prior probability

In addition to reading John Finnis’s classic book on “Natural Law and Natural Rights” and attending Brian Leiter’s lectures on realist jurisprudence, I have been working on the following projects this summer:

1. A Coasean analysis of the fair use doctrine, along with a brief critique of Mill’s theory of harms, which is titled “Of Coase and copyrights: the law and economics of literary fan art,” available on SSRN here.
2. Addendum and revisions to my intellectual autobiography titled “Life, love, and law: confessions of a Cuban-American law professor” to commemorate my 20th year of teaching, research, and service. I have also included a photo gallery and posted this essay on SSRN here.
3. Revisions to my forthcoming paper “So long suckers: bargaining and betrayal in Breaking Bad,” which will be published next month in The Journal of Strategic Contracting and Negotiation. I have posted this paper on SSRN here.

The art pictured below is not a painting. It’s a futuristic, illuminated tunnel below the main buildings of the Museum of Fine Arts in Houston, Texas.

Photo credit: F. E. Guerra-Pujol

From a recent blog post on my favorite blog, Marginal Revolution:

“Much of my writing time is devoted to laying out points of view which are not my own. I recommend this for most of you.”

Professor Cowen’s approach to writing reminds me of Bryan Caplan’s Ideological Turing Test (ITT), something we have blogged about before. You can read more about Caplan’s ITT here.

https://twitter.com/pwafork/status/1150142459193593856

Although we did not read a single page of Infinite Jest during the month of June, we have now resumed our reading of this massive tome and are up to page 638, or about two-thirds of the way through …

Gary Leff explains why here. The key question, however, is whether such fees should be declared illegal or should be otherwise regulated. That is, what is the optimal level of regulation in this case. (Put another way, what would the late Ronald Coase say?)

We recently learned of the death of the great João Gilberto, one of our favorite musicians of all time. Here is an obituary (NYT). Referring to Mr Gilberto’s masterpiece “Chega de Saudade,” the Times quotes the singer Gal Costa, who was just 12 years old when that iconic song was recorded: “it changed my life, and not only my life but the lives of everyone in my generation.”

This is our third and last post (for now) regarding Facebook’s new proposed crypto-currency, called Libra. We have already replied to various criticisms of Facebook’s proposed currency in our previous two posts. Here, however, I will switch gears and make an affirmative case in favor of Libra. My pro-Libra economic argument boils down to just two words: transaction costs. Simply put, if, as Facebook promises, making a payment or transferring funds with Libra will be as easy as sending a text message–if, in short, Libra will reduce “transaction costs” or friction in the current economic system–, how could one not support Libra? There are two main reasons, in turn, why lowering transaction costs is a massive slam dunk, to borrow a basketball metaphor.

First and foremost, as the late great Ronald Coase would often remind us, transactions costs matter. Many otherwise mutually-beneficial or value-creating activities go unperformed when transaction costs are too high relative to the value of the underlying good or service that would have been traded or exchanged in the absence of transaction costs. Secondly, even when transaction costs are low relative to the value of the underlying good or service to be traded, zero transactions costs are to be preferred to low transactions costs (with one caveat), just as low transactions costs are to be preferred over high transaction costs. So, what’s the caveat? The caveat is that the up front costs of eliminating or lowering transactions costs must themselves be worth the resulting benefits. On this score, I am still agnostic with respect to Libra, since this currency doesn’t exist yet, but if Facebook is willing to assume these up front costs by setting up an easy payment/money transfer system for its users, we should all be cheering Facebook on and hoping that it succeeds. This is a no-brainer, right?

Artist credit: Dan Sproul

Thus far, we have defended Facebook’s new cryptocurrency Libra against the vague and specious charge that it is somehow undemocratic–vague because democracy is open to many different definitions; specious because existing currencies are not responsive to majority rule in any meaningful sense. What about the other objections to Libra we identified in our previous post?

1. Money laundering, tax evasion, and other financial evils. To begin with, critics like Matt Stoller allege that Facebook’s new currency could facilitate money-laundering, terrorist financing, tax avoidance, and counterfeiting. But this has to be the worst possible argument against Libra, for the same technology that makes these sundry financial evils possible also make it possible to detect (and punish) such evils in the first place!
2. National security concerns. Matt Stoller also alleges–without any evidence, I might add–that the success of a private parallel currency like Libra could undermine the current system of economic sanctions that the U.S. and other countries have imposed on bad actors like Russian oligarchs and rogue nations like Cuba and North Korea. I would make two replies to this argument. For starters, even if this allegation were true, it’s not clear whether economic sanctions really work to begin with. Secondly, I would reiterate my technology argument above: a well-designed electronic currency might actually make it easier to uncover the clandestine efforts of rogue actors to get around economic sanctions.
3. Hacking threats. In his op-ed, Mr Stoller asks, “what happens if there is a theft or penetration of the [Libra] system?” In reply, I would make two points. First, I would concede that hacking no doubt poses a serious risk but that this risk is not unique to Facebook’s new currency–all Internet platforms are susceptible to this risk. But more importantly, I would also argue that Facebook has a strong incentive to protect its currency from hacking. In fact, if any business firm is in the best position to develop new solutions to hacking threats, it is probably Facebook and other Big Tech firms like Google, Amazon, etc.
4. Conflicts of interest. In his anti-Libra op-ed, Stoller writes: “It’s also possible that insiders belonging to the Libra cartel could exploit their access to information, business relationships or technology to give themselves advantages …. For instance, one of the incentives being discussed to get people to use the currency is discounts on Uber rides; if this happens, Facebook would be giving an advantage to Uber instead of other ride-sharing businesses.” Alas, the problem with this line of reasoning is that it ignores the basic risk-reward calculus that spurs economic progress and positive-sum games. To borrow Stoller’s same example, if a startup like Uber is willing to take a risk backing Facebook’s new currency, then Uber deserves the economic rewards that go with taking this risk.

To sum up, the myriad arguments against Facebook’s new currency are weak and unpersuasive. But we still haven’t made an affirmative case for Libra. We will do so in our next blog post.

Illustration by William Joel for The Verge

We turn now from jurisprudence to cyberspace. Did you know Facebook is developing a new cryptocurrency called Libra? Some critics, however, are not having it. For example, Matt Stoller, a fellow at the Open Markets Institute (oh, the irony!), recently wrote this op-ed bashing Facebook’s “undemocratic currency.” In summary, Mr Stoller presents five arguments against Facebook’s new cryptocurrency: (1) Libra is undemocratic, since it is being issued by a private company; (2) Libra will make it more difficult for governments to enforce economic sanctions against rogue actors; (3) Libra could be hacked by black hat hackers; (4) Libra will be plagued by conflicts of interest between its private backers and consumers; and (5) Libra will make it harder to detect money laundering and tax evasion and will make it easier for extremist groups to finance their operations. Is this the best Mr Stoller could do? All of these anti-Libra arguments are either weak or false or irrelevant.

Let’s begin with Mr Stoller’s most emotional argument first, his claim that Libra is undemocratic. My initial reply is, so what? Since when has “democracy,” however this vague term is defined, been the arbiter of a product’s moral legitimacy? Of course, one could object to my reply by noting that Libra is not just a product–it is a currency. But again, so what? Whether a currency is backed by a gold standard or by government fiat, there is no logical relationship between a currency’s soundness as a medium of exchange and the level of democracy of the government that is printing the currency. If anything, the reverse is true! That is probably why the most successful currencies of our times–like the U.S. Dollar, the British Pound, and the Euro–are now issued by independent institutions like central banks that are designed to be insulated from politics and the changing winds of popular will.

So, what about Mr Stoller’s remaining four concerns, i.e. hacking threats, conflicts of interest, national security, and illegal behavior? I will address these criticisms in my next post.

Illustration by William Joel for The Verge