The recent fight between the Commodity Futures Trading Commission and political prediction markets in court has opened Pandora's box for its wide ramifications on our democratic process. Being an ardent follower of trends in politics and how they reflect on our society, this really distresses me.
Cut to the chase: It is a rotten idea to permit wide-scale betting on election outcomes.
The CFTC wasn't being unduly dramatic when it warned of an "explosion in election gambling." After all, what we're talking about here is the prostituting of our sacred democratic process into a casino game. This isn't just innocuous fun and a test of one's political acumen, it is about corrupting the very basis of our republic.
Consider what happens as soon as major financial institutions like Interactive Brokers start selling contracts on presidential races. As one imagines a series of scenarios in which prospective powerful financiers would, in an attempt to profit on their bets, seek to tamper with election results, you do not even have to be that creative. It edges into a political donation area that is murky and gray, beyond the point where financial speculation meets democratic participation.
That would be but the tip of the iceberg, the least that could happen in terms of market manipulation.
What about the effect on voters? Broadcast real-time odds on election outcomes become a driving force in voter behavior. Picture this: One candidate is betting heavily in the betting markets. Among the electorate, this now acts like a self-fulfilling prophecy either because of bandwagon effects or because of discouragement. Is this genuinely the kind of influence we want to steer our electoral choices?
It is no less than a mirage that such prediction markets, directly or indirectly, enhance electoral integrity or have anything instructive to offer. We already have a pretty good sense through polls, political analyses, and comments by experts, which help the people understand the elections better. Adding a profit motive to the mix doesn't add to democratic discourse, it cheapens it.
Equally flawed is the argument that the allowance of regulated betting in the United States somehow fights alternatives, offshore-based or crypto. Just because something exists in an unregulated space, it doesn't somehow make it right that we legitimize it. That is a very apt analogy provided by the CFTC: just because cocaine was being sold on the black market does not mean the pharmacy should offer it. We shouldn't lower our standards just because others operate outside the law.
But let's not forget the implications for the wider financial world.
The second we open the door for betting on election results, the dam is breached, where do we stop? Next, are we going to have futures contracts on Supreme Court decisions? Or options trading on possible military conflicts? That would be a slippery slope; maybe what we are thinking of is "grotesque financialization" toward the highest things of institution and decision.
Such a decision of the district court to permit these prediction markets under the Supreme Court's ruling in Loper Bright raises grave concern. Yet another example of how judicial decisions may arrive with serious and far-flung consequences well outside of the parameters of the original debate. This may set an important precedent in paring regulatory authority across the cryptocurrency market and beyond.
Not to forget about the fact that crypto makes all that look like child's play in comparison to the residual tensions between traditional finance and the crypto markets and their relative regulatory bodies. That means such platforms based on crypto, like Polymarket, have been able to operate in this space while those institutions that are regulated have not, a stark illustration of some of the difficulties that such changes have brought.
So, let me just conclude by saying that while there may be some buried intellectual or entertainment value underneath political prediction markets, risks significantly outweigh any possible benefit that might be derived. Our democracy is not a game. The CFTC is right to fight this trend, and I hope the appeals court sees the wisdom in extending the pause on these contracts.