Chuck Schumer’s New War on Bitcoin

New York Senator Chuck Schumer probably occupies a top place in the libertarian axis of evil. A bigot, a religious fanatic, a nanny-state totalitarian and a crook, Schumer epitomizes the libertarian critique against political authority. This is a man who is accustomed to barking orders at a servile populace, a man who counts intimidation and threats to be among his preferred methods of executing governance. So this video and story of Schumer’s outrage over Silk Road and Bitcoin, likely facilitated by a recent Gawker article, is vintage Chuck. Conjure moral outrage, summon the TV cameras, bark orders…

But, unfortunately for Chuck, this ain’t Four Loco. Ordering the Feds to shutdown the website and “seize the domain” was comedic display of Mussolini buffoonery. I suppose it’s sad that no one in the press corp had the technical wherewithal to challenge Schumer’s stupidity, but it’s amusing that Schumer’s aide, the one that set up the TOR client to access the site, didn’t have the cojones to prevent Chuck from looking like a moron. But then again, I suppose it’s probably career suicide to stand between Schumer’s moral outrage and a TV camera.

Silk Road is running as a TOR hidden service on the TOR P2P tunneling network. This means it’s being run from someone’s anonymous box that generally can’t be identified. It can be anywhere in the world. Anyone who downloads the TOR software can setup a hidden service. There’s no “domain name” to seize here and the only way to stop this sort of thing (at least until the “Internet Kill Switch Bill” is enacted) is to ban the TOR protocol outright, which would counter the government’s interests because: (i) it would cast the US in a bad authoritarian light (ii) more importantly, it’s used by US intelligence organs as a secure communications tunneling network with international assets. After all, it was the US government that originally developed it, and it was released into the wild because it’s useless, like any other P2P network, without a robust number of nodes. In particular, here, a TOR network of nodes consisting of just the spies, informants and US bureaucrats would be “stick out like a sore thumb” tunnel; these tunnels need lots of “noise,” that is, lots and lots of other tunnels to be effective. Also, of course, if the software was “classified,” there would be an obvious distribution problem of getting the software into the hands of the intelligence assets, a vulnerability(which could be exploited, because the acquisition method of the software could be compromised and tracked) that, combined with the “stick out like a sore thumb” intelligence-only tunnels, would make TOR useless. And this is why the US government released TOR into the wild.

Chuck hasn’t gotten the memo on TOR yet, but I imagine he will get the intelligence organ “sit down” on that. It’s not TOR that’s the threat, it’s Bitcoin. Schumer called Bitcoin a “money laundering mechanism;” certainly he is ready to take the lead in Senate hearings to foster drafting new legislation that would outlaw any unauthorized crypto-currency. However, the government, particularly the intelligence organs, is a bit ahead of Schumer in that the CIA is sponsoring a presentation by the Bitcoin lead developer.

Hitherto, the problem of crypto-currencies, in terms of being any threat to the State, was the need of a central authority to regulate against fraud. Anyone can define an electronic coin as a ledger/chain of digital signatures. One obvious problem is how to prevent Agent A, who is wishing to transfer ownership of the coin for a good/service, to simultaneously use the same coin to buy something from Agent B and Agent C, that is, more or less simultaneously digitally sign over the coin to Agent B and Agent C. This problem would seem to require a central authority to referee between A’s transaction with B and A’s transaction with C.

The Bitcoin algorithm, from I gather reading the technical whitepaper, solves the problem of transaction verification by incentivizing every node in the Bitcoin network to race for verification of outstanding transactions. In other words, every node is in competition to serve as the clearinghouse for the current existing block of unverified transactions. The verification is done by timestamp. All transactions are broadcast to all nodes, but in a P2P network, Node X’s timestamp for the current unverified transactions may be differ than Node Y’s timestamp for the same. The timestamp verification that wins out, that is the node that wins the clearinghouse game, depends on that node solving a “proof of work concept” that is able to solve a difficult mathematical problem of converting a hash representation of it’s own block into a required leading zero-bit format. The winning node then broadcasts it’s time stamp block to all nodes that readjust accordingly. The winning node is awarded a certain amount of bitcoins which serves as the first transaction in the next block of unverified transactions that will need to be verified.

Bitcoin is able to use competition to resolve the clearinghouse problem(clearinghouse nodes are incentivized by new coin creation). It ingeniously self-corrects for the introduction of cpu power by making the mathematical work of proof problem geometrically more difficult. This allows scalability without monopoly capture, but it does create a division of labor scenario where clearinghouse nodes invest in GPU cycles over CPU cycles(the investment in GPU cycles allows the system to handle the clearinghouse needs of an expanding system). However, the system constraints cap the total coin creation which means that clearinghouse nodes will eventually only compete over transaction fees.

The question concerning Bitcoin is two-fold: (i) can it survive a coordinated hacker attack (ii) can it survive government censorship/banning. We are probably about to find out about (ii). The thing about the US is that it is not a hard censorship regime; it’s a soft censorship regime. An actual honest-to-god crypto currency, however, is it’s worst nightmare. The US government will release something like TOR into the wild, but it would never release something like Bitcoin into the wild.

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The Triumph of Incoherence

Whenever I read Andrew Sullivan declare the triumph of something, I prepare for the cognitive dissonance to follow. He is a master in that art. So, what is one to say about this Sullivan effort, The Triumph of Libertarianism?.

The Triumph of Libertarianism. Really?

What is libertarianism? It is governance by laissez-faire civil society. It is anti-Statist.

Who in their right mind is going to claim that we are riding a crest of anti-Statism? Indeed, it’s precisely the opposite. We are riding a crest of putrid statism, particularly with regard to the political economy of the permanent war State.

Let’s look closer at Sullivan’s little blurb. What is he actually identifying libertarianism to be? Easy…Friedman’s 2nd Generation Chicago School, or if you prefer, “Friedmanite Liberalism.” And what are the defining characteristics of this?

Income tax rates are way down. Numerous industries have been deregulated. Most price controls have been abandoned. Competitive labor markets have steadily displaced top-down collective bargaining. Trade has been steadily liberalized. Simultaneously, the intellectual climate has shifted to be dramatically more favorable to libertarian insights. Wage and price controls were a standard tool of economic policymaking in the 1970s. No one seriously advocates bringing them back today. The top income tax bracket in the 1950s was north of 90 percent. Today, the debate is whether the top rate will be 35 percent or 39 percent.

Sullivan then informs us that a liberal today can safely spout Friedman. This, I gather, is the reason for the “triumphalism.” But then Sullivan can’t help himself and veers off into some tangent about Thatcher and Reagan. Opines Sullivan:

It is to see libertarian ideas as an ideology, not a useful way to critique excessive and counterproductive government intervention, when appropriate depending on the circumstances. Again, Reagan did not say “government is the problem,” he said, “In our present crisis, government is the problem.” The present crisis of 2010 is not the present crisis of 1981. And the failure of the conservative imagination in understanding this is one of the right’s deepest current problems.

I’m not sure what Sullivan means here. I think he is saying that the key to being a “triumphant libertarian” and a good conservative is a proper imagination necessary to divine Reagan; apparently, this is critical for determining when price controls constitute good public policy.

But enough with Sullivan. He is actually getting the “liberal stuff” from Tim Lee, The Return of Bottom up Liberalism. So let’s take a took. Lee uses an obscure post by whiny academic lamenting the lack of a robust “leftist” blogosphere. For Lee, this is a cause for celebration. That the lefty blogosphere is dominated by “neoliberals” like Matt Yglesias is proof positive of an “impressive libertarian winning streak.” Matt Yglesias represents the “Triumph of Libertarianism.”

Lee uses this post, No enemies on the Left, as proof positive. Writes Lee:

One way to interpret this is to say that Matt is a moderate libertarian with a redistributionist streak, but I don’t think that’s the right way to look at it. Rather, what’s happened is that liberalism in general has internalized key libertarian critiques of earlier iterations of liberal thought, with the result that a guy with a largely Friedmanite policy agenda can plausibly call himself a liberal. And actually, this shouldn’t surprise us at all, because Friedman called himself a liberal too.

Well, you can call Yglesias a “moderate libertarian,(the now defunct “liberaltarian”)” if you like, but I would also point out that he also lugs around a pretty sizable authoritarian streak. Yes, he may question occupational licensing from time to time, but he also waxes poetic about Blackwater. IOZ calls him an odious, totalitarian, albino squirrel for a reason.

Using the likes of Yglesias to pound chests and declare the return of “bottom-up liberalism” is exhibit A of what I call libertarian incoherence(i still haven’t got around to publishing part II of my three part series regarding the “Trouble with Liberty.” Part II deals with this exact issue).

“Bottom-up Liberalism” is the rehashing of the “enlightenment distinction between civil society and State.” Libertarianism historically proper had done away with this delusion of this distinction, jettisoning the State in favor of laissez faire civil society. For reasons discussed in this post, libertarianism in the United States in the 20th century became associated with restoring this distinction. Today, led by Cato acolytes, this “restoration project” is usually discussed in terms of marginal tax rates and “deregulation.” Tim Lee is another perfect example. Cast in these terms, the “restoration project,” whose roots derive from the Mont Pelerin Society, is declared a success. But I don’t see it that way. I look at the the National Security State, the Military Industrial Complex, and the evolution of the most vast State intelligence apparatuses in human history, and I see abject failure.

Nick Turse’s The Complex: How the Military Invades Our Everyday Lives destroys any pretense of any “enlightenment distinction between civil society and State.” Turse’s scholarship is analogous to some extent to the New Left’s deconstruction of the myths of corporate liberalism. In this case, however, the radical non-libertarian left takes down the “restoration project.” I’ll give ya’ll a clue here. It’s not the likes of Chris Beam or any other from the bevy of establishment progressive writers who actually take down Cato. It’s Nick Turse.

Tim Lee writes historical revisionism like this:

Wage and price controls were a standard tool of economic policymaking in the 1970s.

That’s a half truth. They weren’t really “standard tools;” rather they were last ditch desperate measures to stabilize the crumbling Bretton Woods regime. Bretton Woods transitioned to Chicago. And Chicago hit the wall in 2008. TARP, the bailouts, the increased monopolization of money and credit were measures to stabilize Chicago in an analogous way that the wage and price controls of the early 1970s were invoked to stabilize Keynesian Bretton Woods. But this type of stability comes at the price of resiliency, meaning that increasingly draconian measures have to be employed to stabilize against increasingly minor shocks to system. The system has to transition to a new “regime.” But what alternative rules-based “capitalist regime” is there to transition to? (1) Oligarchy (2) Anarchy

So, I would suggest why there is good reason to be afraid of this massive National Security State, Intelligence Apparatus that has evolved. And when I read Wilkinson or Drum on these matters, I will point out that they engaging in an anachronistic debate–debating Keynes vs Hayek with respect to regimes that no longer exist.

A coherent debate would be around what type of regime you want to live under going forward. But don’t expect oligarchy vs anarchy to be the topic of polite political debate…

Libertarians vs Progressives

ED Kain thinks libertarians and progressives have a hard time understanding truly where the other is coming from.

One suggestion: I think we can do without knuckleheads babbling about the only role of the State is to protect property and enforce contracts vs knuckleheads babbling about the “Hobbesian State of Nature” and Rousseau’s “General Will.” We are long past any relevant debate between Locke’s Enlightenment Liberal distinction between civil society and State and Rousseau’s “Democratic Will” of the modest city-state.

Historically speaking, the libertarian vs progressive debate is not an 18th century product. It’s not a Locke vs Rousseau debate. It’s a 19th century product. It’s more along the lines of a Proudhon vs Saint-Simon debate, that is, Laissez-Faire vs Dirigisme. Frankly, the fact that both “Laissez-Faire” and “Dirigisme” are French terms and that, today, the people of contemporary France are more clueless about this debate than the Americans probably is a good indicator of just how relevant the historical debate is to the modern context.

The reality of today is the 21st Century Corporate State in the Global Capitalist Order. In this modern context, the libertarian vs progressive debate isn’t really much of a debate. The management rules of the corporate state are not going to be a product of American political debate. There are many progressives who dream of a referendum on “Neo-Liberalism;” they blame libertarianism for corrupting FDR’s New Deal State. But this is just a half-truth. The reality is that post WW II Bretton Woods was a paradigm for a global capitalist order. The distinction between “modern” and “neo” when it comes liberalism is a matter of semantics. When Bretton Woods broke down in the 1970s, it was supplanted by “Chicago,” but the “regime change” was merely in the rules; it was still the same system.

Progressive referendum on “Neo-Liberalism” is a fantasy; the delusion that the US can arbitrarily pull the rug out on the global system–that the whole world has been playing by–that the US itself invented and imposed. They typically trot out James K. Galbraith who reassures them that US military supremacy allows the US the privilege to rewrite the rules at will. Not quite, James. Expect some shit. And you can’t blame European and Asian push back on American right wing politics and Sarah Palin. And if/when the IMF comes calling, Galbraith’s coping mechanisms with irony, likely to be a combination of bourbon and Yeats, will be preferable to Krugman’s mechanisms, which appear to be war.

Progressives are delusional; but libertarians are incoherent. I can’t get over this latest comedy by Reason, casting Jeb Bush as an agent of disruption against the Status Quo. I don’t need to reference anything further.

The modern progressive vs libertarian debate is Delusion vs Incoherence…

Yes, I know that there are many progressives and libertarians who object to this casting. But that’s the thing…Progressive push back against delusion is a Progressive vs Progressive debate, and Libertarian push back against incoherence is a Libertarian vs Libertarian debate…

Blackwater is the Yglesias Fantasy

I’m with Charles Davis on this one. I suppose it may a point of debate whether mockery or utter disdain should be hurled at Yglesias’ suggested synergy of a quasi-military federal force that would be both on loan to the US Military abroad as a police/security force for US occupation and to the local yokel cops here at home as a new adjunct to domestic “crime fighting.”

I have chuckle at the Progressive critique of libertarianism–that it is utopian and fails to take in account how the world actually works–when you read drivel like this. If Yglesias would have written this tripe back in 2004, I could have predicted that his “gendarmes” would wind up being Blackwater(or at least Blackwater being an important part of an “gendarmes” cartel). But it’s 2011 now, and it’s no longer a matter of prediction since Blackwater, for a number of years, has functioned in a domestic capacity: (1) the war on drugs and (2) the training of local police Departments.

The only thing worse than being stupid is being stupid and incompetent.

Whence this New Modern Social Contract?

Libertarianism, politically, can be cast as a radical liberal critique of the social contract. The libertarian position is that this so-called “social contract” doesn’t survive the class theory critique. TSA is serving as a textbook example of this libertarian critique in real time while also illustrating the absurd lengths Statists are resorting to in terms of rationalizing the TSA in some cloak of a “social contract.”

Case in Point: Ruth Marcus in her Washington Post article,Don’t touch my junk? Grow up, America, informs us by fiat that there is a “modern social contract” afoot. Of course, one might ask whence this “modern social contract”? Who deliberated it? Who signed it? What are the terms?

It’s not difficult to establish a class theory analysis behind TSA and the expansion of the TSA security procedures. However, it’s pretty comical reading the ex post justification of this vis a vis “social contract theory.” Ruth Marcus informs us that the new modern social contract is that information asymmetry regarding your body and health with medical experts(you don’t know if that lump on your body is cancerous, but they do) justifies a public interest in resolving any information asymmetry regarding security(you know that lump under your clothes is not a bomb, but they don’t know). I suppose you can read this as ObamaCare justifying TSA.

Ruth Marcus’ modern social contract, in essence, boils down to an argument that making an appointment with a proctologist thusly opens you up to an anal cavity search by security experts in any type of “public space.” Marcus claim is that the public has no more ability to question the rational basis of security protocols devised by security experts than it has of questioning the rational basis of medical experts telling it that males should have annual prostate examinations after 50 or females should have regular breast examinations. The public doesn’t question the latter; it shouldn’t question the former. So grow up…

My defense of the new procedures assumes that there is some rational basis for the screening madness: that the techniques work and that there is not a less intrusive alternative.

So much for the Progressive contention that Hayek was a crank…

George Soros Jumps the Shark

Two years ago at Freedom Democrats, I praised George Soros in post that nonetheless had a qualification at the end. I noted that for all the money he had pumped into progressive political infrastructure in the US, he still had not in any fundamental way changed Dem Policy. I suggested at the time that he needed to get out of the game lest he suffer a credibility implosion.

Now fast forward to the present. Yesterday, Soros, in an acceptance speech for a “Globalist of the Year” award from the Canadian International Council, intimated that the failure of Dem Political Re-alignment in the United States was essentially ceding the world stage to China. From Foreign Policy:

“There is a really remarkable, rapid shift of power and influence from the United States to China,” Mr. Soros said, likening the U.S.’s decline to that of the U.K. after the Second World War.

Because global economic power is shifting, Mr. Soros said China needs to change its focus. “China has risen very rapidly by looking out for its own interests,” he said. “They have now got to accept responsibility for world order and the interests of other people as well.”

Mr. Soros even went so far as to say that at times China wields more power than the U.S. because of the political gridlock in Washington. “Today China has not only a more vigorous economy, but actually a better functioning government than the United States,” he said, a hard statement for him to make because he spent much of his life donating to anti-communist groups in Eastern Europe.

What Soros is saying that the Financial crises is a serious challenge to the “Washington Consensus.” But given that Washington is in gridlock, the effect globally is that the Washington consensus is now finished. With nothing to replace it with, “the world order as we know it is turning into disorder.” Soros is now effectively endorsing China to step into the power vacuum, with all the qualifications, of course, that “they accept responsibility for this world order and the interests of other people as well.” Indeed, this is a reversal for Soros, who had spent previous decades funding democratic institutions in opposition to communism.

Soros, like all Social Democrats, has a dilemma. They thought the financial crises would spur a new consensus. But it has not. There is no new political realignment in the US(the midterms served to “de-align” the Dem realignment). Social Democrats in the US, if we go by Krugman, are in serious disharmony with their European counterparts(over such things as the Stimulus and QE). And these political creatures, when the chips are down, will always go authoritarian. So, for the likes of Soros, it’s not unexpected, but it is, nonetheless, disheartening.

Now Soros is correct about the Washington Consensus being dead. I’ve writing about this for two years. The problem, for the political class, is that there is no intellectual framework to replace it with. A Political Economy, stuck in a regime that has lost resiliency, will exhibit increasing intervention to enforce an artificially stable equilibrium. This is a viscous cycle. A problem for the political class is that the class conflict in such a regime becomes pretty naked and obvious. And contra Soros, “the “Bejing Consensus” is no replacement. It wouldn’t last 5 seconds. The Chinese economy is a bubble economy to begin with and the consensus of communist bureaucrats cannot run the new world 21st century capitalist order.

Unlike Soros, I have a different interpretation politically of the ramifications of “broken government.” In an older post at Freedom Democrats, Broken Government: A Return of Radical Politics, I argued, from a historical perspective, that “broken government” today would once again raise the specter of radical politics in America. Radicalism in American politics is a weed that sprouts up from time to time. It’s due to sprout up again. The one pesticide that could kill it or contain it is the culture war, which is the communitarian conflict that was born out of the last bout of radicalism in America, namely during the 60s(which also, of course, spawned the modern american libertarian movement). This is why I’ve been critical of the likes of Angelo Codevilla, who is trying to recast the burgeoning class conflict narrative into the old communitarian or culture war categories. Despite that, I think a return of radicalism in American politics is inevitable. However, I make no prediction of what the final product of this will be, although I would tend toward the pessimistic side. But it should be clear that the 21st century is the twilight of liberal political institutionalism. The only real political debate anymore is authoritarianism vs. libertarianism.

Peter Beinart: Giving the Devil his Due

Burn out the day
Burn out the night
I can’t see no reason to put up a fight
I’m living for giving the devil his due

Exactly one year ago, Peter Beinart advocated for the Democratic Party to abandon liberalism and liberty for Economic Statism. This was at the height of FDR 2.0. At Freedom Democrats, I roundly criticized that stupidity with the post, The Faustian Bargain.

I compare Beinart to Kristol because Beinart’s advice will end up accomplishing for the Dems what Kristol’s advice ended up accomplishing for the Repubs, namely defeat and discreditation. It was only 4 or 5 years ago that the talk was of a permanent republican majority, and Dem pundits like Beinart were making the rounds arguing for the Dem need to appeal to “values voters” and a neo-liberal hawkish interventionism. Of course, subsequently the Iraq War went sour, and the GOP overreached on Terry Schiavo, and the so-called permanent GOP majority collapsed. Why are the Dems intent on making the same mistakes? This business about reviving a “devil’s pact” of the 1930s is nonsense. Those days are gone. And I imagine they didn’t refer to it as a “devil’s pact” back then, which is always a useful tidbit in trying to resurrect something that today would be labeled as such. The moral lesson of the Faustian bargain is that it leads to damnation for those foolhardy enough to enter into one.

The Stimulus and Health Care reform have more or less resurrected the GOP from the political graveyard. All this trite pundit analysis I read about the Dems having moved on to the serious business of being a permanent governing party while the GOP is relegated to purifying an increasingly non-extant minority is premature. The reality is that “core economic security” issues that Beinhart champions have collapsed in public opinion polling. Government Responsibility to ensure health insurance for all, which polled at 70-30 by Gallup back in 2007 is now polling 50-47 against. I suppose the polling reflects a dissatisfaction with the current system, but little enthusiasm for the public choice “clunker” the Dems are offering up in it’s stead. American politics, contrary to Beinhart, is not settling into a permanent Political party majority, rather it’s being characterized by dramatic swings in independent voting.

Now fast forward to today. Writes Beinart in How Jon Stewart Blew It:

Finally, the focus on “sanity.” Talk about condescending. The Tea Party types who believe that expanding government undermines their freedom are not insane. They’re tapping into a deeply-rooted American fear of government power, one that would be immediately recognizable to Calvin Coolidge or Strom Thurmond. And in the process, they’re conjuring, once again, the myth that America was born free, and surrenders a smidgen of liberty every time Washington imposes another tax or establishes another government agency. The Tea Partiers, in other words, are making a serious argument, which the left too often tries to dismiss by calling them nuts. In fact, the haughtiness reflected by such insults conceals the left’s confusion over how to respond ideologically. The Obama administration has barely tried to argue that activist government can make people more free—by, for instance, guaranteeing their health care coverage and thus freeing them to leave a dead end job. In America today, as at past moments in our history, there’s a profound debate underway not just about how to right our economy but about the relationship between capitalism and freedom. Pretending it’s not a real debate is a great way for the left to lose.

Did Beinart simply develop amnesia over his paper trail. A year ago he mocked the idea that there was any relevancy of an ideological argument against the impending onslaught of FDR 2.0. Now he is crucifying Stewart for failing to do his own heavy lifting. Will Wilkinson, in his Economist piece, Sanity and liberty deconstructs the “new” Beinart thusly:

It sometimes does seem as though the American left has more or less ceded the language of liberty to the right. My own slow evolution from a hardcore libertarian to a libertarian-leaning liberal is due in part to the kind of liberty-focused arguments Mr Beinart wishes were more often heard from the mouths of Democrats. The arguments are out there, but they are much likely to be encountered in the seminar room than on TV. Why is that?

I think “the left’s confusion over how to respond ideologically” to the right’s libertarian-sounding arguments flows in part from the left’s own confusion about what it stands for. If the contemporary right is an uneasy fusion of conservative and libertarian articles of faith, the contemporary left is an uneasy fusion of technocratic progressive and liberal-democratic conviction. One sees progressive managerial elitism most clearly in the left’s public-health and environmental paternalism. The rarely uttered idea is that the people who know best need to force the rest of us to do what’s good for us. Whatever you think of this sort of state paternalism, it isn’t liberal or liberty-enhancing in any non-tortured sense. The progressive technocrat’s attitude toward liberty is: “Trust us. You’re better off without so much of it.” The more the left is inclined to stick up for this sort of “activist government” as a progressive, humanitarian force, the less it is inclined to couch its arguments in terms of liberty. And that’s just honest. More honest, I would add, than social conservatives who in one breath praise liberty and in the next demand the state imposition of their favourite flavour of morality.

The problem with Wilkinson’s analysis is that the “old” Peter Beinart didn’t give a rat’s ass about the “language of liberty.” When Nancy Pelosi stood up and defended “ObamaCare” as a matter of economic security, indeed as a matter of national security(which was Beinart’s original argument), she managed to infuriate libertarians, liberals, progressives, conservatives, and the “mushy middle.” Her popularity now stands in the single digits. Today Beinart’s “permanent majority” dies. It lasted one year.