Category: reason

Nobel Prize–winning economist Paul Krugman is one of the most influential individuals in his field, which means people listen when he talks about bitcoin. Unfortunately, most of what he has had to say about the cryptocurrency over the years has been misguided, uninformed, or just plain wrong.

It’s sometimes difficult for the average person to understand what economists and politicians are talking about when they debate policy, but the value proposition of bitcoin can be easily understood by anyone through its NgU technology (NgU is an abbreviation of Number Go Up and is a meme based around bitcoin’s deflationary monetary policy). While Krugman has stated that his 1998 prediction that “the Internet’s impact on the economy [would be] no greater than the fax machine’s” was supposed to be a fun and provocative thought experiment, it may be much more difficult to explain away his many confused and oftentimes arrogant takes on bitcoin over the past ten years.

Krugman first wrote about bitcoin in The New York Times back in September 2011. In this post, Krugman mainly compared bitcoin to gold in a rather negative light. “To the extent that the [bitcoin] experiment tells us anything about monetary regimes,” he wrote, “it reinforces the case against anything like a new gold standard—because it shows just how vulnerable such a standard would be to money-hoarding, deflation, and depression.”

In other words, Krugman made a moral case against the adoption of bitcoin as money. In Krugman’s telling, a bitcoin standard would make the world much worse off because bitcoin has a fixed supply and central bankers would not be able to increase the money supply to stimulate the economy during economic recessions.

Even if you accept the idea that the world would be much better off under a more inflationary monetary system where central bankers have the power to stabilize the economy (I don’t), individuals tend to respond to incentives related to the betterment of their own lives, not necessarily the greater good of society. If holding bitcoin theoretically makes the world as a whole a bit worse off but acts as a better form of savings for an individual, is the average person going to choose to put his savings in fiat currencies that lose value over time out of the kindness of his own heart, or will he choose to just hold bitcoin? It’s also important to remember that the entire point of bitcoin is to persist in the face of governments that try to force their citizens into only using the government-approved form of money.

In April 2013, Krugman invoked Adam Smith to make another moral case against bitcoin, this time claiming that the use of gold, silver, or bitcoin as money was a waste of resources. “Smith actually wrote eloquently about the fundamental foolishness of relying on gold and silver currency, which— as he pointed out—serve only a symbolic function, yet absorbed real resources in their production, and why it would be smart to replace them with paper currency,” Krugman wrote. “And now here we are in a world of high information technology—and people think it’s smart, nay cutting-edge, to create a sort of virtual currency whose creation requires wasting real resources in a way Adam Smith considered foolish and outmoded in 1776.”

This was an early version of the energy and climate change–based arguments being made against bitcoin today. This is a faulty argument, however, because it assumes there is no difference between bitcoin and traditional bank accounts. The entire point of bitcoin as an asset is that, unlike Venmo or traditional bank accounts, users can retain full control over their digital money and are not simply holding IOUs. Claiming that this is a waste of resources is a subjective argument. It is no different from saying automobiles or YouTube are wasteful due to the amount of energy that is used to power them. People use bitcoin because it provides value for them, so the resources expended to make bitcoin possible aren’t a waste.

Later in 2013, Krugman simply declared that “Bitcoin Is Evil” because, as science-fiction writer Charlie Stross put it, “BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.” That said, Krugman did at least go into the argument that bitcoin lacked any sort of fundamental price floor and contrasted that characterization with gold’s use in jewelry and the U.S. dollar’s use for paying taxes.

Krugman would go on to use bitcoin’s lack of a price floor mechanism as his key argument against the cryptocurrency for many years to come. For example, as he argued in a 2015 interview, bitcoin “is a technically sweet solution to a problem, but it’s not clear that problem is one that has much economic relevance. It’s certainly not a reason to hold that currency.…If you’re looking for the idea that a currency doesn’t really have to be something physical, it can be something that is virtual, that’s the system we already have.”

But this misses the point of bitcoin, which is actually nothing like the monetary system we currently have. For one, bitcoin’s long-term monetary policy was “set in stone” when the network launched in January 2009, and it is not subject to changes by a trusted third party such as a central bank. Additionally, bitcoin solves the problem of centralization that is found in the digital equivalents of both the gold and fiat-based currency systems. Bitcoin users are able to retain full ownership over their coins with no counterparty risk; a bitcoin is not an IOU. Further, due to the censorship-resistant nature of the bitcoin network, a new financial system can be built on top of the bitcoin blockchain through the use of smart contracts to enable a greater degree of user privacy for a wide variety of activities, operating in a manner that contrasts the current surveillance state.

In addition to calling bitcoin evil, Krugman has also dismissed it as “libertarian derp” on multiple occasions. He even took pleasure in the crashing bitcoin price in early 2018. Notably, some of Krugman’s negative comments toward bitcoin popped up around the absolute bottoms of two consecutive cryptocurrency bear markets. In other words, it may be a good time to buy bitcoin whenever you see Krugman taking a victory lap.

Unfortunately for Krugman, the “libertarian derp” cryptocurrency hit a new all-time high once again in 2021, 10 years after his initial criticisms of the crypto asset were first published in The New York Times. Instead of acknowledging the reasons for bitcoin’s staying power, however, it appears that Krugman will continue to claim there is no utility for this technology and keep dismissing bitcoin as a cult that can survive indefinitely.

Fortunately for bitcoin, it can rebut Krugman by simply continuing to exist and thrive in the marketplace.

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In February of 2021, almost eight years after the state of Indiana seized Tyson Timbs’ brand-new Land Rover over a drug crime, prosecutors argued that there should be no proportionality when it comes to such offenses—in other words, that the government should essentially be free to take everything you’re worth.

Today, the state’s highest court categorically rejected that.

The conclusion is not only good for Timbs—who will get to keep his vehicle, once and for all—but for others who would have fallen victim to Indiana prosecutors’ extremely broad definition of what constitutes a legal and proportional civil forfeiture. The practice allows the government to take your property and pocket it, sometimes if you’re only suspected of committing a crime. In Indiana, prosecutors must merely meet the “preponderance of the evidence” standard, which requires less than evidence than is needed to get a criminal conviction.

After unsuccessfully making his way through the state courts, Timbs’ case was the subject of a 2019 landmark Supreme Court ruling, which dictated that the Eighth Amendment’s prohibition against excessive fines and fees applies to state governments. His case then returned to Indiana’s high court, whose judges sent it back to the trial court and back up again.

In other words, this was the third time the Indiana Supreme Court was tasked with deciding who owned Tyson Timb’s car: Timbs, or the state.

Timbs—and those who might find themselves in a similar position—finally won.

“Today’s ruling is an important victory for property rights across Indiana,” says Timbs’ attorney, Sam Gedge of the Institute for Justice. “We’re thrilled that the Indiana Supreme Court recognized the government’s overreach in Tyson’s case, and we think it’s going to be a key precedent in combatting civil forfeiture going forward.”

Chief Justice Loretta rush likened the government’s chutzpah to “Captain Ahab’s chase of the white whale Moby Dick.” Timbs, she concluded, “met his high burden to show that the harshness of his Land Rover’s forfeiture was grossly disproportionate to the gravity of the underlying dealing offense and his culpability for the vehicle’s misuse.”

She added that “addiction is not a categorical means to inflate the seriousness of a predicate offense”—a rebuke of the government’s quest to set no limit on what they can take from people who struggle with drug issues.

Indiana prosecutors’ position may sound extreme, but it fits right in with the state’s general attitude toward legalized theft. Also in February of this year, the Indiana Senate passed a bill to seize assets from people suspected of “unlawful assembly,” a vague crime often used to break up protests.

“The attorney general’s ‘anything goes’ approach to civil forfeiture has definitely hit a setback with today’s decision,” says Gedge.

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Nearly five years after the Obama administration promised to end the federal government’s longstanding, anomalous monopoly on marijuana for medical research, the Drug Enforcement Administration (DEA) has tentatively approved applications by several independent suppliers. But the DEA still maintains that the plant belongs in Schedule I of the Controlled Substances Act (CSA), a category supposedly reserved for especially dangerous drugs with no accepted medical use.

At the center of both disputes is the Arizona-based Scottsdale Research Institute (SRI), one of the organizations that has received preliminary DEA approval to grow marijuana. Today SRI President Suzanne Sisley, a physician who has studied marijuana’s usefulness as a treatment for post-traumatic stress disorder, is asking the U.S. Court of Appeals for the 9th Circuit to reject the DEA’s rationale for keeping marijuana in Schedule I. Sisley says the agency is wrong to ignore 36 states’ recognition of marijuana’s medical utility. She also argues that the CSA’s obeisance to international anti-drug treaties is “an unconstitutional delegation of legislative authority” that “violates core separation of powers principles.”

The CSA gives the attorney general the authority to reschedule drugs in consultation with the Department of Health and Human Services, a power the attorney general has delegated to the DEA, a Justice Department agency. The National Organization for the Reform of Marijuana Laws filed the first petition asking the DEA to reclassify cannabis half a century ago. But neither that case nor subsequent challenges made much headway, because federal courts have deferred to the agency’s interpretation of the CSA’s scheduling criteria.

According to the DEA, marijuana has “no currently accepted medical use” because it does not satisfy a five-part test invented by the agency, which demands the sort of evidence that would be required to win approval of a new medicine by the Food and Drug Administration (FDA). In the DEA’s view, the fact that most states allow patients to use marijuana for symptom relief is irrelevant.

Sisley argues that judicial acceptance of the DEA’s position is not required by Chevron deference, a doctrine that says courts should not question an administrative agency’s interpretation of an “ambiguous” statute as long as it is “rational” or “reasonable.” In this case, Sisley says, the relevant statutory language is not ambiguous.

“Based on the statutory text, structure, history, purpose—and the original understanding of the statute—’currently accepted medical use’ means ‘legitimate’ or ‘lawful medical purpose,'” says the petition for review in Sisley v. DEA. “This is the only interpretation that captures the cooperative federalism vision of the CSA and respects state sovereignty.” And in determining whether medical use of marijuana is legitimate, Sisley says, the drug’s legal treatment by 36 states surely should count for something.

“Can DEA deny that marijuana has a ‘currently accepted medical use in treatment in the United States’ when more than two-thirds of the States have enacted legislation greenlighting marijuana’s use as medicine?” Sisley’s opening 9th Circuit brief asks. “The unambiguous text of [the statute], canons of construction, the CSA’s history and purpose, and common sense all converge on a single, resounding answer: ‘No.'”

Sisley argues that the DEA also misconstrues another criterion for placing a drug in Schedule I: “a lack of accepted safety for use of the drug or other substance under medical supervision.” The DEA says marijuana lacks accepted safety because the FDA has not approved it as a medicine and it has no “accepted medical use,” which conflates two different criteria and, Sisley says, “improperly import[s] a clinical efficacy requirement.”

Even if marijuana were reclassified, the DEA argues, it would have to be placed in Schedule II, a highly restricted category that is supposed to include dangerous drugs that have an accepted medical use but still have “a high potential for abuse.” The DEA cites a CSA provision that says the agency should place a drug in the schedule it “deems most appropriate” to meet U.S. obligations under international treaties that were in force when the CSA was enacted in 1970, including the Single Convention on Narcotic Drugs of 1961. (Concerns about the Single Convention’s requirements also explain why it took so long for the DEA to act on applications from organizations that wanted to produce marijuana for research.) The Single Convention charges the World Health Organization (WHO) with recommending drugs for inclusion in particular schedules, which in turn constrains the DEA’s decisions under the CSA.

The treaty-dependent provision of the CSA “unconstitutionally delegates legislative power twice: first to a nongovernmental entity [the WHO] and second to the Attorney General,” Sisley’s brief says. “WHO does what it wants. The Attorney General does not participate in and has no discretion to undercut WHO’s decision. He cannot, for example, place fewer restrictions than international obligations demand. This is what DEA means when it says it cannot move marijuana below Schedule II: WHO-dictated treaty obligations create an impenetrable floor.”

Furthermore, the brief says, the CSA “transfers a quintessential legislative power—the power to execute treaties—to the Attorney General.” And in doing so, Sisley argues, it fails to provide an “intelligible principle to choose among schedules,” as required by the Supreme Court’s delegation precedents. “The Attorney General has no discretion to override the floor dictated by an unelected international body,” Sisley’s lawyers say. “But he has unfettered discretion to schedule above that point. Even if these two handoffs could stand independently, together they plainly violate established Separation of Powers norms.”

At a time when pot prohibition is steadily crumbling across the country and Congress is considering bills that would entirely remove marijuana from the CSA’s schedules, this argument about the plant’s proper classification might seem like irrelevant quibbling. But as Sisley notes, the regulatory requirements for Schedule I drugs, along with the marijuana monopoly the DEA is finally beginning to address, make it harder for researchers like her to investigate the drug’s potential.

President Joe Biden says he agrees. During his campaign, he promised to facilitate medical research by reclassifying marijuana. His press secretary recently reaffirmed that the president favors “rescheduling cannabis as a Schedule II drug so researchers can study its positive and negative impacts.” Since that decision is entirely within the power of the executive branch, the Biden administration can deliver on his promise without seeking new legislation from Congress. Instead it is defending marijuana’s Schedule I status in federal court.

Even if the DEA does ultimately move marijuana to Schedule II, that will not resolve the untenable conflict between state and federal law, even regarding medical use. Although Biden said he would “support the legalization of cannabis for medical purposes,” that would require FDA approval, which in turn would require an applicant with the resources to meet the agency’s requirements. All of that would not matter much if Congress simply repealed the federal ban on marijuana, a step that Biden has steadfastly resisted.

Beyond the immediate practical impact of Sisley’s case, it raises important issues regarding federalism and the separation of powers. The CSA itself, insofar as it purports to prohibit activity that never crosses state lines, is an affront to the 10th Amendment that is based on an absurdly broad reading of the Commerce Clause. Its continued treatment of cannabis as contraband and state-licensed marijuana suppliers as felons creates all sorts of risks and headaches for a burgeoning industry that most states view as legitimate.

Worse, the CSA, as currently understood, gives the DEA nearly unlimited discretion to decide which substances should be prohibited or restricted, even when its judgment defies common sense. If the puzzle of marijuana’s Schedule I status encourages federal courts to reconsider the breadth of that discretion, the implications could extend far beyond this particular plant or drug policy generally. As Justice Neil Gorsuch observed as a 10th Circuit judge, the Chevron doctrine “permit[s] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers’ design.”

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California’s work regulatory agency is backing down from a plan that would have forced many people across the state to keep wearing masks at work even if they’ve been vaccinated.

In five days, California is finally supposed to “reopen.” Vaccinated residents will finally be able to go most places without wearing masks or engaging in social distancing.

This is already the case in many states, in compliance with recommendations from the federal Centers for Disease Control and Prevention (CDC). But in California, Gov. Gavin Newsom has used his broad emergency powers to delay the change.

Reopening is supposed to mean an end to state-ordered mask mandates for those who have been vaccinated. But California’s Occupational Safety and Health Standards Board adopted a rule on June 4 that said employees could go unmasked only if everybody else in the room has been vaccinated and isn’t showing symptoms. The rule would also have required businesses to keep records of people’s vaccinations.

This is not a reasonable expectation for a workplace. Forcing everybody to wear masks if some people choose not to get vaccinated is simply not a good policy. And forcing a business to maintain vaccination records clearly violates employees’ privacy.

Businesses balked—imagine having to police all this under threat of punishment by the state—and the board reconsidered. On Wednesday, the board unanimously agreed to withdraw the rule it had just passed. We don’t know quite yet what will replace it, but Chairman David Thomas promised that whatever comes will be designed “so that it matches up with the CDC and the California Department of Public Health, so that we’re all on the same page.”

If they do, in fact, “follow the science” here, then vaccinated folks will not be required to wear masks at work. And that’s obviously how it should be.

The state will, unfortunately, maintain some other masking regulations. The Associated Press reports that “everyone must remain masked” in “public transit, indoor school classes, in health care and correctional facilities, and in places like homeless shelters and cooling centers.”

The same articles notes that “Individual businesses are also free to require everyone to remain masked under the general rules, he said.” But that part’s fine. States have bounced between forcing private business to adopt strict COVID policies (as California is doing until June 15) and forcing them not to (Texas and Florida have forbidden private businesses from asking for proof of vaccination). Better to let businesses assess their own risks.

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The U.S. government is thinking about creating an electronic currency backed directly by the dollar, an idea dubbed the “digital dollar” or “Fedcoin.” Such a step could severely damage trust in the dollar and risk Americans’ privacy.

Blockchain technology has allowed countries across the world—most notably China—to create central bank digital currencies (CBDCs), which allow people to exchange money electronically without going through a bank or a secondary service such as PayPal or Venmo. 

In a recent video, U.S. Federal Reserve Chair Jerome Powell announced that the Fed intends to issue a discussion paper about the “benefits and risks associated with CBDC in the U.S. context.” While Powell’s statement was generally neutral, stressing the importance of taking time to assess “the broader risks and opportunities,” other oficials have more pointedly favored the idea. Fed Governor Lael Brainard endorsed a digital dollar at a recent conference sponsored by CoinDesk, and Sen. Sherrod Brown (D-Ohio) wrote in March that a CBDC could help create a more “fair and equitable financial system” by allowing unbanked Americans to pay electronically without a bank account, credit card, or internet connection.

CBDC boosters also argue that the currencies are more efficient, since transactions that use them would not have to travel through as many intermediaries. This, they say, could reduce the friction of international payments and make global transactions easier. 

It’s not clear how big these benefits really are. The Federal Deposit Insurance Corporation reported in 2019 that only 5.4 percent of Americans lacked a bank account—a total that has been dropping rapidly. And we already have intermediaries, such as PayPal and Venmo, that can make international payments virtually instantaneous. Are these reasons enough to put Americans’ privacy at risk?

Paul Jossey, an adjunct fellow at the Competitive Enterprise Institute, says the potential impact of a CBDC on Americans’ financial privacy is “at best very scary.” At worst, he adds, it’s “nightmareville.”

China’s digital yuan shows how CBDCs could be a tool of government surveillance and control. “Unlike many anonymous and decentralized cryptocurrencies, [it] is monitored and backed by the [People’s Bank of China], affording China’s leadership supreme control over all transactions,” reports Asia Times. This “allows the Chinese government to integrate data collected on other platforms like the social credit system to generate a more detailed picture of individual users’ buying patterns.” In a video released by CGTN, a state-controlled media outlet, a fist with a symbol of the digital yuan punches the ground as a symbol of how the currency will be used to find and crush those who disobey the law.

The European Union has floated plans for a CBDC with “privacy anonymity vouchers,” which consumers could exchange to protect the privacy of their transactions. “But if you run out of vouchers, then that’s it,” says Jossey.

Meanwhile, tech writer Naomi Brockwell is worried that CBDCs could allow the government to “automatically deduct taxes,” “freeze funds more easily,” and “program money that sits in a bank account to become worthless if it sits too long in order to encourage spending.”

And while Powell and Brainard have been careful to say that CBDCs would not replace cash and other payment systems, some supporters of CBDCs have other ideas. Deutsche Banke, the largest banking institution in Germany, stated in a November 2020 report that “in the long term, central bank digital currencies will replace cash.” As Reason has pointed out on many different occasions, cash remains the only truly private form of transaction; a cashless society is a “pay-as-the-powers-at-be-will-let-you” society.

Competitive private sector organizations have at least some incentive to prioritize privacy, as we’ve seen in the cryptocurrency market. The federal government has little such incentive.

Much of the push for government-run digital money is driven by fears of those private cryptocurrencies. Sen. Brown, for example, pointed out that bitcoin “can be used for illegal activity.” (In fact, cash is still the preferred method of choice for illegal transactions. According to a report by Chainalysis, illicit behavior accounts for less than 1 percent of all crypto activity.) Meanwhile, Brainard is worried about the widespread adoption of stablecoins—digital assets pegged to a national currency, usually the U.S. dollar. If these are widely adopted, she argues, they could recreate a system like the one the U.S. had before the creation of a national bank, where there was no one dominant currency; and that, she fears, could lead to instability. 

Dante Alighieri Disparte, who serves on the World Economic Forum’s Digital Currency Governance Consortium, believes such concerns are unfounded. “That the majority of asset-referenced stablecoins in circulation today are pegged to the U.S. dollar speaks to how the fundamental trust in the U.S. dollar as the global reserve currency of choice is being preserved by digital currencies, not circumvented by them,” he writes in Coindesk.

Another fear that comes up in these arguments is a fear of “falling behind” China, causing the dollar to lose its global preeminence. But “by today’s hyper-competitive digital currency and blockchain standards, the U.S. may not be a laggard at all, but rather is already winning the race for the future of money and payments,” Disparate argues. China’s control over the flow of the digital yuan makes it an unappealing way to store assets and do business. 

The best future of money is not in a centralized public digital currency. It’s in a free marketplace marked by privacy, innovation, and choice.

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