Regulation and Temperance

Of American households across the board, estimates are that 68-70% of these households make less than 125,000 dollars a year. With some quick, rough math, that’s about 93 million households in the country.

The Associated Press reported that just hours before the Iranian ceasefire took place, at least 50 new accounts, also known as “wallets” placed bets on Polymarket, a wagering site, betting that the ceasefire would take place.

From the AP report, “One of these wallets, created Tuesday around 10 am ET, placed roughly $72,000 in bets at an average price of 8.8 cents. The buy-in for each betting event ranges from $0 to $1 each, reflecting a 0% to 100% chance of what users think could happen. This Polymarket user then cashed out for a profit of $200,000.”

Another wallet, created 12 minutes before Trump’s post, made $31,908 of “Yes” bets at 33.7 cents, and is estimated to have earned a profit of $48,500.

The AP also reported that some people who didn’t cash out immediately now are having their bets disputed as the ceasefire itself seems in dispute.

While the world held its collective breath to see if there would be a ceasefire or if the president would follow through on his threat to end an entire civilization, it’s quite likely some people already knew the outcome.

There’s already been legislation introduced to try and curb some of this. Polymarket and Kalshi are the two largest prediction markets at the moment. (Crypto.com and Robinhood are two prominent other markets.) Both say they are trying to self-regulate by banning legislators from using their platforms. Most of the betting though on prediction markets are about sports. But not all. Prediction markets allow bets on most everything, including weather and political events.

You may remember that Polymarket faced criticism about bets before—bets on military action in Venezuela and the start of the Iran war. Some states have been successful at limiting betting on these markets, like Utah and Nevada. The two markets themselves have said they’ve created rules that says betters can’t use insider information, yet one can only wonder how enforceable it is. The markets have found an ally in the current presidential administration.

Rep. Blake Moore, R-Utah, who has introduced legislation to regulate prediction markets, released a statement Wednesday saying: “It’s highly unlikely that these are good-faith trades; it’s much more likely that these are insiders with access to information ahead of the public. Without some kind of restrictions, there is nothing stopping government or military officials from profiting from their positions.

Or from telling someone close to them what’s about to happen.

Early in the 19^th Century the temperance movement began. The American Society of Temperance started in 1826. Maine became the first state to pass prohibition in 1851. Late in the 19^th Century the Anti-Saloon League, which started in Ohio in 1893, moved efforts from local and state to a national ban.

In 1917, a week before Christmas, Congress passed the 18^th Amendment on to the states. Thirteen months later, in January 1919, Nebraska was the 36^th state to ratify the amendment, making it law. In January 2020, the 18^th Amendment became law.

The Anti-Saloon League’s goal was to create a saloon-less society. Prohibition’s goal was to threefold, to end alcoholism, end domestic abuse, and end saloon corruption. Saloons were seen, in addition to excessive alcohol consumption, as places where political machines happened, where politicians gathered to grift the public, take bribes, and rig elections.

Results were evident. Prohibition did seem to curtail usage. Cirrhosis deaths were cut by 2/3rds. Admission to mental hospitals for alcohol psychosis was cut in half. Arrests for public drunkenness dropped by half. Alcohol consumption dropped significantly.

It did not seem to change though public perception.

After prohibition passed, the Anti-Saloon League lost influence. (Their history is housed in the Westerville, OH Public Library.) Prohibition was repealed by the 21^st Amendment in 1933.

The repeal came about for a variety of reasons, not the least of which was that the US government needed money after the Great Depression. Tax revenue was needed as well as job creation.

But crime did not. Instead, Prohibition seemed to fuel more of it, especially organized crime. Also, enforcement was poor to unenforceable, but it was also unpopular as people didn’t like the government interfering in their personal lives. There had been claims in getting the coalition together to pass prohibition that this would result in lower taxes. It did not.

John D Rockefeller, who contributed hundreds of thousands of dollars to the Anti-Saloon League and its efforts to pass Prohibition, would come out in favor of the 21^st Amendment. The wealthy tycoon believed Prohibition had created new problems that were worse.

Another key proponent of ending Prohibition were women, who had recently gotten the right to vote. Many women were concerned like Rockefeller, that Prohibition had made things worse. Many women switched sides, concerned in particular that the corruption had become so bad that their children would have no regard for the law. By 1931, more women belonged to the Women’s Organization for National Prohibition Reform (WONPR) than belonged to the Woman’s Christian Temperance Union. WONPR ran on the platform of restraint and moderation.

Two other important historical notes. President Roosevelt signed into law allowing the sale of 3.2 percent beer in 1932. This was thought to be not enough alcohol to be intoxicating. Also, the Prohibition would be ended nationally, states and counties could continue their own prohibition, leading to dry states and dry counties.

Most states repealed their ban on the sale of beer quickly. Tennessee was the last state to do so, which they did in 1939. Liquor was often but not always concurrent. Six states passed the repeal for beer only, though half of them repealed liquor sales within a year or two. Three states had significant delays. Kansas didn’t allow liquor sales until 1948. Oklahoma allowed liquor sales in 1959. Mississippi didn’t allow liquor sales until 1966.

There are still dry counties in the United States, just shy of 300 of them. Arkansas has the most, followed by Kentucky, Mississippi, and Tennessee. And even there, in some of these dry counties some cities and towns (like Jonesboro, Arkansas) allow for alcohol sale.

It’s also clear we learned some things from Prohibition. Consider the sale of cannabis and tax dollars this brings into states. Since 2014, cannabis tax revenue has generated over 25 billion dollars of incomes for the states the have legalized it and taxed it.

What will come of prediction markets and betting (let alone cryptocurrency)?

It’s an interesting and important problem to think about now. The ethics of a better with inside information making more money in 90 minutes than 93 million American households make in a year is absolutely deplorable.

And while I’m hopeful that it was Republican representative Blake Moore who has introduced legislation to regulate these markets, I’m also mindful of the repeated warnings I’ve heard that the current administration is the most corrupt of all time, making the current president, as one pundit put it, “makes Nixon look like a Boy Scout.”

Indeed, the government seems to be going after states that are going after these markets. Filing lawsuits to prevent Arizona, Connecticut, and Illinois from trying tp prevent unlicensed gambling in their states.

Trump Media & Technology Group (TMTG), Trump’s media company and the parent of Truth Social, has an extensive business partnership with Crypto.com. The president is the largest shareholder of TMTG. Don Jr. advises both Polymarket and Kalshi. He’s also invested several million dollars in Kalshi. Both are involved in a new prediction market site, Truth Predict, which has yet to launch.

I’m also mindful that Congress has yet to pass legislation regulating itself on insider information as well, and many are active in stock market trading.

But I think we need to engage in the conversation, in particular with our elected officials, and even more specifically those running for office. I know my own Congressional representative is a cosponsor of a bill preventing legislators from betting on politics.

“Corruption is out of control in Washington, and so long as elected officials can use their positions to enrich themselves, Washington is not going to focus on meeting the needs of the American people who are struggling to make ends meet,” said Seth Magaziner. “In addition to banning Members of Congress from trading stocks, we must also ban insider trading through prediction betting apps. It is unacceptable that Members of Congress can get rich off betting on elections or even on whether their own legislation will pass.”

But I don’t think it should be just Congress. It should be at all levels of government.

Additionally, I think figuring out how to regulate and tax prediction market profits will help. It won’t end the corruption, but it will help. And even when we pass them, we’ll have to adjust them as we get smarter and learn more about how people do their best to avoid ethics.

This brings me to my last hope. As a former teacher, I always bristled over the arguments that wanted to limit educational practices to facts only. “Just dates and events.”

We need to teach skills. We need to teach critical thinking. We need to teach ethics. We need to learn how to regulate ourselves individually and as people together. Specifically, here about economics and money (but not limited to that).

When is it ethically okay enough to allow insider information that lets someone make 125,000 dollars betting on a ceasefire, war, or capture of a foreign leader? When is it ethically ok to have a president (and his children) makes billions of dollars because of what he knows? When is it ethically okay to have say we even need a law to regulate Congressional representatives from betting on the stock market with inside information? Shouldn’t that be a given?

I will make one bet/prediction here. It’s only a matter of time before someone else makes a lot of money on a prediction market that seems to happen last minute and with inside information during a time of world crisis.

How long will it take before we say as a country that this is wrong and do something about it?