I’ve got a tip that will change your life…

Last week I touched on a handful of stories concerning police and civilian interaction that ended in tragedy. This week I’d like to focus on a story that should serve as a wake up call to anyone who has ever thought “not my problem” because “that stuff only happens to shady characters or people who hang around shady characters.”

David Hooks, 59, of East Dublin, Georgia was the poster-boy for least likely to be associated with a criminal element. He owned a construction company that routinely worked on military bases. Such work required numerous background checks at both the state and federal level (Department of Homeland Security and the Bureau of Alcohol, Tobacco, and Firearms). Short of being vetted by the CIA you couldn’t ask for anyone with a cleaner background. This is not to suggest that those with “clean records” are incapable of committing crimes but rather that such people are statistically as likely to commit a crime as any of us are (I presume my readers also have clean records!).

So what irresponsible action on his part resulted in him becoming yet another casualty of Prohibition (the war on drugs)? Why he allowed his truck, sitting in his driveway, to be broken into and his SUV to be stolen. It turns out the guy who stole the truck, Rodney Garrett, (a self-described thief and meth addict) turned himself in to the cops claiming he found a bag of methamphetamine in the truck and thus “became scared for his safety.” So, based solely on this hearsay of a tip, a warrant was issued to search Hook’s home. Now, if the cops had executed this warrant the way the 4th Amendment intended (and the way it used to be done) there would have been no problem. They would have sent one or two squad cars over to the house, politely knocked on the door, served and then executed the warrant. They would have found nothing, hopefully apologized for the trouble, cleaned up after themselves and left.

But that is not what happened. Those accused of drug crimes, even mere possession, are presumed to be clones of Al Pacino’s “Scarface”, AK-47 at the ready 24/7. So, under a presumption of Hook’s guilt, the Laurens County Drug Task Force silently rolled up his driveway around 11 pm with no flashing lights, jumped out of their vehicles and rapidly approached the back door of the house. David’s wife, seeing dark shadowy figures moving about their house late at night logically concluded that the burglars had returned to possibly steal more vehicles or enter the house. It had only been two days since the first theft and being unaware the thief was in custody they had no reason not to suspect a repeat event.

So David grabbed a shotgun and prepared for a confrontation. What happened next is unclear because there are conflicting stories. The official version is that the police did approach with sirens and lights, they did loudly knock on the door and that when no one answered they broke the door down, saw David holding a shotgun and thus had no choice but to unload their weapons. David’s widow (and the physical evidence) beg to differ with that narrative. There were no lights, sirens or knocking. David was not shot near the back door but rather through an interior wall. In other words, they blindly shot at a wall not knowing what was behind it. Brilliant. Good thing his grandchildren weren’t visiting that night. And just when you thought it couldn’t get any worse, it does. His grieving widow and family had to endure a 44-hour search of the residence. The result? Not even a trace of narcotics was found. Oops.

So, the next time you think you are safe from brutal police actions, just remember, you are just one blame-shifting-meth-head’s “tip” or wrong address away from having black-helmeted thugs appearing in your doorway unannounced and unloading an entire clip into you or a loved one because they moved their hand the wrong way or came around the corner too quickly. No one is safe if everyone is just an utterance away from a weapons-drawn raid on his or her home. Due process is not the Gestapo breaking down your door in the middle of the night and claiming procedure was followed because they left a warrant on your corpse. This is not America. But if this is what America has become, then there is nothing exceptional about it. Prohibition must end. Again.

Details sourced from: http://goo.gl/dxTD1F and http://goo.gl/XX8Nz9

Lifting the Veil

“There’s a reason you separate military and the police. One fights the enemies of the state, the other serves and protects the people. When the military becomes both, then the enemies of the state tend to become the people.” Commander William Adama, Battlestar Galactica (Season 1, Episode 2)

Although the source of this quote is fictional, its perspicacious message is grounded in reality. The only twist is that it is the police who are becoming more military-like. The end result, however, is the same – civilian casualties.

I shouldn’t have to provide examples, but I will as a courtesy for those reading this a few years hence when I suspect recent events will have been lost down the rabbit hole of collective amnesia: the shooting death of Michael Brown in Missouri, the shooting death of John Crawford in an Ohio Wal-Mart, a toddler in Georgia critically injured by a flash grenade, David Hooks shot dead in his home by police in Georgia and so on. If you’d like to read more there is a website dedicated to memorializing these horrific stories. The take home message here is that if cops are going to put their safety above all other considerations, then perhaps they should find a different line of work. “Officer safety” is the oft-cited excuse for the use of deadly force, however the myth that police work is the most dangerous profession just doesn’t line up with reality. In fact in 2013 it didn’t even make the top 10 of most dangerous professions (garbage collector and roofer actually rank higher).

Now I’d like to engage you in a thought experiment. Suppose that instead of the headlines being “local police shoot man dead” they instead read “employee of private security firm at local mall shoots man dead.” What kind of response would we expect in that situation? Would we expect that the employee be given a few days off from work, found to have done nothing wrong and be back on the job within a month or two? If an employee of ANY company did such a thing there would be lawsuits galore. The security company, the employee and the mall would all be sued. The message of a lawsuit is this: someone is accountable.

But what happens when a public police force is involved? The police department can’t be sued. The individual cop can’t be sued. This is qualified and sovereign immunity at work. The municipality involved is sometimes sued in rare situations. Even if they lose the suit there is zero incentive to change. Those “in charge” are not personally held financially accountable. Instead the cost of the suit or settlement is diffused among the taxpayers in pieces so small it is hardly noticed. The normal feedback mechanism that a lawsuit provides (personal financial loss) is thus short-circuited and nothing changes.

Now imagine a world where policing is entirely in the domain of private companies. This is not at all far fetched. Many municipalities (like Sandy Springs, Georgia) now outsource a range of traditional municipal services. In this hypothetical scenario private police companies would carry liability insurance just like all companies do today. Private police companies likewise would require their employee (the cops) to carry their own liability insurance. The cost of this insurance would be directly related to the cop’s training and work history (just as auto insurance rates are related to a driver’s history). Insurers would have an incentive to regulate such police forces in order to minimize the likelihood of paying claims. Reckless cops and poorly managed policing companies would either lose coverage or find their insurance rates so high they couldn’t afford to operate anymore. No municipality would contract a company lacking insurance. The self-correcting feedback mechanism of blatant self-interested profit seeking keeps everyone in line. Insurers regulate out the bad firms so they don’t lose money paying out claims. Police firms regulate out the bad cops so they don’t suffer increased insurance rates. The public sues those firms or cops that manage to slip through. There’s nothing magical here, it works like this everyday throughout the market (when not otherwise distorted through government interventions).

This would be trivial to implement nationwide. Municipalities already utilize a bid process for many other projects; there is no reason why it could not be done for policing as well. True accountability can only happen once the veil of qualified and sovereign immunity is lifted and the self-correction of self-interest found in the market is permitted to function.

ISIS IS US

Hunting conjures up war-like imagery: guns, knives, arrows, booby traps and of course camouflage. Hunting is necessarily an overtly violent affair. Farming on the other hand invokes a more pastoral and peaceful mindset. Sure, intellectually we know killing must occur on a farm, but it is clean and clinical, so that makes it civilized. But dead is dead. The means may be different, but the ends are the same.

No, this is not some vegan polemic. The point is that we too live on a farm otherwise known as the state. Our ancestors and we have inhabited the farm for so long we have contrived the comfortable illusion that orderly and civilized violence isn’t really violence at all. We have convinced ourselves that because we are a nation of laws, of rules and order, and that we engage in the very civilized process of democratic elections to collectively decide the rules of society, then that makes us better than barbaric invaders who hunt their surroundings and take what they want. But whether one is robbed at gunpoint or by way of a Form 1040 one is just as impoverished by the process (and resistance to the latter will end just as violently). This idea of democratic self-determination is nothing more than an illusion. It is a Potemkin village that we have unwittingly built that mollifies our passions and so permits our owners, the state bureaucracies, to extract from us the fruits of our labor in order to parasitically advance themselves.

 

violence is the fertilizer that ensures strong roots for the state

 

In recent weeks we have witnessed the birth of a new state: ISIS. ISIS is still in the “hunter” stage of state formation. They have not yet collected enough “citizens” to form a proper, modern, farming state like we have in the US (and other countries). Once the farm-state is established the overt violence fades from the foreground while intimidation and threats rise in the background. This hunter-state formation is a bloody, violent, disgusting affair no doubt. But it is one that all states pass through, as violence is the fertilizer that ensures strong roots for the state.

Although the hunting and farming state differ in form, their substance is identical. Consider the following: the US says to foreigners, “Do what we say or we will have no choice but to kill you.” Inevitably the US sends drones, missiles, planes, troops, mines, and bombs – all agents of death. Similarly, ISIS tells people “Do what we say or we will kill you.” Those that do not comply are beheaded or shot. But dead is dead. Does it matter if done by the sword or the drone? Or would it be uncontroversial if ISIS killed by lethal injection?

Now consider the people ISIS did not kill – those who capitulated to their demands. They chose to comply with “the law” rather than suffer the consequences. This preference for submission over death is the same glue that maintains order here as well. We have “laws” that are just as arbitrary as Sharia “law.” A law that pertains to anything other than murder, rape or theft is no law at all. It is a mere edict that masquerades as law because some believe the ends justify the means. And why are such pseudo-laws obeyed? Violence. Non-compliance with pseudo-laws here results in the same outcome resisters of ISIS encounter there: death. Consider what would happen if pseudo-law A were ignored (insert any law you find absurd). The individual doing so might be fined first. If they ignored the fine, they might then be prosecuted in a court of the state. If they ignored that illegitimate process the state would send its agents (police) to confiscate property or arrest the individual. If the individual passively resisted and did not comply with “lawful orders” to willingly submit to being jailed then the encounter would eventually escalate to drawn weapons. Further passive resistance ensures this would eventually escalate to an “officer involved” shooting of the non-compliant citizen.

If you ignore the “authority” of the state, if you refuse to believe it has no more authority over your life than does your neighbor, well, the state doesn’t take kindly to that. If we all were to engage in non-violent non-submission to authority, the true nature of the state would quickly become apparent and all would see it is the US pot that calls the ISIS kettle black.

P.S. And no, I don’t “hate America” – I hate bullies that initiate aggression or threats of aggression to get their way.

Scottish Secession: Politics as Usual

Scotland made history last week. They held a referendum election to decide whether or not they should become an independent nation or remain part of the United Kingdom. The measure was narrowly defeated (45% for independence) although strong support among the younger generations ensures this question will resurface in the not too distant future.

However what is interesting about this event is not such much the result but rather that it took place at all. Historically the general trend has been toward greater consolidation of power under a central authority. It is a rare event to find wide popular support in the other direction. Why would this be? Fear and uncertainty. Humans, like sheep, follow a herding instinct. Biologically this makes sense; there is safety in numbers. But there is a point of diminishing returns when group size changes from hundreds to thousands to millions. When the numbers scale into the millions, our hunter-gatherer mathematically challenged brains cannot make sense of such enormous numbers; we fail to realize the gains relative to the tradeoffs are negligible and so we are easily fooled by anyone promoting confederation. We are easily herded by our so-called leaders who capitalize on our fears. But confederations only last if all parties are treated fairly. Democracy itself is inimical to fair outcomes as democracy inherently marginalizes the desires of (political) minorities. Democratic countries are born in the heat and fire of common cause. But, like glass, these democracies will suffer fractures under the pressure from the repeated blows of each election cycle. As disagreements fester, the structure weakens, until eventually the confederation will shatter like so many pieces of battered glass.

What is the take home message of any secession movement? That perhaps we might all live more peacefully if we are allowed to go our separate ways rather than be forced into unions based solely on the opinions of those living nearby. If the Methodist is not required to be a citizen of the Baptist State, even when that Methodist is a minority amongst his Baptist neighbors, then why should anyone be compelled to be part of a group they have no desire to be a part of? Why are religious convictions the only thoughts worthy of such respect?

Another interesting aspect surrounding this attempted secession is that it was done so non-violently. Historically, secession attempts often trigger an overwhelmingly violent response from the “parent” who refuses to let the “child” go its own way. Americans have long lost the ability to rationally discuss the concept of secession given the Pavlovian association it has in this country with slavery. But perhaps Scotland can finally get Americans to view secession in a new light. It is possible for secession to be about something other than racism.

Secession is a fundamental right, namely the right of association, which conversely implies the right to not associate. Secession is the only tool that minority groups have in a political union insofar as the very threat of it may be sufficient to alter the behavior of the majority. For example, Scotland achieved many concessions from the UK. Sadly most of those concession had to do with granting Scotland greater power to tax its citizens, so Scotland is certainly no poster child for some sort of Randian free-market utopia.

In reality this whole process has been nothing more than political parties jockeying for power. Their goal is not a noble quest to unburden their citizens from the oppressive yoke of a foreign regime. No, their goal is to be the ones with their hands on the reins of that yoke. However Scotland is not unique in this respect. Every act of secession has been about shifting power from one group to another. The only benefit secession confers is that as power is divided, it becomes progressively weaker and hence less of a threat. One can only hope that such attrition of power will one day consume today’s “superpowers” leaving behind a collection of small, peaceful and prosperous communities that are too busy and too weak to provoke conflict in foreign lands.

The Voting Games

We are now less than two months from Election Day and the usual furor over voting has moved from low simmer to boil. Wisconsin’s voter ID law was reinstated last week setting off the usual liberal chorus about limiting votes. And in our own back yard, Georgia Republicans are chiming in to their own refrain about too much voting. It seems Dekalb County will now have Sunday voting. The Republicans have taken a perplexingly tone-deaf stance on this issue. Their oppositional argument amounts to: Sunday voting enables more minorities to vote, minorities don’t vote Republican, so this is bad. If the Republicans had any kind of political savvy they would come out in full support of Sunday voting and in fact should one-up the Democrats by supporting Saturday voting as well. It may come as a shock to some, but most people work on Tuesday (the traditional voting day). Perhaps, just perhaps, voting should occur on the day (or days) that maximizes the availability of the majority of the population. If Republicans truly are the friend of business they purport to be, then they would support weekend voting since weekday voting is invariably disruptive to business operations.

On one thing though the Republicans have a point (although not the one they intended nor the one they are being skewered for). Georgia Senator Fran Millar stated “I would prefer more educated voters than a greater increase in the number of voters.” He is of course using the term “educated” in the sense of specific knowledge about the candidates or issues even though his opponents would like to frame his comment to imply minorities voters are simply “uneducated” in a broader sense.

I agree with Senator Millar – the voters should know whom they are voting for and why – and toward that end I propose that in order to be compliant with state law regarding campaigning near a polling place, that all notations of party affiliation be stricken from the ballot during a general election. That means no more “D” or “R” or even “I” (incumbent) next to names. These notations are a form of campaigning insofar as it achieves the same effect that campaigning would: the transmission of information to the voter about a candidate, even if in broad terms. If a voter cannot be bothered to know the name of their candidate, then they truly have no business voting. Such voters are muddling the process with noise and diminishing the voice of those that did take the time to become educated. Imagine the outcome of a vote on the best baseball player if 70% of the people voting know absolutely nothing about baseball? How valid do you imagine those results would be?

With respect to Voter ID laws I have never understood the controversy. In every other organization that uses voting as a means of decision making (clubs, unions, corporations, etc) no one would ever think of allowing someone to vote without first validating that they are indeed a member of said group. Why does this generally accepted principal vanish when it comes to voting in elections of the state? If you are a “member” (i.e. citizen) of the state, then show your membership card (this by the way is the only legitimate place a state can ask its citizens for ID). Why are some so concerned with the rights of others that those others apparently hold in low regard (seeing as how they can’t be bothered to exert even the minimal effort needed to obtain a voter ID card)?

Some argue that little evidence exists of voter fraud involving non-citizens or double voting so why bother checking ID. That argument is specious; it’s parallel would be the operation of a business with unlocked doors and no cashiers because that business determined its shoplifting problem exists only to the extent they occasionally happen to witness someone shoplifting. As the Russians say, “trust, but verify.”

So maybe we can reach consensus here, if we can agree that only citizens should vote, then it follows that once proving one’s citizenship, the form, manner, timing or location of said vote casting is immaterial.

Where’s the harm?

If you’re anything like me you’ve likely always had a strange sense when buying a car that something wasn’t quite right, a sort of tingly spidey-sense that that you were the punch line to an inside joke. New car dealerships are a fraternity unto themselves. But unlike college fraternities, they work hard to keep newcomers from joining their ranks. The Internet has done much to reveal what the exclusive walls of membership formerly protected. It is not just information that has been freed, but also new modes of doing business. But last week we learned the lengths that these old school fraternities will go to in order to fight change and retain the power structure of their very unique cartel (cartel – get it?). The Georgia Auto Dealers Association filed a complaint last week  with the Georgia Department of Revenue claiming that Tesla Motors (a manufacturer of high performance, all electric cars) should be barred from selling any of their vehicles in Georgia because Tesla apparently violated some byzantine state statute that limited manufacturer owned auto outlets from selling more than 150 cars in a year. Tesla sold 173. Yes, I know, what monsters. Off with their heads.

Whether or not Tesla actually sold more than 150 is immaterial. The fact that such a law exists brings into shocking relief the ends to which automobile dealers in the state of Georgia (and indeed many other states, Georgia is sadly not alone) will go to in order to protect their own financial self-interests. Of course protectionist fervor is not how the dealers spin this. They claim they are only trying to protect the public (what selfless servants they are). Without independent dealers, manufacturers would be able to set strict non-negotiable prices, ignore warranties, and otherwise cause the marketplace to collapse into a top-down manufacturer driven oligopoly (according to a bit of NADA propaganda). So clearly in order to protect competition we must limit competition.

What these manufacturers fail to realize is that were these fascist, depression-era laws repealed it would not result in the overnight demise of the independent dealers. Rather it would mean dealers would have to compete with manufacturer outlets on price, service, or quality. Likewise the manufacturers would have to compete in precisely the same manner. At the end of the day the manufacturers don’t really care how their cars are sold, they just want them sold. If independent dealers can offer a manufacturer the ability to sell its cars more efficiently than that manufacturer can sell them (dealerships are a large capital investment after all), then they’re going to choose the cheaper, and thus more profitable route.

In short, the dealers are afraid of competition. And I don’t necessarily blame them. Who wouldn’t love to have one’s ability to earn a living protected by state sanctioned violence? Who wouldn’t love a system that created an artificially high barrier to market entry in order to keep out newcomers with new ideas that might otherwise eat into your 1940’s business model. But cartels, syndicates and state protected oligopolies are not consistent with the principals of liberty; namely that unless I’m using violence or the threat of violence to influence your actions, then you have no right to interfere in my actions irrespective of whether or not you believe it may “harm” you in the future. All competition “harms” another (whether it be economic, social or sport). But the “harm” of competition has a beneficial silver lining. It compels one to work harder, to do better and thus benefit the consumer and themselves in the long run. But if possible “harm” to someone becomes the litmus test for state intervention then I dare say we all belong in jail.

Tax It Your Way

The recent announcement that Burger King will merge with a Canadian food chain (Tim Hortons) and shift its corporate headquarters from the US to Canada has predictably tripped the frothing at the mouth reflex of tax-hungry statists. Why? Because such a merger and move (known in tax lingo as “inversion”) means that Burger King no longer need pay the 35% US corporate tax rate (one of the highest in the world and despite popular media propaganda that focuses on a sliver of corporations avoiding it, it is in fact paid by 99.5% of US corporations) on income earned outside the US (they will still pay 35% on their US income). They instead will pay the much lower Canadian rate of 15%.

“Unpatriotic” is the word President Obama has used in the past to describe such tax inversions (which are completely legal) and his retinue are now all too eager to join that chorus – uncritically parroting the approved talking points put out by the administration. This sentiment of “economic patriotism” demands that one’s love of country directly correlate with one’s willingness to hand over whatever the state demands.

Obama has also said tax minimization may be legal but it’s “wrong.” Really? This is a rather warped interpretation of right and wrong. Traditionally “wrong” is reserved for those actions that violate one’s natural rights (theft, murder, rape). If Mr. Obama’s use of this term is technically correct then it betrays a scary proposition: individual ownership can not exist because all is owned by the collective, otherwise how else could it be wrong to keep one’s property, unless it was never yours to begin with.

This sentiment is shared by both the left and the right insofar as both are statist at their core. While they may differ in degree, they stand in solidarity on substance: the role of the individual in society is to serve the interests of the state. A vehement disagreement over whether 35% or 25% is a “fair” tax rate is much sound and fury signifying no disagreement. Shall the master allow his slaves one hour or four hours of rest? Clearly those in favor of one hour are godly and moral men while those supporting four are raving lunatics. But truly insane is the man who says slavery itself is immoral. Pay no heed to him, what he proposes would never “work” in the real world. So you see dear citizen, the profits earned by Burger King (or any company or person) are not really theirs. It belongs to us all, to the state, to the Homeland. How dare you attempt, even legally, to reduce by one red cent your contributive fair share to the communal pot?

The usual sort of justifications for unbounded taxation is that because a company receives benefits from the state (courts, policing, military, roads, research, education, etc.) this therefore establishes an obligate contractual relationship necessitating payment (of a unilaterally determined magnitude) for such benefits. If that is indeed true, then mobster-extorted protection money is equally legitimate.

Ignored in this false choice analysis is the possibility that these supposed benefits of the state would exist in the absence of the state. Naturally they would exist except in the minds of those bereft of an entrepreneurial spirit. The only difference is that privately produced “public” goods would be of higher quality and lower cost. If you’re unconvinced of this fact, just insert the word “public” in front of any good and consider which you would prefer in relation to the privately provided alternative (e.g. toilet, school, transit, food, clothing, car, healthcare, etc.) The difference in costs and quality between tax supported goods and market provided goods is the true dead weight tax cost and represents a net loss to society no different than if the government paid a million men to dig holes and fill them in.

It seems the tax-hungry-economic-patriot can’t decide what they want. If you protest the system they claim you’re unpatriotic and hate America and should leave. But when you take their advice and do leave you are then targeted with the vilest of epithets. But that sort of inconsistency should be expected; the ethics of the statist is consistently inconsistent insofar as they owe their allegiance to the mantra “the ends justify the means.”

If you have the right to work…

What is hypocrisy? Hypocrisy is a chain smoker that proselytizes on the dangers of smoking. Hypocrisy is an outraged thief discovering he’s been robbed. Hypocrisy is the state taking away our rights and then warning us to be vigilant against those that would deny us our rights. Or perhaps that is irony – I’m never really sure on that one. This past week my family and I stopped into an Arby’s for a quick dinner. Hanging on the wall adjacent to the registers was the most patriotic looking DHS labor rights poster you will ever see (red, white and blue with an overt flag theme to top it off). It was one of those silly “workers rights” posters that the government forces employers to post in effort to ensure that employees everywhere are aware that without the helpful fist of the state they’d all be earning 5¢ an hour on 16 hour shifts. Over the years these posters have grown in size from a mere 8.5×11 sheet to blockbuster movie poster sizes. I don’t know if this particular Arbys posted it where the customer’s could read it because they wanted their clientele to know they are doing their patriotic duty to keep them ‘ferners from stealing our jobs or if they simply ran out of wall space in the back.

In any event, what caught my eye was the prominent byline, “IF YOU HAVE THE RIGHT TO WORK, Don’t let anyone take it away.” That most people absorb this without comprehending the underlying violation of their rights is a masterful stroke of state propaganda. It first takes root within our public school system and is then nourished over a lifetime of exposure to popular media state-apologist indoctrination. People now blindly accept that our rights come from government. Most have the Bill of Rights backwards; it did not establish our rights, it simply delineated what was already ours to begin with. This enumeration was done in order to keep at bay those who believe that all that is not permitted is outlawed (a view clearly contradicted by the 10th amendment).

So at the very first word, “IF,” we find evidence of an egregious violation of a basic human right: the right to work. There can be no “if”; all humans, everywhere and always have the right to work. To work is to provide for oneself (or those in your care) with those things that make life possible (food, clothing, shelter). To deny this right is tantamount to murder. Of course by “right” I mean that in the negative, not positive, sense. No one may interfere with my right to work, however no one is obligated to provide me with a job either. If no one will (willingly, free of state interference) employee me then I am free to work for myself.

The sentiment expressed on this poster transmutes this negative right into a positive one through mere fiat, that is, the right to work becomes the privilege to work, a privilege that may only be granted by the state. So naturally once the state has given you something valuable, they want to foster a sense of dependency and gratitude by warning you to remain vigilant against those who might try to do the very thing (deny work) the state is doing through their E-verify program.

This is where the hypocrisy gets really rich. The big concern about all of these “illegal” immigrants is that they are coming here and acting as a burden on our social safety net. But, if they had jobs they would not be a burden. So naturally the response is to make it impossible for them to obtain jobs by filtering all potential employees through the E-verify net thus thrusting them into the open arms of state social support. Brilliant. E-verify does not change behavior; it merely removes the least bad option and replaces it with an even worse option.

Even if you are in the “keep them out” anti-immigration crowd, do you really desire to see America become a neo-fascist utopia where employers are mere puppets of the state? Where providing for oneself depends on the integrity of a US government database that is assumed to never produce false negatives? Where we have become so xenophobic that we willingly turn our borders into prison walls and slowly transform America into a permission based society, where all is forbidden except that which is blessed by the state? Is that price not too high?

Stop mining!

Yes, I am a big dumb idiot. I, like many others, fell prey to the bitcoin frenzy last fall as the price continued to climb, and climb and climb, and just when I thought it couldn’t go any higher, it did. Although I had managed to purchase a small amount of bitcoin (0.16 BTC)  at the Cryptocurrency conference in Atlanta (October 2013) for the now-unbelievable price of $120/BTC (using a bitcoin ATM they had there), I felt I had for the most part missed the boat on this whole bitcoin thing. But better late than never. I looked into mining equipment. Too expensive and too complicated (I’m an old school Mac guy, I’m not into compiling my own code in Ubuntu just to get some command line miner to work – I want point and click). But this cloud mining thing looked interesting. I knew just enough about Austrian economics to dupe myself into believing the business model of cloud mining companies made sense (“they are simply renting out time on their hardware to make an additional return on it” I thought). I read stories on line about how mining is for suckers, that the difficulty changes too quickly to make anything, but I dismissed those in my fervor to get some bitcoins at a really good price. I did some back of the napkin calculations that showed I could indeed make my investment back and then some. I was convinced! As it turns out, lazy, back of the napkin calculations don’t work. You actually need to do the fully detailed calculations… which I did not do until several months into it at which point it hit me like a ton of bricks, “YOU’RE AN IDIOT!” – it is mathematically impossible to make money in cryptocurrency mining. But so many people are doing it you say? That’s because they are wishful thinkers like I was or simply have not done the math yet.

From a strictly basic economics approach it should have been obvious to me that this business model made no sense. Why would you spend money on a piece of hardware and then you yourself not use it but rather rent it out at a rate of say $100/period even though if you used it yourself you could make $150/period? That’s the premise behind cloud mining: make more than you spent, otherwise what is the point. Intuitively it seems to make sense since we invest in all kinds of assets that produce returns (stocks, bonds, depreciable capital equipment, etc). The key difference here though is that if a stock produces a 2% dividend for me the stock itself still has value (assuming no insane market crashes). I can sell that stock at some later date for as much if not more than what I paid, and even if I sell for less, as long as the loss there does not exceed the dividends produced during that period, I still have realized a profit. But, with crypto currency mining the asset your are purchasing is simply time. As soon as it is used it is gone and worthless. When a mining contract is over there is no underlying asset for you to sell. In other words, for crypto mining to work you have to expect an investment return that approaches Ponzi-esque levels: a minimum 100% return during the holding period (of the contract). Even if we assume the crypto price in terms of fiat is increasing, the numbers still do not work. Why? Because you could have simply bought the crypto on the same day you started the mining contract and would have realized the same gain due to fiat inflation.

For example if it is $1/BTC on day 1 and you spend $1000 to mine for a year, you could have just bought 1000 BTC instead. So let’s say you mine for a year and only mine 500 BTC, but the price has gone to $10/BTC. You think you made out well because you spent $1,000 but now have $5,000… but you must recognize that you could have just bought 1000 BTC on day 1 and would now have $10,000. The loss must be accounted in the crypto currency you are mining relative to what you could have bought at the market price on the date the contract started.

I actually also dabbled in some Litecoin mining as well and bought one of those pre-built rigs off of Ebay. It was mostly plug and play… but it was extremely LOUD and HOT. As I considered where I could relocate this rig in my house I decided to run some detailed calculations to determine when I would turn a profit. And that is when I discovered I would never get my money out of what I paid for the rig, let alone all the electricity use as well. So I made the smartest move one can make when mining; I sold the rig. Because I sold it a mere 3 weeks after I had bought it the difficulty level had not changed appreciably and the market rate for the rig was the same. I sold it for exactly what I paid for it and managed to pocket the litecoins produced. So in all I netted about $100. So it is possible to make money mining but you must (a) buy the actual equipment so you have something to sell when done and (b) mine for under a month so difficulty increases do not depreciate your equipment by an amount exceedeing what you made in mining (as denominated in the currency being mined). Of course that is not really practical, but it is possible. The only other way to make money is if you just happen to already own the hardware needed to mine and can build a rig yourself (and live where electricity rates are low). Of course you must factor in the opportunity cost of any other endeavors you could have participated in that could have made more of a return. It wouldn’t make much sense for a neurosurgeon to waste his time building a rig, although for someone in high school or college it might (if they are not employed) in terms of opportunity costs.

So to help people out I have put together a spreadsheet using Google docs where you can estimate mining returns. It is set up for BTC but one could do the same for any crypto currency, the principle is the same. The document shows an example of the currently most expensive Cloudhashing.com mining contract (1 TH for $2999) using the Global Hash rate of 8/19/2014 as the starting point and an average change in difficulty of 20%. With those numbers you can see you lose 75% of what is spent. The only way to make a return is if difficulty changes were 1% or less (or they could cut their price by a factor of 4). The spreadsheet is Read Only on the web but you can download it and then make changes to it offline. Trust me, no matter what mining contract you see, plug it in here and you’ll see it’s a loser. And if it is a winner then you can be sure it is a “pre-order” contract. Don’t do it, trust me. I fell for the pre-order Butterfly Labs mining contract last December. Had they delivered that product on the day I purchased it, I would have made a return. But they knew it would be months before it was delivered so they could price it aggressively such that it appeared to be a money maker. Six months later after no delivery on the contract I luckily qualified for a 100% refund (which I had to wait another 45 days to get). But to their credit they did finally refund all of my money. I made out far better getting my money back than if they had delivered the contract in the February time frame originally promised. Their reputation for taking money and not delivering for months (if ever) suggests to me they are simply using their customers as a source of 0% financing. They collect pre-order money from suckers like me, then hold our money for 7 months, and then finally return it with 0% interest. But like a Ponzi-scheme, this will only work as long as they continue to entice new suckers into doing the same. I will give them the benefit of the doubt and assume it is not a pure Ponzi scheme, but rather that they are using the “loaned” funds to invest in their business and grow it. I’m just glad I got out when I did.

Cloudhashing.com is a bit different from Butteflylabs.com. Cloudhashing actually delivers their contracts when you buy them, it’s just that given their pricing it is not possible to ever make a return. They have a “revenue reinvestment” scheme which sounds like it makes sense; reinvest your mined returns in order to stay ahead of the difficulty changes. But all you’re doing is running to stand still if you participate in the RRP. But in theory and in practice it can’t work as it falls prey to the same problem of mining itself; you’re better off just buying the BTC. Ultimately I think they and all other mining companies operate on the same principal. Instead of investors they have customers who freely give them their money, they use that money (risking none of their own) to buy the equipment, they then charge the customers 10% of their return (and may very well be mining on the side using the equipment paid for by their customers). A parallel would be this: I sell the ability to receive a dividend from some penny stocks. You give me $100, I use that $100 to buy shares of penny stocks. Those stocks pay a $2 dividend per month. I give you $1.80 and I keep $0.20. After 1 year you’ll be lucky to have made $20 (thus an $80 loss), I’ll have $2, and then the “contract” is over. I’m making $2 per account/per year risk free by using your money to buy the stock. After a year the penny stocks are worthless so there is no way to recoup that initial investment. Now all I need to do is scale up to a massive level and make a pretty decent amount of money risk free.

So, this whole essay begs the question, “If it always make more sense to buy than to mine, shouldn’t it be impossible for any crypto currency to get off the ground?” Yes, quite literally that is true. But, fortunately, turning a profit is not the sole motivation behind everyone’s actions. I’m certainly not saying turning a profit is bad, simply that people do things for reasons other than profit. A painter might paint his whole life for pleasure and never realize a profit from that endeavor. Then when he dies his painting shoot up in value and then people are buying and selling them for profit. In a sense that his how crypto mining operates. The miners don’t make anything, but the traders who buy their product do.

Mine because it is fun. Mine because you want to help grow the market. Mine because you want to be a part of history. Mine for any number of reasons, just don’t mine because you want to make a profit. You won’t. The only people that make a profit in the crypto currency game are those that are (a) very lucky and found good deals on hardware or (b) people selling mining equipment or mining contracts. If you just want to make money then just buy what you can afford to lose. It is a purely speculative market so the only profit you’ll see is if the crypto you buy gains value relative to other goods.

So there you have it, the perspective of a former miner and cloud miner on why neither makes any sense if your sole intention is to make a profit. I hope this information gets out there and helps others to avoid buying mining contracts that are a total loss from Day 1. I was a victim of my own lack of due diligence and placement of trust in companies that I expected to deliver what was implied (net gain) by the nature of the product. That’s the free market, if you aren’t careful you can get hurt. Well now I’m here as part of that market to warn others away from participating in these “products”. Eventually there will be enough of us warning everyone else that these companies will simply go away, but sadly not without having made off with a lot of money. Caveat emptor.

Postscript Jan 9, 2018, Just found this article, guess my speculation on what Butterfly Labs was doing was vindicated: