Sad news from down under

[Update:  Check out the comment section, it looks like the US is ultimately to blame for this too.  Everywhere I travel I hear people complaining about our government’s arrogance.  People tell me “I used to look up to the US.”  I no longer hear anything positive about the US.  Meanwhile we have a welcome sign out for corrupt officials from all over the world who want to launder money here in real estate, and we couldn’t care less what the rest of the world thinks about it.  Do as we say, not as we do.  What a disgraceful government. Just one more issue the media will ignore, as they cover the clown show called “debates”.]

When I visited Australia and New Zealand back in 1991 they seemed like much freer countries than America.  Probably they still are.  But I was disappointed to see this:

Over the past seven years, the team at Victoria Link have been running New Zealand’s only prediction market, iPredict. It is one of only three “commercial” prediction markets operating globally. We’ve really enjoyed turning it from research into a practical tool which has become part of the New Zealand political narrative.

Prediction markets function based on the assumption that people will be more accurate when they back their opinion with money. There is a wide academic field studying this, and it could one day result in more accurate forecasting of a huge variety of events and even change how governments make decisions.

As prediction markets do not comfortably fit within any existing regulatory boxes, we have been working closely and positively with the Financial Markets Authority (FMA) to enable us to operate economically within the financial market regulations.

Regrettably the Ministry of Justice has not been so positive. We applied for an exemption from the Anti-Money Laundering and Countering Financing of Terrorism Act. We believed we would secure an exemption due to the limited possible investment into iPredict trades and the small nature of the Prediction market transactions.

Our application has been declined by the Minister, Simon Bridges, on the grounds that we are “a legitimate money laundering risk”. This is essentially because we have no customer due diligence checks. He considered the level of regulatory burden is proportionate to the risk. He formed these views without any discussions with us.

We are an academic not-for-profit organisation and our agreement with the FMA dictates we place caps on transactions. For example, over the past seven years, we have handled a total of 3,782 withdrawals, with an average trader net worth of $41. Our withdrawal process is lengthy and we are a low risk of money laundering.

Because the cost of compliance is too high, we are forced to wind up operations in NZ.

It seems that it’s not just the US government that is anti-science, other governments are too.

Over at the blog Offsetting Behavior they printed an email from Glenn Boyle, who helped set up iPredict:

When we were setting iPredict up between 2005 and 2008, all the holdups were technological and financial, not regulatory.  Liam Mason and others at the Securities Commission were generally helpful and tried to eliminate roadblocks rather than put them in our way, and there certainly didn’t seem to be any impediments thrown at us by ministers.

I recall the money laundering bogeyman coming up only once, and then only in jest.  I don’t remember the exact wording, but it was something along the lines of “you’ll probably get hit with money laundering charges if the Americans invade or we ever elect a communist government.”  Ouch…

This wasn’t taken seriously at the time though.  Looking back through all the various memos etc I prepared during the 3+ years iPredict was being set up, I can’t find any reference to money laundering regulation at all.  I guess we were naive!

Ironically, it was a conservative government that put iPredict out of business.  Can’t have people laundering $41, which is what, $28 in US money?

HT:  Stephen Kirchner


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28 Responses to “Sad news from down under”

  1. Gravatar of E. Harding E. Harding
    26. November 2015 at 17:54

    “When I visited Australia and New Zealand back in 1991 they seemed like much freer countries than America.”

    -What!? How? I’ve always had the opposite impression of them (though I’ve never visited either).

  2. Gravatar of Eric Crampton Eric Crampton
    26. November 2015 at 17:55

    I’m livid about this. But note that the Americans have strong armed NZ into insane anti money laundering regs. The Vogons didn’t have to be this officious about things though.

  3. Gravatar of E. Harding E. Harding
    26. November 2015 at 18:24

    Oh, and happy Thanksgiving, Scott.

  4. Gravatar of Major.Freedom Major.Freedom
    26. November 2015 at 18:26

    “We applied for an exemption from the Anti-Money Laundering and Countering Financing of Terrorism Act.”

    So…you’re a terrorist and money launderer by default until you can convince a terrorist money laundering state dept otherwise?

    Why would anyone have to “apply for an exemption” from terrorism and money laundering?

    You wanted big government (what you call small government), so you got it!

  5. Gravatar of Eric Crampton Eric Crampton
    26. November 2015 at 18:31

    We didn’t want it. The Americans forced it on us under threats of bad stuff for small countries that depend on international financial connectivity. Or so I am told.

  6. Gravatar of Ray Lopez Ray Lopez
    26. November 2015 at 20:17

    This is unfortunate news. Sumner’s penultimate sentence (“ironically, it was a conservative government that put iPredict out of business”) summarizes what some people (probably Public Choice advocates) say about government: there’s no real big difference between Left and Right parties once in power.

  7. Gravatar of Mark Thomson Mark Thomson
    26. November 2015 at 20:26

    Your belief that this is a conservative government has very little basis. NZ Prime Minister Key stated himself in an interview just last weekend that his government is essentially the equivalent of the Democrats in the US and that he personally is probably to the left of Obama – http://bit.ly/1jijtta.


    “Obama, I think in a lot of ways we are just easy. I’ve been around the whole time he has been around. We speak English. In our system he’d probably be almost right of me. The Democrats are, on our basis, very similar politically to where [National] are. He’d be stronger on climate change, for instance, and maybe the odd issue but generally speaking, pretty right wing, relative to our system.”

  8. Gravatar of ssumner ssumner
    26. November 2015 at 20:37

    Thanks for that info Eric, I sort of guessed our government was somehow behind this. Everywhere I travel in the world now people complain about the US government—record numbers of American are giving up citizenship to get out from under the onerous regulations.

    And for once Ray is right, it makes no difference which party is in power.

  9. Gravatar of ssumner ssumner
    26. November 2015 at 20:50

    Mark, Yes, I’m not a complete moron, I’m aware that other developed countries are to the left of the US. I meant he’s relatively conservative by NZ standards.

  10. Gravatar of Mark Thomson Mark Thomson
    26. November 2015 at 21:16

    Actually Scott I think there is a little more to it than just broad spectrum differences between the countries. As a commenter on this issue on another blog said, “This isn’t the National Party of John Marshall”.

    Even more significant I think is the fact that NZ operates under a proportional representation electoral system that rewards parties that capture the political center. And Key has done that masterfully, even to the extent of instituting welfare payment increases greater than anything advocated by the main opposition (supposedly left-wing) party.

    Part of what has allowed him to do this is that in NZ there are two parties to the right of the government, the Conservatives who are mainly culturally conservative, and ACT who are more a classically liberal party. So even in NZ terms it’s hard to call the Key government ‘conservative’.

    BTW, I said your belief had little basis. I didn’t say you were a moron.

  11. Gravatar of Ross Irwin Ross Irwin
    26. November 2015 at 23:20

    It’s always going to be a difficult analysis comparing the antipodes to North America.

    Australia consistently rates higher than the US in economic freedom rankings.Socially we have highly restrictive gun control measures. America has a highly militarised police force. Civil forfeiture laws don’t exist here. Australia’s opposition Labor party announced on Tuesday that they would raise the price of tobacco to AUD$40 a packet if elected.

    Both countries have their advantages and disadvantages. I’d say a lot of this has to do with the government of the days priorities.

  12. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    27. November 2015 at 05:24

    I don’t think left and right mean what they used to anymore. I think all governments are pro-stablishment (the structures we have inplace all over the world cannot promote change, they just add new and sometimes comflicting regulation). We need to recognize this is not working so well. We need a true freedom shock.

  13. Gravatar of Scott Sumner Scott Sumner
    27. November 2015 at 06:52

    Mark, Well that’s an entirely different argument. I was reacting to your claim that in most countries center-right parties are not “conservative” by American standards. To which I responded “Duh”.

    Conservative governments in Britain and German sharply increased the minimum wage. A conservative President in America expanded the welfare state in the early 2000s. And of course liberal governments often do conservative things.

  14. Gravatar of Benjamin Cole Benjamin Cole
    27. November 2015 at 08:25

    Another under-rated thinker was Ben Franklin.

    “He who trades freedom for security will soon have neither.”

    Can you top that?

  15. Gravatar of TravisV TravisV
    27. November 2015 at 09:09

    Hmmm, interesting post….

    http://krugman.blogs.nytimes.com/2015/11/27/iceland-ireland-and-devaluation-denial

    Krugman: “Iceland, Ireland, and Devaluation Denial”

  16. Gravatar of TravisV TravisV
    27. November 2015 at 09:36

    Less insightful than meets the eye:

    http://www.nytimes.com/2015/11/22/books/review/the-money-makers-by-eric-rauchway.html

    Jeffry Frieden: Book Review: ‘The Money Makers’ by Eric Rauchway

  17. Gravatar of TravisV TravisV
    27. November 2015 at 09:42

    Re: the book review above, DeLong praises it:

    http://equitablegrowth.org/must-read-jeffry-frieden-the-money-makers-by-eric-rauchway

    Meanwhile, I can’t help but think of this post:

    https://www.themoneyillusion.com/?p=3316

    “We’re all Austrians now . . . make that Keynesians.”

  18. Gravatar of Major.Freedom Major.Freedom
    27. November 2015 at 17:54

    “Check out the comment section, it looks like the US is ultimately to blame for this too. Everywhere I travel I hear people complaining about our government’s arrogance. People tell me “I used to look up to the US.” I no longer hear anything positive about the US. Meanwhile we have a welcome sign out for corrupt officials from all over the world who want to launder money here in real estate, and we couldn’t care less what the rest of the world thinks about it. Do as we say, not as we do. What a disgraceful government. Just one more issue the media will ignore, as they cover the clown show called “debates”.]”

    Why so harsh? Aren’t the people in charge of state institutions like the Fed all deep down really “nice guys”?

    Hahahahaha

  19. Gravatar of TravisV TravisV
    28. November 2015 at 07:27

    Today, Brad DeLong woke up and decided to sound like a market monetarist:

    https://www.project-syndicate.org/commentary/the-trouble-with-interest-rates-by-j–bradford-delong-2015-11

  20. Gravatar of Ray Lopez Ray Lopez
    28. November 2015 at 08:15

    @TravisV – thanks for the links. Thought experiment: *assume* money is neutral. Then work backwards and explain why the current economy has such low rates. If you reach an absurd conclusion, then obviously the initial premise is flawed and money cannot be neutral.

    I’m all ears. I wish our host would even blog on this point.

  21. Gravatar of Ray Lopez Ray Lopez
    28. November 2015 at 08:24

    @myself – the closest I’ve seen is fn. 4 of this 1998 Krugman paper: http://www.brookings.edu/~/media/projects/bpea/1998%202/1998b_bpea_krugman_dominquez_rogoff.pdf

    Krugman: “This summary of the standard remarks about Japan does not contradict my earlier assertion that almost everyone believes that money is approximately neutral. My point here is that to my knowledge nobody has made this connection; that is, nobody has noticed that to say that monetary expansion is ineffective at raising output is equivalent to saying that it is ineffective at fighting deflation, and that this conflicts with the almost universally held belief in the near neutrality of money. “

    (makes no sense, since Krugman assumes that lack of demand from the private sector somehow negates the neutrality of money, when central banks print it and nobody wants it but member banks off-loading junk paper onto the Fed, which was the US pattern post-2008 until 2011)

  22. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    28. November 2015 at 08:36

    DeLong is on the right track, but he isn’t fully in touch with his inner monetarist. The reason Taylor is wrong is that he (as I commented a while back when he told his story at Brookings about what Paul Volcker said to James Tobin in the 1980s) doesn’t understand the difference between the price of renting money and the price of BUYING money.

    The price of renting money (interest rates) is low because the price of buying money (the inverse of the rate of inflation) is high. Which is why DeLong is correct to write that monetary policy is too tight. That’s why Taylor is being such a goofball.

  23. Gravatar of ssumner ssumner
    28. November 2015 at 12:25

    Ben, Yup, Ben was right. Only one senator (from my home state) voted against the Patriot Act.

    Travis, Thanks, I did a post at Econlog.

  24. Gravatar of Ray Lopez Ray Lopez
    28. November 2015 at 19:26

    @Patrick R. Sullivan –

    Your two pillars of monetarism, three maybe, are:

    1) money illusion– people feel richer when there’s inflation, and will spend more

    2) sticky wages – people won’t take a cut in pay

    3) expectations – people won’t spend more if they think they’ll be taxed for it in the future, causing a liquidity trap

    Now explain to us why this matters, or, what evidence you have.

    Re #1 – obvious if true this is a plus for monetarism. But outside of laboratory experiments involving real money and college kids, I’ve not seen any evidence it’s true. Prove me wrong.

    Re #2 – wages indeed seem a bit more sticky than prices. But so what? Most firms ‘over-hire’ so that firing a worker, the least productive one, during a downturn, doesn’t matter. The firm still makes money. Witness the record profits of the Fortune 500 (“In 2011, the Fortune 500 generated a combined $824.5 billion in earnings — an all-time record, and a 16 percent jump from the previous year”). Is your argument one that these laid off workers are a source of lack of demand? So what? They can sponge off of relatives or the state. Or B. Sanders’ ‘minimum guaranteed income from the state’ solution. Is monetarism / Keynesianism (they are related) simply a scheme to compensate laid-off zero-marginal productivity workers? Is that what we’re arguing about? I thought it was how to increase GDP.

    Re #3 – sounds good, and is the crux behind all of Krugman’s writings, but PROVE it. It’s untestable, hence unscientific. If Islam says kill all infidels to make the world better, should we just believe it, without proof? Proof is scientific. Belief is…religion. Is Sumner the high-priest of monetarism?

  25. Gravatar of Don Geddis Don Geddis
    29. November 2015 at 09:37

    @Ray Lopez: “Your two pillars of monetarism, three maybe, are

    Nope. No wonder your “criticisms” of Market Monetarism sound so foolish, since you don’t even understand it.

    “Liquidity trap”, LOL. That’s a Krugman/Keynesian claim, that MMs are highly critical of! So funny that you think it’s a “pillar” of Market Monetarism.

  26. Gravatar of Beefcake the Mighty Beefcake the Mighty
    29. November 2015 at 12:17

    Australia, like the US, is under Zionist control.

  27. Gravatar of Ray Lopez Ray Lopez
    29. November 2015 at 21:22

    @Don Geddis – since this is not a distance learning portal, you can email me for more of your mistaken views, and I can correct them as best I can (like ‘pushing on a string’, a MM metaphor), at: raylopez 88 at gmail dot com. Thanks and take care.

  28. Gravatar of ssumner ssumner
    1. December 2015 at 06:57

    Beefcake, Why am I not surprised by anything you say?

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