the Wikipedia page cited.
Your examples all refer to bi-lateral arrangements ("transactions in terms of two parties"). If you are relying on bi-lateral arrangements to make your point in criticism of John Cochrane’s remarks, then my observation serves to point out that you have, in your enumerated examples, ignored “three party transactions”, i.e., A-B-C (tri-lateral) vs. A-B (bi-lateral).
The Wikipedia page refers to currency trading pairs (bi-lateral) but notes that Mundell’s observation does not hold for currency trading triples (tri-lateral).
I trust that this explanation will serve to clear up any misapprehension.
OEE,
Delete"Your examples all refer to bi-lateral arrangements (transactions in terms of two parties)"
Again, check your reading comprehension skills.
From above:
P1 - No, P2 - No, P3 - No - Transaction does not happen
P1 - Yes, P2 - No, P3 - No - Transaction does not happen
P1 - No, P2 - Yes, P3 - No - Transaction does not happen
P1 - No, P2 - No, P3 - Yes - Transaction does not happen
P1 - Yes, P2 - Yes, P3 - No - Transaction happens
P1 - Yes, P2 - No, P3 - Yes - Transaction happens
P1 - No, P2 - Yes, P3 - Yes - Transaction happens
P1 - Yes, P2 - Yes, P3 - Yes - Transaction happens
P1 = Party #1
P2 = Party #2
P3 = Party #3
In 4 of 8 cases (50%) IN THE THREE PARTY VOTING ARRANGEMENT, the transaction happens.
Using the above:
ReplyDeleteFor two party transactions - 25% of potential trades take place
For three party transactions - 50% of potential trades take place
In an n good barter economy:
For two party transactions there are n*(n-1)/2 combinations of two goods that can be traded
For instance with goods A, B, C, and D there are the following combinations:
AB, AC, AD, BC, BD, CD : Total of 6 combinations
For three party transactions there are n*(n-1)*(n-2)/6 combinations of three goods that can be traded.
For instance with goods A, B, C, and D there are the following combinations:
ABC, ABD, ACD, BCD : Total of 4 combinations
If we allow all possible trades to be voted on, then in a barter economy with two party transactions the average quantity of lots of goods that will be traded can be calculated as follows:
2 * n*(n-1)/2 * 25% = n*(n-1)/4
In a four good barter economy with two party transactions an average of 4*3/4 = 3 lots of goods will be traded.
If we allow all possible trades to be voted on, then in a barter economy with three party transactions the average quantity of lots of goods that will be traded can be calculated as follows:
3 * n*(n-1)*(n-2)/6 * 50% = n*(n-1)*(n-2)/4
In a four good barter economy with three party transactions an average of 4*3*2/4 = 6 lots of goods will be traded.
It should be obvious that n*(n-1)*(n-2)/4 is always greater than n*(n-1)/4.
John, blocking bridges with trucks is not speech. Is the Canadian government trying to silence people, or are they trying to protect people's freedom to transact from disruptive behavior?
ReplyDeleteHopefully, if the executive branch abuses its power and silences protected speech, the judiciary will step in. If the Trump era has taught me anything, it's the importance of an independent judiciary, a key protection for political liberty in a world where the government has complete surveillance and control of electronic transactions and everything else.
Kenneth Duda
Menlo Park, CA
Canada is a different kettle of fish. I don' think they really have an independent judiciary. Here in teh US most judges are stooges of the Democrat-Progressives. Earl Warren's SCOTUS showed us that judges are mere autocratic bureaucrats in black robes, effectively a second unelected legislature relying on sentimental fools to stay in power. The current judicial "system" in the US reminds me of the last days of the Parlements of France under the Ancient Law of France--which got abolished during the Revolution and replaced with the Code Napoleon. The Restored Bourbons in 1815 kept the Code Napoleon and the revised courts; the old Parlements were premanently gone. Read "The Black Count" to get some feel in passing what the Ancient Law of France was like in practice--one of its Maxims was "There are no slaves in France". The First Republic for a few months even tried to make slavery legal in Revolutionary France!
ReplyDeleteSuperb comment, John. Those of us who warned about "soft totalitarianism" on the campuses of the 1990's are seeing our fears realized. It is important to note the "finer points" of the strategy employed by Mr. Trudeau. His minister is threatening to freeze bank accounts of those connected with the trucker protest, but the minister refuses to specify how many accounts, or what criteria would be employed. Moreover, one article stated that lists would be turned over to banks, and it would be the banks' responsibility to determine who would be frozen. This allows Mr. Trudeau to evade responsibility, while terrorizing anyone who might disagree with him. Cost-conscious bank executives might decide to simply cancel the accounts of anyone on the list. Mr. Trudeau missed a golden opportunity to bring Canadians together by (a) meeting openly with the truckers, and (b) finding a compromise solution. Anyone marginally more competent than our current U.S. President could have done this easily.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteThis is the first I've heard of runs on banks, which I thought would be all over the place after the government promised to "do more." Either it's not happening much or the news of it is seriously being squelched? (Or I'm not reading the right news sources, also a very likely possibility.)
ReplyDeleteRemember, the other reason why governments license businesses and individuals (besides revenues) is this gives them control over your livelihood and the ability for you to provide for your family. This is incredible leverage and just what they want.
ReplyDeleteMaybe so. But the alternative is anarchy, which in its purest form is severe idealism: that people can self-monitor their behavior and the natural by-product is everyone gets along and there are no violations of property or to others. Uh-huh. Maybe it's possible in a 2 person society, but even Adam and Eve had issues.
DeleteMark,
DeleteSee above:
"This is going to be a hard question as we move to electronic transactions, whether fintech or crypto. If we have arbitrary, cheap, completely anonymous transactions, tax evasion, theft (ransomware), fraud, can go haywire. If we have complete surveillance and control, political liberty goes out the window."
Professional licensing provides a level of accountability with the veil of anonymity lifted. Do you really want a doctor using a pseudonym performing surgery on you or a lawyer using a phony name representing you in court?
Mykel,
Delete"Maybe it's possible in a 2 person society, but even Adam and Eve had issues."
Adam and Eve had God around (3rd party).
If I were a Canadian I would be looking to migrate, quickly. Just where to go?
ReplyDeleteIt certainly wouldn't hurt Oz to inherit a few freedom lovers, with a backbone. Ours could use a bit of reinforcing about now.
John, I think what you mean in this sentence is “privately”, not “anonymously” :
ReplyDelete“And the right to transact, freely and anonymously. If the government can monitor your transactions, freeze your assets, "sanction" you, or freeze your ability to transact, to buy or sell anything, it can quickly silence you, stop your political participation, undermine political movements or even aspiring individual politicians.”
Anonymity has never been a right. Privacy, or even secrecy, has a much stronger foundation.
In digital tech this is a big difference. A big part of the problem with today’s digital structures is anonymity.
Digital privacy is an achievable goal but it does require a validation authority. Unless one believes in a world without passports, there needs to be a way to establish identity beyond a reasonable doubt. Creating that value also enables privacy because it enables individuals to encrypt their data with their digital identity.
The state has a unique role in strengthening citizen freedom through private validation of identity. That will need to be recreated in the digital realm to deliver the same value in the digital as exists in the physical.
This is a very good point. The best I can come up with are private payments processors, backed by treasurys or reserves, that maintain customer privacy. Government can search with a warrant, and immense legal protections. An imperfect middle, to be sure.
DeleteMaybe this will help crypto go more mainstream. I am Canadian, and while I didn’t donate to the Convoy, I almost did. I have donated to other causes (generally free speech related) that the current uber-woke Canadian government might find ‘offensive.’ So I would like to move my money out of Canadian banks. Crypto is attractive for that reason—but solely for that reason. I do not want to speculate in crypto, and the less I need to learn about it the better. I just want to use it as a medium term store of value that is safe from the Cdn gov’t, ideally with a rate of return that is comparable to what I can earn in standard mutual funds, or a bit lower as the cost of security from government. If someone sets up that institution, there will be a lot of takers. (If it is already possible, please point me in the right direction.)
ReplyDelete