Daniel Cotter is debating a minarchist buddy and told him to read my pamphlet, Chaos Theory [.pdf]. Below is a list of questions that the minarchist had. These are great questions, but unfortunately I am too swamped with “real work” to answer them anytime soon. So I hope some of you can help Daniel in his proselyti–educational efforts.
Let me remind everyone that two important sequels to my thoughts in Chaos Theory are these Mises Daily articles: “But Wouldn’t Warlords Take Over?” and “The Possibility of Private Law.” In retrospect, I think the last essay comes logically before the beginning of Chaos Theory. –RPM
I meant to glance at Chaos Theory but I ended up reading the whole thing. All in all I found it very interesting but I wrote a list of issues that I have with Murphy’s analysis:
-The system of apprehension of criminals requires the criminal to approve their own detention by accepting the terms of a contract to enter a premises (in his example a movie theater). This seems to imply that if a criminal did not leave his own property, he could not be apprehended.
-If criminals can only be jailed voluntarily in order to keep down the costs of their insurance, then they would probably prefer to live under house arrest. That way they wouldn’t need to enter into contracts with others and wouldn’t need insurance.
-Murphy points out that the costs of combat are high so conflict between security providers is unlikely, but I believe that using force against the competition is still profitable if you can eventually establish a monopoly. I suppose that is a matter of conjecture, but he didn’t address it.
-In the footnotes he mentioned that it would be unlikely for parents to collude in mistreating their own child, but it certainly has happened. He does not account for children born out of wedlock or for children that have only one parent present for whatever reason. His assessment of markets in which children are traded neglects the fact that when children are abused for gratification, especially sexual gratification, or forced to perform other work they are economically valuable outside of their value as a loving child. Such a market would also probably lead to various derivatives like future trading in children.
-I found the comments on abortion to be quite strange. Ultimately, I suppose, this system would make abortion a matter of choice. That being said, those that don’t approve, would probably not be satisfied with simply locking themselves into a gated community and pretending that abortion doesn’t happen. There is no prohibition on pro-lifers forming exclusive gated communities now, but I’m yet to come across one. They tend to get out and about and make their disapproval known.
-With various companies providing their own title registries, there would be a myriad of different lists that you’d have to check before buying property. The whole idea sounds unworkable. I think that it would lead to a monopoly or at best a small oligopoly since people would not want so many registries complicating every major purchase.
-The fact that very wealthy individuals could afford massive insurance premiums means that they could, if they so desired, kill people and just pay out the victim or pay the higher premium. Putting a price on the value that is to be paid out is in itself problematic in that in some circumstances it may be profitable to kill someone. Basically, this insurance based system doesn’t prohibit the use of force. It just associates a cost with the use of force.
-Insurance companies that are meant to defend an anarchist society would likely collude with an invading army since the aggressive state could nullify their contractual obligations. So the company could just collect insurance premiums from it’s customers until a state invades and then surrender and collaborate with the new state so it doesn’t need to pay its customers out. The company would loose its income stream, but there would still be opportunities to trade with the formerly anarchist market under the new regime. And the state could even legislate it a monopoly.
-Murphy also asserted that if a defense firm initiated aggression against a neighboring state, that the insurance company which covers the defense firm would need to make payouts to the victims. This seems unlikely. The insurance companies are only used so that other actors in the anarchist economy will trust and therefore trade with the defense company. People residing outside of the anarchist economy would not be covered by the insurance contract. Why would the defense company pay higher premiums to cover deaths in the neighboring state with whom it doesn’t trade. Even if it did trade with them, it could set up a subsidiary to attack the neighbor. As long as it honors contracts with those who reside within the anarchist economy, it would not have any problems.
At a reader’s suggestion, I checked out the Fama/French website, which is a neat set of Q&A on the implications of the “efficient markets hypothesis” (EMH) way of viewing the world. This particular question–and French’s answer–threw me:
Question: Firms often pay a substantial premium to the market price when making acquisitions. Does their willingness to pay a premium suggest the shares of target firms were mispriced?
Now here’s Fama’s answer, which is perfectly reasonable from an EMH point of view:
FAMA: The empirical evidence says that all the gains from mergers are eaten up in the premiums paid to acquire firms. On average, the acquiring firm gets nothing. This doesn’t necessarily imply that the shares of the acquired firm were mispriced since there can be synergies (real business gains) from mergers.
So to translate into an example, suppose Jim’s Wooden Sticks (ticker JWS) right now is selling for $25 per share. They get acquired by Jane’s Icy Sugar Cyclinders (ticker JIC) for $30 per share. The newly merged corporation can now crank out popsicles at a much lower cost than before, and so JIC has higher earnings as a result. However, after taking into account the $5 per share premium they paid to the original shareholders of JWS, it’s a wash.
I think that’s the kind of thing Fama has in mind. It still seems that “the market” made a pricing mistake, in the sense that a shareholder of JWS would have been furious had he liquidated his position the day before the announcement. But you can at least see where Fama is coming from, and why he thought his answer was a good one. In other words, Fama was trying to explain why JWS shouldn’t have been viewed as free money waiting to be snatched up, since the costs of acquisition exhausted the gains from the merger.
Now if Fama’s above response seems a little incomplete, French’s response (to the same question) is downright incomprehensible to me at least:
FRENCH: Takeover premiums do not imply that the target firms were mispriced. Since we do not expect the market to accurately forecast every acquisition that will create value, we should not be surprised that prices rise when tender offers and mergers are announced.
Help me out here, fans of the EMH. It sure sounds like French is saying, “We don’t expect the market to accurately price everything, so that’s why we shouldn’t conclude that a given stock is mispriced.”
Tony Crescenzi reports on CNBC:
New data on international capital flows into U.S. financial assets were released Monday indicating that in June China was a net seller of $25.1 billion of U.S. Treasuries. Many will put the sale in the context of China’s $38 billion buying splurge in May, but the better metric is put the net purchases for May and June in the context of its $122 billion accumulation of international reserves during the two months. In other words, China invested very little of its new money in Treasuries in May and June—just over 10%, a sharp contrast to the 60% to 70% figures seen in recent years.
In total, China accumulated $177 billion of reserves from April through June, yet its net purchases of Treasuries were just $9 billion. In 2008, China’s reserves increased $418 billion and its net Treasury purchases were $250 billion, about 60% of the reserve accumulation. The recent pattern suggests China hastened its effort to diversify its international reserves, which totaled $2.132 trillion at the end of June. China, which has spoken openly about its diversification imperative, has put its money where its mouth is.
So let’s see… The US Treasury is going to be borrowing several trillion dollars over the next few years, just as the Chinese are backing off on further acquisition of US government debt. What does that mean for US interest rates?
I’m thinking they will go up, way up.
Here is a good Forbes article about “becoming your own banker” through the proper use of (mutual) whole life insurance policies.
Now is probably a good time to announce that I am working on a book on this very concept with L. Carlos Lara. We are going to marry the traditional Austrian affinity for insurance with R. Nelson Nash’s brilliant “infinite banking concept.”
If you’re skeptical, that’s fine; so was I. (And Carlos tells me it took him more than a year to finally get on board with Nash’s IBC message.) For me, the real ah-ha moment came when I realized that this isn’t an investment, but rather it’s an alternative to keeping your checking and saving account at a bank. (Because of tax and other advantages, it actually is a decent investment, but you aren’t limited to keeping your wealth socked away in the whole life policies you take out. You can borrow from those policies and invest in pork bellies if you want to.)
Mr. Nash has invited me to speak at one of his conferences in February. Carlos and I are planning on unveiling the book at that time.
UPDATE: Here’s a recent Nash article on LRC.
The American Energy Alliance’s bus tour is underway! If you live in a coal producing state, it might be stopping outside a fair near you!
We are still working on logistics, but I might be spending a few days on the bus if there is a speaking opportunity. I just hope they don’t want me to parallel park it.
Here’s something that surprised me:
Millions of Afghan women will be denied their chance to vote in landmark presidential elections this week because there are not enough female officials to staff the single- sex polling stations.
Despite more than £147million being spent on election aid, the shortage is threatening to undermine the legitimacy of the polls, which are the pinnacle of western efforts to build a peaceful democracy.
Women are not normally allowed to vote in male-run stations in the Muslim country. Afghans will select a president and members of provincial councils at the polls on Thursday.
The Taliban has threatened to attack voters as President Hamid Karzai battles to win another five-year term. Women’s activists said the Independent Election Commission, which is organising the polls, still needs to recruit 13,000 women before election day but the shortfall may be more than 42,000.
Without female staff to operate the strictly segregated stations, and more importantly, without female searchers to frisk women voters as they arrive at those stations, conservative men across the country will ban their wives and daughters from taking part. ‘If half of the population can’t participate, the election is illegitimate,’ said Orzala Ashref, of the Afghan Women’s Network.
No, I’m not saying that life must have been sweet under the Taliban. But I wonder how many Americans would support our continuing efforts in Afghanistan, if they knew the actual conditions of their democratic system.
I don’t have it handy, but recently I saw an astounding figure, where US and other forces were spending far more on military operations in Afghanistan, than that country’s entire GDP.
I always like it when young punks pay their respects to the old masters. (And no I’m not referring to Austrian economics.) I don’t remember the show, but the band EMF (“You’re Unbelievable”) did a Tom Jones song, and vice versa, with him present. And they were in awe of Tom Jones doing one of their songs.
Anyway I just came across Red Hot Chili Peppers doing my favorite (classic) Beach Boys song:
I also checked out this 2Pac video, but he had a different take on the whole thing. (And plus, he apparently didn’t realize his underwear was showing! How embarrassing! I can’t believe the director or somebody didn’t bring it up.)
The Federal Reserve said Monday it will extend its Term Asset-Backed Securities Loan Facility another six months though it said conditions were improving in some areas.
In a joint announcement with the Treasury Department, the central bank said the TALF, as the program is known, now will run until June 2010, from its original cutoff date of December 2009.
“Conditions in financial markets have improved considerably in recent months,” the Fed and Treasury said in their statement. “Nonetheless, the markets for asset-backed securities backed by consumer and business loans and for commercial mortgage-backed securities are still impaired and seem likely to remain so for some time.”
The extension will cover newly issued commercial mortgage-backed securities but will not be expanded to cover assets not already eligible.
The program targets primarily students loans and credit cards but extends to other financing as well.
The TALF started in March and figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help end the recession.
Gee, isn’t it ironic that the economy keeps getting worse, “despite” the unprecedented rescue efforts of the Fed and Treasury? I mean, it’s almost as if printing up green pieces of paper, and having politicians borrow trillions of dollars, actually makes it harder for the economy to re-coordinate itself after a bursting asset bubble. If we didn’t have fact-based economic scientists on the case, I’d start to worry.
Not to beat you over the head with this graph, but it’s relevant in this post too: