I didn’t realize they were so blatant about it… Anyway the Nevada Development Campaign makes a compelling argument to business owners to relocate out of the Golden State. I’ll be writing an op ed on this in the next few days, which will have the relevant stats (like how many people moved out of California and into neighboring Nevada, and what the difference in after-tax earnings are).
Conservative columnist Bob Novak has died at 78. Below is my favorite Novak clip, where he decided that James Carville wasn’t worth any more of his time.
This doesn’t seem like a good sign:
A Manhattan judge ruled yesterday that a blogger can’t hide behind a web of anonymity while flinging the ugly words “skank” and “ho” at somebody online.
The sternly worded ruling orders Google to give up the identity of an anonymous blogger-assailant who inexplicably devoted an entire blog — titled “Skanks in NYC” — to maligning beautiful blond model Liskula Cohen.
Once she learns her attacker’s name — possibly as early as today — the model can serve the anonymous blogger with a defamation lawsuit.
Obviously the blogger is a jerk, but give me a break. It’s not like he (I’m assuming it’s a man) said, “I have video proof that Ms. Cohen ran over a three-year-old and fled the scene.” His remarks were clearly just generic insults. As far as those insults hurting her career, how many more people have heard them because of her desire to file suit?
But the real danger here is using this pretext to get Google to give up a customer’s name. What happens when Geithner decides that I need to stop spreading vicious rumors about the amero, thereby causing the dollar to lose value?
The feds are breaking down all the remaining obstacles to their power. Swiss bank accounts and anonymous bloggers must go.
In the previous post, I relayed some (good) objections from a reader of my pamphlet [.pdf] describing a stateless society. One of the objections went like this (paraphrasing): “In Murphy’s vision, ‘crimes’ are actually codified contractually, and the punishments are typically monetary. So that means rich people could go on killing sprees, and just pay off the families of the victims.”
Back in 2002, I wrote an essay for the site Strike-the-Root where I took this objection head on. I think many readers will be surprised at the power of free markets to solve such problems. Remember, the good economist doesn’t stop at Step 1; he follows the thought experiment out to its long-run effects.
Without further ado, here is the excerpt from an essay I wrote in 2002:
…This issue has consequences for the stateless society. A typical objection to a private legal system based on restitution rather than retribution, is that rich people could commit crimes with impunity, since they could easily afford the “fines.”
In the first place, this objection overlooks the fact that right now rich people (not to mention politicians) literally get away with murder, through direct bribery or other unsavory mechanisms. At least in market anarchy, the payment would be made in public.
But there is a more sophisticated response to the objection. Let’s take the caricature to the extreme, just to prove a point. Let us suppose that, in a hypothetical anarchist society, the only punishment for murder is a $1,000 fine. What would happen in such a world?
The statist recoils in horror at the thought: Why, Bill Gates could slaughter guests at a cocktail party to reenact his favorite scenes from Clue!
Well, he could, but how many people would go to his next party? Indeed, how many people would deal with him at all after such horrific behavior? People can still condemn the immoral, even in the absence of strict “official” sanctions.
But even these arguments miss the truly intriguing angle. If it’s legal for Bill Gates to kill, then it’s also legal for others to kill Bill Gates. After his homicidal conduct, outraged guests could take up a collection. Once they hit $1,000, they could afford his murder.
Of course, the analysis can’t stop there. Rich people and other public figures would alter their wills to reflect the new circumstances. In the event of their murder, people could establish trust funds to finance revenge upon their killers. Soon enough, people would find that the “official” sanction of $1,000—which is clearly below the level that would be set in an actual private system—would be supplemented with other retaliatory costs. It would be incredibly reckless for anyone, even the rich, to engage in murder sprees.
And what about the pauper, who can’t afford bodyguards or setup trust funds? Well, who wants to kill such a person? Is it really worth $1,000? Keep in mind, we are assuming that every killer is fined, which is different from the present system in which killers serve jail time only in a fraction of the cases. For a simple example, there would be virtually no robbery homicides. It would defeat the purpose to mug someone and shoot him, if the mugger knew he’d be out $1,000 for his crime.
This sort of “economist” talk will surely cause eyes to roll. Skeptics may point out that people commit crimes for all sorts of reasons, and that pecuniary motives do not determine an individual’s conduct. This is true, but in the aggregate, it would certainly make a difference if people knew they’d be fined (however lightly) for every crime. After all, women consider many factors when deciding to have a baby. But surely the welfare state leads to far more births than would otherwise have occurred.
Of course, the commodification of man would do the most good in the arena of politics. If government officials could only be made to feel even a fraction of the human cost of their actions, their worst excesses would be curtailed. Imagine if Harry Truman viewed Japanese civilians, not as his enemy, but as pieces of property. In that case, Hiroshima would never have happened; the residents could have offered a perpetual stream of millions of dollars as ransom on their continued existence.
But no, such a scheme would never have worked. The tender hearted American voters would have vomited at the thought of their fearless leader extorting protection money from helpless women and children. Why, that would be tantamount to slavery! How crass! How inhumane!
So instead Truman nuked them all to smithereens.
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.