What should I ask Brink Lindsey and Steve Teles?

by on October 7, 2017 at 12:22 pm in Books, Current Affairs, Economics, Law, Political Science | Permalink

I will be having a Conversation with them, in part connected to their very important forthcoming book The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality.  But not only.  What should I ask these two leading lights?

By the way, here is an abstract for the book:

The relentless increase of inequality in twenty-first century America has confounded analysts from both ends of the political spectrum. While many can point to particular contributing causes, so far none of the policies that have been enacted-not just in the United States but in other advanced countries-have been able to lessen the wealth and income gaps between the top decile and the rest. Critics on the left are more forceful critics of rising inequality, and they tend to blame capitalism and the private sector. Predictably, they see solutions in government action. Many on the right worry about the issue, too, but they come from a position that is more sanguine about corporations and more suspicious of government. But as the libertarian Brink Lindsey and the liberal Steve Teles argue in The Captured Economy, perhaps all of us-left, right, and center-are looking in the wrong places for culprits and solutions. They hone in on the government-corporate sector nexus, apportioning blame not only to both forces but also to the distorted form of governance that this partnership has created. Through armies of lobbyists, corporations and the wealthy have become remarkably adept at shaping policy-even ostensibly progressive policies-so that the field is tilted in their favor. Corporations have become classic ‘rentiers,’ using their monopoly power of influence over highly complicated legislative and regulatory processes to shift resources in their direction. FCC policy, health care regulation, banking regulation, labor policy, defense spending, and much more: in all of these arenas, well-resourced corporate rentiers have combined to ensure that the government favors them over everyone else. The perverse result is a state that shifts more and more wealth to the already-rich-even if that was never the initial intent of Congress, the President, or the electorate itself. Transforming this misshapen alliance will be difficult, and Lindsey and Teles are realistic about the chances for reform. To that end, they close with a set of reasonable policy proposals that can help to reduce corporate rentiers’ scope and power to extract excessive rents via government policy. A powerful, original, and genuinely counterintuitive interpretation of the forces driving the increase in inequality, The Captured Economy will be necessary reading for anyone concerned about the rising social and economic divisions in contemporary America.

1 byomtov October 7, 2017 at 12:30 pm

Ask about corporate executive compensation levels. The abstract talks about corporations becoming rentiers through their influence over government. But are executives becoming internal rentiers, through their power over the corporation?

Please do not accept glib answers about shareholder power which is, in corporate governance as practiced today, close to non-existent.


2 prior_test3 October 7, 2017 at 12:46 pm

The abstract clearly shows that they must both be enthusiastic supporters of draining the swamp. What is their opinion of how well that project is going as the Trump Administration moves forward?


3 rayward October 7, 2017 at 12:48 pm

Is one to believe that Democratic and Republican governments alike promote the interests of rentiers equally? Does the kleptocracy of the Trump administration shed any light on this question?


4 Facts October 7, 2017 at 1:02 pm

There are a lot of bad things to say about the Trump administration, but it does not appear to be a kleptocracy.

In fact I don’t think you could produce any evidence that it is more or less kleptocratic than the Obama or Bush administration.

Just another brain dead slur, I guess.


5 Harun October 7, 2017 at 2:06 pm

Perhaps he’s referring to the private jet flights.

Although Obana’s Holder did those as well, but they seemed to ruffle less feathers in the press.


6 Stuart October 7, 2017 at 2:07 pm

Perhaps you can point us to a similar list for the Obamas or Bushes.



7 Facts October 7, 2017 at 9:48 pm

Having a pre-existing set of “potential” conflicts of interest is not evidence in support of the Kleptocracy claim.

I am not at all, by the way, a Trump supporter. But I do think the proclivities of his enemies to accept any slur against him regardless of the truth isn’t helping them at all.

There are in fact dozens of real Kleptocrats who have looted their countries of billions or tens of billions of dollars.

It is not all clear, and no mechanism has been identified through which, the presidency isn’t actually costing Trump money. He would make much more money running his empire than being the president for free, which is what he is doing.

Again, there are a lot of bad, accurate, things people can say about Trump. I really don’t understand why his opponents want to resort to falsehoods.


8 Edward Burke October 7, 2017 at 12:56 pm

Does “the lie” consist of articulated academic perceptions of inequality (with the unwillingness, reluctance, or refusal to account for its distribution and apparent ubiquity)? –or is “the lie” our prevailing notions of “egalitarianism” itself?

I remain amazed that the utopian conceit “equality” could retain its appeal as a political or social ideal worthy of the fruitless pursuit: the only grounds I see for asserting equality to the human condition are the bare ephemerality of existence and the inevitability of death, neither of which are commonly or explicitly celebrated amidst all the pageantry of egalitarianism.


9 shrikanthk October 7, 2017 at 1:00 pm

Can there not be a moral case for income inequality?

Maybe the men of the 40s-50s with their stronger work ethic and superior self restraint did deserve to lead better lives (which they did for their time) than the men of today who are on opioids or alcohol and live off their girlfriends, and earn nothing more than their grandparents did 50 years ago!

The fact that these working class men of the mid-west are struggling is moral justice done! I’d be unhappy if they were to enjoy better outcomes, without improving their ways! That would annoy God!


10 Fred October 7, 2017 at 1:04 pm

This hypothesis is practically self-evident to the kind of person who would read a blog like Marginal Revolution. My question is how can these ideas be communicated to the 99% of people with an unsophisticated view of political economy?


11 chuck martel October 7, 2017 at 1:27 pm

The situation is one of growing fascism via a faux democratic process. When government is not only a major shareholder in businesses through corporate taxation but also through technological and marketing mandates the definition of true fascism has been met. The automobile industry is a great example. Both the left and the right favor more government control but naturally they each want to be the one pulling the strings. The conflict is between two closely related fascist movements.


12 Ben October 7, 2017 at 1:28 pm

1. Anything about political strategy would be interesting.

2. Ask them about how they see the Niskanen Center’s ideological/political posture as differing from more traditional libertarian organizations like Cato.


13 A Truth Seeker October 7, 2017 at 1:34 pm

Would they support Representative Bolsonaro’s presidential run?


14 Rafael R October 7, 2017 at 1:36 pm

I think you should ask then about the other theories to explain the rise in inequality (skill biased technological change and rise of the “super firm”, that is, globalization and information technologies allowed the rise of firms which are much more productive than other firms). Also, their argument works in ways skill biased technological change and rise of the “super firm” do not. As income inequality in other countries has not risen compared to the US. For example, in France the top 10% share in 1974 was the same as in 2014. source: WID


15 celestus October 7, 2017 at 1:49 pm

If the government is tilting the economy in favor of large corporations vs small businesses, certainly that’s bad for growth but doesn’t it increase equality? Bigger companies pay higher salaries, and almost certainly more uniform ones. And on the capital income side, anyone of any IQ, any family background, any education level, any race/gender, any level of social skills and connections, can invest their savings in Facebook and 5x their money. Not anyone can invest in small businesses (in fact, it’s pretty limited to the wealthy through both FDR-era laws and practical factors), few people have the means and opportunity to start them, and of course most small businesses fail regardless of any regulatory concerns.


16 Harun October 7, 2017 at 2:08 pm

Explain why few people have the means to start small businesses, but they have money to invest in Facebook.


17 celestus October 7, 2017 at 2:52 pm

Plenty of people have investable assets of only $5,000 to $100,000, which isn’t enough to get something even as small as a restaurant or dry cleaner going but can easily be invested in large cap stocks. Even if you have investable assets closer to $250k- and now we’re probably talking about the wealthiest 10% of 40 year olds anyway- you’re probably going to balk at risking the majority of that in a startup. Buying fractions of small businesses is rare and mostly done by the wealthy (either directly or through private equity/venture capital funds).

Even aside from the money, starting a business is very hard, it takes time, conscientiousness, and customer service skills that a lot of people don’t have.


18 Adam October 7, 2017 at 2:23 pm

I wonder Teles’ thoughts in particular on Manne’s “The Market for Corporate Control”


19 Donald Pretari October 7, 2017 at 2:38 pm

It sounds excellent. Thanks for pointing it out.


20 mulp October 7, 2017 at 2:39 pm

My question is:

How do you differ with Keynes who wrote:

“Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce.”

My study has convinced me that since circa 1980, the ‘agency of the State’ switched from promoting abundance of capital to increasing scarcity of capital. Today, GOP policy seeks to destroy capital creation precisely because that euthanized the rentier.

Ie, no public transit of high quality to increase the available housing stock in areas of high intensity business. No universal provision of capital creating education in every aspect once common from the 30s to 60s, ie, vocational and apprenticeships starting in public school, employers investing several years of training in the first five to ten years after hiring workers, etc. In the 30s, the CCC was an investment in young adult men which trained them to work, human capital, while building long term capital assets that one finds in use even today.


21 Sam Kaplan October 7, 2017 at 2:55 pm

Very excited to hear about this book–this is the kind of book I’ve been waiting for and very much looking forward to reading it. Thanks for pointing it out. Do they also discuss patents and how that is providing an unfair advantage for larger companies? For a project last year I interviewed small businesses and that subject came up a number of times. Also do they get into how environmental regulations have become so complicated that it is easier for established, large companies who can afford a swathe of lawyers to compete on projects but not newer, smaller companies? I’d be curious to hear their thoughts on these two subjects when you interview them. Thanks for doing this.


22 Major Tom October 7, 2017 at 3:06 pm

If outsized corporate influence on Congress is the problem, how can we expect Congress to address the problem? It would require corporations to tolerate changes to laws that are not in their best interest. If corporations have as much influence as seems to be suggested, under what scenario would they allow Congress to proceed with measures that shape power away from these corporations, limit their eventual influence, empower other voices etc?


23 Potato October 7, 2017 at 3:47 pm

I don’t know if it’s corporate influence on Congress as much as a symbiotic relationship between bootleggers and baptists.

Democrats who want to see their social justice programs implemented find a willing and enthusiastic audience in massive corporations. They have robust legal departments, and they’re large enough that they can risk some low quality hires in the short term for good PR.

Workplace safety and environmental groups find a willing audience. Same thing, legal departments and the staff to deftly navigate bureaucracy.

Certain people want control, and large corporations go along with it since it raises barriers to entry and increases their economy of scale. I’m not certain the story is more complicated than that.

Other than that, you want to be in the new commanding heights sector, a la Kling. Education, health care, finance. You want to be in a government related industry, again for barriers to entry reasons. That’s where the money is, a sector where government restricts supply and subsidizes demand. The only flourishing sector apart from that is tech, which does not require that many employees in a labor/revenue basis.


24 Tom T. October 7, 2017 at 6:09 pm

Ask him how he got the name “Brink.”


25 R Richard Schweitzer October 7, 2017 at 6:36 pm

Reading just this “abstract” one cannot tell if these authors (or indeed the Honorable T.C., himself) consider that it may just be possible that,like “poverty,” “inequality” is NOT “caused, but is absent factors and forces is more often the general state of human social organization.

Poverty is displaced by sufficiencies, then surpluses, then accumulations that become “wealth” (and the bases for accretions).

The “economic” inequalities of a society are directly related to, if not correlated with, inequalities in the nature of the human relationships of a society. Those relationships have been facing increasing interpositions. More to come …


26 Deric Tilson October 7, 2017 at 7:18 pm

I would bring to their attention Walter Scheidel’s new book “”The Great Leveler” and its proposed implications on the ineffectiveness of political reforms relative to exogenous shocks. More specifically, if any of their proposed actions to reduce rents were put into place, would they not only implement marginal changes and perhaps have no real impact on the current level of inequality? The proposals may slow down the growth of wealth inequality, but in no way can the policy changes reverse the historical process of wealth accumulation seen in the expanses of time between exogenous shocks.

Furthermore, do they have estimates and confidence intervals on the effectiveness of these policy proposals? If they were successful in passing new regulation through the Hill, could the next session of Congress not undo any previously passed changes?


27 JosieB October 7, 2017 at 8:05 pm

Do they see a correlation between the growth of government opportunities for businesses to gain legislative or regulatory protection that confers protection or wards off competition? Any effects of continued congressional protection of the carried-interest tax treatment?


28 efim polenov October 7, 2017 at 9:39 pm

True or false: “Libertarians” are people who are motivated by thinking about what should be, in a world that would be slightly better: their rarity among people who work at real finite jobs in the real finite world is well known, and their general caricature as daydreaming adolescent-type academics is also well known ( leaving aside the original generation of privileged libertarians like Hayek, who got to say the first word on so many subjects without having to defend his or herself against the charges of hypocrisy and arrogance that the real world would have eventually presented to him or her) (well, not actually to him or her, but to those who noticed whether Hayek spoke accurately – in the positive sense, describing his better take on issues described by those he disagreed with – or in the negative sense, describing how the world does not work (leaving aside his accurate criticisms of his not-very-bright opponents). That was the true statement. Here is the false statement. Libertarians like humanity but dislike people. Why?


29 efim polenov October 7, 2017 at 9:47 pm

Actually, I was kidding. Don’t ask that. Don’t bother. “libertarians”, with a few exceptions like Hayek, are simply arrogant people who believe they belong to an upper class, and they will never honestly answer a question like that. Don’t embarrass him by asking him. I prefer a world in which “libertarians” get to enjoy their uncompassionate ignorance to a world where they don’t. This is not a good world at this time, and it is nice that some people have found a way to think that they, without effort, understand it. Who would want, caring about other people, to burst their bubble?


30 efim polenov October 7, 2017 at 10:15 pm

For the record, I never criticize Voegelin.


31 efim polenov October 7, 2017 at 11:02 pm

Then again: most libertarians do, actually, like humanity but dislike people. Look at their Twitter feeds. But I know why, so I would not need to ask the question. 50 years ago, there were many problems that have now resolved themselves. 50 years later, we can say this: Understanding does not exactly grow with time: but the slanders of yesterday now seem, unless they were precise and accurate, just too sad to think about: and the slanders of today will achieve that same sad low level, years from now.


32 efim polenov on voegelin October 7, 2017 at 11:15 pm

although he was wrong, of course, to claim that he understood “the center of the primary experience of the cosmos” well enough to use it in a sentence (which, poor slob, he did) : while it is nice that he (Voegelin) was honest enough to think it was fun to say something like that, we all know that the world is way too complicated even for the Voegelins of the world to confidently say something like that, absent true knowledge of the word of God (that is, he did not understand either the New or Old Testament). I remember walking a few blocks in 1967, alone, a little fellow who did not know if he would grow up to be a gnostic or a libertairian or something else like that, and on the sidewalks in front of the houses with those beautiful yards, owned by so many people who have passed away since then, I noticed how beautiful the grass and the weeds and the bushes and the incidental butterflies and other bugs were: God bless them, and God bless everyone they cared about, and every one that they did not, in their short lives, have the energy to care about. No, libertarians do not understand the world so many of the people we care about live in. Sure maybe they understand my world, but I have forgotten so much.


33 efim polenov on voegelin October 7, 2017 at 11:22 pm

Just trying to be fair: come on, if you use a phrase like “the center of the primary experience of the cosmos” you have to expect, in a world where millions of people say millions of things that nobody reads on a super-souped-up-bulletin-board (like the internet) – you have to expect that someone will say something less than completely flattering. Nobody cares: as long as people remember: as long as people remember what they were born to remember. I remember.


34 efim polenov on voegelin October 7, 2017 at 11:24 pm

Voegelin was not a libertarian. No need to look it up. He just wasn’t. That is not a criticism.


35 Doubtful October 8, 2017 at 12:54 am

Will lowering of corporate taxes increase inequality because
corporations will just pass along the money to the already wealthy
in the form of stock buy backs and increased dividends instead of
expanding business or increasing wages.


36 Li Zhi October 8, 2017 at 5:41 am

Rent seeking is “counterintuitive” and “original”??? I don’t think so.
I find discussions about wealth inequality about as tightly reasoned as discussions on who should be the next to go on the Bachelor(ette). A lot of people pay lip service to the idea that our kids should all have a level playing field. I’ve no doubt that most of the “wealthy” do not want their placed on anything remotely like a level field. I think fear drives a great deal of wealth accumulation. Discussing wealth inequality without discussing healthcare, education, entitlements, SSA/Medicare/aid, and our federal government’s bond rating is nonsensical. I think too many of the wealthy & high earners have lost their optimism that the future is going to be better than the past. Which goes a long way, imho, in explaining why they are hoarding.


37 Quizzical October 8, 2017 at 7:57 am

Is Brink still the undisputed beer pong champion of Tower Club ?


38 Tom Devereaux October 9, 2017 at 5:09 pm

Isn’t that a bit like being the best surfer in Des Moines?


39 Some Other Tom (I Forget Which) October 8, 2017 at 9:44 am

As Arnold Kling has noted, the vast majority of political discourse takes place in ways that serve to reinforce the beliefs that the readers already have. How do you write the book and engage in dialogue more generally in a way that (a) appeals to people who don’t already agree with you, and (b) doesn’t make people invoke their knee-jerk tribal reactions? I’d be especially curious to hear Lindsey answer re liberals, especially what he learned in his liberaltarian project, and Teles answer for libertarians.


40 ashby October 8, 2017 at 9:53 am

I have questions about two areas.

The compensation of top executives seems somewhat disconnected from the value created, and I’m not talking about just corporations. I would include non profits, the administration of schools, museums and arts organizations. There seems to be a very careful eye on the costs of lower level employees, but the upper echelons have a relatively unrestrained expectation of remuneration. What is driving this? Are the boards stuffed full of multimillionaires so they don’t see anything odd about paying ten million to the head of a non profit?

Why is there not more profit sharing with the general workforce?

H1-B visas- I’ve got no problem with allowing the best and the brightest to come over and work, but when they are tied to specific companies (so they can’t apply to work elsewhere & drive competition for better wages while they are here) it would seem to decrease wage competition for the most talented and possibly suppress wages throughout that industry. Can this be fixed? How significant is the effect of this wage suppression? Can it be accurately quantified?

Are these effects natural to the market, or are they being driven by bad policy?


41 ashby October 8, 2017 at 10:06 am

I suppose I’m looking for the factors driving high paying administrative/bureaucratic bloat at the top and suppressing competition for talented workers. Wondering how significant these factors are & if they are the result of specific ill considered policies.


42 Dallas Weaver, Ph.D. October 8, 2017 at 12:49 pm

Ask about the significance of the increase in the “regulatory state” in transferring income and wealth to the top 10%.

If you are only looking at the top 10%, you are also looking at how the educated elite is transferring income and power to themselves via the “regulatory state”. This transfer is preventing and decreasing the income of the “Joe Median” workers who have a high school education but do know which way a wrench turns.

For a specific example: I will be going to meetings again as an observer of the evolution of regulatory/institutional insanity in the case of obtaining a “permit” to build a desalinization facility in Huntington Beach in So. California that has real water supply issues but unlimited seawater off-shore in “surf city”. This regulatory farce has been going on for 12 years as members of the educated elite (all of whom have MS degrees or professional degrees working for dozens of activist organizations or the government regulators or the proposers with dozens of “experts”). They are arguing about whether 80 million wild fish larva per year that will be in the intake water can justify requiring a billion dollar sub-sand filter to hide the problem. This amount of fish larva is produced by about 200 kg of adult catchable size fish (not enough for the daily fuel bill for a commercial fishing boat) per year.

While this educated elite group of bureaucrats has been milking the system for extreme incomes and pensions, the workers who would build, operate and maintain the facility have no jobs or significantly fewer opportunities. It is these same Joe Median workers who will also have to pay all these artificially high costs as the projected costs of this desalinated seawater is 3 times the costs elsewhere in the world (Israel, Singapore, UAE, etc.) using the same technology and hardware (much of which is produced in California and exported to the rest of the world: the energy recovery systems are from San Lorenzo, Ca). They have to pay for the estimated 50 million in up-front costs for the permits with 20% IRR over the project life.

In effect, this government regulatory system is transferring wealth and income from the average or median citizens to the educated elite. As part of the educated elite, I have benefited from the increasing “educational premium” but society would be far more equal by allowing innovative solutions to progress and keeping the water costs down and supply of “Joe Median” jobs up.

This evolution of the “regulatory state” maybe why the modern-day fortunes are being made in the “permissionless” sectors of Silicon Valley and in automation of existing sectors rather than creating whole new sectors and innovative niches in our economy. For example, the aquaculture (producing/farming fish/shrimp, etc) sector world-wide has been growing at near or above double digits rates for three decades and becoming the dominant sources of our seafood, while in the US we have a zero or negative growth rate in this sector (we import most of our seafood). Meanwhile, we export aquaculture technology and people around the world as our regulators kill this sector.


43 John Pinkerton October 8, 2017 at 7:50 pm

Following the question on corporate executives being internal rentiers: Why don’t institutional investors–especially index funds, who favor no particular company–put more pressure on corporations to restrain executive compensation?


44 Michael Wiebe October 9, 2017 at 2:21 am

Is cronyism actually a substantive factor in explaining inequality? It seems that housing prices are much more important (the Moretti 50% number comes to mind).


45 dreambox DM900 hd 4k October 9, 2017 at 3:20 am

ok,,it is good, idea, i like them



46 Andrew Melnyk October 9, 2017 at 7:48 am

Presumably, at minimum, some parts of some industries should be regulated some of the time. Assessed individually (and honestly), a regulation can: (1) benefit firms in an industry and create a barrier to entry for other firms (regulatory capture); (2) advance a social good perceived by the rule-maker/regulator but of detriment to the industry and possibly others (e.g. many environmental regulations); and/or (3) correct a genuine market failure. Within any given industry, all three types of regulations exist, and some regulations fall into more than one category. Industry uses lobbying to encourage (1) and to discourage (2). In Q1 2017, $838 million was spent on lobbying. I would argue that the relative amount spent on lobbying for ‘regulatory capture’ vs. ‘lobbying in defense of industry’ differs by industry and changes through time. If industries really are in defensive mode and if regulation is threatening the existence of a firm or industry, what choice do they have but to engage in aggressive lobbying? I would be interested in the authors perspective on this.


47 Andrew Melnyk October 9, 2017 at 7:58 am

Given that some regulations are necessary and that the economy is over-regulated: (1) how do we determine which regulations currently on the books are ‘good’ and which are ‘bad’?; (2) given the massive number of regulations and (for some industries) their complexity, how do we get rid of the ‘bad’ regulations?; and, (3) going forward, how do we ensure only ‘good’ regulation is enacted? Federal agencies are suppose to conduct a regulatory impact analysis for every proposed regulation of a certain size. But RIAs are expensive (which is prohibitive at the state and local levels), time consuming if done right, somewhat subjective, and in practice are either not done or are done poorly. Additionally, the Office of Management and Budget (which reviews all RIAs submitted by agencies) usually does not reject proposed regulations for faulty or insufficient RIAs. What do the authors propose can be done?


48 A_female_brain October 9, 2017 at 12:40 pm

Does their study of power and inequality give them any insights into some of the current issues around gender inequality? Especially thinking about the low numbers of women in corporate board rooms, CEOs and other high level corporate positions, lawyers, judges, professors, etc.


49 Mikayla Novak October 10, 2017 at 3:02 am

Their excellent new book provides a detailed synopsis of the potential for certain regulations (e.g., intellectual property, financial regulation, occupational licensing and land-use regulations) to effectively redistribute income upwards. I’d be interested if you could ask them to offer some perspectives about what kinds of budgetary policies – on the tax and/or expenditure side – might effectively do the same thing? There is much discussion about the potential use of tax deductions, exemptions and other waivers to enhance the incomes of those well-off, so any other examples they might care to cite?


50 TokyoTom October 15, 2017 at 7:03 am

It sounds like the makings of an interesting conversation.

I’d be curious if (1) they focus on the nature of the grant of limited liability to corporation shareholders as one deep root of moral hazard/risk-shifting that drives citizens to demand an ever-larger state thatcorporations are best positions to capture and take advantage of, and (2) what course they propose as a way to reduce rent-seeking and restore local accountability.

Here’s a precis of my own views:

“The state has institutionalized moral hazard and exacerbated principal-agent problems via the grant of limited liability to corporate shareholders. This grant is at the core of why investors chose to us the corporate form (as opposed to traditional partnerships and older versions of corporations where shareholders retained substantial risk), and is something that cannot be obtained merely by voluntary transactions – as it involves future potential involuntary victims of acts by the new corporate legal entity (lenders and other parties can of course agree in advance to liability caps and recourse limits).

“This state intervention has set in motion and greatly fuelled the growth of government and battles with citizen groups over the wheel of government — battles in which insider elites, generally acting through long-lived and deep pocketed corporations that are armed with greater knowledge and cloaked with anonymity, have the overwhelming advantage. I earlier summarized these dynamics here: The Cliff Notes version of my stilted enviro-fascist view of corporations and government

“As I have noted elsewhere: I am NOT arguing FOR a general rule that shareholders SHOULD be liable for corporate torts. Rather, I:

(1) point out that limited liability itself has served to muddle the question of whom, exactly, should be responsible for the very real harms that corporations frequently cause (if, as some argue, the corporations and their shareholders themselves are the “victims” of the troubles they create, then whom, exactly, are the perpetrators?),

(2) note that the limited-liability corporate form has enabled risk-generation and -shifting on a massive scale, with innocent third parties frequently being stuck holding the bag (not solely when liabilities exceed assets, but more generally since the cycle of escalating government interventions to rein in corporations perversely ends up raising barriers to entry and giving corporations regulatory “rights to pollute” that curtail liability even when sufficient assets are available),

(3) argue that libertarians should reconsider the grant of limited liability for torts (as opposed to limited liability as to those who contract with the corporation on a voluntary basis) not simply because it is clearly non-libertarian to begin with, but because it has had profoundly perverse consequences (consequences at a serious enough level that state-loving libertarians in effect concede simply by troubling themselves to argue against curtailing limited liability),

(4) note that the most efficacious way to roll back the regulatory state lie in the direction of shifting ultimate responsibility for managing risks to enterprise owners (and ending the counter-productive regulatory risk-management experiment), and

(5) note that a curtailment of limited liability for torts could be hedged by shareholders via insurance, and could be achieved by state governments and the federal government offering more lenient regulation to business enterprises that operate as partnerships, unlimited liability corporations, or in cases where shares are not fully paid up so that calls for significant additional capital could be made against shareholders if needed to pay claims.”

What suggestions do the authors have of shifting regulation from central governments to local communities?



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