The Corporation is in Serious Trouble

[The Terrible Sweal]

I was wondering whether you would include self-regulating guilds or combines, for example, in your definition of government.

It depends upon whether they have arbitrary power or whether they derive power from individuals who can choose to empower them or to not.

So if they have a democratic character they are government, and therefore automatically distortive?

The only two examples you have given were insurance and traffic regulation. Both of these were attacked and you did not defend them.

Humbug. Re read my post of Aug 20 2004, 12:06 PM on this thread.

Prudential regulation of insurance underpins the entire retail insurance market. Regulation of these matters has created the appearance of stability required for unsophisticated customers to believe the purchase has value.

Your example of a hypothetical price regulation scheme is a different type of regulation, one I would not typically argue for.

You also mentioned traffic regulations. I refer you to Germany's autobahns.

Yes, and?

 

I'm talking about regulation which IMPROVES efficiency for a net gain in welfare.

Such as what?

Such as traffic regulations, prudential insurance regulation, some securities market regulation, and the rule of law generally.

 

contract law doesn't typically impose 'penalties' at all.

Oh? Then how is it enforced?

If I win a contract dispute with you, you have to pay me my value under the contract, i.e. what, but for your breach, the contract would have paid me. This is not a 'penalty', obviously.

If you are regulating the economy or a part thereof you are attempting to manage it towards a pre-determined goal, in your case, efficiency.

I am not regulating an economy, I am regulating a free market. From the perspective of a free market, it's only and sole purpose include efficiency as an essential objective. You're so steeped in the ideology of Kapitalistysism you don't see the logic of the free market when it stares you in the face.

I think we're back at the beginning, with me saying that microeconomic theory explains the existence of regulation

But it does not, and I already went over this. Because an institution exists does not prove that the theory behind it is correct. Remember my example of absolute monarchy?

You misunderstand the practice of economics, I think. The theory I refer to isn't 'behind' anything. It's an explicative theory. We start from the position: Look here, certain types of regulation exist. Fascinating. I wonder how it is they came to be? What Darwinian niche they've selected thru to be here, now? Since we are economists, let us consider if there is an economic answer for these questions, shall we?

Then, you apply the availiable tools and decide, whether and what is the possible economic explanation for the existence of the thing, in theory.

So, we NOTE in the environment that there is regulation. Thus we ASK how/why? And we FIND that economics says because it can improve market efficiency.

 

I am saying that regulation can and does contribute to the efficiency of the market

And yet, you have repeatedly failed to prove it.

I have failed to convince you, at least.

Have you bothered to look into those encyclopedia articles I refered you to?

[Hugo]

So if they have a democratic character they are government, and therefore automatically distortive?

No, democracy is not government. Government is the exercise of legitimised and institutionalised arbitrary power, which can be done with the trappings of democracy, but which also cannot.

Prudential regulation of insurance underpins the entire retail insurance market. Regulation of these matters has created the appearance of stability required for unsophisticated customers to believe the purchase has value.

This is not true. "Regulation" of the insurance market has created a nightmare. For instance, government has granted car insurance companies a cartel monopoly by stipulating that all drivers must be insured. Because of this government interference, car insurance companies have consumers over a barrel and we have seen the runaway premiums that are a consequence.

Such as traffic regulations, prudential insurance regulation, some securities market regulation, and the rule of law generally.

Explain how government regulation in these fields promotes efficiency. These examples are not a priori knowledge, I dispute the fact that the propriety of government regulation in these fields is self-evident.

If I win a contract dispute with you, you have to pay me my value under the contract, i.e. what, but for your breach, the contract would have paid me. This is not a 'penalty', obviously.

You assume that legal costs and other ancillary expenses of the dispute do not exist. I also don't see any reason why government arbitration and regulation is better than private arbitration, for example the VISA system. Jerome Auerbach has found that 75% of businesspeople privately arbitrate their commercial disputes. When government is involved in legal cases it is usually not as impartial arbitrator but as plaintiff, prosecutor or defendant.

You're so steeped in the ideology of Kapitalistysism you don't see the logic of the free market when it stares you in the face.

And you are so steeped in the ideology of statism that you cannot see the damage that the state is wreaking. We can play these games all day, but there's no substance behind your words.

Then, you apply the availiable tools and decide, whether and what is the possible economic explanation for the existence of the thing, in theory.

I have found no economic explanation for the existence of government regulation. It defies all economic fact. The reason for government power is not economic but political, firstly, the tendency of a monolithic institution with arbitrary power to accumulate more power and more influence for itself, and secondly, emotive arguments, for instance, that we should care for the poor, for the environment and so forth and by emotionally loading his arguments, the statist tries to trick us into believing that the best way to protect the poor and the environment is by investing greater power in government to do so, despite the fact that all the empirical evidence points to the contrary. In these cases, it is a fact that price, wage and rent controls create poverty rather than alleviate it and, as August has said, attempts to take communal responsibility for the environment have failed, with degrees varying according to the collectivism - a moderate failure in North America, a devastating failure in the USSR and the PRC.

[maplesyrup]

Actually the real failures, and major embarassments to Canada are our CEOs: :angry:

Higher, faster, stronger: Our CEOs don't measure up

[The Terrible Sweal]

So if they have a democratic character they are government, and therefore automatically distortive?

No, democracy is not government. Government is the exercise of legitimised and institutionalised arbitrary power, which can be done with the trappings of democracy, but which also cannot.

Then I need you to explain why you said: "It depends upon whether they have arbitrary power or whether they derive power from individuals who can choose to empower them or to not."

Prudential regulation of insurance underpins the entire retail insurance market. Regulation of these matters has created the appearance of stability required for unsophisticated customers to believe the purchase has value.

This is not true. "Regulation" of the insurance market has created a nightmare. For instance, government has granted car insurance companies a cartel monopoly by stipulating that all drivers must be insured.

You don't pay very good attention, do you? I said PRUDENTIAL regulation. Now you have given yet another example of something DIFFERENT.

Such as traffic regulations, prudential insurance regulation, some securities market regulation, and the rule of law generally.

Explain how government regulation in these fields promotes efficiency.

I already have -- reread. Or consult the sources I have cited.

If I win a contract dispute with you, you have to pay me my value under the contract, i.e. what, but for your breach, the contract would have paid me. This is not a 'penalty', obviously.

You assume that legal costs and other ancillary expenses of the dispute do not exist.

No, I left them out specifically because they don't change the character of the contract law into a penalty based scheme as you characterized it. The are not relevant to this question.

I also don't see any reason why government arbitration and regulation is better than private arbitration...

I had hoped you would have paid better attention to my comments. I pointed out already that so -called 'private' arbitrations all stand on the fundaments of state-established law, and state-enforcement if necessary.

And you are so steeped in the ideology of statism that you cannot see the damage that the state is wreaking.

What utter drivel. You're such a fanatic you see enemies everywhere!

I'm no statist. I haven't defended the harms you identified in your examples, have I?

I have found no economic explanation for the existence of government regulation.

HAHAHAHAHA! You're hilarious!

It defies all economic fact.

HAHAHAHAHAHA!!!!

The reason for government power is not economic but political, firstly, the tendency of a monolithic institution with arbitrary power to accumulate more power and more influence for itself, and secondly... [blah blah blah]

The more I read your criticism of my position, the less relevant it appears to be to what I'm actually saying. You seem to want to engage in an exchange of ideological diatribes, rather than a discussion of the available knowledge and information developed by serious economists.

I think you choose to make (specious) objection to my comments just because you THINK what I'm saying SOUNDS LIKE something you should object to.

I'll ask you again ... did you read those encyclopedia entries I refered you to?

[Hugo]

I'll ask you again ... did you read those encyclopedia entries I refered you to?

I just went back over this entire thread and didn't see any links to or citations of any encyclopedia articles from you. If you quoted any you didn't attribute them.

Then I need you to explain why you said: "It depends upon whether they have arbitrary power or whether they derive power from individuals who can choose to empower them or to not."

Because government exercises arbitrary power, whereas individuals (and the associations they produce) do not. There is always an alternative, a process of redress or a way to avoid the power.

You don't pay very good attention, do you? I said PRUDENTIAL regulation. Now you have given yet another example of something DIFFERENT.

Alright, then yet again, I ask you to give me an example. "Insurance" is not sufficient, any more than the word "oppression" is in and of itself a sufficient argument against government. Go ahead and show me an instance where government intervention will produce a Pareto optimality, and make sure you explain it fully while you're at it.

No, I left them out specifically because they don't change the character of the contract law into a penalty based scheme as you characterized it. The are not relevant to this question.

Alright, then let me show you the illogic of your argument. According to you, contract law can stipulate no penalty beyond enforcement of the terms of a contract. But in such a case, every contract would be broken. The worst that can happen is that you'll have to fulfil your contract (which would have happened anyway), and the best-case scenario is that the other party wouldn't pursue you or wouldn't win the dispute and you get something for nothing.

Basically, your idea of contract law is a game of "heads I win, tails you lose." Contract law works because of penalties. Legal expenses are a penalty exacted against one or both parties to a dispute and so, despite your claim to the contrary, are relevant in this debate. Even bad publicity is a penalty, so contract law is necessarily a negative-welfare situation despite your claim to the contrary.

I pointed out already that so -called 'private' arbitrations all stand on the fundaments of state-established law, and state-enforcement if necessary.

Completely untrue. The VISA system (I notice you tried to skirt around that uncomfortable example) offers a non-state system of rules, which will be arbitrated privately, and the results of that arbitration will be enforced privately.

There would also be the example of communities (such as the Amish) who produce their own law and arbitrate and enforce it themselves without state involvement at any level.

It is also fallacious to suppose that law and law enforcement necessitates a state. I would suggest reading up on David Friedman who has been arguing for private law for a long time. You can read some here.

HAHAHAHAHA! You're hilarious!

I don't accept this as an argument. Would you?

[August1991]

The name calling is not helpful, unless you're a Liberal MP.

TS wrote:

I am saying that regulation can and does contribute to the efficiency of the market (i.e. its contribution to positive-welfare).

The following quote is from Ronald Coase in an Interview with Reason magazine.

When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies--perhaps all the studies--suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been.

Coase is not an ideologue, as he makes plain in the interview.

[maplesyrup]

Former bank manager pleads guilty to $16-million fraud

Another shinning example of Canada's corporate elite at work.

[maplesyrup]

Conrad Black looted Hollinger

Secret greed of Conrad Black

Another business role model for our citizens! :angry:

[maplesyrup]

Slothful directors the real scandal

Thanks to the extraordinary labours of the special committee of independent directors probing the affairs of Conrad Black's Hollinger International Inc., we now know how much it costs to obtain an honourary degree at Haifa University.

The figure is $110,000 (U.S.). In the name of long-time Black associate David Radler, Hollinger International (HI) made a donation in that amount to the school, and henceforth we shall know the dealmaker by his academic as well as business credentials.

Oh, and the Black Family Foundation Wing at Toronto's Hospital for Sick Children? For that you can thank minority investors in HI, who unknowingly ponied up the $445,000 naming rights. Ditto the new Radler Business Wing at Queen's University, renamed for a mere $168,000 after a man whose business methods are held to be deeply suspect by the HI special committee of probers.

These are among the salacious but rather penny ante revelations in the long-awaited, 513-page purported blockbuster by HI's special committee that, after 15 months has released its latest and most detailed indictment of the firm's controlling shareholder and his closest associates. Everything about this bill of particulars — its sheer heft, indignant prose style and the highlighting of trivial indulgences (HI's being nicked $42,870 for a birthday fête for Barbara Amiel) — is calculated to answer Black's blustery assertion earlier this year that the special committee lacked the evidence to sustain its $1.25-billion lawsuit against him.

Of that legal assault by his own company, from which he was dethroned as CEO last November and which in a louche touch was filed under U.S. racketeering statutes, Black said last July that the spectacular charges against him were "devoid of specific and particularized factual claims ..."

Business people probably don't get it, but the rest of the world does. Never again when a business person gets any kind of an award will we be able to accept that he or she is receiving it for honourable rersons.

A business hero indeed! :angry:

[maplesyrup]

Oh, did I forget to mention that Conrad Black is a good ole Conservative.

[The Terrible Sweal]

I just went back over this entire thread and didn't see any links to or citations of any encyclopedia articles from you. If you quoted any you didn't attribute them.

I refer you to my post of Aug 18 2004, 01:58 PM which began:

Hugo and August...

Consider: Akerloff, "The Market for Lemons", 1970.

Also, I would direct you to the New Palgrave Dictionary of Economics in general and entries relating to completion of contracts and securities regulation in particular. ...

To which you replied in a post of Aug 18 2004, 02:24 PM.

I presumed at first that your quick reply meant you were familiar with these sources and concepts already. Sadly, I now conclude that you are not, and that you have been wasting my time.

... government exercises arbitrary power, whereas individuals (and the associations they produce) do not.

I'm sorry, aren't governments "associations produced by individuals"???

You don't pay very good attention, do you? I said PRUDENTIAL regulation. Now you have given yet another example of something DIFFERENT.

Alright, then yet again, I ask you to give me an example. "Insurance" is not sufficient, ...

Still not listening. Prudential regulation of insurance (in Canada). There is the example. Surely you know all about that, right?

According to you, contract law can stipulate no penalty beyond enforcement of the terms of a contract.

Why don't you deal with what I actually say, rather than what you say I say. You're f...ing hard to take sometimes, buddy.

But in such a case, every contract would be broken.

Let me get this straight. You are saying that in the absense of contract law imposing a penalty, all contracts would be broken??? So you admit that regulation is imperative now? Are you arguing with me or agreeing with me?

Anyway, you are mistaken. Contracts are entered for the most part voluntarily and therefor would for the most part be concluded voluntarily. The exception is cases where there is an advantage to be gained from the breach. Contract law removes the incentive to breach by removing the profit. It is true there are transaction costs involved in obtaining rectification. If anything, contract law in Canada errs by failing to impose the full weight of these costs on the lossing party.

The worst that can happen is that you'll have to fulfil your contract (which would have happened anyway), and the best-case scenario is that the other party wouldn't pursue you or wouldn't win the dispute and you get something for nothing.

That describes the current state of affairs fairly accurately.

Legal expenses are a penalty exacted against one or both parties to a dispute and so,...

Legal expenses are not a penalty. They are a transaction cost.

Even bad publicity is a penalty, ...

I see the problem. You are mistakenly equating "penalties" with "consequence". They are not the same.

...so contract law is necessarily a negative-welfare situation despite your claim to the contrary.

Breach of contract is a negative welfare situation. Contract law is nevertheless not a negative-welfare regime.

The VISA system (I notice you tried to skirt around that uncomfortable example) offers a non-state system of rules, which will be arbitrated privately, and the results of that arbitration will be enforced privately.

I am unfamiliar with the VISA system. Please explain how it is "enforced privately".

There would also be the example of communities (such as the Amish) who produce their own law and arbitrate and enforce it themselves without state involvement at any level.

That statement makes no sense. It is self-contradictory: "communities who produce their own law ... without state involvement".

It is also fallacious to suppose that law and law enforcement necessitates a state. I would suggest reading up on David Friedman who has been arguing for private law for a long time.

He is simply wrong.

[The Terrible Sweal]

The name calling is not helpful, unless you're a Liberal MP.

TS wrote:

I am saying that regulation can and does contribute to the efficiency of the market (i.e. its contribution to positive-welfare).

The following quote is from Ronald Coase in an Interview with Reason magazine.

When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies--perhaps all the studies--suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been.

Coase is not an ideologue, as he makes plain in the interview.

Did each and every article published find regulation to be worse than none for the market?

What types of regulation were considered?

Coase, whose 1959 article on the Federal Communications Commission had led him to realize how property rights could be used to manage the airwaves, saw something different: The problem actually lay in an improper definition of legal rights. He noted that once property was well-defined and easily tradable, the efficient solution would follow. Ironically, the optimal social outcome would obtain no matter who owned the property. For instance, even if the railroad possessed the right to pollute, the farmer could pay it not to. Indeed, the farmer (really the farmer's customers) would pay whenever the benefit from mitigating pollution exceeded the cost created by pollution. Hence, whenever someone clearly possessed the right to pollute: Voilà! Social efficiency! This became famously known as the Coase Theorem.

There is a substantial deficiency in this analysis as presented (Coase corrects in further down). The distribution of tranaction costs (e.g. enforcement) may be more efficient from one respect or another.

[The Terrible Sweal]

Coase: I really don't know. I don't reject any policy without considering what its results are. If someone says there's going to be regulation, I don't say that regulation will be bad. Let's see. What we discover is that most regulation does produce, or has produced in recent times, a worse result. But I wouldn't like to say that all regulation would have this effect because one can think of circumstances in which it doesn't.

All right then.

[Hugo]

I'm sorry, aren't governments "associations produced by individuals"???

A government is an association of individuals which has granted itself arbitrary and ostensibly legitimate power over other individuals, power which will be enforced by violence. No other type of association does that, so governments are unique in human organisations. Organised crime gangs would be a close parallel, but they do not have legal recognition, and they compete with each other within a geographical area, so it remains close and not exact.

Still not listening. Prudential regulation of insurance (in Canada). There is the example.

I already told you that wouldn't be sufficient. Justify your point or give it up.

You are saying that in the absense of contract law imposing a penalty, all contracts would be broken??? So you admit that regulation is imperative now?

No. The government does not have to be involved. The market does a fine job of enforcing contract law by way of the self-creating penalties I already listed. What I am stating is that breach of contract creates its own penalties.

Legal expenses are not a penalty. They are a transaction cost.

That cannot be, because they are only incurred if the transaction is not carried out.

I see the problem. You are mistakenly equating "penalties" with "consequence". They are not the same.

The "consequences" of breach of contract are "penalties" because they do not depend upon the immutable laws of the universe, but upon the arbitrary laws of mankind.

For instance, I jump in the air, I fall down again. That's a consequence, it cannot be changed.

But if I break a contract with you, there's only a penalty for me if we assume certain rules (e.g. that you will have a process of redress, that fraud and violence are wrong, etc). We can change those rules. For instance, we can say that you will have no process of redress because I have a gun and will shoot you if you try, and we can say that I am Pharaoh and am thus entitled to use violence against you. The rules are changed, there is no penalty, so it was not a consequence when there was a penalty.

I am unfamiliar with the VISA system. Please explain how it is "enforced privately".

A lot of banks have now gone over to private arbitration for Visa and Mastercard accounts. On the back of statements, account holders now might find an advisory of the fact that they may not file a class-action suit or bring any dispute to public court, if their bank has done so (Citigroup has, for instance).

In this private arbitration a private judge, paid by both parties, mediates the dispute. This has been done since the US Supreme Court ruled in 1995 that private arbitration could settle commercial disputes and is becoming increasingly popular. You'll find a lot of credit brokers and so forth who will ask you to agree in advance to private arbitration as part of your contract with them.

The enforcement of this arbitration is also private. If the account holder is found wrong and does not fulfill the terms of the arbitration, he will find his credit rating plummeting, for instance. If the bank is found wrong and does not redress the account holder, the penalty will be bad publicity and the resulting loss of business that accompanies it, again, for example.

That statement makes no sense. It is self-contradictory: "communities who produce their own law ... without state involvement".

Are you seriously telling me you can't tell the difference between the concepts of "community" and "state"?

Here's a key difference. A state arbitrarily dispenses law in a given area, brooks no competition and uses violence or the threat of violence to enforce the law. A community does not.

He is simply wrong.

What if I say "he is simply right"? You are not debating, you are bickering. Prove him wrong. This is a recurring problem for you, you're big on rhetoric but very scarce with examples, facts and logic. Your one-line replies and petty insults aren't doing you any favours, either.

[The Terrible Sweal]

A government is an association of individuals which has granted itself arbitrary and ostensibly legitimate power over other individuals, power which will be enforced by violence.

Not in our 'free' societies. Government is an instrument through which the association of individuals carries out agreed functions. Government's authority is granted by the will of the people, not by itself.

Justify your point [that prudential regulation in retail insurance has been beneficial to the market] or give it up.

What sort of justification do you want? How about growth in assets under management?

You are saying that in the absense of contract law imposing a penalty, all contracts would be broken??? So you admit that regulation is imperative now?

No. The government does not have to be involved. The market does a fine job of enforcing contract law by way of the self-creating penalties I already listed.

I don't recall them. Justify your point or give it up.

What I am stating is that breach of contract creates its own penalties.

Alright then, let's be clear: penalties imposed by law vs. your sort of inherent penalties. So, in addition to inherent penalties, contract law does two things: provides some remediation and attempts to allocate the inherent penalties to the breaching party.

Legal expenses are not a penalty. They are a transaction cost.

That cannot be, because they are only incurred if the transaction is not carried out.

In the market, the perception of risk of breach is factored into the cost of the contract by each party. The risk premium is part of the transaction price.

I see the problem. You are mistakenly equating "penalties" with "consequence". They are not the same.

The "consequences" of breach of contract are "penalties" because they do not depend upon the immutable laws of the universe, but upon the arbitrary laws of mankind.

Are you sure you mean that? Reconsider in light of the distinction between court imposed penalties vs. inherent penalties. Is it not your argument that the market imposes 'penalties' automatically?

But if I break a contract with you, there's only a penalty for me if we assume certain rules (e.g. that you will have a process of redress, that fraud and violence are wrong, etc). We can change those rules. For instance, we can say that you will have no process of redress because I have a gun and will shoot you if you try, and we can say that I am Pharaoh and am thus entitled to use violence against you. The rules are changed, there is no penalty, so it was not a consequence when there was a penalty.

!!! So are you now arguing for or against regulation?

I am unfamiliar with the VISA system. Please explain how it is "enforced privately".

A lot of banks have now gone over to private arbitration for Visa and Mastercard accounts. On the back of statements, account holders now might find an advisory of the fact that they may not file a class-action suit or bring any dispute to public court, if their bank has done so (Citigroup has, for instance).

In this private arbitration a private judge, paid by both parties, mediates the dispute. This has been done since the US Supreme Court ruled in 1995 that private arbitration could settle commercial disputes and is becoming increasingly popular. You'll find a lot of credit brokers and so forth who will ask you to agree in advance to private arbitration as part of your contract with them.

The enforcement of this arbitration is also private. If the account holder is found wrong and does not fulfill the terms of the arbitration, he will find his credit rating plummeting, for instance. If the bank is found wrong and does not redress the account holder, the penalty will be bad publicity and the resulting loss of business that accompanies it, again, for example.

The bold parts are inherent elements of state action which utterly belie your notion of 'private' here.

The underlined portions indicate the fundamental reality about such 'private' regimes. The are 'private' subject to the law, (eg specifying consent).

In the italicised portion, I don't see how the bank is being penalized.

That statement makes no sense. It is self-contradictory: "communities who produce their own law ... without state involvement".

Are you seriously telling me you can't tell the difference between the concepts of "community" and "state"?

Duh. No. I'm telling you there is no relevant difference between 'communities who produce their own law' and 'states'.

He is simply wrong.

What if I say "he is simply right"? You are not debating, you are bickering. Prove him wrong.

You prove him right; you cited him.

This is a recurring problem for you, you're big on rhetoric but very scarce with examples, facts and logic. Your one-line replies and petty insults aren't doing you any favours, either.

HAHAHAHAHAHAHA!!!!

[Hugo]

Not in our 'free' societies. Government is an instrument through which the association of individuals carries out agreed functions. Government's authority is granted by the will of the people, not by itself.

This is not true. For instance, Dalton McGuinty raised taxes in Ontario, after he promised not to. Nobody agreed to this tax raise, it was never part of his electoral platform.

Nevertheless, because McGuinty says it is so, if you dare disagree with this contract that McGuinty has forced you into, he will confiscate your property and throw you in jail.

This is not the "will of the people." What it amounts to is extortion. Government's authority stems not from the will of the people - which rapidly changes, as McGuinty's approval ratings have shown - but from men with guns, judges, hangmen and other state servants who have the authority to use violence and violate liberty in the name of the government.

What sort of justification do you want? How about growth in assets under management?

Tell me:

1) What regulation you are talking about

2) What assets

3) What growth

4) What your control group is

for a start.

I don't recall them. Justify your point or give it up.

Visa. Do you recall that? You went through and highlighted bits of it, so I assume you read it.

Furthermore, I'd also ask you to consider that contracts predate contract law by a long time. If the market could not regulate itself in the event of breach of contract, we would have no contract law.

The underlined portions indicate the fundamental reality about such 'private' regimes. The are 'private' subject to the law, (eg specifying consent).

Basically, all that has happened is the state has given its blessing to these arbitrations. If there were no state, there would be no question of approval, and they would happen anyway.

In the italicised portion, I don't see how the bank is being penalized.

Massive loss of business would be a negative outcome, I'm sure you would agree. There is no specific penalty, however, the threat of losing customers and being put out of business by a competitor who has more respect for his customers is a good incentive for a bank to adhere to arbitration. Furthermore, should the bank break the deal it can then be sued by the other party (as it agreed to binding arbitration and then violated it), and if it doesn't meet the terms of that lawsuit it can be sued again. The snowballing outstanding debt will massively damage the bank's credit rating and stock value (yes, businesses have credit ratings too), and the accumulating lawsuits will put off customers of all kinds.

So are you now arguing for or against regulation?

Alright. Let's back up a minute and clarify. You originally said, on page 5 of this thread, that regulation of the economy was a sound idea. I believed you meant government regulation, because that's what people usually mean when they talk about economic regulation, and you seemed to confirm this when you provided your first example, which said:

...government regulation of insurance has contributed substantially to the extent of coverage purchases we see in our society at the level of the retail consumer.

Then you went on to say:

...it is equally true to say that governments and regulations exist for a reason...

And then:

...the theory is correct: government/state intervention may sometimes be useful...QUOTE]

So I am inferring that you believe that the state should be regulating the economy, that an entity outside the economy should be controlling or "guiding" it (if that term is preferable). Please correct me if I am wrong.

My stance is that the state and government is an evil concept that is incompatible with liberty and freedom. Perhaps the state should remove itself from the economy, and that would be a start, but since every aspect of human existence is tied up with economics this would mean, ultimately, that the state should remove itself from existence.

I'm telling you there is no relevant difference between 'communities who produce their own law' and 'states'.

The differences I am getting at are that the state initiates violence to enforce its laws, has a ruling class separate from the general populace, and has a monopoly on "legitimate" force to do its bidding. Communities such as I am describing do not use violence except (possibly) in response to violence, do not have a ruling class but instead are composed of the populace themselves, and do not have a monopoly on the use of force since they have no independent enforcers of their own and rely, should force be necessary, on the populace.

When such a community breaks those rules, then you would be right, and such a community would have become a state, for example, with the creation of a ruling class, the creation of a standing army or police force that monopolises the use of force, and so forth.

You prove him right; you cited him.

That's what I'm in the process of doing, I hope.

[August1991]

This an interesting thread but would you two please back off a little. And stop the skirmishes on such minor details as whether legal fees are a penalty (like damages) or a transaction cost - who cares what we call them...

It seems to me the issue is the following (which TS raised at the beginning):

1) Can the State improve welfare by regulating private market transactions?

I would add the directly related:

2) Can the State have a welfare improving role to play in establishing or enforcing contract law?

3) Is the State necessary in establishing and enforcing property law?

Lastly, what is the State? I kind of like Hugo's definition. Imagine the State to be the mafia. The State can establish rules but, at the limit, it need not respect any rules. More likely, it will hem itself in by respecting some rules. Most democratic methods for choosing a government result in a State of this sort.

The key distinction between a State and a community is that the State is a monopoly with obligatory membership; membership in a community is voluntary.

[Cartman]

I kind of like Hugo's definition. Imagine the State to be the mafia. The State can establish rules but, at the limit, it need not respect any rules.

I have read this analogy before but not quite in this context (C. Tilly?). The difference between the mafia and the state is that citizens have no effect upon the mafia as they cannot vote people in or out (even bureaucrats to a lesser extent indirectly). Perhaps the state does not act at the behest of citizens, but it does often act on behalf of the electorate and it is subject to some restraints.

If some on the left are considered conspiracy theorists when they claim that corporations often act against the common good because of short-term greed, then I believe it is fair to say that some on the right can also be labeled as such for considering the state to be a big conspiracy acting against the common good.

[Hugo]

The difference between the mafia and the state is that citizens have no effect upon the mafia as they cannot vote people in or out

The difference is that no citizens have an effect upon the mafia, whereas only a few citizens have an effect upon the state (for instance, the current federal government is ruling against the wishes of 63% of the electorate).

Even if the Liberal party had a 99% majority, that does not vindicate them at all. No popular mandate is sufficient to allow violations of human rights. Hitler's popular mandate did not excuse his atrocious regime.

I believe it is fair to say that some on the right can also be labeled as such for considering the state to be a big conspiracy acting against the common good.

All individuals and institutions will generally act in their own self-interest. This is normally not a problem, except when an institution becomes a monopoly. The state monopolises law, the judicial system and the initiation of aggression. To this end, the state almost invariably violates human rights to further its own ends.

For example, the Liberal government continues to violate property rights in the form of taxation (for taxation is nothing more than forcible expropriation of private property under threat of violence) in order to further its own continued power.

[The Terrible Sweal]

Hugo:

Furthermore, I'd also ask you to consider that contracts predate contract law by a long time. If the market could not regulate itself in the event of breach of contract, we would have no contract law.

Contracts cannot predate contract law, by definition. I have no idea what you can possibly even mean by a contract which predates law.

Anyway, I don't need to worry about the strawman of self-regulation. YES, markets have self-regulatory capabilites. ALSO, there are situations where regulation can overcome market failures due to information asymmetry.

Basically, all that has happened is the state has given its blessing to these arbitrations.

Nonsense. Read the underlined sections again.

In the italicised portion, I don't see how the bank is being penalized.

Massive loss of business would be a negative outcome, I'm sure you would agree.

In theory. What I don't see is how it is made to come to pass in this Visa system.

Furthermore, should the bank break the deal it can then be sued by the other party (as it agreed to binding arbitration and then violated it), and if it doesn't meet the terms of that lawsuit it can be sued again.

Really? "Sued" where?

Alright. Let's back up a minute and clarify. You originally said, on page 5 of this thread, that regulation of the economy was a sound idea.

I doubt that's what I said. Perhaps I said something more like 'there are situations where regulation can overcome market failures due to information asymmetry'. You would have less trouble understanding me if you read what I write instead of imagining it.

So I am inferring that you believe that the state should be regulating the economy, that an entity outside the economy should be controlling or "guiding" it (if that term is preferable). Please correct me if I am wrong.

Very well, let me correct you. I said that regulation can (i.e. in appropriate cases) improve market efficiency. By regulation, I mean imposed on market participants by an entity otherwise exogenous to the market (most commonly a government of government ageny). Note, I am dealing specifically with micro-economic markets, not the (macro) economy.

Communities such as I am describing do not use violence except (possibly) in response to violence, do not have a ruling class but instead are composed of the populace themselves, ...

Communities you are describing are also fictional. Atlas Shrugged is just a story.

Anyway, it's clear you are not going to look into that encyclopedia I refered you to, so your commitment to this particular conversation lacks sufficient value, from my perspective.

A la prochaine.

[The Terrible Sweal]

This an interesting thread but would you two please back off a little. And stop the skirmishes on such minor details as whether legal fees are a penalty (like damages) or a transaction cost - who cares what we call them...

It seems to me the issue is the following (which TS raised at the beginning):

1) Can the State improve welfare by regulating private market transactions?

I would add the directly related:

2) Can the State have a welfare improving role to play in establishing or enforcing contract law?

3) Is the State necessary in establishing and enforcing property law?

Though I am unwilling to concede the irrelevance of the distinction between penalty and transaction cost, your summary of points is fairly well put.

1) I would have to change 'private market transactions' to say instead, 'participants' market conduct'.

2&3) If it is not established and enforced it is not law. Exchange can exist without contracts. But contracts cannot exist without law, and law comes from states or state-like entities, ie. recognized as authoitative by market participants and capable of enforcing dictates on breachors.

[August1991]

1) I would have to change 'private market transactions' to say instead, 'participants' market conduct'.

Same diff. But if you prefer, OK.

2&3) If it is not established and enforced it is not law. Exchange can exist without contracts. But contracts cannot exist without law, and law comes from states or state-like entities, ie. recognized as authoitative by market participants and capable of enforcing dictates on breachors.

An exchange is a contract. Lawyers use the word "contract" whereas everyone else says "exchange". (To be technical, to have a contract, both parties must gain.)

"... and law comes from states or state-like entities..." Definitely not true. Contract law is merely a set of rules that assist people to trade. (Identically, grammar rules help people to communicate.) The State or a State-like entity is not necessary for grammar rules, nor for contract law.

If you publish a document, or even open your mouth to speak, it is in your interest to speak grammatically. It helps if we have an agreed way to know what is grammatical. Hence, grammar books.

It you engage in trade, it is in your interest to follow the terms of the trade. It helps if there is an agreed way to know what those terms are. Hence, contract law.

TS, you seem to be under the illusion that trade is like the Olympics where competitors are locked into an involuntary, non-repetitive battle. On the contrary, trade (like conversation) is based on voluntary relations in a repetitive game.

In more direct terms, if an arbitrator finds against me and I don't pay damages, I lose my reputation and no one will trade with me again.

A practical example is the international forward foreign exchange market. It is entirely self-enforcing.

----

We really should move this thread over to the Moral & Political & Philosophy column. The topic seems more general than Canadian politics.

[Hugo]

Contracts cannot predate contract law, by definition. I have no idea what you can possibly even mean by a contract which predates law.

It depends upon how you define "law". If you and I come to a private agreement on something, if you call that "law" then you are correct. However, if you define "law" as a set of binding rules coming from a central authority, I am correct.

A contract does not have to stand on external law, it can be legally self-sufficient. This is why contracts have penalty clauses and so forth. They stipulate their own penalties without there being the need for external breach-of-contract laws.

ALSO, there are situations where regulation can overcome market failures due to information asymmetry.

And yet you cannot give me an example. I know that you said "prudential insurance regulation", but that's not enough. I could say, "freedom from arbitrary power" - are you converted to libertarianism now?

Nonsense. Read the underlined sections again.

Alright, I did, and I still draw exactly the same conclusion. I don't see anything in the Visa system that necessitates a state.

In theory. What I don't see is how it is made to come to pass in this Visa system.

Well, for one example, violators can be expelled from the visa system. A bank who loses the privilege of issuing Visa cards or a consumer who has his Visa accounts closed and his cards confiscated are both losing something substantial.

Really? "Sued" where?

In a private court. You really walked into that one.

I doubt that's what I said.

Then you didn't read the quotations of yourself saying it, did you?

Very well, let me correct you. I said that regulation can (i.e. in appropriate cases) improve market efficiency. By regulation, I mean imposed on market participants by an entity otherwise exogenous to the market (most commonly a government of government ageny). Note, I am dealing specifically with micro-economic markets, not the (macro) economy.

Then give me an example. I categorically reject all your insufficient statements like "insurance", I demand a real, concrete example.

Communities you are describing are also fictional.

This is untrue. Consider the example of the Anglo-Saxon bohr, or the period of Massachusetts history when it went entirely without government.

By regulation, I mean imposed on market participants by an entity otherwise exogenous to the market (most commonly a government of government ageny).

What about being imposed by private courts and arbitration? I'm in favour of that. I'm just not in favour of an omnipotent state meddling in everything.

[The Terrible Sweal]

1) I would have to change 'private market transactions' to say instead, 'participants' market conduct'.

Same diff. But if you prefer, OK.

"Market conduct" covers more than just the transactions concluded.

2&3) If it is not established and enforced it is not law. Exchange can exist without contracts. But contracts cannot exist without law, and law comes from states or state-like entities, ie. recognized as authoitative by market participants and capable of enforcing dictates on breachors.

An exchange is a contract.

I disagree.  A bare exchange does not create reciprocal rights between the parties which characterize a contract.  No reciprocation of rights between the parties survives past the moment of a bare exchange.

"... and law comes from states or state-like entities..."

Definitely not true. Contract law is merely a set of rules that assist people to trade.

When you say 'a set of rules', you confirm my point. Rules, if they can be enforced are just another word for 'laws'. If they cannot be enforced, they are another word for 'suggestions'.

(Identically, grammar rules help people to communicate.)  The State or a State-like entity is not necessary for grammar rules, nor for contract law.

There is no enforcement available for common grammar rules, and so, no-one contracts on the basis of them. There is enforcement of legal terms, and so it is on the basis of legal terms that contracts are concluded.

It you engage in trade, it is in your interest to follow the terms of the trade.

Sigh. Except (as I have been saying) where information asymmetry and/or hidden variables prevent other participants from knowing what you know, or enforcing against you if you cheat.

In more direct terms, if an arbitrator finds against me and I don't pay damages, I lose my reputation and no one will trade with me again.

Really? How is your reputation propagated? How does the market get and judge this information? How efficiently?

A practical example is the international forward foreign exchange market.  It is entirely self-enforcing.

You guys kill me with this fantasy of 'self-enforcing'. All these self-enforcing schemes you refer to are all built on the foundation of state laws and interstate treaties. States condition the environment entirely. Was it you who posted about Coase? Better read up.

[August1991]

You guys kill me with this fantasy of 'self-enforcing'. All these self-enforcing schemes you refer to are all built on the foundation of state laws and interstate treaties. States condition the environment entirely.

That's simply not the case. About 200 banks participate in the market and they have their own methods of ensuring compliance without reference to any "State" law. In effect, it is self-enforcing.

TS, you seem to be stubbornly adamant that the world have a punisher who sends people to prison if they commit a crime.

I seem to be stubbornly adamant that the world need only an agreed upon way to exclude someone from the club.

Are we discussing semantics here?

There is no enforcement available for common grammar rules, and so, no-one contracts on the basis of them. There is enforcement of legal terms, and so it is on the basis of legal terms that contracts are concluded.

But there is a very powerful way to enforce grammar rules. And it ain't 'enry 'iggins! To fit in, you gotta speak the lingo.

The same enforcement method ultimately applies to contracts.

Look, I would not go as far as agreeing with Hugo that the State could whither away. But I am willing to entertain the question of what tasks the State need do. Enforcing contracts is simply not one of those tasks. And as a practical matter, it enforces far less than you imply and I suspect badly at that.

If you engage in trade, it is in your interest to follow the terms of the trade.

Sigh. Except (as I have been saying) where information asymmetry and/or hidden variables prevent other participants from knowing what you know, or enforcing against you if you cheat.

Now we're back into the realm of market failure because of "unenforceable" contracts. Or in effect, no mechanism to get you to reveal your true valuation.

Will the State have any better luck at enforcing the contract than private individuals would? I'd be more inclined to look at clearly defining property rights - I suspect the State might succeed there - and then letting the market decide.