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Federal Control of Financial Transactions



As regular readers will be aware, Tim May and I have been sparring with each
other about the risks of various control strategies that the world's
governments may deploy.

I thought it might be helpful to make one of his fears concrete so that we
can analyze it.  I trust that I am not putting words in Tim's mouth.

The major concern is the same one mentioned in the Book of Revelations:

"REV 13:16  And he causeth all, both small and great, rich and poor, free 
and bond, to receive a mark in their right hand, or in their foreheads:

REV 13:17  And that no man might buy or sell, save he that had the mark, 
or the name of the beast, or the number of his name."

So the Feds deploy a card (smart or dumb) that has to be used for most
transactions and lets them track everything we do.  Tourists are brought
into the system through the use of temporary cards (or the machine-readable
strip on their passports which already includes a space for a national ID
number.)

How is this most likely to come about?  I consider force majeure to be
unlikely.  It would be rough to get Congress to impose a burden like this on
businesses (who would have to completely wire themselves) in a formal vote.
It is not necessary to do this in any case since they know they can't snag
everyone into the system.  They just want to capture most of the transaction
data.  If they can do it administratively without involving Congress in
controversy, they will use that approach.

Clipper and the Post Office agitprop on the US Card give us a possible
scenario.  The P.O., desperate to find a reason to exist as its core
business drains away to the wires and private carriers, would like to become
the primary digital signature authorizers for the U.S.  It claims to be able
to put millions of "US Cards" in the hands of happy shoppers within months
of the go-ahead.  (Assuming they use FedEx for the actual *shipments* of
course).  The recently attempted "Clipper maneuver" of game strategy
(government preemption by standard setting rather than by direct application
of force) shows us how the US Card system might be actually deployed.  The
government adopts the standard it likes and tries to make it the de facto
standard by requiring it for most official business.  An instant market is
thereby created.  No congressional action required.  

Similarly, the government might try to preempt the market for digital
signature and commercial encryption technology by deciding to make anyone
who wants to use a digital signature system in dealings with the government
use the Post Office or some such agency as the signature authenticator.
Thus bids, purchasing, benefits, and taxes could all require your "US Card"
registered at your local post office.  The government would then hope that
commercial users who would need to use the government's system for tax
filings anyway would also use it for its ordinary dealings with the public.
Then if a health care bill drafting you into a "universal coverage" army is
ever passed, the "US Card" also becomes the Health Security Card you will
have to show to get a job in the US.

Thus, all sorts of authentication transactions would pass through the
powerful and efficient post office data network and the
ex-countercultural/born-again control freaks Inside the Beltway could get
their jollies tracking your employment and purchases.

What's the big hole in this frightening scenario?  Ask yourself one
question.  Why is the Post Office looking around for some useful work these
days?  Didn't they have a monopoly guaranteed by the Federal Government for
more than 100 years?  If they couldn't make a go of it with a pure coercive
monopoly during a time of slower commercial activity, what makes them think
that they can compete *without* a genuine coercive monopoly in a time of
constant change.

Governments have proved over and over again that they can go broke running
"guaranteed" money spinners like state lotteries and such.  They don't stand
a chance in a marketplace that will break the hearts of the brightest people
this planet has ever produced.

What has recent history established?  Governments are weaker.  

Why didn't the Amin mandate Clipper?  No political ability to do so.  Why
are banks and telecoms being deregulated in nearly every country on earth
(in spite of propaganda about "risks" and "public needs"?  Why have exchange
controls (a common feature of life a generation ago) become impossible
almost everywhere on earth?  Is it "free market ideology" that has triumphed
or did the *reality* of markets rather than the *idea* of markets hit
governments on the head.

To those who romanticize the power of the State in the modern world I ask,
why doesn't Clinton impose wage and price controls, exchange controls,
tariffs, and a full-blown industrial policy?  Why doesn't he nationalize the
steel industry, guarantee jobs for all, confiscate all estates above
$100,000, impose 95% income taxes on those making more than $40,000/year,
and all of the other proposals that were popular earlier in this century?  I
doubt that he is restrained because of his deep commitment to human liberty.
He doesn't do it because he can't.  Markets wouldn't put up with it.  His
government would be destroyed (by capital flight.)  

In this connection, I invite everyone to read the excellent profile of Japan
in last week's Economist.  It discusses the current and growing Japanese
commitment to deregulation and what is driving it.  That issue is a keeper
anyway because of an article on commerce on the Internet and (as has been
mentioned before) the use of the word "anarcho-capitalism" in an article
comparing Thailand and Singapore.

Assuming that the government were to attempt to establish a Post Office
mediated digital authentication system, there is no guarantee that it would
work.  Foreign users would presumably use foreign systems to authenticate
their transactions.  Some of these systems might be run by privatized
foreign PTTs or by others.  Note that since banks and credit agencies will
still have to approve the transactions anyway (to make sure you've got the
dough), they may decide to use other systems for signature authentication.
It would not really cost them any more.  Since information is cheap, setting
up a system to use several authentication systems is almost as easy as
setting up a system to use one.  (Particularly since you have to do it
anyway.)  It is difficult to imagine the P.O. being able to compete in the
cutthroat world of credit processing.

Recall that even today, there are companies that pick up and deliver your
mail to the P.O. to speed the process along.  Similarly, expediters may
interpose themselves between the customer and the P.O. to speed
authentication in the even that the P.O. network is slow or inefficient
(likely).  

Here again, Clipper gives us some hints as to how the attempted market
cornering might work out in practice:  The Admin is currently floating
stories about perhaps withdrawing Clipper in favor of "wider discussions"
with the industry.  Clipper is already painfully obsolete and it isn't even
shipping in quantity.

Inefficient government monopolies create marvelous profit opportunities for
markets to arbitrage the gap between cost and price.  In a highly efficient
networked world, it will be very difficult for governments to compete.

DCF

Why Pizza Hut should hire *me* as their spokesman:

"Why does Pizza Hut oppose mandatory, employer-paid health insurance in the
US even though we are forced to pay it in Japan and Germany? 

We support the principle of cultural diversity under which different
societies experiment with different methods of social organization.  Germany
and Japan have chosen one road, we have chosen another.  Pizza Hut would not
voluntarily impose on our US customers the burden of the very high food
costs that the agricultural policies of Germany and Japan impose on their
citizens.  Similarly, we would not choose to impose on our US employees the
burden of bureaucratically designed employment contracts.  

Pizza Hut supports the right of our customers to enjoy the least expensive
and best pizza on earth and the right of our employees to bargain with us
collectively and individually concerning the conditions of their employment."