More on High Frequency Trading

Summary:  In summary, we don’t believe HFT profits are excessive or excessively consistent. We censure illegal front running as strongly as anyone, but it has near nothing to do with HFT per se. Canceling orders in the process of providing liquidity is key to any sort of market making, whether HFT or not. We support the right of HFTs, or anyone, to try to guess the direction of the market, using order flow or any other public information. We not only support the right, we celebrate the successful exercise of that right as it adds to public welfare by making markets more efficient and lowering the cost of investing. Lastly, we believe markets are “rigged” in favor of, not against, retail investors.

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Minimum Wage

The Administration is seeking to raise the federal minimum wage from $7.25 to $10.10 per hour.

This can be understood as a tax.  As the cost of producing goods and services is pushed up, consumers will, in many cases, pay more for those items.  That extra cost represents an implicit tax.  Many pay a bit more so that some can take home a better wage.  Those with higher wage rates are little affected and are willing to pay this “tax.”  On the othre hand, the living standards of those with lesser incomes can be materially affected by this tax.

But there’s another group even more drastically affected, those who are priced out of the labor market.  Losing all their wages, they effectively pay a 100% income tax.

It is true that the incidence of this tax is difficult to predict.  But considering its potential effect on those least able to afford the tax, it makes little sense to risk their welfare.  For this reason, EITC (Earned Income Tax Credit) is a much better way to aid low wage households.  EITC can be targeted at families and creates minimal price distortions. The cost of this approach is entirely met by those paying income taxes, not those with already low incomes.


Inspector General Report on CFTC


The 21 February CFTC Inspector General’s report severely criticizes the Commission for obstructing economic research.  I am not surprised.  The Commission while being led by Chairman Gensler had very little interest in economic research that conflicted with elements of the Dodd-Frank legislative and rule-making agenda.

This was most notable in the Commission’s rule making on speculative position limits.  Prior to becoming chairman, Mr. Gensler refused to consider the possibility that speculative activity may not affect prices.  This despite substantial evidence produced by Commission economists working with economists in multiple agencies (  As far as Mr. Gensler was concerned, he knew and no amount of evidence could convince him otherwise.

During my time as Deputy Chief Economist and later as Acting Chief Economist I, on multiple occasions, raised the issue that speculative limits could have adverse impacts.  Specifically, that such limits by lessening speculation, could limit the ability of hedgers to control their risks.  This, as Commissioner Dunn and others pointed out, could have negative consequences for US consumers (  These concerns were steadfastly ignored.  Consequently, the Commission was unable to provide a cost-benefit case for those limits and, instead, relied on a supposition that Congress had mandated those limits.  That position was rejected by the district court (  More recently, this question has been raised with respect to energy prices as concerns have developed that oil producers and others, having insufficient ability to hedge their costs, will incur higher costs resulting in higher prices for consumers (

The American public deserves economic analyses that provide sound bases for policy decisions.  Section 8 of the Commodity Exchange Act by virtue of its data-access provisions uniquely situates the CFTC to provide those analyses.  The Commission instead chose to employ Section 8 to shut down those analyses.  That act limited publication of already completed analyses, shut off data access needed for future analyses, and severely limited the ability of the Commission to hire economists to conduct these analyses.

The CFTC’s Office of the Chief Economist needs restoration if Americans are to benefit from sound policies on derivatives.   The increased span of oversight brought on by Dodd-Frank legislation and its subsequent rule makings elevates the importance of these analyses.  I applaud the Inspector General for opening a path that can re-establish economic analysis at the CFTC and look forward to the Commissioners leading the CFTC down that path.