Month: October 2023

1. Some comments on the AI Executive Order.  And on the role of HHS.  And Adam Thierer.  And yet another negative take.  I agree with the general perspective of the more negative takes, but perhaps they are overrating the legality/enforcement of the actual Order?

2. Acapulco report.

3. Symbols of New Jersey.

4. New paper on the economic recovery of Hiroshima (Princeton job market paper also).

5. Shocker: university faculty are very slow to adopt generative AI, students are way ahead of them.

6. My Bloomberg column on how to regulate AI.

1. That was then, this is now, railway compartment edition.

2. Harriet Taylor is underrated.

3. “My data show that nearly half of my study participants report meaningful and regular interactions with deceased relatives and friends who were important in their lives.” — solve for the AI equilibrium.

4. Yet another paper showing that the evidence for YouTube radicalization is weak.

5. Russ Roberts Substack on current life in Israel.

6. Patrick O’Shaughnessy interview John and Patrick Collison.

LBRY was YouTube on the blockchain, a public good protocol for delivering video content. Unfortunately, after years of protracted and extremely expensive legal wrangling with the SEC, LBRY has been driven into bankruptcy and forced to shut down as an organization (although the code lives on). I was a long-time LBRY advisor.

It makes me angry that with all the scams in the crypto world, the SEC chose to go after a working product with real customers and users. No one, not the customers, the content creators or the investors has benefitted or been protected by the SEC. But you don’t have to take my word for it. Here is SEC commissioner Hester Peirce’s compelling Statement of Dissent:

The Commission has brought many troubling crypto enforcement actions, but the LBRY, Inc. (“LBRY”) case has especially unsettled me. A statement on the case is overdue. I did not support bringing the case, but have been unable to speak publicly about my concerns while the case has been in litigation. Last week, after losing in federal district court on the question of whether the sale of LBRY tokens was an unregistered securities offering, LBRY announced that it will not move forward with an appeal of the decision.[1] Instead, the company will shut down and its assets will be placed in receivership and used to satisfy its debts, including the civil money penalty owed to the Commission.[2] Are investors and the market really better off now after the Commission’s litigation contributed to the demise of a company that had built a functioning blockchain with a real-world application running on top of it? This case illustrates the arbitrariness and real-life consequences of the Commission’s misguided enforcement-driven approach to crypto.

One does not have to dig deep to find fraudulent crypto projects that sold tokens with promises that they did nothing to fulfill. This sad reality makes the Commission’s decision to bring a case against LBRY especially puzzling. LBRY’s approach was more conservative than the approach many other projects took.[3]Here, the blockchain was up and running at the time most tokens were sold, and the Commission’s complaint did not allege, and the court did not find, evidence of fraud. LBRY built a blockchain to facilitate data sharing, afford greater control to content creators, and make censorship more difficult. LBRY created a popular platform on the blockchain for sharing videos and other media.[4] The open-source LBRY blockchain was available for anyone else to use.[5] Why go after a company that sold a token for a functioning blockchain with an established use when we could have pursued plenty of other projects that were outright frauds and did not attempt to comply with the securities laws? To make matters worse, the Commission took an extremely hardline approach in this case. For example, after winning on summary judgment, the Commission sought monetary remedies of $44 million and asserted that LBRY’s offer to burn all tokens in its possession was not sufficient assurance that LBRY would not violate the registration provisions in the future.[6] The Commission’s requested remedies were entirely out of proportion to any harm. Indeed, the court stated during the remedies hearing that “the absence of fraud allegations, [and] the fact that there was some measure of uncertainty” regarding the application of the securities laws when LBRY commenced its offering were facts that “should be taken into account when considering a penalty.”[7] After the remedies hearing, the Commission pared its penalty request back to a significantly lower $111,614, which the court approved.[8]

The application of the securities laws to token projects is not clear, despite the Commission’s continuous protestations to the contrary. There is no path for a company like LBRY to come in and register its functional token offering.[9] Even if a company did manage to register its token offering, it would not be a particularly useful effort. Compliance with the securities laws is important because we want to ensure that people buying securities receive accurate and reliable information so they can assess the risks and rewards of an investment. Here, LBRY made significant disclosures outside of the registration process—disclosures that the Commission did not allege were fraudulent or misleading—and there is little to indicate that LBRY’s disclosures did not provide token purchasers with information adequate to assess whether the tokens were a good fit for them.[10] The time and resources we expended on this case could have been devoted to building a workable regulatory framework that companies like LBRY could have followed. Then the market could have decided LBRY’s fate.

Even if, as the judge ruled here, the offering of tokens should have been registered, our scorched earth approach in remedying the violation was completely out of proportion to any investor harm. How does the result in this case protect LBRY investors, who likely would have preferred that the company continue to exist to support the blockchain, which is still in its infancy? The judge did not rule on whether the token itself was a security or on the status of secondary sales of LBRY tokens,[11] which means that the LBRY blockchain may live on, but its path forward is difficult. The Commission’s action forced a group of entrepreneurs to abandon what they built. Our disproportionate reaction in this case will dissuade people from experimenting with blockchain technology, which LBRY aptly describes as “technology that enables dissent.”[12] A government of a free people should welcome dissent and the technologies that enable it.

Earlier this year, LBRY tweeted: “It’s the year 2028, hundreds of thousands of Americans have been jailed for using illegally cryptocurrency instead of CBDCs, and Hester Pierce [sic] is still just writing dissenting memos.”[13] Although I will be tending bees, not writing dissents, in 2028, I think often about the crux of that criticism and ask myself: “What could I do to help prevent another group of people with a big idea for changing the world from going through what LBRY has over the past several years?” I have not come up with an answer to that question; however, I urge people who have suggestions about how the Commission can right its course on crypto and innovation more broadly, to send them my way.[14]

1. Prior Probability nominates Coase as GOAT, here and here.  And more here.

2. The forthcoming Biden executive order on AI (file under: “Lina Khan, accelerationist”).

3. Doug Irwin on Max Corden.

4. Claims about banned pigs.

5. New research paper on UK regional disparities.

6. That was then, this is now (Salem witch edition, WSJ).

7. The Guna [Kuna] people are starting to have to relocate to the Panamanian mainland.

8. Arnold Kling discusses GOAT (the book, not any nominated economist): “From now on, every book should be like this.”

When writing GOAT: Who is the Greatest Economist of all Time, and Why Does It Matter? I vowed I would write the whole truth.  Not just that I agreed with everything I wrote (the case with every book), but I that I would relate all that I was thinking.  Here is one part of the chapter on Hayek:

In the early 1980s Hayek was visiting the United States, and he was slated to give a talk at George Mason University. I was doing graduate study at Harvard at the time, but thought it was worthwhile to fly down to Virginia for this (why wasn’t Hayek invited to speak at Harvard? C’mon, you don’t already know the answer to that question!?). And so I arrived and yes Hayek was there.

Most of all I was surprised by how tall he was, and how he stooped when he walked. I also noticed his strange Viennese-British-sing-song accent, which at the time was new to me.

The talk was very impressive along one particular dimension. Every time Hayek uttered a sentence, you had the feeling he was saying something remarkably profound. You might say that he reeked of profundity. And in fact a lot of it was profound. Rather than speaking about political philosophy, or denationalization of money, as people expected at the time, Hayek dug deeply into the toolbox and covered the topics of money and capital, as you might have heard from him in the years leading up to his 1941 book The Pure Theory of Capital.

But it was somehow all profundity and no movement forward on the substance. Hayek repeated a lot of the points he made about capital theory in the 1930s and 1940s, but he didn’t do much to revise or improve his earlier point of view. I recall asking him a question (I can’t remember exactly what it was), and Hayek saying in response that he was planning to write a sequel volume to his 1941 Pure Theory of Capital. But whereas Pure Theory of Capital had dealt with capital in a “real” (non-monetary) setting, the next book would integrate the theories of money and capital in a way that he had failed to follow up on in the 1940s. In essence, he wished to revisit and also reverse the greatest failure of his career.

I went away thinking he was arrogant and delusional, and didn’t have much understanding for how much economics he had missed since the 1940s. Still, I enjoyed the talk and the chance to see Hayek. And, along the way, I learned something about profundity.

Here is the open access version of GOAT.  Here is an explanatory blog post about the book, the first book published in GPT-4.