The long-run risks of Trump’s racism

hayekvstrump

This week, the United States and much of the world has been reeling from Trump’s xenophobic statements aimed at four of his Democratic opponents in Congress. But the U.S. economy continues to perform remarkably well for the time being and despite his protectionist spasms, Trump is widely considered a pro-growth, pro-business President.

This has led some classical liberals to consider Trump’s populist rhetoric and flirtations with the far right to be a price worth paying for what they see as the safest path to keeping the administrative state at bay. Many classical liberals believe the greater risk to liberty in the U.S. is inevitably on the left with its commitment to expanding welfare-state entitlements in ways that will shrink the economy and politicize commercial businesses.

In ‘Hayek vs Trump: The Radical Right’s Road to Serfdom’, Aris Trantidis and I dispute this complacency about authoritarianism on the right. In the article, now forthcoming in Polity, we re-interpret Hayek’s famous The Road to Serfdom in light of his later work on coercion in The Constitution of Liberty.

We find that only certain forms of state intervention, those that diminish the rule of law and allow for arbitrary and discriminatory administrative oversight and sanction, pose a credible risk of turning a democratic polity authoritarian. A bigger state, without more discretionary power, does not threaten political liberty. Although leftwing radicals have in the past shown disdain for the rule of law, today in the U.S. and Europe it is the ideology of economic nationalism (not socialism) that presently ignores democratic norms. While growth continues, this ideology may appear to be compatible with support for business. But whenever the music stops, the logic of the rhetoric will lead to a search for scapegoats with individual businesses in the firing line.

Several countries in Europe are much further down the 21st road to serfdom than the U.S., and America still has an expansive civil society and federal structures that we expect to resist the authoritarian trend. Nevertheless, as it stands, the greatest threat to the free society right now does not carry a red flag but wears a red cap.

Here is an extract from the penultimate section:

The economic agenda of the Radical Right is an extension of political nationalism in the sphere of economic policy. While most Radical Right parties rhetorically acknowledge what can be broadly described as a “neoliberal” ethos – supporting fiscal stability, currency stability, and a reduction of government regulation – they put forward a prominent agenda for economic protectionism. This is again justified as a question of serving the “national interest” which takes precedence over any other set of values and considerations that may equally drive economic policy in other political parties, such as individual freedom, social justice, gender equality, class solidarity, or environmental protection. Rather than a principled stance on government intervention along the traditional left-right spectrum, the Radical Right’s economic agenda can be described as mixing nativist, populist and authoritarian features. It seemingly respects property and professes a commitment to economic liberty, but it subordinates economic policy to the ideal of national sovereignty.

In the United States, President Trump has emerged to lead a radical faction from inside the traditional right-wing Republican Party on a strident platform opposing immigration, global institutions, and current international trade arrangements that he portrayed as antagonistic to American economic interests. Is economic nationalism likely to include the type of command-and-control economic policies that we fear as coercive? Economic nationalism can be applied through a series of policies such as tariffs and import quotas, as well as immigration quotas with an appeal to the “national interest.”

This approach to economic management allows authorities to treat property as an object of administration in a way similar to the directions of private activity which Hayek feared can take place in the pursuit of “social justice.” It can take the form of discriminatory decisions and commands with a coercive capacity even though their authorization may come from generally worded rules. Protectionism can be effectuated by expedient decisions and flexible discretion in the selection of beneficiaries and the exclusion of others (and thereby entails strong potential for discrimination). The government will enjoy wide discretion in identifying the sectors of the economy or even particular companies that enjoy such a protection, often national champions that need to be strengthened and weaker industries that need to be protected. The Radical Right can exploit protectionism’s highest capacity for partial discriminatory applications.

The Radical Right has employed tactics of attacking, scapegoating, and ostracizing opponents as unpatriotic. This attitude suggests that its policy preference for economic nationalism and protectionism can have a higher propensity to be arbitrary, ad hoc and applied to manipulate economic and political behavior. This is perhaps most tragically demonstrated in the case of immigration restrictions and deportation practices. These may appear to coerce exclusively foreign residents but ultimately harm citizens who are unable to prove their status, and citizens who choose to associate with foreign nationals.

Against Ideology

Since first dipping my feet (brain?) into philosophical waters I’ve realized that the world has more dimensions than my mind. Many more. Which means insisting on a consistent philosophy is, in all likelihood, a recipe for disaster.

This isn’t to say I’ve got an inconsistent philosophy, or that I’m ready to throw up my hands and say “anything goes!“. But like a good bridge, my philosophy is full of tensions.

I can’t derive everything back to the Harm Principle (a principle I like), recognition of subjective values (which I’m on board with), or some notion of a social utility function (which I do like as a rhetorical crutch or skyhook, but am unwilling to take with me more than arm’s length from the whiteboard).

Instead, I’ve got a smorgasbord of mental tools–ethical notions (“don’t kill people!”), social science models (prisoners’ dilemma, comparative advantage)–that I try to match appropriately to the situation.

This puts me in the unfortunate position of requiring a great deal of humility. But as it will say on my tombstone: worse things have happened to better people…

I approach the world with libertarian priors. At the end of the day, I’m a left-libertarian anarchist. But Jonathan Haidt’s work has convinced me that my priors say more about me than the world. To be sure, libertarianism brings something important to the table, but so do other views.

Recognizing the importance of ideological pluralism lets me use my ideology like a lever instead of a bat–a tool instead of a weapon. And hey, what’s more libertarian than pluralism?!

As a centuries-long-run prospect for a meta-utopia I’m still staunchly libertarian. Go back in time 500 years and you’ll be told democracy is a pipe dream. I think we’re in a similar moment for the ideas of radical freedom, self-determination, and decentralization of power I’d really like to see put into practice. But imagine going back in 500 years, convincing everyone you’re a powerful wizard, then implementing democracy all at once. I don’t think it’d work out very well. Hell, I’m not even sure about going back in time 3 years to run that experiment! Similarly, flipping the An-Cap switch tomorrow would probably be 100 steps forward, 1000 steps back. Without the appropriate culture in place, good ideas are likely to backfire.

Still, I’m a libertarian anarchist by default and want to see the world move in that direction. But in the short-medium run I refuse to be dogmatic.

I get a lot out of my ideological priors, but I get more by refusing to slavishly follow them at all costs. Yes, the greatest good will be served in an anarcho-capitalist world (I think). But it’s a long trip from here to there. Sustaining that equilibrium will require a cultural shift that hasn’t happened yet–and ignoring those informal institutions is likely to lead to something more like feudalism than utopia. In the mean time, I say move towards greater freedom and avoid getting bogged down in partisanship.


So I’ve got a long-run goal: radical federalism and maximal freedom. But how do we get there? What are the short- and medium-run goals?

Simply to make things better while encouraging people to engage in voluntary interactions that create value, especially by building up social capital networks.

My Austrian-subjectivist priors are in tension with my rationalist-utilitarian instinct. But I think we find a way out by considering policy effects on future generations. Tyler Cowen suggests pursuing policy that promotes long run economic growth.

The big caveat is that although GDP is the best available metric to pursue, GDP is an imperfect measure. Figuring out “GDP, properly understood” adds a layer of complexity that makes policy evaluation all the more difficult. Which is part of the controversy with my recent posts on pollution taxes.

For example, after the end of slavery, total leisure time increased which would decrease measured GDP. But clearly a proper accounting of productivity would discount the initially higher GDP by the cost of forced labor. Similarly, we have to refine our notion of measured* economic well-being to account for things left out of the old methods–like household consumption, leisure, black markets (side note: the war on drugs is a waste!), human capital**, and ecological assets that fall outside the private property system.

Addendum for the left: what’s best for the world’s poorest people is a worthy addition to Cowen’s policy. And it’s an addition that also tends to push us towards libertarian arguments (like liberalization of immigration policy).


Unfortunately, I’m a rationalist by default which means I have to work at my epistemic humility. I’m constantly tempted to see the world as more legible than it really is. I have to keep reminding myself that I don’t know could fill a library. But the world is much more complex than any functional team of smart people could handle, let alone a lone economist–even if he happens to be one of few who really do get it.

One of my favorite arguments is the Austrian-libertarian point that “if we knew what people would do with their freedom, we wouldn’t need it.” For example, the reason to allow someone to start new businesses isn’t because we know that it’s going to make things better. Instead, it’s because market innovation depends on decentralized, crowd-sourced experimentation. We don’t say “oh, this Steve Jobs guy is about to improve our lives,” because if we could do that (we can’t) then we could instead find a less costly way to get the same outcome (we can’t do that either). 

This line of reasoning also applies to policy. There are some easy cases–there’s plenty of low-hanging fruit in occupational licensing. But society is a complex system, so you can’t do just one thing. Any one policy change ripples through the system and creates unintended consequences. 

Don’t get me wrong, I’m not saying we should do nothing. But my conservative friends are right that we shouldn’t go too fast. In any case, we’ve got more tensions that require me to listen to a wider range of ideological voices due to my cognitive limits.


A particularly interesting policy question is to what extent we should (not) take account of the impacts of American (Canadian, European, Chinese, etc., etc.) policy on non-Americans.

Here we find another tension. On the one hand, surely being accidentally born into a particular geography doesn’t give you greater moral weight than others. On the other, even if we want American policy to help Haitians, there’s a knowledge problem exacerbated by distance.

I think the appropriate response is a friendly and open federalism. Local issues should be handled locally. We should be neighborly. We should resist the temptation to centralize power. 

But we should also take advantage of large-scale governance structures (private or public) to deal with large-scale issues. Match the scale of governance to the scale of the relevant externalities.

The downside of this approach is that some locales will do terrible things. “States’ rights” is a bad argument for slavery (or for anything else). But stepping in to make things better isn’t an unambiguous improvement. If there’s one thing to learn from America’s adventures in statecraft*** it’s that you can’t just force a country to be free.

Given that, we should be more open to accept the world’s huddled masses yearning to breathe free. Historically, our record is far from spotless. But there have also been humanitarian successes in moving people away from tyranny

We have a moral obligation to at least consider the well-being of everyone around the globe. And the lowest hanging fruit for actually making a positive difference is opening up our borders. Not to say there’s a simple answer, but the answer lies in the direction of freedom of movement.


How should we (according to me) go about deciding questions of public policy? We should opt to encourage the creation of value and reduction of costs (i.e. economic growth). But we should do so carefully and with open minds.

GDP growth is a worthy goal, but not for it’s own sake. John Stuart Mill wrote

“How many of the so-called luxuries, conveniences, refinements, and ornaments of life, are worth the labour which must be undergone as the condition of producing them?… In opposition to the ‘gospel of work,’ I would assert the gospel of leisure, and maintain that human beings cannot rise to the finer attributes of their nature compatibly with a life filled with labour.”

Mindless insistence on measurable output overlooks important things like going to your kid’s little league game, grabbing a beer with friends, or quiet contemplation. And even if the people arguing for protecting the environment seem a bit silly, we’re wrong to ignore the importance of environmental externalities in affecting our standard of living. All of which is to say, Cowen is right that we need to carefully consider the shortfalls of how we measure economic growth, all while encouraging it.

Perhaps most importantly, we should relish a tension between consequentialism and principles. There are plenty of low-hanging fruits for libertarianism, but if we want to get the most out of this metaphorical tree we need to let a fear of bad outcomes encourage us to invest in civil society, informal institutions, and rich social networks so that freedom can expand without costing us inhumanity. I want to see the welfare state ended, but I’m willing to wait while we start by reducing barriers to entrepreneurship. I want to see taxes go away, but I’m willing to see a less-bad tax replace an egregious one.

We should reject the dogmatism that too often leads us to over-prioritize ideological purity. First, such purity can trap us in local optima (metaphor: a self-driving car programmed to never go east sounds like a good way to get from NYC to LA… till it gets stuck in a cul de sac somewhere). Second, that purity is an illusion. God’s true ethical system simply isn’t available to us–it’s more complex than our brains are–so why worry?


Post script: don’t take this to be an argument against libertarianism. Or a call to prioritize “pragmatism” over ideology or any other political values. I’m not trying to make a definitive argument abolishing ideology, I’m just gently pushing back. The key word here is tension. We can’t have tension between A and B if we get rid of A.


*Here’s another tension: I don’t believe we can actually measure economic well-being. I think we can make educated guesses based on well-thought out studies of observable proxy variables, but I believe in the impossibility of interpersonal utility comparison.

**A major pet peeve of mine is the conflation of education and schooling. Education, properly understood, is simply not measurable. We might find some clever proxy variables (for example, the Economic Complexity Index is my current favorite metric for productive capability–which overlaps capital and human capital accumulation).

***That’d be a good title for a comic book! If you know the right historian and/or international relations scholar, put them in touch with Zach Weinersmith!

FURTHER CRACKS IN THE GLOBAL WARMING PROPHECY

Although global warming zealots continue their religious crusade, more research reveals skepticism toward the doomsday prophecies. Recently Finnish scientists published research that further debunks claims about the role of humans in generating global warming. Their thesis is that global temperatures are controlled primarily by cloud cover, which is a natural occurance that is beyond human control:

https://www.ecology.news/2019-07-12-climate-change-hoax-collapses-new-science-cloud-cover.html

The opponents immediately denounced this as a junk science:

It is OK and normal to have debates within scientific community. We, regular lay tax paying people are understandably not shrewd in all intricacies of scientific debates around so-called climate change. Yet, I am sure many of us want to make sure that no financially ruinous global or nationwide social engineering scheme would be enforced on all of us by social activists who decided to side with a group of aggressive academic zealots claiming scientific consensus and squashing dissenting views.

In his Counterrevolution of Science (1955), F. A. Hayek wrote about the dangerous hubris of “science worshippers” who wanted to extend their theories, which at best had narrow application and limited experimental database, to reshape the life of entire humankind. The first aggressive spearheads of this hubris were “generation X” socialists, acolytes of Henri St. Simone, who congregated in and around Paris Ecole Politechnique from the 1810s to 1860s. They dreamed about New Christianity – a creed based on the religion of science. With its “Council of Newton,” it was to regulate entire life of society. In the past century, we already lived through projects designated to reshape the life of humanity through “scientific” societal laws peddled by Marxism. We also lived through national socialist attempts to breed the better race of human beings based on “scientific” laws. More recently, in the 1970s, driven by the same scientific hubris backed by moral considerations, we resorted to global ban of “evil” DDT.  This led to the outbursts of yellow fever and mass deaths in the Third World.

During a brief period of soul searching and self-scrutinizing among the left in the wake of communism collapse in the 1990s, in his Seeing Like a State (1998), James Scott, a leftist academic, gave a severe critique of that hubris that he called high modernism arrogance. Not naming socialism directly and sparing the ideological feelings of his fellow comrades, who have been dominating humanities and social sciences, he subtitled his book as follows How Certain Schemes to Improve the Human Condition Have Failed. Still, it was a devastating accusation of the “science”-based social engineering, from German attempts to breed perfect healthy forests in the 18th century to the “scientific socialism” of the Soviets  who methodically ruined Russian agriculture by their aggreesive collectivization. The current left are not as modest as Scott’s generation. They quickly moved on, sweeping their own history under the rug. Being emboldened by the crisis of 2008 (a new “sign” of capitalism end of times), the left are now ecstatic about the Green New Deal and its Stalinist global warming regulations that are peddled by the big-eyed “democratic” socialist of “color” from Congress. It seems we are invited again to step on the same rake in order to smash our forehead once again by adopting another scientific Utopia.

Tone deaf Leftists: A Chilean tale

Check out this beautiful block of text from the Poetry Foundation, an educational website ostensibly dedicated to the subject it has named itself after:

[Pablo] Neruda had gone into hiding in his native Chile more than a year before. After he helped elect Gabriel González Videla as president on a radical left platform, González Videla launched a campaign of repression that included roundups of leftists and labor leaders, and violent repression of workers’ strikes. As copper prices plummeted after World War II, the Truman administration convinced González Videla that he would need the United States’ economic help and that war between the US and Russia was looming. This convinced González Videla to ban communism in Chile.

There are two things to think about here. One is the fact that the poetry website is only superficially about poetry, even though it proudly claims the mantle of all things belonging to the realm of the poet. In reality, the Poetry Foundation is one of the many well-funded arms of the political left.

Here’s the thing, though. The folks at the Poetry Foundation don’t think they’re engaged in leftist political activism. They think they’re doing the work of a poetry foundation. To them, there is no distinction between poetry and left-wing politics. It’s like the partisan who claims to be a political moderate while calling for the wholesale nationalization of medical and financial markets. We’re not dealing with a vicious, concerted effort to uproot the liberal order. We’re dealing with obstinate people in cliques who believe they have more knowledge than everybody else. (By the way, the excerpt above was what the well-respected leftist website 3 Quarks Daily, which shows NOL some love from time to time, used to promote the article.)

The second thing I’d like to focus on is the narrative itself. A radical left-wing government was elected and, once in power, immediately began repressing other rivals factions. (Do you think labor groups and other leftist organizations were the only ones repressed by González Videla?) This is not a new phenomenon. This is what radicals, on both the left and the right, do. Just ask the Russians. Or the Venezuelans.

Yet look at how this well-documented repression – by a left-wing, democratically-elected Chilean government – is portrayed by the Poetry Foundation. Instead of owning up to the fact that radical governments, even democratically-elected ones, tend to resort to violence when their unfeasible ideas are finally put into place and inevitably, predictably fail, Harry Truman gets blamed.

So a radical leftist government gets elected and starts repressing its former allies (and, it is assumed, its enemies) because Harry Truman told this radical, democratically-elected leftist that the Soviet Union and the United States were going to fight in a war and the Americans were the side Chile should ally with? Obstinate ignorance!

Before I sign off, it’s worth noting that González Videla was elected in 1946. Allende was elected in 1973. In the nearly 40 years between them lots of people on both sides of the aisle died for political reasons. People didn’t stop dying until well into the 1980s. Yet, somehow, Milton Friedman and F.A. Hayek (and Harry Truman) are to blame for all of Chile’s Cold War woes.

Introducing: the Federation of Free States, an ongoing thought experiment

The most popular article I have ever written, in terms of views, has been, by far, “10 Places that Should Join the U.S.,” a short piece at RealClearHistory pining for an enlarged geographic area under the American constitution.

This is not a strange concept for longtime NOL readers. I’ve been pleading for stronger political ties between the U.S. and its allies for quite some time. There has been lots of push back to this argument, from everywhere. So I’m going to spend some more time explaining why I think it’d be a great idea for the American constitutional regime to expand geographically and incorporate more political units into its realm. Here is what an initial “federation of free states” would look like in, say, 2025:

NOL map United States in 2020 with 79 states

I’ve incorporated two of the strongest voices against such a federation, NOL‘s very own Michelangelo and Edwin. Michelangelo’s Pacific and Caribbean bias is somewhat acknowledged, and Edwin’s pessimistic socio-linguistic argument against adding continental European states to the federation has also been incorporated.

I’ve also tweaked the “10 places” that I originally saw fit to join the US.

In the map above I’ve got parts of Canada (the 3 “prairie provinces”) and Mexico (3 “ranching states”) joining the American federation. The prairie provinces of Canada – Alberta, Saskatchewan, and Manitoba – would be admitted as separate “states,” and would thus get to send 2 senators each to Washington. According to my napkin calculations, Alberta would only be sending 3 representatives to DC while Saskatchewan and Manitoba would only get 1 representative each in the House. The ranching states of Mexico – Coahuila, Tamaulipas, and Nuevo León – wold likewise be admitted as separate “states,” and would also get to send 2 senators each to Washington. These three states, which have plenty of experience with federalism already, are a bit more populated than the prairie provinces, but not by much. Nuevo León would send 4 representatives to DC, while Tamaulipas would send 3 and Coahuila, 2. Why be so generous to these polities? Why not lump them together into one unit each – a Mexican one and a Canadian one? Mostly because these new states would be giving up a lot to leave their respective polities. Military protection and the rule of law wouldn’t be enough, on their own, to persuade these states into joining the Federation of Free States. They’d need disproportionate representation in Washington, via their Senate seats, in order to leave Canada and Mexico and join the republic.

Antilles (Cuba, Dominican Republic, US Virgin islands, and Puerto Rico). This is a random collection of polities, I admit, and lumping them together into one “state” is even more random. But lump them together I would. On their own I don’t think these polities would do well in a federated system, even with their own Senate seats. There’s just not enough historical parliamentary experience in these Caribbean states. If they were lumped together, though, they’d be a formidable presence in Washington. While Antilles would only get 2 Senators, its combined population would be enough to send 19 representatives to the House, more than Florida, New York, and a gang of other influential states in the current union. At the heart of Antilles joining the US as a “state” in its union is a great trade off: sovereignty in exchange for the rule of law and democratic self-governance.

IsPaJo. Israel, Palestine, and Jordan would also be incorporated into 1 voting state, though I don’t have a good name for this state yet. This isn’t nearly as crazy as it sounds. The populations of these 3 polities would benefit immensely from living under the US constitution. Questions of property would be handled fairly and vigorously by the US court system, which is still widely recognized as one of the best in the world when it comes to property rights. Concerns about ethnic cleansing or another genocide would be wiped away by the fact that this new state is now part of the most powerful military in world history. Sure, this state would only get to send 2 Senators to Washington, but its representation in the House would be sizable: 18 representatives.

England and Wales (but not Scotland or Northern Ireland). England would be the crown jewel of the federation free states. The United Kingdom is dying. Scotland wants out. Northern Ireland wants to rejoin Ireland. In England, London is thriving but the rest of the country is suffering from the effects of de-industrialization. The kingdom’s once-vaunted military depends on the United States for nearly everything. Adam Smith put forth a proposal in his 1776 treatise on the wealth of nations that’s worth re-discussing here. Smith argued that the best way to avoid a costly war with the 13 American colonies was to give them representation to go along with taxation. He proposed that the U.K.’s parliament should add some seats and give them to North American representatives. This way both sides could avoid the whole “no taxation without representation” dispute. Smith further opined that, were this federation to happen, the center of the British empire would inexorably move in the direction of the North American colonies. England and Wales would both get to send 2 Senators to Washington, giving the Isle of Liberty 4 Senators in the upper house. Wales wouldn’t get much in the way of the lower house (only 2 representatives according to my napkin calculations), but England, in exchange for its sovereignty, would become the republic’s most populated “state” and would therefore get to dictate the terms of discourse within the republic in much the same way that California and Texas have been doing for the past 3 or 4 decades. That’s not a bad trade-off, especially if you consider how awful life has become in once-proud England.

Liberia. In 1821-22, the American Colonization Society founded a colony on the Pepper Coast of West Africa and called it Liberia. The aim of the colony was to provide freed slaves in the Americas a place to enjoy their freedom, since racism was still rampant in the Americas. The freedman quickly came into conflict with the locals (a clash of cultures that has continued into the present day). Liberia, governed by its New World migrants, declared its independence in 1847 but it wasn’t until 1862, in the early stages of the American Civil War, that the US recognized Liberia’s declaration. The African continent’s first and oldest republic, predating Ghana by over one hundred years, survived, as an independent entity, the Scramble for Africa in the late 19th century and has been at the forefront of regional coalition-building in Africa since the end of World War II (when the British and French empires collapsed). Liberia, like almost all republics, has decayed politically and socially, especially over the last few decades. Federating with the United States would do wonders for Liberians, and give the federation of free states a legitimate stamp on the African continent (and breath new life into America’s own republican decay). The West Africans would send 2 Senators to Washington, and about as many representatives as Louisiana or Kentucky.

Japan (8 “states”). With nearly 127 million people, Japan’s presence in the American federation would alter the latter’s composition fundamentally. Federating the United States with Japan also presents some logistical problems. As it stands today, Japan has 47+ prefectures, which are roughly the equivalent of US states. If we added them all as they are, the Japanese would get over 100 senate seats, which is far too many for a country with so few people. So, instead, I would bring Japan on board via its cultural regions, of which there are 8: Kantō, Kansai, Chūbu, Kyushu, Tōhoku, Chūgoku, Hokkaidō, and Shikoku. The country formerly known as Japan would get 16 Senate seats (which would be roughly divided between left and right) and the new “states” would be able to send a plethora of representatives, ranging from 32 for Kantō to 3 for Shikoku. In exchange for its sovereignty Japan would get the military protection from China it wants. The US would no longer have to worry about a free-rider problem with Japan, as its inhabitants would be citizens under the Madisonian constitution. It is true that a federation would lead to more non-Japanese people being able to migrate and take root in Japan, but this is a feature of federation, not a bug. (A federation of free states would devastate ethno-conservatism in several societies around the world.)

Micronesia.” Made up of 8 current countries and territories in the Pacific Ocean, Micronesia is also a cultural territory that encompasses a huge swath of the Pacific. While it doesn’t have a whole lot of people, Micronesia has been important to US military efforts in the Pacific for centuries. Federating with the area is the least we could do for the inhabitants of the Northern Marianas, Guam, the Federated States of Micronesia, the Marshall Islands, Palau, Nauru, Kiribati, and Wake Island. Micronesia would only get 1 seat in the lower house, but with 2 sitting Senators in DC the area would finally get a say in how the United States conducts its business in the region.

Visayas, Mindinao, and Luzon. These 3 regions in the Philippines would do much to enrich the federation of free states. Like Japan above (and South Korea below), the Philippines has a complicated representative system that would need to be simplified in order to better fit the Madisionian constitutional system. Through this cultural-geographic compromise, the Philippines would be able to send 6 senators to Washington, but these three “states” would also get to send more representatives to Washington than New York, Pennsylvania, and a bunch of other current heavyweights. There is already a long history between Filipinos and Americans, and while the first half century was a rough one for both peoples, today Filipinos hold some of the most pro-American views in the world. Of course, Americans who live near Filipino communities in the United States know just how awesome Filipinos are.

Taiwan. Even though Washington doesn’t officially recognize Taiwan as a country (a deal Washington made with post-Mao reformers on the Chinese mainland, in exchange for peace and trade), the two polities are deeply intertwined. Taiwan spends billions of dollars on American military equipment, and the U.S. spends significant political capital protecting Taiwan from China’s bellicosity. Taiwanese statehood would not only bring two close societies even closer together, it would force China to either fight the United States or reveal itself to be a paper tiger. That’s a gamble I’m willing to take, since China is a paper tiger.

South Korea (5 “states”). Another wealthy free-riding ally of the United States, South Korea has 5 cultural regions that could easily become “states” in a trans-oceanic federation: Gangwon, Jeolla, Chungcheong, Gyeongsang, and Gyeonggi. This would give South Korea 10 senators and 50 representatives (spread out according to population size, just like all the other states in the union).

Altogether we’re looking at adding 29 states to the union. That’s a lot, but I think you’ll find that not only would we be expanding liberty but also limiting the size and scope of the federal government, and forcing it to do more of what it is supposed to do: provide a standardized legal system with plenty of checks & balances and maintain a deadly, defensive military.

Ending Empire

Check out this map of known American military bases in the world today:

NOL known US bases
h/t Dissent Magazine

Expanding liberty and the division of labor are not the only positive side-effects of an enlarged federation under the Madisonian constitutional system. Ending empire – which is expensive and coercive, and gives the United States a bad name abroad – would also be a key benefit of expanding the republic’s territory.

Most American libertarians are isolationists/non-interventionists. Most European libertarians are wishy-washy hawks. Neither position is all that libertarian, which is why I keep keep arguing that “a libertarian position in foreign affairs should emphasize cooperation, choice, and trade-offs above all else.” Non-interventionism is uncooperative, to say the least, but you could argue that it’s at least a position; the Europeans seem to take things on a case-by-case basis, which is what you’d expect from a people who haven’t had to make hard foreign policy decisions since 1945. Open borders is a cool slogan, but that’s just a hip way of arguing for labor market liberalization.

It’s time to open up our doors and start talking to polities about going all the way.

Nike’s speech rights?

Nike’s decision to scuttle the Betsy Ross flag shoe design says so much about how touchy we’ve become as a society. Maybe Nike’s being too politically correct, maybe Nike’s critics are being too outraged. Probably both. What interests me, though, is Arizona’s threat to withdraw financial incentives dangled in front of Nike as an incentive to build a plant in the state. Does this implicate Nike’s free speech rights? I think it might.

The interesting aspect of this scenario is that it features the flip sides of two coins. Rather than being punished for speaking, Nike is being punished for refraining to speak. And rather than punishing my Nike by, say, imposing an additional tax, Arizona is threatening to withdraw an incentive that the state isn’t obligated to provide in the first place.

As to the first point, it has long been clear that expression itself is not the only thing protected by the free speech guarantee. Rather, the First Amendment protects decisions about expression, including the decision not to engage in speech. The unusual aspect of this situation is that the government is not trying to compel Nike to speak a message created by or sponsored by the government. Rather, Arizona is penalizing the company for creating its own expression and then changing its mind. Still, I think this would likely be considered to be part of one’s right not to speak.

As to the withdrawal of incentives, the free speech guarantee forbids the government from placing an unconstitutional condition on a government benefit–i.e., you better sell that shoe with the Betsy Ross flag on it, or you don’t get those tax breaks. Government can’t force someone to waive a constitutional right in exchange for a government benefit.

The other interesting question here is whether Nike’s speech–or lack thereof–would be considered commercial speech, which is less protected than other forms of speech. In a way, the Betsy Ross flag shoe nicely demonstrates why this is a silly distinction–the flag has deep political meaning. Why does it matter that it’s printed on a retail shoe rather than stuck on a sign in someone’s yard?

In any case, it seems like there’s a plausible free speech problem behind Arizona’s overreaction, here. I’m curious to see if anything comes of it.

On Facebook’s new cryptocurrency, the Libra. What will its consequences be for Bitcoin, blockchain and the financial world?

After many years on the sidelines, a consortium of large corporations and social impact organizations led by Facebook will soon enter the blockchain space. In the past week, Facebook has given more details regarding their future cryptocurrency, the Libra. It is supposed to be released by the consortium in the first half of 2020.

This article is my first reaction to the Libra White Paper, which describes Libra as a cryptocurrency with low volatility that will make use of its native Libra blockchain. What follows is a description of Libra as described in the White Paper, and 11 predictions about its consequences for the blockchain and financial world.

Goal of Libra
The goal of the Libra Association is to create a stable currency that makes use of a secure and stable open-source blockchain. Open-source means that the source code is public for anyone to see. In order to keep the currency stable, it will be backed by Libra Reserves – a basket of low-volatility assets, such as bank deposits and short term government securities in currencies from stable and reputable central banks such as the USD, EUR, CNY, and GBP. These assets will be managed by a global network of custodians. The Libra will thus enjoy the benefits of stable traditional government money and the benefits of blockchain-based cryptocurrencies. Users of Libra should theoretically be able to make transactions with Libra coins with low costs, and within immediate speeds to anyone anywhere in the world.

The Libra Association is hopeful that it will give a boost to better and cheaper financial services, therefore, making financial services accessible for everyone.

Considerations for building the Libra blockchain
The Libra blockchain has been developed, while taking the following three requirements into consideration:

  1. It must be scalable to accommodate billions of accounts, meaning that it can process a high transaction throughput with low latency.
  2. Funds and financial data must be secure.
  3. It must be flexible enough to power the ecosystem’s governance and future implementations of innovative financial services and upgrades to the network are possible.

In order to make the above possible, the association has chosen to:

  • Develop a new programming language, called Move. The goal of Move is to make the development of “smart contracts” and transaction logic more secure. Hence, with fewer risks that a software developer writes mistakes into his code that lead to unforeseen bugs and unpredictable behavior of the software.
  • In addition, a Byzantine Fault Tolerance consensus protocol suitable for processing a great number of transactions will be used. This protocol will also be more energy efficient, than for example Bitcoin’s “Proof of Work” consensus protocol, and have less network latency. The protocol is a set of rules determining how consensus about the correct state of the blockchain within a blockchain network can be reached and what the requirements are for approving transactions.
  • Finally, according to the White Paper, the blockchain will be pseudonymous and will offer users the option to create multiple addresses that cannot be linked to their real-world identities.

The Libra Association
The Libra Association will consist of a consortium of around 100 founding members. It has approximately 30 members so far. Among these members are PayPal, Mastercard, Visa, Spotify, Über and Ebay. In order to become a founding member, they had to put in $10 million for the Libra Rerserve. In addition to commercial corporations, there are also social impact organizations such as Women’s World Banking and Kiva. The members of the consortium will receive Libra Investment Token (LIT) with which they can participate in the governance of the Libra Association. It is also possible that they will be rewarded with LIT for maintaining the blockchain and approving the transactions.

Facebook is going into the banking business with ...
The founding members of the Libra Association so far.

The Libra Association will manage the Libra Reserve for the stability and growth of the Libra economy. The interest earned from the reserves will be used to cover their costs. The Libra Association will be the only party that can issue and burn (destroy) Libra tokens. When authorized resellers have bought Libra from the Association with fiat money, new Libra will be issued. Libra will only be burned when authorized resellers sell their Libra to the Libra Association in exchange for their underlying assets. The Libra Reserve thus acts as the “buyer of last resort”. The policy of the Libra Association can only be changed through majority consensus of the members. It’s still unclear how much consensus is needed to change the Association’s policies. It’s also unclear how much consensus is needed to approve a transaction. It’s expected that this will be similar to other Byzantine Fault Tolerance protocols and that 67% consensus is needed.

Another goal of the Libra Association is to develop a standard for open digital identities. Such identities are, according to the Association, a prerequisite for financial inclusion.

Permissioned blockchain
According to the White Paper, the blockchain is permissioned. This means that not everyone is able to run the blockchain on their own computer – only the members of the Association are allowed to do so. They are nonetheless planning to make the transition towards a permissionless environment in which everyone can run his or her blockchain node within 5 years.

Is the Libra blockchain really a blockchain?
Although the Libra Association asserts that Libra is blockchain-based, one could argue that it’s actually not. Blockchains normally make use of data blocks that are chained to each other. Libra, on the other hand, is a single database and does not make use of such blocks. It acts more like a payment scheme.

For more details regarding this topic, see the following article of Simon Lelieveldt.

If Libra does not make use of a blockchain, is it a cryptocurrency?
Some may believe that Libra is not a real cryptocurrency if it does not make use of blockchain. However, in order to be consistent, they should then also maintain that B-money – a precursor to Bitcoin with many similar properties as Bitcoin, but without the use of blockchain – is not a cryptocurrency.

I will not get deeper into the discussion whether Libra is a blockchain or a cryptocurrency.

Calibra wallet
Libra will be implemented into the ecosystem of Facebook and will also be available in other applications owned by Facebook, such as Messenger, Whatsapp, and Instagram. The wallet in which Libra will be stored is called the Calibra wallet.

What will be Libra’s consequences for the blockchain and financial world?
It’s difficult to make correct predictions about Libra, especially since many details about Libra are still missing. Nonetheless, there some predictions I already dare to make.

  1. The Libra blockchain will not be entirely neutral and borderless. The Libra Association will conform to governmental rules and regulations. It will hence be unlikely that transactions to sanctioned countries, such as Iran, will be approved.
  2. The Libra blockchain will compete with banks and fintech companies. It will introduce innovative financial products that will directly compete with financial products offered by banks and fintech companies. Also, Libra transactions will not require payment service providers and intermediary banks and schemes to facilitate the transactions. People could, for example, be able to send money abroad with low transaction costs, and pay with Libra for Über rides and Spotify without traditional payment facilitating intermediaries.
  3. Libra will compete with central banks. Libra could undermine the demand for national currencies – something that central banks and national governments will not accept. Shortly after the announcement of Libra, French and Russian politicians have already expressed their worries that Libra will undermine their national financial system. In addition, it will also be more difficult for central banks to prevent capital flight. Recently, voices have been raised in the United States to (temporarily) stop the development of Libra in order to make sure it will not compete with the USD. Thus, it’s still unsure whether the Association will be able to release Libra in the first half of 2020.
  4. Libra will lead to tension with rules and regulations, and show that current financial rules and regulations are outdated. The call for clearer regulations with respect to cryptocurrencies will grow.
  5. Libra will show that those who say “cryptocurrencies are not interesting, it’s all about blockchain” are dead wrong. Cryptocurrencies will be a tremendous force for mainstream adoption of blockchain, just like e-mail was for the internet.
  6. Libra will compete with stablecoins. Stablecoins are cryptocurrencies that are pegged to assets with stable value. Think for example about the USD, the EUR and precious metals. Stablecoins that already exist are Tether (USDT), Gemini Dollar (GUSD), bit.USD, and Coinbase Dollar (USDC).
  7. It’s unclear how the Libra Association will handle their users’ privacy. I expect that users will be required to provide private information if they would like to make use of the Calibra wallet. The White Paper mentions that having a digital identity is a prerequisite to make use of Libra. However, it also mentions that users will be able to create wallets that cannot be linked to their real-world identities. In addition, it’s also unclear how the Association will deal with users’ transaction data. The Association members will be able to view all transaction data as they are allowed to run a Libra node on the network.
  8. The people that will benefit most from Libra are those who are still facing big barriers to participate in the financial world. If Libra is able to lower the barriers of entree, it will greatly improve the financial opportunities of the unbanked.
  9. Libra will lead to more intensified discussions about what money is. People will become more skeptical about national currencies, and more will become convinced of the benefits of privately issued currencies like cryptocurrencies.
  10. Libra will make people more familiar with cryptocurrencies and better educated about the benefits of blockchain.
  11. In the long run, people will look for alternative currencies that cannot be controlled by governments and central banks. They will hence make more use of cryptocurrencies that are open, public, borderless, neutral and censorship resistant like Bitcoin. These currencies will eventually benefit from Libra.

Conclusion
Libra is an interesting development that will benefit the blockchain space, as well as the financial world. The members of the Libra Association already have a combined reach of more than 2.5 billion people, so they can accelerate mainstream adoption of blockchain. Users will be able to perform transactions against lower costs and with immediate speed. Those that will benefit most from Libra will be mainly people from developing countries.

Eventually, though, Libra will lead to greater adoption of cryptocurrencies that are truly open, public, borderless, neutral and censorship resistant like Bitcoin.