Category Archives: Monopolies

Do Government Regulators Protect Investors?

Economics, Free Trade, Government Regulation, Monopolies, Theory and Ideas

In a thread at Reason’s hit and Run, during a discussion where Enron was cited as an example of what happens when governments fail to regulate private behavior, frequent commenter fluffy wrote an insightful comment which is well worth reading in full. The second half of her comment read:

It is customary in the US for the Wall Street markets to be seen as the embodiment of unbridled capitalism, and they really aren’t. What they are is a complex system of federal regulation designed to foster “confidence” in publicly-traded companies, to facilitate the growth of those companies via debt and capital aggregation and intermediation. Their existence is a deliberate policy choice of the state, to attempt to use regulation to make it possible for small investors to trust people they have never met and of whom they have no knowledge – in order to allow corporations to grow larger, or to grow more quickly, than they would have in the days when trust was based on the personal or family qualities of the entrepreneur behind the corporation or the bank doing the underwriting for the corporation’s stock. The complex rules regarding accounting, corporate reporting, transparency, etc., are designed to allow corporations and investors to trust each other without actually having to do anything to establish trust beyond participating in the regulated system. Traders who use trading apps uk as well as trading resources from China, Australia, the USA, etc need to know that companies they’re trading in are not going to foil their investments and that their investment is totally legitimate.

This has two unintended consequences. First, it allows corporations to be much larger and more powerful than they would otherwise be. The social and economic effects of this are open to debate. Second, it creates a situation where the “incentive problem” MNG talks about looms pretty large. As long as a corporation can do the bare minimum necessary to keep the SEC from shutting them down, they are in a position to command broad respect from investors that they may not deserve. The highly technical nature of the regulations in question also creates a milieu where a company like Arthur Andersen can begin to see its task as ensuring technical compliance and nothing else; the exotic techniques their consultants were using to build earnings or smooth earnings in that context begin to look not like “frauds” but simply “innovation”. By trying to facilitate the operation of the market, the state has in a sense corrupted it, or at least created an environment where corruption can hide behind the wall of paper the SEC requires.

But why has this corruption occurred? Why wouldn’t it happen in a private stock market? Well, a thought experiment will explain why the government intervention is corrupting. Imagine two stock markets. One, the Boston Stock Exchange is interested in attracting investors with assurances that their money will be safe. This is the kind of one many who check the robinhood app review (or other reviews) would be drawn to most likely. The other, the New York Stock Exchange does not care. The owners of the Boston Stock Exchange publish a set of accounting standards and demand that any company that trades on their stock exchange must follow those rules and publish those reports, thus helping people who would be seeking information from TradeZero and other stock market trading platforms. The New York Stock exchange does not have that requirement.

Some investors choose only to invest money in companies trading on the Boston Stock exchange. They eschew the New York exchange. In the meantime investors who are less choosy (or more foolish) continue to invest in companies on the NY exchange. Some people might not agree with this decision. Of course, some investments will suit some people, whilst others might not be interested. In order to find the best investment, it might be worth using some Investment Apps. That could be useful and it should help people to invest properly. Anyway, as a result of these investments, the companies that invest in meeting the requirements of the Boston exchange have access to additional capital that they couldn’t get if they were limited only to getting it from the NY Stock exchange. If the additional capital is worth the expenses involved in meeting the Boston standards, a company will rationally choose to adopt the Boston standards. Companies that find the additional cost not to provide sufficient benefit will not adopt the standards. Those companies will forego being traded on the Boston exchange and will make do with the capital available in New York.

In this scenario, the cost of adopting accounting rules is an investment in the business, much like the cost of marketing or the cost of insurance. Companies that choose to spend the money will attempt to ensure that it is well spent, that they are necessary for investor protection. There will be a negotiation between investors, the Boston Stock exchange, accountants and the companies being audited to arrive at meaningful standards that satisfy everybody. In the commercial insurance industry there instances of fraud tend to be aberrations rather than systematic because this very process is in place.

Now let us assume that for a variety of reasons the U.S. government passes a law mandating that all companies meet the Boston standards. Immediately all the companies trading exclusively on the New York exchange are slapped with an additional cost that they don’t want. The benefit of compliance will be reduced since the capital funds available in Boston will now be spread over many more companies. These companies, having been saddled with an unwanted cost will attempt to reduce the cost. They will seek out corrupt auditors who will rubber stamp their records. In the meantime the auditors who specialized in Boston accounting rules, now assured of a captive market, have to expend less effort pleasing their customers, the stock exchanges. In fact, they merely have to satisfy government regulators to keep their licenses, so they will pay less attention to the officers of the stock exchange. Since the government regulators, unlike the Boston Stock exchange, face no losses should they certify a corrupt regulator, they have a much lower incentive to ensure that the auditors are doing a good job.

At this point the accounting industry will not only become corrupt, it will also stagnate. The process that causes the stagnation is quite straightforward:

Let us assume that a couple of investors think that the Boston system is flawed. So they come up with a new system, and establish a stock exchange in Chicago which insists upon these alternate standards. Let us further assume that they convince a number of investors to agree with them, to the point where a few companies are interested in adopting the new standards. Whereas before the companies would merely have to switch to the Chicago system and to abandon the Boston system, they are not allowed to do this. They must continue to spending the money required to comply with the Boston system. If they want to meet the Chicago rules, they must purchase this as an additional cost. And, if the Chicago sytem contradicts the Boston system they cannot adopt the system at all.

This sets up a nearly insurmountable hurdle for anyone to adopt the Chicago system. And there is little chance of the Chicago system being mandated, because there will be many people with a vested interest in keeping the Boston system in place. Only in a time of crisis will the adoption of the Chicago system be considered by the legislature. And, if they should mandate it, they will be mandating an untested system. Should the system not work out as advertised, they could set back the industry dramatically as is happening as a result of the Sarbanes Oxley law.

If people truly wish to protect investors, they would lobby for the immediate dissolution of the SEC and allow stock markets to compete again on the quality of auditing. We would see a dramatic improvement in investor satisfaction as Stock Exchanges were not limited to competing for customers using price.

tarran
I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.
https://thelibertypapers.org/author/tarran/

Menino’s Homeopathic Solution to Gun Violence

Crime and Punishment, Dumbasses and Authoritarians, Equal Protection, Human Rights, Keep and Bear Arms, Monopolies

This week Boston’s Mayor Menino testified before the Congressional Task Force on Illegal Guns. He had this to say:

We share a common disdain for what we have seen happen in our cities, to our residents and to our police officers as a result of illegal guns. So, we signed a statement of principles and agreed to work together to take illegal guns out of our cities.

….

Fighting crime is a top priority for all mayors – and fighting crime means fighting illegal guns. The stakes could not be higher. Fatal shootings of police officers increased 33 percent last year. I know that every mayor in this country will do whatever it takes to protect the men and women who put their lives on the line to keep our cities safe.

…

So now, the voices of mayors are echoed by elected leaders and law enforcement officials from every part of America – and we’re making progress. Our numbers are growing, our mission could not be more timely and our message couldn’t be more clear: We need to stem the flow of illegal guns in our cities now.
Together, we will continue to work for common sense measures to fight illegal gun trafficking

His testimony was awfully short on the specifics on what problems “illegal guns” pose, other than claiming that they are behind an increase in shootings of police officers. Instead he lovingly details the growing number of government officials who are in favor of making the population increasingly dependent on them for protection.

In fact, the main complaint contained within his testimony seems to be that the work of the police is made more difficult by the prevalence of black marketeers importing guns illegally from areas where they can be legally manufactured and sold to ones where they cannot be legally imported and sold. But, his conclusions, that a Fugitive-Slave-Law style crackdown by the federal Government would somehow make the city of Boston safer is unbelievably wrong headed.

Assumption 1: A police monopoly on guns will make people safer:

This is, of course ridiculous. The police can take minutes or hours to respond to an attack in progress. The police are also under no legal obligation to respond at all. Restricting the supply of firearms makes defense of property increasingly expensive. While the wealthy can afford to hire security guards licensed by the state, or can convince political leaders to assign them special police details, those who are too poor, or lack political connections are left increasingly vulnerable.

Assumption 2: A reduction in the availability of guns will make criminals significantly less dangerous:

This is, again, ridiculous. The bank robbers who unsuccessfully attempted to rob a bank in California using AK-47’s are very rare exceptions to the rule that most crimes can be as easily committed with a knife as with a gun. A criminal carrying out an attack has the initiative; he chooses when and where he attacks and who his victim is. He is quite capable of altering his plans should the tools he has to work with be limited only to knives or base-ball bats. The ban makes the criminal more dangerous; firearms historically have favored defenders over attackers. There is a great deal of truth behind the saying God may have created men equal, but it was Samuel Colt who made ’em equal.

Assumption 3: A meaningful reduction in the availability of guns is even possible:

Total bans on any good in wide demand, such as alcohol or cocaine or salt will result in smuggling. Nothing save setting up checkpoints on every road into Massachusetts and searching every car carefully will keep guns from flowing into the state. Unlike cocaine or whiskey, a gun gives off no chemical traces of its presence. Tape it to the underside of a car, and you can get it through any checkpoint.

Furthermore, any clever person can build simple yet effective weapons given a rudimentary machine shop. Even if a total ban on imports was possible, the measures required to prevent machine shops from producing firearms in quantities sufficient for a crime wave would be unenforceable.

Mayor Menino cited a figure of ~<500 illegal guns being associated by police with various crimes. 7 smuggling rings, smuggling in 15 guns a month each could easily supply this sort of demand. Hell 20 machine shops could easily make 10 guns a month to produce over 2000 guns a year if need be.

Nor will Mayor Menino ever be able to get rid of gun manufacture all-together. The demand for legal guns for his police force is sufficient to ensure that factories will be churning out a large quantity of fire-arms. Some of these will be diverted into the black market as surely as nuclear missile guidance systems ending up in Taiwan.

“What is not seen”

Mayor Menino does not want to outlaw guns. Rather what he wants to do is outlaw anyone but the police from having them. He views the guns as making violence in the city worse and as a hazard to the police. But by focusing on the firearms he is avoiding the questions he really should be asking:

Why are people resolving disputes by shooting at each other? Why are the police being threatened?

The answer to these questions is not a pleasant one to the politicians of Boston or Massachusetts, so they avoid asking them.

The short answer is that by writing and enforcing draconian economic and moral laws such as onerous labor laws, blue laws and drug laws, the politicians of Massachusetts are making it difficult for people to live their lives legally. The police are not seen as benefactors but as yet another street gang preying on the weak. The lack of legal business opportunities drive people to seek illegal occupations. While some of these illegal occupations are honorable (drug dealing, prostitution), many are dishonorable (burglary, mugging).

When people view the police as an enemy, and the courts as a predatory system, they naturally ignore them for resolving disputes. When business ventures are illegal, the participants are much more likely to settle disputes violently than via a system of arbitration.

What Mayor Menino seeks to do is to isolate the people of Boston from alternatives to dealing with the police. In effect he is behaving like an abusive boy-friend who tries to isolate his girlfriend from other people. Rather than improving the relationship between the citizenry and the government, these attempts will only increase the gulf between them. Any crackdown on the illegal gun trade will inevitably harm innocent people who are either in the wrong place at the wrong time, or who are deprived of a means to defend themselves. It will empower criminals to more brazen acts of thievery and mayhem. It will, in effect worsen most of the engines that drive criminality.

Until he recognizes that the political policies he and his circle support which are the root cause of the violence directed by the people subject to his rule towards each other and towards the police, nothing good will come of his advocacy and his actions.

It is time for the political classes of Massachusetts to stop treating the citizenry as children at best and as beasts to be exploited at worst. If they were serious about reducing the level of violence and the misery in Boston they would stop wasting time on trying to shore up a monopoly on defensive services on behalf of the police, give up their expensive hoplohobia-mongering propaganda campaigns, and would instead focus their attention to eliminating the laws purposed for economic and social engineering.

tarran
I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.
https://thelibertypapers.org/author/tarran/

Should The Feds Mandate a Do-Not-Mail List?

General, Government Regulation, Monopolies, Property Rights

On Reason’s website, Radley Balko has a great takedown of the Post Office’s hostility to the so-called ‘Do-Not-Mail-List’, which would prohibit the U.S. Postal Service from sending junk-mail to people who register themselves as not wanting junk-mail.

The U.S. Postal Service is opposing a “do not mail” list for junk mail because . . . well, I’ll just let them explain it:

Postal Service spokesman Al DeSarro said half of the mail his agency handles is direct marketing mail, and reducing its volume could cost thousands of Postal Service jobs.

This is terrific logic. Americans should be bothered with useless, unsolicited junk mail so that the USPS can continue to pay otherwise unneeded postal workers to deliver it. Makes sense to me.

I thus propose a federal “Agency for Digging Holes in Americans’ Front Yards.” Then, because of the holes-in-people’s-front-yards problem that will inevitably result, I propose a second “Agency for Filling In Yard Holes.”

These two agencies will create thousands of new federal jobs. And as we all know, new jobs are good for the economy.

This prompted an interesting rejoinder from a commenter martin who asked:

If companies want to pay the USPS to deliver their ads what’s wrong with that? Free market in action, no? Presumably those “unneeded” workers are being paid by those same companies’ mail payments.
You don’t like getting it, so instead of taking a sec to toss it, you call for a no-send list, government enforced, of course. What gives?

martin is bringing up a point that must be considered: does this list, which prohibits unsolicited mailings infringe on the rights of people to advertise their wares? Doesn’t that contradict the idea that when unwanted mail placed on your property, it is a form of tresspass?

To answer this question, we first should look at what would happen in a free market for mail delivery. In a free market, a person owning a chunk of land would be under no obligation to receive any mail. Nor would there be any organization that was obligated to deliver the mail to him either. However, most property owners would like to receive and send mail, so naturally there would be mail delivery companies that would offer mail delivery services. In all likelihood, this delivery system would take the form of people subscribing to mail service providers (MSP’s) much like people subscribe to ISP’s for access to the internet.

Of course, if one person subscribed to ‘Planet Express’ for their mail delivery needs, and they wanted to send a letter to a client of a competing MSP named ‘Awesome Express’, in all likelihood, Planet Express would deliver the mail to a transhipment point shared with Awesome Express and Awesome Express would handle the actual delivery. These transhipments would be governed by agreements that covered the terms and conditions under which mail would be accepted for delivery, and payments between the firms.

Just as people can sign up to have the ISP filter out Spam on the server, some MSP’s would offer no-junk mail services. Presumably, the early adopters would create standards that the later adopters would honor, and there would be industry-wide methods for people to signal whether or not they wanted unsolicited mail or not, and which senders were ‘trusted’ senders. Since the customers do not have to accept any mail at all, it is clear that these arrangements would in no way infringe on anyone’s rights.

Furthermore, the no-junk-mail services would probably be nuanced. For example, people could ask for no junk-mail to be delivered with the exception of mailers about local grocery specials.

Currently, we do not live in a free market. The U.S. Postal Service has been granted a monopoly by the U.S. government for mail delivery, a monopoly that has held up through the years despite the efforts of many heroic Americans such as Lysander Spooner and Fred Smith, for over 2 centuries Congress has succesfully prevented competitors from competing head to head with the Postal Service, typically by forbidding competitors from charging competitive rates or advertising their performance.

The U.S. Postal Service is a creation of the government. The laws passed by Congress define it, direct it and shield it. When Congress passes a law mandating that it provide some service, it is as if a board of directors ordered the officers of a company to provide a service. Thus, if there is nothing inherently illiberal about a laws mandating that the USPS honor a do-not-mail list. The laws that grant it a monopoly on the other hand …

tarran
I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.
https://thelibertypapers.org/author/tarran/

America: Land Of The free Licensed

Economics, Government Regulation, Individual Rights, Monopolies

From the Economist, a nice little story about government regulation and all the benefits costs to society.

In the wild, horses eat tough grass that naturally wears down their teeth. In captivity, they are fed softer food they can eat more quickly, so their teeth grow unchecked. Unless filed down—a process known as “floating”—they can grow too long and cut the horse’s cheeks. Floating is hard work. Carl Mitz has been doing it for 22 years. He calms each horse before holding its mouth open and vigorously filing its teeth by hand until they are just so. A third-generation horseman, he says he has handled 100,000 horses. His customers are satisfied, judging by the sheaf of testimonials on his desk. But the Texas State Board of Veterinary Medical Examiners wants to shut him down.

Mr Mitz may be a skilled artisan, but he is not a vet. And the board says that only vets may float horses’ teeth. If Mr Mitz persists in doing his job, he will be practising veterinary medicine without a licence. The penalty could include steep fines and even prison. Mr Mitz is miffed. Even if he could get into vets’ school, which he doubts, he could not possibly afford the fees. And he does not see why he should take years off work and pay tens of thousands of dollars to pursue studies that may not help him in his work. Vets’ schools typically teach little about equine dentistry. “It’s ludicrous,” he says.

Coming up next, the Texas State Board of Veterinary Medical Examiners plans to outlaw tough grass, as it allows unlicensed horses to float their own teeth.

This is something that has come up many times on this blog and elsewhere. A group of professionals, in an effort to secure their own jobs through protectionism, institute licensing schemes for the good of the horses public. And in the process, they hurt consumers and hurt potential fellow producers, enriching themselves using the police power of the state.

There’s nothing remarkable about this story that would cause me to include it here, except the sheer insanity of the case. Much like the woman stopped from engaging in a hair-braiding business because she hadn’t completed a full 1500 hours of cosmetology school, this is a case of someone who excels at a very specialized task being forced into licensure for a much, much wider field. And the task they excel in isn’t rocket surgery, and won’t cause anyone harm (except maybe a sore scalp for one of the braidees, or a little toothache for a horse).

This is simply another absurd example of a basic libertarian principle: regulation in theory may be good, but regulation in practice is usually counterproductive, costly, and hurts consumers (the very people it is intended to help).

Brad Warbiany
https://thelibertypapers.org/

From Taxicab Freedom In Minneapolis To Central Planning In NYC

Dumbasses and Authoritarians, Economics, Government Regulation, Monopolies, Technology

Earlier, Doug posted a story about an expansion of freedom in the taxicab market in Minneapolis. It seems that someone finally asked why it was necessary to set an arbitrary limit on the number of cabs operating in the city, and that someone was able to muster enough power to end the restriction.

Perhaps NYC might take it as a suggestion. NYC, of course, is one of the most restrictive taxi markets in the country. Virtually every portion of the taxicab business is regulated. The number of taxi “medallions” is limited to roughly 13,000, generating a competitive market where the cost of said medallion on the secondary market is into six figures. Of course, artificial scarcity is known to rise prices, so fares are also tightly regulated, to ensure that drivers cannot take advantage of the limit by raising rates. And on top of that, there are a host of other regulations on their operation, to the extent that taxi drivers in New York have very little control over how they execute their job. As with most regulations, it doesn’t really benefit the consumer, and often does not benefit the drivers, but is a big boon to the regulators and to the taxi companies who own the medallions.

So is NYC looking at reducing the restrictions, like Minneapolis? No! In fact, they recently decided to add another little wrinkle. Each cab will need to be outfitted with an information terminal with such features as GPS, credit-card services, and perhaps other services such as news, video, advertisement, and information on local attractions.

I can tell you, as someone who is familiar with these terminals, they’re not cheap. Even outside of the normal cost of installing the terminals, there are maintenance and replacement costs. The terminals have an LCD with touchscreen, and I’m sure the number of drunk and/or unruly passengers who put a fist or foot through the screen will make the total cost of ownership quite high on the cab owners. On top of those concerns, each transaction using a credit card will include a service charge to the company handling the transaction. Who will pick up all these costs? Well, the cabs cannot raise their rates, so the passengers won’t cover it. And the city certainly isn’t footing the bill. So who gets it? The cabbies themselves, of course! And let me tell you, they’re understandably not happy about it:

Taxi drivers angry about a new rule requiring the installation of global positioning systems and credit card machines in cabs are planning a second one-day strike in six weeks on Monday.

The city was preparing for the strike by the Taxi Workers Alliance by instituting a contingency plan that lets drivers pick up multiple passengers and charge zone-based fares.

The touch-screen monitors, which are being phased in as yellow cabs come up for inspection, let passengers pay by credit card, check on news stories, map their taxi’s current location and look up restaurant and entertainment information.

The alliance, which claims to represent about a fifth of the city’s 44,000 licensed cab drivers, opposes the technology, saying the 5 percent surcharge on each credit card transaction amounts to a wage cut and the GPS device allows cab companies to track drivers.

Furthermore, the alliance claims the technology doesn’t work properly.

As a consumer and a technology buff, I love the idea of information terminals in these cabs. But as an advocate of freedom, I am most certainly not in favor of forcing cabs to take the technology, and not in favor of them being unable to adjust their pricing to cover the additional level of service they’re offering.

But in NYC, what I want as a consumer doesn’t matter. What level of service cabbies want to offer doesn’t matter. The market has been replaced by the wishes, desires, and mandates of the New York Taxi & Limousine Commission. Freedom has no place in this brave new world.

Brad Warbiany
https://thelibertypapers.org/
1 … 4 5 6 7 8 … 11