Ep 344 - The Unstable Genius Act with Bob Hockett

** Tuesday evening, Bob will join our weekly online gathering where we’ll listen to the podcast together and discuss. Bring your questions for him. September 9 at 8pm ET/5pm PT. Use this link to register: https://us06web.zoom.us/meeting/register/1HA3nd_5QFSFzBe_cGiHpw 

This is Bob Hockett’s 12th visit to Macro N Cheese. Back in 2022, in an episode discussing the collapse of the major crypto exchange platform FTX, Bob gave us a useful rule of thumb: 

“The irony is that in every one of these cases there is a clue in the name of the product in question that ought to warn you. If it’s called a junk bond, there’s a reason for that word “junk” being used. And if it’s called a subprime mortgage loan... there’s a reason for that “subprime” term. Similarly with cryptocurrency or crypto assets, one of the most ironical names ever conceived for this kind of product. If the word “crypto” comes into it, then that’s a pretty good tip-off that there’s something non-transparent about it, that there’s something opaque and occluded and difficult to understand.” 

Hmmm... today’s topic is the GENIUS Act. What meaning should we take from that name? 

In this episode, Bob and Steve talk about the newly-passed GENIUS Act whose stated purpose is regulation of the stablecoin industry, bringing the shadow banking industry into the light and out of the, um, shadows.   

The discussion looks at the flawed premise of private stablecoins and the real motives behind the push. Far from preventing instability and fraud, promotion of stablecoin aligns with a libertarian ideology (a la Hayek) that seeks to denationalize currency and privatize money. From a Modern Monetary Theory perspective, the implications are alarming. It merits a discussion of the role of the state. 

 The GENIUS Act is a dangerous distraction. A Trojan Horse.  

 Robert C. Hockett is the Edward Cornell Professor of Law at Cornell Law School. His principal teaching, research, and writing interests lie in the fields of organizational, financial, and monetary law and economics 

 His forthcoming and recent books are: World Money (Yale 2026); A Republic of Producers (Yale 2025); Making Capital Democratic (Polity 2025); Spread the Fed (Palgrave 2025); The Citizens' Ledger (Palgrave 2022); Democratizing Finance (Verso 2022); Money from Nothing (Melville House 2020); Financing the Green New Deal (Palgrave 2020).  

@rch371 on X    

 

 

 

Episode Transcript

(00:43):
All right, everybody, this isSteve with Macro and Cheese, and
today's guest is going to benone other than Bob Hockett, and
he is a many, many times overreturning guest. And it's been a
hot minute since we've had Bobon here, but we are going to be talking
about a subject that I feel isvery, very important for a host of

(01:03):
reasons, not the least ofwhich it is literally kind of diving
us deeper into the cryptospace. It's diving us deeper into
this weird perversion ofprivate currencies and kind of the
Hayek approach toprivatization and getting rid of
the nationalization of thedollar, if you will. I mean, the

(01:26):
dollar as the dominantnational currency. That was Hayek's
dream. And we'll dig deeperinto that as we get deeper into the
show. But without getting toofar down the Runway and bearing the
lead here, let me introduce myguest. Robert Seahocket is the Edward
Cornell professor of Law atCornell Law School. He is a regular
visiting professor of financeat Georgetown's McDonough School

(01:50):
of Business and senior counselat Westwood Capital LLC in Manhattan.
He was previously counsel atthe Federal Reserve bank of New York
and the IMF, and clerked forthe U.S. appeals Court for the 10th
Circuit. He holds degrees fromYale, Oxford, where he studied as
a Rhodes Scholar, and theUniversity of Kansas. His pro bono

(02:12):
work lies in the fields ofenterprise, organizational, financial
and monetary law andeconomics, both their positive and
normative, as well as ourlocal, national and transnational
dimensions. He does regularconsulting and legislative drafting
work for many state, local,national and international legislators
and regulators and has been afrequent guest of Macaron Cheese.

(02:36):
So without further ado, let mebring on my guest, Bob Hockett. Welcome
to the show, sir.
Hey, Steve, great to be backwith you again.
You know, I don't know muchabout this act, but I do know that
it is kind of appeasing thelibertarian mind and the folks of
the far right within the Trumpadministration's kind of affinity

(02:58):
group here. And given that, Idon't think most people know much
about Hayek. I mean, I'm surethe academics do, but I'm sure the
regular rank and file do not,and they probably don't know a lot
about this genius act either.So why don't I let you take a minute
to fill us in and get thebackground of this and then we can
dive into the mechanics of it all.
Sure, a big topic, but happilyone that is quite simple at its core.

(03:23):
So I guess what we can do iskind of start with the simple and
then build out to the complex.And hopefully in doing that, we'll
sort of impress on folk, orwe'll make it all the more obvious
to everybody why it wouldactually be a good idea to kind of
stick with simplicity. Maybe.The first thing I'll say, though,
is that I'm kind of surprisedby what should we call it? The kind
of nomenclature money left onthe table, so to speak. I'm going

(03:45):
to be kind of shamelesslypunning, I think, throughout this
episode. I can feel it comingon. But since it's, you know, nominally
about stable coins, I'msurprised they didn't call it the
stable genius act. Not onlybecause of that sort of self description
of the father of our countryright now, but also, of course, because
one way to think about thisenactment is as a way of making this

(04:07):
industry a bit more profitablefor a family that suddenly seems
to find itself quiteinterested in this industry. And
that would of course be theTrump family. But I'm going to sound
a little bit cynical in sayingthat, although I think it's actually
a big part of this story, butlet's start with the part of the
story that they want us tosort of be attending to, and then
we can kind of go beneath orbehind that. So nominally, on the

(04:30):
surface, what's going on here,what Congress sort of wants you to
think is that, look, there'sthis sort of growing industry. It's
one of the few realms in whichAmerica still, quote, unquote, leads.
It's one of the few realms inwhich America still, quote, unquote,
is one of the more innovativeplaces in the world, if not indeed
the most innovative. And sowhat we ought to do here, Congress

(04:52):
wants you to think, is to dothe usual thing. We want to provide
some basic ground rules whichwill enable all of this ingenious
innovating to continue, but ina way that's not needlessly or wastefully
disruptive. So the idea is tokind of optimize the development
in this rapidly developing,innovation rich industry where America

(05:14):
still leads and provide, youknow, a nurturing environment on
the one hand, but anenvironment that on the other hand
is not needlessly dangerous toOrdinary Janes and Joes, you know,
people like you and me whomight be otherwise adversely affected
by it. Again, this is thefiction, this is what we're supposed
to be thinking. So what isthis industry? What is this realm?

(05:35):
Well, the claim is thatthere's all this innovation going
on in payments technology andwe're going to have sort of efficiency
miracles wrought by these newpayment systems and these new currencies
that operate within these newpayment systems. And these are all
going to be sort of enhancingthe productivity of the economy,
eliminating waste from theeconomy and so forth. So of course

(05:58):
we're all, you and I, just allof us regular Janes and Joes are
going to be attracted to thisindustry to sort of make use of its
products or make use of itsservices. But insofar as that's the
case, on the one hand, andwe're not experts or technological
wizards in our own right, onthe other hand, certain protections
have to be provided. Certainminimal protections, of course, but

(06:21):
protections that essentiallyensure that we don't end up losing
money or being swindled ortaken for a ride or what have you.
And that's the sort of, again,the kind of, the nominal justification
for this enactment. Let mepause there and see if that all sounds.
You're right on target,brother. Keep on going, man. Thank

(06:41):
you so much.
Oh no. You bet. Now you cansee some evidence for this claim
that I've just made as to howthey intend for us to take this,
how they intend for us to sortof understand or interpret this in
some of the rhetoric that youhear out there. Of course, all of
your listeners will have heardall of the efficiency rhetoric and
the innovation rhetoric. Andlet's not stifle or choke off this

(07:03):
kind of growth industry orthis area where America has an inherent
advantage and so forth.They've heard all of this sort of
thing. Perhaps some have alsoheard this one other piece of sort
of justificatory rhetoric thatyou hear. And now we're getting a
little closer to the mechanicsof the product itself, so to speak,
or of the industry itself. Soyou'll often hear or see people talking

(07:26):
about how there's greaterefficiency in payment if we use these
stablecoins or other kinds ofcryptocurrencies as means of payment.
Especially if we're talkingabout cross border transactions.
They'll say that if you'reusing the traditional banking channels
of payment in any kind oftransacting, but especially if it's
cross border transacting,they'll say, oh, it's Less efficient,

(07:48):
it takes longer, it takes awhile for the transactions to clear,
things have to be verified andso forth. And these so called stablecoins
or other kinds ofcryptocurrencies or alternative payment
mechanisms or payment systemsor payment platforms are quicker.
Right. You might even havereal time clearing and settling is
one of the phrases of art thatyou'll hear sort of dropped in conversations

(08:10):
like this. Real time clearingand settlement. And that's one of
the so called efficiency gainsthat are supposedly offered by this
industry. And that's what isthen the typical. When we think in
terms of the mechanics of thisindustry or the mechanics of these
products and services and howthey work, that's the primary mechanism

(08:30):
or mechanical advantage thatwill be sort of specified. If you
sort of call them out and say,hey, wait a minute, what is the efficiency
advantage? Or in what sense isthis actually something that adds
value? Now, the reason Ihighlight that is the sort of mechanical
advantage that they'lltypically adduce Right. In the rhetoric

(08:51):
that they'll offer in sort ofexplaining why these developments
are good things, why thisindustry is a good thing, and hence
why we ought to havelegislation to sort of optimize its
kind of continued and safedevelopment is precisely because
this is where the primarysophistry is concealed. Right. And
what do I mean by that? Well,it would be very, very, very easy

(09:12):
to have real time clearing andsettlement of transactions and hence
to have no need at all forthis industry and at least any need
of the kind that those who arejustifying it or trying to justify
it typically avert to or pointto simply by providing a national
payment and savings platform.So I'm sort of very briefly going
to mention something that youand I have talked about before, because

(09:35):
you interviewed me about thisbook that I put out back in 2022.
I'm just going to re up it fora half a second here.
Sure.
The fact of this possibilityshould be a touchstone, I think,
in any evaluation ordiscussion of the cryptocurrency
industry and the so calledstablecoin industry and so forth.
So you'll remember when wetalked about this book, this is the

(09:56):
one called the Citizen'sLedger and It's published by JM Keynes,
his old publisher, PalgraveMcMillan. It's just essentially the
book rendition of the digitalgreenbacks plan that I put out back
from 2018, 2019 through 2022,until I sort of moved on to some
other things. But the basicidea is this. You'll recall that

(10:16):
the Treasury Departmentactually already offers a platform
to anybody who wants to takepart or participate on it, called
TreasuryDirect. And all ofyour listeners can Google TreasuryDirect
even right now. And what theywill find is that any American who
wishes to can start investingdirectly in U.S. treasury securities
with the Treasury Departmentby opening an account right now with

(10:38):
TreasuryDirect. And all thatyou need in order to do this is a
separate bank account intowhich you can redeem your Treasuries
when you sell them back totreasury, and of course out of which
you can pay for your treasurysecurities when you buy them from
Treasury. So what I suggestedway back when and what I sort of
got particularly urgent aboutback during the COVID epidemic when

(11:00):
they were trying to figure outways to get money into people's pockets
really quickly was, well, whatif we cut out the middleman, so to
speak, cut out the requirementof a private sector bank account
and just allow people to holddollars, which after all is another
kind of government security,along with their treasury securities,
in other words, FederalReserve notes, along with their treasury

(11:22):
notes in their treasury directaccounts, their TDAs. And what if,
moreover, you could actuallyaccess this platform through any
sort of smart device,including a smartphone? And what
if in addition to that, weadded what I called at the time a
kind of horizontalfunctionality to the presently available
vertical functionality, bywhich I mean, what if we enabled

(11:44):
you not only to transact withthe Treasury Department by buying
and selling Treasurysecurities through TreasuryDirect,
but also if we enabled you andI, Steve and Bob, to transact together.
I could pay you or you couldpay me out of these same accounts
or into these same accounts.What we would have then, of course,
would be a publicly provideddigital savings and payments platform,

(12:08):
all of which could befunctional in a manner that allowed
for transacting in real time,in other words, real time clearing
and settling. It would, inother words, render all other forms
of payment, all private sectorprovided forms of payment, including
those done through bankingsystem right now, superfluous at
the time, it seemed to me thisis such an obvious good idea and

(12:31):
such an obvious good way to,to get money directly to people when
they were trying to figure outhow to do this right in March, April,
May of 2020, that I contactedDigital Service USDS, which was the
entity at that point chargedwith upgrading all sorts of government
systems. Basically it's thesort of tech upgrader for all government
services. I contacted USDS andasked how long would it take to convert

(12:55):
treasurydirect to that kind ofsystem? And they said, can you Call
us back in a couple of days.We'll do a quick kind of look into
this. And when I called themback, they said they could do this
within a months, meaning thatin other words, by July, say, or
August at the latest of 2020,we could have had a national digital
payment and savings platformavailable to everybody. And note

(13:18):
that this would then not onlyrender all cryptocurrencies and stablecoins
superfluous, at least if weconsider them to be warranted only
by the justifications that arecommonly proffered by the industry,
but it also, of course, wouldhave rendered private sector banks
as payment intermediaries,superfluous as well. I'm only re

(13:40):
upping and this is what I callthe digital Greenbacks plan in honor
of the first version of the USdollar known as the Greenback, which
was a Treasury issuance,because of course, this all started
in the 1860s as a sort ofurgent need necessitated by the Civil
War. And that was essentiallythe way we had a national currency
for 50 years until the FederalReserve System was added on 50 years

(14:03):
later in 19. And so that's thesubject, of course, of the citizens
Ledger book that we talkedabout then. And I'm only re upping
it now again, because it seemsto me we ought to keep in mind that
this is still out there. It'sstill easy to do. It would be very
easy to affect this withinjust months. And given that fact,
we're much more thanjustified, I think we are required

(14:25):
to view quite skeptically thecommonly proffered justification
for this industry's veryexistence. So I'll pause there because
of course that is going tolead us to a discussion of what is
really motivating, I think theexistence of this industry, given
how superfluous the profferedjustification is against the backdrop

(14:46):
of what I've just re upped.
Absolutely. I think for thelisteners out there, I don't want
to take you too far afieldright now. That's my only concern
with the next question that Ihave. So I just want to pocket it,
but I want to put it out therethat there is an ideological framework
that is driving this. It's notjust sort of, you know, technical.
I mean, there, there is anentire ideological framework from

(15:11):
the current administration andthose who support this on their end
that I think is important tosuss out. It's kind of like, you
know, what the motive fordoing it is, and then you can appreciate
what they might be seeking foroutcomes. So I think that that's
something I want to dive intoin a little bit. But please proceed
with where you were headingwith this, the next step.

(15:31):
No, I'll do that, too. I mean,in other words, we can kind of pivot,
I think, fairly easily fromthe proffered justification that's
typically given to what'sreally driving it on the one hand.
And then when we talk aboutwhat's really driving it, we can
kind of partition the drivers,you might say, into sort of two classes

(15:54):
on the one hand, pecuniarydrivers, you know, profit motive,
what have you. And then on theother hand, kind of ancillary ideological
drivers, which of course,you've already set us up for with
the reference to Hayek andthis kind of quasi libertarian complex
of thought that's sort ofalways out there as part of the American

(16:15):
mythos as well, especiallyamong some of the Trumpsters now,
some of those who are close tothe administration. So let's start
with being a good Marxist, asI am, I'll start with the profit
opportunity drivers here andthen pivot from there to the ancillary
ideological sort ofbuttressing or sort of further support
or rear guard type support. Inaddition to that, couple things worth

(16:38):
noting just to sort of set thekind of let's call this the monetary
groundwork. So if you think interms of a money or a currency, right.
It's traditional, of course,to divide money into sort of three
functions. And I'm not goingto do the ritual repetition of the
three functions that theorthodox economists always point
to. Instead, I'm going to drawa distinction between two features

(17:00):
of money that I think aregoing to be most salient for our
discussion. So first off,money indeed is a means of payment.
It's a means of exchange. It'sa means of purchasing something.
It's essentially a kind oftransferable purchasing power, right?
Which is kind of important inany exchange economy and certainly
in a monetary exchange economysuch as our own. And it's that particular

(17:23):
function, of course, a verybasic function of a currency that's
being sort of alluded to orsort of channeled when the usual
justification is given forthis growing cryptocurrency or payment
system industry or the sort ofnew sub industries within the payments
system industry that Ireferred to earlier. If this, of

(17:44):
course, were the only functionof a currency or the only function
of a money, then I would thinkthat even those who are kind of boosters
of or who are sort of gung hoabout the crypto industry or the
stablecoin industry orwhatever would be on board with the
digital Greenbacks plan, thecitizens Ledger plan that I talked
about a moment ago. Becauseessentially what I've just noted

(18:06):
is a plan that would makepayments much simpler, much easier,
much more efficient, andindeed would eliminate what currently
amounts to a form of frictionin transacting, which therefore slows
down transacting, whichtherefore slows down economic growth
as we commonly measure it, andso forth. But in fact, there's an
additional sort ofcharacteristic that comes to inhere

(18:28):
in any money once it attainswide currency, pardon the pun, once
it comes to be used widely,and that is that because it is effectively
a kind of stored purchasingpower, it can also, of course, become
a speculative asset. It can besomething that can become more valuable,
so to speak. It can grow, inother words, in its own purchasing

(18:50):
power in the interval thatyou're not actually spending it or
using it to purchase. Right.In other words, anything that you
might use or sort of pay inexchange for something else can,
within some time interval,come to be worth more of that something
else than it was at thebeginning. It can also, of course,
become worth less. That's whatwe call inflation. But in circumstances,

(19:14):
or in times like our ownrecent times over the last 20, 25
years or so, where deflationis a serious threat, and indeed has
lately been, or has at leastin recent years been a more serious
threat than inflation, we finda motive spreading to sort of hold
certain kinds of assets with aview to their being artificially

(19:36):
grown in value. And I thinkone way of looking at the sort of
cryptocurrency industry, if wecan call it that, or the cryptocurrency
and stablecoin interests outthere is essentially as the growth
of entities, and of course ofthe growth in the population of individuals
on the one hand, and thegrowth in the number of entities

(19:58):
on the other that areessentially operating pursuant to
business plans that involvesbuying these nominally payment type
assets and holding them asspeculative assets low and then selling
them high. In other words,it's essentially another speculative
financial sub industry, right?Because it is focused on a quote

(20:24):
unquote asset that purports tobe a payment medium, in other words,
a currency or a money. It cansort of disguise itself as something
that's not speculative, but itbasically just is speculative. At
least that's the primarydriver of it. And that's why, of
course, the Trump family isnow suddenly into all of this. And

(20:44):
it's why a lot of these other,well, some of the others who are
close to the Trumpadministration or even parts of The
Trump administration are sortof gung ho about it, right? It's
in other words, just thelatest junk bond, the latest subprime
mortgage related instrument,the latest speculative derivative
instrument. It's just anotherone of those. But it enjoys a particular

(21:06):
advantage compared to those,at least at the moment. And that
is you can kind of market itas something that's much more basic
and something that's actually,you know, in some sense necessary,
since after all we needpayment media in an exchange economy.
At least we ignore the factthat there already is a payment medium,
which is the kind of linguafranca payment medium in this country

(21:29):
and has been from the very getgo, namely the dollar. But if you,
if you can get people toforget about that or if you can get
them to think that somehow thedollar is being debased or it's not
reliable because we're in themidst of a hyperinflation, which
is kind of a comical way ofdescribing things right now. But
if you can get people to kindof think that way, then of course

(21:51):
you can get them to think thatthere's an actual purpose to stable
coins or an actual purpose tocryptocurrencies, that it's not merely
a speculative asset, that thesort of secondary market aspect of
this thing is not really thedriver, it's really the primary market
aspect of it. That is to saythe sort of, the actual use case

(22:11):
or the value add, which is,you know, as a payment medium. So
it's got that kind ofconvenient, you know, sort of attribute.
Note that there was a sort ofsimilar story that could be told
with subprime mortgage relatedinstruments 20 some odd years ago.
And that was that. Well,they're associated with real estate,
you know, and real estate onlygoes up.
Until they short it.
Right, exactly right. Junkbonds, I think, were a harder one

(22:36):
to sort of justify byreference to some sort of underlying
real value story. Right. Theywere more transparently magical in
their, in their justificationsas, as proffered in the, in the 80s
by, by people like MichaelMilken. But, but with subprime mortgage
related instruments you couldagain, you could tell a kind of real
value story in addition to thespeculation story. And if you could

(23:00):
kind of emphasize that one,you could make it all seem legit
and on the up and up and itdidn't seem like it was just magical
or just purely speculative orextractive. And I think something
very similar is going on withcrypto and stablecoins now. Right?
They, they, they're hoping thepeople who are the boosters here
are hoping that you think interms of, well, it's an exchange
economy and we need a mediumof exchange. That's a very basic

(23:22):
thing. And since you can'trely on the dollar anymore because
it's being debased and we'rein the midst of a hyperinflation,
you know, and everybody oughtto be getting gold or something else
that's more reliable, it's agreat way to kind of market the damn
thing. I'll pause for abreath, but this dovetails in turn
with the ideological storythat I think you're sort of alluding

(23:42):
to when you mention Hayek. ButI want to make sure that there was
nothing sort of incoherent orobscure in what I just now said.
The funny part of this wholething to me, and I don't know if
it's funny or not, but theidea of getting these competing currencies
in like less sophisticatedcircles is always like a get rich
quick kind of scheme. But onthe other side of this, it's kind

(24:04):
of also targeted. I mean, ifyou think about it, the dollar only
loses its value, so to speak.And I don't even think that's a good
way of saying it with thedollar only loses its standing when
the corruption of the country,which is rife by the way, and the
currency is rejected outright.And so the collapse of the United
States based on some horriblenuclear disaster or foreign entity

(24:29):
taking over the country, orjust the collapse of the government
and everything else, thesekind of fantasies that, you know,
while in some ways may begreat because hey, let's get rid
of this neoliberal horribleapparatus, let's bring about a social
state that serves the people,whatever. That's not what's lurking
around the corner. The sidethat would be the quote, unquote
good guys, if you will, isvery, very overmatched at the moment.

(24:53):
They haven't spread the word,they haven't built up capacity outside
of it. So anything that evensmacks remotely of hey, let's get
ready for collapse is very,very much. I don't want to get too
hyperbolic here, but that kindof right wing, libertarian minded
approach to things, it's allbased on a fantasy of the collapse.
And they're always preparing.It's like the prepper again. I don't

(25:17):
even have anything bad to sayabout people who are trying to be
prepared for whatever. I thisis more of an ideological one where
these folks are all about me,myself and I. They're not there for
the good of the public.They're not there for all workers.
They're not there for any ofthat. They're there for their own
selfish profit. You know, thatideological framework, the driver

(25:39):
behind this, I think the thingthat catches my attention the most,
because it's based onfantasies and quite frankly, watching
some of the insane things thathave been going on of late. Maybe
there is like a managedcollapse of sorts trying to take
place. I don't know. I mean, Ireally don't. I don't want to be
hyperbolic. I don't want toget into that kind of hot take area.

(26:00):
But I mean, that is what youhear. They're anticipating this diet
won't be any good if thegovernment clap. Well, no kidding,
no kidding. Because governmentis. That was the word I'm looking
for. The thing that providesthe legitimacy of the currency because
it has the ability to defendthe currency and it has the ability
to create laws and such thatdefend the clearing of payments and

(26:22):
settling of debts. Anyway, Ijust wanted to make that point.
Yeah, no, I think it's areally important one, Steve. We do
tend to overlook, especiallyin countries, or maybe we should
say in sort of intellectualcultures that have at this point,
fairly long standing historiesof denigrating collective action

(26:43):
and instrumentalities ofcollective action, of denigrating
the state or denigrating anykind of centralization of authority
or power, even for purposesthat require collective agency. In
other words, for purposes ofdealing with classic collective action
problems, which by definitioncan only be dealt with through exercises

(27:05):
of collective agency, thisbecomes then a common form of fantasy
or a common mode of ideationor imagination in, you know, sort
of times of trouble or timesof difficulty. It also, of course,
is very easy in such a cultureto kind of overlook the sort of,
deep down, joined at thehipness of any kind of universally

(27:31):
usable currency on the onehand, and state capacity on the other.
Generally speaking, thegeographical range, or in a more
metaphorical sense, thespatial range within which a particular
currency is usable and cansort of serve as the sort of primary
stable reference point byreference to which even so called

(27:53):
stable coins are kept stable.That range is in general is basically
an historical truism, becauseit's a conceptual truism. That range
is determined by the range ofeffective state capacity, right?
So the broader the range overwhich state capacity can be exercised,
the broader the range overwhich that particular state's issuance

(28:16):
can be used and will be used.It will be relied upon as the lingua
franca. And there's a kind ofsymbiosis here. Too, which it's important
to keep in mind. In otherwords, the direction of causation
is bidirectional. Because onthe one hand, a kind of widely usable
currency sort of presupposes acertain degree of state capacity.

(28:36):
On the other hand, that statecapacity is itself in part a function
of the usability of therecognizability of, and indeed just
the outright use of thatstate's issuance, that state's currency.
And indeed, it's precisely forthat reason, right. That we get the
first nationally issuedcurrency, the first nationally issued

(28:58):
dollars during the Civil Warperiod. Because in a sense, one way
of looking at the Civil War inthe first half of the 1860s is that
the kind of incompleteness ofthe integration of the union into
a single union, theincompleteness of the weaving of
the separate so called statesinto one United States, it was recognized

(29:21):
that we hadn't quite fullyintegrated it yet. And the only way
really fully to integrate itwas to, for one thing, militarily
preserve it when some statesbegan to try to secede. But it was
also realized that the onlyway to kind of fully finance that
effort on the part of theunion, to remain a union, and hence

(29:44):
to sort of complete the actualfull integration of the country into
a single country was tonationalize the banking system and
to nationalize the currencytoo, right? Because as you know,
what was being circulated andwhat were being used as payment media
before the Civil War were abunch of distinct privately issued

(30:05):
private sector banknotes,right? And that system didn't work
out very well. And itcertainly didn't lend itself, another
pun sorry, didn't really lenditself to a fully integrated national
market, right? So I mean, it'snot an accident, right, that to have
an actual national market youhave to have a nation, and in order
to have a nation, you have tohave a state. You have to have, in

(30:28):
other words, someinstrumentality that operates at
that national level in thename of all of those who partake
of that nationhood, right. Whoare part of that. And again, the
Civil War itself kind ofdramatized this. It should have been
obvious all along as a sort ofconceptual truth, but it was sort
of empirically demonstrated,or the deep truth of it was rendered

(30:49):
a matter of what we might callempirical urgency in the 1860s. And
sort of ironically, I think alot of these sort of Hayekians and
these people who are sort offantasizing about lots of different
digital currencies have simplylost sight of that history, lost
sight of those lessons, andare in effect Trying to recreate
a kind of digital version ofwhat was known as the wildcat banking

(31:13):
era before the 1860s. Thatpiece that I published at Stanford,
it's basically acryptocurrency focused journal at
Stanford Law School back in, Ithink 2018, is essentially about
how the sort of digitalcurrency space is just essentially
recreating or an attempt atrecreating the wildcat banking era.

(31:36):
Part of the subtitle of thatpiece is called Wildcat Crypto.
Yes.
Now, given that symbiosis,given the fact that state capacity
depends on the one hand on anational currency for its completion,
while the effectiveness of anational currency requires state
capacity, at the same time itbecomes kind of easy to undermine

(31:58):
either the state or thestate's currency from either side
of the relation, right?Because they're both mutually dependent.
They're dependent on eachother. So you can kind of undermine
the complex from either end,or let's say you can't undermine
the dyad from either side orfrom both sides, of course. And you
can sort of see this, I think,in a lot of the rhetoric and a lot
of the sort of politicalstrategies that are employed, right,

(32:20):
by those who are sort of gungho about the growth of crypto and
the growth of so calledstablecoin issuers and so forth.
On the one hand, they'llattack the state itself or centralization
itself. They'll call itcommunism, they'll call it Marxism,
they'll call it, you know,some kind of fascism. They'll call
it dictatorship, they'll callit tyranny, you know, all of the

(32:42):
usual sort of slurs wherethey'll attack the institution of
collective agency, the mostinclusive such institution of collective
agency, namely the stateitself or the government, which is
just another name for thatcollective agent. Or they might attack
the currency by saying, oh,the dollar's now hyperinflated, the
dollar isn't reliable, it'sbeen debased. You ought to buy gold,

(33:05):
you ought to follow PeterSchip or whatever the hell, or do
both, right? And of course, wesee all of that. We see some people
who sort of focus ondenigrating the dollar. We see other
people who focus ondenigrating the government. And then
we see some people, some ofwhom might be slightly more sophisticated
in that at least theyrecognize that these two things are

(33:26):
joined at the hip conc andpractically, who attack both at the
same time, who will say, youknow, sometimes by reference to,
you know, the subinstrumentality known as the Fed,
right? So they'll say, oh, theFed is, you know, the Fed is, is
a conspiracy or the Fed is, issome kind of a, the product of some
kind of a silent coup or aputsch or something. And the Fed

(33:49):
itself is debasing thecurrency and it's illegitimate. And
it should be ended as, as RonPaul has always told us, you know,
we should end the Fed or weshould end the Federals, the Federales,
we should end the federalgovernment itself and we should also
sort of end the dollar as itsissuance. And I think that that's
a big part of this story. Allthose kind of Randians or Neo Randians

(34:12):
or Neo Hayekians, basicallythe crypto boosters who want to think
of themselves as intellectualsor people who have sort of uncovered
a dirty little secret that therest of us haven't realized yet.
Blofeld yeah, that's the routethey'll go.
One of the things that lendssome credence, not only ironically
the libertarian fears ofcollapse, but also the state capacity

(34:36):
required to maintain acurrency. Yeah. Was the hyperinflation
that the south experiencedduring the Civil War. And there's
an opportunity to see how whenyou don't collect the tax payable
in your currency to maintainits monopoly power and you don't
actually enforce those kindsof relationships, you end up setting

(35:00):
the stage for the actualcollapse of your currency. And I
don't know whether we canreally say the south lost, given
the way it looks in modernsociety today. I mean, it may have
just been a long end around,but if you look back, I mean, let's
be fair, the Confederatedollar completely collapsed. It was
a complete failure. And it wasa failure because it didn't have

(35:22):
the needed structural elementsof backing with attacks, etc. They
ideologically couldn't gettheir head wrapped around it. That
right there is an explanationthat I think people can hold on to
because it happened in thiscountry even though we may not like
the people that did it. Canyou just sort of overlay a little
bit of the collapse of theConfederate dollar as part of a hyperinflation

(35:44):
that these people arescreaming, mad worried about the
US Dollar hyperinflating,blah, blah, blah, currency rejection.
Can you just sort of weavethat in? Because I think that is
key to some of the logics thatpeople hold onto as part of their
monetary conspiracy laden thoughts.
Yeah, yeah. What a greatquestion, Steve. The way I tend to

(36:05):
view the collapse of theConfederate currency, which began
pretty early on, the sort ofinflation followed by hyperinflation
of the Confederate currency,there's two Ways that I think are
sort of helpful to look at.The first is the easiest way so we
can dispatch that one quickly,which is not to sort of downplay
its importance. It's soimportant that it's really easy to

(36:26):
see and so it doesn't reallyrequire an awful lot of laying out.
But basically you can view itas a partial proof of what we've
just been saying, thatessentially the south didn't really
have the capacity to be anation state. And insofar as it lacked
that capacity, it lacked thecapacity to maintain a stable currency.

(36:47):
So the project of aConfederate currency by definition
virtually was as doomed as wasthe product of a Confederate States
of America as an actual nation state.
You are listening to Macro NCheese, a podcast by Real Progressives.
We are a 501c3 nonprofitorganization. All donations are tax

(37:09):
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on Patreon Substack or ourwebsite realprogressives.org now
back to the podcast.
It simply did not have thatcapacity. That was partly owing to
the fact that it didn't havethe sort of requisite degree of diversity

(37:29):
in its economy. It was a sortof staple economy, almost a single
crop economy by and large,which doesn't really make for a powerful
and sustainable nationalproject. And if you note moreover,
that the entirety of the laborforce basically was enslaved and
the greater part of thepopulation were themselves slaves,

(37:51):
you can sort of see it. It wasessentially more like a pirate colony
or some pirate state thananything that could actually function
as a separate state. Andinsofar as that was the case, again,
any currency issuance that itwould try to engage in was doomed
from the get go, just inmaterial terms, for the very reason
that the state itself or theso called state itself was doomed

(38:12):
in material terms. The secondthing though, that's worth noting
here because now this isactually salient for the present.
In other words, this secondway of viewing this is quite relevant
to the project of the US as anation state, is that it was an ideologically
incoherent state as well, andtherefore its currency was doomed.

(38:33):
And what I mean by that isthat insofar as there was a would
be national story or mythos orsort of national narrative or national
self identification that wasconstitutive of southern identity,
at least where we're thinkingin terms of a Confederate States
of America when we use theterm Southern, it was a largely quasi

(38:53):
feudal, quasi libertarianideology. In other words, we're going
to be everything that thecharacter of Washington that we're
calling Washington is not. Sothere's not going to be great central
authority. There's not goingto be integration of this so called
nation state known as the csi.There's not going to be a powerful

(39:15):
central government. We'rebasically going to go the route that
the so called anti Federalistspushed in the 1770s and 1780s, which
was the way that the USdecided not to go when it opted for
Hamilton instead of opting forJefferson and Madison. When we went
the Federalist route ratherthan the anti Federalist route, the

(39:36):
CSA was in essence, at leastone aspect of it that's worth highlighting
here is that it advertiseditself as the road not taken, right?
That back at the time that theUnited States itself was formed,
we could have gone theFederalist direction or the anti
Federalist direction. In otherwords, there could have been a powerful
central government that wouldoperate as a sort of integrating

(39:57):
force, both a politically andhence an economically and financially
integrating force. Or we couldgo the so called anti Federalist
route, which would be very noncentralized, very decentralized sort
of governance structures. Andour claim as confederates is that
we should have gone theantifederalist route. We should have
stuck with the so calledArticles of Confederation that had

(40:20):
proved to be nonviable in the1780s, which is precisely why we
ended up replacing thoseArticles with an actual Constitution.
We should have stuck with theArticles of Confederation, they were
saying, and we're going to dothat now. And that's why we're calling
ourselves the ConfederateStates of America rather than the
United States of America. Butthat was again internally incoherent

(40:40):
because you can't actuallyhave a single stable national currency
without a single stablenation. And you can't have a single
stable nation without somemechanism of collective agency through
which that single nation canoperate. But the whole essence of
the project of the ConfederateStates of America was to be somehow

(41:03):
an anti nation nation. You seewhat I mean? It was to be a non United
States. Again, performativelyinternally incoherent. But it's performatively
incoherent because it'sconceptually incoherent. It's a bit
like saying we're going todraw a round square. That's just
a misbegotten project. It'snot actually a project at all. It's

(41:24):
not a coherent thing. Thing.And so I think that the reason that
that aspect of the failure ofthe Confederate currency as an aspect
of the broader failure of theConfederate States of America, why
that aspect is relevant to thePresent is that of course a lot of
these so called neo Hayekianand Randian and so called anarchists

(41:45):
or anarcho utopian critics ofthe dollar and of the Fed in the
U.S. the sorts of things thatthey're sort of enunciating and the
kinds of things that they'reclaiming are essentially the same
things, right, that the socalled founders of the Confederate
States of America wereproclaiming. It's just another bite
at the articles of theConfederation apple, so to speak.

(42:06):
Again, that's just notcoherent. And if too many people
listen to them, then it can bequite dangerous. Of course, because
the other aspect of a currencyand actually useful and widely used
currency that we haven'taddressed yet, but it's always in
the background anytime we talkabout a currency is the self fulfilling
prophecy aspect of a currency,or of trust more generally, as a

(42:27):
kind of a social solvent or asocial bond. If enough people start
actually losing confidence ina nation state as a project, or in
its currency as aninstrumentality of that project,
then that loss of confidencecan turn out to be ex post justified
precisely because of thatrecursive characteristics that any

(42:50):
currency has, that there's asort of self fulfillingly prophetic
element in its success or its failure.
In my education of economics,which obviously pales to yours. But
just as a aside, the idea ofthe tax as the necessary obligation
to maintain that currency andobviously the course of force that

(43:13):
goes into defending the tax,sure, you can have confidence, but
at the end of the day you loseyour confidence and you go to jail
for not paying your taxes. Itdoesn't matter really. So where does
that balance come in?
Where it comes in is that thetaxing authority, and even the capacity
to enforce the taxingauthority is also a function of confidence

(43:35):
or of belief, or of sign up orsign in or how should I put it, kind
of buy in, I guess we couldsay to pun yet again, or at least
have come dangerously close topunning. If the project of seeking
to undermine confidence in thestate or in collective agency itself,
or in the nation as thenation, if that project or that long

(43:59):
term attempt at undermininggoes far enough, it undermines not
only confidence in thecurrency, but it also undermines
the legitimacy of the taxationauthority itself or the taxing authorities
themselves. And you know, inthis context it's probably worth
noting that even if the IRSwere given the same resources that

(44:20):
it appears ICE is now to be agiven, it's still it's impossible
to have 100% compliance ifit's reliant entirely on actual enforcement.
There has to be not only, Ithink, fear that one might be arrested
or prosecuted or whatever, butthere has to be a widespread belief

(44:41):
in the overall legitimacy ofthe project and of the government
itself as our government andthe state as our state and so forth.
Another way to put this isthat at least historically and especially
in recent decades, the numberof actual prosecutions of tax fraud
or actual enforcement actionsby the IRS just pales as a percentage

(45:03):
of the actual number of actsof compliance with the tax laws by
the general public. And whilepeople's complying with the tax laws
is partly a matter of notwanting to attract the attention
of the IRS or not wanting toget into trouble, I think a lot of
people just do it because theythink of it as just part of what

(45:24):
it is to be a citizen. It'spart of what it is to be a part of
this big family, so to speak.And if people were to lose belief
in that to the degree, that'sprobably a better way of putting
it, because it's variable atany given time how large a portion
of the population believes inthe country as a country, to the
degree that belief in oracceptance of the legitimacy of this

(45:47):
as a single nation state iseroded or deteriorates to that same
degree, or to somecorresponding degree readiness to
pay the taxes. And actualcompliance itself tends to diminish
as well as, and that's thecase even with a well resourced irs.
But of course, one of thehallmarks of legislation in recent

(46:08):
years, and actually evenrecent decades, since the 1990s at
latest, is ever diminishingfunding for the IRS as a part of
total federal expenditures. Ithink largely because rich people
in particular are worriedabout the IRS and so they want to
defang it. So I think thatthat's another piece of the story,
Steve, that's perhaps kind ofimportant here, that when the kind

(46:31):
of Hayekian types or Randiantypes undermine belief in the legitimacy
of the state as a project orthe government, as our government,
they not only undermine beliefin the state and belief in the currency,
and hence confidence in thestate and the currency, but they
can actually undermine theactual value of the currency. And

(46:54):
then via another mechanismthat operates sort of simultaneously,
and that is if the tax takeitself diminishes because people
comply less, then of courseit's a lot easier for inflationary
pressures to start to buildup, you know, as in undermining the
currency. Because of course,as you and I know, another big function
of the taxation system isprecisely to drain some of the purchasing

(47:18):
power out of the economy whenthere are inflationary pressures
on the currency.
Yep. Let's dive into Hayek, ifyou don't mind, really more specifically
what his view on currency wasand the decoupling of it from the
nation. I mean, specificallywhat were his stances?
Well, I think it's easiest tounderstand Hayek as just sort of

(47:40):
part of that broader Austrianschool of thought. He was, of course,
one of those Austrians, justhappens to be better known than most
of them because he leftearlier and some of them never left
at all and became part of thekind of Anglo American world. But
the basic idea was that anymoney as essentially a part of the
economy, and the economyreally should be viewed as a sort
of sphere of human activity orendeavor that's completely distinct

(48:03):
from and kept as far apart aspossible from the state or from politics
or the political realm. Andthat therefore, monies ought to be
privately issued, just asproduction should be privately organized
and privately arranged. Andthere was the usual magical thinking
about the magical powers ofmarkets to self regulate and maintain

(48:25):
integrity of all products andquality of all products, including
currencies, in the same waythat the market would virtually guarantee
that products like automobilesor lamps or laptops are of high quality
because people simply wouldn'tbuy the low quality things. Over
time, the story went, thelower valued or lower quality currencies

(48:51):
or payment media would also bedriven out. Right, because people
wouldn't use them if theytended to lose value or tended to
be unreliable. There are manyproblems with that kind of view.
But I think probably the mostsalient for our purposes, particularly
given the deep connectionbetween money and time that Keynes

(49:11):
sort of famously underscoredand emphasized, is that within a
very short span of time, a lowquality product can prove massively
catastrophic. In other words,long before there is time for the
lack of quality to surface andfor people then to kind of flock
away from the low qualityproduct, everybody can be dead or

(49:35):
killed by it, right? It'd beone thing if every consequence that
flowed from a low qualityproduct flowed slowly from it, so
that everybody had time tokind of survive the low quality product
and then flock away from itand then thereby in effect drive
it out of the market and bringabout its replacement by a higher

(49:55):
quality product, then we'dhave no difficulties, no problems.
But what these guys ignored,of course, was a classic type of
market failure that evenorthodoxy is able to comprehend,
which is that there are someproducts that are in effect public
goods or that have in effectNetwork effects. And anywhere where
you have a product that has asort of a network effect, you have

(50:16):
a product that has thepotential to fall prey to a contagion
effect. So another way to putthis then is that if a particular
currency that's supplied by aparticular private supplier turns
out quite suddenly not to beworth the paper it's printed on after
all, or not to be as reliableas people had thought after all,

(50:37):
and everybody runs away fromit, everybody sort of flees it. Well
then you have a suddenfreezing of all market transacting,
right? There's no transactinghappening anymore. Everything freezes
up, seizes up, shuts down. Andthat of course can be quite catastrophic.
It's a classic spillovereffect. It's a classic what those

(50:58):
orthodox economists will callnegative externalities. And the problem
I think with these Austriansis they overlook even the orthodox
market failures that evenorthodox economists will admit to
being vulnerabilities, letalone heterodox economists who are
typically much closer to thetruth than orthodox economists are.

(51:19):
But that was the basic ideaSteve, is money was essentially viewed
as just another product, justanother asset that people might or
might not make use of. Andwhile Rattlesnake Bank's currency
issued down in the Southwestis better than Puritan Bank's currency
issued up in Massachusetts,then people will flock to it and

(51:40):
use it. It'll a be ofpreferable currency. And in time
the inferior Puritan bankscurrency will be driven out of the
market. It's almost like areverse Gresham's law, right, that
they tended to think that goodcurrency drives out bad. Right. And
in doing that they totallyoverlooked first, the way money and

(52:00):
financial markets actuallywork. But second, classic market
failures that even the mostorthodox, boring, fresh and saltwater
economists in the US and inother so called developed countries
have recognized for ages. EvenAdam Smith, in other words, was more
mindful of and I think moresort of articulate in describing

(52:24):
and laying out the poignancyof various market failures than these
Austrians. I don't know whatthe problem was like sort of a joke
I often tell about them. Idon't know if there's truth in this
joke or if it's just basicallya cheap shot and you know, grabbing
at low hanging fruit. But it'sinteresting that the same city that
brought us Freud and theOedipus complex and hence Oedipal

(52:46):
rebellion brought us the socalled Austrian economists who seem
to regard the state very muchas a Freudian boy views his father,
you know, somethinggratuitously Rebelled against and
hated because he's acompetitor for the attentions of
the mother.
The Oedipus.
Yeah, it's just basically Isometimes refer to the Austrians

(53:09):
as the Oedipal economists or Icall it Oedipus economics because
I can't think of any rationalexplanation for why anybody would
believe the way they believe.That really requires almost a willful
ignoring of reality. And Idon't mean to be dogmatic about it.
I wasn't dogmatically antiAustrian when it comes to economics.
And indeed in many ways therewere a lot of great insights that

(53:32):
some of the so calledAustrians, at least Schumpeter had
about the way money actuallyworks and the role that endogenous
money plays in financinggrowth and development themselves.
Right. There's some reallygreat insights there. But as soon
as they're moving away fromthe positive to the normative, a
lot of them become reallyquite ridiculous. And it's just,
it's flabbergasting and it'shard to kind of come up with a rational

(53:54):
rationalization. So the onlyexplanation that I can find is a
sort of irrational one, whichis some kind of weird Oedipal suspicion
of the state. And maybe thatwas partly itself brought about by
the obvious dysfunctions anddysfunctionalities of the Austro
Hungarian Empire as a would besovereign project. It's pretty hard

(54:16):
for there to be an actualfunctioning sovereign in a kind of
insane polyglot empire of thesort that the Habsburg Empire was
attempting to be back in thelate 19th and early 20th century.
And maybe that played a rolein it. Maybe it was hard to view
the state as even apossibility when you were living
in the midst of what the greatViennese novelist Robert Musil called

(54:38):
cochania. And if we rememberwhat Kaka means in that language,
basically excrementalia. Maybethat's a part of the story as well,
but who knows? They need theirown Freud to sort of analyze them
to the Kaka empire.
Huh.
And of course this is whereKafka comes from as well. And of

(54:58):
course Kafka's portrayals ofpeople with authority also suggest
a certain skepticism aboutcentralized exercises of authority
as well. So maybe it was alljust basically a function of a deteriorating
and centrifugally sort ofseparating empire.
Yeah, I think that there is alegitimate case to be made that the

(55:20):
outcomes of the country, thestate, whatever, are not producing
results that regular people,myself included, would consider to
be good. Yeah, I think thatmost of us look at this and say what
the hell are we livingthrough? And to me, it seems natural
that people would resent,maybe even not trust, maybe even

(55:43):
start to see the state as moreof a plantation master than an actual
benevolent friend that isthere to serve the needs of them
and their families. So I'm,I'm sympathetic to that, right? I
am very, very sympathetic tothat. But I am not sympathetic because
with the current situationanyway, because it's like they're

(56:05):
trying to have their cake andeat it too, all in the same breath.
Yeah, it's a bad, bad government.
We're.
But we're the government. Bad,bad government, but we're the government.
So let's, let's bring thisback to the present and in terms
of this Genius act and give akind of melded analysis of what we've
just talked about with Hayekand the kind of Austrian mindedness

(56:29):
and then kind of put a bow onthe Genius act, the impact it might
have on people and what theymight want to really take away from
not only this podcast, but asthey hear more news about these things
coming up, what they mightwant to stay focused on.
Yeah, sure, great suggestion,Steve. So to go back to the kind

(56:49):
of smiley faced story of theGenius act or smiley faced understanding
of it, which is not completelydevoid of plausibility, or else they
probably wouldn't even try tofoist it on us, it's basically this,
they're sort of saying, okay,look, we have a private sector banking
system. It is however, a kindof public private partnership really,

(57:11):
if you look at how it works,and in particular its connection
to the, the Fed. And oneproduct of that or one upshot of
the public sector element ofthe banking system is that it doesn't
operate quite as efficientlyas it could, maybe partly because
it enjoys the so called softbudget constraint and the kind of
monopoly powers, and hence thecomplacencies that come with monopoly

(57:35):
powers that are all part ofits being sort of integrated with
the state. It's being part ofa, essentially a kind of a franchise
arrangement, as we've talkedabout before, and one realm in which
it's not operating asefficiently as it might, thanks to
the complacency that comeswith its sort of quasi monopoly status

(57:55):
as a state afforded franchiseis in its function as a payment system.
Right. That we use our privatesector banking system as, among other
things, a payments platform.So we've got these competitive currency
arrangements or paymentplatforms that have come about essentially
in response to that becausethere's a demand for more efficient

(58:16):
payments. And in particularwhat we remembered before is often
referred to as real timeclearing and settlement. And so called
stablecoins have beendeveloped as a sort of response to
that inefficiency. And they'reeven called stablecoins precisely
because in order for them tosort of play that role, they have
to sort of maintain valuestability in the way that the dollar

(58:39):
its cheatively does. And sothat's all good and salutary. That's
a great development. However,with that development comes a danger.
And in a way it's like the oldshadow banking danger. You've got
a sector that's essentiallyperforming a traditional banking
function, but that isn't yetregulated as traditional banks are,
and hence is subject tocertain vulnerabilities. In particular

(59:02):
the possibility ofinstability, even when there is a
claim of stability. In otherwords, this particular payment medium,
which purports to be as stableas the dollar itself, if not more
so, might turn out not to beso because it's not really backed
right by anything that isstable or you know, there's not really
enough that's maintaining itsstability for it to be reliably stable.

(59:25):
So if a lot of people end upusing this stablecoin as a kind of
alternative payment medium tothe point where it becomes systemically
important, that is to say, itbecomes such that a lot of people
running away from itsimultaneously could bring about
a kind of crash that islikenable to a bank run. Well then
we would have, you know,systemic harm in addition to harm

(59:48):
to the counterparties, to theindividual transactions. And in the
same way that, you know, abank run was a systemic harm in addition
to a kind of individual orcounterparty harm. And so what we're
going to do is we're going toregulate this industry sort of in
the way that we regulate thebanks, at least where stability or
value retentiveness isconcerned. So we're going to say

(01:00:10):
that only certain pre approvedissuers will be permitted to issue
these so called stable coins.And then one condition of that kind
of preapproval is going to bethese entities compliance with certain
rules, certain regulationsthat are themselves designed to ensure
that there is indeed somestable backup for these currencies.

(01:00:34):
So that in the word stablecoinwill not be a misnomer, will be federally
or governmentally guaranteed.To be truthful, that's essentially
what the Genius act is sort ofdoing. A broader way of putting this
would be to say it is takingcognizance of a new shadow banking
sector, to use that term, thatour friend Paul McCully popularized

(01:00:54):
almost 20 years ago now, 18years ago, to be more exact, Jackson
Hole in 2007. It has takencognizance of a new shadow banking
sector, namely thecryptocurrency sector, or the sort
of subsector within that, thestablecoin industry, and brought
it in from out of the shadowsby now regulating it in a way that's

(01:01:15):
similar to the way that weregulate the banks, at least where
maintaining the valuestability of the asset that's being
issued is concerned. That'sessentially what it's purporting
to do. And there's no reason apriori to think that it can't succeed
in doing that. But there arereasons, a posteriori rather than

(01:01:35):
a priori, to be skepticalabout whether it would really do
that. And the reason for thatin turn is because it does rely on
regulators actually takingtheir job seriously. Right? And ironically,
the same administration that'sbeen pushing this act has been gutting
all of the agencies thatenforce rules and regs that we actually
already have. And so there'severy reason, it seems to me, to

(01:01:58):
doubt, as a sort of empiricalmatter, that the so called genius
act actually would or willpreserve the stability of so called
stablecoins, or will preservethe stability of a financial system
that is increasingly reliant,at least in some of its corners,
on that. But that, of coursein turn sort of lends further weight,

(01:02:19):
I think, to the suggestionthat that's not really what's motivating
the sponsors of this act inany event. And it's certainly not
what is motivating the Trumpfamily when they push it. My guess
would be they actually wantthere to be instability in this sector,
because that's precisely wherepeople make their money, where the
financiers and where Wallstreet makes its money. You don't

(01:02:41):
make any money on Wall streetwithout price volatility in something,
right? All of your money ismade by betting on price movements.
You need prices to be movingor else you're not making any money.
At least if your wholebusiness model is focused on the
secondary and tertiarymarkets, which of course it is. Wall
street is not any longer aboutfinancing production in the primary

(01:03:01):
markets. It's all aboutbetting on price movements in the
secondary financial and thetertiary derivatives markets. And
I think that's essentially howthe Trump family sees its future
as well. It sees its future asbeing, among other things, in this
same sort of realm of bettingon price movements. And the last
thing you want then basicallyeven by definition, is stability.

(01:03:24):
But if you say, oh, we'reregulating, we're going to be maintaining
the stability of so called orself appointed or self described
stablecoins. That sounds a lotbetter, doesn't it?
Yes, it does.
Right then. Oh, here's yetanother extraction opportunity for
us and let's make sure that wecan do it. Because remember, insofar

(01:03:45):
as legislation like this doesget passed routinely by Congress,
it preempts other kinds ofregulatory action that might be taken
either by subsequentCongresses or of course, maybe more
to the point by statelegislatures. Right. You're essentially
saying this is the regulatoryregime now, and if the regulatory

(01:04:07):
regime relies essentially onregulators who you are then not going
to fund or you're going tobring Elon Musk into gut, well then
what you've really done isunder cover of regulating and guaranteeing
stability, you've effectivelyguaranteed the opposite. And again,
the reason you would guaranteethe opposite is because your whole
business model is to profit oninstability, which is another way

(01:04:30):
of saying to profit on pricemovements rather than price stability.
Bob, I really appreciate thetime here. Is there anything else
that we should know before wepart, before we close out? Is there
anything, I mean, obviouslythere's a million things, but is
there anything in particularthat you think that the listener
should know before we close?
The only thing I'd be temptedto add here, Steve, is essentially

(01:04:51):
just a partial reiteration orre emphasis on just the complete
unnecessariness of all ofthis. The complete unnecessariness
of any private sectorprovision of any payment system whatever.
A payment system, it seems tome, is the classic case of a public

(01:05:12):
infrastructure. Especially ina so called commercial society or
monetary exchange economy suchas our own, right, we purport to
be a commercial society, asociety in which commerce is definitive.
We purport to be a monetaryexchange economy. In any such economy,
a payment system is theclassic infrastructure. It's even

(01:05:34):
more essential as aninfrastructure than roads and bridges
and the like, or at the veryleast it's as important as those
things. And there's no reason,therefore it seems to me, not to
provide it publicly, it can bepublicly provided much more efficiently,
much more cost effectively,and dare we say it in this context,
much more stably than it canbe privately provided. And insofar

(01:05:59):
as we rely on privateproviders, be they banks, as we have
been relying on for over twocenturies as the primary infrastructure
for our payment system, or bethey new payment platforms like PayPal
or Venmo, or be they newcryptocurrencies or stablecoins which
are sort of part of that samekind of ecosystem. All of these are

(01:06:21):
suboptimal attempts at privateprovision of essential public infrastructures.
And that means that they'reinherently less efficient, they're
inherently more costly,they're inherently more therefore
deadweight loss, imposing oncommerce itself and hence on economic
growth itself. And they amountto, as I mentioned in a little message,

(01:06:43):
when we were sharing messagesback and forth a while ago, yet another
case of a kind of lawyer andfinancier Full Employment Act. The
more of these things that welet the private sector do, and hence
the more regulation that wenecessitate, in essence, to make
the private sector look morepublic in its functionalities, you
know, the more money we justwaste on basically, lawyers helping

(01:07:05):
people navigate thisincreasingly complex and baroque
sets of rules and regs that,again, I can't emphasize too strongly,
are completely unnecessary. Wecould do all of this on everybody's
smartphones, simply throughthe Treasury Department, essentially
by letting everybody open aTreasury direct account that is not

(01:07:25):
only a space where you can buyand sell treasury securities in vertical
transactions with the TreasuryDepartment, but also dollars and
also horizontally with oneanother, in addition to vertically
between us and governmentinstrumentalities. If we would just
do that, it would be amazinghow much more economic growth, how
much more equity we wouldhave, it seems to me, even data privacy

(01:07:48):
and safety. Because of course,we would now have Fourth Amendment
protections of our data thatdo not apply to private sector financial
data collectors andtransaction data collectors, which
all of these entities alsoare. Which is another aspect of this
story.
I had no intention of takingus here as we're trying to close
out. But I do have to ask you,the idea that the fourth Amendment

(01:08:10):
has stood up. I mean, I'm nothere, yeah, I guess I am here to
undermine some of ourinstitutions as they show a dereliction
of duty. I mean, look at theSupreme Court these days. But yeah,
I mean, I think it's just maskoff kind of moments. But is the fourth
Amendment really intactanymore? I mean, is the fourth Amendment
actually protecting people oris it a false positive? Is it a placebo?

(01:08:34):
No, that's a great question,Steve. And it is far less protective
than it was. Any law students,after the first year, at least once
they've had criminalprocedure, will be able to tell you
that the fourth Amendmentbecame ever more protective over
the course of the 60s and 70s.And. And then the story of the Supreme
Court ever since the 1980s,really ever since the Reagan appointees,

(01:08:54):
actually since some of theNixon appointees even, has been a
steady pullback from all ofthose increased protections that
were recognized over thecourse of the 60s and the 70s to
the point where the FourthAmendment ain't what it used to be.
The thing about that, though,is, of course, that's true of the
Constitution more generally aswell. Right. The Constitution itself
is just not what it used tobe, because the Supreme Court sort

(01:09:18):
of isn't what it used to be.And that's, of course, what leads
me to think to some extent,all of our conversations about any
new laws are to some extentparlor games or to some extent kind
of Parisian cafe conversationswhere we're wearing berets and smoking
Gitanes. It's all, in acertain sense, the theoretical discussion

(01:09:38):
at this point, because the lawitself becomes sort of meaningless
when there is no rule of law.And one way of macro describing what's
been underway for the lastwhile now has been essentially a
steady erosion of the rule oflaw itself. And that takes us maybe
the next time we chat, we cantalk a little bit about the law,
the rule of law, the state,and the great dilemma that Lenin

(01:10:02):
faced when it came to what tothink of and how to deal with the
state itself as a kind ofinstitution or as a kind of social
prospect or a publicpossibility in all of the theoretical
and practical writing that hewas doing up until 1917, and then
what Soviet practice had tolook like in response to the success

(01:10:22):
of the revolution and then theencirclement and the gradual encroachments
of increasingly successfulcounter revolutionary activity. All
of that might sound a bitremote and orthogonal to what we've
been talking about, but Iactually think it's right at the
top core, in a certain sense,of what we've been talking about
over the last hours.
I see it right in the center.I agree with you.
Yeah, it's one way of maybecompleting or adding some necessary

(01:10:45):
perspective to thisconversation, one that's been such
a joy this past hour or sowill be to come back to just what
the rule of law is, what thestate is, what the state could be,
what it should be, what it isnow, what it has been. And the person
to talk about most, althoughnot exclusively here, is Lennon.
I think in his veryintellectual trajectory, we sort

(01:11:06):
of see anticipated, I thinkwhat is going to have to be our own
intellectual trajectory in theyears ahead.
Very, very well stated. Allright, real quick, I want to thank
my friend Bob Hockett forjoining me today. It's been far too
long. I appreciate you makingtime for me and our audience here
and just so you all know whenthis episode comes out on Saturday.

(01:11:28):
The following Tuesday is whatwe call Macro and Chill. It's a get
together, right? It's where weget to talk to each other in a webinar
fashion. And sometimes we havethe luck and the blessing of having
our guests join us. And Bobhas graciously agreed to be a part
of that. So the Tuesday afterthis releases and since I'm recording

(01:11:49):
it right now, I'm not exactlysure when that will be, but I'm sure
once you hear it, you'll know.Hey, there's the episode. It's coming
up Tuesday, right? So join us.It's 8:00pm Eastern Standard Time,
5:00pm Pacific. The link willbe all over the place. It'll be in
Substack, it'll be in ourwebsite, it'll be all over social
media. Please join us and helpus build community to learning these

(01:12:12):
things and kind of applyingthem to a working class perspective
and understanding that kind ofintersection between economics and
working class analysis. Macroand Cheese as a part of the Real
Progressives organization,which is a 501C3 not for profit,
we live and die on yourcontributions. We're a very small

(01:12:32):
group but we're trying to dobig work and so every dollar counts.
If you would consider becominga monthly donor or a one time donor,
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progressives. You can go toour website realprogressives.org

(01:12:53):
go to get involved and Donateand then the dropdown menu there
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our sub stack and become amonthly donor there as well. All
right, without further ado, onbehalf of my guest Bob Hockett, myself
Steve Grumbine, Macro andCheese, we are out of here.

(01:13:19):
Production transcripts,graphics, sound engineering, extras
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