Would you pay good money for accurate predictions about important events, such as election results or military campaigns? Not if the U.S. Commodity Futures Trading Commission (CFTC) has its way. It recently took enforcement action against overseas prediction markets run by InTrade and TEN. The alleged offense? Allowing Americans to trade on claims about future events.
The blunt version: If you want to put your money where your mouth is, the CFTC wants to shut you up.
A prediction market allows its participants to buy and sell claims payable upon the occurrence of some future event, such as an election or Supreme Court opinion. Because they align incentives with accuracy and tap the wisdom of crowds, prediction markets offer useful information about future events. InTrade, for instance, accurately called the recent U.S. presidential vote in all but one state.
As far as the CFTC is concerned, people buying and selling claims about political futures deserve the same treatment as people buying and selling claims about pork futures: Heavy regulations, enforcement actions, and bans. Co-authors Josh Blackman, Miriam A. Cherry, and I described in this recent op-ed why the CFTC’s animosity to prediction markets threatens the First Amendment.
The CFTC has already managed to scare would-be entrepreneurs away from trying to run real-money prediction markets in the U.S. Now it threatens overseas markets. With luck, the Internet will render the CFTC's censorship futile, saving the marketplace in ideas from the politics of ignorance.
Why take chances, though? I suggest two policies to protect prediction markets and the honest talk they host. First, the CFTC should implement the policies described in the jointly authored Comment on CFTC Concept Release on the Appropriate Regulatory Treatment of Event Contracts, July 6, 2008. (Aside to CFTC: Your web-based copy appears to have disappeared. Ask me for a copy.)
Second, real-money public prediction markets should make clear that they fall outside the CFTC's jurisdiction by deploying notices, setting up independent contractor relations with traders, and dealing in negotiable conditional notes. For details, see these papers starting with this one.
[Aside to Jerry and Adam: Per my promise.]
[Crossposted at Technology Liberation Front, and Agoraphilia.]
Wednesday, December 12, 2012
CFTC Targets Prediction Markets; Hits First Amendment
Tuesday, November 27, 2012
The Freeman on Free Cities
The Foundation for Economic Education recently invited me to join its flagship publication, The Freeman, as a regular contributor. It just published my first article, No Exit: Are Honduran Free Cities DOA? Here's an excerpt:
Eager to bring Hong Kong-style growth to their beleaguered Central American country, Honduras amended its constitution in 2011. The new provisions allowed the creation of quasi-sovereign special development regions. Libertarians thrilled at the prospect.
By making it easier to escape from bad government to better government, the Honduran plan would put the forces of competition and choice in the service of the Honduran people. Formerly, Hondurans who voted with their feet had to flee their homeland. Now, they could stay and wait for good government to come to them--at least to the neighborhood.
Those grand visions came to nothing, however. Instead, the Honduran Supreme Court struck down the constitutional amendments as ... unconstitutional. Does that spell the end of the Honduran experiment in newer, freer cities?
Monday, October 17, 2011
Quartering: A Forbidden M&M in the Bowl of Rights
My most recent paper, “Property” in the Constitution: The View from the Third Amendment, 20 William & Mary Bill of Rights J. __ (2012) (forthcoming), explains how one of the most obscure provisions in the Constitution can help to clarify one of its most important terms. I may have more to say about that more general point later. Here, I want to highlight a connection between the 3rd Amendment’s restrictions on the quartering of troops in private homes and the rock band famous for such hits as Running with the Devil, Panama, and Jump.
In the grand struggle to protect individual rights against government trespass, the Third Amendment plays a role akin to the provision, in Van Halen’s standard performance contract, requiring a bowl of M&Ms in band’s hospitality room with all the brown ones removed. Though sometimes touted as an example of rock star excess, the clause in fact served to test whether the band’s contractual partner, providing the concert venue, had read the terms of their agreement. Finding brown M&Ms backstage warned Van Halen to look out for more serious breaches, such as in the contract’s provisions on wiring, security, and ticketing.
Quartering serves as a forbidden M&M in the Constitution’s bowl of rights and violations of the Third Amendment signal more serious problems. Consider that the Third Amendment saw violation during the War of 1812, the Civil War, World War II, a 1979 New York prison guard strike, and Hurricane Katrina. Consider, and worry.
Saturday, October 15, 2011
U.S. Supreme Court: “Private” = “Public”
What does “private” mean in the U.S. Constitution? The word appears there only once, in the Fifth Amendment’s Taking Clause: “[N]or shall private property be taken for public use, without just compensation.” You might think that “private” means something like “not owned by the government.” The Supreme Court, however, evidently thinks it means something else.
My most recent paper, “Property” in the Constitution: The View from the Third Amendment, 20 William & Mary Bill of Rights J. __ (2012) (forthcoming; invited), discusses that and other linguistic perversions, all towards demonstrating that courts would do better to adopt the plain, present, public meaning of the text. Here, edited for your browsing pleasure, I describe the Supreme Court’s twisted interpretation of “private” in the Takings Clause.
In U.S. v. 50 Acres of Land, 469 U.S. 24 (1984), the Supreme Court held that the Takings Clause’s protection of “private Property” covers property owned by state and local governments. The Court admitted that “the language of the Amendment only refers to compensation for ‘private property,’ and one might argue that the Framers intended to provide greater protection for the interests of private parties than for public condemnees.” Id. at 31. The Court nonetheless went on to hold that “private” includes “public”:
When the United States condemns a local public facility, the loss to the public entity, to the persons served by it, and to the local taxpayers may be no less acute than the loss in a taking of private property. Therefore, it is most reasonable to construe the reference to ‘private property’ in the Takings Clause of the Fifth Amendment as encompassing the property of state and local governments when it is condemned by the United States. ibid.
We might well doubt the Court’s logic in equating inter-governmental transfers with takings of private property, as well as the truth of the claim that a taxpayer feels the loss of local public property as keenly as the loss of a home. We might likewise doubt the 50 Acres court’s invocation of U.S. v. Carmack,329 U.S. 230 (1946), a case the Court had decided nearly 40 years earlier. In fact, the Court in Carmack merely took note that the federal government had conceded its obligation to pay for taking locally-owned public property. Because the parties did not contest the claim, Carmack could hardly have decided it. The Court in 50 Acres of Land thus had only itself to credit or blame for giving “private” an extraordinarily broad meaning.
In retrospect, following the controversial holding of Kelo v. City of New London, 545 U.S. 469 (2005), we can see a sort of perverse logic at work in how the Supreme Court reads the Takings Clause. Whereas the Court in 50 Acres held that the protections afforded to “private Property” extend to public property, the Court in Kelo held that “for public use” extends to takings for private use done “pursuant to a ‘carefully considered’ development plan.” Id. at 478 (quoting 268 Conn. 1, 54, 843 A.2d 500, 536 (2004)).
Just as the Supreme Court thinks that “private” includes “public,” in other words, it also thinks that “public” includes “private.”
Friday, September 02, 2011
What is Originalism Good For?
Originalism--the theory that we should Interpret the Constitution according to the public meaning of its words at the time of its ratification--serves important instrumental goals. It promises to give relatively clear and objective definitions to crucial but contestable terms, such as “cruel and unusual” or “due process of law,” by recurring to the linguistic usage of those who ratified the Constitution. That interpretive process, though hardly easy, at least protects us from the sort of judicial casuistry that threatens to drain all fixed meaning from the Constitution’s words.
To praise originalism for relative certainty and objectivity is not to say that its definitions always comport with our own, however, or that they hold constant from one place in the Constitution to another. Consider “cruel and unusual,” for instance. So long as they do not lapse into what Scalia called a “faint-hearted” devotion to principle, originalists must admit that it is not unconstitutional to publicly flog or brand criminals. Originalism thus gives us a very clear answer, and one untainted by any contemporary bias (indeed, entirely divorced from modern sensibilities), to the question of what “cruel and unusual” means. It may not be quite the answer the average person—or the average criminal—expects, but originalism does not pretend to play to the crowd.
Nor does originalism, despite its certainty and objectivity, always give words consistent interpretations. In the case of “due process of law,” for instance, originalism suggests that a different meaning applies each of the two times the phrase appears in the Constitution. Why? Because each such appearance dates from a different ratification process, in a different era, in which “due process of law” meant different things. Perhaps it would not be fair to thereby criticize originalism for inconsistency on that count; the same interpretative process applies to each appearance of “due process,” after all. But it does drive home the point that originalism does not care about reading the Constitution in the same way that an ordinary subject, using ordinary English, would read it today.
Originalism has another instrumental virtue: It tends to generate such substantively attractive results as limited government, the rule of law, and respect for individual rights. For that, we can credit not just the sound political judgments of the Founders but also, and more generally, the supermajoritarian constraints imposed on Constitutional ratification. Because the ratification process has to satisfy so many parties, who have many conflicting interests, the Constitution and its amendments tend to support universal values. Contemporary judges, because they do not face those similar constraints, risk following the twists and turns of case law toward unlimited government, arbitrary laws, and disregard for individual rights. Originalism, by recurring to the Constitutional meanings that won ratification, offers a way (though not the only or necessarily best way) to stave off that ugly outcome.
[The above comes from my forthcoming paper, Originalism and the Consent of the Governed: A Critique and a Cure, which I’ve submitted for presentation at the Third Annual Originalism Works in Progress Conference.]
Friday, August 12, 2011
Volokh on the Constitution's Plain, Present, Public Meaning
My friend, Eugene Volokh, has posted some thoughtful comments on my consent-based approach to reading the Constitution. His excellent questions show one benefit of looking for the plain, present, public meaning of the Constitution: It gives us a fresh look at a document we risk treating as putty for judges or as a dead historical artifact.
I won't pretend that a consent-based approach to reading the Constitution solves all our interpretive problems--especially hard problems like those Eugene raises--but every theory struggles with the text. Looking for the plain, present, public meaning of the Constitution offers at least another way to tackle the problem. I'd argue, further, that it offers us the best way to maximize the consent of the governed.
Eugene cites a "number of terms that either don’t have a 'plain, present, public meaning' apart from either their originalist or precedential meaning," such as those in the First Amendment or other, well-known parts of the Constitution. I appreciate that observation--though again I emphasize that precedent-based "living" constitutionalists and originalists struggle with the same passages. I won't bother, here, to try to answer each puzzle that Eugene offers, as I am more interested in describing a methodology than I am in dictating particular results. I have opinions about such things, to be sure, but I'm no judge.
How should real-world judges interpret constitutional words or phrases that the public understands to have a specialized meaning (e.g., "establishment of religion") or no discernible meaning at all (e.g., "writ of habeas corpus")? The same way they would interpret and construct a contract in similar circumstances: interpreting legal terms as such, taking heed of their context, and constructing uncertainties against the drafting party (the U.S. federal government, here) and in favor of the adhering party (citizens and residents of the U.S.).
That does not lead to simply following Supreme Court precedents. I doubt that Kelo would come out the same way under that approach, for instance, nor that "Property" would end up with a different meaning each time it appears in the Constitution. Note, too, that the approach I describe leaves room for considering original meaning, which we should treat as something akin to "course of dealing" in the contract context. By borrowing the methodologies of contract law, a court can come as close as possible to finding the plain, present, public meaning of popularized constitutional phrases and uncommon terms such as "writ of habeas corpus." Perfection remains elusive, here as with other approaches to the Constitution. But this approach offers the best guarantee of preserving the consent of the governed.
Thursday, August 11, 2011
The Hard Question
Consent to constitutional governance varies by degrees and from person to person. Different levels of consent give different levels of justification. The hard problem is justifying the use of political violence against someone who expressly objects to it.
We respect the right to defend against a tort even absent the tortfeasor's express agreement, true. Everyone impliedly consents to the fundamental principles of tort law; they offer background rules for human conduct on which all socialized people depend. Our implied consent to tort law counts for a lot. It trumps merely hypothetical consent to the contrary, for instance. Some people offer fancy theories about that to which we would consent (usually something that benefits them). The implied protections of tort law trump such arrogant presumptions.
How, then, can a statist justify initiating coercion? Note that tort law boasts only a moderately powerful justification--one founded on implied consent. Express consent has greater power to justify. Therefore, the implied consent justifying tort law gives way before express consent, as when sparring partners tap fists before attacking each other. (Funny thing I've noticed about the BJJ studio I frequent: Lots of fighting; smiles all around.)
Have we expressly consented to constitutional governance? Some individuals undoubtedly have, such as those who have sworn oaths to uphold the Constitution. Perhaps run-of-the-mill citizens and residents show their implied consent to the authority of the U.S. federal government simply by not emigrating. And eloquent arguments have been made that the Constitution, if interpreted well, merits our hypothetical consent. See, e.g., Randy Barnett on the presumption of liberty.
Against those measures of consent, we hear polls suggesting that "consent of the governed" has fallen to a new low. We hear strong arguments that mere residency implies nothing about political allegiance, and philosophical claims that nobody would agree to a system of institutionalized coercion.
Consent weighs on both side of the scale measuring the justification of constitutional governance, both for and against. I cannot answer for anyone else about justifying the Constitution; you must answer for yourself. But with graduated consent theory, I offer you a way to tackle the question.
(With thanks to Sasha Volokh for stimulating discussion.)
Tuesday, August 09, 2011
Original Meaning v. Consent of the Governed
At the Constitution's ratification, original meaning and consent coexisted. But with the advent of a new generation, the Founder's consent faded and died. To justify constitutional governance of the living requires the force of their living consent.
How can we win the consent of the governed? Only imperfectly, to be sure. The Constitution is not a contract. But we can best justify it by reading it as if it were a contract. More specifically, we should regard it as a standard form adhesion contract offered by the federal government to prospective subjects. The feds don't offer a terrible deal, as such things go. Those who attended the ratification debates accepted the offered Constitution, after all. But their choices do not very well bind us--not, at least, if justification relies on consent.
A court interpreting a standard form agreement would adopt the same approach. Suppose, for example, that Hertz first rolled out its standard form contract in 1953. Among other things, the contract said Hertz would provide a "safe" vehicle. The new contract was proposed to many various consumers and won the assent of many, thus bringing it into effect. But Hertz cannot cite that ratifying consent as binding on me; it must win my assent anew. And any court worth its salt will, if asked to interpret the contract between Hertz and me, inquire as to the public meaning of the words as of when I signed. Hertz cannot, in other words, cite the original meaning of the contract to try to fob off on me a car that has no seatbelts. That might have been "safe" in 1953, but it is not within the reasonable public meaning of the word, now.
By extension, we should reject Scalia's claim that the Constitution today permits public flogging because that would not have been considered among the "cruel and unusual punishments" banned by the 8th Amendment at the time of its ratification. Instead, we should look for the plain, present, public meaning of those constitutional terms. We--and not the long-dead founders--face the lash. therefore our consent--or lack thereof--should control.
(Justification does rely on consent, by the way, but the relationship is not a black-and-white one. See, Graduated Consent in Contract and Tort Law: Toward a Theory of Justification, 61 Case Western L. Rev. 17 (2010). If you're in a rush, you can find a slightly earlier version, download-ready, here.
Monday, August 08, 2011
The Constitutional Meaning of “Property” and the Rule of Law
Although the U.S. Constitution uses “Property” four times, it nowhere defines the term. What does it mean? I’ve been grappling with that question this summer, and been surprised to find commentators and cases arguing that “Property” counts as different things in different places. On some accounts, for instance, the word means only land in Article IV, § 3, general common law property in the Takings Clause, and all that plus welfare entitlements in the Fourteenth Amendment’s Due Process Clause.
Giving constitutional property so many different definitions threatens the rule of law. An average citizen, using ordinary English, would not likely read “Property” to stand for something different each time the word appears in the Constitution. Yet both leading theories of constitutional interpretation—originalism and “living” constitutionalism—invite that sort of confusion. Both theories avow that the meaning of "Property" or another constitutional term can change from place to place because of historical accidents (in the case of the former) or Supreme Court decisions (in the case of the latter).
I thank my friend and fellow law prof, Eugene Volokh, for discussing some of these matters in an extended email exchange. He recently quoted some of his thoughts about how constitutional words—he uses “Place” and “Law” as examples—can change depending on context. He makes sound observations. In fact, I'll go Eugene’s examples one better. Consider the word, "it," which means "House" in Art. § 5, "Bill" in Art. I, § 7, cl. 2, "Writ of Habeas Corpus" in Art. I, § 9, cl. 2, "State" in Art. I, § 10, cl. 2, and so forth.
We should expect such semantic flux if, as Eugene rightly says, the Constitution is written in ordinary English. Query, though, whether the four appearances of "Property" in the Constitution appear in contexts that give it four (or even, on one accounting, five!) distinct meanings. I think not, though I remain open to persuasion otherwise.
Eugene's observations do nothing to save originalism or living constitutionalism from the charge that they offend the rule of law, however. The rule of law does not suffer if we read words in their constitutional context because ordinary speakers of ordinary English can figure out that “it” means "House" in one place and "Writ of Habeas Corpus" in another. But originalism and living constitutionalism raise a different problem, given that they base constitutional meaning on historical usage (in the first instance) or Supreme Court precedents (in the second). Only specialists in constitutional law—and not even all of them—have the expertise to engage in that sort of decoding process. Did you know, for instance, that “Property” includes government entitlements in the Fourteenth Amendment but not in the Fifth? If so, I doubt you figured it out from reading the Constitution, alone.
How do we fix this problem with both originalism and living constitutionalism? By rejecting those theories for one that gives the Constitution’s text its plain, present, public meaning. For more, see my paper, Graduated Consent in Contract and Tort Law: Toward a Theory of Justification, 61 Case Western L. Rev. 17 (2010), a slightly revised version of the download-ready, Graduated Consent Theory, Explained and Applied, Chapman University School of Law, Legal Studies Research Paper Series, Paper No. 09-13 (March 2009) [PDF format].
Ratification may be necessary to make a Constitutional term effective in the first place, but it is not sufficient to make an original meaning binding on subsequent generations. People today, using ordinary English, almost certainly regard public flogging as unconstitutionally cruel and unusual punishment. In contrast, Justice Scalia has argued that an originalist (such as himself) should (and does) regard public flogging not as unconstitutional but simply, "stupid." That he can offer so tepid a criticism of something almost any citizen would regard as beyond the pale demonstrates the salient gap between an originalist approach and a consent-based one. (Living constitutionalism's abuse of ordinary English makes it susceptible to a similar critique.)
Tuesday, February 01, 2011
FedSoc Presentation on Libertarian—But Not Originalist!—Consitutionalism
Should libertarians interpret the Constitution according to its original meaning? I argue not. Instead, they should read the Consitution according to its plain, present, public meaning. I gave a very brief presentation on the topic at the 13th Annual Federalist Society Annual Conference, held in San Francisco on Friday, January 2011:
Among other things, this “consensualist” approach to constitutional theory implies that we should:
- Interpret the Constitution according to its plain, present, public meaning;
- Construct the Constitution as we would a standard form agreement, thus favoring individual rights over federal powers; and
- Decide cases involving Constitutional rights by Citizen Courts structured akin to the panels that help to guarantee the fairness of commercial arbitration procedures.
For an earlier but more detailed account of my views, see this post about my presentation at the 2010 Students for Liberty Southern California Regional Conference.