Investing in the Poor

by  Alex Tabarrok in

The Unincorporated Man is a science fiction novel in which shares of each person's income stream can be bought and sold.  (Initial ownership rights are person 75%, parents 20%, government 5%–there are
no other taxes–and people typically sell shares to finance education and other training.)

The hero, Justin Cord a recently unfrozen business person from our time, opposes incorporation but has no good arguments against the system; instead he rants on about "liberty" and how bad the idea of owning and being owned makes him feel.  The villain, in contrast, offers reasoned arguments in favor of the system.  In this scene he asks Cord to remember the starving poor of Cord's time and how incorporation would have been a vast improvement:

"What if," answered Hektor, without missing a beat, "instead of giving two, three, four dollars a month for a charity's sake, you gave ten dollars a month for a 5 percent share of that kid's future earnings?  And you, of course, get nothing if the kid dies.  Now you have a real interest in making sure that kid got that pair of shoes you sent.  Now it's in your interest to find out if he's going to school and learning to read and write.  Now maybe you'll send him that box of old clothes you were thinking of throwing away.  Under your system you write a check and forget about the kid, who'll probably starve anyway.  Under our system, you're locked into him.

…the real benefit comes about when those 'evil, selfish, horrible corporations' get involved.  How long will it take for a business to realize that there's a huge profit to be made in those hundreds of millions of starving children?…Imagine a world where a bank gives a loan to a corporation to build a school, hospital or dormitory.  Not because its the right thing to do; who cares!  They'd do it because it's the profitable thing to do.  And because of that, my system, not in spite of greed and corruption and incorporation, but because of it, will work better than yours in any time period with any technology you choose."

So who do you stand with, JC or Hektor?

Hat tip to Robin Hanson for lending me the book and from whom I cribbed the description of ownership rights.  Hanson offers other thoughts on the novel.  And here are earlier comments from Reihan Salam.

Draw the rational Bayesian inference here

by  Tyler Cowen in

Germany’s BaFin financial-services regulator said it will temporarily ban naked short selling and naked credit-default swaps of euro-government bonds starting at midnight. The ban also includes naked short selling of 10 banks and insurers.

I thank a loyal MR reader for the pointer, my apologies I have misplaced the email and I don't know your name.

Questions that are rarely asked

by  Tyler Cowen in

If you could create a punctuation mark, what would its function be and what would it look like?

That's from Hudson Collins, loyal MR reader.  I've always liked the chess marks "!?" and "?!" and wondered why they weren't used in standard English.  The former refers to a startling move which is uncertain in merit and the latter refers to a dubious move which creates difficult to handle complications.  Plus "N" could be used to mark sentences with novel ideas.  I also would ask for a punctuation mark meaning: "This sentence adds an "N+1" understanding to a problem which everyone else is discussing at an "N" level."  Maybe the mark could be an arrow pointing up to the sky.  Similarly, you could imagine an arrow pointing downwards to hell.

What kind of punctuation mark would you add?

Social welfare expenditures in the United States and the Nordic Countries

by  Tyler Cowen in

Price Fishback has a new paper and perhaps this abstract should be screamed from the yttertak:

The extent of social expenditures in the U.S. and the Nordic Countries is compared in the early 1900s and again in the early 2000s. The common view that America spends much less on social welfare than the Nordic countries does not survive closer inspection when we consider the differences in the structures of social expenditures. The standard comparison examines gross social expenditures. After adjustments for direct and indirect taxes paid, the net social expenditures in the Nordic countries are much closer to American levels. Inclusion of mandatory and private social expenditures raises the American share of GDP devoted to social expenditures to rank among the middle of the Nordic countries. Per capita net public social expenditures in the U.S. rank behind only Sweden. Add in the private spending, and per capita spending in the U.S. is higher than in all of the Nordic countries. Finally, I document the enormous diversity across time and place in public social expenditures in the U.S. in the early 1900s and circa 1990.

Fishback does discuss how, in line with intuition, the U.S. system is more porous and less universal.  He also stresses how common it is that people do not claim or apply for benefits for which they are eligible.

Here are some of Fishback's papers on-line, but I do not see an ungated copy of this one.

Theories of transparency cross the Atlantic

by  Tyler Cowen in

The European Central Bank disclosed Monday that it had bought 16.5 billion euros in bonds in the first week since taking the unprecedented step of intervening in markets to halt a sell-off of Greek and other European debt.

The bank did not say which countries’ debt it was buying, how much it would spend in the future, or whether it bought any corporate bonds. The 16.5 billion euros ($21 billion) was considered a relatively small amount for the market.

Analysts said the bank would want to keep investors guessing to maximize the psychological impact of the move.

If you paw through the article, you'll see they restored the scary Trichet quotation about markets having started to shut down last week.

Middle East peace proposals

by  Tyler Cowen in

This one is new to me:

An even more radical idea has been put forward by Swedish diplomat Mathias Mossberg and UC-Irvine professor Mark LeVine. They do not believe giving settlers Palestinian passports would solve anything. The two propose creating overlapping states between the Jordan River and Mediterranean Sea, delinking the concept of state sovereignty from a specific territory. There would be an Israel and a Palestine, but rather than divide the land, the two states would be superimposed on top of one another. The plan would permit individuals to live where they wish and choose their political allegiance. This, they argue, would resolve the seemingly intractable questions of how to divide the holy city of Jerusalem and whether to allow Palestinian refugees “the right of return” to their old communities.

This doesn't seem practicable to me (no good mechanism for dispute resolution), but maybe in some other geopolitical setting it could be made to work,

Oil Spills, Tort Law and Libertarianism

by  Alex Tabarrok in

Here is Paul Krugman's Nth reason why libertarianism doesn't work:

Thinking about BP and the Gulf: in this old interview,
Milton Friedman says that there’s no need for product safety
regulation, because corporations know that if they do harm they’ll be
sued.

Interviewer: So tort law takes care of a lot of this ..

Friedman: Absolutely, absolutely.

Meanwhile, in the real world:

In the wake of last month’s catastrophic Gulf Coast oil
spill, Sen. Lisa Murkowski blocked a bill that would have raised the
maximum liability for oil companies after a spill from a paltry $75
million to $10 billion. The Republican lawmaker said the bill,
introduced by Sen. Robert Menendez (D-NJ), would have unfairly hurt
smaller oil companies by raising the costs of oil production. The
legislation is “not where we need to be right now” she said.

And don’t say that we just need better politicians. If
libertarianism requires incorruptible politicians to work, it’s not
serious.

In other words, libertarianism can't work because government sucks. I am tempted to comment further on this creative line of reasoning but that is unnecessary since Paul has misunderstood the facts of the matter.

The Oil Pollution Act of 1990 (OPA), which is the law that caps liability for economic damages at $75 million, does not override state law or common law remedies in tort (click on the link and search for common law or see here).  Thus, Milton Friedman's preferred remedy for corporate negligence, tort law, continues to operate and there is no doubt that BPs potential liability under common law alone would be in the billions of dollars. 

Thus, Paul now has only (N-1) reasons why libertarianism doesn't work.

Moreover, Paul has actually been too unkind to government, a defect it falls upon me (!) to correct.  The point of the OPA was not to limit tort law but to supplement it.

Tort law, as traditionally understood, could only be used to recover damages to people and property rather than force firms to pay cleanup costs per se.  Thus, in the OPA as I read it–and take the details with a grain of salt since I'm not a lawyer–there is no limit on cleanup costs.  Moreover, the OPA makes the offender strictly liable for cleanup costs which means that if these costs are proven the offender must pay them regardless (there are a few defenses, such as an act of war, but they are unlikely to apply).  The offender is also strictly liable for up to $75 million in economic damages above and beyond cleanup costs.  Thus the $75 million is simply a cap on the strictly liable damages, the damages that if proven BP has to pay regardless.  But there is no limit, even under the OPA, on economic damages in the event that BP failed to follow regulations or is otherwise shown to be negligent (same as under common law).