Earlier today, Robinhood suspended trading in Gamestop and other stocks. This has made a lot of people very angry and been widely regarded as a bad move.
There’s a lot of debate over whether Robinhood’s decision was a complex conspiracy involving various hedge funds exerting pressure on Robinhood, or whether Robinhood was simply driven by capital and clearinghouse requirements.
I’m less interested in which of those is true1 than I am interested in the widespread and immediate uptake in that conspiracy theory. The easy answer is that people love conspiracy theories, particularly ones that fit preexisting good and evil narratives, but I think there is more to it. After all, this is a conspiracy theory that got both Donald J. Trump Jr. and Alexandria Ocasio-Cortez outraged together, and when’s the last time you saw that?
One way to interpret this is that while it’s generally begrudgingly accepted that retail investors can’t match institutional investors in terms of outcomes, they are theoretically at least supposed to be on equal access. That is, while a plucky day trader might not be that good at poker, she can still get lucky and beat the hedge fund with a lucky draw because they sit at the same table and play by the same rules. It’s a classic American underdog tale, and explains why people get uniquely upset over frontrunning and high-frequency trading firms.
I think the trading restrictions fall into that category. Robinhood shutting off trading access was one of the starkest examples of how a retail investor faces barriers to even accessing “the market” in a way an institutional investor doesn’t really worry about. It doesn’t really matter that its customers had alternatives, or that Robinhood’s Terms of Service clearly allowed this. The point is the inequity between the “little guy” and “the Man” in an area where there wasn’t supposed to be inequity.
Of course, this is particularly ironic given that the whole point of Robinhood was that it was supposed to democratize access to the markets. As Robinhood’s marketing materials made clear, Robinhood had aspirations of becoming, essentially, a public good: an entrance to the otherwise walled market, allowing anyone, not just the elite, to invest.
But Robinhood didn’t really quite make it all the way to being that public good. At the end of the day, they are still a private corporation trying to substitute for a public good, and when those roles conflict is when you get populist furor, driven by jilted expectations. Robinhood the private company absolutely can decide what you get to trade. Robinhood the quasi-public good does not.
It turns out this same phenomenon underlies a lot of other controversies involving Big Tech. For example, Twitter qua private company has the right to refuse any customer - but when Twitter qua public good bans prominent figures, people cry censorship. Cloudflare qua private company can choose to ban any site they choose, but Cloudflare qua public good feels uncomfortable doing so. And most prosaically, Google qua private company could just delete your Gmail account, but Google qua public good certainly couldn’t.
I think this trend towards treating large tech companies as public goods or even governments is both widely understood yet largely unspoken.2 It underpins why people feel vaguely distrustful of Google’s power: because Google is regulated as a private company, not a public good, there is absolutely nothing stopping Google qua private company from arbitrarily deleting your email account. It underpins why, for example, people try to regulate Big Tech with antitrust doctrine - after all, antitrust is about big bad companies - even though it doesn’t really fit, since there is nothing “competition-restraining” about Google arbitrarily deleting your email account.
The real answer (to be explored more in part 2) is recognition of the reality that each of us now exists not only in a physical world, but also a virtual world. Physical Ed goes by the name Edward Fu and lives in the United States. Virtual Ed goes by edofthefu and other names, and “lives” in multiple jurisidictions at once: Google, iOS, Wikipedia, and other major sites. Physical Ed is governed by various physical democracies (federal, state, local) whose power over us is gated by elections, while Virtual Ed is governed by several virtual dictatorships (Google, Cloudflare, Apple) whose power over us is gated by our ability to switch to a competitor.
Most of us have put up with the illiberal dictatorships that govern our virtual life because 1) we are not used to thinking of those companies as governments, and 2) those virtual dictatorships have been pretty good to us, accounting for almost all of the improvements in our quality of life over the last decade or so. But cracks are starting to show in the levee, and it’s only a matter of time before these virtual dictatorships must confront, as physical dictatorships once did, humanity’s innate desire for liberalism.
- My rule of thumb is that in such situations the coolness of the conspiracy theory is inversely proportional to its truth probability. [return]
- Quite interestingly, traditional journalism is going in almost exactly the opposite direction. [return]