Bootleggers & Baptists: LXI- SBF and the Fall of FTX

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Sam Bankman-Fried, the founder of the cryptocurrency exchange FTX, once masqueraded as the regulation-friendly face of the crypto markets. SBF was known for his openness to regulation and willingness to work with lawmakers; he not only wanted to graciously assist our elected officials in Washington with guiding policy but was also “socially conscious”. Sam was a vocal proponent of effective altruism and possessed a Benthamite concern for maximizing social benefits to help the most people. This wunderkind 30-year-old was too good to be true

Whether it was Bankman-Fried donating large sums of money to the Democratic party (the purported political advocate for the economically disadvantaged) or his views on veganism and charity, it was all a façade, a thin veneer masking his actual conduct. Per Reuters:

“… The turmoil at FTX has seen at least $1 billion of customer funds vanish from the platform, sources told Reuters on Friday. Bankman-Fried had transferred $10 billion of customer funds to his trading company, Alameda Research, the sources said.

New problems emerged on Saturday when FTX’s U.S. general counsel Ryne Miller said in a Twitter post that the firm’s digital assets were being moved into so-called cold storage “to mitigate damage upon observing unauthorized transactions.”

Cold storage refers to crypto wallets that are not connected to the internet to guard against hackers…”

As investors fled the platform and Binance pulled the plug on bailing out FTX, it is clear that SBF misrepresented the financial health of the exchange and its business practices. All of these developments are reminiscent of the Enron scandal. A corporation rubbing elbows with congress to engage in regulatory capture and foster a positive public image. While concurrently; creating a smoke screen obscuring the company’s off-color conduct.

The economist Bruce Yandle’s theory of Bootleggers and Baptist (1983) coalitions perfectly describes the Machiavellian tactics utilized by Mr. Bankman-Fried. After all, perception is what matters. If investors were not distracted by his social advocacy and success, they might have spotted the red flags. As observed by Yandle, there is often a demand for regulation. Often from parties that prima facie would oppose such measures (p.13). Why? This gives industry elites the to help shape rules that will benefit their bottom line and yield good publicity. Frequently, these scenarios are win-win for the firms involved. SBF proposed a licensing system for Defi (decentralized financial technology); per Erik Vorhees

“..self-enforced rules and blacklists would only serve established exchanges that could afford to pay for compliance…”

SBF simultaneously worked to craft regulation that FTX would benefit from while appearing to share some of the concerns of crypto-phobic politicians like Elizabeth Warren. Progressive politicians are the Baptists in this scenario. SBF’s arrogance ended up being his own Achilles Heel, ultimately revealing his true colors, those of a covert Bootlegger (p.190). 

Bootleggers & Baptists: LX- Arizona Senate Race

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In recent Arizona election news, Libertarian senate candidate Marc Victor has withdrawn from the race and openly endorsed Republican Blake Masters. Much like other circumstances in politics, there is a moralizing rationale for Victor’s capitulation and an obvious beneficiary of his exiting the race. There is Bootlegger and Baptists (1983) dynamic in this development in the Arizona mid-term election.

Victor left the race and lent his support to Master to avoid a spoiler effect; a phenomenon where third-party siphons off votes from a major party candidate. This is an enduring problem for Arizona Republicans for a while, hence the passage of HB 2608 (2015). This has only been exacerbated; by the fact that the Democratic party made numerous donations to Marc Victor’s campaign. By any metric, Victor calling it quits to avoid a spoiler effect has the normative underpinning of moralistic reasoning [1].; he is a Baptist in this scenario.

The Bootlegger in this situation is indisputably clear, Blake Masters. One less candidate in the race means more votes for Blake. Masters has been after the Libertarian vote before Victor even dropped out of the race. He has been dog-whistling and pandering to certain Libertarian sensibilities that are still congruent with the new strain of right-wing populism (no one will accuse him of being soft for wanting to “End the Fed”). Even leaning on his ties to the Ron Paul movement back in college. His strategy to capture the voters of a right-wing leaning third-party is a shrewd move on his part; if the polls are accurate, this will be a tight race. Per Five-Thirty-Eight, Mark Kelly currently holds a meager lead over Masters, Kelly polling in at 48.4 % and Masters trailing behind at 46.8%.

Notes:

  1. Victor may have been concerned about the effect of his third-party campaign on the election results, he may only be a superficial Baptist. Why? Per Reason, Victor did receive threats from supporters of his opposition. This fact cannot be dispensed with when evaluating his decision to exit the Arizona senate race.

2. Data source Five-Thirty-Eight. Figure A.

3. Figure B. data was processed in Microsoft Excel.

Figure A

Figure B

Contra-Populism: Part III

Do not let the hollow promises of populist ideology fool you! Populism of the right or left is antithetical to the individual liberty cherished in Classical Liberalism and Libertarian philosophy. For one, populism frames policy in collectivistic terms rather than individualism. Populism tends to advocate for policies that support Positive rights (a right to an economic good, e.g. Social Security) over Negative rights to protect the individual from interference with exercising their rights (free speech). Much of what populists advocate for is the retribution of wealth and market privilege instead of individual freedom. Policies such as Single-Payer Healthcare and tariffs impose costs on all voters. This is because populism holds the interests of the group; without unanimous consent. Sure, by choosing to live within a certain jurisdiction you may be tacitly consenting to the laws. However, the rise in populism has spurred an increased demand for state intervention to provide more economic privileges. The problem is that the preferences of the “average voter” cannot be known, as every voter has their own opinions and preferences (p.20). Ordinary voters are not unitary actor, but many individuals with different political proclivities; populism assumes too much about what is best for all of society (p.16).

It is not just the threat of majoritarian tyranny that makes populism perilous to liberty, but populism also requires conferring more authority to the state. This may seem ironic with all the “drain the swamp” rhetoric of the Trump presidency. Even in applying rudimentary logic, more collectivism requires a more centralized authority to be enforced and implemented. The unified will of the people is not recognizable; it takes the personified form of a “strongman” leader embodying the general will (p.20). They generally shift towards autocratic regimes (p.20) since implementing and justifying factually flawed and illiberal policies necessitates large sums of political authority. Beyond the threats of authoritarianism, the elites still benefit from waves of populism. The elites can hide behind the fluid nature of populism and allow majoritarian sentiment to shape crony policies that benefit narrow interests (p.171-172). For example, the supervillain of retail Walmart’s (not the author’s opinion, but a commonly held belief)CEO publicly stated the minimum wage was too low. Raising the minimum wage has been a longstanding talking point of the populist left. In true Bootlegger and Baptist (1983) fashion, Walmart stands to gain. Why? Because a higher minimum wage means more automation and fewer salaries. The bonus is that not only will the firm gain monetary from saving money while maintaining the veneer of having concern for those in the lower income brackets. 

Bootleggers & Baptist- LIX: California Fast-Food Bill (Did Someone Say Automation?).

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The advocates of worker rights have always been in a precarious position; reforms often do not align with the interests of employers. This is an enduring pattern that supporters of California Assembly Bill 275 need to consider. Most initiatives for economic equality tend to be more moralistic than practical and do not account for how firms will respond to such measures. Depending on how establishments defined in the bill as Fast-Food Restaurants (only the larger companies with 100 + stores) adjust to the requirements set by AB 275.

The law aims to establish a governor-appointed council (comprised of workers, union representatives, etc.) that reviews and amends workplace standards and wages. Even boasting a requirement where any measures would need signatures from 10,000  (consent of the governed?) fast food workers employed in California to move forward. On the surface, this new bill sounds like it will provide reforms that will improve the lives of millions of workers struggling to make ends meet on a low salary. However, the lofty aspirations of AB 275 may have the exact opposite effect.

When analyzed from the framework of Bruce Yandle’s Bootleggers & Baptists (1983) theory of coalitions, it is easy to see the fast-food workers as the proverbial Bootleggers. But such an assumption is flat-out erroneous; the hourly employees at the local Jack In The Box are the ones who will pay the price for this new labor reform.

Prima Facie, it sounds like the hourly fast-food employees of California make out like bandits. The prospect of escaping penury wages and making $22/hour. Then there is the bonus of having a voice in shaping the regulation that will impact your work life. These benefits will be short-lived; because the titans of the drive-thru will eventually respond to the monetary and transaction costs of fulfilling these new legal mandates. Few (if any) companies in any sector of business can whether a significant increase in labor costs ( there is a potential for labor costs to increase by 60 %). Depending on how large the increase in worker compensation becomes, menu prices stand to increase by 22 %. (p.7). Some may speculate that firms such as Mcdonald’s would benefit from passing along labor costs to the consumers at higher prices; there is a strong likelihood that patrons may just opt for cheaper or higher quality alternatives. There is also an increase in transaction costs because of the additional layers of complexity added to the relations between the management of franchise owners and hourly employees. AB 275 may discourage smaller regional fast-casual restaurants from expanding to avoid the onerous conditions of this new law.

Ultimately, our Bootleggers, the established fast-food eateries will gain from decreased labor costs. How? These firms will decide to automate operations and benefit from long terms savings in not having to pay salaries and benefits or cope with the loss in productivity from theft or employee absence. Only increasing the minimum wage is enough to drive many firms to reduce costs. Creating a price floor is a price control that causes disruption throughout the market. Because businesses will attempt to avoid the artificial increase in labor costs. For the workers that are lucky enough to keep their jobs, certain nonmonetary forms of compensation disappear (p.10-11); no more free coffee in the breakroom.

Bootleggers & Baptists-LVIII: The War on Whipped Cream Dispensers

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Efforts to shield the public from the negative externalities and pharmacological effects of drugs have been unavailing. One example of this has been the dismal failure of the decades-long War on Drugs spearheaded by President Nixon. Most of these fruitless measures go up in smoke since they attempt to suppress human nature; we like to feel pleasure ( hence why neurotransmitter receptors exist) and the desire for money. As long as both characteristics remain true, the drug war will never prevail.

The languishing policies pushing for a “drug-free” America are not limited to the federal level of government.  60 % of all states prohibit recreational Marijuana sales. Despite that, Cannabis is believed to impose fewer social costs than hard drugs. Considering the powers conferred to the states under the Tenth Amendment, there is still plenty of room for lower levels governments to enact ineffectual drug laws [1].

One recent example of this was Legislation (S.2819-A) a bill sponsored by New York Senator; Joseph Addabbo, Jr. S.2819-A, requiring an individual purchasing a “whipped cream charger” to be 21 years old. The restricted device depicted in the laws as being “.. steel cylinder or 5 cartridges filled with nitrous oxide (N2O) that is used as a whipping 6 agent in a whipped cream dispenser…”. However, there are several issues with this legislation. First (minor issue), the bill lacked clarity. Several stores and NY-based news outlets stoked public confusion by declaring that these age requirements applied to cans of aerosolized whipped cream ( e.g. Reddi Wip). From the perspective of the Bootleggers and Baptists (1983) model of coalitions, makers of non-aerosolized whipped cream (Cool Whip)may have temporarily made out like bandits. However, once this misinterpretation of the law is cleared up, these temporary and meager gains will fizzle out. The Kraft Foods corporation is far from being the biggest beneficiary of this new law, especially considering how whatever the organization gained was negligible.

The true Bootlegger in this scenario would be Addabbo himself. This law will have a minuscule impact on public health and safety, but by being the lead advocate, the senator fosters a positive public image. The fact that S.2819-A will be virtually ineffectual is the most notable shortcoming of this law. Inhalant abuse only comprises a small percentage of all drug use in the United States. It was exceedingly difficult to find specific data on inhalant abuse in the state of New York, but we can always extrapolate from national data. This would only be untenable if New York (specifically Queens) had an outrageous epidemic of young people huffing nitrous oxide.

Here are some numbers:

  • 0.9% of Americans 12+ years old have reported abusing inhalants in the past year.
  • Only 4.8 % of eighth graders, 2.0 % of tenth graders, and 1.8% of twelfth graders reported using inhalants in the past year.
  • In 2015,  97.3 % of teenagers (ages 12-17) did not use volatile vapors/industrial chemicals or other solvents to get intoxicated.
  • 1.8 % of individuals who reported having a major depressive episode in 2022; admitted to using inhalants (12 + years old).

Unless an overwhelming number of young Americans abusing inhalants happen to be residing in Addabbo’s district, it is difficult to see why there is such an exigent need to remedy the issue of youth inhalant use. If anything, he merely reached for the low-hanging fruit; regulating a legal product is far easier than mustering the resources to combat a thriving black market. He avoids jumping through the hoops of justifying the expenditures for drug-related taskforce and all the associated red tape. Simply, slap a fine on the vendors who do not comply. For Addabbo to grapple with the opioid crisis that most likely impacts his district would require more tax dollars and coordination with multiple levels of government and agencies (after all the heroin and fentanyl supply chain is international). The kind senator gets to sidestep all this mess and still look like a hero.

Footnotes:

  1. This statement is not a critique of Federalism but a pointed observation of flawed policies implemented by individual state governments.

Bootleggers & Baptists: LVII: The Downfall of Georgetown Cupcakes (Damn Health Inspector)

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Many believe that food saf­­­ety measures are necessary for promoting public health. We do not consider these desiderata as conferring a benefit to competing eateries. The renowned Washington D.C. bakery Georgetown Cupcake was shut down due to several health code violations. For a licensing issue, mouse dropping, and mold on consumable items. It is easy to become disgusted by these findings; there are several questions we need to answer. Outside of the cost of internalizing the externalities of a food-borne illness outbreak; (estimated at a scale of “…$4,000 for a single outbreak in which 5 people..” and 1.9 million for a single outbreak in which 250 per person). Even if no patrons become ill after consuming baked goods from Georgetown Cupcake, they still stand to lose business from the bad publicity alone.

While most people wallow in the grotesque of such hygienic incompetency of this bakery, it is easy to lose sight of the covert beneficiaries of their misfortune. One man’s loss is another’s gain. Per Superpages, there are at least thirty bakeries of the high esteem in the Georgetown section of Washington D.C. At a minimum, there at least thirty Bootleggers stand to gain from the bakery’s momentary lapse in cleanliness. It would be rational to apply Bruce Yandle’s framework of Bootleggers and Baptist (1983) coalitions to this situation. While the Washington D.C. metro health inspectors emerge as the white knights shielding the public from deleterious dining options, their published findings effectively divert business to other food vendors. Who wants to eat at a restaurant where there are rat feces everywhere? Many of the giddy Bootleggers may not be as squeaky clean as they seem. Since budgets for health inspections have decreased most restaurants are only inspected annually. There is a correlation between the number of health evaluations and instances of outbreaks of food poisoning originating in restaurants. Georgetown Cupcakes may have gotten the short end of the stick this time; next time, one of their callous competitors may pay the price.

Bootleggers & Baptists- LV-Gun Control

***Special thanks to Dylan, proprietor of the Onlookers blog! He pointed out a few typos and the necessary edits have been made.

Check out his blog (Click Here).

Few issues in the current political scene are as divisive as the Second Amendment; as articulated in the SCOTUS case District of Columbia v. Heller (2008), an individual right. Anytime a mass shooting occurs or restrictions are purposed, gun rights advocates tend to double down. After all, regulating firearms is a prisoner’s dilemma in which neither side of the aisle is interested in making any concessions. Prima facie, it does seem that guns have become increasingly regulated over the years. Potentially vindicating the slippery slope logic expressed by Second Amendment proponents. The fear of prohibitively strict gun regulations or outright bans weighs on the minds of gun owners. A point substantiated by the fact that 59 % of polled gun owners indicated that gun control advocates desire to outlaw private ownership of firearms. Many gun enthusiasts view this right as sacrosanct and a vital component of living in a free society.

Number of Mass Shootings in the United States 1982-2022. Courtesy of Statista.

How do the reactionary sentiments of slow and grinding decline to an outright gun grab correlate with patterns in gun sales? There does seem to be a connection between precipitating events and increases in transactions related to procuring firearms (including background checks). Analogous to how macroeconomic events impact trading on the stock market, the prospect of regulation after events such as mass shootings results in abnormally high gun sales. For example, gun sales in California soared by 168 % between 1996-2015. 50 % of all mass shootings within the past 50 years transpired after 2000.  20 % of the mass shootings in this timeframe occurred within the past five years.

Gun control proposals; are often formulated in the wake of a mass shooting; there does seem to be at least a superficial correlation between mass shootings, gun control proposals, and gun sales. But, are politicians and political activists concerned with decreasing the number of guns in the hands of the citizenry shooting themselves in the foot? It is inherently human for people to purchase large quantities of a commodity facing a ban. A clear example of this was before JFK enacted the Cuban Trade Embargo; he stocked up on his favorite brand of Cuban cigars. It isn’t outlandish to believe that gun owners would seek to stock up on accessories, ammunition, and firearms after a mass killing or the announcement of gun control legislation. In effect, this would encourage people to obtain more guns. Rendering the bluster of tough-on-guns rhetoric to being counterproductive. Unwittingly, when politicians like Beto O’Rourke are telling us that he is coming after our AR-15s he’s saying “.. Everyone run to the gun shop now!..”. O’Rourke is blinded by political gamesmanship; he overlooks that his firebrand comments have only created a cobra effect; people panic and buy more guns.

If progressive politicians are inadvertently increasing the number of guns owned by the American public, who benefits from gun-grab-mania? Gun store owners. In applying the logic of Bruce Yandle’s Bootleggers and Baptists (1983) model, it becomes clear that gun control advocates are indirectly helping the proprietors of gun stores. By sending all of their patrons into a frenzy, the moral arguments of the anti-gun crowd end up drumming up more business for gun vendors. While neither party is intentionally working together and does not even share the same goals, they have a synergistic relationship. Beto is waving the flag of the gun shops without even knowing it.

Bootleggers & Baptists: LIV- Going Cashless

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In an age of digital banking, physical cash has become a cumbersome relic of a bygone era in the eyes of most Americans. It is easy to assume that we would all be better off in a cashless society, taking the lead of nations such as Sweden. The belief is that we would be better off in a digital monetary regime that would facilitate tax collection and tracking of criminal activity (p.2). Only demonstrating the tensions between law enforcement interests and the Fourth Amendment rights regarding financial crimes (p.3). Does the question become who benefits from the United States eliminating the use of money? It should be abundantly clear that it is axiomatically true that every policy selects winners and losers. The decision to abolish physical cash transactions is no different.

In the fashion of Bruce Yandle’s Bootleggers and Baptists (1983) theory of political coalitions, for every policy prescription; there is a moralizing agent and a beneficiary. In his 2018 paper, Norbert J. Michel, Special Interest Politics Could Save Cash or Kill It, details the parties that stand to benefit from the relinquishment of cash transactions. Some of the most conspicuous parties that prosper from a cashless society would be law enforcement, with a digital record of every economic transaction, it is hard to obscure illicit conduct. There are parities in the private sector that would find the move to electronic transactions advantageous. The credit card companies are likely one of the most salient groups of Bootleggers of anti-cash policies. The CEO of Mastercard has been a vocal exponent of getting rid of cash; it was even the first company to openly lobby on “… the behalf of bitcoin..” (p. 8). Any move towards digital payments over tangible currency would fatten the pockets of creditors. All credit card transactions are digital; it is not that farfetched to suspect that individuals who use cash would be more apt to use their Mastercard.

Other than law enforcement officials, who are the holy rollers of killing the dollar? One needs to look no further than the late Arizona senator John McCain, as he was an advocate of the COINS Act. This was a measure that was purposed to suspend production of the penny for approximately a decade. McCain defended this policy because it cost more than the actual monetary value of a penny to produce the coin. Very few American consumers would miss the penny; only twenty-six percent of transactions in 2018 patrons used pennies. Why would anyone miss a burdensome form of currency that cost more than what was worth to produce? It is important to note that McCain’s COINS bill did not dispense with copper coinage.

“ In addition, the bill provides for: (1) modifications to the composition of the five-cent coin; and (2) the replacement, in circulation, of $1 notes with $1 coins.”

The legislation would merely shift production towards the presumably more lucrative seigniorage of dollar coins. It would be naïve to not consider the local business interests in McCain’s home state of Arizona. Arizona has long held the reputation as a top copper producer and is the second-highest producer of natural minerals of any of the states. For a state that constitutes seventy percent of all cooper output, the COINS Act provides these firms with concentrated benefits. The COINS Act and the Arizona cooper industry are even Bootlegger and Baptists dynamic outside of the cashless society debate.

Bootleggers & Baptists-LIII: Condom Prohibition???

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Arizona senate candidate Blake Masters is signaling that he wants to double down on the rhetoric of the draft of the Dobbs decision. Per Business Insider, stated that Masters does not want to ban contraceptives outright; but believes that Griswold v. Connecticut was flawed. His response to the publication lacks any substantive explanation. He will have plenty of time on the campaign trail to elucidate his position on Griswold. When I first heard about Masters’ position, it was framed as a “condom ban”. The words of a politician tend to be hollow, but only time will tell if his policy scope will veer into prohibiting contraceptives. As we all know, like dishonesty, political figures also have a penchant for engaging in policy mission creep.

If we were to apply the Bootleggers and Baptists (1983) lens to Masters stance on Griswold, the question arises, who benefits? Masters is a Baptist for advancing the normative objective of supporting a Pro-life platform. Arguably, this hard-right political candidate is also Bootlegger for pandering to the highly religious populous right. It is entirely possible that he has gone too socially conservative.

The undisputable Bootleggers are Democratic candidates in Arizona. Why? Independent voters and moderate Republicans might be turned-off by Masters’ social policies. Especially, considering the vagueness of his explanation for wanting Griswold overturned lends itself to misinterpretation. Leading many to assume that his position is equal to a contraceptive ban. Condom bans in the works? Not 100% sure at this point, but it seems like many people are jumping the gun. In the meantime, it will make for some great political theater. For those in Texas, never fear; Ted Cruz has vigorously defended the use of prophylactics; needless to say, 2022 will make for an intriguing midterm cycle.

Bootleggers & Baptists: LII- Pro-Gun and Pro-Roe Actvists Form a Coalition

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The Dobbs draft leak has seemingly added more fuel to the abortion debate over the past week. The real point of contention stilting the embers of the current renaissance in the commentary on Roe v. Wade was the passage of the Texas Heartbeat Bill (Senate Bill 8) last year. The state legislature passed a law that would effectively operate as an informal ban that skirts judicial review; since enforcement was being handled through the deputization of private citizens. Senate Bill 8 is a spectacle of legislative ingenuity; even knowledgeable detractors must admit this point. The design of the Bill is particularly pernicious and could be manipulated for partisan retaliation. For example, last year, California Governor Gavin Newsom talked of engineering his variant of SB 8 tailored to target ghost guns and semi-automatic rifles. The only thing gun owners have going for them in defense against such an action is that the Second Amendment is an enumerated right, meaning they do not need to only rely on stare decisis.

An unlikely coalition formed in 2021 to combat the passage of Senate Bill 8. The kind of coincidental political union that only further justifies the utility of Bruce Yandle’s concept of Bootlegger and Baptist (1983) coalitions. The California-based Firearms Policy Coalition joined the Texas pro-choice faction to oppose the legislation. Even going so far as to author an amicus brief critical of SB 8. Per Statista, of the Republicans, polled 50% owned a gun; 61% lived with a gun owner. Odds are, members of the Firearms Policy Coalitions are right-wingers that would not typically work with the pro-Roe camp. The flawed structure, logic, and versatility of SB 8 could put gun rights in jeopardy. Who would be the Bootleggers and the Baptists in this scenario? Anytime there is a collaboration between different stripes of political activists, these roles are interchangeable depending on the observer’s ideological proclivities. A more even assessment would be that both merging factions are Dual Role Actors (2020). As the pro-gun and the pro-Roe camps, both are defending moral arguments but simultaneously benefit from achieving their own separate policy goals.

Bootleggers & Baptists- LI: The U.S. Ban on TV Cigarette Ads

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The enduring brilliance of Bruce Yandle’s concept of Bootlegger and Baptists (1983) coalition dynamics cannot be overstated. Often the policies supported by the “Baptists” end up benefiting various interest groups. The nature of this self-propelled relationship is steeped in irony. Superficially, many of the proposed initiatives would be detrimental to the interests of the “Bootleggers”, but frequently have consequences contrary to the aims of the morally motived activists. Carelessly crafted remedies to social ills can result in gapping loopholes or anti-competitive advantages to established firms producing goods that are injurious to public wellbeing.

An excellent example of this phenomenon was the FTC’s 1971 ban on televised cigarette commercials. This example seems to be timely considering the finalization of President Biden’s national prohibition on mentholated cigarettes. The impact of the 1971 advertising restrictions is detailed in Baptists, Bootleggers & Electronic Cigarettes (2016):

“….The tobacco industry was not as enamored with these regulatory initiatives as were some health-oriented groups. Congress reacted to such concerns with new legislation that weakened the FTC’s proposed label language while banning TV advertising starting in 1971.53 Far from a loss for the industry, this legislation erected a substantial entry barrier for potential competitors 54 The established brands enjoyed widespread name recognition, and new entrants would be unable to use television to establish their brands. 55 The elimination of television ads for cigarettes also brought an end to the offsetting public interest messages that attacked tobacco products and reduced cigarette company advertising costs. 56 The tobacco Bootleggers gained ground, and innovation took the back seat in what began to look like a comfortable cartel. Meanwhile, the health-care Baptists may have unwittingly cheered the new strictures that seemed to penalize bad Bootlegger behavior but actually protected their profits…” (p.325-326).

Based on the prima facie impressions of most people, it is easy to assume that the limitations on advertising would harm the tobacco industry; to a certain extent, it did. Cigarette consumption did decrease in the period after advertisements; were pulled from the airwaves. However, the magnitude of the impact is difficult to measure as other factors can also account for the lower smoking rates in the United States. This policy truly harmed the up-and-coming cigarette companies more so than the titans of the American tobacco market. Why would Marlboro need to advertise its products? The brand already had significant brand recognition by the early 1970s. Companies like Philip Morris and RJ Reynolds could comfortably rest on their laurels while the newcomers could flounder in their attempts to gain a little piece of the market share. Effectively, this ban significantly increased market concentration among the established firms.

Bootleggers and Baptist:L- Addendum: The Axiom of Monetary and Bank Regulation; The Fed Always Wins.

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The enduring axiom of fintech and digital asset regulations and taxes; barriers to entry benefit the legacy banking system. Because legal restrictions and taxes reduce incentives to participate in the financial services markets. There may be other parties that benefit from placing limitations on cryptocurrencies. Ultimately, the banking establishment enjoys diminution in competition. Many factions within the pro-regulation coalition, advocate for the regulation of cryptocurrencies and fintech services, often under the veil of consumer protection. For example, Elizabeth Warren likened Bitcoin to the 2008 Housing Bubble. Whether Warren stands to gain or not from regulating cryptocurrencies is immaterial; such behavior is merely doing all the dirty work for the Federal Reserve and the large banks with Fed fund accounts. That is to help mold public opinion to be receptive to crypto regulation. Ironically, she is unwittingly aiding and abetting the same banking system she purportedly to wants to reform. Most consumer protection measures pick winners and losers. Regulating crypto arguably picks the wrong set of winners that would not stand a chance of victory in the face of natural market pressures.

Bootleggers and Baptist:L- CBDC

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One of the hot topics in global discourse aside from the Ukraine conflict is research into CBDC (Central Bank Digital Currency). Several countries are researching deploying a CBDC and some have even implemented trial run experiments with centralized digital monies. Back in January, the US Federal Reserve published its CBDC white paper Money and Payments: The U.S. Dollar in the Age of Digital Transformation (2022). Hypothetically, if initiated, the Fed would distribute retail CBDC through private intermediaries (primary dealers). Per George Selgin: “Those private intermediaries would then be responsible for managing customers’ central bank digital currency (CBDC) holdings and payments…”. Allowing the Fed to avoid managing the front-end customer service concerns (something government entities typically handle very poorly) and reallocate this function to private firms.

Baptists:

The overall rhetoric surrounding CBDC has been cautiously optimistic. Especially, when squared against the comparisons made between CBDCs and stablecoins. Federal Reserve Chair, Jerome Powell, has backtracked on his anti-stablecoin stance. Presumably, he still is championing a central bank currency over. Despite the institutional tensions between stablecoins and CBDC, the Fed; could be considered a Dual-Role Actor in the Bootleggers and Baptists (1983); if it is not categorically correct to deem them Baptists. There is a strong possibility that the Federal Reserve and all affiliated employees stand to gain from curbing the success of privately issued digital currencies but also sincerely believe in the virtues of the United States issuing its own. There are several arguments in favor of a government-backed digital currency supported by Fed economists and academics alike. For example, it would make assessing taxes on purchases made with digital currencies easier to determine (p.156). Also, many experts claim that a CBDC would achieve price stability, an attractive feature when you consider the historical volatility of various well-established private cryptocurrencies. It would be easier to combat money laundering and financing for terrorist activities(p.11). Probably one of the more laudable arguments for a CBDC is the argument of financial inclusion for the unbanked (p.157). All of these claims have a moralistic tone, making the Fed and CBDC friendly economists potential Baptists.

Bootleggers:

Labeling Fed officials as the Bootleggers is analogous to shooting-fish-in-a-barrel and makes for linear analysis. Plus, yes, the United States central bank and all of its economists have much to gain through promoting a CBDC; however, it is not entirely evident that they are disinterested in the moral arguments for protecting the public from the purported dangers of a private digital currency and the cause of financial inclusion. But there is a group of beneficiaries that are much less obvious to the superficial observer; hackers. A CBDC would be highly centralized, making it more likely that there could be a single point of failure in a security breach (p.17). Even though the public and permissionless blockchains are only quasi-anonymous on distributed ledgers of cryptocurrencies such as Bitcoin, they are trusted, specifically for these validation channels in the consensus protocol are decentralized. In contrast, a CBDC would need to comply with KYC and AML requirements making it necessary to “…store personal data..” on specific nodes; “… highly likely to be exposed to a single point of failure, which can result in the indirect leakage of personal data..” (p.18). Due to the legal provisions outlined in financial monitoring laws, turns CBDCs into an aggregated database for financial and personal information if improperly designed.

Bootleggers and Baptists: XLIX- Keynesianism, Stimulus, and Political Manipulation

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Frequently in economics, the views of a specific theorist are exploited for the interests of various political factions. The most salient examples are economic theorists are labeled as “free market” economists. Conservatives generally celebrate Adam Smith as a defender of unfettered commerce but conveniently ignore his concern for the blight of the poor. Smith was too multidimensional to be distilled to a simplistic bumper sticker slogan. The great F.A, Hayek suffered from a similar syndrome as many Conservative and Libertarian pundits disregard the nuances of his work and paint him as radical. However, there are also instances of the intellectual advances of various theorists being embellished by their opponents for partisan purposes. For example, the moderate and subtle rationalizations of James M. Buchanan are characterized as extreme libertarianism. Nancy Maclean is unacquainted[1] with the work of Murray Rothbard!

The inaccurate framing of economic theory for political interests is not limited to right-of-center economists. Many left-wingers exaggerate the beliefs and postulations of their favored economists, the most conspicuous example being the abuse of John Maynard Keynes [2]. Yes, in the eyes of most Conservatives and Libertarians, Keynes had a flawed perception of market processes. Although, he was not communist. Keynes still had some semblance of a pragmatic filter, which placed constraints on his sanguine view of consumption. Keynes did believe that after the end of an economic downturn, deficits should be eliminated. Therefore, Keynes did not advocate for a policy of perpetual deficit spending, most likely would take issue with the massive debts amassed by the United States over the past couple of decades.

It wouldn’t be outlandish to examine the embellishment of Keynesian economics for political gain from the precepts of Bruce Yandle’s Bootleggers and Baptists (1983) coalition paradigm. A political relationship between various factions of policy advocates where some supports sincerely believe in the normative intention of the policy (the Baptists). In contrast, the tacit beneficiaries (the Bootleggers) merely ride the coattails of the moralistic advocates (either silently or vocally alongside the Baptists). The support for various stimulus policies would have its share of Bootleggers and Baptists to defend “stimulus spending”. The most recent examples are the Obama-era stimulus programs (American Recovery and Reinvestment Act of 2009) and multiple rounds of COVID stimulus allocations. Often, Keynesianism is justified when it becomes politically suitable to do so. The most recent examples of economic stimulus initiatives exemplify this point quite well. This observation becomes more striking when you consider that the convergence of our monetary and fiscal policy has amounted to a hand-selected bastard-breed mutation [3] of Keynesian economics and Monetarism. The conception of this flawed system is being spurred by policymakers trying to select the most politically advantageous characteristics of both economic philosophies.

We could consider the founder of Keynesian economics the Baptist of stimulus spending policies. As Keynes envisioned stimulus spending as being a temporary remedy amid an economic downturn. Despite his good intentions, Keynes failed to recognize the political incentives to politicians, bureaucrats, technocrats, activists, and even ordinary voters; factors that only serve to reinforce one of Milton Friedman’s most enduring dictums “There is nothing more permanent than a government program”. While stimulus initiatives come and go, policymakers still keep implementing them as a remedy to soothe economic turmoil. Stimulus policies were adopted with little regard for the implied discipline advocated for by Keynes. After all, he was still an economist and was not ignorant of the discipline’s conceptual pillars. Stimulus spending is an unsound policy, but he never intended for it to be at the regular disposal of politicians and lawmakers. Dating back to the observations of Niccolò Machiavelli, politics is a game of perception, not one of technical proficiency. Conversely, economics is ideally a positive social science unconcerned with popular opinion.

Moral values always enter the equation whenever we enter the realm of actual decision-making, even in economic decision-making. Unfortunately, the line between economic science and public perception is often blurred, especially by the adroit manipulation of politically savvy elected officials, activists, lawmakers, and activists. Promising ever-larger transfer of “free” goods and services to the voting public. Applying the principles of concentrated benefits and dispersed costs, voters believe they have made out like bandits. Thereby, forming a mutually beneficial feedback loop of voters believing they have won and political actors presented in a positive light; as being defenders of the common man. Elected officials portrayed as advocates for the “little guy” helps establish social currency with the voting public. Social currency dovetails nicely with a politician’s incentive to remain in their position of political power.

Foot Notes:

  1. Maclean is aware of Rothbard’s work to a superficial extent, but if she sincerely understood his work, she would not be portraying Buchanan as a radical.
  2. The author is not an exponent of Keynesian economics.
  3. Despite the intense debate between Keynesians and Monetarists, both have their commonalities.

Bootleggers & Baptists: XLVIII-Change Rounding Donations

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Frequently brick-and-mortar asks if patrons would like to round up the change on their purchase to a dollar and donate it to various charities and humanitarian initiatives. Organizations dedicated to cancer research are a perennial favorite of retailers Currently, the money is going to organizations providing humanitarian relief to Ukraine. It is easy for the casual observer to perceive this as an altruistic gesture. When we examine this example of charity a little more closely, it becomes apparent that the firm requesting patrons to donate pocket change to the human effort does indeed benefit from the transaction. It is reasonable to analyze this scenario from the lens of the Bootleggers and Baptist (1983) framework. The executive management of the company may very much agree with the prospect of helping raise money to assist Ukraine, this moralistic concern makes them a Baptist. Concurrently, the corporation also stands to gain from this method of funding raising. The most salient benefit is fostering the image of a socially conscious business. An attribute that carries weight in an era where ESG criterion is rapidly becoming an expectation among investors and consumers. The second way the firm will benefit is that it gets the recognition of being socially conscious with little to no out-of-pocket expense. They aren’t digging into their coffers to allocate revenue for donations; the firm is requesting their customers do so, which takes some audacity!

Bootleggers & Baptists-XLVI- Chinese Humanitarian Aid to Ukraine

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China has become a focal point in public discourse in recent years. In the years of the Trump administration, tensions escalated (during the tariff wars), as president forty-five took China to task for economic policies that undermined American interests. Internationally, China has garnered negative press for a laundry list of human rights violations, one particularly egregious example being the genocidal policies targeting the Chinese Uyghur. On the world stage, China’s reputation, sullied by ghastly optics. What can the manufacturing giant and Asian Tiger do about the mounting number of public relations quagmires?

Despite the superficial impression of a Sino-Russian alliance; officials in Beijing refuted that the nations were allies in the wake of Putin invading Ukraine. China even opts to provide humanitarian aid to Ukraine; it would be spurious to claim that this diplomatic gesture is purely altruistic reasons. When Chinese Foreign Minister Wang YI repudiates prior claims of a broken alliance by stating that Sino-Russian relations were “rock solid”. What variety of four-dimensional chess are Chinese officials attempting to play regarding the Ukraine situation? Certainly, some form of non-monetary rent-seeking on the part of China. It is reasonable to examine whether Bootleggers and Baptists (1983) coalition dynamics are applicable.

The prospect of China concurrently acting as a moralizing agent and a beneficiary (Dual-Role Actor) is mildly tenable but unlikely. It is more probable that China does not have any genuine compassion for the Ukrainian people and sees them as a strategic pawn for fostering a positive public image. If this is the case, China would not be a Dual-Role Actor, but a Covert Baptist (p.190). The nation acts in a moral capacity purely for its own ends. Potentially, doing so to smooth over the bad press engendered by their extensive list of human rights violations. This possibility seems unlikely. For years the international perception has carried much weight with Chinese officials. It is more likely that China is attempting to distance itself from Russia for the sake of self-preservation. China is trying to navigate the murky waters of retaining its diplomatic relationship with Russia without being placed in the cross-hairs. This is a precarious position to be in, especially when your prominent trading partners are the western nations placing sanctions against one of your strategic allies.

Bootleggers & Baptists: XLV- Baptists, Economists, Careers, & QE

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What is Quantitative Easing?

Quantitative easing (QE) is the controversial and unconventional monetary policy tool first introduced in the United States in 2008 [1]; as a countermeasure to the Great Recession. The practice of Quantitative easing (QE) is where a central bank purchases long-term government securities, corporate bonds, mortgage-backed securities, and other assets from banking institutions with newly created money. The ultimate goal is to boost the money supply encouraging lending in a sluggish economy by lowering interest rates. The Federal Reserve’s strategies for managing interest rates are divided into pre and post-financial crisis eras. Before 2008 how the Federal Reserve maintained interest rates were different (operating under a corridor system). Per the New York Federal Reserve:

Before October 2008, the Federal Open Market Committee (FOMC) communicated the stance of monetary policy by announcing a target for the federal funds rate. The Fed would then use open market operations to make small adjustments to the supply of reserves so that the effective federal funds rate (EFFR) would print close to the target set by the FOMC. This type of implementation regime that relies on reserve scarcity is often referred to as a corridor system (as explained in this article). Under this framework, depository institutions, or banks, were incentivized to hold as few reserves as possible since they did not earn interest on their Fed account balances. Reserve balances that banks held in their Fed accounts added up to a very small amount, as can be seen in the next chart. The banking system operated with aggregate reserve scarcity and relied on the redistribution of reserves in an active interbank market.

Amid a phase of quantitative easing, the Federal Reserve injects massive quantities of money into the economy through large-scale asset purchases on the open market, increasing the risk of interest rates becoming too low. In the post-crisis, the Fed has opted to implement a Floor System, where the central bank pays interest on excess reserves (IOER) for funds held by member banks at the Feder Reserve beyond the mandate reserve requirements. Procedurally assists with stabilizing the interest rate (Fed funds rate) even when the Fed pumps vast amounts of liquidity into the economy. The excess money held by Fed-associated financial institutions acts like an interest rate floor; through paying on IOERs the opportunity cost of holding money is eliminated. Effectively, maintaining the target interest rate. The Fed’s convoluted attempt to skirt the Law of Supply and Demand, the Federal Reserve, nothing more than an attempt to have its cake-and-it-too (avoiding a liquidity trap and concurrently stimulating the loans market).

The Baptists and Economists of QE:

The monetary establishment expresses that QE is a necessary and effective policy instrument. The promoting of this interventionist policy has created fertile ground for Bootlegger and Baptists (1983) coalition dynamics. Much of this pro-QE sentiment is perpetuated by the research of Federal Reserve economists. It is hard to pinpoint clear Baptists in the pro-QE coalition, several parties that benefit from defending the practice.

In some instances, politicians who champion QE could be viewed as Baptists, arguing for it as means of stabilizing the economy. However, politicians stand to benefit from the unorthodox monetary policy in the form of Fiscal QE (coined by George Selgin), directing the money created through QE to non-macro-economic objectives (e.g. funding the Green New Deal through QE). There is the potential of politicians assuming the role of “pure” Bootleggers and Dual Role Actors. But while QE could be used to “achieve” macro stability (full employment, etc.) and other extraneous policy goals, it operates as a double-edged sword. It is important to note that the inflation rate is a metric that matters to the voting public. Inflation has become a focal point in political discourse and is politicized (p.129-163[2]. The next logical possibility for  Baptists would-be journalists. However their position on QE is “mixed”. Some outlets like to diagram the pros and cons, others are outright hostile, and some echo the positive sentiments acting as a mouthpiece for the Fed.

There is one faction in the QE advocacy coalition that unquestionably fits the definition of Bootleggers, the economists employed by the Federal Reserve. In the book Money and the Rule of Law (2021) Boettke, Salter, and Smith detail the numerous incentive problems facing Federal Reserve officials armed with “constrained digression” (CH 3; p.58-94). Pollical pressures asides; there are other reasons why favoring QE would be appealing (p.67-70), but also substantial internal pressures as well. The authors expound upon the impact of “bureaucratic inertia” on the central banks; like any other center of governance, there is a bias towards maintaining the status quo (p.64). After approximately fourteen years and four rounds of QE, the policy has become normalized. Initially, QE was an aberration in American monetary policy [3]. Favoring QE in 2022 is an example of institutional inertia, but not during QE1 (2008).

However, the obtuse and obstinate inflexibility of the sluggish nature of the Fed is far from the most troubling rationale for unwaveringly defending QE. That would manifest itself in the form of promotion opportunities. We need to consider that the Federal Reserve is one of the largest employers of economists in the United States (p.64), urging researchers to conform to internal norms of the Fed. (p.65). One paper that beautifully describes the incentives of the career concerns of Federal Reserve economists was Fifty Shades of QE: Comparing Findings of Central Bankers and Academics (2020; revised 2021). In their NBER paper, Fabo, Oková, Kempf, & Pástor found that central bankers are more likely to describe QE in sanguine terms in their research when compared to unaffiliated academics (p.15). Fabo et al. found that there was some evidence that:

“…One possible mechanism is career concerns. In principle, bank management could make promotion decisions in a way that encourages bank employees to assess the bank’s policies favorably… (p.18).

“… We find that the interaction between the effect on output and Seniority is positive and significant. A one standard deviation increase in Seniority raises the sensitivity of career outcomes to the estimated effect on output by about 50%… (p.21).

“..These could involve concerns about the bank’s reputation and, for very senior researchers, concerns about their reputation. Like career concerns, reputation concerns reflect researchers’ incentives because in both cases, a researcher derives a private benefit from reaching a particular research outcome. We have no evidence on the potential contribution of reputation concerns to our results…” (p.25).

We must not interpret this correlation between the promotion of senior economists and research validating the “positive” effects of QE as these actors intentionally manipulate the results. In the absence of sufficient evidence; making such an assessment is made in bad faith, but there is most likely a third variable connecting these outcomes. For example, Fabo et al. describe the potential of economics who end up working for the Fed having priors that make them more apt to favor interventionist monetary policy (p.4 & 25). They even explore the possibility of researchers inadvertently selecting modeling techniques that would make QE appear to be more effective (p.2 & 17).

Footnotes:

  1. The initial introduction of quantitative easing in the US in 2008 was dubbed QE1. In March 2020, the US Federal Reserve initiated its fourth round of QE (QE4).
  2. In Boom-and-Bust Banking (2012) (ed. David Beckworth), Scott Sumner argues for adjusting monetary policy to  NGDP targeting versus inflation targeting. A stance also advocated by David Beckworth. Sumner explains how inflation targeting is more politically appealing than a Nominal GDP target. After all, inflation is very salient, especially if you are old enough to remember stagflation. Side note, the author of this blog post was born in the late-1980s but is an avid fan of economic history.
  3. The policy of Quantitative easing developed in Japan in the early-2000’s and was subsequently implemented in the United States nearly a decade later.

Bootleggers & Baptists: XLIV- Russian Vodka Boycotts

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Protests often tend to be more figurative forms of political expression than effectual forms of collective action. The process of organizing a demonstration incurs a myriad of monetary and nonmonetary costs including, but not limited to: costs of communication, coordination, transportation, creation of signs, and other varieties of picketing paraphernalia. The one exception to this rule is boycotting goods. Sure, the costs of communication and finding substitute goods can be high; but on the margin are substantially lower than traveling across the country to participate in a protest. The other economic difference between boycotts and live demonstrations is the ability to measure the direct impact. The influence of live demonstrations on public opinion can easily be conflated with other factors to quantify. In contrast, with boycotts, the effect is easily measured by a company or section of business experiencing a slump in sales. Money frequently outweighs principles, making it a persuasive mechanism for facilitating change. In other words, boycotts would be a more rational and economically superior form of protest.

However, this is not to say that every boycott is rational. Boycotts are often subject to the same fallacies that impact other spheres of political behavior. It is easy to perceive an inefficient or mistargeted boycott as a symbolic message analogous to a demonstration, but it could be a misallocation of time and communication costs, as boycotts can exert their influence more quickly and definitively. The romanticism of protest may capture the more visceral and polemical aspects of political participation but yield no results. Certainly, a cost analysis, overlooked by the droves of wide-eyed and quixotic-minded college-aged activists. All too often, boycotts latch on to the most salient products rather than what would drive an economic agent to behave differently. If a salient luxury product is only a drop-in-the-buck compared to a country’s annual exports. Often boycotts are directed towards commodities that would bear no economic impact, being more of a symbolic gesture. Case and point the absurdity of the Russian Vodka boycott [1].

Vodka must be the most ubiquitous Russian export, but Vodka doesn’t even make the top-five commodities that Russia exports to the United States. Per the Office of the United States Trade Representative, the top Russian imports for the United States included:

“….The top import categories (2-digit HS) in 2019 were: mineral fuels ($13 billion), precious metal and stone (platinum) ($2.2billion), iron and steel ($1.4 billion), fertilizers ($963 million), and inorganic chemicals ($763 million)...”

Socially conscious activists should be calling for a boycott of Russian mineral fuels since it is the largest export to the US. Arguably, validating South Carolina Senator Lindsey Graham’s assertion that to crush Putin, you need to hit their “..oil and gas sector..”. Where does Russian Vodka rank in overall imports into the United States? It doesn’t even account for a sizeable amount of the Vodka consumed in the United States. As of 2017, Russian Vodka only accounted for 1.4% of all Vodka imported into the US. None of the top five vodkas sold in the United States were of Russian origin: Tito’s (produced in the US), Smirnoff (UK, US, Ireland, Italy, Brazil, and Latvia), New Amsterdam (US), Svedka (Sweden), and Absolute (Sweden).

https://www.statista.com/statistics/463960/us-leading-brands-of-vodka-volume-sales/

Even the perennial favorites among the “vodka snobs” are produced outside of Russia: Grey Goose (France, Cognac region), Ketel One (Netherlands), and Belvedere (Poland). Some brands ( Stolichnaya) are being mistaken for being Russian by ill-informed consumers. Overall, a symbolic gesture, the Vodka boycott is a hollow gesture as they are plenty of viable substitutes for Russian vodka. Arguably, Americans weren’t drinking much in the way of Russian Vodka, to begin with. It is safe to say that the financial sanctions placed on Russia be more effective than the feeble effort among the lay public banning Vodka. Mirroring the fallacy of voting; your vote has little probability of influencing election results. Likewise, opting to drink a Grey Goose martini versus a cocktail using a Russian brand will have no sizeable impact on Russia’s economy.

Regardless of the impact of the boycotts, it is still a form of collective political behavior that picks winners and losers. It is ultimately susceptible to the formation of Bootlegger and Baptist (1983) coalitions. After examining the Vodka boycott, the prima facie impression of most observers would be the protesters would be the Baptists, and non-Russian Vodka producers would be the Bootleggers. There is some truth to this interpretation of the boycott, but it does not capture the whole story.

Invariably, there will be Dual-Role Actors lurking within the Baptist faction of the coalition. Political activism has its incentives structure for rational actors hopping on the self-righteous bandwagon. Participants in a protest can forge careers, earn social currency, network, gain more business, earn the right to virtue signal, and even gain a sense of moral superiority. Despite their sincere belief in the moral justification for not economically supporting Russia, they still obtain personal benefits.

Foot Notes:

1. I was planning on writing this blog post on Saturday, February 22; however, due to a busy work schedule and other obligations, I am writing this essay a week later. Damn you, Forbes, you beat me to the punch!

Bootleggers and Baptists: XLIII- Family Dollar, Rodents, Contamination, and Voluntary Recalls

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For a firm, a product recall can be a publicity nightmare. Aside from the loss in revenue and the money spent on corrective measures. A business faces the issue of losing consumer confidence in its products. The recent recall of Family Dollar merchandise due to a rodent infestation in their corporate warehouse in six states is no exception. How does a firm even begin salvaging its sullied public image after such an egregious oversight? Perhaps, their image wasn’t so great, as they were known as a bottom-shelf discount retailer. However, this does not absolve them from taking corrective actions to remedy the situation. Family Dollar has opted to issue a voluntary recall after the FDA issued an alert detailing the squalid conditions of their storage facilities in Alabama, Arkansas, Louisiana, Mississippi, Missouri, and Tennessee.

The superficial observer may perceive this scenario as the least they can do. After all, Family Dollar did risk getting many of their customers sick due to selling contaminated goods. Such an observation fails to acknowledge how the firm stands to benefit from issuing a voluntary recall. At this point, Family Dollar is in the damage control stage of managing this debacle. The firm is seeking to revive its image to mitigate the loss of future business. This scenario has features of a Bootleggers and Baptists (1983) coalition. One side of the faction; provides the normative or moralistic argument for a specific policy position or course of action. The other subset goes along with the moral policy as they would benefit from such a policy position. 

The question becomes, the event of Family Dollar’s voluntary recall, who are the Bootleggers and the Baptists? The Baptists are most likely the FDA[1]. In this scenario, the FDA provides the consumer advisory; and inspection of Family Dollar’s warehouses, done in the name of consumer safety. Even though such measures do validate the salaries of the FDA inspectors (remember Richard B. McKenzie’s concept of “joblism”), this action is still done to promote “consumer welfare”.Regardless of how we feel about the nature of a government agency acting in the purported interest of public safety, it is a moral position.

If the FDA is the Baptist, making Family Dollar the clear Bootlegger in this scenario. It is important to note that under Food Safety Modernization Act (FSMA), per section 206, the FDA has been conferred the authority to mandate recalls for contaminated food products. The rodent infestation impacted food and non-consumable products sold by the retailer. Family Dollar can take control of their image by choosing to recall these items before the FDA has an opportunity to force them to withdraw the contaminated merchandise. The nature of the recall would take on a different tone if done at the request of a government agency. 

Footnotes:

  1. As much as it pains the author to admit that a government agency has the high ground in this situation, that might be the case. However, if this controversy is the demise of Family Dollar, it would be purely the byproduct of market forces, making their market failure legitimate. 

Bootleggers and Baptists- XLII: The Procedural Rules of Baptismisal Rites

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Constitutional economics is the “.. research program in economics and constitutionalism by applying tools of economics to constitutional matters. It studies the compatibility of effective economic decisions with the existing constitutional framework and the limitations or the favorable conditions created by that framework”. The canonical definition; can be simplified as studying the rule formulation process for group decision-making through an economic lens. Most people may find the term constitutional confusing and assume that this school of the political economy only explores the decision-making processes of government institutions. This inference is false. The principles of Constitutional economics apply to a wide range of informal governance structures, for example, homeowners’ associations, biker gangs, prison gangs, and even the “codes of piracy” (p.601). This validates the famous quote from Aristotle identifying people as a “political animal”. This quote is open to interpretation; civilization requires cooperation and coordination. The Calculus of Consent (1962), addresses the conflict of cooperation and coordination by defining constitutional decision-making. Constitutional rule promulgation entails any system where a set of rules (two or more) govern the decision-making process. Structurally chartered bylaws are not limited to formally codified laws; such guidelines can be only be applied to a single person [1] to be constitutional. 

Given the findings of Public choice and Constitutional economics, it is not outlandish to apply the concept of political decision-making to the rule promulgation process within the Catholic church. This is salient in the sphere of regulating the validation of religious rites. Some shrewd observers may point out that the Catholic Church has similar features to formal government. There is some veracity to this claim. The Vatican does operate like a city-state. However, to what extent does papal authority have much impact have on Americans outside of the church? Virtually none. For the context of this brief essay, the Catholic church is a non-governmental institution. 

The author views the rules of religious rites and ceremonies within Catholicism as being stringent. For example, the Catholic church does not recognize divorce. The conservatism of Catholicism is a matter of individual perception. Catholicism is far from being the strictest religious tradition on Earth. Like any other variant organized religion, the Catholic church has several ornate and intricate procedures guiding the officiation of religious rites (often referred to as sacraments). The complex array of rules governing the process of validating sacraments leaves open a large margin for error. This is true of individuals in leadership who opt to inflexible enforce Church directives. The most salient example in the headlines of this problem is the controversy that has emerged in the Catholic Diocese of Phoenix. 

For many years, Fr. Andres Arango has officiated many religious rite ceremonies that have now been deemed invalid. The reasoning? Fr. Arango did not use the precise wording required by the Vatican to validate a Baptism. He utilized the phrasing “…we baptize you in the Name of the Father and the Son and of the Holy Spirit..” instead of “… I baptize you..”. Purportedly, he has used this incorrect wording since he has entered the priesthood in 1995. Purists and the most devout Catholics may perceive uttering “we” instead of “I” as being a matter worthy of splitting hairs, but it also could be possible for the pope to pardon this minor transgression. The magnitude of this error in judgment is minuscule after being compared to some of the darker and more pervasive scandals, whose ugly specter has been haunting the church for decades (molestation scandals).

Unfortunately, due to this scandal Fr. Arango has since resigned, leaving one to speculate why the church could not forgive such a small mistake. However, in terms of these governance decisions, it is clear that the potential of Bootleggers and Baptists’ (1983) dynamics are present in the Baptism scandal. The undeniable dynamic of strict rule enforcement and the need to obscure more egregious scandals creates opportunity coalitions. In this case, this coalition where sub-factions are distinguished membership to various tiers within the Catholic organization. We must consider the principles of methodological individualism. Because some members of the Catholic Church are acting as Baptists while others are the Bootleggers. The prima facie impression of the careless observer would be that such a coalition would be a paradox, as they are all members of the same organization. Such an erroneous observation treats the church as a solitary unit, ignoring the preferences and incentives of various actors within the organization.  

The individuals advocating for strict adherence to procedural requirements would be Baptists. The majority of the moralistic arguments are somewhat tautological, but a rule is a rule. Regardless of whether the enforceable edict is irrational or even unjust, there are consequences for violating formal decrees of institutional fiat. There is relatively little to gain from rigidly adhering to tradition for its own sake, feasibly making this a moral purity argument. From an administrative standpoint, if all priests follow standard procedures, it is easier to validate the ceremonies. The author is not well versed in the logic behind the specific wording requirement for Baptisms; any further commentary would merely be armchair speculation. 

“It is not the community that baptizes a person and incorporates them into the Church of Christ; rather, it is Christ, and Christ alone, who presides at all sacraments; therefore, it is Christ who baptizes,” it said. “If you were baptized using the wrong words, that means your baptism is invalid, and you are not baptized.”

https://www.npr.org/2022/02/15/1080829813/priest-resigns-baptisms

The Bootleggers in this scenario are not quite as evident as the Baptists. In terms of determining the Bootleggers; it is imperative to consider the individuals that stand to benefit from the “Baptism Scandal”. Several sub-factions comprise the beneficiary coalition, which silently allows this minor controversy to hit the headlines. Temporarily feels the relief of being out of the spotlight. It is common knowledge that the Catholic church attempted to cover up incidences of sexual abuse around the globe. High-ranking administrators at the Vatican; would welcome any distraction from this hideous fact. Although, it must be a legal and publicity nightmare navigating such treacherous waters, especially when the optics are not in your favor. A more insidious subset of this coalition, callously gaining from the inadvertent distraction campaign, priests guilty of sexual misconduct, hoping that the current controversy will delay further investigations into new allegations. 

Footnotes:

  1. Elucidated in James Buchanan’s Limits of Liberty (1975), as mentioned by Horwitz (RIP) & Skwire(2021) (p. 350).