16 Apr 2016

Murphy Twin Spin

Shameless Self-Promotion 15 Comments

==> Carlos was traveling so I republished the audio of my recent talk at the International Students for Liberty Conference on Mises’ contributions. So if you wanted to listen to that but at the gym or something, this is for you…

==> In the most recent Contra Krugman, Tom and I take on the MetLife ruling and “too big to fail.”

15 Responses to “Murphy Twin Spin”

  1. Tel says:

    It is one of the fundamental problems : how to keep an economy competitive and flexible while certain corporate entities are growing large enough to impose systemic control over at least part of the economy. This manifests in all manner of ways, including “Too Big To Fail” style brinkmanship.

    Krugman’s answer to being held up by a corporate Leviathan, is to go get a bigger and meaner Leviathan called government and use that to strangle the first one. Neither of those beasts can be controlled and neither are stupid… so doesn’t take long before they sort of some sort of pecking order between themselves, then come back to strangle all the little guys… and that’s the heart of Fascism (go and read the translations of the original Italian theory, those guys really knew what they were on about).

    Personally, I support Adam Smith’s warning that limited liability shareholders are bad for all types of corporate governance and responsibility. The deep.principle of ownership and property rights is a three way link between a physical asset, and decision making related to that physical asset, and consequences of those decisions. Limited liability shareholders cause that three way linkage to weaken: they don’t accept full consequences, and they have extremely diffuse ability to control the corporate. I’d like to follow the Adam Smith recommendation and go back to the old style corporate where you have full liability, and a new shareholder must be approved by the others (just like a partner).

    • guest says:

      Corporate Personhood, Limited Liability, and Double Taxation
      http://libertarianstandard.com/2011/10/18/corporate-personhood-limited-liability-and-double-taxation/

      “The Alleged “Privileges” of Incorporation …”

      “… Limited Liability

      “The big objection to corporations is usually limited liability for shareholders. Now first let me mention that many non-attorney critics of this notion seem confused about what it means (and many attorneys also misapprehend it). They think the doctrine insulates a tortfeasor from liability even if he was negligent, so long as he is a shareholder. Or that the doctrine exempts managers and officers of the corporation from liability for torts of others. They are wrong. The doctrine merely says that shareholders are not jointly and severally liable for all the debts of the company that they have a share in. …”

      “… Second, we have to distinguish here between contractual debts, and debts arising from torts (or even intentional crimes). As for the former, this is easy to dispatch: someone loaning money to, extending credit to, or engaging in a contract with a corporation is implicitly agreeing to pursue only the assets of the corporation itself in case of a claim, not the personal assets of shareholders …”

      “… So what about torts? The typical example is a truck driver for a company who negligently harms an innocent third party. The third party has no contract with the firm, unlike in the case of contractual debts noted above. The opponent of corporations maintains that the victim should be able to sue not only the employee-tortfeasor, and the corporation itself (to go after its assets and deep pockets, including its insurance policies), but shareholders themselves. After all, they are the “owners,” and should be liable too. Right? And thus, state limited liability provisions are short-circuiting the liability that shareholders would normally have. …”

      “… The problem with this theory is the assumption that in a private law society, “shareholders” should be vicariously liable for the negligence of others. There is, in fact, no libertarian justification for this view, as libertarian theorists such as Robert Hessen, Murray Rothbard, and Roger Pilon have argued.2 In this situation, some employee of a firm has committed some tort—a negligent act (such as a FedEx truck driver negligently crashing into some victim). Here the victim has a right to sue the negligent employee-tortfeasor. …”

      “… There are two aspects to being a shareholder that could conceivably give rise to vicarious liability for another’s direction actions. First, the shareholder may have contributed capital (money) to the firm. On the other hand, he may not have: he may have bought the share from a previous shareholder. This latter possibility is routinely overlooked by those who blame the shareholder for contributing money to a company that has an employee who commits a negligent act during the course of his employment. …”

      “… But contributing capital to a firm is nothing more than aiding it, which co-employees, customers, creditors, vendors, and suppliers also do. If you broaden causal responsibility so much that you would implicate a shareholder just because he gave financial aid to a firm (though as I noted, not all shareholders give money to a firm), then employees, customers, creditors, suppliers are also all liable, which is obviously absurd. …”

      “… Second, the shareholder may have a vote in electing directors. But then again, he may not; not all shares are voting shares. Further, the shareholder might not exercise his right to vote; and if he does, he might vote against the directors who win; and even if his choice wins, his vote is almost never decisive; and, in any case, rarely is it the case that the director campaigns on a platform of directing managers to permit employees to engage in torts and negligence. These latter qualifications are rarely noted by corporate opponents who blame shareholders for corporate actions simply because they have a right to vote. …”

      “… In fact, the right to control property does not automatically imply responsibility. If I own a knife and it is stolen by a thief, I am not guilty of murder if the thief kills someone using the knife, even though I still own it. Ownership implies the right to control. It does not imply liability. Liability flows from actions, whether those actions employ means owned by the actor or not. In other words, whether one owns a means employed in an act of aggression is irrelevant. Likewise, having an ownership (control) right does not automatically imply responsibility. …”

      • Tel says:

        If the truck driver just goes nuts, for no particular reason and starts running over people, then sure that’s clearly individual responsibility, regardless of who owns the truck. In this case the driver took it upon himself to take an action and in effect the truck was “stolen” from the rightful owner by the driver disobeying the instructions of his employer.

        Problem is if the truck driver is given a delivery schedule by the company and that delivery schedule is very difficult to achieve given the constraints involved, inevitably that driver will take greater risks, possibly involving drugs, excessive speed, etc. Since risks in the abstract are difficult to measure, no one notices until something goes wrong. In this case, the driver was doing his level best to obey the instructions of his employer. Now you have a situation where, as far as I’m concerned, the company should be held responsible. Since the shareholders were personally profiting from this, they also have a responsibility to ensure that good practice is followed by people who are (indirectly) in their employment.

        In fact, the right to control property does not automatically imply responsibility. If I own a knife and it is stolen by a thief, I am not guilty of murder if the thief kills someone using the knife, even though I still own it.

        I dunno, suppose you put the knife in the murderer’s hand but you didn’t actually formally confer ownership. Is it still stolen? Borrowed perhaps? Suppose you knew what this murderous guy was like and you happen to dislike the victim, but you never actually asked him to murder anyone… kind of convenient though.

        If you are a gun owner and you leave the gun around where kids can get hold of it, yeah you are responsible for what might happen, because when the property you own is dangerous you automatically have a responsibility to make all reasonable attempts to keep in control of this dangerous equipment.

        If a company hires a driver with a known bad driving record, who has in the past often been caught drunk on the job and says, “Oh I won’t do it again” then when he does indeed do it again I would say someone at the company should have checked that more closely. That’s a poor management decision, which ultimately has to go right to the top.

        Liability flows from actions, whether those actions employ means owned by the actor or not. In other words, whether one owns a means employed in an act of aggression is irrelevant.

        Not really, the concept of “aggression” is notoriously difficult to define, so building a law based on the undefinable is guaranteed to fail. In the Middle East everyone is aggressive to everyone else, but if you ask them it’s always the other guy over there who was the aggressor (perhaps 500 years ago) and all we do here is try to make do and get back what is rightfully ours.

        However outcomes are easy to define, if someone dies then we have a clear idea that something went wrong, then we need laws to identify the culprit, and this might include multiple parties. Legally you have a bunch of concepts such as immediate cause, proximate cause, intervening cause, and so on, all based around case law where situations have warranted that parties can be indirectly responsible.

        As for “liability flows from actions” well shareholders nominally have a vote, and voting is an action (also deciding not to vote is an action just as much, so don’t try to get out of it by throwing your vote away). Admittedly, the shareholder vote doesn’t mean a whole lot, but that’s the exact problem here. There’s a bit more to it than that, because actions don’t happen in a vacuum: incentives matter. If you set up a situation where people have an incentive to make profits (i.e. greed), but there is no force of caution creating a restraint in the other direction (i.e. fear of consequences) then this is a volatile situation. Essentially, shareholders want to make profits, but they don’t care in the least where those profits are coming from. The manager says, “I just work here” and the employee says “I just drive trucks” pretty soon no one is responsible. Once the regulator gets involved all parties can just blame the regulations and then have even less personal responsibility. The “system” is to blame, not us!

        It’s a downward spiral as more and more regulations are imposed, people concentrate on compliance and ignore the original problem which was how to avoid bad outcomes.

        There are really good reasons to keep property ownership and personal responsibility closely tied, even though in theory you don’t have to, in practice you really want that.

        • guest says:

          “… inevitably that driver will take greater risks, possibly involving drugs, excessive speed, etc.”

          Privatize the roads. Problem solved.

          “Excessive speed” becomes a property rights violation that the owner has an interest in defending so as not to scare away potential customers.

          • Tel says:

            Possibly could work, but difficult for the road owner to know the condition that every driver is in. Even more difficult to know the scheduling pressure, etc.

            Yes, the road owner could measure speed, just like present day police cameras can measure, but that’s one of many issues.

      • Tel says:

        First, the shareholder may have contributed capital (money) to the firm. On the other hand, he may not have: he may have bought the share from a previous shareholder. This latter possibility is routinely overlooked by those who blame the shareholder for contributing money to a company that has an employee who commits a negligent act during the course of his employment. …”

        See this is the kind of silly result you get from an extremely narrow view of responsibility. Of course the secondary market in shares is much larger than the primary market, but if there was no secondary market then hardly anyone would buy into the primary market so there would be no primary market either.

        This is the same sort of excuse the Fed uses with government bonds. They say, “Oh we never buy bonds directly from government… no, no, no, that would be monetizing government debt, dreadful!” Instead what they do is give hints to trusted private intermediary parties that their QE program needs to ensure those bonds are selling at nice low rates, and the Fed then buys out of the supposedly private secondary market. Meanwhile, private buyers take them up in the primary bond market knowing perfectly well it’s a simple front running operation and they are going to dump them into the Fed.

        Shares work exactly the same way, someone buys at IPO with the intention of selling out a while later, hopefully at a profit. These guys aren’t stupid.

    • guest says:

      Also these:

      Anti-Trust and Monopoly (with Ron Paul)
      [Duration 27:50]
      [www]https://www.youtube.com/watch?v=8C4gRRk2i-M

      Dominick Armentano: The Case for Repealing Antitrust Laws
      [Duration 01:04:59]
      [www]https://www.youtube.com/watch?v=xBT-fnJsfo0

      The Politically Incorrect Guide to American History, Lecture 8 | Thomas E. Woods, Jr.
      [Myths and Facts About Big Business]
      [Duration 37:14]
      [www]https://www.youtube.com/watch?v=SGeA1Sbd4XM

    • guest says:

      And just because it keeps coming up:

      Story of Citizens United v. FEC, The Critique ‌‌ – Lee Doren
      [Duration 18:20]
      https://www.youtube.com/watch?v=tJEeKez1Jlw

    • guest says:

      Also, also:

      The idea that corporations aren’t people, but that the whole corporation should be held liable for the crimes of an individual worker is internally inconsistent since only people can commit crimes.

      • Tel says:

        Thing is, legally corporations are people, and people are corporations. Thus, from a legal standpoint (where we are today) the statement “only people can commit crimes” doesn’t even mean anything. Being ridiculous is no obstacle.

        I’m surprised a corporation hasn’t attempted to run for President… see it that happens next time around.

  2. Adrian Gabriel says:

    That was a great lecture Dr Murphy. I’m a huge fan of the Lara-Murphy Report podcast.

  3. Tel says:

    For what it’s worth… there’s been a protest in Australia about a law set up in 2012 by the ALP (which was pretty much acting under instructions from the unions) establishing a national minimum wage for independent trucking contractor owner/drivers. Note: this is not about employees, it’s about contractors. The unions don’t like the contractors because they hardly ever join a union, and they negotiate independently. So they have pushed the “safety” angle here.

    http://www.news.com.au/finance/business/other-industries/push-to-abolish-truck-industry-pay-body/news-story/3f255720b9cff288e1905addb4f9236b

    In Australia we already have lots of regulations regarding how many hours you can drive without a break. There are log books and all sorts of compliance stuff. Truck drivers can get tested by police for alcohol, drugs, etc. at any time. Of course, using drugs to stay awake is illegal, but anyway a lot of drivers do it, although difficult to know exactly how many.

    Most of the studies point to scheduling pressure and pay systems that punish the driver for loading delays (e.g. driver only gets paid for delivery, so waiting a few hours extra of a load is effectively volunteer time for the driver).

    However, the newly introduced minimum wage for owner/drivers does not address the scheduling issues, it’s just a price control. I think they have screwed it up, but the purpose seems to be intended to put owner/drivers out of business and get them to scurry back to the unions again.

    Anyway, interesting to see the people supposedly “benefiting” from this minimum wage are the ones loudly complaining about it, while the ALP are sitting there saying “But it’s good for you.”

    • guest says:

      “Of course, using drugs to stay awake is illegal, but anyway a lot of drivers do it, although difficult to know exactly how many.”

      Solution: Create a Trucking Hall of Fame.

      Also:

      Employees *are* independent contractors. *Takes a bow*

      • Tel says:

        Employees *are* independent contractors. *Takes a bow*

        In principle it sounds nice, but not the way the law sees the situation right now.

        The real difference is that unions have established a fair degree of control over the employer/employee relationship, but they have not established control over various other types of (slightly different) contractual relationships. This may seem trivial quibbling over details but keeping unions out of your life is not trivial.

        This has been a massive sticking point for companies like “Uber” with various states pressing to have their drivers considered employees. To sum it up in a nutshell the employer/employee contract has become poisoned by many outside forces jamming their way into the picture, so people are exploring alternative arrangements (however slightly removed they may be). It’s politics, not economics, but you can’t have one without the other.

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