Professors Miriam Cherry, Tom Bell, and I co-authored an Op-Ed that appeared in today’s Houston Chronicle that contends that the Commodity Future Trading Commission’s suit against InTrade may be overbroad, and violative of the First Amendment to the extent that it shuts down expression of pinions about core political speech.
Here is the Op-Ed, which the Chronicle retitled “Cutting access to InTrade violates Americans’ speech rights.”
Here is the intro:
Can the power of markets help us predict the balance of power? Yes – if the federal government does not forbid it.
Just as people wanted to know where Hurricane Sandy would hit, or how flu vaccines should be allocated, millions craved accurate forecasts of the 2012 elections. By analyzing thousands of polls, big data supercrunchers like Nate Silver accurately predicted the outcome of almost every political race. InTrade.com, a prediction market based in the United Kingdom, likewise accurately called the presidential vote in all but one state. Whereas Silver won accolades, however, the U.S. Commodity Futures Trading Commission has demanded that Americans stop using InTrade.
InTrade allows people to purchase contracts that pay upon the occurrence of some future event. Long-shot contracts with events that are rare sell at a discount. Easy or obvious calls sell at very close to their payoff amount. InTrade works because it offers people monetary incentives, ensuring that accuracy pays. Markets like InTrade tap the wisdom of the crowd, and draw on a wide range of experts. Unless, of course, the CFTC has its way.
Instead of embracing this new technology, which provides insights into how the public views important issues, the CFTC wants to ban it. The CFTC claims that allowing people to predict a presidential election, whether or not the unemployment rate will fall, or whether North Korea will start a war, all constitute commodities trading. And when the CFTC sees commodity futures trading, it rolls out enforcement actions and bans.
The government’s aggressive federal lawsuit, empowered by the Dodd-Frank Act, asks a court to close all of Intrade’s markets – and not just those limited to commodity predictions. This argument is bad policy, and ignores the First Amendment – indeed, the CFTC’s complaint makes no reference to the Constitution at all. This suit is an overreaching federal enforcement that shuts down a vital collection of information about what people think, and unduly chills speech.
Prediction markets are protected by the First Amendment in two important respects: Individual predictions are protected speech, and the prediction markets create a virtual “marketplace of ideas.”