Streetwise Professor

Short sellers have been hate objects since the earliest days of the U.S. stock market–witness the checkered lives of the likes of Daniel Drew or Jacob Little. It is therefore no surprise that the travails of their latter day descendants–hedge funds like Melvin Capital–that have resulted from the huge runups in the prices of stocks like GameStop ($GME) have been the source of considerable schadenfreude. I would suggest, however, that this will end in tears not just for the hedgies, but for those who contributed to their massive losses.

Long story short (no pun intended).  Small investors pile in a stock (GME, and some others like Blackberry), driving up its price.  Hedge funds think the stock is overpriced, so they go short.  A group of small investors thinks that this is an opportunity to punish the short sellers (a lot of mutual disdain/hate here), so via the reddit group WallStreetBets they coordinate to buy more, driving up the price further.  This imposes big losses on the shorts, who buy to cover, driving up the price further, imposing more losses on the remaining shorts, driving them to cover, etc., etc. 

It brings to mind an old doggerel poem from the Chicago Board of Trade in the 19th century:

He who buys what isn’t his’n, Must buy it back or go to prison.

In the case of GameStop, the price action went hyperbolic:

That chart ends at yesterday’s close. Things have been even more crazy overnight, with the price hitting $500/share. There have been gyrations caused by the shutdown of the chatrooms and some retail platforms stopping trading in this and other heavily shorted stocks. But the fundamental dynamic in play now–shorts slitting their own throats in panicked buying to cover–means that attempts to constrain the long herd will not have a lasting impact.

The short interest that had to (and has to) be covered is huge–short interest in GME was 140 percent of outstanding shares–and a larger share of the float. (How can there be more shorts than shares? The same share can be borrowed and lent multiple times!) The effects of the short covering are seen not only in the price, but in the stratospheric cost of borrowing shares. Earlier this week it was about 30 percent–juice loan territory. Now it is at 100 percent.

In many respects, this is reminiscent of some of the more storied episodes in Wall Street history, or more recently the 2008 VW corner which punished shorts severely. But there is a major difference. In some of the earlier episodes (including major corners of shorts in railroad stocks in the 19th century, or battles between shorts and stock pools in the 1920s, or the VW case), there was a single dominant long squeezing the overextended shorts. Here, it seems that the driving force is a relatively large group of small longs, acting with a common purpose.

How will it end? Well, the stock is obviously overvalued, and driven by “technical factors” (as is sometimes said euphemistically). It will crash to earth. When? Well, when the shorts get out. Who will lose? Well, the shorts are likely a big portion of the purchasers at these nosebleed levels, so they will be the biggest losers. But there will be some latecomers and trend followers who will have followed the Pied Piper of rising price, and will lose in the inevitable crash.

Should we really care? There is some possibility that the disruption in GME and other heavily shorted stocks could have knock-on effects. Hedge funds suffering large losses may have to dump other positions, causing those prices to decline. (The events surrounding the Northern Pacific corner, for example, sparked the Panic of 1901.)

One fascinating aspect of this is how it demonstrates the deep populist discontent that is in abroad in the land. The hedge fund laments have been met with a barrage of scorn and ridicule, with a major theme being “you a$$h0les got bailed out in 2008 while the little guy got hammered–how you likin’ it now?” Completely understandable. Revenge of the nerds, as it were.

But, alas, I do not think the visceral satisfaction will last. Things like this inevitably result in litigation. The WallStreetBets lot are in for major lawsuits filed by the losing hedge funds, and perhaps others (e.g., investors who had sold call options).

Following the trend and herd trading is not manipulation–as long as the herd doesn’t explicitly coordinate with the intent to move the price to uneconomic levels. However, many on WallStreetBets expressed an intent to drive up the price in order to impose losses on their bêtes noires, and apparently coordinated their buying activity to achieve this result. Intent and cooperation make the manipulation. Note that the explicit communication and coordination could also transform this into a Section 1 Sherman Act claim–with the attendant triple damages.

Now the hedge funds will never collect even a fraction of their losses. But for them, the process will be the punishment inflicted on their foes. Pour encourager les autres.

The SEC is not committing to any action right now. It merely says it is “monitoring” the situation. The DOJ has also been silent.

However, they will be under tremendous pressure to act. Ultimately, the decision will be political–precisely because of the political nature of the populist resentment. The hedge funds and Wall Street generally will be howling for the government to file cases. But if the government does so, there will be widespread popular outrage that the government is taking the side of the Wall Street elite. Again.

This will be the first thing on Gary Gensler’s plate at the SEC. He is in a no win situation. (Breaks me all up.)

In sum, the events of the past days have been fascinating from both an economic and a political perspective. They represent a back-to-the-future moment of colossal battles between longs and shorts, but with a major twist: whereas the historical battles tended to be between colossi, this one pits an army of Davids against a few colossal hedge funds. This in turn gives rise to a political narrative, which again has historic echoes–the little guy vs. Financial Capital. It’s like the 19th century, all over again.

The battle will play out for some time. For a few days or weeks in the markets, and in the courts for years after that.

The US military is the most highly respected institution in America today. It is also filled with many ardent supporters of Trump, and Trumpism. Therefore, in today’s febrile and vengeful political environment, it is being targeted.

Case in point. Politico reports that the “FBI is vetting [National] Guardsmen amid fears of an insider attack.” What an appalling slur–and another act in the Security Theater in the “Green Zone”. (Note: that appellation is not hyperbole: that’s how the government is labeling it.)

How much of a slur? This much:

Insider threats have been a persistent law enforcement priority in the years after the Sept. 11, 2001, attacks. But in most cases, the threats are from homegrown insurgents radicalized by al-Qaida, the Islamic State group or similar groups. In contrast, the threats against Biden’s inauguration have been fueled by supporters of President Donald Trump, far-right militants, white supremacists and other radical groups. 

The National Guard. Just like ISIS and al Qaida. Because Trump.

Utterly disgusting.

More evidence of what the ruling class thinks of the military, because it has a lot of white men who like Trump and don’t like Biden:

.@RepCohen on his concerns w/ the National Guard securing the Inauguration: “The [National] Guard is 90 some-odd percent male; and only about 20 percent of white males voted for Biden … there are probably not more than 25% of the people there protecting us that voted for Biden” pic.twitter.com/ofQfLuCw8I

— Tom Elliott (@tomselliott) January 18, 2021

In other words, political reliability is the criterion by which the military will be evaluated. The military has stayed out of politics, but the politicians will definitely not stay out of the military.

If you’ve been paying attention, you’ll have seen a variety of articles in the last few weeks where government officials and journalists have expressed deep concern about extremist/insurrectionist/white supremacist networks and sympathies within the military.

The military–not so much the flag ranks, or even O6 types, because they have to have been politically tamed to make it that far, but lower grade officers, and senior and junior enlisted–is going to be intensely scrutinized for political reliability. I daresay that something resembling a purge may occur. Political officers, a la the Red Army during various periods? Not inconceivable.

It is very revealing that the FBI is in charge of the “vetting” of National Guardsmen. As we have seen in spades since 2016, they are the domestic enforcers of the ruling class. It is particularly apropos to be writing this on MLK day, because the FBI’s targeting of King provides a telling case study of its immense capacity for political hatchet jobs and witch hunts.

This is something one would expect to see in, say, Turkey, where Erdoğan targeted the military. And no, I’m not referring to the period after the 15 July, 2016 coup, but his actions to tame the military that culminated in the Sledgehammer trial in 2012. Tayyip may have had some justification for his actions. After all, the Turkish military had a well-established record of overthrowing governments–including the hanging of the leaders thereof (e.g., the hanging of Menderes in 1961, in the aftermath of the 27 May coup).

There is no such reason–not by the remotest stretch–to suspect the US military. The aspersions being cast on it and its members, and the clear hints of an impending cleansing, provide a chilling testament to the paranoia of the ruling class, and its bloody minded determination to subjugate anyone and anything that shows anything but abject fealty towards it.

In reply to a comment yesterday, I mentioned John Stuart Mill, who clearly stands second to no one as an advocate for liberty. After all, one of his most famous works is titled On Liberty, which gives a full throated call for extending liberty as far as possible.

Mill is particularly relevant in the debate over whether only the government is the enemy of liberty. He answers quite the opposite:

Like other tyrannies, the tyranny of the majority was at first, and is still vulgarly, held in dread, chiefly as operating through the acts of the public authorities. But reflecting persons perceived that when society is itself the tyrant—society collectively over the separate individuals who compose it—its means of tyrannising are not restricted to the acts which it may do by the hands of its political functionaries. Society can and does execute its own mandates: and if it issues wrong mandates instead of right, or any mandates at all in things with which it ought not to meddle, it practises a social tyranny more formidable than many kinds of political oppression, since, though not usually upheld by such extreme penalties, it leaves fewer means of escape, penetrating much more deeply into the details of life, and enslaving the soul itself. Protection, therefore, against the tyranny of the magistrate is not enough: there needs protection also against the tyranny of the prevailing opinion and feeling; against the tendency of society to impose, by other means than civil penalties, its own ideas and practices as rules of conduct on those who dissent from them; to fetter the development, and, if possible, prevent the formation, of any individuality not in harmony with its ways, and compels all characters to fashion themselves upon the model of its own. There is a limit to the legitimate interference of collective opinion with individual independence: and to find that limit, and maintain it against encroachment, is as indispensable to a good condition of human affairs, as protection against political despotism. [Emphasis added.]

The main problem that I have with Mill in this passage is his reification of society, which he portrays as a conscious, acting being. Perhaps that is merely a verbal shortcut. But that is not a problem when when addresses an issue that Mill could not have imagined in his wildest nightmares, but upon which I am quite sure he would have very strong views: whether those very real, conscious, acting beings in charge of social media corporations (and other corporations, e.g., banks who deprive services from those whose opinions they dislike) can “[practice] a social tyranny more formidable than many kinds of political oppression, since, though not usually upheld by such extreme penalties, it leaves fewer means of escape, penetrating much more deeply into the details of life, and enslaving the soul itself.” The answer of course, is a decided yes.

Mill’s conclusion, suitably modified, then follows:

Protection, therefore, against the tyranny of the magistrate is not enough: there needs protection also against the tyranny of [censorious corporate managements]; against the tendency of [social media companies and other private organizations] to impose, by other means than civil penalties, its own ideas and practices as rules of conduct on those who dissent from them; to fetter the development, and, if possible, prevent the formation, of any individuality not in harmony with its ways, and compels all characters to fashion themselves upon the model of its own.

For what are we seeing today, but vicious efforts to “prevent the formation, of any individuality not in harmony with its ways, and compels all characters to fashion themselves upon the model of its own.”?

Mill recognizes that even liberty must have a limiting principle, and the bulk of his essay is devoted to determining that limit:

But though this proposition is not likely to be contested in general terms, the practical question, where to place the limit—how to make the fitting adjustment between individual independence and social control— is a subject on which nearly everything remains to be done.

In any line drawing exercise, there are difficult calls to make. But as the saying goes, hard cases make bad law. There are certain things that are not hard cases–and censorious managers of private corporations who selectively prevent the dissemination of speech on platforms ostensibly intended to disseminate speech is not a hard case. By Mill’s criteria for distinguishing a legitimate from an illegitimate restraint on liberty–“the sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection”–what Twitter and Facebook and Google and Apple and Amazon do is “an illegitimate restraint on liberty.” They are not protecting themselves against any threat to their lives, persons, or property. They are attempting to impose their will on others who are posing no such threat.

I also recommend to you Mill’s discussion of free speech, which is particularly apposite today. One of the lines being pushed to justify selective censorship is a claim that this protects us from falsehoods. Mill considers and resoundingly rejects that assertion. His discussion in Chapter 2 of On Liberty is worth reading in full.

In sum, an essential element of Mills’ thought is that it is unduly cramped to conceive that only governments can restrict liberty, and that anything not done by a government cannot be considered a violation of liberty. Mill makes the argument that “society” can limit liberty. Setting that reification aside, he talks about specific cases, such as churches and religion. He certainly would recognize that tech companies (and myriad other companies too) are limiting liberty, and he would reject this on his strict utilitarian lines. One can also reject it on natural rights lines that Mill explicitly rejects.

But the point stands: private individuals and private entities can oppress, and deprive others of liberty. Depriving some of the liberty to restrict the liberties of others without the latter’s consent advances liberty, rather than detracting from it. Regardless of whether you advocate liberty on utilitarian or natural rights grounds–or maybe both–it is anything but libertarian heresy to support restrictions on the ability of private entities to deprive others of the freedom of thought, speech, and action.

In Baghdad, the US embassy complex is a massive fortified area hard on the Tigris called The Green Zone. It is to protect representatives of America’s government–and its governing class–from the barbarians beyond. In advance of Wednesday’s inauguration, Washington DC is being turned into the Green Zone on the Potomac. (H/T to @libertylynx for suggesting the analogy!)

So just who are the barbarians whom the governing class is attempting to exclude from the nation’s capital?

This could be a particularly grandiose exercise in security theater, meant to convey that the country is under threat from shadowy right-wing insurrectionists, and thereby provide a justification for sweeping “domestic terrorism” legislation, followed by early-21st equivalents to early-20th century “Palmer Raids” (Garland Raids?)–these directed at American “fascists” and “white supremacists,” rather than communists and anarchists as in 1919-1920. This would bode very ill for our freedom. It could be the death knell, in fact.

This could also reveal the governing class’s panicked realization that they are heartily hated by a large portion of the populace–and that they know that they are hated for good reason, due to their abject incompetence, irredeemable corruption, and sneering disdain for vast swathes of Americans. We have the worst governing class in the country’s history–and that includes the 1850s, during which the previous holder of this dubious distinction led the country to civil war.

These explanations are not mutually exclusive, of course. A hated “elite,” all too conscious of its failings and unpopularity (Congress ranks somewhere below tertiary syphilis in esteem, with the federal bureaucracy and the media hot on its heels), will out of self-preservation engineer crises that justify the employment of the government’s vast coercive apparatus to crush those who wish them gone.

It is extremely illuminating that actually burning things down, which occurred not just in DC but around the country in May and June, did not elicit such a hysterical response. Only when the precious denizens of DC feel personally threatened by the people they ostensibly govern do they go to Defcon 1.

Don’t fall for it. Don’t let a stupid, but wildly exaggerated, rampage in the Capitol (that never would have happened had the most basic measures been taken–which should make you wonder why they weren’t) provide the pretext for purges and “domestic terrorism” legislation that deprives you of your rights, puts your liberty at risk, and threatens to bring the country to the brink of another break. Don’t fall for the security theater and the FBI’s alarums. These are a pretext to deprive you of your freedoms, most notably your freedom to heap scorn on a failed ruling class, and to hold them to account for their myriad failings.

Big Tech’s war on speech–or more precisely, on speech that they dislike–escalated wildly in the aftermath of the Capitol “insurrection.” Starting with the erasure of Trump (and others deemed in his orbit) from Twitter and Facebook–actions that drew rebukes even from France and Germany–it continued to expand over the weekend, most notably with Amazon’s abrupt termination of its hosting agreement with Twitter competitor (and nascent conservative platform) Parler, and Apple’s and Google’s extirpation of the Parler app from their app stores.

This is an escalation, yes. But in a war that has been raging for years. Amazon, Apple, Facebook, Google, and Twitter merely see an opportunity to gain a big victory in that war.

During that war, a standard response from many on the non-left has been: “They are private companies. They can do what they want. Constraining their ability to take these actions is anti-capitalistic, and anti-liberty.”

These arguments are simplistic, and as a result, it is easy to conclude that many of those making them are simpletons.

The simplistic presumption behind these arguments is that only governments can coerce, or exercise power to constrain liberty.

It is no doubt true that government power to coerce is typically greater than that of private individuals and enterprises, and that therefore government is most likely to be the enemy of freedom. But that does not imply that government is the only enemy thereof, and that therefore only governments should be constrained from limiting freedoms.

The presumption that private entities possess little coercive power is based on an implicit assumption. Namely, that competition between firms and individuals in markets sharply constrains coercive power, whereas government faces little competition and can therefore coerce more effectively.

The implicit assumption is reasonable in many contexts. I don’t have to worry about being coerced by my grocer or even auto manufacturers. Competition is robust, and if they try to coerce me, I can shop elsewhere. Absent collusion, I can rely on competition to discipline coercion.

The implicit assumption is definitely and wildly unreasonable in the case of the large tech companies. There network effects have sharply reduced competition, and greatly constrained choice. Further, as Amazon/Google/Apple v. Parler show, these companies are willing and able to utilize their control over certain assets to destroy those whom they oppose.

The standard arguments discounting the likelihood of predatory pricing or other predatory conduct don’t apply here. Those arguments presume profit maximization as the corporate goal. But the underlying motive for Amazon or Apple or Google to cut off Parler is almost certainly not to make higher profits later–Parler is not even a competitor of Amazon. Instead, their motive is nakedly political. Jeff Bezos is no doubt willing to take what for him (richest man in the world) is a small economic loss in order to advance his political and ideological objectives. (Do you think he bought the WaPo to make money? As if.)

It’s also essential to note that these “don’t interfere with private contracting decisions” arguments completely fail to recognize that the ship sailed decades ago, and that the current legal and regulatory environment represents almost a complete inversion of the appropriate spheres of which contracting decisions should be left alone, and which may justify some restrictions.

In the US, federal, state, and local governments have imposed extensive restrictions on the freedom to contract in competitive industries, while allowing firms in highly non-competitive industries (like the tech firms) to operate with impunity. Bakers and florists operate in high competitive markets–yet they cannot exclude some customers due to their religious convictions. Restaurants in highly competitive markets are highly constrained in their ability to choose whom to serve. The same goes for landlords in highly competitive rental markets, employers in highly competitive labor markets, and banks in highly competitive lending markets.

If you agree with–or even accept–such restrictions on private firms in competitive markets, you have no basis to demand that no constraints be imposed on firms in highly uncompetitive markets, just because they are “private.” Moreover, even if you disagree with the imposition of such restrictions in competitive markets, that does not necessarily entail disagreeing with restrictions imposed in uncompetitive ones. It is quite logical to oppose restrictions in competitive markets and oppose them in uncompetitive ones.

Indeed, as I noted when I first took on this issue some years ago, there were common law restrictions on firms with considerable market power even in what is arguably the most libertarian/classical liberal period and country in history–18th/19th century England/UK. Common carriers like inns and coaches were deemed to have market power, and the common law required such “common carriers” not to discriminate. That it an era of laissez faire that has not been equaled since.

Furthermore, and most importantly, it is simplistic–and actually idiotic–to presume that there is a bright line between public and private. The tech companies wield enormous political power, both through traditional means (lobbying, rent seeking, influence buying) but more importantly through their control over information flow, and their information about you, and their use of your information to control the information you get. The ability to manipulate politics, political outcomes, and government policy that this information dominance provides is arguably unparalleled in history. The two most powerful weapons in politics are money and information. Big tech has wild amounts of both.

What do you think that we are seeing right now, other than an attempt to utilize that dominance to manipulate political and policy outcomes? Saying that this is acceptable because these entities are formally private companies is to give them power that a US government with monopoly of violence is not permitted to wield. If you are fine with that, then you are my enemy, and the enemy of most Americans.

I also note that amidst all of the accusations that Trump is a fascist, and his supporters are fascists, a defining characteristic of classical fascism is collaboration between the state and large corporate enterprises. Who is the puppet and who is the puppeteer is not always easy to determine, and can change over time, but an alignment of interest between the state and large enterprise is characteristically fascist, and antithetical to liberty.

At the very least, these tech companies should be subjected to non-discrimination requirements–requirements that common carriers have been subject to for centuries, and which even non-common carriers (e.g., the baker and florist) are routinely subject to today. These platforms have market power, and those that control them use that power to discriminate, most notably on the basis of viewpoint and political belief/affiliation, and do so to influence how the government coerces you. They should be stripped of their right to do so.

With respect to Parler in particular, it has sued Amazon and Twitter, on three grounds. The most interesting is a Section 1 claim alleging a conspiracy between Amazon and Twitter to destroy a Twitter competitor. This is potentially the most dangerous claim, but also the one that is least likely to survive a motion to dismiss. Yes, such a claim of conspiracy is plausible, but evidence of a conspiracy must include more than parallel conduct or mutual interest. So far, what we know publicly does not provide evidence of an actual conspiracy.

The second claim is tortious interference. This could potentially have legs. Amazon has clearly interfered with Parler’s ability to provide services to its customers. It is very plausible that that interference is tortious.

I am thinking that Parler customers might have a tortious interference claim as well, that could be pursued via class action.

The third claim is breach of contract. Amazon gave Parler 30 hours notice of termination: Parler claims the contract requires 30 days notice. No doubt the contract is byzantine and complex and long, and that Amazon can point to some clause which permits termination with less than 30 days notice under certain conditions. Then it becomes a matter of fact whether those conditions were met. Parler will no doubt argue that they were not, and at the pleading stage the court has to accept plaintiffs’ version of the facts.

Truth be told though, Amazon may well be willing to accept a loss on the breach claim, and maybe even the interference claim. It will be all rather moot for Parler: it is likely dead even if it prevails on those claims. But Amazon will have achieved its true objective: killing an apostate.

Big tech is our enemy. It must be fought. It must be defeated. Posturing about their inviolability because they are private companies is simplistic, wrongheaded, downright stupid–and highly destructive to the point of being evil. They dominate the public space in ways no “private” entity has ever done, and thereby have directly and indirectly immense powers of coercion that must be controlled. They are currently wielding those powers ruthlessly. Only fools and knaves accept that based on some imagined principle that private entities are immune from any constraint.

My main reaction to Wednesday’s debacle at the Capitol is the same as Fouché’s to the murder of the Duc d’Enghien: It was worse than a crime: it was a blunder. As “insurrections” go, it was rather farcical, with limited instances of real violence the exception, and theater of the absurd the rule. As a result it was utterly ineffectual in achieving any object. And I use the passive tense deliberately, because it is rather hard to identify any actual person with an objective.

But that is a major reason why this was such a colossal blunder. It was utterly aimless and pointless and ineffectual and barren of any result–except for giving the governing class a reason to begin a ruthless purge of anyone in opposition to it. Anyone who is opposed to the governing class (which extends far beyond government, and includes large swathes of corporate America) is equated to those very few who rampaged through Nancy Pelosi’s office, even if they were nowhere near DC at the time. They are deemed seditious insurrectionists and “domestic terrorists” who must be excised from public life–including in particular participation in social media–and whose private employment is at risk.

This is affirming the consequent on steroids, but that fallacy is one of the most useful tools of political propaganda. And the governing class is using that tool with utter ruthlessness. Those who do not express complete fealty are at risk of being destroyed. And to be honest, expressing fealty today is likely to be insufficient, if one is deemed to have committed some sin against orthodoxy in the past.

This has been a judo move that turned Trump’s biggest strength–his ability to engage the passions of millions of people–into his greatest liability. He should have understood the risk, but so consumed was he by his increasingly Quixotic efforts to overturn his election loss that he failed to see it, and in fact fell right into the trap–that is his blunder. And in so doing he has inflicted a grievous harm on his most fervent supporters, and those not so fervent yet broadly aligned with him in their opposition to the governing class.

This is a blunder from which recovery will be nearly impossible, at least for some years–or until the governing class commits a similarly egregious blunder.

The governing class is not going to miss this opportunity to bludgeon its adversaries–and indeed, the campaign to do so ramped into high gear after the Capitol was cleared. It continues to intensify, led by the governing class’s Praetorian Guard: the social media and tech companies.

The most striking–and revealing–phenomenon is the stark contrast between the governing class’s reaction to this spasm of mob violence, even as highly limited in duration and extent as it was, to the epidemic of mob violence that lasted for months from sea to shining sea starting in May. I’m so old that I can remember when public protest–including protest that descended into destruction and death far more extensive than what occurred in DC on 6 January–was the highest expression of patriotism, and the most authentic expression of the discontent of the dispossessed, oppressed, and disenfranchised.

But that’s because those protestors were advancing the interests of the most ruthless part of the governing class, whereas these protestors are expressing their contempt for the governing class.

Who, whom, you know. It’s not the fact or protest or the intensity or violence thereof that matters: it’s who is protesting against whom, and why. The attempted assault on the White House in June, let alone the consummated assault on a Minneapolis police station or the nightly attacks on Federal buildings in Portland, were far more intense and angry and destructive than what happened on Wednesday. But to the governing class, those are legitimate targets. They are not, and since the rampage at the Capitol targeted the governing class, it is beyond the pale.

The reaction is what one would expect from tyrants, and indeed the entire episode is symptomatic of tyranny. Not the tyranny of Trump, but the tyranny of the governing class. As I’ve written for years, Trump is a symptom, not a cause. His victory, and his popularity among a massive number of Americans, stems directly from his opposition to the governing class. Trump cannily recognized the widespread discontent, and tapped into it. His populism reflected the undeniable fact that a large fraction of the people were–and are–mad as hell at those who presume to rule us–with very good reason. Populism is almost always a consequence of government failure–which is why governing classes hate it so much.

This discontent has been stoked to a fever pitch by the unrelenting campaign against covid, which has saved pitifully few (if any) lives, but destroyed many livelihoods and deprived most of us the things that make life worth living. Further, the highly dubious outcome of the election–and perhaps more importantly, the phalanx-like opposition of the governing class (including notably the Republican establishment) to any investigation of this dubiousness–has fueled the fires further.

In sum, there are a large number of desperate and angry people who believe the governing class despises them, and is indeed at war with them. So why should anyone be surprised that this desperation and anger has resulted in mob action? No one–least of all those who rationalized the Floyd protests (and riots) as a natural response to desperation and anger.

And to be frank, I am pretty sure that the ruling class is not surprised. They would never acknowledge it, but they know they hate these people, and are hated back in return. Which is precisely why they are using this opportunity to try and crush those that they hate, both out of a self-defense reflex, and for the pure pleasure of vanquishing one’s foes.

This is what tyrants do. They believe that their power and legitimacy is non-negotiable and indisputable, and that anyone who challenges the one and questions the other is seditious and deserves to be crushed. The left makes a big deal about demonizing “The Other.” Well, to the left and the governing class which is largely left, The Other is, well, probably you. And you are being demonized, and that demonization is used to justify the imposition of coercion on you.

Their expectation, like that of all tyrants, is that if they exert enough force, their opponents will be crushed or cowed into abject submission. Sometimes that is correct. But often it has the exact opposite effect, and exacerbates tension and hostility to such a degree that there is a revolutionary convulsion.

In other words, we are living in pre-revolutionary times, and the reflex of the governing class to double down on coercion when challenged is greatly increasing the odds that soon the prefix “pre-” will be obsolete. So convinced of its righteousness, rectitude, and right to rule, the governing class is failing to ask why so many hate them so much–they just dismiss them as rubes and rednecks and racists and religious freaks. And by failing to ask the question, they greatly increase the odds of getting an unsolicited, and very violent, answer to the question they should ask but haven’t.

In the covid months I’ve let my beard grow out, mainly as a statement about how the restrictions on normal life in 2020 rendered irrelevant certain social conventions. When someone commented rather snarkily about that, I responded “well, if we are headed for a civil war, I thought I should look the part.” If that sardonic response was comprehensible when I made it a few months ago, it is all the more so after the events of the past weeks, and last week in particular.

There are other things about the Capitol catastrophe (catastrophic much less in its direct effects than its fallout) that deserve attention. Such as: why was it even possible that a rather inchoate and spontaneous mob was able to get access to the Capitol? But all that must be based on speculation colored by one’s pre-existing beliefs. The fact is that it did happen, and it will have consequences. It is those consequences that we must focus on, as I’ve tried to do here. And I am increasingly convinced that the most important consequence will be a grave escalation in internecine conflict as the governing class attempts to suppress those millions who already feel oppressed by their rule, with the possible (and indeed, likely) results being frightful to contemplate.

In 1893, at the World Columbian Exposition in Chicago, Wisconsin historian Frederick Jackson Turner presented his soon to be famous article, “The Significance of the Frontier in American History.” The article has been extensively analyzed, and heavily criticized, over the years. Of course any grand theory of cause-and-effect regarding the history of an entire people over a period of centuries is going to oversimplify, omit other causal factors, and have some implications that are falsified by the historical record. Nonetheless, Turner’s tour de force does make many insightful observations and generalizations. Because of these, it provides a very useful analytical frame that sheds quite a bit of light on America’s current divided state, how it got here, and where it will go hence.

Most notably, Turner identified many character and behavioral traits that he identified with the frontier. Most notable of these are individualism, though it must be stressed that “individualism” is not a synonymous with social atomism, for as Toqueville noted at the time the frontier was very much a going concern, Americans had a mania for voluntary associations of various sorts, i.e., Americans exercised their individualism by gathering together in private (or at most quasi-public) organizations ranging from churches to charitable and social reform groups to militia companies.

Other characteristics noted by Turner include informality, democracy (of a particularly local variety), risk taking and initiative, and yes, violence. To which I would add another Toqueville observation–a passion for equality, in the sense of a resistance to a formal social hierarchy. (This is related to “informality.”). There was also an active scorn for ideas and norms and fashions originating in Europe.

Stated broadly, the frontier ethos was one of individual autonomy and liberty and freedom from authority.

These values can be seen on one side of the American political divide. They are, for example, highly correlated with support for Trump.

They are also the values that are most intensely scorned by those on the other side of the divide. Those people–painting with a broad brush, the progressive left–elevate the collective over the individual. They denigrate liberty, and emphasize equality, but not of the Toquevillian sort. They construct elaborate social hierarchies, which are at present organized around various attributes of “identity”–race, gender (pick one! hell, pick several!), ethnicity, religion (or lack thereof). They elevate security and safety over risk taking. They take Europe as a model.

It must be noted that this fissure has always been present to some degree in the U.S., although its nature has changed dramatically over the years. Take for example the War of 1812, which was fervently supported by those on the frontier, and adamantly opposed by the urban and commercial elites in New England and the Middle States. A similar divide between Jacksonians on the frontier and anti-Jacksonians outside of it.

Since Turner wrote, the frontier values that Turner identified as central to the American identity at the time that he wrote have lost ground to their antithesis. The causes are too numerous to list, and are interrelated, but a few salient ones that come to mind include:

• Urbanization.
• The dominance of large scale enterprise, especially corporations but also government bureaucracies, which means that most people earn their income working in a large organization which inherently limits the scope for individuality and individual initiative, and conditions people to operating in highly collectivist environments (even if they are privately owned).
• The emergence and increasing prominence of women in the workplace, government (especially primary and secondary education), and politics. (Even in frontier days, women were at the forefront of reform movements, e.g., temperance, that were explicitly directed at sanding down the rough edges of (male) frontier behavior.) The impact of women is profound, not just directly, but indirectly, primarily through public education and the socialization of men.

(Immigration is somewhat interesting, and cuts many ways. Many immigrants self-selected precisely because they were individualists at heart. Even those who emigrated from relatively collectivist societies (e.g., Scandinavia) tended to be the more adventurous and individualistic. But immigration also brought strains of collectivist thought and identity. )

All of these trends show no sign of abating.

Indeed, the Covid hysteria is arguably accelerating these trends, and greatly so.

The experience of the last year illustrates the divide, and also gives an idea of where the balance now lies, especially among the alleged “elite” in business, media, government, and politics. The safetyism and collectivism of the advocates of mask mandates and lockdowns (in the face of much evidence of their inefficacy, and irrefutable evidence of their costs) is pitted against those who bridle at restrictions on individual choice.

But Covidianism is more than a mirror on social changes that have taken place and existing fissures: it is driving further changes away from the frontier Americanism ethos. The lockdowns, and the self-limiting behavior promoted by the endless drumbeat of doom-and-gloom emanating from government and media, are gutting one of the major bulwarks of Jacksonian America–small business–while at the same time greatly empowering large enterprises and governments. Indeed, every time it looks like there may be some respite, the lockdowns and restrictions are slammed down again, and yet again–despite the lack of evidence of their efficacy in fighting Covid and the palpable evidence of their baleful economic consequences.

Those on the collectivist side–in the US, but especially outside the US–see this as a golden opportunity to throttle their individualist enemies. Call it “The Great Reset” or “Build Back Better” or whatever other Orwellian phrase du jour they choose, the collectivists see Covid as an opportunity to reorganize society on collectivist lines, and to quash “selfish” individualism. It has proved so much more powerful a bludgeon than “climate change” to achieve their agenda, so they are wielding it with a relish.

I say “opportunity”, which suggests that seizing on the Covid hammer is merely opportunism–letting no good crisis go to waste. But the utility of Covidianism in the advance of collectivism has raised questions in some minds as to whether this is more than mere opportunism.

I would say that in this century, and through much of the late years of the last, the frontier ethos was fighting a rear guard action. The Trump years have been, to a considerable degree, a particularly intense battle in that fighting retreat. This is why the 2020 election was so pivotal–if it had gone the other way (and it is defensible based on evidence to say if it had not been stolen) the collectivist surge might have suffered a serious setback. But in the event, it was the individualists who suffered the reverse.

The battle is not over yet. The inherent flaws in collectivism, and the very real potential that the 2020 winners may succumb to Victory Disease and overreach, could lead to an individualist comeback, a la the late-1970s/early-1980s. But even then, there is a ratchet effect at work. Each rebound starts from a lower level, and seldom is able to restore things to the way they were before the previous decline.

A rather bleak prognosis, I’m afraid. But there is honor–and sometimes profit–in fighting against heavy odds. That’s a frontier value too. That is what I will strive to do. I hope you do as well. Perhaps we can seize victory from the jaws of defeat. But only if we fight, and never if we submit.

Among other things, annus horribilis 2020 will evidently mark the final eclipse of Robert E. Lee and Stonewall Jackson as Virginia icons. Lee-Jackson Day (commemorated under various names since 1889) was eliminated as a state holiday. The statue of Lee was removed from the U.S. Capitol, and his statue on Memorial Avenue in Richmond was defaced by massive graffiti during the George Floyd protests, and Virginia’s governor ordered its removal a month later: its fate now hangs by a thin legal thread. This month, Jackson’s statue was removed from the Virginia Military Institute, where he taught before achieving fame in the Civil War.

Even more than erecting them, the removal of monuments is a statement of political power. Thus, the monument controversy is a testament to political realignment. The controversies have been particularly intense in Virginia because the realignment has been so pronounced. This is directly attributable to the vast expansion of the Federal government since the 1960s, which has resulted in the dramatic growth of the northern Virginia suburbs, with the burgeoning population consisting disproportionately of non-Virginians, most of whom have direct or indirect ties to the national government, and hence have an antipathy towards, or at most an indifference to the most renowned rebels against that government. Similar things are happening in other Southern states with burgeoning urban populations, e.g., Georgia. In many respects, the Yankee invasion of the Sunbelt that started in earnest in the 1970s is doing what Yankee Reconstruction in the 1870s could not.

As I have written many times in the past four years or so, this iconoclasm disturbs me. It disturbs me in part because I dislike the naked assertion of political power and the marking of political territory. Waving the bloody shirt 155 years after the fact seems particularly unseemly. It is largely presentist bigotry which refuses to countenance context. And as I discuss in the closing, it will have baleful political effects.

Moreover, I dislike the erasing of history. We need to understand our past better–including understanding how previous generations understood their past. ISIS wants to destroy everything that predated Mohammed. The topplers of monuments in Richmond or Portland or Madison (and I could go on) what to destroy everything American that predates The Woke. What they have in common is a deep antipathy of anything that angers their gods.

The removal of the Jackson statue is particularly ridiculous. VMI is, after all, a military school. It trains officers. Jackson, although an indifferent teacher at VMI, was a living embodiment of many military virtues, and a general of some genius. For those reasons, he is a good example for cadets to contemplate. And as for the cause in which he employed that genius and virtues, cadets are also better off understanding it and what brought it into existence than having it extirpated from memory. The statue’s removal will also remove a reminder to strive for such an understanding.

There is also an element of cheap virtue signaling, and in fact cowardice, in removing Jackson’s monument. Truth be told, if Jackson’s legacy is a blot on Virginia that must be removed, so is VMI itself. Twenty-one of its graduates served as Confederate generals: many more as colonels (including George Patton’s grandfather) or in lower ranks: approximately 1,800 VMI graduates served in the Civil War–all but 19 for the Confederacy. The Corps of Cadets delivered a decisive charge at the Battle of New Market on 15 May, 1864.

VMI is therefore inextricably linked to the Civil War, and on the “wrong” side. If such historical bonds require removal from public space, intellectual consistency would require VMI to be burned more thoroughly than David Hunter’s Union troops did on 12 June, 1864. Getting rid of Jackson’s statue is a cheap and cowardly way of reckoning with the past.

We are now entering a period in which the subject of relations between states, and the relations between the states and the Federal government is being questioned as it has not been since 1865. The topic of secession has been broached, especially in the aftermath of the fiasco that is the 2020 presidential election. There is greater distrust and alienation between different regions of the US today than there has been since the era of Reconstruction, and by a large margin. What was universally considered settled is no longer so.

In such a febrile environment, a better understanding of how sectional distrust and alienation (North-South then, Red-Blue today) can lead to disastrous rupture is imperative. “No more Munichs” informed post-War US foreign policy: this was an attempt to learn from past mistakes in order to avoid their repetition. “No more Civil Wars” is equally important, if not more so, and we should think seriously and deeply about the period 1820-1860, in order to learn from the mistakes of that era–mistakes that culminated in a bloody war and bitter Reconstruction.

Sadly, erasing visible traces of this era does not encourage such consideration: it prevents it. Much the worse, the intensely partisan and triumphalist way it is being done actually widens the fissures in American political and social life that are becoming more apparent by the day. Again, it is an assertion of political power by one faction that is deliberately intended to demonstrate to other factions who is in charge, and that they don’t matter. That will only intensify the already manifest centrifugal forces at work in the United States. That is the last thing we want to do now, for reasons that a better understanding of the Civil War Era should make more than plain.

Once upon a time, a tribe dwelled on the slopes of a volcano that towered over their tropical isle. When the volcano began to smoke and rumble, and lava started to flow down its slopes, the natives ran to their shaman. “Oh wise one, what shall we do to appease the volcano god?” they beseeched the wizened old man. “Sacrifice 10 virgins to the volcano god, and he will be appeased!”

Encouraged by the hope of sparing the multitude by dispatching a few, the tribesmen seized 10 virgins, and duly sacrificed them with great solemnity.

Yet rather than quieting, the volcano became more violent then ever. Massive rivers of lava were now flowing, and great plumes of ash were erupting from its crater.

So the natives again ran to the shaman. “Oh wise one, we did as you said, and sacrificed 10 virgins to the volcano god. But look–he is not appeased! He seems angrier than before! What shall we do?”

“Sacrifice more virgins, of course!” replied the shaman, who was angry at the natives’ temerity in questioning his awesome knowledge of matters supernatural.

This is a silly story, and fictional, of course. But it echoes a story the world is living out today, which is not at all silly, but is instead deadly serious. Namely, the responses of government shamans to the Covid-19 virus.

The world has experienced waves of lockdowns of varying intensity since March, lockdowns imposed by government authorities claiming to be acting on the basis of science and unquestionable expertise. The lockdowns are intensifying over the Christmas season, descending with particular ferocity in Europe, where the UK, Italy, and Germany have or will soon impose restrictions as draconian, or more so, than they did during the previous peaks in the outbreak.

Prior to 2020, lockdowns were NEVER the recommended response to a pandemic. Indeed, the WHO and other public health bodies recommended against them. Further, the evidence gained to date on these extraordinary interventions indicates that they have had no effect on the course of the pandemic, or at best a minor effect dwarfed by their adverse economic, social, and health (physical and mental) consequences. The course of the virus proceeds independent of the futile interventions of authorities and experts.

The studies claiming to demonstrate the beneficial impacts of lockdowns disproportionately rely on comparing model forecasts to outcomes. But the model forecasts have been proven wrong again and again. These studies are therefore just another indictment of the models, rather than an endorsement of lockdowns.

The current Cancel Christmas hysteria follows hard on the heels of the Cancel Thanksgiving panic, accompanied by dire warnings of a post-Thanksgiving spike due to the failure of people to sacrifice their family gatherings to appease the virus. This spike has not occurred. Indeed, in many states (e.g., the upper Midwest) infections and deaths have been on a downward trajectory since before Thanksgiving, and that trajectory has continued post-holiday.

Yet experience be damned. Sacrifice more holidays!

The economic, psychological, spiritual, and health havoc wreaked by the lockdowns is large, and clearly evident. Yet rather than recalibrate, let alone admit error, our supposed betters who pompously declare their fealty to Science!, ignore these costs, ignore the utter inefficacy of their past ukases, and issue more diktats instructing us to sacrifice yet again. And again. And again. They are indistinguishable from the shaman of the parable.

Lockdowns are one example of this phenomenon. Masks are another. The evidence on the effectiveness of masks in controlling infection that was accumulated before 2020 was largely negative, and equivocal at best: masks offer little or no protection. A recent Danish study, grudgingly published after months of lingering in peer review purgatory, shows a trivial reduction in susceptibility to Covid infection by those wearing medical-quality masks, not the type that most of the world actually uses. And the recent (almost certainly seasonal) resurgence in Covid-19 prevalence refutes the efficacy of masks, since it has occurred despite near universal mask mandates, and high rates of compliance therewith.

I am at something of a loss to explain this fetishism with lockdowns and masks. The enthusiasm with which politicians embrace lockdowns, in spite of the ravages they impose and in spite of the lack of evidence of efficacy (and the existence of evidence of inefficacy) is more than a little disturbing. What explains it? I think that any explanation is unlikely to be flattering to them–or the people who enthusiastically agree with them.

The most charitable explanation is that it is a hope born of desperation: people want to believe that there is a solution that humans can devise and implement, and their desire to believe blinds them to evidence that contradicts their beliefs. Failure actually feeds the desperation, which leads to doubling down in the absence of any ready alternative.

Less charitably, perhaps it is opportunism in the political class. The pandemic has presented politicians with an opportunity to exercise plenary powers this Christmas that they could not have even imagined last Christmas, even after overindulging at the annual holiday party. Power is an addictive drug to politicians. Once hooked, they will not give it up.

The most ominous examples of this are those who push the Great Reset or massive social transformations similar thereto. Many of these (e.g., Justin Trudeau, Klaus Schwab, Bill Gates) have been quite open in expressing their belief that Covid-19 presents a great opportunity to reorganize society on leftist utopian lines. Because those efforts have always worked out so well, right?

We are ruled by fools, knaves, and devils. And we are fools as long as we consent to let them rule us. We would be far better off pitching our shamans into the volcano, rather than following their commands to sacrifice ourselves.

For a perfect illustration of why the UN (and most NGOs and most of those talking about Great Resets and the like) represent a grave threat to the lives, health, and livelihoods of those whom they claim to want to help, consider this ignorant drivel on the introduction of water futures on the CME from  Pedro Arrojo-Agudo, the UN’s “special rapporteur on the human rights to safe drinking water and sanitation.” (Hey! He’s not just an everyday run of the mill rapporteur! He’s a special rapporteur!).

According to Bloomberg, water futures “risks a price run-up for a resource that ‘belongs to everyone’ and is a vital tool in combating the Covid-19 pandemic.” Further:

“The news that water is to be traded on Wall Street futures market shows that the value of water, as a basic human right, is now under threat,” Arrojo-Agudo said in a statement. “It is closely tied to all of our lives and livelihoods, and is an essential component to public health.”

Beyond the fact that the reference to “Wall Street futures market” is ignorant (and an offense to Chicagoans!), this short statement is packed with more substantive economic ignorance.

Oh, the blather sounds good: water is “a human right” that “belongs to everyone.” Yay! But it’s exactly this kind of crypto-socialist blather that wreaks great harm when put into actual policy.

For one thing, something that “belongs to everyone” ends up belonging to no one. Or more precisely winds up being grossly misallocated or misused or wasted. Those who don’t own have no incentive to utilize wisely. They have too little incentive to avoid polluting. They have little incentive to increase availability or quality. Indeed, I warrant that many–and arguably the lion’s share–of the problems that Mr. Arrojo-Agudo is rapporteuring about (or whatever it is that rapporteurs do) are directly attributable to the lack of property rights in water, or grossly suboptimal rights. Relatedly, they are directly attributable to the lack of market mechanisms built on property rights to allocate a scarce resource–clean water–and the reliance on political mechanisms plagued by rent seeking and corruption to do so.

It’s not easy to design and enforce property rights for water, for a variety of reasons. Some of these reasons inhere in the nature for water. For example, designing and enforcing rights to an aquifer are challenging. But many of the problems are political, and public choice in nature. Look at the conflicts over water in the American West for myriad illustrations.

But grasping the nettle of these challenges, and even doing it imperfectly, is distinctly preferable to the policies that arise from an “it belongs to everyone” attitude. That is a recipe for dissipation, waste, and pollution. Water socialism works just as badly as all the other kinds.

As for the “speculative bubble” fears, such creatures are far more common in the fevered imaginations of the likes of UN rapporteurs, NGO nudniks, etc., than in the wild. They hysteria over an oil price bubble in 2007-2008 is an example. This is something that even Paul Krugman and I agree on. Show me a commodity price bubble, and I have a high degree of confidence that it can be explained by fundamental factors. Indeed, interventions intended to combat these bubbles almost always lead to less efficient resource utilization than the alleged bubbles themselves. Price “bubbles” in commodities are usually simply the bearers of bad fundamental tidings.

That is, attempting to suppress “price run-ups” makes things worse, not better.

I’ve already opined that I consider it unlikely that the CME/Nasdaq water futures will register much trading volume, for relatively technical reasons. The same reasons apply to other possible water futures contracts. So Mr. Arrojo-Agudo should direct his nervous energy to other subjects.

But the anti-property, anti-market mindset that the UN rapporteur embodies is a grave threat to prosperity and health. This mindset makes people poorer and more miserable wherever it rules policy. Which is why the UN, NGOs, Great Resetters, and the like pose a far greater danger than all the speculative bubbles ever stacked one atop the other.