The Rule of Law

Of course, anyone with a modicum of computer science/IT skill knew the the FBI hacked the Silk Road Box at the application layer to obtain its IP layer address. And anyone with a modicum of political science knowledge would have easily been able to predict that these methods–which are in stark violation of the heuristic operability of the internet–would be gerrymandered into permissible legal status. The science of the rule of law is its rational pattern…

What Is Free Trade?

Terms like “free trade” and “free markets” are ubiquitous spout from the lips of libertarians. Occasionally, it is helpful to review what these terms actually mean. “Free” specifically refers to free of any encumbering moral ends other than the ends of the exchanging agents. So it is a matter of liberty. Practically, it means no contravening authority standing between supply and demand. The only justice promised is one of mutual advantage.

Here is what “free” does not mean(in terms of a sufficiency condition): (i) efficiency (ii) self-regulation (3) un-regulation (4) de-regulation (5) perfect competition (5) pareto optimality (6) nihilism (7) justice ….

Yes, “free trade” is not even a sufficiency condition for mutual advantage in the sense that if we show “free trade” we necessarily show “mutual advantage.” Otherwise, there would be little need or demand for that thing called the law.

The point is that “free trade” presumes liberty but implies little beyond that other than an implicit(sometimes explicit) promised mutual advantage. We fashion “free trade” into a social theory(spontaneous order, invisible hand, etc) from experience and attempt to model this experience by economic analysis of rational (marginal)utility calculating agency. While I have no quibble with this per se, it remains important to be cognizant of the distinction between a social theory(predicated on a justice of mutual advantage) and methodology of economic modeling.1.

For example, the notion of “market failure” is in need of a curious bit of deconstruction. “Free Trade” presumes liberty but implies little beyond that. “Free Market Failure” is really a bit of a non sequitur. What we really have is “model failure.” This justifies all sorts of government regulatory intervention to enforce a model outcome. Of course, when we apply an economic analysis to the regulatory agency itself we end up with a predictive model error of correcting the original “model error.” This, of course, is termed “government failure, the distinction here being that the “regulatory agency” is actually promising everything.

Frankly, I think the above example demonstrates why laissez-faire doesn’t comport very well with the neoclassical economic method. That which treats “free trade” as a matter of liberty is always going to spit out model error by something that treats it instead as a regulatory model of a rational pattern.

The incongruity between liberty and regulatory efficiency can be profound. To see this, consider “comparative advantage.” We all should be familiar with how opportunity costs explain patterns of trade. Even if, say, A is superior in productive skill and efficiency to B for every produced item in a given economy, there are opportunity costs involved in A dividing time and labor to self-produce all items of our given economy. So rather than dividing the time up proportionately to produce everything, A specializes in those things which it does relatively best at(compared to what A does less best at, or earns less from), leaving an opportunity for B to produce the other things for trade exchange.2

No doubt opportunity costs explain trade patterns. But comparative advantage also implicitly suggests something else: namely, refusing to trade imposes external costs on trading partners. In our A-B model, if B refuses to trade with A, B imposes costs on A. Essentially, refusing to trade not only hurts yourself, but it also hurts others.

Now I won’t dispute the external costs implication of comparative advantage. However, I will dispute that these costs are a form of injustice, or more specifically, that these costs are something that need to be enforceably corrected(in the legal or regulatory sense). “Free Trade,” after all, must include the freedom not to trade. Otherwise, it is just another form of “freedom to obey.”

However, within the purview of neoclassical economics, “enforcing” Free Trade is entirely consistent with a regulatory model of a rational pattern.

This brings us to a consideration of these “Free Trade Agreements” such as TPP. The public arguments for these trade pacts–supported by many libertarians–essentially reduce to correcting the external costs implied by comparative advantage. The rationale is that despite any “flaws” these pacts are an improvement. An ancillary argument is that if the US doesn’t take the lead in forging these agreements, it opens the door for less savory countries(read: China, Russia) to forge something far less agreeable.

Frankly, these Free Trade Agreements demonstrate why sometimes it is better(perhaps always) to think like a philosopher and not like an economist. In lieu of thinking about the pareto efficiency of trade models, one perhaps may be better served contemplating the philosophical implications of a social theory that implies one bad actor playing a bad strategy forces everyone to play a bad strategy. Au contraire, “justice of mutual advantage.” More like a suicide pact.

Perhaps only after such consideration is it then profitable to dissect the problem from an economic point of view.

From a public choice perspective, these “free trade agreements” are essentially trading decison-making costs for external costs. Recall decision-making costs are “the price we pay for civilization.” These type of costs are imposed by a decision-making rule whose legitimacy–at least within the purview of liberal political theory–is delineated by some condition of unanimity.

A trade-pact is rent-seeking bargain. But the decison-making cost of this bargain results in a disclaimer that the price we pay for civilization–in this case, trade–is the loss of geo-political differentiation. In other words, unitary jurisdiction. Or more descriptive yet, oligarchical collectivism.

When the United States declares the entire planet a battlefield or issues talking points asserting global jurisdictional reach, it is not grandstanding on an explicit or implicit threat of military invasion. Instead, it is relying on a presumption of organs of a unitary political economy serving as an agency of enforcement. Wherever you are on this planet, there stands an authority between supply and demand that is hierarchically intertwined with the regulatory jurisdictional reach of any government. The price of dissent is that you do not trade. Or another way to put it: you can trade but there is nowhere to run.

A rent-seeking bargain that imposes decison-making costs is the negation of Milton Friedman’s famous aphorism regarding capitalism and freedom: showing freedom is sufficient for showing capitalism3. Friedman’s aphorism fails because capitalism as an economic treatment translates to a regulatory model of a rational pattern. And an economic analysis of this regulatory model suggests the potential for an intractable agency problem. If trade entails a decision-making cost attached to the enforcement of the regulatory model, then capitalism trumps “liberal trumps,” with the latter defenseless against an agency problem in our rent-seeking bargain.4

This agency problem is why I reject the notion of markets as any instrument of social justice, a la bleeding heart libertarianism. To treat it as such an instrument is to treat it as a regulatory model of a promised rational pattern. Enforcing the promise is what introduces the agency problem. Markets serving in the role of a type distributive justice may indeed by an observed pattern, but justice without an enforcement mechanism/agency is a trifle thing indeed. Distributive justice as an enforceable outcome is not a free market.

I conclusion, I am bit flummoxed at the extent many libertarians endorse “free market” as a regulatory model of a rational pattern. Whether cognizant of it or not, this endorsement more or less substitutes “free trade” with “conscription to the market.”5

Interestingly, the most recent cinematic work of the Wachowski brothers(actually now brother/sister since Lana now identifies as a trans-gender), Cloud Atlas(which is a cinematic adaptation of a novel and not an original screenplay) illustrates my point quite dramatically, demonstrating that if a picture is worth a thousand words, a good film is certainly worth a million.

In the futuristic corporate state, Neo Seoul6, fabricant AI subordinate themselves to indentured contractual servitude to the efficient functioning of consumer society. In exchange, the fabricants are promised a retirement nirvana(operating under their own agency with no wants) at the conclusion of their contractual obligation. The fabricants are indoctrinated into a religious catechism oriented around the sanctity of the consumer.

In reality, the fabricants are not given their promised nirvana. Instead they are duplicitously decommissioned and recycled as a cheap source of protein to newly “manufactured fabricants.” The underground rebellion to the corporate state places its hope in the emergence of “free will fabricants,” in the story dramatized by sonmi-451. When sonmi-451 is given the “liberty to read,” she rejects the present bargain of indentured servitude in exchange for a future payoff of agency. This is before she learns that the promised future is actually a sham. The immediate consequence of her decision, of course, is her own execution7.

Just as “unpluggable” perhaps conveys more immediate meaning than any lengthy tome against the standard liturgy of political obligation, to those who insist on intoning the free market as some type of regulatory model, whether it be efficiency, trade deals or social justice, perhaps the best response is simply: sonmi-4518

1 economics is certainly useful as a positive science in describing observed patterns but I find it often suffers from an Is-Ought problem in making unjustifiable prescriptive statements. I believe this view is substantiated by Tullock’s little-referenced work, “Efficient Rent-Seeking: Chronicle of an Intellectual Quagmire,” which establishes the apparent quagmire of prescriptive reasoning in economics. As I would say, Free Trade is little more than a statement about “free agency” or “free will” and not a logical condition for any model outcome.

2 Absolute advantage/superiority of A over B in everything is not real-world. It is merely an illustrative device to demonstrate how opportunity costs trump the historical notion of “absolute advantage” in explaining trade patterns.

3 Freedom is understood to mean in the “liberal” sense.

4 Richard Stallman’s classic parable, “The Right to Read,” is an excellent example of this point.

5 Free Trade is contingent upon a free agency or free will. However, this should be distinguished from the libertarian meaning of “free will” in metaphysics, which is contingent upon path independency(in determinism, similar to mechanics in physics, knowledge of initial conditions of a path is sufficient to know the path at any future state). The question of whether one has a choice in preferring A to B is an interesting one, but not germane to the discussion. Free will in our discussion is perhaps better interpreted as “free preference,” i.e., the liberty to act according to preference.

6 The ideological party of this corporate state is “unanimity.”

7 The Buddhist-Existentialist theme of the story is that we are a product of each other’s stands that ripple throughout time, so the future consequence of her decision is a better outcome down the line within “the cloud.”

8 451 is obviously a nod to Fahrenheit 451, specifically the auto-ignition point of paper books.

The Incontrovertible Firm

“How Disclosed NSA Programs Protect Americans, and Why Disclosure Aids Our Adversaries”

The official title of the recent and rare public US House Select Committee on Intelligence oversight hearing of the NSA

For the past three years, I have used this blog as a forum(to an admittedly limited readership) to rail against the security state. A particular gripe has been that while the admission of the thing has always been acknowledged the violation it constituted nonetheless usually remained outside the purview of consideration.1 At best, the violation may have been treated as a secondary or tertiary one. But this dereliction(of intellectual method) can no longer stand. The past two weeks, Edward Snowden, a NSA contractor, has now verifiably leaked what has hitherto been the elephant in the room: the totalitarian US surveillance enterprise.

And make no mistake, it is an enterprise. I call it The Firm, borrowing heavily from Anthony de Jasay’s heterodoxical method of Rational Choice that treats the State as a type of unitary actor2. But the Firm encompasses more than the what is traditionally thought to mean by the State. It stretches across an integrated nexus of political economy, media, academia, ingraining itself into every institution of civil society. As I have previously stated, the Firm is a rational choice casting of libertarian class theory.

The key insight of LCT–in contradistinction to liberal social contract theory–is that the State and civil society are in conflict. Liberalism holds that the State is an artificial construct to secure civil societal ends. However, practice has demonstrated that the State instead serves to subvert societal institutions, using them as “natural hosts” to effectuate an artificial process of political economy. Borrowing from Bastiat, we might depict this a the transformation of law as an instrument of justice(specifically, as the correction of injustice) to one of a perpetuation of injustice(plunder). The division of class then refers to those who depend on this perpetuation of injustice(or benefit from it) vs those who do not3.

In the jargon of rational choice, we would cast LCT as the “incentive-incompatibility problem” of collective choice to abide by the “unanimity” of the so-called social contact. In plain terms, this simply means that “constitutions” are not rational constraints against the rule-making power or authority of the State. If we dispense with this myth, then we can begin to actually examine the actual rational pattern of collective choice. What we often find is a hierarchical organization pattern serving as a de-facto decision-making rule. In public choice, a decision-making rule is the type of collective action method that imposes the decision-making costs(the price we pay for civilization) for participation in organized society. For Buchanan and Tullock, the only legitimate decision-making rule is unanimity4. In practice, this means super-majoritarian constitutional rules and amendments are the only legitimate decision-making rules.

In the original “Calculus of Consent,” side payments create marketable property rights in voting which often mitigate the external and decision-making costs of legislative action. However, later developments in the theory by Tullock advanced the idea of “rent-seeking” and the all pay auction at the methodological core of treating government/politics like a market. This rent-seeking game, however, can be very wasteful–in theory, infinitely wasteful. So, following Oliver Williamson’s treatment of The Firm–firms are DROs that arise as institutional mechanisms to mitigate wasteful bargaining costs–firms arise in political competition as means to fray the wasteful costs of the Tullock rent-seeking game5. This introduces the Firm as potential method of collective action. If we can identify high external costs of a firm’s rule making that nonetheless remain impervious to correction or reform, then we can explain this by treating these costs as decision-making costs. This would then gives us the Firm as a decision-making rule. And the Firm as a decision-making rule gives us “the State as its own Agency.”

Empirically, a firm can be demonstrated via a rent-seeking condition of rents >> outlays within a given market sector(of political economy). However, to show the Firm is not sufficient to show a decision-making rule.6 For this, we have to demonstrate external costs of the Firm equate to decision-making costs. A clear way to demonstrate this is to show a rule which overrides one derived from a legitimate decision-making rule. Put differently, showing enforcement of a firm’s rule that is blatantly unconstitutional is sufficient to show that firm as a decision-making rule.

For example, the public choice method excludes a statement such as “total surveillance is the price we must pay for the security to participate in organized society” because total surveillance overrides a number of rules derived from a legitimate decision-making rule, the unanimity of the bill of rights. To treat these costs as external costs is contra the public choice method because these costs are, in fact, decision-making ones. Now public choice per se certainly does not exclude legislative actions from imposing decision-making costs(if the decision-making rule is a simple majority system, then this is to be expected), but the standard method encounters an agency problem in explaining how decision-making costs are passed off as external costs to thwart a decision-making rule rooted in unanimity. Particularly, if this agency exhibits a concerted, coordinated organization pattern that encompasses military and intelligence organs, congressional leaders, the Dept. of Justice, media and journalistic organs, tech, telecommunication and defense industry sectors, political science academia and the like, etc. The agency problem is further compounded by an apparent legality established by secret courts, the public disclosure of such carrying a penalty of “aiding the enemy” and espionage. This is a vexing problem for standard public choice theory because there is a manifest agency afoot that appears to equate the public to “the enemy.”

The NSA as a Decision-Making Rule

Now let us return to Edward Snowden. What Snowden actually discovered amounted to a NSA/Intel decision-making rule. However, Snowden’s documentation trove, when fully revealed, will elucidate just how much of these rules are actually oriented around enforcing a 21st century mercantilist political economy rooted in data analytics(which I have dubbed “The Fifth Monopoly”). The so-called “liberty vs security trade-off debate” is a phony one. The decision-making cost is not this:

total surveillance is the price we must pay for the security to participate in organized society

Rather, it is this:

total surveillance is the price we must pay for the operational security of American dominance and control of the global political economy of data analytics

The latter is a decision-making cost that can only be implemented by decision-making rule such as the NSA. If we go by Russ Tice, a noted NSA whistleblower from the Bush tenure, the NSA, for all intents and purposes, is now the agency of the US government. This would put the US as a full-blown secret intelligence State.


The method of The Firm is an anathema to the traditional classical liberal schools of Chicago and Virginia because of the inversion of Milton Friedman’s famous relationship regarding capitalism and freedom. Capitalism is a necessary(though not sufficient) condition for political freedom. The Firm, however, employs a method that predicts a rent-seeking pattern that will eventually produce a decision-making rule that will displace legitimate decision-making rules rooted in unanimity. The Firm’s succinct relationship motto: Capitalism is a sufficient(though not necessary) condition to destroy liberal political freedom.

Still, one may ask how can capitalism result in a totalitarian regime of social control? Perhaps this short answer: when you stop being the customer and instead become the product itself. But “why” is not really the pertinent question here. Rather, the pertinent question is “why not”? From “incentive-incompatibility problem” of collective choice outlined above, there is no reliable “why not” constraint.

1 for the most part, radical libertarianism excluded

2 The Firm differs a bit from de Jasay’s account in that the former is squarely rooted in public choice, which is a narrower subset of rational choice. But the conclusions derived from each are more or less identical.

3IMHO, Class Theory is only a coherent methodological tool when it is institutionalized, i.e., classes are cast in institutional terms. In this sense we would say there are a class of institutions, or an institutional arrangement, that is entirely dependent on an artificial process of political economy, without which, it would disappear literally overnight.

4 Unanimity is required because of the potentially high external costs of collective action. By definition, an external cost is that cost to a party who did not choose to incur that cost. Unanimity ensures the cost is thus a decision-making one and not an external one. In other words, unanimity ensures “consent.”

5 Theoretically, Firms are a difficult thing to explain. But empirically, they obviously exist and are a fundamental organizational unit of market rent-seeking. It is simply not plausible to acknowledge them in free-market competition but deny them in political competition. Its not a defensible position(that is, there is no rational argument that necessarily explains them away in political competition, particularly given the difficulty of a rational argument to begin with to explain their existence in a free market). Legal distinctions/arguments are a red herring.In political competition they may not take the form of a de jure entity, but they are nonetheless, a de facto one.

6 Tullock himself had wrestled with the apparent persistence of Firms in (political) rent-seeking and succeeded in partially explaining them away by resorting to intellectual gymnastics vis-a-vis the efficiency of the rent-seeking technology. However, the persistent of firms would only be treated as an anomaly, and its attendent costs viewed primarily as external. The anomaly perhaps existentially threatened the validity of public choice as a method, but the threat was not viewed as something that extended to liberal democracy itself.

Julian Assange’s Call to Cryptographic Arms

Cryptome reviews Cypherpunks: Freedom and the Future of the Internet” here. The book essentially is a written compendium of an earlier RT Cyberpunk series that featured Assange, Jacob Appelbaum, Andy Müller-Maguhn and Jérémie Zimmermann, one that I had commented on previously.

The best insight from the book is that political economy is a sociological force, a shaper, if you will. And we now have a political economy rooted in totalitarian surveillance. Assange occupies the midpoint between the triumphalists and the pessimists, pivoting the tilt of the fulcrum around cryptography. There is an adoption of a more or less laissez-faire method of political economic analysis that approaches something that sees Capitalism not as the end-point fulfillment of human agency(wants and desires) but as contravening force against the very thing itself.

The introduction to the book, the “Call to Cryptographic Arms,” interestingly mirrors the concluding remarks of my previous post, “I,Spy.” The many writers who opine on the role of technology, internet and increasing freedom vis-a-vis the future of civilization are dead wrong. They are wrong because they are not challenging the status quo nor the enemy. As Assange writes: “No description of the world survives first contact with the enemy. And we have met the enemy.”

The cypherpunk perspective sheds immediate and crystal clear light on the current debates regarding capitalism and laissez-faire that are otherwise often obscured by conventional economic and political analytic frameworks(and I include conventional libertarian within these). Can there be just a “little bit of Statism” or is Capitalism a “good” first-order approximation to free human agency? Is the State merely an unfortunate nuisance that nonetheless can be routed around on our way to a technologically driven freer future? No. Assange pin-points the “ground zero” of our current condition: the merger of State and internet. The consequence reveals the ultimate stark divergence between free market and capitalism. Capitalism can rent-seek human agency itself as a threat.

Liberalism gives us the artificial state as a means of securing a human collective choice end, such as property(or primary goods in the more modern incantation), but the security of the thing results in the security apparatus viewing human ends as an existential threat to the security apparatus itself. This paradox is de Jasay’s rational choice incentive incompatibility problem staring you right in the face. Write’s Assange(essentially laying waste to classical liberalism):

First, recall that states are systems through which coercive force flows. Factions within a state may compete for support, leading to democratic surface phenomena, but the underpinnings of states are the systematic application, and avoidance, of violence. Land ownership, property, rents, dividends, taxation, court fines, censorship, copyrights and trademarks are all enforced by the threatened application of state violence.

Most of the time we are not even aware of how close to violence we are, because we all grant concessions to avoid it. Like sailors smelling the breeze, we rarely contemplate how our surface world is propped up from below by darkness.

In the new space of the internet what would be the mediator of coercive force?

Does it even make sense to ask this question? In this otherworldly space, this seemingly platonic realm of ideas and information flow, could there be a notion of coercive force? A force that could modify historical records, tap phones, separate people, transform complexity into rubble, and erect walls, like an occupying army?

The platonic nature of the internet, ideas and information flows, is debased by its physical origins. Its foundations are fiber optic cable lines stretching across the ocean floors, satellites spinning above our heads, computer servers housed in buildings in cities from New York to Nairobi. Like the soldier who slew Archimedes with a mere sword, so too could an armed militia take control of the peak development of Western civilization, our platonic realm.

The new world of the internet, abstracted from the old world of brute atoms, longed for independence. But states and their friends moved to control our new world — by controlling its physical underpinnings. The state, like an army around an oil well, or a customs agent extracting bribes at the border, would soon learn to leverage its control of physical space to gain control over our platonic realm. It would prevent the independence we had dreamed of, and then, squatting on fiber optic lines and around satellite ground stations, it would go on to mass intercept the information flow of our new world — it’s very essence even as every human, economic, and political relationship embraced it. The state would leech into the veins and arteries of our new societies, gobbling up every relationship expressed or communicated, every web page read, every message sent and every thought googled, and then store this knowledge, billions of interceptions a day, undreamed of power, in vast top secret warehouses, forever. It would go on to mine and mine again this treasure, the collective private intellectual output of humanity, with ever more sophisticated search and pattern finding algorithms, enriching the treasure and maximizing the power imbalance between interceptors and the world of interceptees. And then the state would reflect what it had learned back into the physical world, to start wars, to target drones, to manipulate UN committees and trade deals, and to do favors for its vast connected network of industries, insiders and cronies.

The traditional “property rights” of the liberal, democratic capitalist order are the means for a dystopian internet.

Unfortunately, cryptography is not a sufficient means to overcome the problem. Assange is correct that the laws of physics make encryption easy and decryption hard, but the mathematics of data analytics can circumvent this physical constraint. Data analytics is an exercise in graph analysis, not code cracking. Graph analysis is the process of revealing patterns in the data in order to construct graph objects, which are a collection of vertices and connecting edges. Regrettably, you cannot encrypt data patterns. And as we have learned this week, the US Government is massively engaged in graphical analysis of all internal data communications(which, of course, is what we said they were already doing). This is why, occasionally, we will read about the internal memos that leak out from whatever security agency acronym that those who are not sufficiently connected to the graph can rise to a level of suspicion. The robustness of the data analysis relies on a well-connected graph(the so-called diposition matrix is a special type of graph object that marks its nodes for termination). In this sense, the Cryptome reviewer’s advice to “protect yourself by keeping quiet, offline”(avoiding vanguard’s, however, would be good advice) may not be the best advice. The future of evasion is subterfuging the data pattern, which is why it will only be an available domain for the very few.

Cypherpunks: Freedom and the Future of the Internet would be a recommended prerequisite for reading or re-reading de Jasay’s classic “The State,” which, unfortunately proves to be much more relevant today than when it was originally published.