Economy & Business

The Libra Gambit

(Dado Ruvic/Reuters)
Facebook is not the first to develop a private currency with the hopes of superseding the cartel that is consumer banking.

They had to call it “Libra” of course — like something off the cover of a Robert Ludlum novel: The Bourne Ultimatum, The Ares Decision, the Libra Shenanigan.

“Libra” is the name Facebook is giving to its new cryptocurrency, which the company says it has created “to enable a simple global currency and financial infrastructure that empowers billions of people.” Facebook’s white paper on Libra is full of sloppy language denoting sloppy thinking: “For too many,” it reads, “parts of the financial system look like telecommunication networks pre-internet. Twenty years ago, the average price to send a text message in Europe was 16 cents per message. Now everyone with a smartphone can communicate across the world for free” — for free? — “with a basic data plan.” Those aren’t free. The right phrase is “for no additional expense.” More from Facebook: “Back then, telecommunications prices were high but uniform; whereas today, access to financial services is limited or restricted” — but by no means uniform and not necessarily high — “for those who need it most — those” — odious neologism ahead! — “impacted by cost, reliability, and the ability to seamlessly send money.”

“Seamlessly” is one of those metaphors that obscures more than it reveals. There will be a seam in the Libra model — and that seam will be called “Facebook.” An infinite number of monkeys banging away at an infinite number of ergonomic keyboards down in marketing . . .

Facebook is not the first player, by any means, in the private-currency market, or the first to develop a product with the hopes of superseding the cartel that is consumer banking, an industry kept under such tight political discipline that it might as well be a branch of the government. PayPal, partly the brainchild of libertarian Peter Thiel, originally was intended to function as a private global currency that would be liberated from banking regulations and political debasement both, though the product in reality ended up being something different. BitCoin remains a popular and volatile alternative. Which private currency is most likely to succeed? That is like asking which skateboard manufacturer or television network is likely to succeed: Ideally, there would be many of them competing in a robust market. That there is a particular advantage in choosing a currency affiliated with Facebook is not obvious.

Certainly not to Eric Posner of the University of Chicago law school, who writes in The Atlantic:

Facebook, one of the world’s most distrusted companies, wants us to trust its new Libra cryptocurrency, which, it hopes, will be used by billions of people around the world. We shouldn’t. Libra will almost exactly replicate all the problems generated by Facebook’s social network. Those problems can in turn be traced to the central paradox of Big Tech: The technological innovation that is supposed to liberate us from government ends up subjugating us to a handful of corporations.

But is that really a paradox? Corporations can be heavy-handed, and many of them — Facebook and Apple prominent among them — are eager handmaidens of heavy-handed government. But they also are competitors in a market in which there is choice, which is why the power held by a handful of corporations is of a character different from the power held by a single state, states being in Max Weber’s classic formulation regional monopolies on violence. Mark Zuckerberg has a great deal of marketing power at his disposal; Donald Trump has a navy.

Professor Posner is correct in pointing to the rivalrous nature of political power and market power. What is less well understood is that markets won that fight in a knockout a decade or more ago. The new reality is that markets — not corporations, but markets — are more powerful than states, and much of the angry, angsty, mob-inciting politics of the Left and the Right in the past decade is simply the emotional noise and churn generated as societies and governments readjust their affairs to accommodate themselves to that new reality. Bill Clinton spent much of his presidency bitching about the bond market, which was his shorthand for the ways in which global markets (especially financial markets) limited politicians’ effective scope of action. He was, uncharacteristically for a man of such modest imagination, ahead of his time.

The power of capital flows is a reality that has made itself known bit by bit to states both liberal and autocratic, from the members of the European Union to the caudillos in Beijing. Saudi Arabia is an absolute monarchy with no regard for life or property, brutal and vicious — and constantly getting slapped around by volatility in the energy market. Mohammed bin Salman can command almost anything — except the commodity markets that rule his world.

Much of the hysteria on display in the Democratic presidential primary is American progressivism’s shrieking protest of the new facts of life. Progressives such as Elizabeth Warren are intelligent enough to understand what’s happened: That just at the moment they were primed to take power, power was taken away from them. The old dustbuckets in Washington can make themselves feel big for a moment by summoning Mark Zuckerberg to be berated on CSPAN or by threatening Elon Musk with an SEC inquisition, but they hardly even understand what is actually happening. They spend a lot of time thinking about what they should regulate but understand very little about what they actually can regulate.

But the techno-utopians got a lot wrong, too. They – we — proceeded as though the Wild West, libertarianish, “Hey, Mildred, check this out!” ethic of the early days of the technology boom was as fixed as the stars. Funny how possessing a few tens of billions of dollars changes one’s view of the world and of one’s stake in it — and of “disruption,” which is of course the last thing the ancien régime of Silicon Valley actually wants. And now they are watching Facebook acting as the world’s thought police and seeing Google suck up to the ChiComms like Al Swearengen bemoaning the new telephone lines in Tombstone. But they – we — are a minority. Posner writes:

Ordinary people did not like the chaos of the early internet. They wanted a more structured environment, and this gave rise to the big social networks, above all Facebook. Once that structure was in place, the system was no longer decentralized. Facebook kept claiming that it was, but made policy choices — about how information was displayed, about the use of data — that harmed a great many people. We now see that Facebook regulates speech and privacy for millions of people, domains normally left to government. What started out as a libertarian utopia is now a highly regulated environment, albeit one regulated by a corporation rather than by our government.

That is a familiar story — it is a variation on Erich Fromm’s Escape from Freedom. Freedom is not what every human heart yearns for, contra George W. Bush. Some hearts yearn for fixedness, predictability, and hierarchy. Individuality is unbearable for those who do not know what to do with it. The Internet and the concurrent rise of the set of economic changes we call “globalism” for short have indeed been disruptive. Fromm, a Marxist, argued that the advent of capitalism left both peasant and lord alienated as familiar relationships and structures of social status that had been thought (wrongly) to be settled and permanent were suddenly upset. The world was richer and more free, but individuals who were not well-suited to making the most of the new order or able to adapt themselves to it experienced that new freedom and prosperity as a burden. And so they turned to new sources of meaning, from nationalism to religious fanaticism, that gave rise to much of what is now familiar about the modern world. As it turns out, entrepreneurial risk-takers do not constitute a majority or a very large minority: F. A. Hayek, whose politics could not have been more different from Fromm’s, saw in the rise of salaried corporate employment as a near-universal norm a critical threat to innovation, experimentation, and – ultimately — to liberty itself. William H. Whyte explored a similar dynamic in The Organization Man. But Fromm, Hayek, and Whyte were all writing in a context in which the supremacy of the state was assumed to be a permanent and unchallenged fact of life. American progressivism was built on the belief that government would steer markets — not the other way around.

The masses loved the freewheeling ways of the early Internet — until they didn’t, and then they sought order and protection within the walled gardens of social-media platforms. And, inevitably, they came to find those cramped and irritating as well as they turned into aggregations of shrieking aunts, bellowing uncles, and twenty billion Mark Zuckerbergs going door-to-door trying to sell you magazine subscriptions. And so now there are movements on both the left and the right to put the tech giants under political discipline, which, in the end, will make the masses miserable, too. Everything does.

But will it be an improvement? Professor Posner says that under Facebook’s new currency model, “the problem of volatility is solved.” I would not bet on that. There are two kinds of entities in Facebook’s world: the volatile and the dead.

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