Money Doesn’t Matter In Politics

Many have warned about the grave dangers ofmoney in politicsin the US. However, does this theory fit the data? Let’s test it out.

Since this is a test case, we should make it really really clear-cut. For example, even if money is super-important in politics, any one billionaire won’t get everything he wants. There could be another billionaire wanting the opposite. But if a whole bunch of billionaires got together, and said they all wanted the same thing, then you’d expect them to win if money really mattered.

Likewise, if a billionaire wants something, but he’s quiet and keeps it to himself, nothing will happen. So we should choose a case where billionaires are being really loud and actively lobbying for something. That way, we know that Congress knows what they want.

And similarly, we should pick something that’s at least moderately popular, and isn’t too big of a change. Even if Congress were in the pockets of Charles Koch or George Soros, they still wouldn’t vote for something really extreme, like 99% tax rates or abolishing the military. There are about 200,000 pages in the US Code, so for our test case, let’s also pick a proposal that changes, say, four or five of them.

Fortunately, the last year has given us a perfect ‘experiment’. Nine of the richest companies in the US, with a total valuation of $1.4 trillion, all got together and said exactly what they wanted. To make sure everyone knew, they even took out a full-page ad in the New York Times. And their idea was even pretty popular, with 60% of Americans in favor.

Result: nothing.

Okay, so maybe powerful national politicians can’t be pushed around by wealthy corporations. But let’s take an even more extreme example. Let’s take a big, powerful, multi-national corporation, with piles of money and powerful friends, against a little local government that nobody knows about. And sometimes the media or the courts will “fight for the little guy”, so let’s take a case where they aren’t involved.

Last year, Google wanted to build a bridge over a creek, between two Google office buildings. Nothing special, just an ordinary twenty-foot bridge, to save people from making a long, polluting car trip on congested Highway 101. But, to build it, they needed the permission of the Mountain View City Council. Result: denied.

The denial was ostensibly for environmental reasons, even though the bridge would save thousands of miles of polluting car travel. So Google offered to conduct an environmental impact review, to prove the bridge was green-friendly. But even that was denied.

To illustrate how extreme the disparity is here, let’s examine a few key statistics:

Google budget: $45,860,000,000

Mountain View budget: $87,000,000

Google employees: 49,430

Mountain View employees: 378

Google is also Mountain View’s largest employer, and owns 11% of Mountain View’s real estate by valuation. According to the money-in-politics theory, the City of Mountain View should be bending over backwards to please them. Yet, this isn’t what we see at all.

The money-in-politics theory has been formally tested, by famed economist Steven Levitt. Political campaigns are normally hard to experiment with, since there are many “uncontrolled variables” – did Barack Obama win because of all his donations, or did people donate because he was a popular candidate? And so Levitt looked at were races where the same two candidates ran against each other multiple times. He found that, in Congressional races where candidates spent about $250K (1990 dollars), every $100K spent got another 0.3% of the vote, a tiny amount.

Reading the newspapers, one hears about powerful people making political donations. One might surmise that the donations cause the power – first you donate, then you become powerful. However, looking more closely, this seems like a cause-and-effect error. People, for the most part, first become powerful, through some as-yet-unknown process. Then, after they have power, they start donating to campaigns. Attempts to do it the other way around have tended to not work so well.

San Francisco’s Tech Problems

There seems to be a bit of a problem with tech companies in San Francisco.

If tech companies pay their workers generously, then it’s their fault for rising rents. But if they are misers and pay little, then it’s their fault for mistreating working people.

If tech companies all move to San Francisco, then it’s their fault for changing the fabric of local communities. But if they left San Francisco, it’d be their fault for crashing the local economy.

If tech companies try to establish a libertarian utopia, this shows they don’t care about average people. But if they stay in SF and try to work within the current system, that’s the nefarious influence of money in politics.

If tech companies send buses to pick up their workers, this is terrible because it drives up housing costs. But if they don’t send buses, traffic would be so bad that I-280 and 101 would grind to a halt, and clearly that’s the tech companies’ fault.

“Friedrich Spee von Langenfeld, a priest who heard the confessions of condemned witches, wrote in 1631 the Cautio Criminalis (‘prudence in criminal cases’) in which he bitingly described the decision tree for condemning accused witches: If the witch had led an evil and improper life, she was guilty; if she had led a good and proper life, this too was a proof, for witches dissemble and try to appear especially virtuous. After the woman was put in prison: if she was afraid, this proved her guilt; if she was not afraid, this proved her guilt, for witches characteristically pretend innocence and wear a bold front. Or on hearing of a denunciation of witchcraft against her, she might seek flight or remain; if she ran, that proved her guilt; if she remained, the devil had detained her so she could not get away.” – Conservation of Expected Evidence

The Charlie Shrem Files, Part 3

The Bitcoin company BitInstant is now facing a class-action lawsuit, as well as federal felony charges against their CEO Charlie Shrem. Included below is a BitInstant presentation describing the company’s business operations as of 2012. Of particular interest is this quote:

“BitInstant is not a money transmitter and does not interact directly with regulated financial institutions, instead using intermediary bodies to process fund transfers and acts as a third party to accelerate transactions. All of BitInstant’s transactions are Closed Loop, meaning all monies cannot be withdrawn without proper AML and KYC measures being taken as outlined in our ALM compliance policy. Customers cannot simply cash out of Bitcoins as all of the exchanges with which BitInstant works have strict limits and AML procedures. Additionally, BitInstant does not store any customer funds and does not engage in currency exchange.”

Compare to BitInstant’s FinCEN registration data below, which was supplied to FinCEN by BitInstant, and clearly lists it as a “money transmitter”. The Brooklyn registration address is listed under Charlie’s father Alan Shrem; according to Reuters, he will be confined there under house arrest until his trial.

The Charlie Shrem Files, Part 2

More recent documents from the class action lawsuit against BitInstant show concerning things about the company. In particular, from the plaintiff’s attorneys:

“We represent Plaintiffs in the above referenced action. We write to request a status conference because this case has come to a halt; Defendant BitInstant is not engaging in discovery.

Plaintiffs filed their complaint on July 8, 2013. On September 9, 2013, Your Honor entered a case management plan, which required the Parties to exchange Fed. R. Civ. P. 26(a) discovery by November 4, 2013. To date, Defendant has not made its initial disclosures. Plaintiffs served document requests on November 14, 2013. To date, Defendant [BitInstant] has not responded. The Parties also have yet to discuss electronic discovery protocols. Defendant’s counsel has represented that she intends to file a motion to be relieved as counsel. However, that intention does not discharge Defendant of the responsibility to engage in this litigation. As such, Plaintiffs respectfully request a conference with the Court.”

Response from BitInstant’s counsel:

“On December 20, 2013, after Plaintiffs’ counsel filed his letter via ECF, we had another telephonic meet and confer to discuss the possibility of settlement given our client’s [BitInstant's] financial condition. At that time, we confirmed that an insurance policy does not exist and that for several reasons, we intend to seek to withdraw as counsel in this litigation. However, in a final attempt to resolve this dispute in the interest of all parties, we agreed to assist in another settlement offer before seeking to withdraw as counsel. On December 30, 2013, we received that settlement offer from Plaintiffs’ counsel and conveyed it to our client [BitInstant]. We have informed our client [BitInstant] of the urgency of settlement in light of the discovery deadlines in this case, and we have advised our client that we intend to file a motion to withdraw.”

Letter to Judge McMahon

Withdrawal of Counsel

The Charlie Shrem Files, Part 1

This morning, Charlie Shrem, CEO of BitInstant, was arrested on money laundering charges. As someone who knew Charlie and who used to run a Bitcoin company, I am interested in the case, and will over the coming days post a number of documents related to BitInstant and the Bitcoin business.

First up: the class action lawsuit filed against BitInstant by angry customers in July of 2013. By their own admission, BitInstant received 17,300 customer complaints in their last month of operation, with many saying they never received the Bitcoins they paid for. Below are copies of the original complaint, BitInstant’s motion for dismissal, and the plaintiffs’ response.

Packing For Perth

In 1953, South Africans went to the polls. The South African government was run by the pro-apartheid National Party, but they were opposed by the more liberal United Party. A majority of white voters disliked the apartheid system, especially wealthy businessmen, and the United Party spent four times as much on campaigning as the National Party.

When the votes were counted, the results were clear: 54% of voters chose the United Party, rejecting apartheid policies. Yet, thanks to gerrymandering and other tricks, the National Party won 60% of the seats. In 1958, the National Party increased their majority despite still losing the popular vote.

Even though it had ‘fair’ elections, with a constitution very similar to Canada’s, the South African government was effectively a dictatorship. It rigged the rules of the game so no one else could win. Faced with an unchangeable government that supported terrible policies, wealthier South Africans did what they could: leave. The best and the brightest, the people who had made South Africa into the richest nation on the continent, started ‘packing for Perth’. Elon Musk – now worth about $7 billion, then just an ambitious teenager – was among them.

There are two options ahead for the US government. Behind door #1, politicians who support unpopular policies get voted out in primaries. (Third parties are not viable in the US due to Duverger’s Law.) If this happens, the government will – slowly and fitfully – move toward the popular position on a host of issues. Politicians, for all their faults, do care about getting re-elected.

Behind door #2, the Democrats and Republicans find a way to block candidates from primaries if they challenge the status quo. This is what John Boehner is currently trying to do with the Tea Party. (I don’t support Tea Party policies, but any kind of reform requires some way for a serious constituency to challenge party leadership, and I support having the latter generally.) If that happens, official US government policies will move farther and farther away from what voters want as culture and demographics change.

In addition, US policies will become ever less effective, as trends continue their progressions and conditions on the ground evolve. When current politicians were elected, in the 1970s, it was viable for the government to not know much about computers. Now, with Obamacare failing due to technical mishaps, it isn’t. It was viable for every student to attend college. Now, with exponentially rising tuition, it isn’t. It was viable for government employees to have defined-benefit pensions. Now, with Detroit bankrupt and all fifty states rewriting their retirement plans, it isn’t.

When that happens, if it happens, Americans will in their turn start ‘packing for Perth’. First in line will be those who can move most easily – the young, the rootless, the skilled but unemployed, the future Elon Musk (South Africa), Sergey Brin (Russia), Vinod Khosla (India), all those who in past decades moved to the US. When voting at the ballot box doesn’t count,  when even voting in the primary doesn’t count, voting with your feet still does.

How Y Combinator Did

“I’m not ready to predict our success rate will stay as high as 50%. That first batch could have been an anomaly. But we should be able to do better than the oft-quoted (and probably made up) standard figure of 10%. I’d feel safe aiming at 25%.” – Paul Graham, March 2007

Seven years later, how have Y Combinator companies done?

YCList names 92 YC companies in the three years between winter 2006 and summer 2008. We can divide them into five categories:

Successful: The company has a large and growing userbase, big revenues, late-stage VC rounds, or other clear evidence of winning.

Product acquisition: The company was bought, and the acquirer keeps selling the product.

Stagnant: The website is still up, but there’s no evidence the company is profitable or has lots of users.

HR acquisition: The company was bought, but the product was shut down shortly afterwards.

Dead: The website is down; the service is no longer available.

Looking at the numbers, we find:

Successful: 12 (13%)

Product acquisition: 6 (6%)

Stagnant: 13 (14%)

HR acquisition: 14 (15%)

Dead: 47 (51%)

This gives us a success rate of about 20%. One notes that the outcome of Paul Graham’s original company Viaweb – a product acquisition – is actually by far the least likely scenario.


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