OSD 181: Law as platform
Fans of prediction markets were sad this week to see the CFTC kill PredictIt:
CFTC: Commodity Futures Trading Commission, the US government agency that makes the rules that derivatives markets have to follow
PredictIt: a popular prediction market that has been operating since 2014 under a no-action letter from the CFTC
No-action letter: a letter from a government agency telling you ahead of time that they’re not going to prosecute you for a particular act. This is important in PredictIt’s case, because real-money prediction markets are generally illegal in the US. PredictIt had secured a no-action letter from the CFTC, with the justification that since PredictIt is a university research project, it’s operating within the spirit of the law.
The withdrawal of the no-action letter is effectively the CFTC saying, “After eight years of operation, we’ve now decided that PredictIt is illegal after all. It has six months to get its affairs in order and is thereupon shut down.”
“Government agency suddenly destroys business that had relied on its previous representations” is not exactly news for OSD readers. Where this one gets interesting is that PredictIt’s main competitor may have caused the CFTC to do this.
A startup called Kalshi operates in the same space, and they’re doing quite well. They spent years pre-launch getting CFTC approval, and they cleverly recruited several CFTC employees to join the company, including the former commissioner of the CFTC — he now sits on Kalshi’s board.
Part of Kalshi’s deal with the CFTC is that they need to get approval for new markets they launch. Back on July 19, they sent a letter to the CFTC seeking approval for a “Will <party> be in control of the <Chamber of congress>?” market. Here it is, as covered by Karlstack:
Karlstack goes on to cite this section of the letter, where Kalshi helpfully suggests to the CFTC that PredictIt’s product is illegal, this stuff should really be more heavily regulated, and wouldn’t you know it, Kalshi’s product fits the bill perfectly:
PredictIt exists on a foundation made up of a specific legal framework. A change in that framework — whether precipitated by a new law, a blithe agency decision, or regulatory capture — means the site can no longer exist.
So, guns. Gun companies build on a platform they don’t own. The law, namely. This creates a problem that was familiar to anyone who made apps for, say, Windows 95 or for Zynga-era Facebook: the platform maker can change the rules on you anytime.
The ATF’s recent changes-of-heart on pistol braces and homemade guns are good examples. We wrote up another good example in “OSD 105: The ATF is giving out machine guns, whether you want one or not”:
Tom Bostic manufactures clones of the HK G36. He has a small company called Tommy Built Tactical, and his clone — he calls it the T36 — is top-shelf stuff. Here’s Garand Thumb reviewing his personal T36. Here’s Colion Noir reviewing his. Here’s Larry Vickers interviewing Tom about the gun. Here’s Brownells selling them.
This is a benchmark-setting gun, and it’s about as popular as a $3000 gun can get.
Tom’s been making the T36 ever since 2018, when he got ATF approval to build them. Last week, Tom announced that the ATF had changed its mind.
The bureau informed Tom that it had decided the T36 — the same T36 it approved for sale two years ago — is actually a machine gun, and therefore illegal for normal people to possess. Not just illegal to start possessing or to keep selling. Illegal retroactively. This week every T36 in the country got retroactively poofed into a machine gun.
As a gun maker, the law is the one platform you’re required to build on. Not ideal if it shifts so easily.
There are two solutions to that.
The first is the one Kalshi is apparently pursing. Assimilate into the Borg and control it from the inside. That works well if you’re the company that wins the race. But it tends to work less well for consumers, or for corporate philosophy you have which isn’t compatible with the desires of the government agency you’ve melded with.
The second is to route around the blockage. From “OSD 139: The Structure of Scientific Revolutions”:
Paradigm shifts are contentious, because they’re inherently hostile and destructive to incumbents. So they rarely come from incumbents. Max Planck summed this up in 1950 like so: “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die and a new generation grows up that is familiar with it.”
That quote is more famous in its paraphrased form: “Science progresses one funeral at a time.”
There’s a corollary here: if paradigm shifts are how innovation happens, and if only rebels produce paradigm shifts, then any domain which snuffs out rebels will also snuff out innovation.
This is why 3D-printed guns are important. Yes, for all the freedom reasons. But critically, also for product reasons. Modern firearms are 100-year-old technology. Over that century, sure, there have been advances in materials science and manufacturing (themselves driven by paradigm shifts in those fields!). And those advances have been used to stack up incremental firearm design improvements, such that a gun from 2021 is in every way superior to a gun from 1921. But fundamentally, the two guns work exactly the same way.
In 2031 or 2041 or beyond, maybe that will no longer be true. Whoever makes it untrue, it’s not going to be some big company we’ve all already heard of. It’s going to be a startup, a rebel who probably doesn’t even exist yet. Maybe they’ll do it via 3D printing, or maybe they’ll find some other path. But like any rebel, their path won’t be one that’s pre-approved by the incumbents.
It’s fine to be cordial and engaged with government agencies. It’s hazardous not to be. But ultimately that engagement is not where innovation comes from.
This week’s links
Gen 2 of this cool
gun Gauss accelerator.
Kind of a Cooper’s Rules of overall gun ownership.
For dressing your AR up like an M2 for Halloween.
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