Category: Law

In praise of regulatory arbitrage

That is the topic of my latest Bloomberg column, here is one excerpt:

So if you issue a crypto token, but don’t have to register it as a security and go through the process of satisfying securities laws, you are engaging in regulatory arbitrage.

It is worth thinking through why some of the regulations ought to change in this new context. In the pre-crypto world, issuing a security involved a host of institutional preparations and investments and legal planning, even apart from whatever regulatory constraints needed to be met. Issuing crypto tokens is usually easier and quicker, and quite immature institutions have done so. Software and blockchains do much of the work that once required offices, personnel and a lot of hands-on management…

Standard US regulatory practice typically focuses on regulating host firms and intermediaries, rather than software. Yet once a blockchain is verifying, storing and communicating information, it is hard for regulators to step in and make a meaningful difference. Thus the old regulatory model no longer applies to a significant part of the crypto experience.

And the lower costs of token issuance mean that the issuing intermediaries can be quite thinly capitalized. Often they are either not able or not incentivized to meet a lot of regulations. In addition, an institution can participate fully in the crypto space without being based in the US or being tied to any specific nation-state.

You can inveigh against those features of the market. Regardless, they are going to mean a radically different set of regulatory constraints. They also mean that some kinds of securities (if it is appropriate to call them that) can be issued far more cheaply than before.

Given this reality, shouldn’t regulations be changed — and substantially? This may include some areas where regulation is even tighter, though overall regulations will likely become looser. The regulators will have to learn to live with a more decentralized market structure that has lower costs and is harder to control. It is common sense that when software can substitute for major capital investments, regulations ought to change, even if observers disagree over how.

Unfortunately, the regulatory process is static and typically slow to change. Regulatory agencies often stick with the status quo until it is no longer tenable. One of the benefits of regulatory arbitrage is that it forces their hand and brings about a new equilibrium.

Recommended, this topic remains underdiscussed.  “Regulatory arbitrage” is in fact one of the more significant potential benefits of crypto, noting that not everyone in the crypto space wants to come out and say that.

Incentives matter, installment #5637

America needs more than 5 million new houses to meet demand, according to a study last year by With sales of existing homes slowing, the need for more new houses is only growing. Florida, my home state, might have found part of the solution: Reform the permitting process so that building houses is easier.

Last year, Gov. Ron DeSantis (R) signed a bill that fundamentally changes the state’s permitting process for home building. It requires local jurisdictions to post online not only their permitting processes but also the status of permit applications. The transparency takes a good amount of mystery out of what can be an inscrutable branch of bureaucracy.

More important, the reforms also created a system that strongly incentivizes cities and counties to approve new home permits in a timely way. When a builder or property owner submits an application to build a new home, cities and counties have 30 business days to process it or request corrections.

If the government offices fail to respond in that time frame, the locality must refund 10 percent of the application fee for every additional business day of silence. Application fees can vary widely by locality, but the average cost in Florida is nearly $1,000, according to If officials request corrections to the application, they have 10 business days to approve or disapprove of the resubmitted application. Blowing past that deadline leads to an automatic 20 percent refund, with a further 10 percent added for each additional missed day, up to a five-day cap.

And this:

A study of housing sales in southwest Florida between 2007 and 2017 by the James Madison Institute found that permitting delays added as much as $6,900 to the cost of a typical house. That’s a de facto tax on Florida families; now the Sunshine State is making cities and towns pay for their own delays.

Here is the full story, via the excellent Kevin Lewis.

Our regulatory state is failing us, NIH edition

…the lawmakers pressed NIH leadership for answers about the mysterious disappearance of the Scientific Management Review Board, a committee that Congress empaneled in 2006 to ensure the agency was operating efficiently…

“There wasn’t any notification that we weren’t going to meet again — it was just that the meetings stopped getting called,” Nancy Andrews, a onetime board member and the former dean of the Duke University School of Medicine, told STAT in May.

She added: “I had the sense that we were asking questions in areas that they didn’t really want to get into, and I suppose Francis [Collins] in particular didn’t really want us working on.”

Here is the full StatNews piece.

Sell Drone Space Like Spectrum!

Photo Credit: MaxPixel

Drone airspace resembles spectrum in the 1980s, an appreciating asset that could be bought, subleased, traded, and borrowed against – if it were only permitted.

Much like legacy spectrum policy, there is immense technocratic inertia towards rationing airspace use to a few lucky drone companies. The Federal Aviation Administration (FAA) has begun drafting long-distance drone rules for services like home delivery, business-to-business delivery, and surveying. In the next decade, drone services companies will deploy mass-market parcel delivery and medical deliveries in urban and suburban areas to make deliveries and logistics faster, cheaper, and greener.

…Federal officials recognize that the current centralized system of air traffic management won’t work for drones: at peak times today, US air traffic controllers actively manage only about 5,400 en route aircraft.

Red flags abound, however. FAA’s current plans for drone traffic management, while vague and preliminary, are clear about what happens once local congestion occurs: the agency will step in to ration airspace and routes how it sees fit. Further, the agency says it will closely oversee the development of airspace management technologies. This is a recipe for technology lock-in and intractable regulatory battles.

US aviation history offers the alarming precedent of expert planning for a new industry. In 1930 President Hoover’s Postmaster General, who regulated airmail routes, and a handpicked group of business executives teamed up to “rationalize” the nascent airline marketplace. In private meetings, they eliminated the established practice of competitive bidding for air routes, divided routes amongst themselves, and reduced the number of startup airlines from around forty to three.

“Universal” and “interoperable” air traffic management are popular concepts in the drone industry, but these principles have destroyed innovation and efficiency in traditional airspace management. The costly US air traffic management system still relies on voice communications and manual writing and passing of paper slips. Large, legacy users and vendors dominate upgrade efforts, and “update by consensus” means the injection of innumerable veto points. Drone traffic management will be “clean sheet,” but interoperable systems are incredibly difficult to build and, once built, to upgrade with new technology and processes. More than 16,000 FAA employees worked on the over-budget, pared-down, years-delayed air traffic management upgrades for traditional aviation.

…To avoid anticompetitive “route-squatting” and sclerotic bureaucratic control of a new industry, aviation regulators should announce a national policy of “airspace markets” – government sales of high-demand drone routes, resembling present-day government spectrum auctions.

Brent Skorup has the details, from a prize winning paper at CSPI.

Our regulatory state is failing us, monkeypox edition

Roy Gulick wants to give his monkeypox patients the best possible care. But he and his doctors simply don’t have enough hours in the day to complete dozens of pages of paperwork every time they need to pry medicine out of the Strategic National Stockpile.

And that’s just what has been required for a single patient. His team has treated more than a dozen.

“It’s been a very daunting task,” said Gulick, chief of the Division of Infectious Diseases at New York Presbyterian/Weill Cornell Medicine. “There’s a ton of paperwork, there’s a ton of assessments that are required, there’s a tremendous amount that one has to do to be able to administer this drug to someone.”

Physicians’ struggles to prescribe Tpoxx, an antiviral approved to treat smallpox, which is from the same family of viruses as monkeypox, are among a slew of obstacles related to testing, treatment and vaccination that experts say is contributing to a plodding national response that they fear is not keeping up with the virus’s spread. Some worry that the window is closing to prevent the virus from becoming permanently entrenched in this country, with more than 1,400 confirmed infections across 42 states — and hundreds or thousands of additional infections suspected, predominantly in the gay and bisexual community.

Here is more from The Washington Post.

My excellent Conversation with Matthew Ball

Here is the audio, video, and transcript.  Here is part of the summary:

Ball joined Tyler to discuss the eventual widespan transition of the population to the metaverse, the exciting implications of this interconnected network of 3D worlds for education, how the metaverse will improve dating and its impacts on sex, the happiness and career satisfaction of professional gamers, his predictions for Tyler’s most frequent uses of the metaverse, his favorite type of entrepreneur, why he has thousands of tabs open on his computer at any given moment, and more.

Here is one excerpt:

COWEN: As I read your book, The Metaverse, which again, I’ll recommend highly, I have the impression you’re pretty optimistic about interoperability within the metaverse and an ultimate lack of market power. Now, if I look around the internet — I mean, most obviously, the Apple Store but also a lot of gaming platforms — you see 30 percent fees, or something in that neighborhood, all over the place. Will the metaverse have the equivalent of a 30 percent fee? Or is it a truly competitive market where everything gets competed down to marginal cost?

BALL: I think neither/nor. I wouldn’t say that market power diffuses. There’s currently this ethos, especially in the Web3 community, that decentralization needs to win and that decentralization can win.

It’s a question of where on the spectrum are we? The early internet was obviously held back by heavy decentralization. This is one of the reasons why AOL was, for so many people, the primary onboarding experience. It was easy, cohesive, visual, vertically integrated down to the software, the browser experience, and so forth. But we believe that the last 15 years has been too centralized.

At the end of the day, no matter how decentralized the underlying protocols of the metaverse are, no matter how popular blockchains are, there are multiple forms of centralization. Habit is powerful. Brand is powerful — the associated trust, intellectual property, the fundamental feedback loops of revenue and scale that drive better product investment for more engineers.

So I struggle to imagine the future isn’t some form of today, a handful of varyingly horizontal-vertical software and hardware-based platforms that have disproportionate share and even more influence. But that doesn’t mean that they’re going to be as powerful as today.

The 30 percent fee is definitely going to come by the wayside. We see this in the EU, whose legislation dropped yesterday. I have absolute certainty that that is going to go away. The question is the timeline. A lawyer joked yesterday, Apple is going to fight the EU until the heat death of the universe, and that’s probably likely. But Apple will find other ways to control and extract, as is their profit motive.

COWEN: Where is the most likely place for that partial market power or centralization to show up? Is it in the IP rights, in the payment system, the hardware provider, a cross-platform engine, somewhere else? What’s the most likely choke point?

BALL: There seem to be two different answers to that. Number one is software distribution. This is your classic discovery and distribution of virtual experiences. Steam does that. Roblox does that. Google does that, frankly, the search engine. That gateway to virtual experiences typically affords you the opportunity to be the dominant identity system, the dominant payment system, and so on and so forth.

The other option is hardware. We can think of the metaverse as a persistent network of experiences, but as with the internet, it may exist literally and in abstraction, but you can only access it through a device. Those device operators have an ever-growing network of APIs, experiences, technologies, technical requirements, and controls through which they can shape it.

Recommended, interesting throughout.

Landlordism returns to Ireland but why?

No political party ever ran for election on the promise to bring back the landlords. None of our leaders ever said that the problem with late 20th century Ireland was that too few people were paying rent.

And yet, this shift back towards landlordism didn’t happen by accident. It has been engineered by the State and partly paid for by the taxpayer.

It is the State that created and shaped this change. It pays all or most of the rent to landlords for 113,000 households. Between 2001 and 2020 governments have spent €12.5 billion to support the private rental market.

The consequent shift is a remarkable exercise in social engineering. Renting has been made more and more “normal” for each succeeding generation.

A recent ESRI report tells us that fewer than 20 per cent of Irish people born in the 1950s or 1960s lived in rented accommodation in their mid-thirties. For those born in the 1970s this rises to just over 30 per cent. For those born in the 1980s it’s over 40 per cent.

These figures are, naturally, mirrored on the other side by a dramatic decline in home ownership among young people. In 2004, 60 per cent of those aged 25-44 owned their own homes. By 2015 that had halved to 30 per cent.

Here is more from the excellent Fintan O’Toole.

Yimby and Liberty

Good answer from Matt Yglesias at Slow Boring:

Marcus Seldon: How should the YIMBY movement/urbanists deal with the fact that most Americans say they want to live in a detached single-family home that they own? How do you sell upzoning, walkable neighborhoods, transit-oriented development, and so on to people who largely like (or think they like, at least) the American suburban lifestyle?

MY: Logically, there’s just no contradiction here. It’s clear that there is significant unmet demand to live in New York, Boston, D.C., and San Francisco, and it’s also clear that most people don’t want to live in those cities. Right now, they collectively account for maybe three to four percent of the U.S. population, and in YIMBYtopia, maybe that would go up to five to six percent.

But mostly, the thing I want to sell people on is freedom. It should be legal to build a detached single-family home on any parcel of residentially zoned land in America. But it should also be legal to build a duplex or some rowhouses there. The point of making it legal to build mid-rise apartments isn’t that there’s something incredibly awesome about living in a mid-rise apartment. It’s that in a world of tradeoffs, you might prefer it to an alternative living situation where you have a longer commute or higher expenses.

Yglesias is correct. Yimby is a natural libertarian issue, it’s good for freedom, efficiency and the poor. It’s unfortunate that in recent years there has been some slippage among libertarians to adopt a “conservative” approach to Yimby and immigration by arguing for local and national rights to determine neighborhood and country composition. Sorry, you can twist words all you want, but that isn’t libertarianism it’s collectivism.

A Pox on the FDA

Monkeypox isn’t in the same category of risk that COVID was before vaccines but it’s a significant risk, especially in some populations, and it’s a test of how much we have learned. The answer is not bloody much. Here’s James Walsh in NYMag:

As monkeypox cases have ticked up nationwide, the White House and federal agencies have repeatedly assured the public that millions of vaccine doses will be distributed to at-risk populations before the end of the year. Yet since the World Health Organization announced the global monkeypox outbreak in May, only tens of thousands of shots have been administered in the U.S. The slow start is due, at least in part, to the fact that 1.1 million doses have been stored in a Denmark pharmaceutical facility while the Food and Drug Administration has taken almost two months to approve their release here, according to people familiar with the situation. FDA officials only began to inspect the facility last week. The lag time, public-health experts say, is indicative of the federal government’s lackadaisical approach to a growing public-health emergency.

…It’s unclear why the FDA took so long to send inspectors to Denmark. The agency regularly conducted virtual inspections of drug facilities early in the COVID-19 pandemic, according to the agency’s guidance, and public-health activists are demanding answers. “Members of at risk communities are being turned away from monkeypox vaccination because these vaccines are not available in sufficient quantity in the U.S., but instead sitting in freezers in Denmark,” members of the advocacy group PrEP4All and Partners in Health wrote in a letter to federal officials overseeing the outbreak response last week.

Compounding their frustrations was the FDA’s refusal to accept an inspection done last year by its counterpart, the European Medicines Agency, which deemed the company’s facility in compliance with the FDA’s own standards.

“The FDA does not grant reciprocity for EMA authorization of any vaccines, for monkeypox or other diseases,” a spokesperson for the FDA said in a statement.

Is there anyone in the United States who is saying, “I am at risk of Monkeypox and I want the vaccine but I don’t trust the European Medicines Agency to run the inspection. I’d rather wait for the FDA!” I don’t think so. James Krellenstein, an activist on this issue, asks:

“Why were the Europeans able to inspect this plant a year ago, ensuring these doses can be used in Europe and the Biden Administration didn’t do the same,” he added. “The FDA is making a judgment that they’d rather let gay people remain unvaccinated for weeks and weeks and weeks than trust the European certification process.”

Many people want to be vaccinated:

New York City has received just 7,000 doses from the federal government amid the national vaccine shortage. Meanwhile, the city Department of Health and Mental Hygiene’s appointment booking system has failed to keep up with the high demand for the shots — most recently on Wednesday.

…The mounting frustrations left health officials and Mayor Eric Adams on the defensive, pushing back against comparisons to New York’s struggles during the early days of the coronavirus vaccine, which was beset by computer glitches and supply shortages.

This is a classic case for reciprocity. Any drug, vaccine, test or sunscreen (!) approved by a stringent regulatory authority ought to be conditionally approved in the United States.

Addendum: If you are not furious already–and you should be–remember that during COVID the FDA suspended factory inspections around the world creating shortages of life-saving cancer drugs and other pharmaceuticals. As I wrote then “Grocery store workers are working, meat packers are working, hell, bars and restaurants are open in many parts of the country but FDA inspectors aren’t inspecting. It boggles the mind.”

Hat tip: Josh Barro.

Photo Credit: Nigeria Centre for Disease Control.

DC markets in everything

ShutDownDC, a liberal advocacy group in Washington, D.C., said on Friday that it will offer up to $250 to service industry workers in the district for every sighting of the justices who overturned Roe v. Wade.

Here is the story, and like Charles Cooke (and presumably Dan Klein) I object to the word “liberal” in this context.

And maybe they won’t get the check right away either:

  • “We’ll Venmo you $50 for a confirmed sighting and $200 if they’re still there 30 mins after your message.”

Patrick Collison on vaccines

Pan-variant vaccines are a $1 trillion dollar bill on the sidewalk. Some combination of a lack of basic institutional seriousness and self-imposed straightjackets mean that we will probably get these vaccines much later (perhaps years later) than we otherwise could. It is intellectually internally consistent to believe that COVID doesn’t matter and that we consequently shouldn’t care about any of this. But it is not consistent to think that COVID matters and that this situation is anything other than crazy.

Here is the full piece, written for Slow Boring (which you should subscribe to and pay for, as I do), excellent throughout.  One lesson is that management really matters, public sector management most of all for a case like this.

Marijuana Legalization and Fertility

State-level marijuana legalization has unintended consequences, including its effect on fertility. Marijuana use is associated with behaviors that increase fertility as well as physical changes that lower fertility. In this paper, I use a difference-in-differences design that exploits variation in medical and recreational marijuana legalization across states and over time to study the effects of marijuana legalization on fertility. This paper is the first to study the effects of recreational marijuana legalization on fertility. I find that legalizing recreational marijuana decreases a state’s birth rate by an average of 2.78% while increasing the probability that an individual is sexually active by 3.6 percentage points. [emphasis added by TC] Together, my findings show that the physical effects of marijuana use have the dominant effect on fertility. By contrast with the existing literature, I find that medical marijuana legalization does not affect the birth rate, although it increases the frequency of sexual activity by 1.6 sexual encounters per month. Neither type of marijuana legalization affects male gonorrhea cases or the probability of having sex with a stranger.

That is from a new paper by Sarah Papich, via the excellent Kevin Lewis.  And note that in this paper marijuana legalization predicts lower auto insurance premia.

My Conversation with Barkha Dutt

Here is the link, and here is part of the CWT summary:

Barkha joined Tyler to discuss how Westerners can gain a more complete picture of India, the misogyny still embedded in Indian society, why family law should be agnostic of religious belief, the causes of declining fertility in India, why relations between Hindus and Muslims seem to be worsening, how caste has persisted so strongly in India, the success of India’s subsidized institutes of higher education, the best city for Indian food, the power of Amar Chitra Katha’s comics, the influence of her English liberal arts education, the future of Anglo-American liberalism in India, the best ways to use Twitter, and more.

And from the conversation:

COWEN: Many outsiders have the impression that relations between Hindus and Muslims and the aggregate in India have become worse over the last 10 to 15 years. If you put aside particular actions of particular political personalities, and you try to think of a structural reason why that might be true — because normally the intuition is, people grow richer, they’re more tolerant, there’s more commercial interaction, there’s more intermingling — what would be your structural account of why, in some ways, that problem has become worse?

DUTT: You just spoke of intermingling, Tyler. I think that one of the biggest reasons for the worsening relations, or the othering, as it were, of communities that are not your own is the ghettoization of how people live. For example, if there were neighborhoods where people live cheek by jowl — that still happens, of course, in many cities, but it also happens less than it used to, and that is true. We are seeing a Muslim quarter, to give an example, or a Christian quarter in a way that we wouldn’t have before our cities were so ghettoized.

I think that kind of intermingling, of living in the same housing societies or neighborhoods, participating in each other’s festivals as opposed to just tolerating them — those are the structural changes or shifts that we are witnessing. It’s also true that it is tougher for a person from a religious minority — in particular, an Indian Muslim — to get a house as easily as a non-Muslim. I think I would be lying if I did not acknowledge that. Also, the last point is interfaith marriages or interfaith love. This is a deeply politicized issue as well.

While I’m talking to you, in the last 24 hours in the Southern city of Hyderabad, one of our big technology hubs, we’ve had reports of a Muslim family that attacked a Hindu man for marrying a Muslim woman. In reverse, we see Muslim women also targeted all the time if they choose to marry Hindus. This is not helped by the fact that you’ve had several states now talking about what they call love jihad. That’s the phrase they use for marriages that are across religious communities, in particular between Hindus and Muslims.

The percentage of Indians marrying not just outside their religion but also outside their caste — which in Hinduism is a hierarchical system of traditional occupation that you’re born into — is woefully low. I don’t know if I remember my data correctly, but I think less than 5 percent of Indians actually marry outside of their own communities. I would need to go back to that number and check it, but that’s what I remember off the top of my head.

Those are the structural reasons: the fact that people don’t love or have relationships outside of their community, don’t live enough with people of diverse faiths, and don’t participate in each other’s lives.

We used to have this politically correct phrase called tolerance, which I actually just hate, and I keep nudging people towards the Indian military. The Indian military actually has a system of the commanding officer taking on the faith of his troops during religious prayers. The military has multireligious places of worship. It even has something called an MMG, which is not just a medium machine gun but a Mandir Masjid Gurdwara, which is all the different faiths praying together at the same place. We don’t see a lot of that kind of thing happening outside of the military.

Another survey done by Pew reinforced this when it spoke of Indians today being more like a thali than khichri. Let me just explain that. A thali is a silver tray where you get little balls of different food items. Pew found that Hindus and Muslims — when surveyed, both spoke of the need for religious diversity as being a cornerstone of India. They like the idea of India as a thali, where there were different little food items, but separate food items. The khichri is rice and lentils all mixed up and eaten with pickle. The khichri is that intermingling, the untidy overlapping.

We are just seeing less and less of that overlapping. In my opinion, that is tragic. Where there is social interdependence, where there is economic interdependence, where there is personal interdependence is when relationships thrive and flourish and get better. But when they remain ghettos, separations just tolerating each other — that, I think, remains in the realm of othering.

Recommended, interesting throughout.