The Trouble With Gay Marriage

I grew up opposed to gay marriage like a dutiful conservative Christian. Eventually I came to realize that while Paul had a lot to say about what God thinks about marriage; he didn’t have much to say about what Caesar should think of it. I’ve been encouraged to see many young conservatives opening up to the libertarian-esque idea that maybe government shouldn’t be involved in marriage altogether.

Many conservatives, of course, still attempt to defend their opposition to gay marriage with faux objectivity, clinging to the increasingly tenuous connection between marriage and procreation, or grasping at any study that purports to show negative outcomes for children of gay couples. To me, this looks a bit like fighting cultural battles on political turf. For example, there are studies that appear to show negative outcomes for children born out of wedlock, but while many conservatives may hope to convince people to save children (if not sex) for marriage, no one is arguing for a ban on unmarried births.

Political Concerns

There is a political aspect of gay marriage that concerns me, however, and all the more because many conservatives seem to be ignoring it altogether. It seems likely that when we lose the ban on gay marriage, instead of moving to a neutral middle, we will go all the way to the other end and also lose voluntary, conscientious objection to it. In fact, it’s already happening.

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Calculated Knowledge vs. Direct Knowledge

I’m working on a new lens for interpreting the world that I’d like to share with you. Everything you know about the universe can be divided into direct knowledge and calculated knowledge. Direct knowledge is what has been directly observed by humanity, and calculated knowledge is only based on formulas, models, studies, estimates, extrapolations, etc.

For example, if a study finds an extremely high correlation between smoking and lung cancer, an association between the two would be calculated knowledge. If a scientist discovered and described the biological processes that directly turn cigarette use into deadly cancer cells in most people, but not all people, and why, that would be direct knowledge.

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Too Big To Regulate

Normally, when businesses make bad decisions and run out of money, they disappear and better businesses take their place. When the financial crisis hit a few years ago, we were told we couldn’t let this happen to big banks because they would bring down the economy with them, so we had to bail them out. This became known as “too big to fail.”

Now it seems we also can’t get these same banks in too much trouble when they do illegal things like laundering drug money, because punishing them too much would also hurt the economy too much. This is becoming known as “too big to jail.”

Too Big To F(J)ail

Naturally, a lot of people think there’s something wrong about all this, including progressive champion Senator Elizabeth Warren, who recently grilled the Department of Treasury about why they haven’t done much about it, and they almost admitted that they didn’t tell the Department of Justice that doing something about it wouldn’t hurt the financial system:

WARREN: Now in December, HSBC admitted to money laundering. To laundering $881 million that we know of for Mexican and Colombian drug cartels. And also admitted to violating our sanctions for Iran, Libya, Cuba, Burma, the Sudan. And they didn’t do it just one time. It wasn’t like a mistake. They did it over and over and over again across a period of years. And they were caught doing it. Warned not to do it. And kept right on doing it. And evidently making profits doing it.

Now HSBC paid a fine, but no one individual went to trial. No individual was banned from banking. And there was no hearing to consider shutting down HSBC’s activities here in the United States….

WARREN: The Justice Department, in making its decision whether or not to pursue a criminal prosecution, checked with the Department of Treasury to determine your views on whether or not there would be a significant economic impact if a large bank were prosecuted. Is that what you just said?

COHEN: What I said was the Justice Department contacted us, asked whether we could provide guidance on what the impact to the financial system may be of a criminal disposition in the HSBC case….

We informed the Justice Department that given the complexity of the potential dispositions… we were not in a position to offer any meaningful guidance to the Justice Department in that matter.

Warren seems to believe the government refuses to punish people involved in banks that are Too Big To F(j)ail who would otherwise be prosecuted. She may be correct, but she seems to think this injustice can be fixed with more regulation and consolidation of power:

WARREN: Why are their four departments trying to figure out money-laundering? I read through your reports. They seem to overlap significantly… Why is this not consolidated into a single function?

It sounds like a Warren solution would be to add regulation on top of the existing structure with the purpose of simplifying things but would actually probably make them even more complicated and ineffective. It reminds me of the Department of Homeland Security’s attempt to consolidate intelligence gathering by creating more bureaucracies to be involved in it all.

Why Regulation Is Impossible

To understand the futility of regulatory solutions to TBTF(j), one only needs to look at the unfolding implementation, or non-implentation, as it were, of Dodd-Frank, the great financial regulation of our time, created in response to the financial crisis. Washington Monthly has a really long but really interesting piece about the stunning lack of progress, and the lobbyists that are apparently responsible:

Since the law passed, the financial industry has been spending billions of dollars on lawyers and lobbyists, all of whom have been charged with one task: weaken the thing. One strategy has been to carve loopholes into the language of the law, Naylor said. A verb. An imprecise noun…

“You guys have got to be kidding about this ‘as appropriate’ stuff, right?” he said.

“I know,” the muckety-muck replied, admitting it was a stretch. He let out a little chuckle—“but that’s what we’re going with.”

As of now, roughly two-thirds of the 400-odd rules expected to come from Dodd-Frank have yet to be finalized… In the next year or so, the vast majority of these rules will be launched down the rule-making gauntlet…

Since the passage of Dodd-Frank, financial industry groups have also sabotaged parts of the APA’s carefully plodding process, overwhelming rule makers with biased information and fear tactics and threatening to sue the agencies over every perceived infraction.

The takeaway for the author seems to be something like, “Those evil greedy bankers are so evil and greedy and powerful that we need to try even harder to make these regulations work.” But my takeaway is something like, “Those bankers are greedy and powerful and that makes it fundamentally impossible to make these regulations work.”

The modern financial system is extremely complicated. I have a hard enough time remembering how stocks and bonds work, nevermind things like options, swaps, futures, mortgage-backed securities, and credit default swaps (though I plan to watch all of the Khan Academy videos about them once I convince myself it’s worth my time).

Because of this complexity, you can’t really regulate it without the expertise of the people involved. This explains the general industry/lobbyist/regulator revolving doors, but also why the regulators take input from people who are still in the industry.

They have to make sure regulations won’t take down the economy because it’s entirely possible that a misguided regulation will. But to make sure that doesn’t happen, you have to empower the very same people who can also make sure that profit-restricting regulations – and thus regulations that could actually prevent the next crisis – don’t happen, either.

Or, in other words, the only people who could make effective regulation happen are the very same people who can keep effective regulation from happening.

But What About Old Regulation?

Let me pause here to say there is a narrative among the left that financial regulation works, that we had it for decades (Glass-Steagall), but then we repealed it and almost immediately had a crisis, and all we need to do is put that old regulation back in place.

I confess it’s a compelling narrative. I am not ideologically opposed to all regulation, especially financial regulation. Last decade’s crisis played a big part in pulling me in a more pragmatic, postlibertarian direction as I saw market forces failing in the complexities of the system and real greed causing real negative externalities. I see this as a theoretical justification for regulation.

The trick, of course, is to find regulation that is legal, non-harmful, and effective. Some think reinstating Glass-Steagall would do that. The debate on the matter is beyond me, but from the little I do know I’m doubtful that the financial world is that simple. It may be true that the law is better than nothing at limiting negative externalities, and I could probably be convinced to support it, or at least not oppose it, but it’s not going to completely solve our modern, complex, financial woes.

Dodd-Frank is trying and failing to solve that, and as I said above I think there are fundamental reasons it can’t.

What We Should Actually Do

At first glance, it may seem like a depressing worldview to believe that it’s impossible for the government to keep banks away from TBTF(j) with regulation. All the government can really do, as Sonic Charmer keeps saying, is try to arbitrarily keep banks from doing “things that lose money later,” which really just means limiting risk, which limits both profits and losses by arbitrarily making banks less banky.

(Edit: Actually, it’s even worse than that, because regulators aren’t smart enough to accurately limit risk anyway:

All a regulator can do, and does in practice, is try to limit their a priori estimation of the ‘risk’ banks take, but that just means they will accidentally (a) artificially suppress their ability to direct capital to things the a priori model decided was ‘risky’ but really aren’t (or rather, are, but that risk would already be properly priced in), and meanwhile (b) incentivize banks to lever-up on whatever you, the all-knowing regulator, not only didn’t realize was risky but blessed as safe. And there will always be something you didn’t realize was risky and blessed as safe.

So limiting risk is more or less impossible.)

But step back a minute. The only reason we’re so concerned with trying to limit bank losses in the first place is because the government will bail out any losses that get too big. Apparently most of the big banks wouldn’t even be profitable without the corporate-welfare taxpayer subsidies these days.

Maybe if we stopped artificially propping up the big banks, they would shrink. Maybe if we stopped artificially reducing their risk by covering it, they would actually act like they had higher risks and limit their potential losses; the ones that didn’t would get taken care of by the market eventually, anyway.

But what if that caused more financial crises along the way? Well, that seems to be somewhat baked into reality no matter what. If we don’t regulate or bailout, sure, some banks may get too cocky and cause a crisis with their losses. But apparently our flailing attempts at regulation aren’t going to stop another crisis anyways. In the bigger picture it might be better to accept a short-term crisis if it doesn’t lay the foundation for future crises.

Or Is That Impossible Too?

But maybe that kind of libertarian world is just as much a fantasy as the liberal world where Smart regulations keep all the crises at bay. Arnold Kling argues that “promises to end bailouts… simply are not credible,” because politicians will always “compare the immediate consequences of allowing major financial institutions to fail with the costs of a bailout, and they will choose a bailout. Bank executives know this.”

Kling is probably right. He argues for at least trying to do things that would limit the credit guarantees that government could be forced to provide. This may be the “least bad” approach, although I’m not sure if it’s very different from what the Dodd-Frank’s of the world are trying to do already.

And, well, that’s about as far as I’ve gotten. I don’t have many answers yet. If you do, be sure to let me know.

Why Do Conservatives Still Hate On Electric Cars?

Many conservatives have long derided electric cars as an inefficient “green scheme” that doesn’t even help save a planet they don’t think needs saving anyway. But electric cars are getting better, and some conservatives are still trying to use the same old arguments against them.

The Wall Street Journal carries a recent hatchet job by Bjorn Lomborg, who cherry-picks from a study to make electric cars seem less green than they are:

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Reasons For Optimism 69-75

69. There has been a lot of momentum in the move to re-legalize the unlocking of cell phones, from a generally supportive White House petition response to calls for reform from industry groups to legislation introduced in Congress. (If you’re interested in progress on this front, follow leading activists @sinak and @DerekKhanna)

70. The Obama Administration has set rules for greater public access to publicly-funded research following a White House petition and open advocate Aaron Swartz’s suicide. There are still limitations, but it is an improvement to the status quo, and should enhance the public goodness that justifies its funding.

71. While federal drone policy is finally in the headlines, about 30 state legislatures have been moving to limit drone surveillance within their borders. Various legislation has been introduced in Alaska, California, Georgia, Hawaii, Idaho, Indiana, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New Mexico, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, and Texas, and has begun completing steps to passage in Arizona, Florida, Illinois, Missouri, Montana, North Dakota, Oklahoma, Virginia, and Washington. (For progress on this front, follow @drones)

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Ramblings About Rand

I’m starting to like Rand Paul more. When he first ran for the Senate in Kentucky, I remember watching an awkward interview with Rachel Maddow and thinking he was trying to seem like a Ron Paul 2.0 who could get farther in the Republican Party but was so much less charismatic than his father that he might not get anywhere.

Of course, Paul won the Republican nomination, won the Senate race, and has only continued to expand his influence. Last year he lent support to the elections of some like-minded Republicans, many of whom supported his filibuster on Wednesday.

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